PART
I
Item
1. Business.
Company
History and Recent Developments
Image
Chain Group Limited, Inc.
Image
Chain Group Limited, Inc. (formerly Have Gun Will Travel Entertainment, Inc.) was incorporated under the laws of Nevada on December
18, 2013, and initially sought to create reality television programming. References in this Report to “ICGL”, “Image
Chain”, the “Company”, the “Registrant”, “we”, “our” or “us”
are to Image Chain Group Limited, Inc.
On
May 5, 2015, ICGL entered into a share exchange agreement (the “FDHG Exchange Agreement”) with Fortune Delight Holdings
Group Ltd (“FDHG”) and Wu Jun Rui, on behalf of himself and certain other individuals who were to receive shares of
ICGL pursuant to the FDHG Exchange Agreement (the “FDGH Shareholders”). On the terms and subject to the conditions
set forth in the FDHG Exchange Agreement, on May 5, 2015, Wu Jun Rui transferred all 50,000 shares of FDHG common stock, consisting
of all of the issued and outstanding shares of FDHG, to ICGL in exchange for the issuance to the stockholders of FDHG of 59,620,000
shares of the Company’s common stock, par value $.001 per share (“Common Stock”) and 5,000,000 shares of the
Company’s preferred stock, par value $.001 per share (“Preferred Stock”).
As
a result of the closing of the FDHG Exchange Agreement, FDHG became the Company’s wholly owned subsidiary. FDHG, through
its subsidiaries, manufactured and sold “Image Tea”-branded tea products from its tea garden in Yunnan Province.
On
June 11, 2015, the Company amended its Articles of Incorporation in order to change its name to Image Chain Group Limited, Inc.
and to increase the authorized shares of Common Stock from 70,000,000 to 400,000,000. The name change was undertaken in order
to more closely align with the operations of the Company’s wholly-owned subsidiary, The increase in authorized Common Stock
was undertaken to allow the Company to utilize the newly available shares to raise capital.
On
or about November 15, 2016, FDHG disposed of its ownership of all operating assets, and as a result ICGL became a shell company,
as defined by Rule 12b-2 under the Exchange Act (the “Disposition Event”). The Disposition Event is evidenced by a
bought and sold note stamped by the Inland Revenue Department of Hong Kong, which we believe is a legally binding document.
On
February 13, 2017, the Company filed with the Secretary of State of the State of Nevada a Certificate of Correction (the “Certificate
of Correction”) to correct a mistake made in the Company’s original Articles of Incorporation with regard to the Preferred
Stock issued in connection with the FDHG Exchange Agreement. As a result, ICGL had 395,000,000 shares of Common Stock and 5,000,000
shares of Preferred Stock issued and outstanding. The Company subsequently entered into an agreement pursuant to which the holder
of the Preferred Stock agreed to retire the Preferred Stock in exchange for receiving an equal number of shares of Common Stock
of the Company
.
As of the date of this Report, that exchange of Preferred Stock for Common Stock has not yet occurred.
On
May 1, 2017, upon recommendation of the Board of Directors, a majority of Image Chain’s common stockholders consented in
writing to amendment of Image Chain’s Articles of Incorporation to (i) effect a reverse stock split on a 1 for 100 stock
split basis from 400,000,000 authorized shares with a par value of $0.001 per share to 4,000,000 authorized shares with a par
value of $0.001, and (ii) after the reverse stock split, to increase the authorized shares of Common Stock from 3,950,000 to 2,000,000,000
shares with a par value of $0.001 per share, and to decrease the authorized shares of Preferred Stock from 50,000 to zero (0).
As of the date of this Report, the reverse stock split and increase in authorized shares have been completed, and the decrease
in shares of Preferred Stock is still in process, as a result 50,000 shares of Preferred Stock are authorized and outstanding.
Image
P2P Trading Group Limited
Image
P2P Trading Group Limited (“Image P2P”), a company organized under the laws of the British Virgin Islands, was incorporated
on April 21, 2015. Asia Grand Will (“AGW”) was incorporated on March 18, 2017 in the Hong Kong SAR. AGW wholly owns
Fuzhi Yuan (Shenzhen) Holdings Limited (“FYSZ”) which was established on June 20, 2017 in the PRC. FYSZ is a wholly
owned foreign entity under PRC law. FYSZ wholly owns Jiangxi Fuzhiyuan Biotechnology Limited (“Fuzhiyuan Biotechnology”),
which was established on January 5, 2013 in the PRC. FYSZ acquired Fuzhiyuan Biotechnology on July 14, 2017. AGW and FYSZ are
intermediary holding companies. Image P2P conducts its operations through Fuzhiyuan Biotechnology. Image P2P acquired AGW on Jul
28, 2017.
The
reorganization of Image P2P and its subsidiaries via the acquisitions detailed above, by and amongst Image P2P and AGW, FYSZ,
and Fuzhiyuan Biotechnology, have been accounted for under US GAAP as business combinations under common control.
The
Share Exchange
On
November 14, 2017, Image Chain entered into a share exchange agreement (the “Exchange Agreement”) with Image P2P and
the shareholders of Image P2P (the “Sellers”). Pursuant to the Exchange Agreement, the Sellers transferred all 50,000
shares of Image P2P outstanding common stock to the Company in exchange for 500,000,000 shares of Common Stock (the “Share
Exchange”). As a result of the Share Exchange, Image P2P became the Company’s wholly-owned subsidiary. Image P2P,
through its subsidiaries, is engaged in producing, marketing and selling tea polyphenol products, and is developing for production
tea polyphenol-based products. Image P2P is located in the PRC.
The
Share Exchange has been accounted for as a reverse- merger and recapitalization of Image Chain where Image Chain (the legal acquirer)
is considered the accounting acquiree and Image P2P (the acquiree) is considered the accounting acquirer. As a result of this
transaction, the Company is deemed to be a continuation of the business of Image P2P.
Accordingly,
the accompanying consolidated financial statements are those of the accounting acquirer, Image P2P. The historical stockholders’
equity of the accounting acquirer prior to the share exchange has been retroactively restated as if the Share Exchange occurred
as of the beginning of the first period presented.
As
used in this Report, unless otherwise stated or the context clearly indicates otherwise, the terms “ICGL”, “Image
Chain”, the “Company,” the “Registrant,” “we,” “us” and “our”
refer to Image Chain after having given effect to the acquisition of Image P2P.
Our
authorized capital stock currently consists of 2,000,000,000 shares of Common Stock and 50,000 shares of Preferred Stock. Our
Common Stock is quoted on the OTC Markets under the symbol “ICGL”.
Our
principal executive offices are located at Room 503, 5/F, New East Ocean Centre, 9 Science Museum Road, Kowloon, Hong Kong, S.A.R.
Our telephone number is (852) 3188-2700. Our periodic and current reports with the SEC can be obtained from the SEC website, www.sec.gov.
Company
Overview
We
extract tea polyphenol from tea leaves for use in a wide variety of health and beauty products, beverages, filters and purifiers,
and other products. We produce tea polyphenol to the specific requirements of end-users, utilizing different types of tea leaves
harvested at different points in the growth cycle. We are also developing proprietary tea polyphenol-based products for sale.
Our newly-installed tea polyphenol extraction assembly completed ramp up in 2017. Given sufficient access to raw materials and
working capital, we expect the annual manufacturing capacity of our currently installed extraction assembly to reach 600 metric
tons of tea polyphenol. We operate our business from our newly constructed facilities in Wan’An City, Jiangxi Province,
PRC. Our facilities consist of our first extraction assembly, polyphenol drying and processing clean room, warehouse, showroom,
research facility and offices.
Since
its founding in 2013, Fuzhiyuan Biotechnology focused on acquiring the technical processes, land, equipment and capital for the
construction of the largest tea polyphenol extraction and processing facility in the PRC. In 2013 and 2014 we developed working
relationships with experts in the field of tea polyphenols and extraction processes, located a suitable site for our facility,
negotiated with and applied to relevant government authorities for approval of our project, applied to lenders for financing the
acquisition of our land use rights and equipment, applied for construction loans, and negotiated with equipment suppliers and
construction firms. Construction of our facility began in 2015 and was substantially completed by the third quarter of 2016, with
initial commercial production and sales achieved in the fourth quarter of 2016. The ramp-up of our facility concluded in 2017.
Product
and Market Overview
Tea
polyphenol-based products have become popular in health-conscious communities throughout the world. Polyphenols are antioxidants
found at varying levels in most fruits and vegetables. Tea leaves contain relatively high levels of polyphenols. Research has
found intake of tea polyphenols through drinking tea to correlate to lower levels of certain types of cancer, stroke, heart disease
and Alzheimer’s disease. There is also clinical interest in the correlation, if any, to intake of tea polyphenols and weight
loss, and the control of the symptoms of type II diabetes. Although we supply tea polyphenols for use in tea polyphenol-based
products, we do not make any claims, either through our own sales and marketing, through our third- party distributors, or otherwise,
as to the medical benefits of our tea polyphenol products. We do not believe that we are engaged in the production of pharmaceutical
products, or that the markets in which our tea polyphenol are used regulate tea polyphenol-based products as pharmaceuticals.
Interest
in the health benefits of tea polyphenols have led to their incorporation in a range of products – shampoos, soaps, facial
wipes, creams and cosmetics; concentrated beverages, health beverages, sports beverages and caffeinated beverages; candies, cooking
oils, and syrups; air purifiers, air conditioner air filters, face masks and cleaning wipes. For example, in Japan, tea polyphenol
-based air conditioner air filters, shampoos, soaps and facial wipes are seen as providing superior anti-viral and anti-biotic
cleaning properties. In Germany, tea polyphenol-based beverages have gained acceptance for purported digestive and restorative
properties.
It
is difficult to estimate the global market for tea polyphenol-based products or tea polyphenols. According to our understanding
of the market and consultation with PRC research institutes, PRC production of tea polyphenols reached 5,000 metric tons in 2015,
and are estimated to be growing at over 30% per annum. The main markets for tea polyphenols are East Asia and Europe. Based on
our understanding of tea leaf and tea polyphenol domestic and foreign markets, participation in trade fairs, sales and marketing
efforts, research into tea polyphenol-based products and consultation with relevant academic institutions in the PRC, we believe
that in the near-term the market for tea polyphenol will be characterized by increased demand at steady price levels.
Our
Strengths
We
believe our competitive advantages currently include:
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our
understanding of tea leaf and tea polyphenol properties attained through cooperation with leading academics and our own internal
team of tea polyphenol production experts;
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technical
expertise in producing tea polyphenols to precise chemical specifications, which we believe will distinguish us from competitors
as tea polyphenols are incorporated in a wider range of tea polyphenol-based products;
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low
input costs as we continue to improve our extraction process know-how, thus improving production efficiency;
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location
in a key tea leaf growing region in China, with access to tea leaf supply from throughout the PRC; and
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scalability
of our business – our current facility can host further extraction assemblies in addition to the extraction assembly
currently in operation.
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Our
Strategy
We
expect to grow and increase the profitability of our business through:
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further
lowering our input costs with process improvements in tea polyphenol extraction, drying and processing;
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growing
our revenues with increased sales and marketing activities;
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expanding
our sales channels by obtaining export licenses for tea polyphenol and tea polyphenol-based products;
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launching
our proprietary tea polyphenol-based products in 2018; and
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increasing
our production capacity through installation of further tea polyphenol extraction assemblies.
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As
of the date of this Report, we have not entered into any agreements for the financing, development or construction of further
tea polyphenol extraction assemblies.
Extraction
and Powder Process
The
extraction of tea polyphenol from tea leaves begins with the purchase of tea leaves. Tea leaves at different stages of the growth
cycle have different chemical properties, and so we maintain supplies of tea leaves harvested at different times in the grow season.
We prepare tea leaves for polyphenol extraction based on the chemical specifications of an order. Tea leaves are stored dry and
no chemical additives are introduced prior to the extraction process.
An
advanced emulsion and distillation process is used to extract tea polyphenols. After being steeped in water at a controlled temperature,
gravity, water pressure, heat and centrifuge separation are used to prepare an intermediate liquid for distillation. Chemical
catalysts are introduced to bring the tea polyphenols into the intermediate liquid and to stabilize the liquid for distillation.
