PART
I
ITEM
1. BUSINESS
Overview
From
2007 until the first quarter of 2017, we were engaged in the resale and distribution of third party products such as mobile phones,
facsimile machines, DVD players, stereos, speakers, MP3 and MP4 players, iPods, electronic dictionaries, CD players and audio
systems. As a result of declining sales and continuing losses, we discontinued this business. We had previously imported into
China digital products, baby products, health nutrition and frozen food products, but this business had been discontinued prior
to December 31, 2017.
On
February 15, 2018, our directors and officers resigned and we brought in new management and changed our business plan. We intend
to open, manage and operate upscale restaurants and licensing our restaurants to restaurant operators. We may also enter into
agreements with licensees pursuant to which our wholly-owned subsidiary, DB-Link Ltd., a British Virgin Island company, and the
licensee would invest in the restaurant. Our business plan contemplates that DB-Link will have a majority interest in the joint
venture entity that operates the restaurants, DB-Link will manage the restaurants for which it will receive a management fee,DB-Link
will establish a restaurant business related training school to train chefs and wait staff, and DB-Link will operate its own online
restaurant supplies store to service the restaurants we own or license. However, we cannot assure you that we will be able to
open and operate restaurants or enter into license agreements with qualified licensees or the terms of any license or management
agreement.
In
furtherance of our plan to engage in the upscale restaurant business, on April 3, 2018, DB-Link entered into a cooperation agreement
dated March 16, 2018, with Alvin Leung, regarding brand cooperation and the catering business in the territory of the Mainland
China, Australia, New Zealand and the United States (the “initial territory”). The agreement provides that Mr. Leung
will exclusively work with DB-Link in the initial territory and will provide DB-Link with the brand names of “Bo”
and “Daimon” in the initial territory, and he granted DB-Link a first right of cooperation before seeking similar
cooperation with other third parties in Canada, Hong Kong and Europe. DB-Link’s business will be operated by joint venture
entities in which DB-Link will hold a 66% equity interest and Mr. Leung a 34% interest. In addition, DB-Link will pay Mr. Leung
RMB 800,000 (approximately $127,000), half of which has been paid with the balance being payable in 2019. Mr. Leung is a Hong
Kong chef who holds three Michelin stars at his restaurant Bo Innovation in Hong Kong and one Michelin star in his restaurant
Bo London in London.
In
view of our desire to disengage in our former business, on March 29, 2018, we entered into an agreement with Zhenggang Wang, who
was a director, chief executive officer and chairman of the board of the Company until his resignation on February 1, 2018, pursuant
to which we agreed to sell to Mr. Wang all of the stock in our wholly-owned subsidiary, Capital Future Development Limited, a
British Virgin Islands company, in exchange for the transfer by Mr. Wang to us of 1,738,334 shares of our common stock, which
represents all of the common stock owned by Mr. Wang. All of our consolidated liabilities are liabilities of Capital Future Development
and its subsidiaries. The shares acquired by the Company will be cancelled. All of our former business was conducted through Capital
Future Development and its subsidiaries. We are in the process of consummating the transfer of the stock of Capital Future Development.
As
a result of the transfer of the stock of Capital Future Development, we have one subsidiary, DB-Link, and our business will be
conducted through DB-Link and its subsidiaries. We anticipate we will have separate subsidiaries for the restaurants we own or
operate although we may have one subsidiary owning more than one restaurant in a city. To the extent that these restaurants are
operated in the manner contemplated by our agreement with Mr. Leung, DB-Link will own a 66% interest in the subsidiary and Mr.
Leung will own a 34% interest.
Our
Organization
We
are a Nevada corporation, organized on August 20, 1998 under the name Editworks, Ltd. Our corporate name was changed to TriLucent
Technologies Corp. on April 3, 2001, to Anza Innovations, Inc. on November 13, 2002, to Gaofeng Gold Corporation on February 12,
2004, to Sun Oil & Gas on December 16, 2004, to China 3C Group on December 19, 2005 and to Yosen Group, Inc. on December 21,
2012. Our address is 368 HuShu Nan Road, HangZhou City, Zhejiang Province, China 310014, telephone +086-0571-88381700. Our website
is www.yosn.com. Information on our website or any other website does not constitute a part of this annual report.
