ICGL Image Chain Group Limited Inc (CE)

NOTES TO FINANCIAL STATEMENTS

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 a full-service reality television pre-production company seeking to sell, option and license content to independent producers, cable television networks, syndication companies, and other entities.

The Company’s wholly-owned subsidiary, Fortune Delight Holdings Group Ltd (“FDHG”), through its wholly-owned operating subsidiaries, was in the business of promoting and distributing its own branded teas that were grown, harvested, cured, and packaged in the People’s Republic of China (“PRC”). Prior to the Share Exchange, the Company’s headquarters was in Guangzhou, Guangdong Province, PRC.

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 shares (the “Amendments”). The name change was undertaken in order to more closely align with the operations of 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 May 1, 2017, upon recommendation of the Board of Directors, a majority of the Company’s common stockholders consented in writing 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 hereof, the reverse stock split has been effected, and the increase in authorized shares and elimination of preferred shares are still in process.

Share Exchange

On May 5, 2015, ICGL entered into a share exchange agreement (the “Exchange Agreement”) with FDHG and Junrui WU, on behalf of himself and certain other individuals who were to receive shares of ICGL pursuant to the Exchange Agreement (the “Shareholders”). On the terms and subject to the conditions set forth in the Exchange Agreement, on May 5, 2015, Junrui WU 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 shareholders of 59,620,000 shares of the Company’s common stock, par value $0.001 per share and 5,000,000 shares of the Company’s preferred stock, par value $0.001 per share. The preferred stock is not convertible nor mandatorily redeemable; it does not pay dividends or carry any voting rights but is entitled to liquidation preference.

As a result of the closing of the Exchange Agreement (the “Share Exchange”), FDHG became the Company’s wholly owned subsidiary. FDHG is an investment holding company incorporated and domiciled in the British Virgin Islands. FDHG wholly owns Silver Channel Industrial Limited, a limited company incorporated, registered, and domiciled in Hong Kong.

The Share Exchange is a “reverse-merger transaction,” and has been accounted for as a recapitalization of ICGL, where ICGL (the legal acquirer) is considered the accounting acquiree and FDHG (the legal acquiree) is considered the accounting acquirer. As a result of this transaction, ICGL is deemed to be a continuation of the business of FDHG.

Accordingly, the accompanying consolidated financial statements are those of the accounting acquirer, FDHG. 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.

Organization History of Silver Channel Industrial Limited and its subsidiaries

On January 28, 2011, Silver Channel incorporated Heyuan Image Equipment Import Export Co., Ltd. (“Heyuan Image”) as a wholly foreign owned enterprise (“WFOE”) registered in Heyuan City, Guangdong Province, PRC. Heyuan Image was dormant for the six months ended and year ended June 30, 2016 and December 31, 2015, respectively. Heyuan Image is wholly owned by Silver Channel. Heyuan Image has a registered capital of HKD 4,000,000 of which HKD 3,380,000 has been paid up.

On August 18, 2014, the Company, through its subsidiary Heyuan Image, acquired 100% of the equity interest of Guangzhou Image Agricultural Technology Co., Ltd. (“Guangzhou Image”). Guangzhou Image is a limited liability company registered in Guangzhou City, Guangdong Province, PRC. Guangzhou Image has not yet engaged in operating activities since its incorporation. Guangzhou Image has a registered capital of RMB 10 million, all of which is still outstanding.

On February 16, 2015, Guangzhou Image entered into an equity transfer agreement with all the shareholders of Yunnan Image Tea Industry Co., Ltd. (“Yunnan Image”). Guangzhou Image paid RMB 3,000,000 to all the shareholders of Yunnan Image for 100% of the equity interest in Yunnan Image. Yunnan Image is a limited liability company registered in Xishuangbanna, Yunnan Province, PRC. Yunnan Image was incorporated on August 23, 2013. Yunnan Image was the primary operating entity to carry out the Company’s business activities of selling and marketing its own branded teas. Yunnan Image is wholly-owned by Guangzhou Image. Yunnan Image has a registered capital of RMB 3 million. The capital has been paid up in its entirety.

Disposal of Silver Channel and its subsidiaries

On or about November 15, 2016, the Company’s subsidiary FDGH disposed of its ownership in Silver Channel which included all of the assets and liabilities of Silver Channel, Heiyuan Image, Guangzhou Image, and Yunnan Image. All of the Company’s substantial operations were conducted through the above four mentioned subsidiaries. The disposition was carried out by Zewu ZHENG, who at the time was a Director of both FDGH and Silver Channel. Silver Channel was sold to Hong Kong Private Medical Services Limited for nominal value as indicated by the bought and sold note stamped by the Inland Revenue Department of Hong Kong. The Company recorded a net gain on disposal, as those subsidiaries were a net liability to the Company.

As of the date of this report, after the disposal of Silver Channel, the Company does not currently have any substantial operations. The Company is currently reviewing potential acquisition targets.