The intermediate liquid is distilled through four different phases, with measuring of chemical composition of the liquid at each
phase. The distilled liquid is moved through a closed system to our powder process clean room. There, pressure and heat remove
water, leaving powdered tea polyphenol product. We package our tea polyphenol in our clean room, and store the packaged product
in temperature- and humidity-controlled storerooms onsite.
Suppliers
We
purchase tea leaves from a number of suppliers in the PRC. We typically pay deposits for the delivery of orders to an intermediate
warehouse managed by the supplier or an agricultural cooperative associated with the supplier. Tea leaves are delivered to our
facility by the distributor at our request and upon payment in full of the purchase price.
Due
to recent changes in the European Union quality standards for the import of tea leaves, a greater portion PRC domestic tea leaf
production is being exported, resulting in higher domestic market prices for tea leaves. We believe this development has been
fully reflected in the PRC tea leaf market in 2016, and do not expect this development to have any further effect on our ability
to obtain tea leaf supply, or the price we pay for tea leaves.
Sales
and Marketing
Third-party
distributors sell our tea polyphenol to end-users, primarily in markets outside the PRC. We have applied for an export license
for tea polyphenol and tea polyphenol-based products, and plan to export our products directly to end-users once the relevant
licenses are obtained.
As
a growth business, most of our office and research staff participate to some extent in our marketing efforts. We do not operate
a separate sales and marketing department. We engage in marketing of our tea polyphenol and tea polyphenol - based products with
both PRC and foreign distributors of tea polyphenol. Our staff promotes our tea polyphenol products at our showroom in Jiangxi
Province and at trade fairs. Our sales and marketing efforts focus on business development through client functions, participation
in trade fairs, distribution of marketing materials to potential customers and the media and active participation in academic
and trade groups. We plan to grow our sales and marketing function through the establishment of a separate sales and marketing
department, increased participation in domestic trade fairs and other sales events, participation in foreign marketing events
and online and other media promotion of tea polyphenol and tea polyphenol-based products.
Competition
We
compete primarily with other tea polyphenol manufacturers in the PRC and India. The barriers to entry for our industry are significant,
given the cost of the equipment and clean room, space required to house the manufacturing facilities, large tea leaf supply requirements
and manufacturing know-how required to produce tea polyphenols to specification. We believe the primary PRC competitors in our
industry have production capacity from 100 to 1100 metric tons and compete with us on price, which is determined by our third-party
distributors based on market demand. We believe that only a handful of market participants can compete with us on technical specifications,
and that this will be an increasingly important area of differentiation as the markets for tea polyphenol-based products expands.
Intellectual
Property
We
have been awarded patents by the PRC government in relation to elements of our production process, and have been recognized as
possessing proprietary manufacturing know how for other elements of our production process. We believe these patents and proprietary
know-how evidence our manufacturing skill. However, we do not expect to differentiate ourselves in the market with these awards,
or believe that receipt of these awards will act as a barrier to entry for our competitors.
Research
and Development
In
addition to ongoing research and development regarding our tea polyphenol extraction and powder process, we are developing our
own tea polyphenol-based products. There can be no certainty these efforts will result in the development of a viable product
for market. The costs associated with improving our manufacturing process technologies are expensed as incurred in our cost of
revenues. Our costs associated with tea polyphenol-based product research and development were $1,255,223 for the year ended December
31, 2017 and $31,366 for the year ended December 31, 2016.
Government
Regulation
Foreign
Government Regulation
We
are subject to numerous PRC national, provincial and local environmental, health and safety laws and regulations relating to,
among other matters, safe working conditions, product stewardship and end-of-life handling or disposition of products, and environmental
protection, including those governing the generation, storage, handling, use, transportation and disposal of hazardous or potentially
hazardous materials. Some of these laws and regulations require us to obtain licenses or permits to conduct our operations. Environmental
laws and regulations are complex, change frequently and have tended to become more stringent over time. Although the costs to
comply with applicable laws and regulations, including requirements relating to the restriction of use of hazardous substances
in products, have not been material, we cannot predict the impact on our business of new or amended laws or regulations or any
changes in the way existing and future laws and regulations are interpreted or enforced, nor can we ensure we will be able to
obtain or maintain any required licenses or permits.
Employees
As
of April 14, 2018 we had 75 full-time employees. Within our workforce as of such date, 12 employees were primarily engaged in
marketing, sales and business development, 8 employees were primarily engaged in research and development, 36 employees were engaged
in manufacturing, and 19 employees were engaged in general management and administration. We have no collective bargaining agreements
with our employees, and we have not experienced any work stoppages. We consider our relations with our employees to be good.
Our
Chief Executive Officer and Chief Financial Officer serve the Company on a part-time basis.
Facilities
Our
business headquarters and production facilities are located in the Industrial Park, Wan’An, Jiangxi Province, PRC, where
we have 50 year land use rights, until the year 2063, to a 35,320 square meter tract of land. We have built 5,630 square meters
of buildings on this site, housing our first extraction assembly, polyphenol drying and processing clean room, warehouse, showroom,
research facility and offices. We believe that our existing facilities are adequate for our current needs. We further believe
that upon completion of ramp up of our facility, we will be the third largest producer of tea polyphenol in the PRC.
Item
1A. Risk Factors
Not
applicable.
Item
1B. Unresolved Staff Comments
Not
applicable.
Item
2. Properties
.
Our
corporate headquarters are located at Room 503, 5/F, New East Ocean Centre, 9 Science Museum Road, Kowloon, Hong Kong, China,
where we lease approximately 1900 square feet of office space under a lease that expires in October 31, 2017. Our monthly lease
payment for this office space is approximately $90.40. We believe the leased premise is sufficient to meet the immediate needs
of our corporate headquarters.
Our
business headquarters and production facilities are located in the Industrial Park, Wan’An, Jiangxi Province, PRC, where
we have 50 year land use rights, until the year 2063, to a 35,320 square meter tract of land. We have built 5,630 square meters
of buildings on this site, housing our first extraction assembly, polyphenol drying and processing clean room, warehouse, showroom,
research facility and offices. We believe that our existing business headquarters and production facilities are adequate for our
current needs.
Item
3. Legal Proceedings.
As
of the date of this Report, we are not a party to any legal proceedings that could have a material adverse effect on our business,
financial condition or operating results. Further, to our knowledge, no such proceedings have been threatened against us.
Item
4. Mine Safety Disclosures.
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market
Information
Our
common stock is quoted on the OTC Markets (“OTCQB”) under the symbol “ICGL”. The Common Stock was initially
quoted on the OTCQB on January 3, 2015, however, there has been very limited trading to date, and an active trading market may
never develop.
The
table below sets forth the high and low closing prices of the Company’s Common Stock during the periods indicated as reported
by the OTCQB.
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Bid Price
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HIGH
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LOW
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Period ended April 16, 2018
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$
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300.00
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$
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275.00
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First Quarter ended March 31, 2018
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$
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300.00
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$
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20.00
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Fourth Quarter ended December 31, 2017
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$
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175.00
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$
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175.00
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Third Quarter ended September 30, 2017
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$
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500.00
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$
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175.00
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Second Quarter ended June 30, 2017
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$
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1,200.00
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$
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102.00
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First Quarter ended March 31, 2017
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$
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6.25
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$
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0.01
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Fourth Quarter ended December 31, 2016
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$
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13.00
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$
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13.00
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Third Quarter ended September 30, 2016
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$
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20.00
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$
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7.30
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Second Quarter ended June 30, 2016
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$
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9.50
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$
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7.75
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Holders
As
of the date of this Report there were approximately 427 holders of record of our Common Stock. This does not include an indeterminate
number of persons who hold our Common Stock in brokerage accounts and otherwise in “street name.” As of the date of
this Report, there are 507,270,882 shares of our Common Stock outstanding. There are no options, warrants or other securities
convertible into our Common Stock, other than the 50,000 shares of our Preferred Stock currently outstanding. Our Preferred Stock
currently outstanding are under contract for conversion into 50,000 shares of our Common Stock, representing a conversion basis
of 1 share of Preferred Stock for 1 share of Common Stock.
Dividends
Holders
of Common Stock are entitled to receive such dividends as may be declared by the Company’s Board of Directors. The Company
did not declare or pay dividends during its fiscal years ended December 31, 2016 or 2017.
To
the extent ICGL has any future earnings, it will likely retain earnings to expand corporate operations and not use such earnings
to pay dividends.
Transfer
Agent and Registrar
The
transfer agent and registrar for ICGL’s common stock is Globex Transfer, LLC, 780 Deltona Blvd., Suite 202, Deltona, FL
32725, telephone 813-344-4490.
Repurchases
of Our Securities
None.
Recent
Sales of Unregistered Securities
None.
Indemnification
of Officers and Directors
Our
Bylaws, subject to the provisions of the Nevada Revised Statutes, contain provisions which allow the Company to indemnify any
person against liabilities and other expenses incurred as the result of defending or administering any pending or anticipated
legal issue in connection with service to us if it is determined that person acted in good faith and in a manner which he reasonably
believed was in or not opposed to the best interest of the Company. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our director, officer and controlling person, we have been advised that in the opinion of the
SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Item
6. Selected Financial Data.
Not
applicable.
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary
Statements
This
Annual Report on Form 10-K (this “Report”) contains forward-looking statements, including, without limitation, in
the sections captioned “Business,” “Management’s Discussion and Analysis of Financial Condition and Results
of Operations,” and elsewhere. Any and all statements contained in this Report that are not statements of historical fact
may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,”
“could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,”
“strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,”
“believe,” “continue,” “intend,” “expect,” “future” and terms of similar
import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all
forward-looking statements may contain one or more of these identifying terms.
Forward-looking
statements in this Report may include, without limitation, statements regarding (i) the plans and objectives of management for
future operations, including plans or objectives relating to the growth of tea polyphenol sales and development of our tea polyphenol-based
products, (ii) the plans or objectives relating to our future business acquisitions, if any, (iii) a projection of income (including
income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial
items, (iv) our future financial performance, including any such statement contained in a discussion and analysis of financial
condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange
Commission, or the SEC, and (v) the assumptions underlying or relating to any statement described in points (i), (ii), (iii) or
(iv) above.
The
forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may
not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions
and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results
and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements
as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of the forward-looking
statements or cause actual results to differ materially from expected or desired results may include, without limitation:
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market
acceptance of our tea polyphenol products;
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our
ability to successfully sell and market tea polyphenol products in our existing and expanded geographies;
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competition
from existing producers or products or new products and technologies that may emerge in the markets for our tea polyphenol
products;
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the
implementation of our business model and strategic plans for our tea polyphenol products and proposed tea polyphenol-based
product businesses, and other businesses which we may develop or acquire;
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our
ability to obtain regulatory approval in targeted markets for our tea polyphenol products and proposed tea polyphenol-based
products;
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volatility
or decline of our stock price;
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potential
fluctuation of quarterly results;
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continued
failure to earn revenues or profits;
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inadequate
capital to continue or expand our business, and inability to raise additional capital or financing to implement our business
plans;
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decline
in demand for our products and services;
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rapid
adverse changes in markets;
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litigation
with or legal claims and allegations by outside parties against us;
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insufficient
revenues to cover operating costs;
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estimates
of our future revenue, expenses, capital requirements and our need for additional financing; and
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developments
relating to our competitors and the tea polyphenol, tea polyphenol-based products and wider health products industry.
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Because
the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by
the forward-looking statements. ICGL cautions you not to place undue reliance on the statements, which speak only as of the date
of this Report. The cautionary statements contained or referred to in this section should be considered in connection with any
subsequent written or oral forward-looking statements that ICGL or persons acting on its behalf may issue. ICGL does not undertake
any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking
statements to reflect events or circumstances after the date of this Report, or to reflect the occurrence of unanticipated events,
except as required by law.