Reverse
Stock Split
On
September 30, 2016 we effected a one-for-three reverse split of our common stock. All share and per share information in this
annual report retroactively reflects the reverse split and reduction in authorized common stock.
Our
Proposed Business
Introduction
We
plan to open and manage upscale restaurants and catering facilities, initially in either the Peoples’ Republic of China
or the United States, and, if we are successful, we may expand in China and the United State as well as Australia and New Zealand
and the United States. We may also license our brand names to other experienced operators and/or chefs of upscale restaurants.
On
April 3, 2018, DB-Link entered into a cooperation agreement with Alvin Leung, regarding brand cooperation and the catering
business in the territory of the Mainland China, Australia, New Zealand and the United States (the “initial territory”).
The agreement provides that Mr. Leung will exclusively work with DB-Link in the initial territory and will provide DB-Link with
the brand names of “Bo” and “Daimon” in the initial territory, and he granted DB-Link a first right of
cooperation before seeking similar cooperation with other third parties in Canada, Hong Kong and Europe. DB-Link’s business
will be operated by joint venture entities in which DB-Link will hold a 66% equity interest and Mr. Leung a 34% interest. In addition,
DB-Link will pay Mr. Leung RMB 800,000 (approximately $127,000), half of which has been paid with the balance being payable in
2019.
We
believe that our cooperation agreement with Alvin Leung will enable us to develop and operate upscale restaurants based on the
methods that Mr. Leung has developed for his well-known restaurants in Hong Kong, which received three Michelin stars, and London,
which received one Michelin star. However, each restaurant is different, and Mr. Leung will not have the personal involvement
in our restaurants that he has with his own restaurants. It will be very difficult to duplicate the success that a restaurant
has in one market to another market with a different operation, including a different chef and a different ambiance. Unlike fast
food and popular restaurant chains, each upscale restaurant has its own personality and its own distinct style and ambiance. Thus,
we cannot assure you that we will be successful in developing the marketing our restaurant business.
Unlike
restaurant chains, we do not anticipate that our restaurants will be identical in each location, and the chef will be the key
to the success of each restaurant. We also believe that the location of our restaurants will be critical to our long-term success.
In selecting a location, we intend to focus on major metropolitan areas in China with demographic and discretionary spending profiles
that favor our high-end concepts. To the extent that we bring in partners, in addition to Mr. Leung, or work with a licensee,
we will look at the potential partner’s or licensee’s track record and management experience. In choosing a location,
we consider factors such as traffic patterns, proximity to high-end shopping areas and office buildings, hotels and convention
centers, area restaurant competition, accessibility and visibility. Our ability to open new restaurants depends upon, among other
things, finding quality locations, reaching acceptable agreements regarding the lease of locations, raising or having available
adequate capital for construction and opening costs, timely hiring, training and retaining the skilled management, particularly
the chef, and other employees necessary to meet staffing needs, obtaining, for an acceptable cost, required permits and approvals
and efficiently managing the amount of time and expense to build out and open each new restaurant.
Source
of Supply
We
intend to seek consistent quality of the food and beverages served in our properties. Since most of the food ingredients will
be sourced locally, each restaurant, or, if there is more than one in a metropolitan area, we plan to have one purchase manager
for the area . We will seek to maintain consistent company-wide quality in our restaurants although the menus will vary from
restaurant to restaurant, based on the chefs. We do not presently have any relations with any suppliers, and it will be necessary
for us to develop such relations as we open restaurants. To the extent that the restaurant is operated by a licensee, the licensee
will be responsible for developing supply channels, subject to our overall quality control procedures.
