The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements.
The accompanying notes are an integral part
of these consolidated financial statements
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 2018 AND 2017
Note 1 -
ORGANIZATION
Yosen Group, Inc. (the “Company”
or “Yosen”) was incorporated on August 20, 1998 under the laws of the State of Nevada.
The Company’s former business was conducted
through Capital Future Developments Limited (“Capital”) and its subsidiaries and affiliated entities. Capital was incorporated
on July 22, 2004 under the laws of the British Virgin Islands. On March 29, 2018, the Company entered into an agreement with its
former director, chief executive officer and chairman of the board until his resignation on February 15, 2018, pursuant to which
the Company agreed to sell to the former chief executive officer all of the stock in Capital in exchange for the transfer by him
to us of 1,738,334 shares of common stock, which represents all of the common stock owned by him. The transfer of the stock in
Capital to the former chief executive officer is in process. See Note.
On February 6, 2018, the Company established
a wholly-owned subsidiary in British Virgin Island, DB-Link Ltd (“DB-Link”). The Company plans to operate franchising
or operations of restaurants through DB-Link.
Note 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim
financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these interim financial
statements do not include all of the information and notes required by GAAP for complete financial statements. All adjustments
(consisting of normal recurring items) necessary to present fairly the Company’s consolidated financial position have been
included. These interim financial statements should be read in conjunction with the consolidated financial statements and accompanying
notes included in our Annual Report on Form 10-K for the year ended December 31, 2017. Operating results for the interim periods
presented herein are not necessarily indicative of the results that may be expected for any other interim period or for the entire
year. Reclassifications have been made to conform historical financial statements with the current period’s presentation.
The parent company does not have operations.
Its main activities were incurring expenses relating to its status as a public company in the United States. The functional currency
of the Company is the United States dollar.
Going Concern
The accompanying consolidated financial statements
were prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the
normal course of business. The Company realized net loss of $219,672 for the three months ended March 31, 2018 of which $152,034
represented a loss from discontinued operations. The Company had accumulated deficit of $52,175,208 as of March 31, 2018. There
can be no assurance that the Company will become profitable or that it will survive as a public company. These issues raise substantial
doubt regarding the Company’s ability to continue as a going concern.
The Company intends to engage in the franchising
and operation of upscale restaurants in China and elsewhere. The Company’s proposed business is requires significant capital
for its proposed business, and the Company cannot give any assurance that it will be able to raise the necessary funding. If the
Company is not able to raise the necessary funding, it may not be able to develop its proposed business.
Principles of Consolidation
The consolidated financial statements include
the accounts of Yosen and its subsidiaries. The consolidated results of operations and consolidated financial condition of Capital
and Capital’s subsidiaries are reflected as net loss from discontinued operations and net liabilities of discontinued operations.
All material intercompany accounts, transactions and profits were eliminated in consolidation.
Noncontrolling Interest
As of March 31, 2018, Capital had
invested RMB 6,193,541($898,852) in Zhejiang Lamapai and owns 64.9% interest in Zhejiang Lamapai. The 35.1% owned by the third
parties is presented as non-controlling interest. Zhejiang Lampai is part of the discontinued operations.
The Company follows Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810, “
Consolidation
,”
which governs the accounting for and reporting of non-controlling interests in partially owned consolidated subsidiaries and the
loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that non-controlling interests
be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership
interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses,
and that losses of a partially owned consolidated subsidiary be allocated to the non-controlling interest even when such allocation
might result in a deficit balance. This standard also required changes to certain presentation and disclosure requirements.
The net income attributed to the
non-controlling interest is separately designated in the accompanying consolidated statements of income and other comprehensive
income (loss). Losses attributable to the non-controlling interest in a subsidiary may exceed the non-controlling interest’s
interests in the subsidiary’s equity. The excess attributable to the non-controlling interest is attributed to those interests.
The non-controlling interest shall continue to attribute its share of losses even if that attribution results in a deficit non-controlling
interest balance.
