COLORSTARS
GROUP
CONSOLIDATED
BALANCE SHEETS
March
31, 2017 (Unaudited) and December 31, 2016 (Audited)
(in
USD)
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
12,535
|
|
|
$
|
32,433
|
|
Accounts receivable, net of allowance for doubtful accounts of $158,767 at March 31, 2017 and $152,710 at December 31, 2016
|
|
|
332
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
53,598
|
|
|
|
53,699
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
66,465
|
|
|
|
86,132
|
|
|
|
|
|
|
|
|
|
|
Equipment, net of accumulated depreciation
|
|
|
47,148
|
|
|
|
46,328
|
|
Other assets
|
|
|
11,829
|
|
|
|
8,735
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
125,442
|
|
|
$
|
141,195
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders’ equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short term loan
|
|
$
|
560,099
|
|
|
$
|
526,591
|
|
Accounts payable
|
|
|
26,613
|
|
|
|
44,968
|
|
Advance from shareholder
|
|
|
145,289
|
|
|
|
74,379
|
|
Accrued expenses
|
|
|
13,516
|
|
|
|
12,516
|
|
Other current liabilities
|
|
|
19,226
|
|
|
|
19,165
|
|
Current portion of long term loan
|
|
|
69,189
|
|
|
|
67,651
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
833,932
|
|
|
|
745,270
|
|
Long term loan
|
|
|
68,925
|
|
|
|
80,414
|
|
Total liabilities
|
|
$
|
902,857
|
|
|
$
|
825,684
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
Common Stock –Par Value $0.001 67,448,890 shares issued and outstanding at March 31, 2017 and December 31, 2016
|
|
|
67,449
|
|
|
|
67,449
|
|
Additional paid in capital
|
|
|
3,112,230
|
|
|
|
3,112,230
|
|
Accumulated other comprehensive income
|
|
|
156,445
|
|
|
|
200,123
|
|
Accumulated deficit
|
|
|
(4,113,539
|
)
|
|
|
(4,064,291
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
(777,415
|
)
|
|
|
(684,489
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
125,442
|
|
|
$
|
141,195
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
COLORSTARS
GROUP
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(in
USD)
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
16,328
|
|
|
$
|
122,009
|
|
Cost of goods sold
|
|
|
12,562
|
|
|
|
82,051
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
3,766
|
|
|
|
39,958
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
36,308
|
|
|
|
72,815
|
|
Rent
|
|
|
11,460
|
|
|
|
10,842
|
|
Depreciation & Amortization
|
|
|
2,057
|
|
|
|
8,481
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
49,825
|
|
|
|
92,138
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(46,059
|
)
|
|
|
(52,180
|
)
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Interest expense (net)
|
|
|
(5,090
|
)
|
|
|
(2,272
|
)
|
Loss on foreign exchange, net
|
|
|
-
|
|
|
|
(11,072
|
)
|
Gain on reversal of bad debts
|
|
|
-
|
|
|
|
63,304
|
|
Other, net
|
|
|
3,537
|
|
|
|
|
|
Impairment loss
|
|
|
(1,636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax
|
|
|
(49,248
|
)
|
|
|
(2,220
|
)
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(49,248
|
)
|
|
|
(2,220
|
)
|
|
|
|
|
|
|
|
|
|
Other comprehensive gain/(loss):
|
|
|
|
|
|
|
|
|
Foreign currency translation gain/(loss)
|
|
|
(43,678
|
)
|
|
|
8,874
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income/(loss)
|
|
$
|
(92,926
|
)
|
|
$
|
6,654
|
|
Earnings per share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
Basic and diluted per share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
67,448,890
|
|
|
|
67,448,890
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
COLORSTARS
GROUP
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in USD)
|
|
For three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net (loss)
|
|
$
|
(49,248
|
)
|
|
$
|
(2,220
|
)
|
Depreciation
|
|
|
2,057
|
|
|
|
8,481
|
|
Gain on reversal of bad debts
|
|
|
(3,537
|
)
|
|
|
(63,304
|
)
|
Impairment loss
|
|
|
1,634
|
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
3,205
|
|
|
|
81,920
|
|
Prepaid expenses and other current assets
|
|
|
(2,993
|
)
|
|
|
3,935
|
|
Accounts payable
|
|
|
(18,354
|
)
|
|
|
(107,490
|
)
|
Accrued expenses
|
|
|
1,001
|
|
|
|
157
|
|
Receipts in advance and other current liabilities
|
|
|
60
|
|
|
|
41,602
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by (used for) operating activities
|