Overview
We
extract tea polyphenol from tea leaves for use in a wide variety of health and beauty products, beverages, filters and purifiers,
and other products. We produce tea polyphenol to the specific requirements of our users, utilizing different types of tea leaves
harvested at different points in the growth cycle. Tea-polyphenol products have become popular in health-conscious communities
throughout the world. In Japan, tea polyphenol-based air conditioner air filters, soaps and facial wipes are seen as providing
superior anti-viral and anti-biotic cleaning properties. In Germany tea polyphenol-based beverages have gained acceptance for
purported digestive and restorative properties. We are also developing proprietary tea polyphenol-based products for sale. The
government of the PRC has recognized our accomplishments in tea polyphenol extraction through the granting of process patents
and designating as proprietary aspects of our manufacturing know-how.
Our
newly-installed tea polyphenol extraction assembly completed ramp up in 2017. Given sufficient access to raw materials and working
capital, we expect the annual manufacturing capacity of our currently installed extraction assembly to reach 600 metric tons of
tea polyphenol. We generated net revenues of $45,431 for the year ended December 31, 2016 and $1,357,717 for the year ended December
31, 2017, respectively. We had comprehensive losses of $1,500,078 and $3,212,165, respectively, for the same periods.
Third-
party distributors sell our tea polyphenol to end-users, primarily in markets outside the PRC. We engage in marketing of our tea
polyphenol and tea polyphenol-based products with both PRC and foreign distributors of tea polyphenol. Our staff promotes our
tea polyphenol products at our showroom in Jiangxi Province and at trade fairs. We have applied for an export license for tea
polyphenol and tea polyphenol- based products, and plan to export our products directly to end-users once the relevant licenses
are obtained. We book sales of our products upon delivery to the third-party distributor, who will typically warehouse the product
until a sale is made to an end-user. The third-party distributor only pays for our product upon receipt of payment from the end
-user. As all of our net revenues represent sales of our tea polyphenol for delivery in China to third-party distributors, we
do not classify sales revenue by geography.
We
expect our primary drivers of net revenue growth to be (i) increased production at our current facility, realized through continued
implementation of our improved extraction know how and sufficient supplies of raw materials, (ii) increased sales of our tea polyphenol
products, achieved through our sales and marketing efforts and global demand for tea polyphenol-based products, and (iii) improved
pricing for tea polyphenol, in line with increased global demand for our primary raw material, tea leaves. We expect to improve
our operating revenues by implementing the production know how we have developed through the ramp up of our current extraction
facility, resulting in lower use of our primary inputs – tea leaves, water and electricity – to achieve increased
levels of tea polyphenol manufacture. Although we have not entered into any contractual obligations in this regard, we may in
the future seek to grow our production capacity through the addition of one to two extraction assemblies at our existing facility.
Our
continued growth relies on the markets for tea polyphenol-based products and our cost competitiveness to supply tea polyphenol
to those markets. Should those markets deteriorate, or if other suppliers of tea polyphenol products supply those markets at lower
prices than those for our products, we may not be able to grow our business, may continue to incur losses and may incur increased
levels of losses. We also require capital to operate our business, and have historically incurred losses, relying on borrowings
from banks and our related parties to fund our operations. In addition, should we seek to grow our manufacturing capacity through
the addition of one to two extraction assemblies at our current facilities, we would need to incur substantial debt obligations
to purchase and install the required equipment.
Accordingly,
we may seek to fund our future operations and our expansion through public or private equity or debt financings or other sources.
However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at
all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our
financial condition and our ability to grow our business. To the extent that we incur debt to fund our operations or our growth,
our business may not generate sufficient revenues to timely repay those debt obligations.
Components
of Statements of Operations
Net
Revenues
Net
revenues consists entirely of sales of tea polyphenol products. To date, we have sold all of our tea polyphenol products through
third-party distributors. We book sales of our products upon delivery to the third-party distributor, who will typically warehouse
the product until a sale is made to an end-user. The third-party distributor only pays for our product upon receipt of payment
from the end-user. We review and maintain credit histories for our customers and may allow purchases on credit by worthy customers.
No interest is charged on accounts receivable. We warranty the chemical properties of our tea polyphenol products, and have had
no customer warranty claims to date. We expect net revenues to remain down as our production and sale of tea polyphenol is constrained
by global demand, price competition and our lack of capital to purchase raw materials.
Cost
of Revenues
Cost
of revenues consists of our inputs to tea polyphenol extraction, namely tea leaves, water, electricity, catalysts, labor costs,
depreciation and overhead attributed to manufacturing. In the long-term, we expect to improve our cost of revenues per metric
ton of tea polyphenol produced by implementing the production know how we have developed through the ramp up of our current extraction
facility, resulting in lower use of our primary inputs – tea leaves, water and electricity. However, our recent cost of
revenues have been unusually high, reflecting our ramp-up costs as well as the increased costs per unit produced for the relatively
small production runs in the last six months of the year ended December 31, 2017.
Operating
Expenses
Our
operating expenses consist of selling and marketing expenses and general and administrative expenses. Our research and development
expenses are expensed as incurred and accounted for under general and administrative expenses. Our sales and marketing expenses
increased significantly in the three month period ended December 31, 2017 as we invested in the development of new tea-polyphenol
based products. We expect research and development expenses to remain a significant cost as we develop our new tea-polyphenol
based products for market.
Sales
and Marketing
Sales
and marketing expenses consist of the costs associated with business development through client functions, participation in trade
fairs, preparation of marketing materials and associated travel, lodging and meal expenses. We expense sales and marketing expenses
as incurred. We expect sales and marketing expenses to increase with our increase in production capacity, in particular if we
should gain an export license and begin marketing our tea polyphenol products directly overseas. Sales and marketing expenses
will also increase should we be successful in bringing tea-polyphenol based products to market.
General
and Administrative
Our
general and administrative expenses consist primarily of compensation and related costs for personnel, including those engaged
in sales and marketing and research and development, as well as legal, audit and accounting services, allocated overhead costs,
such as office furniture, information technology hardware and systems and utilities, and travel, lodging and meal expenses for
our executive staff when traveling on Company business. Our general and administrative expenses have increased significantly in
the last three months of the year ended December 31, 2017, as we began significant investment in the research and development
of tea-polyphenol based products.
Interest
Expense
Interest
expense consists primarily of interest and amortization of related costs associated with our bank debt. We expect interest expense
to fluctuate in line with the market interest rates for bank lending and our levels of indebtedness.
Foreign
Currency Translation gain/loss
Foreign
currency translation gain/loss consists of gains and losses from the translation of our financial statements from our functional
currency, the Renminbi, to United States dollars.
Results
of Operations
|
|
|
Year ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
|
1,357,717
|
|
|
|
45,431
|
|
|
Cost of revenues
|
|
|
2,284,536
|
|
|
|
601,119
|
|
|
Gross Loss
|
|
|
(926,819
|
)
|
|
|
(555,688
|
)
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Selling and marketing expenses
|
|
|
112,689
|
|
|
|
20,785
|
|
|
General and administrative expenses
|
|
|
2,116,826
|
|
|
|
496,154
|
|
|
Total operating expenses
|
|
|
2,229,515
|
|
|
|
516,939
|
|
|
Operating loss
|
|
|
(3,156,334
|
)
|
|
|
(496,154
|
)
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Government subsidy
|
|
|
88,106
|
|
|
|
24,050
|
|
|
Interest income
|
|
|
13
|
|
|
|
56
|
|
|
Interest expense
|
|
|
(252,857
|
)
|
|
|
(148,961
|
)
|
|
Other expense
|
|
|
(44,385
|
)
|
|
|
-
|
|
|
Total other income (expense)
|
|
|
(209,123
|
)
|
|
|
(124,855
|
)
|
|
Loss Before Income Taxes
|
|
|
(3,365,457
|
)
|
|
|
(1,197,482
|
)
|
|
Provision for Income Taxes
|
|
|
-
|
|
|
|
-
|
|
|
Net loss
|
|
|
(3,365,457
|
)
|
|
|
(1,197,482
|
)
|
|
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain (loss)
|
|
|
153,292
|
|
|
|
(302,596
|
)
|
|
Total Comprehensive loss
|
|
|
(3,212,165
|
)
|
|
|
(1,500,078
|
)
|
|
Loss per share
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Common Share
|
|
|
(0.01
|
)
|
|
|
(0.00
|
)
|
|
Basic and Diluted Weighted Average Common Shares Outstanding
|
|
|
507,270,882
|
|
|
|
500,000,000
|
|
Comparison
of the Year ended December 31, 2017 and 2016
Net
Revenues
Net
revenues increased from $45,431 to $1,357,717 as our tea polyphenol extraction assembly was operational for the year ended December
31, 2017, but not operational for the year ended December 31, 2016. Our net revenues in the year ended December 31, 2016 consisted
of a government subsidy for our new business. Our tea polyphenol production, and net revenues, dropped off significantly in the
last six months of the year ended December 31, 2017, as demand from our distributors’ customers weakened, and our lack of
capital meant we were unable to obtain sufficient supply of tea leaves.
Cost
of Revenues
Cost
of revenues increased from $601,119 to $2,284,536 as our tea polyphenol extraction assembly was operational for the year ended
December 31, 2017, but not operational for the year ended December 31, 2016, other than initial testing of the extraction facility
in the last three months of the year ended December 31, 2016. During the ramp-up phase of our new extraction assembly, cost of
revenues was high, as we adjusted the assembly and its processes to manufacture tea polyphenol products to our specifications.
Our cost of revenues increased significantly in the last three months of the year ended December 31, 2017 due to our fixed personnel
and depreciation costs remaining constant, while our variable input costs, primarily tea leaves, increased significantly in price
due to seasonal fluctuations in price and our inability to buy in bulk.
Operating
Expenses
Our
selling and marketing expenses increased from $20,785 for the year ended December 31, 2016 to $112,689 for the year ended December
31, 2017, as we began marketing the products from our new extraction assembly. Our general and administrative expenses increased
from $496,154 for the year ended December 31, 2016 to $2,116,826 for the year ended December 31, 2017. Efforts undertaken to secure
government approvals, financing and equipment for our enterprise were completed in 2016, reducing general and administrative expenses.
However, general and administrative expenses were significantly increased in the last three months of the year ended December
31, 2017 by (i) research and development expenses for tea polyphenol-based products, (ii) construction expenses for a waste water
treatment facility and (iii) legal and accounting professional service fees.
Other
Income/Expense
Our
interest expense increased from $148,961 for the year ended December 31, 2016 to $252,857 for the year ended December 31, 2017
as a result of our increased level of borrowings to finance the acquisition of our extraction assembly, purchase raw materials
and otherwise fund our initial operations.
Other
Comprehensive Income/Loss
For
the year ended December 31, 2016 we had a foreign currency loss of $302,596, compared to a foreign currency gain of $153,292 for
the year ended December 31, 2017. The variation in foreign currency gain or loss was tied directly to the fluctuation in value
of the Renminbi and Hong Kong dollar, our functional currencies, to the US dollar, the currency used for reporting our US GAAP
operating results.
Liquidity
and Capital Resources
Since
the inception of our operating subsidiary Fuzhiyuan Biotechnology in 2013, we have incurred significant net losses and negative
cash flows from operations. During the year ended December 31, 2016 and the year ended December 31, 2017, we had net losses of
$1,197,482 and $3,365,457, respectively. At December 31, 2017, we had an accumulated deficit of $4,646,033, short-term bank loans
of $2,304,222, long-term bank loans of $1,771,997 and amounts due to related parties of $4,998,751. As discussed in our audit
report for the year ended December 31, 2017, these factors raise substantial doubt about our ability to continue as a going concern.
As
at December 31, 2017, we had cash and cash equivalents of $64,856. To date, we have financed our operations principally through
borrowings from banks and from our related parties. Depending on our future operational results, we may need to conduct one or
more equity or debt financings within the next 12 months.
We
could potentially need our available financial resources sooner than we currently expect, and we may incur additional indebtedness
to meet future financing needs. Adequate additional funding may not be available to us on acceptable terms or at all. In addition,
although we anticipate being able to obtain additional financing through non-dilutive means, we may be unable to do so. Our failure
to raise capital as and when needed could have significant negative consequences for our business, financial condition and results
of operations. Our future capital requirements and the adequacy of available funds will depend on many factors, many of which
are beyond our control.