Currency Translation
The accounts of Capital’s subsidiaries
were maintained, and its financial statements were expressed RMB. Such financial statements were translated into United States
dollars in accordance with FASB ASC Topic 830-10,
“Foreign Currency Translation,”
with the RMB as
the functional currency. According to FASB ASC Topic 830-10, assets and liabilities were translated at the ending exchange rate,
stockholders’ equity is translated at the historical rates and income statement items are translated at the average
exchange rate for the year. The resulting translation adjustments are reported as other comprehensive income in accordance with
FASB ASC Topic 220,
“Reporting Comprehensive Income,”
as a component of shareholders’ equity.
Transaction gains and losses are reflected in the consolidated statements of operations and comprehensive loss.
The impact of foreign translation from our
accounts in RMB to United States dollars on Yosen’s operating results was not material in the three months ended March 31,
2018 and 2017. During the translation process, the assets and liabilities of all PRC subsidiaries are translated into US dollars
at period-end exchange rates. The revenues and expenses are translated into United States dollars at average exchange rates of
the periods. Resulting translation adjustments are recorded as a component of accumulated other comprehensive income within stockholders’
equity.
|
|
Three Months Ended
March 31,
|
|
|
2018
|
|
2017
|
RMB/$ exchange rate at period end
|
|
|
0.1594
|
|
|
|
0.1451
|
|
Average RMB/$ exchange rate for the periods
|
|
|
0.1572
|
|
|
|
0.1452
|
|
Transaction gains or losses arising from exchange
rate fluctuation on transactions denominated in a currency other than the functional currency were included in the consolidated
results of operations. As a result of the translation, Yosen recorded a foreign currency loss of $156,650 in the first quarter
2018 and $20,889 in the same period of 2017, which is a separate line item on the Statements of Operations and Comprehensive Loss.
Use of Estimates
The preparation of financial statements in
conformity with US GAAP 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 period. Actual results could differ from those estimates.
Risks and Uncertainties
The Company is subject to risks from, among
other things, intense competition associated with the industry in general, other risks associated with financing, liquidity requirements,
rapidly changing customer requirements, limited operating history, foreign currency exchange rates and the volatility of public
markets.
Contingencies
Certain conditions may exist as of the date
the financial statements are issued, which could result in a loss to the Company but which will only be resolved when one or more
future events occur or fail to occur. The Company’s management assesses such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against
the Company or unasserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits
of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be
sought.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability is accrued in the Company’s financial statements. If the assessment indicates that a potential material loss contingency
is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability,
together with an estimate of the range of possible loss if determinable and material would be disclosed.
Loss contingencies considered to be remote
by management are generally not disclosed unless they involve guarantees, in which case the guarantee would be disclosed.
Inventories, net
Inventories are valued at the lower of cost
(determined on a weighted average basis) or market. Management compares the cost of inventories with the market value
and allowance is made for writing down their inventories to market value, if lower. As of March 31, 2018 (unaudited) and December
31, 2017, inventory consisted entirely of finished goods and in included in net liabilities of discontinued operations.
Long-Lived Assets
The Company periodically evaluates the carrying
value of long-lived assets to be held and used in accordance with FASB ASC 360,
“Property, Plant and Equipment,”
which
requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that
event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets.
Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for
the cost of disposal. Based on its review, the Company believes that, as of March 31, 2018 (unaudited) and December 31, 2017, there
were no significant impairments of its long-lived assets. [Aren’t they part of Net liabilities of discontinued operations?]
Fair Value of Financial Instruments
FASB ASC Topic 825,
“Financial
Instruments”
, requires the Company disclose estimated fair values (“fair values”) of financial instruments.
The carrying amounts reported in the statements of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
Revenue Recognition
Revise for Topic 606, to which we are subject
as of January 1, 2018.
The Company recognizes revenue in accordance
with ASC Topic 606, “Revenue from Contracts with Customers”. Revenue is recognized when control of the promised goods
or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled
to in exchange for those goods or services. Under Topic 606, revenue is recognized when there is a contract which has commercial
substance which is approved by both parties and identifies the rights of the parties and the payment terms. The Company adopted
Topic 606 as of January 1, 2018. Because all of the Company’s prior operations are discontinued, the adoption of Topic 606
does not affect its prior operations.