Competition
Competition
in the upscale restaurant business is intense, and many restaurants are not successful. The restaurant industry is intensely competitive
with respect to price, quality of service, location, ambiance of facilities and type and quality of food. Because we market to
a high end clientele, price, while important, is not likely to be as important a factor as the menu, the quality of the food and
service and the restaurant’s ambience and location. We will compete with a substantial number of national and regional restaurant
chains and independently owned restaurants for customers, restaurant locations and qualified management, including chefs, and
other restaurant staff, including medium and lower price restaurants, since our target customer base does not limit itself to
upscale restaurant. To the extent that our restaurants are located in hotels, casinos, resorts and similar locations, we are subject
to competition in the broader lodging and hospitality markets that could draw potential customers away from our locations.
Since
we are a start-up in the restaurant industry, many, if not most, our competitors have greater financial and other resources, have
been in business longer, have greater name recognition and are better established in the markets where our restaurants are located
or where we may open restaurants. Our inability to compete successfully with other restaurants and food and beverage hospitality
services operations may harm our ability to maintain acceptable levels of revenue growth, limit or otherwise inhibit our ability
to grow one or more of our concepts, or force us to close one or more of our restaurants. We may also need to evolve our concepts
in order to compete with popular new upscale restaurant or concepts or trends that emerge from time to time, and we cannot provide
any assurance that we will be successful in doing so or that any changes we make to any of our concepts in response will be successful
or not adversely affect our profitability. In addition, with improving product offerings at fast casual restaurants and quick-service
restaurants combined with the effects of negative economic conditions and other factors, consumers may choose less expensive alternatives,
which could also negatively affect customer traffic at our restaurants or food and beverage hospitality services operations. Any
unanticipated slowdown in demand at any of our restaurants due to industry competition may adversely affect our business and results
of operations.
Seasonality
To
the extent that our restaurants are in locations that have adverse weather in summer or winter, our business may be affected by
weather conditions.
Intellectual
Property
Pursuant
to the cooperation agreement with Alvin Leung, we have the right to use the names “Bo” and “Daimon” in
our restaurants in the initial territory.
Government
Regulation
We
are subject to China’s National Environmental Protection Law, as well as a number of other national and local laws and regulations
regulating concerning waste disposal, pollution, protection of the environment, and the presence, discharge, storage, handling,
release and disposal of, and exposure to, hazardous or toxic substances and health and safety. The environmental laws provide
for significant fines and penalties for noncompliance and liabilities for remediation. We are subject to China’s National
and State Food Hygiene Law, Food Safety Law, Food Safety Law Implementation Regulations and Food Safety Supervision and Administration
Measures for Catering Services. We are also subject to China’s Law on Quality and Safety of Agricultural Products, and Product
Quality Law. Our failure to comply with these regulations could result in monetary penalties and could result in the temporary
or permanent closing of one or more restaurants.
If
we open restaurants in the United States extensive federal, state and local government regulation, including regulations related
to the preparation and sale of food, the sale of alcoholic beverages, the sale and use of tobacco, zoning and building codes,
land use and employee, health, sanitation and safety matters. For example, the preparation, storing and serving of food and the
use of certain ingredients is subject to heavy regulation. Alcoholic beverage control regulations would govern various aspects
of our locations’ daily operations, including the minimum age of patrons and employees, hours of operation, advertising,
wholesale purchasing and inventory control, handling and storage. If we operate in different states, we are also required to comply
with a number of different laws covering the same topics. The failure of any of our locations to timely obtain and maintain necessary
governmental approvals, including liquor or other licenses, permits or approvals required to serve alcoholic beverages or food
could delay or prevent the opening of a new location or prevent regular day-to-day operations, including the sale of alcoholic
beverages, at a location that is already operating, any of which would adversely affect our business and results of operations.