Reverse split

On August 4, 2017, the Company effectuated a reverse stock split of both its common and preferred shares on a 1-for-100 basis from 395,000,000 and 5,000,000 issued and outstanding common shares with a par value of $0.001 per share to 3,950,006 and 50,000 issued and outstanding shares with a par value of $0.001, respectively. All fractional shares were rounded up to the next whole share. All share shares outstanding and earnings per share have been retroactively restated.

The Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America (“US GAAP”) and have been consistently applied in the presentation of financial statements.

The accompanying consolidated financial statements have been prepared in conformity with US GAAP.

The consolidated financial statements include the accounts of the Company, its subsidiaries for which the Company is the primary beneficiary. 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.

As of June 30, 2017, the detailed identities of the consolidating subsidiaries are as follows:

The Company’s potential acquisition targets may operate outside of the United States. Foreign countries are subject to special considerations and significant risks not typically associated with companies in the United States. These include risks associated with, among others, the political, economic, legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in foreign countries, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, restriction on international remittances, and rates and methods of taxation, among other things.

In preparing financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting years. These accounts and estimates include, but are not limited to, the estimation on useful lives of property, plant and equipment. Actual results could differ from those estimates.

The Company accounts for cash and cash equivalents as cash on hand, time deposits, certificates of deposit, and all highly liquid debt instruments with original maturities of three months or less. As of June 30, 2017, the Company did not have any cash and cash equivalents.

Accounts receivable would be presented net of allowance for bad debt. These provisions would be based on analysis historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns.

Inventories would be stated at the lower of cost or market value.

Property and equipment will be stated at cost less accumulated depreciation.

The Company’s revenue recognition policies are in accordance to Staff Accounting Bulletin (“SAB”) 104, included in the Codification as ASC 605, Revenue Recognition . Revenue is recognized when a formal arrangement exists, the price is fixed or determinable, the delivery is completed or service is rendered, and no other significant obligations of the Company exist, and collectability is reasonably assured.

Selling, general and administrative expenses are comprised of salaries, client entertainment, advertising, and travel, lodging expenses, include executive compensation, general overhead such as the finance department and administrative staff, depreciation, office rental and utilities, and professional fees.

The Company current functional and reporting currency is the United States Dollar, USD. Its previous subsidiaries used the Chinese Renminbi (RMB) and Hong Kong Dollars (“HKD”) as its functional currencies.

The Company adopts SFAS No. 109, Accounting for Income Taxes, included in the Codification as ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, 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.

On January 1, 2007, The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), included in the Codification as ASC 740, Income Taxes. The topic addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

For certain of the Company’s financial instruments, including cash and equivalents, accounts and other receivables, accounts and other payables, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.

The Company’s financial instruments include other payables, accrued liabilities and amounts due to related parties. Management estimates the carrying amounts of the financial instruments approximate their fair values due to their short-term nature.

The Company’s functional currency for its operating subsidiaries was the Renminbi (“RMB”). For financial reporting purposes, the RMB was translated into United States Dollars (“USD” or “$”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income.

The Company uses FASB ASC Topic 220, “Reporting Comprehensive Income”. Comprehensive loss is comprised of net loss and all changes to the statements of stockholders’ equity, except for changes in paid-in capital and distributions to stockholders due to investments by stockholders.

Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including other identifiable assets, exceed the purchase price, a bargain purchase gain is recognized. Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the statement of earnings from the date of acquisition. Acquisition-related costs, including conversion and restructuring charges, are expensed as incurred.

On January 5, 2016, the FASB issued ASU 2016-01 “Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017.

On February 25, 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”, its new standard on accounting for leases. ASU 2016-02 introduces a lessee model that brings most leases on the balance sheet. The new standard also aligns many of the underlying principles of the new lessor model with those in ASC 606, the FASB’s new revenue recognition standard (e.g., those related to evaluating when profit can be recognized).

Furthermore, the ASU addresses other concerns related to the current leases model. For example, the ASU eliminates the requirement in current U.S. GAAP for an entity to use bright-line tests in determining lease classification. The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure. The new model represents a wholesale change to lease accounting. As a result, entities will face significant implementation challenges during the transition period and beyond, such as those related to:

The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018 (e.g., calendar periods beginning on January 1, 2019), and interim periods therein.

On March 15, 2016, the FASB issued ASU 2016-07 “Investments—Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting”, which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. Consequently, when an investment qualifies for the equity method (as a result of an increase in the level of ownership interest or degree of influence), the cost of acquiring the additional interest in the investee would be added to the current basis of the investor’s previously held interest and the equity method would be applied subsequently from the date on which the investor obtains the ability to exercise significant influence over the investee. The ASU further requires that unrealized holding gains or losses in accumulated other comprehensive income related to an available-for-sale security that becomes eligible for the equity method be recognized in earnings as of the date on which the investment qualifies for the equity method.

The guidance in the ASU is effective for all entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years; early adoption is permitted for all entities. Entities are required to apply the guidance prospectively to increases in the level of ownership interest or degree of influence occurring after the ASU’s effective date. Additional transition disclosures are not required upon adoption.