Cost of Sales
Cost of sales consists of actual product cost,
which is the purchase price of the product less any discounts. Cost of sales excludes freight charges, purchase and
delivery costs, internal transfer, freight charges and the other costs of the Company’s distribution network, which are identified
in general and administrative expenses.
General and Administrative Expenses
General and administrative expenses are comprised
principally of payroll and benefits costs for retail and corporate employees, occupancy costs of corporate facilities, lease expenses,
management fees, traveling expenses and other operating and administrative expenses, including freight charges, purchase and delivery
costs, internal transfer freight charges and other distribution costs.
Share Based Payment
The Company follows FASB ASC 718-10,
“Stock
Compensation,”
which addresses the accounting for transactions in which an entity exchanges its equity instruments for
goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions.
ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications
of awards after the grant date must be recognized.
Income Taxes
The Company utilizes FASB ASC Topic 740,
“Income
Taxes.”
Deferred income taxes are recognized for the tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory
tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount expected to be realized.
Basic and Diluted Earnings (Loss) per Share
Earnings (loss) per share are calculated in
accordance with FASB ASC Topic 260,
“Earnings per Share”,
Basic earnings (loss) per share is based upon the
weighted average number of common shares outstanding. Diluted earnings (losses) per share is based on the assumption that all dilutive
convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock at the average market price during the period. If convertible
shares and stock options are anti-dilutive, the impact of conversion is not included in the diluted net income per share. Excluded
from the calculation of diluted earnings per share for 2018 and 2017 were 10,000 options, as they were not dilutive.
Statement of Cash Flows
In accordance with FASB ASC Topic 230,
“Statement
of Cash Flows,”
cash flows from the Company’s operations are calculated based upon the functional currency,
in our case the RMB. As a result, amounts related to changes in assets and liabilities reported on the statement of cash flows
will not necessarily agree with the changes in the corresponding balances on the balance sheet.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk are cash, accounts receivable, advances to suppliers and other receivables arising
from its normal business activities. The Company places its cash in what it believes to be credit-worthy financial institutions.
The Company has a diversified customer base, most of which is in China. The Company controls credit risk related to accounts receivable
through credit approvals, credit limits and monitoring procedures. The Company routinely assesses the financial strength of its
customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts
and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance is limited.
Segment Reporting
FASB ASC Topic 280, “Segment
Reporting,” requires use of the “management approach” model for segment reporting. The management approach model
is based on the way a company’s management organizes segments within the company for making operating decisions and assessing
performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other
manner in which management disaggregates a company. Following the Company’s decision to discontinue its existing business,
the Company has no operating segments.
Recent Accounting Pronouncements
In January 2017, the Financial Accounting
Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-01,
Business Combinations
(Topic 805) Clarifying the Definition of a Business
. The amendments in this update clarify the definition of a business
with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions
or disposals of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals,
goodwill, and consolidation. The guidance is effective for interim and annual periods beginning after December 15, 2017 and
should be applied prospectively on or after the effective date. The Company adopted this ASU and will use the method prospectively.
N
ote 3 -
STOCK WARRANTS, OPTIONS, AND COMPENSATION
Stock options - Options issued have a 10-year
life and were vested upon issuance. The option holder has no voting or dividend rights. The grant price was the market price at
the date of grant. The Company records the expense of the stock options over the related vesting period. The options were valued
using the Black-Scholes option-pricing model at the date of grant stock option pricing.