|
|
(66,175
|
)
|
|
|
(36,919
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Advance from shareholder
|
|
|
70,910
|
|
|
|
30,000
|
|
Increase (decrease) in long-term loans
|
|
|
(9,952
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by financing activities
|
|
|
60,958
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(14,681
|
)
|
|
|
16,337
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(19,898
|
)
|
|
|
9,418
|
|
Beginning cash and cash equivalents
|
|
|
32,433
|
|
|
|
24,129
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
12,535
|
|
|
$
|
33,547
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
5,090
|
|
|
$
|
2,272
|
|
Tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
COLORSTARS
GROUP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Nature of Business and Basis of Presentation
Nature
of Business
– Circletronics Inc., now ColorStars Group (“the Company”), was incorporated in Canada on January
21, 2005. Circletronics Inc.- was redomiciled to Nevada and its name changed to ColorStars Group on November 3, 2005. ColorStars
Group owns 100% of the shares of ColorStars Inc.
Color
Stars Inc. (“Color Stars TW”, “the Subsidiary”) was incorporated as a limited liability company in Taiwan,
Republic of China in April 2003 and commenced its operations in May 2003. The Company through its wholly owned Subsidiary is mainly
engaged in manufacturing, designing and selling light-emitting diode and lighting equipment. As the LED lighting business has
become very competitive, during 2017 the Company began planning for a transformation into a holding company to seek investment
opportunities in other business lines.
Basis
of Presentation -
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim financial information and with the instructions to the Quarterly
Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required
by accounting principles generally accepted in the United States for a complete presentation of the financial statements.
In
the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair statement of
the financial position, results of operations and cash flows for the three months ended March 31, 2017 and 2016 have been included.
Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results to be expected for any
subsequent interim period or for the year ending December 31, 2017. The balance sheet at December 31, 2016 included herein was
derived from the consolidated financial statements included in the Company’s Annual Report on Form 10-K as of that date.
Accordingly, the consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2016, as filed with the Securities and Exchange Commission (“SEC”) on September 6, 2018. Some reported amounts have
been reclassified to conform to current-period presentation, although no net effect on the previously-reported financial information
Basis
of Consolidation
- The accompanying consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. All intercompany accounts and transactions have been eliminated.
Note
2 - Going Concern
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
The Company has negative working capital of $767,467 and an accumulated deficit of $4,113,539 as of March 31, 2017, and
it reported net losses for past two years. These factors, among others, raise substantial doubt about the Company’s ability
to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.
The
Company need to raise additional capital from external sources or from shareholder loans to support it operation. There is no
assurance that the Company will be able to obtain fund with acceptable terms.
COLORSTARS
GROUP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
3 - Concentration of Risk
For
the three months ended March 31, 2017, products sold to largest customers accounted for approximately 31% of total revenue. Products
purchased from two suppliers accounted for approximately 66% and 28% of the total purchases during the three months ended March
31, 2017.
For
the three months ended March 31, 2016, products sold to largest customers accounted for approximately 64% of total revenue. Products
purchased from two suppliers accounted for approximately 28% and 12% of the total purchases during the three months ended March
31, 2016.