Related
Party Loans
See
the section of this Report titled “Certain Relationships and Related Transactions” for a discussion of our operating
capital, equipment purchase and fixture purchase loans from our related parties. These unsecured loans do not bear interest or
fixed dates for repayment.
Short-term
Bank Loans
Short
term bank loans consisted of the following as of December 31, 2017 and December 31, 2016:
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
Jiangxi Rural Credit Union & Rural Commercial bank
|
|
$
|
-
|
|
|
$
|
720,773
|
|
|
Jiangxi Rural Credit Union & Rural Commercial bank
|
|
|
1,996,992
|
|
|
|
-
|
|
|
Jiangxi Rural Credit Union & Rural Commercial bank
|
|
|
307,230
|
|
|
|
-
|
|
|
|
|
$
|
2,304,222
|
|
|
$
|
720,773
|
|
On
March 16, 2016, Fuzhiyuan Biotechnology entered into a short-term loan agreement with Jiangxi Rural Credit Union & Rural Commercial
Bank due on March 9, 2017. The loan was for general working capital purposes in the amount of $720,773(RMB5,000,000). The loan
carried an interest rate of 6.30% and was secured by the personal guarantee of Mr. QIU Peng, the authorized representative of
Fuzhiyuan Biotechnology, Director of Image P2P and shareholder of the Company. During the year ended December 31, 2017, the loan
was fully paid.
On
March 30, 2017, Fuzhiyuan Biotechnology entered into a short-term loan agreement with Jiangxi Rural Credit Union & Rural Commercial
Bank due on March 28, 2018 (the “short-term loan”). The short-term loan was for general working capital purposes in
the amount of $1,536,148 (RMB10,000,000). The short-term loan carried an interest rate of 6.30% and was secured by the personal
guarantee of Mr. QIU Peng, the authorized representative of Fuzhiyuan Biotechnology, Director of Image P2P and a shareholder of
the Company, and Mr. LI Ming Guang, a shareholder of the Company.
The
foregoing description of the short-term loan agreement does not purport to be complete and is qualified in its entirety by the
terms and conditions of the short-term loan agreement, as amended, which is attached hereto as Exhibit 10.1 and is incorporated
herein by reference.
On
April 28, 2017, Fuzhiyuan Biotechnology entered into a bank loan agreement with Jiangxi Rural Credit Union & Rural Commercial
Bank due on April 25, 2020. The loan was for general working capital purposes in the amount of $768,074(RMB5,000,000). The loan
carried an interest rate of 4.35% and was secured by the personal guarantee of Mr. QIU Peng, the authorized representative of
Fuzhiyuan Biotechnology, Director of Image P2P and shareholder of the Company, and Mr. LI Ming Guang, a shareholder of the Company.
On
May 18, 2017, Fuzhiyuan Biotechnology entered into a bank loan agreement with Jiangxi Rural Credit Union & Rural Commercial
Bank due on April 25, 2020. The loan was for general working capital purposes in the amount of $300,549 (RMB 2,000,000). The loan
carried an interest rate of nil and requires annual review by the bank to meet certain criteria or else the loan will become due
on demand. During the year ended December 31, 2017, the loan was fully paid.
All
of the above short-term loans may be accelerated, and penalty interest at the rate of 50% of the then-current interest rate imposed,
upon standard events of default, including failure to pay principal or interest, fraud, loss of guarantee, cross-default, discontinuation
of business, inability to perform under the loan, change in credit worthiness, undisclosed related party transactions, violation
of law in connection with the loan, government investigation of Fuzhiyuan Biotechnology or its principals, or other material adverse
development in the business of Fuzhiyuan Biotechnology.
Long-term
Bank Loans
Long
term bank loans consisted of the following as of December 31, 2017 and December 31, 2016:
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
|
|
Current
portion
|
|
$
|
563
,766
|
|
|
$
|
1,009,082
|
|
|
Long
term portion
|
|
|
1,669,075
|
|
|
|
1,797,222
|
|
|
|
|
$
|
2,232,841
|
|
|
$
|
2,806,304
|
|
On
October 30, 2015, Fuzhiyuan Biotechnology entered into a loan agreement with Industrial and Commercial Bank of China – Wan
An County Branch for an interest-only construction loan in the amount of approximately $2,403,808 (RMB15,000,000)(the “long-term
loan”). The long-term loan bears an adjustable interest rate; at the time of origination the interest rate was 4.75%. The
interest rate is adjustable every twelve months. The interest only construction loan was collateralized by the lands and buildings
of Fuzhiyuan Biotechnology with variable maturity dates of up to five years.
On
January 15, 2015, Fuzhiyuan Biotechnology entered into a loan agreement with Wan An County Xin Yuan Industrial Development
Ltd Co. for an interest only loan in the amount of approximately $801,269(RMB5,000,000). The loan bore a fixed interest rate
at 4.983% with a maturity date of May 4, 2017. Fuzhiyuan Biotechnology repaid the loan upon maturity. As of December 31,
2017, Fuzhiyuan Biotechnology had made principal repayments of $720,773(RMB5,000,000), the difference in balances between
December 31, 2017 and December 31, 2016 was a result of the change of exchange rates in effect at those points in
time.
Loan
maturity schedule as of December 31, 2017 and December 31, 2016:
|
|
|
December
31, 2017
|
|
|
December
31 2016
|
|
|
|
|
|
|
|
|
|
|
Due
in one year
|
|
$
|
563,766
|
|
|
$
|
989,885
|
|
|
Due
in two years
|
|
|
717,381
|
|
|
|
413,267
|
|
|
Due
in three years
|
|
|
951,694
|
|
|
|
557,421
|
|
|
Due
in four years
|
|
|
-
|
|
|
|
845,731
|
|
|
Due
in five years
|
|
|
-
|
|
|
|
-
|
|
|
Due
in greater than five years
|
|
$
|
-
|
|
|
|
-
|
|
|
|
|
|
2,232,841
|
|
|
|
2,806,304
|
|
The
long-term loan is subject to financial covenants and is collateralized by substantially all our assets (other than our intellectual
property) and limits our ability with respect to additional indebtedness, investments or dividends, among other things, subject
to customary exceptions. The long-term loan may be accelerated upon standard events of default, including failure to pay principal
or interest, fraud, loss of collateral, cross-default, discontinuation of business, inability to perform under the loan, change
in credit worthiness, undisclosed related party transactions, violation of law in connection with the loan, government investigation
of Fuzhiyuan Biotechnology or its principals, failure to construct the Fuzhiyuan Biotechology manufacturing facility or to commence
operation of the manufacturing facility, significant violations of environmental or worker protection laws at the manufacturing
facility, or other material adverse development in the business of Fuzhiyuan Biotechnology.
The
foregoing description of the long-term loan agreement does not purport to be complete and is qualified in its entirety by the
terms and conditions of the long-term loan agreement, as amended, which is attached hereto as Exhibit 10.2 and is incorporated
herein by reference.
The
following table summarizes our cash flows for the periods presented:
|
|
|
Year
ended
December
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Cash
flows from operating activities
|
|
$
|
(742,272
|
)
|
|
$
|
(230,551
|
)
|
|
Cash
flows from investing activities
|
|
$
|
(668,883
|
)
|
|
$
|
(2,033,016
|
)
|
|
Cash
flows from financing activities
|
|
$
|
1,476,679
|
|
|
$
|
1,930,151
|
|
Operating
Activities
We
have historically experienced negative cash outflows as our new business obtained approvals for, and negotiated, the acquisition
of land, buildings, equipment and loan facilities to begin our tea polyphenol extraction operations, and we extended credit to
our purchasers of our tea polyphenol products. Our net cash used in operating activities primarily consists of our net loss from
continuing operations and increase in accounts receivables, offset in part by depreciation of fixed assets and increase in accounts
and other payables. Our operations to date have not generated significant cash receipts due to extension of credit to purchasers
of our tea polyphenol products. Our primary use of cash from operating activities is for the inputs of our tea polyphenol extraction
process. Cash from operating activities also goes to personnel costs, legal, audit and accounting services cost, travel, lodging
and meal expenses for our executive staff when traveling on Company business, sales and marketing costs and research and development.
We expect to continue to increase the cash flows from our operating activities as we increase our production volume, make new
sales and recover our outstanding accounts receivable.
During
the year ended December 31, 2017, operating activities used $742,272 in cash, an increase from $230,551 cash used for operating
activities for the year ended December 31, 2016. The increase in cash used was due primarily to a significant increase in net
loss and accounts and other receivables, offset in part by depreciation, bad debt expense and accounts and other payables.
Investing
Activities
Net
cash used in investing activities for the year ended December 31, 2017 was $668,883, compared to $2,033,016 used in the year ended
December 31, 2016. Such decrease resulted from a significant decrease in purchases of plant and equipment in the year ended December
31, 2017, offset in part by payments for building construction.
Financing
Activities
Net
cash provided by financing activities for the year ended December 31, 2017 of $1,476,679 consisted of bank borrowings and borrowing
and payments to related parties, net, offset in part by repayment of bank borrowings. This represented a significant increase
from net cash provided by financing activities for the year ended December 31, 2016 of $1,930,151, and was primarily due to a
significant increase in borrowing and payments to related parties, net.
Off-Balance
Sheet Arrangements
During
the year ended December 31, 2016 and 2017 and years ended December 31, 2015 and 2016, we did not have any off-balance sheet arrangements
as defined by applicable SEC regulations.
Critical
Accounting Policies and Estimates.
Our
financial statements are prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The
preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates
are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our
actual results could differ from these estimates.
We
believe that the assumptions and estimates have the greatest potential impact on our financial statements. Therefore, we consider
these to be our critical accounting policies and estimates. For further information on all of our significant accounting policies,
see the notes to our financial statements.
Inventories
Inventories
consisting of finished goods and raw materials are stated at the lower of cost or market value. Finished goods are comprised of
direct materials, direct labor, inbound shipping costs, and an appropriate proportion of overhead. We use the first in first out
method of accounting for inventory.
Revenue
Recognition
Our
revenue recognition policies are in compliance with SEC Staff accounting bulletin (SAB) 104. Sales revenue is recognized at the
date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed,
no other significant obligations of exist on our part and collectability is reasonably assured. Payments received before all of
the relevant criteria for revenue recognition are satisfied are recorded as customer deposits. Our revenue consists of invoiced
value of goods, net of a value-added tax (VAT).
Accounts
Receivable
Accounts
receivable are carried at the amounts invoiced to customers less allowance for doubtful accounts. The allowance is an estimate
based on a review of individual customer accounts on a regular basis. Accounts receivable from customers are written off when
deemed uncollectible. Recoveries of accounts receivable previously written off are recorded when received. We review the collectability
of accounts receivable based on an assessment of historical experience, current economic conditions, and other collection indicators.
Construction
in Progress and Prepayments for Equipment
Construction
in progress represents direct and indirect construction or acquisition costs for buildings. Prepayments for equipment represents
advances and down-payments for equipment that is either yet to be delivered or has been delivered but requires installation and
testing in order to be put in to use. Amounts recorded as construction in progress and prepayments for equipment are transferred
to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed.
We begin depreciating those assets when they have transferred to plant and equipment and put into use.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
Not
applicable.
Item
8. Financial Statements and Supplementary Data
The
financial statements required by this item are set forth beginning in Item 15 of this Report on Form 10-K, beginning on page F-1,
and are incorporated herein by reference.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
On
May 18, 2015, the Company and Sadler, Gibb & Associates LLC (“Sadler”) mutually agreed to terminate Sadler’s
engagement as independent accountants to the Company because Sadler does not have an office in China or the ability to translate
Chinese. The termination of Sadler was approved by the Company’s Board of Directors on May 7, 2015. There had been no disagreements
with Sadler on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.
On
April 20, 2015, the Company’s subsidiary, FDHG, engaged WWC, Professional Corporation Certified Public Accountants as its
independent accountant to provide auditing services for FDHG for the periods prior to the date of the Exchange Agreement between
the Company and FDHG, and on a going-forward basis for the Company and FDHG following the termination of Sadler’s services
to the Company. Prior to such engagement, the Company had no consultations with WWC, Professional Corporation Certified Public
Accountants. The decision to hire WWC, Professional Corporation Certified Public Accountants was approved by the Company’s
Board of Directors.