Outstanding options and warrants by exercise
price consisted of the following as of March 31, 2018:
Outstanding
|
|
Exercisable
|
Exercise Price
|
|
Number of
Shares
|
|
Weighted
Average
Remaining
Life (Years)
|
|
Weighted
Average
Exercise Price
|
|
Number
of Shares
|
|
Weighted
Average
Exercise
Price
|
Warrants:
|
|
|
|
|
|
|
|
|
|
|
$
|
0.75
|
|
|
|
1,218,076
|
(1)
|
|
|
0.50
|
|
|
$
|
0.75
|
|
|
|
1,218,076
|
|
|
$
|
0.75
|
|
$
|
0.75
|
|
|
|
66,975
|
(2)
|
|
|
0.65
|
|
|
$
|
0.75
|
|
|
|
66,975
|
|
|
$
|
0.75
|
|
$
|
0.75
|
|
|
|
190,532
|
(3)
|
|
|
0.85
|
|
|
$
|
0.75
|
|
|
|
190,532
|
|
|
$
|
0.75
|
|
(1) On September 1, 2015, the Company issued stock warrants to purchase
1,218,076 shares of common stock at $0.75. The stock warrants expire on August 31, 2018. Stock warrants were valued using the Black-Scholes
option pricing model. Assumptions used to value the warrants are similar to those used in valuing the stock options as described
below.
Term
|
|
3 years
|
Expected volatility
|
|
|
196
|
%
|
Risk – free interest rate
|
|
|
1.1
|
%
|
Dividend yield
|
|
|
0
|
%
|
Weighted-average grant date fair value
|
|
$
|
0.972
|
|
The Company determined the fair value of the
1,218,076 warrants was $1,183,970. As of March 31, 2018, warrants to purchase 1,218,076 shares of common stock remained outstanding.
These warrants were plain vanilla warrants and were classified as equity.
(2) On November 16, 2015, the Company issued
stock warrants to purchase 66,975 shares of common stock at $0.75 . The stock warrants expire on November 15, 2018. Stock
warrants were valued using the Black-Scholes option pricing model. Assumptions used to value the warrants are similar to those
used in valuing the stock options as described below.
Term
|
|
3 years
|
Expected volatility
|
|
|
203
|
%
|
Risk – free interest rate
|
|
|
1.2
|
%
|
Dividend yield
|
|
|
0
|
%
|
Weighted-average grant date fair value
|
|
$
|
1.215
|
|
The Company determined the fair value of the
66,975 warrants was $81,375. As of March 31, 2018, warrants to purchase 66,975 shares of common stock remained outstanding. These
warrants were plain vanilla warrants and were classified as equity.
(3) On March 18, 2016, the Company issued stock
warrants to purchase 190,532 shares of common stock at $0.75 in conjunction with the common stock offering (See Note 5). The stock
warrants expire on March 17, 2019. Stock warrants were valued using the Black-Scholes option pricing model. Assumptions used to
value the warrants are similar to those used in valuing the stock options as described below.
Term
|
|
3 years
|
Expected volatility
|
|
|
178
|
%
|
Risk – free interest rate
|
|
|
1.0
|
%
|
Dividend yield
|
|
|
0
|
%
|
Weighted-average grant date fair value
|
|
$
|
1.086
|
|
The Company determined the fair value of the
190,532 warrants was $206,917. As of March 31, 2018, warrants to purchase 190,532 shares of common stock remained outstanding.
These warrants are classified as equity.
No
te 4 -
INCOME TAXES
The Company’s policy is to recognize
interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. The Company did not have
any accrued interest or penalties associated with any unrecognized tax benefits, nor were any interest expense or penalties recognized
during the three months ended March 31, 2018 and 2017.
The parent company is subject to the United
States federal income tax at a rate of 21% in 2018 and 34% in 2017. The parent company does not conduct any operations and only
incurs expenses, such as legal fees, accounting fees, investor relations expenses and filing fees, relating to its status as a
reporting company under the United States securities laws. In the three months ended March 31, 2018, the United States operating
subsidiaries incurred a net operating loss of $59,541. As a result, $12,504 of deferred tax assets and valuation allowance was
recorded. In the three months ended March 31, 2017, the US operating subsidiaries incurred a net operating loss of $61,700.
As a result, $20,978 of deferred tax assets and valuation allowance was recorded.
All PRC subsidiaries, were discontinued as
of March 31, 2018. These entities are subject to the PRC income tax at a rate of 25%.