Note
4 - Long Term Investments
The
Company adopted the provisions of ASC 820, which require us to determine the fair value of financial assets and liabilities using
a specified fair-value hierarchy. The objective of the fair-value measurement of our financial instruments is to reflect the hypothetical
amounts at which we could sell an asset or transfer a liability in an orderly transaction between market participants at the measurement
date (exit price). ASC 820 describes three levels of inputs that may be used to measure fair value, as follows:
Level
1 value is based on observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level
2 value is based on inputs other than quoted market prices included in Level 1 that are observable for the asset or liability
either directly or indirectly.
Level
3 values are driven by models with one or more significant inputs or significant value drivers that are unobservable.
Anteya
Technology Corp (Anteya) is a private company incorporated in Taiwan.The equity interest held by the Company is 13.68% on March
31, 2017.
Anteya
Technology ceased operations in April 2017 and, as a result, no future economic benefit was considered realizable by the Company
and, as a result, the investment was fully impaired in the year ended December 31, 2015 resulting in a loss of $113,177.
Note
5- Inventory
Inventories
stated at the lower of cost or market value are as follows:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
790,680
|
|
|
$
|
741,781
|
|
Allowance for Inventory Valuation and Obsolescence Losses
|
|
|
(790,680
|
)
|
|
|
(741,781
|
)
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The
Company decided to shift in operational focus and that it was determined remaining inventory had little-to-no value, thus fully
impaired at December 31, 2015.
COLORSTARS
GROUP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
6 - Income Taxes
The
Company is subject to U.S. federal income tax as well as income tax in states and foreign jurisdictions(Taiwan). For the major
taxing jurisdictions, the tax years 2014 through 2016 remain open for state and federal examination. The Company believes assessments,
if any, would be immaterial to its consolidated financial statements. With respect to the foreign jurisdiction, the Company is
no longer subject to income tax audits for the year 2015 (inclusive).
The
income tax provision information is provided as follows:
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Component of income (loss) before income taxes:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(2,000
|
)
|
|
$
|
(14,049
|
)
|
Foreign
|
|
|
(47,248
|
)
|
|
|
11,829
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(49,248
|
)
|
|
$
|
(2,220
|
)
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
-
|
|
|
|
-
|
|
State and local
|
|
|
-
|
|
|
|
-
|
|
Foreign
|
|
|
-
|
|
|
|
-
|
|
Income tax benefit(loss)
|
|
|
-
|
|
|
|
-
|
|
Note
7 - Bank Short Term Debt
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Short term loan
|
|
$
|
560,099
|
|
|
$
|
526,591
|
|
The
Company signed revolving credit agreements with a lending institution. The interest rate on short-term borrowings outstanding
as of March 31, 2017 is 1.91% per annum, as of December 31, 2016, interest rate is 1.66% per annum. The short term debt is secured
by:
1.
personal guarantee from directors
2.
the realty property of spouse of directors
Note
8 - Long Term Loan
The
Company signed sales with buyback agreement of 5 million New Taiwan Dollars (US$154,750.85) with Chailease Finance Co., Ltd. in
July 2016. The loan is amortized to 36 months and the monthly repayment amount is based on the remaining principal at the beginning
of each 12 months. The interest rate is fixed at 6.37% per annum over the term of the agreement. For the first 12 months of the
term the monthly repayment was $196,000 NTD (US$6,066.23) beginning in July 2016, and fixed for the next 12 months until June
2017. The monthly repayment was reduced to $168,000 NTD (US$5,199.63) beginning in July 2017, and fixed for the next 12 months
until June 2018. However the company made an overall repayment of the remaining amounts due of $2,283,954 NTD (US$70,688.77) on
Feb. 13, 2018 and terminated this loan agreement.