Item
9A. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
Disclosure
controls and procedures are controls and other procedures that are designed to ensure that information we are required to disclose
is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Commission. David
Po, our Principal Executive Officer and Dr. Jonathan Ka Kit Tam, our Principal Financial Officer, are responsible for establishing
and maintaining our disclosure controls and procedures.
Under
the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial
Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule
15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive
Officer and Principal Financial Officer have concluded that, as of December 31, 2017, these disclosure controls and procedures
were not effective in ensuring that all information required to be disclosed by us in the reports that we file or submit under
the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s
rule and forms; and (ii) accumulated and communicated to our management, including our Principal Executive Officer and Principal
Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The
term “internal control over financial reporting” is defined as a process designed by, or under the supervision of,
the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected
by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures that:
|
●
|
pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the registrant;
|
|
|
|
|
●
|
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in
accordance with authorizations of management and directors of the registrant; and
|
|
|
|
|
●
|
provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s
assets that could have a material effect on the financial statements.
|
Management’s
Annual Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is a process designed by, or under the supervision of, the Principal Executive Officer and Principal
Financial Officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles.
The
framework our management uses to evaluate the effectiveness of our internal control over financial reporting is based on the guidance
provided by the Committee of Sponsoring Organizations of the Treadway Commission in its 1992 report: INTERNAL CONTROL - INTEGRATED
FRAMEWORK. Based on our evaluation under the framework described above, our management have concluded that our internal control
over financial reporting was not effective as of December 31, 2017.
The
Company’s internal control over financial reporting is not effective due to a lack of sufficient resources to hire a support
staff in order to separate duties between different individuals. The Company lacks the appropriate personnel to handle all the
varying recording and reporting tasks on a timely basis.
This
Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control
over financial reporting. Management’s report was not subject to attestation requirements by the company’s registered
public accounting firm.
Inherent
Limitations over Internal Controls
ICGL’s
management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect
all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute,
assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or
fraud will not occur or that all control issues and instances of fraud, if any, within ICGL have been detected. These inherent
limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people,
or management override of the controls. The design of any system of controls is based in part on certain assumptions about the
likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over
time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies
or procedures.
Our
disclosure controls and procedures are designed to provide reasonable assurance of that our reports will be accurate. Our Principal
Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective,
as of the end of the period covered by this Form 10-K. Our future reports shall also indicate that our disclosure controls and
procedures are designed for this reason and shall indicate the related conclusion by the Principal Executive Officer and Principal
Financial Officer as to their effectiveness.
Changes
in Internal Control Over Financial Reporting
There
have been no changes in our internal control over financial reporting during the last fiscal quarter of 2017 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item
9B. Other Information.
None
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
Identification
of Directors and Executive Officers:
As
of the date of this Report, our Board of Directors consisted of three members.
|
Name
|
|
Title
|
|
Age
|
|
David
Po
|
|
Chief
Executive Officer, President, Secretary, Director
|
|
55
|
|
Jonathan
Ka Kit Tam
|
|
Chief
Financial Officer, Assistant Secretary, Director
|
|
45
|
|
Kevin
Lai
|
|
Director
|
|
36
|
David
Po
Mr.
Po was appointed our Chief Executive Officer, President, Treasurer, Secretary and Director on May 1, 2017. Mr. Po has a distinguished
career in international business, with an extensive history of transacting deals between Asia and western countries, primarily
the United States. From 2003 until present, Mr. Po served as Director and Chief Executive Officer of Everbest Real Estate Services
(“Everbest”), a marketing and sales company serving the Japanese, Chinese and Hong Kong markets for a major U.S.-based
residential, multi-family, industrial and commercial real estate development company. Everbest ceased operations prior to Mr.
Po joining the Company. Mr. Po received a Bachelor of Science degree from the University of California, San Diego. Mr. Po was
selected based on his background and history of transacting deals between Asia and western countries, namely the United States.
The Company believes that Mr. Po possesses the attributes necessary to create value for ICGL stockholders by way of sourcing and
executing acquisitions of high quality assets located in the People’s Republic of China and the greater Asia region.
Dr.
Jonathan Ka Kit Tam
Dr.
Tam was appointed our Chief Financial Officer, Assistant Secretary and Director on August 6, 2017. Since 2004, Dr. Tam has been
the founder, sole Director, Chief Executive Officer and President of UStar Investment Group and the affiliated DSI Institute.
UStar and DSI arrange academic research and funding of research by Chinese academics abroad and international academics in China.
UStar and DSI are currently active in arranging academic studies and symposiums in connection with the PRC’s “One
Belt, One Road” initiative. Dr. Tam is also the founder and sole director of Dragon Star International, Inc., SCA Wellness,
Inc. and Wei Shu North America, Inc., companies involved in academic placements, beauty and health travel and the import of agricultural
goods, respectively.
Dr.
Tam holds a Doctorate of Business Administration from the EU Business School, conducted post-doctoral work at Oxford University
and holds a Bachelor of Business Administration from the University of Wisconsin-Madison. Dr. Tam continues to supervise the UStar
and DSI businesses, and has agreed that he will dedicate no less than 20 hours a week of his time to his responsibilities as Chief
Financial Officer and Director of the Company. The ICGL stockholders selected Dr. Tam due to his extensive learning in business
administration, experience working with academic institutions and relationships in the PRC which are expected to benefit not only
the day-to-day management of the Company, but also development of its future businesses.
Kevin
Lai
Mr.
Lai is an investment analyst for Funde Asset Management (Hong Kong) Co., Ltd., and served Image Chain from 2015 to 2016 as a marketing
manager. He was appointed to our Board of Directors on May 1, 2017. From 2009 to 2015, Mr. Lai served as administrative director
for Shanghai HuaPeng Explosion-proof Technology Co., Ltd. (“HuaPeng”), a Shanghai-based company specializing in safe
transportation, storage and delivery of flammable and hazardous materials. At HuaPeng, Mr. Lai focused on operations and external
relations. Mr. Lai received a bachelor degree from Fort Hays State University. Mr. Lai was selected based on his long service
to ICGL and his relevant experience in external relations and operations, which the ICGL stockholders expect to be of value in
growing the Company’s business.
Employment
Agreements
We
currently do not have employment agreements with any of our executive officers or directors.
Family
Relationships
There
are no family relationships between any of our directors or executive officers.
Term
of Office
All
directors hold office for a one (1) year period and have been duly elected and qualified. There is no agreement with respect to
the election of directors. The Company has not compensated its directors for service on the Board of Directors of ICGL or any
of its subsidiaries or any committee thereof, other than as set forth under “Item 11. Executive Compensation – Director
Compensation” below. Any non-employee director of ICGL or its subsidiaries will be reimbursed for expenses incurred for
attendance at meetings of the Board of Directors and any committee of the Board of Directors, although no such committee has been
established. Each executive officer of ICGL is appointed by and serves at the discretion of the Board of Directors. None of the
officers or directors of ICGL is currently an officer or director of a company required to file reports with the Securities and
Exchange Commission, other than ICGL.
Involvement
in Certain Legal Proceedings
To
our knowledge, no director, nominee for director, or executive officer of the Company has been a party in any legal proceeding
material to an evaluation of his ability or integrity during the past ten years.
Board
Committees
Audit
committee
We
do not have a separately-designated standing audit committee. The Board of Directors performs the functions of an audit committee,
but no written charter governs the actions of the Board of Directors when performing the functions that would generally be performed
by an audit committee. The Board of Directors approves the selection of our independent accountants and meets and interacts with
the independent accountants to discuss issues related to financial reporting. In addition, the Board of Directors reviews the
scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual
operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters
including fees to be paid to the independent auditor and the performance of the independent auditor.
Compensation
and Nominations Committees
We
currently have no compensation or nominating committee or other board committee performing equivalent functions. Currently, the
member of our Board of Directors participates in discussions concerning executive officer compensation and nominations to the
Board of Directors.
Compliance
with Section 16(a) of the Exchange Act
The
Company is aware that David Po, Dr. Jonathan Ka Kit Tam, Kevin Lai, QIU Peng and LI Ming Guang were delinquent in the filing of
their Forms 3 and 4 in the year ended December 31, 2017.
Shareholder
communications
The
Company does not have a process for security holders to send communications to the board of directors due to the fact that minimal
securities are traded on a stock exchange.
Code
of Conduct and Ethics
We
have adopted a Code of Ethics, as required by sections 406 and 407 of the Sarbanes-Oxley Act of 2002. It has been filed as an
Exhibit to our registration statement on Form S-1 filed on February 5, 2014
Item
11. Executive Compensation.
Executive
Compensation
No
officer or director has received annual compensation since the inception of the Company. There has been no compensation awarded
to, earned by, or paid to the named executive officers or directors, other than as set forth under “- Director’s Compensation”
below. As we source and acquire performing assets, we hope to generate sufficient revenues to hire and begin paying salaries to
officers and directors.
Stock
option plan
We
do not have a stock option plan and we have not issued any warrants, options or other rights to acquire our securities.
Employee
Pension, Profit Sharing or other Retirement Plans
We
do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such
plans in the future.
Outstanding
Equity Awards at Fiscal year-End
The
company has not issued any equity awards during fiscal years 2017 and 2016.
Director’s
Compensation
|
Name
|
|
Fee
earned or paid in cash
|
|
|
Stock
Awards
|
|
|
Option
Awards
|
|
|
Non-equity
incentive plan compensation
|
|
|
Nonqualified
deferred compensation earnings
|
|
|
All
other compensation
|
|
|
Total
|
|
|
David
Po
|
|
|
|
|
|
$
|
229,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
229,000
|
|
|
Jonathan
Ka Kit Tam
|
|
|
|
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,000,000
|
|
|
Kevin
Lai
|
|
|
|
|
|
$
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,000,000
|
|
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Beneficial
Ownership of officers, directors and persons holding more than 5% of any class of ICGL’s voting securities.
The
following table sets forth certain information as of the date hereof with respect to the beneficial ownership of our shares of
common stock by (i) each executive officer and director, (ii) all executive officers and directors as a group, and (iii) beneficial
owners of 5% or more of our outstanding Common Stock.
Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment
power with respect to securities. Common Stock subject to options, warrants or convertible securities exercisable or convertible
within 60 days as of the date hereof are deemed outstanding for computing the percentage of the person or entity holding such
options, warrants or convertible securities but are not deemed outstanding for computing the percentage of any other person. As
of the date hereof, we had 507,320,882 shares of Common Stock issued and outstanding, including 50,000 shares of Preferred Stock
under contract for exchange into Common Stock.
Unless
otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all
ordinary shares beneficially owned by them. The Company does not maintain any equity compensation plans.
|
|
|
Number
of Shares of
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Percentage
|
|
|
Name
of Beneficial Owner
|
|
Beneficially
Owned
|
|
|
of
Class
|
|
|
David
Po(1)
|
|
|
46,800
|
|
|
|
*
|
|
|
Jonathan
Ka Kit Tam(1)
|
|
|
200,000
|
|
|
|
*
|
|
|
Kevin Lai(1)
|
|
|
200,000
|
|
|
|
*
|
|
|
All
Directors and Officers as a Group (3 persons)
|
|
|
446,800
|
|
|
|
*
|
|
|
QIU Peng(2)
|
|
|
106,000,000
|
|
|
|
20.9
|
%
|
|
LI Mingguang(3)
|
|
|
128,000,000
|
|
|
|
25.2
|
%
|
|
CHAN
Chi Man (4)
|
|
|
40,010,000
|
|
|
|
7.9
|
%
|
*
Less than 1%.
(1)
In care of Image Chain Group Limited, Inc., Room 503, 5/F, New East Ocean Centre, 9 Science Museum Road, Kowloon, Hong Kong Special
Administrative Region, People’s Republic of China.
(2)
In care of Jiangxi Fuzhiyuan Biotechnology Limited, Industrial Park, Wan’An, Jiangxi Province, PRC, 343800.
(3)
In care of Yibinshi Deze Agricultural Technology Limited, No.29-1 Chunchang Street, Cuiping District, Yibin, Sichuan Province,
People’s Republic of China.