The components of deferred tax assets and liabilities
as of March 31, 2018 and December 31, 2017 were as follows:
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
U.S. net operating losses
|
|
$
|
12,504
|
|
|
$
|
20,978
|
|
Discontinued operation
|
|
|
38,009
|
|
|
|
97,950
|
|
Total deferred tax assets
|
|
|
50,512
|
|
|
|
72,022
|
|
Less valuation allowance
|
|
|
(50,512
|
)
|
|
|
(72,022
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Reconciliation of the differences between the
statutory United States Federal income tax rate and the effective rate for the three months ended March 31, 2018(unaudited) and
2017 (unaudited) is as follows:
|
|
2018
|
|
2017
|
Tax (Credit) at statutory rate
|
|
|
(21.0
|
)%
|
|
|
(34.0
|
)%
|
Tax rate difference
|
|
|
(2.9
|
)%
|
|
|
7.4
|
%
|
Valuation allowance
|
|
|
23.9
|
%
|
|
|
26.6
|
%
|
Effective rate
|
|
|
—
|
%
|
|
|
—
|
%
|
Note 5 -
COMMITMENTS
The Company leases office facilities under
operating leases that terminate through 2020. Rent expense for the three months ended March 31, 2018 and 2017 was $104,600 and
$96,600, respectively.
The future minimum obligations under these
agreements are as follows by years as of March 31, 2018:
2018
|
|
|
$
|
65,858
|
|
Total
|
|
|
$
|
65,858
|
|
Note 6 -
STATUTORY RESERVE
In accordance with the laws and regulations
of the PRC, a wholly-owned Foreign Invested Enterprise’s income, after the payment of the PRC income taxes, shall be allocated
to the statutory surplus reserves and statutory public welfare fund. Prior to January 1, 2006, the proportion of allocation for
reserve was 10% of the profit after tax to the surplus reserve fund and additional 5-10 percent to the public affair fund. The
public welfare fund reserve was limited to 50% of the registered capital. Effective January 1, 2006, there is now only one fund
requirement. The reserve is 10% of income after tax, not to exceed 50% of registered capital.
Statutory reserve funds are restricted to offset
against losses, expansion of production and operation or increase in register capital of the respective company. Statutory public
welfare fund is restricted to the capital expenditures for the collective welfare of employees. These reserves are not transferable
to the Company in the form of cash dividends, loans or advances. These reserves are therefore not available for distribution except
in liquidation. As of March 31, 2018 and 2017, the Company had allocated $11,542,623 and $11,542,623 to these non-distributable
reserve funds.
Note 7 –
DISCONTINUED OPERATIONS
The Company’s former business was the
distribution of imported products, including digital products, baby products, health nutrition and frozen food through its online
store, applications on mobile devices and also in physical stores. The Company has sustained continuing losses in this business
and does not believe it will be able to operate that business profitably. As a result, (i) the Company has agreed to transfer,
and is in the process of transferring, the equity in Capital to its former chief executive officer and (ii) the Company intends
to franche or operate upscale restaurants in China and elsewhere, and it is negotiating with the operator of a well-known Hong
Kong restaurant with respect to a joint venture that will license or operate such restaurants. The Company’s former business
was treated as a discontinued operation.
The operating results of discontinued operation
is disclosed in the consolidated statements of operations and comprehensive loss.