COLORSTARS
GROUP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
9 - Geographic Information
Product
revenues for the three months ended March 31, 2017 and 2016 are as follows:
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Customers based in:
|
|
|
|
|
|
|
|
|
Europe
|
|
$
|
9,114
|
|
|
$
|
40,708
|
|
Asia
|
|
|
2,206
|
|
|
|
1,921
|
|
United States
|
|
|
5,008
|
|
|
|
78,648
|
|
Others
|
|
|
-
|
|
|
|
732
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,328
|
|
|
$
|
122,009
|
|
Note
10 - Related Party Transactions
The
Company has recorded expenses for the following related party transactions for three months ended March 31, 2017 and 2016:
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Purchase from Anteya Technology Corp
|
|
$
|
8,091
|
|
|
$
|
22,672
|
|
Rent paid to Mr. Wei-Rur Chen
|
|
|
11,460
|
|
|
|
10,842
|
|
As
of the balance sheet date indicated, the Company had the following receivable and liabilities recorded with respect to related
party transactions:
|
|
March 31, 2017
|
|
|
December 31, 2016
|
|
Anteya Technology Corp
|
|
|
|
|
|
|
|
|
Due (to)/from affiliate
|
|
$
|
7,820
|
|
|
$
|
(355
|
)
|
Mr. Wei-Rur Chen
|
|
|
|
|
|
|
|
|
Payable to Shareholder
|
|
$
|
(145,289
|
)
|
|
$
|
(74,379
|
)
|
The
Company leases office space from Mr. Wei-Rur Chen which the term for the agreement is from November 2015 to November 2020 with
amount rent of $45,000. Rent payments were $11,460 and $10,842 for the three months ended March 31, 2017 and 2016 respectively.
The
Company conducted business with a related party company Anteya Technology Corp. The Company owns 13.68% of the outstanding common
stock of Anteya Technology Corp as of March 31, 2017. All transactions were at market-based prices.
Mr.
Wei-Rur Chen made various advances to the Company. The balance of advance was $145,289 as of March 31, 2017. The advanceare non-interest
bearing and due on demand.
COLORSTARS
GROUP
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
11 - Commitments
The
company leases offices in Taiwan. The main office is relocated in New Taipei City with monthly rental of NTD$120,000, and the
term is from 11-7-2015 to 10-6-2020. The company rented a branch office located in Taipei City with a monthly rental of NTD$160,000
on 11-11-2017, and the term is from 12-1-2017 to 11-30-2019. However this branch office is closed on April 10, 2018 and the lease
is cancelled. The minimum future rental payments due under non-cancelable operating leases with remaining terms at March 31, 2017
are as follows:
|
|
For the year ended December 31,
|
|
2017
|
|
|
41,853
|
|
2018
|
|
|
65,015
|
|
|
|
$
|
106,868
|
|
|
|
Three months ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Rent expenses
|
|
$
|
11,460
|
|
|
$
|
10,842
|
|
Note
12 - Subsequent Events
The
Company evaluated all events subsequent to March 31, 2017 through the date of the issuance of the financial statements, there
are no no other significant or material transactions to be reported except as follows:
On
October 5, 2017, the Company completed the sale of a total of 12,825,625 shares of Company common stock to 13 investors at a price
per share of US $0.0264 for a total of US $337,961.13 in proceeds to the Company.
On
November 13, 2017, the Company completed the sale of a total of 10,000,000 shares of Company common stock to 11 investors at a
price per share of US $0.033 for a total of US $330,000 in proceeds to the Company.
On
February 5, 2018, the Company completed the sale of a total of 12,000,000 shares of Company common stock to 23 investors at a
price per share of US $0.034188 for a total of US $410,256.38 in proceeds to the Company.
On
February 14, 2018, Ms. Chiu Mei-Ying resigned as a Director and the Secretary of the Company. Her resignations were not the result
of any disagreements with the Company. Effective February 21, 2018, the remaining two directors on the Board of Directors of the
Company appointed Mr. Wilson Chen to the Board of Directors to fill the vacancy created by the resignation of Ms. Chiu Mei-Ying.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Forward
Looking Statements
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the
words “believes”, “project”, “expects”, “anticipates”, “estimates”,
“intends”, “strategy”, “plan”, “may”, “will”, “would”,
“will be”, “will continue”, “will likely result”, and similar expressions. We intend such
forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with those safe-harbor
provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties
which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the
actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our
operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory
changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties
should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information,
future events or otherwise. Further information concerning our business, including additional factors that could materially affect
our financial results, is included herein and in our other filings with the SEC.