(4)
In care of YTD-Eco Biotechology Limited, Room 507, 5/F, New East Ocean Centre, 9 Science Museum Road, Kowloon, Hong Kong Special
Administrative Region, People’s Republic of China.
Change
in Control Arrangements
As
of December 31, 2017, there are no arrangements that would result in a change in control of the Company.
Item
13. Certain Relationships and Related Transactions, and Director Independence.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Related
Party Transactions
Related
parties’ relationships are as follows:
|
QIU
Peng
|
|
Director
and CEO of Image P2P and Shareholder of the Company
|
|
HUANG
Min
|
|
Mr.
QIU Peng’s spouse
|
|
QIU
Yi Sheng
|
|
Mr.
QIU Peng’s father
|
|
Wan
An Fu Zhi Yuan Cha Ye Ltd. Co.
|
|
Mr.
QIU Peng, CEO of Image P2P as shareholder, and officer.
|
Amounts
due to related parties as of December 31, 2017 and December 31, 2016:
|
|
|
2017
|
|
|
2016
|
|
|
QIU
Peng
|
|
$
|
4,031,991
|
|
|
$
|
3,484,730
|
|
|
David
Po
|
|
|
412,
647
|
|
|
|
-
|
|
|
QIU
Yi Sheng
|
|
|
554,113
|
|
|
|
519,988
|
|
|
|
|
$
|
4,998,751
|
|
|
$
|
4,004,718
|
|
The
outstanding payables to related parties consist of working capital advances and borrowings. These amounts are due on demand and
are non-interest bearing.
The
largest amount due thereunder in the year ended December 31, 2016 was $4,004,718, and the total interest and principal paid in
that period were $nil and $nil, respectively. The largest amount due in the current year to the date of this Report was $4,998,751,
and the total interest and principal paid in that period were $nil and $nil, respectively.
Advances
and prepayments to suppliers as of December 31, 2017 and December 31, 2016:
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
Wan
An Fu Zhi Yuan Cha Ye Ltd. Co.
|
|
$
|
9,524
|
|
|
$
|
8,938
|
|
The
outstanding advances and prepayments to Wan An Fu Zhi Yuan Cha Ye Ltd. Co. consist of raw material tea leaves purchases. These
amounts are due on demand and non -interest bearing. The advances and prepayments can be used to offset against purchases of inventory
by the Company.
The
largest amount due thereunder in the year ended December 31, 2016 was $8,938, and the total interest and principal paid in that
period were $nil and $nil, respectively. The largest amount due in the current year to the date of this Report was $9,524, and
the total interest and principal paid in that period were $nil and $nil, respectively.
Accounts
Payables as of December 31, 2017 and December 31, 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Wan
An Huan Sheng Biomass Energy Ltd. Co.
|
|
$
|
182,098
|
|
|
$
|
73,377
|
|
The
accounts payables to related party includes an outstanding balance payable to Wan An Huan Sheng Biomass Energy Ltd. Co. for purchases
of raw materials in the normal course of business.
The
largest amount due thereunder in the year ended December 31, 2016 was $73,377, and the total interest and principal paid in that
period were $nil and $nil, respectively. The largest amount due in the current year to the date of this Report was $182,098, and
the total interest and principal paid in that period were $nil and $nil, respectively.
Office
Lease
The
Company operates its principal executive office under a sublease with Image Industrial Development Ltd., an entity that, prior
to the Share Exchange, owned 20% of the issued and outstanding common equity of the Company. Under our sublease, we pay approximately
$90.40 per month in rental payments, which represents a substantial discount to the prevailing market rental rates for comparable
office space.
Director
Independence
We
adhere to the NASDAQ listing standards in determining whether a director is independent. Our board of directors consults with
its counsel to ensure that the board’s determinations are consistent with those rules and all relevant securities and other
laws and regulations regarding the independence of directors. The NASDAQ listing standards define an “independent director”
as a person, other than an executive officer of a company or any other individual having a relationship which, in the opinion
of the issuer’s board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities
of a director.
Consistent
with these considerations, and considering their positions as executive officers and recent employees of the Company, we have
determined that Messrs. Po, Tam and Lai do not qualify as independent directors. We do not maintain a compensation, nominating
or audit committee.
Policies
and Procedures for Related Party Transactions
Our
board of directors has adopted a policy, effective upon the completion of this offering, that our executive officers, directors,
nominees for election as a director, beneficial owners of more than 5% of any class of our Common Stock and any members of the
immediate family of any of the foregoing persons are not permitted to enter into a related person transaction with us without
the prior consent of our audit committee. Any request for us to enter into a transaction with an executive officer, director,
nominee for election as a director, beneficial owner of more than 5% of any class of our Common Stock or any member of the immediate
family of any of the foregoing persons in which the amount involved exceeds $120,000 and such person would have a direct or indirect
interest must first be presented to our audit committee for review, consideration and approval. In approving or rejecting any
such proposal, our audit committee is to consider the material facts of the transaction, including, but not limited to, whether
the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or
similar circumstances and the extent of the related person’s interest in the transaction. We did not have a formal review
and approval policy for related party transactions at the time of any of the transactions described above. However, all of the
transactions described above were entered into after presentation, consideration and approval by our board of directors and/or
our audit committee.
Item
14. Principal Accounting Fees and Services.
The
following table sets forth the aggregate fees paid during the years ended December 31, 2016 and 2017 for professional services
rendered by WWC, Professional Corporation Certified Public Accountants.:
Accounting
Fees and Services
|
|
|
2017
|
|
|
2016
|
|
|
Audit
Fees
|
|
$
|
60,000
|
|
|
$
|
50,000
|
|
|
Audit
Related Fees
|
|
|
-
|
|
|
|
-
|
|
|
Tax
Fees
|
|
|
-
|
|
|
|
-
|
|
|
All
Other Fees
|
|
|
-
|
|
|
|
-
|
|
|
TOTAL
|
|
$
|
60,000
|
|
|
$
|
50,000
|
|
The
category of “Audit Fees” includes fees for our annual audit and services rendered in connection with regulatory filings
with the SEC, such as the issuance of comfort letters and consents.
The
category of “Audit-related Fees” includes employee benefit plan audits, internal control reviews and accounting consultation.
All
above audit services and audit-related services were pre-approved by the Board of Directors, which concluded that the provision
of such services by all parties was compatible with the maintenance of the respective firm’s independence in the conduct
of its audits.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(STATED
IN US DOLLARS)
1. THE
COMPANY AND PRINCIPAL BUSINESS ACTIVITIES
Business
Image
Chain Group Limited, Inc. (formerly Have Gun Will Travel Entertainment, Inc.) (“ICGL” or the “Company”)
was incorporated under the laws of Nevada on December 18, 2013. From inception through the date of the Share Exchange as defined
below, the Company was an emerging forward-thinking full-service television pre-production company dedicated to the creation of
original concepts and programming with a bold and innovative edge in the reality television space for sale, option and licensure
to independent producers, cable television networks, syndication companies, and other entities. On June 11, 2015, the Company
amended its Articles of Incorporation with the State of Nevada in order to change its name to Image Chain Group Limited, Inc.
and to increase the authorized shares of common stock from 70,000,000 to 400,000,000 (the “Amendments”). The name
change was undertaken in order to more closely align with the operations of the Company’s wholly-owned subsidiary, Fortune
Delight Holdings Group Ltd (“FDHG”). The increase in authorized shares was undertaken to allow the Company to utilize
the newly available shares to raise capital. The board of directors and the stockholders of the Company approved the Amendments
on May 8, 2015.
On
February 13, 2017, the Company filed with the Secretary of State of the State of Nevada a Certificate of Correction (the “Certificate
of Correction”) to correct a mistake made in the Company’s original Articles of Incorporation with regard to the preferred
stock issued in connection with the FDHG Exchange Agreement. As a result, ICGL had 395,000,000 shares of common stock and 5,000,000
shares of preferred stock issued and outstanding. The Company subsequently entered into an agreement pursuant to which the holder
of the preferred stock agreed to retire the preferred stock in exchange for receiving an equal number of shares of common stock
of the Company
.
As of the date of this Report, that exchange of preferred stock for common stock has not yet occurred.
Effective
May 1, 2017, the Company increased the authorized shares of Common Stock from 3,950,000 to 2,000,000,000 shares with a par value
of $0.001 per share, and to decrease the authorized shares of Preferred Stock from 50,000 to zero (0). As of the date of this
Report, the decrease in shares of Preferred Stock is still in process.
FDHG,
previously, through its wholly-owned operating subsidiaries, was in the business of promoting and distributing its own branded
teas that are grown, harvested, cured, and packaged in the People’s Republic of China (“PRC”). The Company’s
headquarters was previously located in Guangzhou, Guangdong Province, PRC.
Reverse
stock 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 3,950,082 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 shares outstanding and earnings per share have been retroactively restated.
Share
Exchange and Reorganization
On
November 14, 2017, the Company entered into a share exchange agreement (the “SEA”) with Image P2P Trading Group Limited
(“Image P2P”) and Image P2P’s shareholders whereby the Company issued 500,000,000 new common shares in exchange
for all of the issued and outstanding ordinary shares of Image P2P, which totaled 50,000. Image P2P is an investment holding company
incorporated and domiciled in the British Virgin Islands.
Recapitalization
For
financial accounting purposes, this transaction under the SEA was treated as a reverse acquisition byImage P2P and resulted in
a recapitalization with Image P2P being the accounting acquirer and ICGL as the acquired company. The consummation of this reverse
acquisition resulted in a change of control. Accordingly, the historical financial statements prior to the acquisition are those
of the accounting acquirer, Image P2P and have been prepared to give retroactive effect to the reverse acquisition completed on
November 14, 2017 and represent the operations of Image P2P. The consolidated financial statements after the acquisition date,
November 14, 2017 include the balance sheets of both companies at historical cost, the historical results of Image P2P and the
results of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial
statements and footnotes has been retroactively restated to reflect the recapitalization.
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
The
consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles
in the United States of America. This basis of accounting involves the application of accrual accounting and consequently, revenues
and gains are recognized when earned, and expenses and losses are recognized when incurred. The Company’s consolidated financial
statements are expressed in U.S. dollars.
|
|
b)
|
Principles
of consolidation
|
The
consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company accounts
and transactions have been eliminated. The consolidated financial statements include 100% of assets, liabilities, and net income
or loss of those wholly-owned subsidiaries.
The
Company’s subsidiaries are listed as follows:
|
Name
of Company
|
|
Place
of
incorporation
|
|
Attributable
equity interest %
|
|
Authorized
capital
|
|
Image
P2P Trading Group Limited
|
|
British
Virgin Islands
|
|
100
|
|
USD
50,000
|
|
Asia
Grand Will Limited
|
|
Hong
Kong
|
|
100
|
|
HKD
1
|
|
Fuzhi
Yuan (Shenzhen) Holdings Limited
|
|
PRC
|
|
100
|
|
RMB
500,000
|
|
Jiangxi
Fu Zhi Yuan Biotechnology Co., Limited
|
|
PRC
|
|
100
|
|
RMB
50,000,000
|
The
preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting periods. Management makes these estimates using the best information
available at the time the estimates are made; however, actual results could differ materially from those estimates.
|
|
d)
|
Cash
and cash equivalents
|
The
Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
The Company had $64,856 and $1,667 in cash and cash equivalents as of December 31, 2017 and 2016.
Accounts
receivable are carried at the amounts invoiced to customers less allowance for doubtful accounts. The allowance is an estimate
based on a review of individual customer accounts on a regular basis. Accounts receivable are written off when deemed uncollectible.
Recoveries of accounts receivable previously written off are recorded when received.
The
Company reviews the collectability of accounts receivable based on an assessment of historical experience, current economic conditions,
and other collection indicators.