The following table summarizes the assets and
liabilities of the discontinued operations as of March 31, 2018 and December 31, 2017 included in the Consolidated Balance
Sheets:
|
|
2018
|
|
2017
|
Cash
|
|
$
|
14,620
|
|
|
$
|
15,167
|
|
Accounts receivable
|
|
|
46,213
|
|
|
|
94,465
|
|
Inventories
|
|
|
349,720
|
|
|
|
388,609
|
|
Advance to suppliers
|
|
|
130,735
|
|
|
|
149,530
|
|
Prepaid expenses and other receivables
|
|
|
103,210
|
|
|
|
101,778
|
|
Intangible asset
|
|
|
21,103
|
|
|
|
23,694
|
|
Other non-current asset
|
|
|
290,742
|
|
|
|
319,694
|
|
Property, plant and equipment
|
|
|
147,319
|
|
|
|
156,973
|
|
Total assets
|
|
|
1,103,662
|
|
|
|
1,249,910
|
|
|
|
|
|
|
|
|
|
|
Short-term loans
|
|
|
(2,419,620
|
)
|
|
|
(2,795,441
|
)
|
Notes payable
|
|
|
—
|
|
|
|
—
|
|
Accounts payable
|
|
|
(295,493
|
)
|
|
|
(323,975
|
)
|
Advance from customers
|
|
|
—
|
|
|
|
(106,292
|
)
|
Accrued expenses and other payable
|
|
|
(928,609
|
)
|
|
|
(710,997
|
)
|
Income tax payable
|
|
|
(863,513
|
)
|
|
|
(832,306
|
)
|
Advance from related party
|
|
|
(873,540
|
)
|
|
|
(823,739
|
)
|
Total liabilities
|
|
|
(5,048,618
|
)
|
|
|
(5,592,750
|
)
|
Net liabilities
|
|
$
|
(3,944,956
|
)
|
|
$
|
(4,342,840
|
)
|
The following table summarizes the operating
results of the discontinued operations included in the Consolidated Statements of Operations and Comprehensive Loss for the three
months ended March 31, 2018 and 2017:
|
|
2018
|
|
2017
|
Sales, net
|
|
$
|
206,777
|
|
|
$
|
1,333,912
|
|
Cost of sales
|
|
|
(171,585
|
)
|
|
|
(1,241,711
|
)
|
Gross profit
|
|
|
35,192
|
|
|
|
92,201
|
|
General and administrative expenses
|
|
|
(140,029
|
)
|
|
|
(275,239
|
)
|
Loss from discontinued operations
|
|
|
(104,837
|
)
|
|
|
(183,038
|
)
|
Other income (expenses)
|
|
|
(47,197
|
)
|
|
|
(105,051
|
)
|
Loss before income taxes
|
|
|
(152,034
|
)
|
|
|
(288,089
|
)
|
Provision for income taxes
|
|
|
—
|
|
|
|
—
|
|
Net loss from discontinued operations, net of income tax
|
|
$
|
(152,034
|
)
|
|
$
|
(288,089
|
)
|
Property and Equipment, net
Property and equipment are stated at cost.
Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized.
When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from
the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using
the straight-line method for substantially all assets with estimated lives of:
Automotive
|
5 years
|
Office Equipment
|
5 years
|
As of March 31, 2018 and December 31, 2017, property and
equipment, which are included in net liabilities of discontinued operations, consisted of the following:
|
|
March 31,
2018
|
|
December 31,
2017
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Automotive
|
|
$
|
45,633
|
|
|
$
|
44,015
|
|
Office equipment
|
|
|
168,250
|
|
|
|
163,100
|
|
Plant and equipment
|
|
|
230,744
|
|
|
|
217,702
|
|
Construction in progress
|
|
|
—
|
|
|
|
—
|
|
Subtotal
|
|
|
444,627
|
|
|
|
424,817
|
|
Less: accumulated depreciation
|
|
|
(297,308
|
)
|
|
|
(267,844
|
)
|
Total
|
|
$
|
147,319
|
|
|
$
|
156,973
|
|
SHORT-TERM LOANS
As of March 31, 2018 (unaudited) and December 31, 2017, short-term
loans, which are included in Net liabilities of discontinued operations, consisted of the following:
|
|
March 31,
2018
|
|
December 31, 2017
|
Line of credit from China Construction Bank , dated May 27, 2017, due April 26, 2018, with 5.44% interest.
|
|
$
|
29,278
|
|
|
|
28,743
|
|
From Bank of Chouzhou, dated July 6, 2017, due July 4, 2018, with interest 6.096% payable monthly, personally guaranteed by the CEO
|
|
|
597,585
|
|
|
|
576,391
|
|
From Bank of Chouzhou, dated July 6, 2017, due July 4, 2018 with interest of 6.096% payable monthly, personally guaranteed by the CEO
|
|
|
796,781
|
|
|
|
768,521
|
|
From Bank of Chouzhou, dated July 5, 2017, due July 4, 2018, with interest 7.836% payable monthly, personally guaranteed by the CEO
|
|
|
796,781
|
|
|
|
768,521
|
|
From Bank of Chouzhou, dated July 6, 2017, due July 4, 2018 with interest of 7.836% payable monthly, personally guaranteed by the CEO
|
|
|
199,195
|
|
|
|
192,130
|
|
|
|
$
|
2,419,620
|
|
|
$
|
2,795,441
|
|
ADVANCES TO SUPPLIERS
Advances to suppliers represent advance payments
to suppliers for the purchase of inventory for the discontinued entities.