Overview
(a)
Business Overview
.
ColorStars
Group (“we”, “us”, “our”, the “Company”) was initially incorporated in the Province
of Ontario, Canada on January 21, 2005. On November 3, 2005, we converted to a Nevada corporation. We are a vertically integrated
lighting company that develops light emitting diodes (“LED”) based lighting products for general consumer applications
as well as LED lighting products for professional lighting installations. Our LED lighting application development activity ranges
from LED packaging to optical lens and heat management, from retrofit LED lamps and bulbs to lighting fixtures designed for general
and special lighting applications. The Company intends to change its business model into a holding company due to environmental
changes in 2018 adversely affecting the LED lighting market. The Company’s business model commencing in 2018 is to acquire
various operating companies. There is no assurance that the Company will be able to acquire any operating companies.
(b)
Significant Business Transactions Overview
.
On
July 24, 2005, we entered into an acquisition agreement with ColorStars, Inc., a Taiwanese corporation (“ColorStars Taiwan”),
pursuant to which, on February 14, 2006, the shareholders of ColorStars Taiwan were issued shares of our Company in exchange for
their shares of ColorStars Taiwan. This resulted in ColorStars Taiwan becoming a wholly owned subsidiary of the Company. Specifically,
for each share of common stock outstanding of ColorStars Taiwan (1,500,000 shares of ColorStars Taiwan were issued and outstanding
at such time), 20 shares of our common stock were issued in exchange for each such share (the aggregate of 30,000,000 shares of
our common stock).
On
March 20, 2009, ColorStars Taiwan acquired 50.4% of the outstanding common shares of Fin-Core Corporation, a Taiwanese corporation
(“Fin-Core”) for a cash consideration of US $468,262. This resulted in Fin-Core becoming a subsidiary of ours. The
purchase price for the common shares of Fin-Core was determined through private negotiations between the parties and was not based
upon any specific criteria of value. Fin-Core is principally engaged in the design and manufacturing of thermal management devices,
the design and manufacturing of electrical and lighting devices and trade, and the import and export of electrical and lighting
devices.
On
July 7, 2010, ColorStars Taiwan sold 30.4% of its common shares of Fin-Core to Meiloon Industrial Co., Ltd., a publicly traded
company on the Taiwan Stock Exchange, for a cash offering of US $429,000. As a result of this transaction, ColorStars Taiwan owned
only 20% of the outstanding common shares of Fin-Core.
On
August 5, 2009, ColorStars Taiwan acquired a 51% equity interest in Jun Yee Industrial Co., Ltd., a Taiwanese corporation (“Jun
Yee”) for a cash consideration of US $536,000. The purchase price for the equity interest in Jun Yee was determined through
private negotiations between the parties and was not based upon any specific criteria of value. Upon acquiring the equity interest,
Jun Yee became a subsidiary of ours. The principal activity of Jun Yee is the manufacturing of LED light.
On
November 26, 2010, ColorStars Taiwan entered into two related stock purchase agreements whereby ColorStars Taiwan sold all of
its shares of Jun Yee common stock to Mr. Ming-Chun Tung and Ms. Ming-Fong Tung. Pursuant to the stock purchase agreement entered
into with Mr. Ming-Chun Tung, ColorStars Taiwan sold 265,000 shares of its Jun Yee common stock to Mr. Ming-Chun Tung at a price
per share of NTD $23 (USD $0.76) for a total purchase price of NTD $6,095,000 (USD $200,427). Furthermore, pursuant to the stock
purchase agreement entered into with Ms. Ming-Fong Tung, ColorStars Taiwan sold 500,000 shares of its Jun Yee common stock to
Ms. Ming-Fong Tung at a price per share of NTD $23 (USD $0.76) for a total purchase price of NTD $11,500,000 (USD $378,165). As
a result of the transactions consummated above, Jun Yee is no longer our subsidiary.