Inventories
consisting of finished goods and raw materials are stated at the lower of cost or market value. Finished goods are comprised of
direct materials, direct labor, inbound shipping costs, and an appropriate proportion of overhead. The Company using first in
first out (“FIFO”) method of accounting for inventory. The Company recorded inventory impairment expenses in the amounts
of $71,835 and $442,081for the years ended December 31, 2017 and 2016. The expenses were included in cost of revenues.
|
|
g)
|
Advances
and prepayments to suppliers
|
The
Company makes advance payment to suppliers and vendors for the procurement of raw materials. Upon physical receipt and inspection
of the raw materials from suppliers the applicable amount is reclassified from advances and prepayments to suppliers to inventory.
|
|
h)
|
Property,
plant and equipment
|
Plant
and equipment are carried at cost less accumulated depreciation. Depreciation is provided over their estimated useful lives, using
the straight-line method. Estimated useful lives of the plant and equipment are as follows:
|
|
Buildings
|
|
20
years
|
|
|
Equipment
|
|
3
- 10 years
|
|
|
Motor
vehicles
|
|
4
- 5 years
|
|
|
Furniture
and fixtures
|
|
5
- 10 years
|
The
cost of maintenance and repairs is charged to expenses as incurred, whereas significant renewals and betterments are capitalized.
|
|
i)
|
Construction
in progress and prepayments for equipment
|
Construction
in progress represents direct and indirect construction or acquisition costs for buildings. Prepayments for equipment represents
advances and down-payments for equipment that is either yet to be delivered or has been delivered but requires installation and
testing in order to be put in to use. Amounts recorded as construction in progress and prepayments for equipment are transferred
to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed.
The Company’s begins depreciating those assets when they have transferred to plant and equipment and put into use.
Land
use rights are carried at cost and amortized on a straight-line basis over a specified period. Amortization is provided using
the straight-line method over the life of 50 years.
|
|
k)
|
Accounting
for the impairment of long-lived assets
|
The
Company annually reviews its long-lived assets for impairment or whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. Impairment may be the result of becoming obsolete from a change in the industry
or new technologies. Impairment is present if carrying amount of an asset is less than its undiscounted cash flows to be generated.
If
an asset is considered impaired, a loss is recognized based on the amount by which the carrying amount exceeds the fair market
value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
The
Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (SAB) 104. Sales revenue is recognized
at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed,
no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of
the relevant criteria for revenue recognition are satisfied are recorded as customer deposits. The Company’s revenue consists
of invoiced value of goods, net of a value-added tax (VAT).
All
advertising costs are expensed as incurred. The Company incurred $11,779 and $440 in advertising expenses for the years ended
December 31, 2017 and 2016.
Outbound
shipping and handling are expensed as incurred.
|
|
o)
|
Research
and development
|
All
research and development costs are expensed as incurred. Research and development expense were $1,255,223 and $31,366 for the
years ended December 31, 2017 and 2016.
Retirement
benefits in the form of mandatory government sponsored defined contribution plans are charged to the either expenses as incurred
or allocated to inventory as part of overhead.
The
Company accounts for income tax using an asset and liability approach and allows for recognition of deferred tax benefits in future
years. Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before
the Company is able to realize their benefits, or that future realization is uncertain.
Statutory
reserves are referring to the amount appropriated from the net income in accordance with laws or regulations, which can be used
to recover losses and increase capital, as approved, and are to be used to expand production or operations. PRC laws prescribe
that an enterprise operating at a profit must appropriate and reserve, on an annual basis, an amount equal to 10% of its profit.
Such an appropriation is necessary until the reserve reaches a maximum that is equal to 50% of the enterprise’s PRC registered
capital.
|
|
s)
|
Foreign
currency translation
|
The
accompanying financial statements are presented in United States dollars (“USD”). The functional currency of the Company
is the USD. The functional currency of AGW is the Hong Kong dollar (“HKD”). The functional currency of SZFY and JXFZYBL
is the Renminbi (“RMB”). The financial statements of the Companies subsidiaries have been translated into United States
dollars from RMB and HKD at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and
expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.
|
Exchange Rates
|
|
12/31/2017
|
|
|
12/31/2016
|
|
|
Year end RMB : US$ exchange rate
|
|
|
6.5097
|
|
|
|
6.9472
|
|
|
Average year RMB : US$ exchange rate
|
|
|
6.7590
|
|
|
|
6.6418
|
|
|
|
|
|
|
|
|
|
|
|
|
Year end HKD : US$ exchange rate
|
|
|
7.7519
|
|
|
|
7.7617
|
|
|
Average year HKD : US$ exchange rate
|
|
|
7.7519
|
|
|
|
7.7521
|
|
The
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into US Dollars at the rates used in translation.
The
Company computes earnings per share (“EPS”) in accordance with ASC Topic 260, “Earnings per share”. Basic
EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding
for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common
shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented,
or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e. those that increase income per share
or decrease loss per share) are excluded from the calculation of diluted EPS. As of for the years ended December 31, 2017 and
2016, the Company did not have any potentially dilutive securities outstanding.
The
Company’s accounts for financial instruments in accordance to ASC Topic 820, “Fair Value Measurements and Disclosures,”
which requires disclosure of the fair value of financial instruments held by the Company and ASC Topic 825, “Financial Instruments,”
which 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 consolidated 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:
|
|
●
|
Level
1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
|
|
|
●
|
Level
2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs
that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial
instrument.
|
|
|
●
|
Level
3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.
|
|
|
v)
|
Commitments
and contingencies
|
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it
is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Comprehensive
income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.
Among other disclosures, all items that are required to be recognized under current accounting standards as components of comprehensive
income are required to be reported in a financial statement that is presented with the same prominence as other financial statements.
The Company’s current component of other comprehensive income includes the foreign currency translation adjustment and unrealized
gain or loss.
|
|
x)
|
Recent
accounting pronouncements
|
In
May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes nearly
all existing revenue recognition guidance under accounting principles generally accepted in the United States of America. The
core principle of this ASU is that revenue should be recognized for the amount of consideration expected to be received for promised
goods or services transferred to customers. This ASU also requires additional disclosure about the nature, amount, timing and
uncertainty of revenue and cash flows arising from customer contracts, including significant judgments, and assets recognized
for costs incurred to obtain or fulfill a contract. ASU 2014-09 was schedule to be effective for annual reporting periods beginning
after December 15, 2016, including interim periods within that reporting period. In August 2015, the FASB issued ASU 2015-14,
“Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date,” which deferred the effective date
of ASU 2014-09 by one year and allowed entities to early adopt, but no earlier than the original effective date. ASU 2014-09 is
now effective for public business entities for the annual reporting period beginning January 1, 2018. This update allows for either
full retrospective or modified retrospective adoption. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts
with Customers (Topic 606): Identifying Performance Obligations and Licensing,” which amends guidance previously issued
on these matters in ASU 2014-09. The effective date and transition requirements of ASU 2016-10 are the same as those for ASU 2014-09.
In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements
and Practical Expedients,” which clarifies certain aspects of the guidance, including assessment of collectability, treatment
of sales taxes and contract modifications, and providing certain technical corrections. The effective date and transition requirements
of ASU 2016-12 are the same as those for ASU 2014-09.
The
Company will adopt the new guidance as of January 1, 2018. The Company has evaluated the new guidance and the adoption is not
expected to have a significant impact on the Company’s financial statements and a cumulative effect adjustment under the
modified retrospective method of adoption will not be necessary. There will be no change to the Company’s accounting policies.
In
February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) which supersedes existing
guidance on accounting for leases in “Leases (Topic 840).” The standard requires lessees to recognize the assets and
liabilities that arise from leases on the balance sheet. A lessee should recognize in the balance sheet a liability to make lease
payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.
The new guidance is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those
fiscal years. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective
approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently
evaluating the effects of adopting ASU 2016-02 on its consolidated financial statements but the adoption is not expected to have
a significant impact on the Company’s consolidated financial statements as of the date of the filing of this report.
In
January 2017, the FASB issued ASU No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.”
This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and
activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or
disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business.
This new standard will be effective for the Company on January 1, 2018. The Company will evaluate the effects of adopting the
standard if and when it is deemed to be applicable.
The
Company is currently assessing the above the accounting pronouncements and their potential impact from their adoption on the financial
statements.
3. GOING
CONCERN
The
accompanying financial statements have been prepared in conformity with generally accepted accounting principles which contemplate
continuation of the Company as a going-concern basis. The going-concern basis assumes that assets are realized and liabilities
are settled in the ordinary course of business at amounts disclosed in the financial statements. The Company’s ability to
continue as a going concern depends upon the liquidation of current assets. For the years ended December 31, 2017, the Company
reported net loss of $3,365,457. The Company had working capital deficit of approximately $9,701,557 as of December 31, 2017.
These conditions raise substantial doubt as to whether the Company may continue as a going concern.
In
an effort to improve its financial position, the Company is working to obtain new working capital through a reverse merger with
a publicly listed entity and shortly thereafter the sales of equity or debt securities by the listed entity to investors for cash
to fund operations and further expansion.
4. ACCOUNTS
RECEIVABLE
Accounts
receivable at December 31, 2017 and 2016 consist of the following:
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
Accounts receivable
|
|
$
|
1,387,241
|
|
|
$
|
40,075
|
|
|
Less: Allowance for doubtful accounts
|
|
|
(1,297,552
|
)
|
|
|
-
|
|
|
|
|
$
|
89,689
|
|
|
$
|
40,075
|
|
5. INVENTORIES
Inventories
at December 31, 2017 and 2016 consist of the following:
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
Raw materials
|
|
$
|
72,516
|
|
|
$
|
189,746
|
|
|
Finished goods
|
|
|
5,841
|
|
|
|
258,927
|
|
|
|
|
$
|
78,357
|
|
|
$
|
448,673
|
|
6. PLANT
AND EQUIPMENT
Plant
and equipment at December 31, 2017 and 2016 consist of the following:
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
At Cost:
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
$
|
6,279,367
|
|
|
$
|
5,865,546
|
|
|
Equipment
|
|
|
6,281,133
|
|
|
|
5,779,506
|
|
|
Motor vehicles
|
|
|
51,702
|
|
|
|
48,518
|
|
|
Furniture and fixtures
|
|
|
22,824
|
|
|
|
19,070
|
|
|
|
|
$
|
12,635,026
|
|
|
$
|
11,712,640
|
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
Buildings
|
|
|
(555,166
|
)
|
|
|
(241,990
|
)
|
|
Equipment
|
|
|
(916,820
|
)
|
|
|
(280,610
|
)
|
|
Motor vehicles
|
|
|
(47,918
|
)
|
|
|
(39,159
|
)
|
|
Furniture and fixtures
|
|
|
(7,730
|
)
|
|
|
(2,601
|
)
|
|
|
|
|
(1,527,634
|
)
|
|
|
(564,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,107,392
|
|
|
$
|
11,148,280
|
|
Depreciation
expenses translated at the average exchange rates for the years ended December 31, 2017 and 2016 were $892,082 and $537,909, respectively.
7. INTANGIBLE
ASSETS
Intangible
assets at December 31, 2017 and 2016 consist of the following:
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
Land use rights, at cost
|
|
$
|
557,821
|
|
|
$
|
520,412
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization
|
|
|
(33,274
|
)
|
|
|
(20,816
|
)
|
|
|
|
$
|
524,547
|
|
|
$
|
499,596
|
|
Amortization
expenses translated at the average exchange rates for the years ended December 31, 2017 and 2016 were $10,682 and $10,853, respectively.
8. LOANS
& INTEREST
Short
term loans
Short
term loans at December 31, 2017 and 2016 consist of the following:
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
Jiangxi Rural Credit Union & Rural Commercial bank
|
|
$
|
-
|
|
|
$
|
720,773
|
|
|
Jiangxi Rural Credit Union & Rural Commercial bank
|
|
|
1,996,992
|
|
|
|
-
|
|
|
Jiangxi Rural Credit Union & Rural Commercial bank
|
|
|
307,230
|
|
|
|
-
|
|
|
|
|
$
|
2,304,222
|
|
|
$
|
720,773
|
|
On
March 16, 2016, the JXFZYBL entered into short term loan Jiangxi Rural Credit Union & Rural Commercial Bank due on March 9,
2017. The loan was for general working capital purposes in the amount of $720,773 (RMB 5,000,000). The loan carried an interest
rate of 6.30% and was secured by personal guarantee of Mr. Ming Guang Li, the authorized representative of JXFZBL and Director
of the Company. During the year ended December 31, 2017, the loan was fully paid.