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets as
of March 31, 2018 (unaudited) and December 31, 2017 were $395,077 and $419,112 respectively. Prepaid expense consists primarily
the deferred stock compensation as a result of restricted stocks issued on December 23, 2016. The deferred stock compensation is
expensed over three years.
OTHER NON-CURRENT ASSETS
Other non-current assets were $290,742 and
$319,694 as of March 31, 2018 (unaudited) and December 31, 2017, respectively. Other non-current assets consist primarily capital
improvement to the retail stores.
MAJOR CUSTOMERS, VENDORS AND CREDIT RISK
During the three months ended March 31, 2018,
two customers accounted for more than 10% of the Company’s sales, representing 30.6% and 15.2%. As of March 31, 2018, no
customer comprised more than 10% of the Company’s accounts receivable. One vendor comprised more than 10% of the Company’s
accounts payable, representing 16.1% of the Company’s accounts payable.
During the three months ended March 31, 2017,
two customers accounted for more than 10% of the Company’s sales, representing 30.6% and 15.2%. As of March 31, 2017, no
customer comprised more than 10% of the Company’s accounts receivable. One vendor comprised more than 10% of the Company’s
accounts payable, representing 29.2% of the Company’s accounts payable.
Note 8-
OTHER COMPREHENSIVE INCOME
Other comprehensive income, included in stockholders’
deficit for the three months ended March 31, 2018 and 2017, is foreign currency translation adjustment.
Note 9 -
CURRENT VULNERABILITY DUE
TO CERTAIN RISK FACTORS
The Company’s operations are in the PRC.
Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic
and legal environments in the PRC and by the general state of the PRC’s economy. The Company’s business may be influenced
by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance
abroad, and rates and methods of taxation, among other things.
Note 10 -
SEGMENT INFORMATION
Following the Company’s decision to discontinue
its existing business, the Company only has one operating segment - restaurant franchise business through DB-Link. DB-Link is currently
in the process of setting up wholly owned foreign entity (“WOFE”) in China to commence its restaurant franchise business.
NOTE 11 -
RELATED PARTY TRANSACTION
On March 29, 2018, the Company entered into
an agreement with its former chief executive officer, who was also a director and chairman of the board of the Company until his
resignation on February 1, 2018, pursuant to which the Company agreed to sell to him all of the stock in Capital for the transfer
by him to the Company of 1,738,334 shares of the Company’s common stock, which is all of the Company’s common stock
owned by him. The shares acquired by the Company will be cancelled. The Company’s former business, which was the distribution
of a range of imported products, including digital products, baby products, health nutrition and frozen food, was conducted through
Capital. The Company is treating this business as a discontinued operation and intends to engage in the franchising or operations
of upscale restaurants in China. As a result of the sale of this subsidiary to the former CEO, the Company effectively sold all
of its PRC subsidiaries in exchange for the surrender of 1,738,334 shares of Yosen valued at $ 225,983 at $0.13 per share, which
was the market price of Company’s common stock share on March 29, 2018. The transaction is expected to close in May 2018.
NOTE 12 -
STOCKHOLDERS’ EQUITY
On
March 29, 2018, the Company entered into a debt conversion agreement with Qishizhihe Investment Co. Ltd., a British Virgin Island
company (“Qishizhihe”), pursuant to which Qishizhihe agreed to convert loans in the principal amount of RMB4,500,000
($717,886
)
into 10,255,522 shares of common stock at a conversion price of $0.07 per share. Qishizhihe had made the loans pursuant to loan
and security agreements dated December 22, 2016 and June 1, 2016. The shares were issued and the debt was converted in April
2018.