In
October 2011, Fin-Core decided to increase its capital by issuing 3,000,000 new shares at par value of NTD10 per share. The Company
was entitled to subscribe for up to 600,000 shares for NTD 6,000,000. However, the Company chose not to participate in the subscription
of any newly issued shares of Fin-Core. As a result, on November 4, 2011, the Company’s equity interest in Fin-Core decreased
to 11.43% from 20% after issuance of 3,000,000 new shares.
On
Dec. 20, 2012, Fin-Core Corporation decreased its total shares from 7,000,000 to 500,000. The Company’s invested cost and
percentage of shareholding were unchanged after the share consolidation. The Company held 57,143 shares in Fin-Core after the
consolidation.
On
December 28, 2012, Fin-Core increased its total shares to 1,100,000 shares with a new capital injection. The Company decided to
not participate in the new share subscription and kept its total shares at 57,143. As a result, on December 31, 2012, the Company’s
equity interest in Fin-Core decreased to 5.19%. As a result of the consolidation and subsequent increase in outstanding shares,
Fin-Core is no longer deemed our subsidiary.
In
2004, ColorStars, Inc. based in Taiwan acquired 20% of the outstanding common shares of Anteya Technology Corporation. Anteya
provides the OEM service to us for the TRISTAR, EZSTAR, R4, LUXMAN, and HB series of product lines. On August 16, 2012, Anteya
increased its share capital from 5,000,000 shares to 6,500,000 shares, and we subscribed for 300,000 additional shares at par
value. The Company now holds a total of 1,300,000 shares in Anteya representing a total investment of NTD $27,304,000 (USD $910,492).
The Company did not subscribe additional shares in Anteya when Anteya increased its outstanding shares from 6,500,000 shares to
9,500,000 shares. As a result, the Company’s equity position in Anteya decreased from 20% to 13.68% as of June 30, 2016.
On
October 13, 2008 we acquired 2,800 shares in a German company, Phocos AG. On May 27, 2013, the Company sold its 2,800 shares of
Phocos AG to MUUS Horizen Fund 1, LP for $30 EU per share ($84,000 EU in total). The Company has no remaining stake in Phocos
AG.
(c)
Material Transactions During the Reporting Period
.
None.
Results
of Operations
Comparison
of Three Months Ended March 31, 2017 to Three Months Ended March 31, 2016
Net
Sales.
Net sales decreased to $16,328 for the three months ended March 31, 2017, from $122,009 for the three months ended
March 31, 2016. The decrease in sales was due to global competition and lack of new products launching this period.
Cost
of Goods Sold.
Cost of goods sold decreased to $12,562 for the three months ended March 31, 2017 from $82,051 for the three
months ended March 31, 2016. The decrease in cost of goods sold was primarily due to the decrease in overall sales.
Gross
Profit.
Gross profit decreased to $3,766 for the three months ended March 31, 2017 from $39,958 for the three months ended
March 31, 2016. The decrease in gross profit was primarily due to decrease in overall sales.
Gross
Profit Percentage.
Gross profit percentage decreased to 23.06% for the three months ended March 31, 2017 from 32.75% for the
three months ended March 31, 2016. The decrease in gross profit percentage was primarily due to lower margin in the sales of old
product lines from the inventory.
Selling,
General and Administrative Expenses.
Selling, general and administrative expenses decreased to $36,308 for the three months
ended March 31, 2017 from $72,815 for the three months ended March 31, 2016. The decrease in selling, general and administrative
expenses is primarily related to closing the California sales office.