On March 17, 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”, which amends the principal-versus-agent implementation guidance and illustrations in the Board’s new revenue standard (ASU 2014-09). The FASB issued the ASU in response to concerns identified by stakeholders, including those related to (1) determining the appropriate unit of account under the revenue standard’s principal-versus-agent guidance and (2) applying the indicators of whether an entity is a principal or an agent in accordance with the revenue standard’s control principle. Among other things, the ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. As defined in the ASU, a specified good or service is “a distinct good or service (or a distinct bundle of goods or services) to be provided to the customer.” Therefore, for contracts involving more than one specified good or service, the entity may be the principal for one or more specified goods or services and the agent for others.

The ASU has the same effective date as the new revenue standard (as amended by the one-year deferral and the early adoption provisions in ASU 2015-14). In addition, entities are required to adopt the ASU by using the same transition method they used to adopt the new revenue standard.

On March 30, 2016, the FASB issued ASU 2016-09 “Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”, which simplifies several aspects of the accounting for employee share-based payment transactions for both public and nonpublic entities, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.

On August 26, 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230)”. Stakeholders indicated that there is diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. As a result, the Company has elected to early adopt this Update prospectively. As of June 30, 2017 and prior periods retrospective adjustments have not been applied.

As of June 30, 2017, except for the above, there are no recently issued accounting standards not yet adopted that would have a material effect on the Company’s financial statements.

Certain conditions may exist as of the date the consolidated financial statements are issued, which may 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 un-asserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or un-asserted 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 would be accrued in the Company’s consolidated 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.

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 June 30, 2017 and December 31, 2016, the Company had accumulated deficits of $59,610,073 and $59,396,596 due to the substantial losses incurred in operations since discontinued. The Company also continues to incur 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 June 30, 2017 and December 31, 2016. 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.

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 a 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.

The Company is subject to U.S. Income taxes.

The Company’s subsidiary Fortune Delight Holdings Group Limited was incorporated in the British Virgin Islands. The British Virgin Islands is an income tax free jurisdiction.

Silver Channel, the Company’s former indirect subsidiary is incorporated in Hong Kong and is subject to the Inland Revenue Ordinance of Hong Kong. Hong Kong currently maintains a uniform tax rate of 16.5% for all enterprises.

The Company’s former indirect subsidiaries incorporated in the PRC are governed by the Income Tax Law of the PRC and various local income tax laws. Effective January 1, 2008, the PRC adopted a uniform tax rate of 25% for all enterprises, including foreign-invested enterprises.

For the six months ended June 30, 2017 and 2016, the Company has not provided any provision for income tax as it incurred substantial net operating losses during the periods.

As a result of the substantial historic net operating losses and lack of operating businesses, the Company’s management did not recognize any deferred tax benefit and related deferred tax assets at June 30, 2017 and 2016, because the management was unable to determine when it would be able to generate taxable income to make use of such potential future tax assets.

There were no potentially dilutive securities outstanding during the six months ended June 30, 2017 and 2016.

On February 13, 2017, Xinyuan YANG, the holder of the 5,000,000 shares of the Company's preferred stock originally issued to Junrui WU, entered into an agreement with the Company to exchange his right to the preferred stock for shares of the Company’s common stock. As of the date of this report, this transaction has not been completed. The preferred stock is not convertible into common stock and does not impact the loss per share calculation.

Amounts due from related parties consisted of the following:

Amounts due to related parties consisted of the following:

Mr. Wu previously had an outstanding balance owed to the Company in the amount of $49,328 at December 31, 2016. During the six months ended June 30, 2017, Mr. Wu paid expenses and professional fees on behalf of the Company and has fully settled the outstanding balance owed by him to the Company.

The balance owed to Mr. Po was incurred for all of the professional expense payments made by him on behalf of the Company.

The Company’s registered office and principal place of business was provided by Image Industrial Development Ltd., a major shareholder of the Company. The terms of the lease agreement are for one year from November 1, 2016 through October 31, 2017. There was no rental deposit paid and the annual rental expense was $90 (HKD $700). These rates may differ from fair market values.

The Company conducts business through a subsidiary incorporated in the British Virgin Islands and it intends to conduct physical business in Hong Kong and 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 British Virgin Islands, Hong Kong, and the PRC. Business operations conducted in these localities are subject to special considerations and significant risks not typically associated with companies in North America.

As detail in note 1, the Company disposed of Silver Channel and its subsidiaries on November 15, 2016.

The values presented above are management representations of the consolidated financial position and results of operations for the six months ended June 30, 2016. The Company believes these values approximate the value of Silver Channel and its subsidiaries. Those figures are unaudited.

The Company evaluates subsequent events that have occurred after the balance sheet date but before the financial statements are issued. There are two types of subsequent events: (1) recognized, or those that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements, and (2) non-recognized, or those that provide evidence with respect to conditions that did not exist at the date of the balance sheet but arose subsequent to that date. There were no material events that occurred after the balance sheet date.