On
May 18, 2017, JXFZYBL entered into a bank loan with Jiangxi Rural Credit Union & Rural Commercial Bank due on April 25, 2020.
The loan was for general working capital purposes in the amount of $300,549 (RMB 2,000,000). The loan carried an interest rate
of nil and requires annual review by the bank to meet certain criteria or else the loan will become due on demand. During the
year ended December 31, 2017, the loan was fully paid.
On
March 30, 2017, JXFZYBL entered into a short-term loan with Jiangxi Rural Credit Union & Rural Commercial Bank due on March
28, 2018. The loan was for general working capital purposes in the amount of $1,536,148 (RMB 10,000,000). The loan carried an
interest rate of 6.30% and was secured by personal guarantee of Mr. Peng Qiu, the authorized representative of JXFZBL and Director
of the Company and Mr. Ming Guang Li, a friend of Mr. Peng Qiu.
On
April 28, 2017, JXFZYBL entered into a bank loan with Jiangxi Rural Credit Union & Rural Commercial Bank due on April 25,
2020. The loan was for general working capital purposes in the amount of $768,074 (RMB 5,000,000). The loan carried an interest
rate of 4.35% and was secured by personal guarantee of Mr Peng Qiu, the authorized representative of JXFZBL and Director of the
Company and Mr. Ming Guang Li, a friend of Mr. Peng Qiu.
Long
term loans
Long
term loan at December 31, 2017 and 2016 consist of the following:
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
Current portion
|
|
$
|
563,766
|
|
|
$
|
1,009,082
|
|
|
Long term portion
|
|
|
1,669,075
|
|
|
|
1,797,222
|
|
|
|
|
$
|
2,232,841
|
|
|
$
|
2,806,304
|
|
On
October 30, 2015, the Company entered into a loan agreement with Industrial and Commercial Bank of China – Wan An County
Branch for an interest only construction loan in the amount of approximately $2,403,808 (RMB 15,000,000). The loan bares an adjustable
interest rate, at the time origination was 4.75%. The interest rates are adjustable every twelve months. The interest-only construction
loan was collateralized by the lands and buildings off the Company with variable maturity dates of up to 5 years.
On
April 28, 2018, JXFZYBL entered into a bank loan with Bank of Beijing due on April 25, 2021. The loan was for construction of
a new Polyphenols production line in the amount of $307,230 (RMB 2,000,000). The loan carried an interest rate of 4.35% and was
secured by personal guarantee of Mr. Peng Qiu, the authorized representative of JXFZBL and Ms. Huang Min, spouse of Mr. Qiu Peng.
On
January 15, 2015, the Company entered into a loan agreement with Wan An County Xin Yuan Industrial Development Ltd Co. for an
interest only loan in the amount of approximately $801,269 (RMB 5,000,000). The loan bares a fixed interest rate at 4.983% with
a maturity date of May 4, 2017. The Company repaid the loan upon maturity. As of December 31, 2017, the Company had made principal
repayments of $720,773 (RMB 5,000,000), the difference in balances between December 31, 2017 and 2016 was a result of the change
of exchange rates in effect at those points in time.
Interest
expenses translated at the average exchange rates for the years ended December 31, 2017 and 2016 were $252,857 and $148,961, respectively.
Loan
maturity schedule as of December 31, 2017:
|
Loan Maturity schedule
|
|
|
|
|
Due in one year
|
|
$
|
563,766
|
|
|
Due in two years
|
|
|
717,381
|
|
|
Due in three years
|
|
|
951,694
|
|
|
Due in four years
|
|
|
-
|
|
|
Due in five years
|
|
|
-
|
|
|
Due in greater than five years
|
|
|
-
|
|
|
|
|
$
|
2,232,841
|
|
9. INCOME
TAXES
The
Company operates in the United States and its wholly-owned subsidiaries operate in PRC, Hong Kong and British Virgin Islands (“BVI”)
and files tax returns in these jurisdictions.
Loss
from continuing operations before income tax expense (benefit) is as follows:
|
|
|
For the Years Ended
|
|
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Loss attributed to United States
|
|
$
|
(2,851,619
|
)
|
|
$
|
-
|
|
|
Loss attributed to foreign operations
|
|
|
(2,890,337
|
)
|
|
|
(1,197,482
|
)
|
|
Income (loss) before income taxes
|
|
$
|
(5,741,956
|
)
|
|
$
|
(1,197,482
|
)
|
The
expense (benefit) for income taxes from continuing operations consists of the following components:
There
was no provision for income taxes for the years ended December 31, 2017 and 2016, as the Company has tax losses in all jurisdictions.
The expected approximate income tax rate for 2017 and 2016, for United States is 34%, Hong Kong is 16.5%, PRC is 25%, and BVI
is a tax-exempt region. The total income tax benefit differs from the expected income tax benefit principally due to the valuation
allowance recorded against the deferred tax assets which are principally comprised of net operating losses (“NOLs”).
The
following table sets forth the significant components of the aggregate deferred tax assets of the Company as of December 31, 2017
and 2016:
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
NOL carryforwards
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(969,550
|
)
|
|
$
|
-
|
|
|
United States – effect of change in statutory rate
|
|
|
370,710
|
|
|
|
-
|
|
|
Foreign
|
|
|
(720,608
|
)
|
|
|
(299,371
|
)
|
|
Change in valuation allowance
|
|
|
1,319,448
|
|
|
|
299,371
|
|
|
Income tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
The
utilization of the NOL carryforwards are subject to limitation under the rules regarding a change in stock ownership as determined
by Section 382 of the Internal Revenue Code, and state and foreign tax laws. Due to the Section 382 limitation resulting from
the ownership change, approximately $1,720,123,000 of the Company’s federal NOLs are expected to expire unused and state
NOLs would potentially be limited as well. The estimated amount of federal NOLs expected to expire due to the limitation has not
been recognized in the consolidated financial statements. The Company is still evaluating the impact of a change in stock ownership
and the potential limitation on foreign NOLs.
On
December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications
to existing law including lowering the corporate tax rate from 34% to 21%. In addition to applying the new lower corporate tax
rate in 2018 and thereafter to any taxable income we may have, the legislation affects the way we can use and carry forward net
operating losses previously accumulated and results in a revaluation of deferred tax assets and liabilities recorded on our balance
sheet. The Company has completed the accounting for the effects of the Act during the quarter ended December 31, 2017. Given that
current deferred tax assets are offset by a full valuation allowance, these changes will have no impact on the balance sheet.
The following table sets forth the significant components of the aggregate deferred tax assets of the Company as of December 31,
2017 and 2016:
The
Company applies the authoritative accounting guidance under ASC 740 for the recognition, measurement, classification and disclosure
of uncertain tax positions taken or expected to be taken in a tax return. The Company provided a full valuation allowance against
its deferred tax assets as of December 31, 2017 and 2016. This valuation allowance reflects the estimate that it is more likely
than not that the net deferred tax assets may not be realized. December 31, 2017 and 2016. This valuation allowance reflects the
estimate that it is more likely than not that the net deferred tax assets may not be realized.
The
Company’s tax returns are subject to examination by tax authorities in the U.S., various state and foreign jurisdictions.
The Company is generally no longer subject to examinations for years prior to 2010.
10. RELATED
PARTY TRANSACTIONS
Related
parties’ relationships are as follows:
|
Peng
Qiu
|
Director,
CEO and Majority Shareholder of the Company
|
|
Min
Huang
|
Mr.
Peng Qiu’s spouse
|
|
Yi
Sheng Qiu
|
Mr.
Peng Qiu’s father
|
|
Wan
An Fu Zhi Yuan Cha Ye Ltd. Co.
|
Mr.
Peng Qiu, CEO of the Company as shareholder and officer.
|
|
Wu
Junrui
|
Former
management of the Company
|
Amounts
due to related parties at December 31, 2017 and 2016 consist of the following:
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
Peng Qiu
|
|
$
|
4,031,991
|
|
|
$
|
3,484,730
|
|
|
David Po
|
|
|
412,647
|
|
|
|
-
|
|
|
Yi Sheng Qiu
|
|
|
554,113
|
|
|
|
519,988
|
|
|
|
|
$
|
4,998,751
|
|
|
$
|
4,004,718
|
|
The
owing to related parties consist of working capital advances and borrowings. These amounts are due on demand and are non-interest
bearing.
Advances
and prepayments to suppliers at December 31, 2017 and 2016 consist of the following:
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
Wan An Fu Zhi Yuan Cha Ye Ltd. Co.
|
|
$
|
9,524
|
|
|
$
|
8,938
|
|
The
advances and prepayments to suppliers account includes an outstanding balance paid to Wan An Fu Zhi Yuan Cha Ye Ltd. Co. for the
purchase of tea leaves, a primary raw material, in the normal course of business. These amounts are due on demand and are non-interest
bearing. The advances and prepayments to suppliers account balance is reduced when the Company takes physical delivery of the
inventory.
Accounts
payable at December 31, 2017 and 2016 consist of the following:
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
Wan An Huan Sheng Biomass Energy Ltd. Co.
|
|
$
|
182,098
|
|
|
$
|
73,377
|
|
The
accounts payables to related party includes an outstanding balance payable to Wan An Huan Sheng Biomass Energy Ltd. Co. for purchases
of raw materials in the normal course of business.
11. Stockholders’
Equity (Deficit)
Preferred
Stock
The
Company is authorized to issue 50,000 shares, with a stated par value of $0.001 per share with such powers, preferences,
rights and restrictions which shall be determined by the Corporation’s Board of Directors in its sole discretion, and which
designations and issuances shall not require the approval of the shareholders of the Corporation.
As
of December 31, 2017 and 2016, 50,000 shares of preferred stock were issued and outstanding.
Common
Stock
The
Company is authorized to issue 2,000,000,000 shares of common stock at a par value of $0.001.
On
November 14, 2017, pursuant to the Share Exchange Agreement (see Note 1), the Company issued 500,000,000 shares of common stock
to the stockholders of Image P2P in exchange for the Image P2P shares. As a result of the reverse acquisition accounting, these
shares issued to the former Image P2P stockholders are treated as being outstanding from the date of issuance of the Image P2P
shares.
As
of December 31, 2017 and 2016, 507,270,882 and 500,000,000 shares of common stock were issued and outstanding, respectively.
12. RISKS
|
A.
|
Credit
risk
|
|
|
|
|
|
The
Company is subject to risk borne from credit extended to customers.
|
|
|
|
|
|
JXFZYBL’s
bank deposits are with banks located in the PRC. These banks do not carry federal deposit insurance.
|
|
|
|
|
B.
|
Interest
risk
|
|
|
|
|
|
The
Company is subject to interest rate risk when its loans become due and require refinancing.
|
|
|
|
|
C.
|
Economic
and political risks
|
|
|
|
|
|
The
Company’s operations are conducted in the PRC. Accordingly, the Company’s business, financial condition, and results
of operations may be influenced by changes in the political, economic, and legal environments in the PRC.
|
|
|
|
|
D.
|
Inflation
risk
|
|
|
|
|
|
Management
monitors changes in prices levels. Historically inflation has not materially impacted the company’s financial statements;
however, significant increases in the price of raw materials and labor that cannot be passed on the Company’s customers
could adversely impact the Company’s results of operations.
|
|
F.
|
Concentrations
risks
|
|
|
|
|
|
In
2017 and 2016, the Company had a concentration of risk in demand for its products. During the years ended December 31, 2017,
four customers representing 32.3%, 16.5%, 15.1% and 13.6% and for the years ended December 31, 2016, one customers representing
98.4%, respectively, of the Company’s sales.
|
|
|
|
|
|
During
the year ended December 31, 2017 and 2016, the Company had a concentration of risk in supply for raw materials, three vendors
that supplied tea comprised 72.85% and 42.6%, respectively, of the Company’s purchases. Additionally, as single vendor
that supplied ethyl acetate to the Company comprised 16.7% and 12.1% of the Company’s purchases, respectively.
|
13. SUBSEQUENT
EVENTS
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.
The Company is negotiating an extension for the short-term
loan with Jiangxi Rural Credit Union & Rural Commercial Bank due on March 28, 2018. As of the date of this report, the Company
has not received a written approval from the bank granting the extension.