Research
and Development Expenses
. Research and development (R&D) expenses remained constant at $0 for the three months ended March
31, 2017 as compared to $0 for the three months ended March 31, 2016. The lack of research and development expenditure was due
to overall lack of profitability.
Depreciation
and Amortization.
Depreciation and amortization decreased to $2,057 for the three months ended March 31, 2017 from $8,481
for the three months ended March 31, 2016. The decrease in depreciation and amortization was mainly due to the decrease of asset
values over time.
Interest
Expense
. Interest expense increased to $5,090 for the three months ended March 31, 2017 from $2,272 for the three months ended
March 31, 2016. The increase in interest expense was due to increase in long term loan and loss from froeign exchange fluctuation.
Net
Income (loss)
. For the three months ended March 31, 2017, we incurred a net loss of $(49,248) as compared to a net
loss of $(2,220) for the three months ended March 31, 2016. The net loss was primarily a result of less revenue for the period
along with the profit margin not being enough to cover the operating cost.
Financial
Condition, Liquidity and Capital Resources
Our
historical revenues are primarily derived from the sale of LED devices and systems. Although our historical financial results
are mainly dependent on sales, general and administrative, compensation and other operating expenses, our financial results have
also been dependent on the level of market adoption of LED technology as well as general economic conditions. As the LED lighting
business has become very competitive, during 2017 the Company began planning for a transformation into a holding company to seek
investment opportunities in other business lines.
Net
cash provided by (used in) operating activities.
During the three months ended March 31, 2017, net cash used in operating
activities was ($66,175) compared with $(36,919) used in operating activities for the three months ended March 31, 2016.
The cash flow used in operating activities in the three months ended March 31, 2017 was primarily the result of loss in operations.
The cash flow used in operating activities in the three months ended March 31, 2016 was primarily the result of the Company’s
increase in accounts payable payments and operating net loss.
Net
cash provided by (used in) financing activities.
During the three months ended March 31, 2017, net cash provided by financing
activities was $60,958 compared with $30,000 provided by investing activities for the three months ended March 31, 2016.
The
Company need to raise additional capital from external sources or from shareholder loans to support its operation. There is no
assurance that the Company will be able to obtain funding with acceptable terms.
We
currently have an outstanding short-term loan with Bank SinoPac of Taiwan. We entered into one written, short-term loan agreements
with this bank on February 25, 2015. The loan is secured by real property of Tsui-Ling Lee, spouse of Wei-Rur Chen, our president
and CEO. The terms of the loan agreement are described in further detail in the chart below:
Lender
|
|
Borrower
|
|
Loan
Amount
|
|
Term
|
|
Interest
Rate
|
|
|
|
|
|
|
|
|
|
Bank
SinoPac of Taiwan
|
|
ColorStars,
Inc.
|
|
Seventeen Million New
Taiwan
Dollars
(NTD $17,000,000)(1)
|
|
August
24, 2016 to February 23, 2017
|
|
Fixed
at 1.94% per annum
|
(1)
NTD $17,000,000 is approximately USD $526,591.
Recent
Developments
There
are no recent developments to report.
Inflation
At
this time, we do not believe that inflation and changes in price will have a material effect on operations.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
Related
Party Transactions
The
Company leases office space from Mr. Wei-Rur Chen. The Company leases office space from Mr. Wei-Rur Chen which the term for the
agreement is from November 2015 to November 2020 with amount rent of $45,000. Rent payments were $11,460 and $10,842 for the three
months ended March 31, 2017 and 2016, respectively. Mr. Wei-Rur Chen owns one hundred percent (100%) interest in the lease agreement.
Mr. Wei-Rur Chen is the President, Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of the Company,
as well as beneficial owner of more than five percent (5%) of the Company’s common stock.
The
Company also conducted business with a related party company Anteya Technology Corp. The Company owns 13.68% of the outstanding
common stock of Anteya Technology Corp as of March 31, 2017. All transactions were at market-based prices.