In
addition, the costs of operating our locations may increase if there are changes in laws governing minimum hourly wages,
working conditions, overtime and tip credits, health care, workers’ compensation insurance rates, unemployment tax
rates, sales taxes or other laws and regulations such as those governing access for the disabled, including the Americans
with Disabilities Act. For example, the Patient Protection and Affordable Care Act (“PPACA”), among other things,
includes guaranteed coverage requirements and imposes new taxes on health insurers and health care benefits that could
increase the costs of providing health benefits to employees. In addition, if we have a significant number of locations in
certain states, regulatory changes in these states could have a disproportionate impact on our business. If any of the
foregoing increased costs were to occur and we were unable to offset the change by increasing our menu prices or by other
means, our business and results of operations could be adversely affected.
Government
regulation can also affect customer traffic at our locations. A number of states, counties and cities have enacted menu labeling
laws requiring multi-unit restaurant operators to disclose certain nutritional information. These regulations would apply if we
have 20 or more locations operating under the same trade name and offering substantially the same menus. If we are subject to
these laws, we would be required to post nutritional information on their menus to provide to consumers, upon request, a written
summary of detailed nutritional information. The FDA is also permitted to require additional nutrient disclosures, such as trans-fat
content. Although we do not presently anticipate that we will be subject to these requirements, we cannot assure you that we will
not become subject to these requirements in the future or that the laws will not change so that they apply to our restaurants
in the United States. Our compliance with the PPACA or other similar laws to which we may become subject could reduce demand for
our menu offerings, reduce customer traffic and/or reduce average revenue per customer, which would have an adverse effect on
our revenue. Also, further government regulation restricting smoking in restaurants and bars, may reduce customer traffic. Any
reduction in customer traffic related to these or other government regulations could affect revenues and adversely affect our
business and results of operations.
We
are also subject to federal, state and local laws and regulations concerning waste disposal, pollution, protection of the environment,
and the presence, discharge, storage, handling, release and disposal of, and exposure to, hazardous or toxic substances. These
environmental laws provide for significant fines and penalties for noncompliance and liabilities for remediation, sometimes without
regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of hazardous
toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries and property
damage associated with releases of, or actual or alleged exposure to, such hazardous or toxic substances at, on or from our locations.
Environmental conditions relating to releases of hazardous substances at prior, existing or future locations could materially
adversely affect our business, financial condition or results of operations. Further, environmental laws, and the administration,
interpretation and enforcement thereof, are subject to change and may become more stringent in the future, each of which could
materially adversely affect our business, financial condition or results of operations.
To
the extent that governmental regulations impose new or additional obligations on our suppliers, including, without limitation,
regulations relating to the inspection or preparation of meat, food and other products used in our business, product availability
could be limited and the prices that our suppliers charge us could increase. We may not be able to offset these costs through
increased menu prices, which could have a material adverse effect on our business. If any of our restaurants were unable to serve
particular food products, even for a short period of time, or if we are unable to offset increased costs, our business and results
of operations could be adversely affected.
Further,
the U.S. Congress and Department of Homeland Security from time to time consider and may implement changes to federal immigration
laws, regulations or enforcement programs. Some of these changes may increase our obligations for compliance and oversight, which
could subject us to additional costs and make our hiring process more cumbersome, or reduce the availability of potential employees.
Even if we operate our restaurants in strict compliance with U.S. Immigration and Customs Enforcement and state requirements,
some of our employees may not meet federal work eligibility or residency requirements, which could lead to a disruption in our
work force. Although we intend to require all of our new employees in the United States to provide us with the government-specified
documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers.
Unauthorized workers are subject to seizure and deportation and may subject us to fines, penalties or loss of our business license
in certain jurisdictions. Additionally, a government audit could result in a disruption to our workforce or adverse publicity
that could negatively impact our brand and/or potential for receipt of letters from the Social Security Administration requesting
information (commonly referred to as no-match letters) could make it more difficult to recruit and/or retain qualified employees..
Employees
We
currently have 6 full-time employees including our Chief Executive Officer, Chief Financial Officer and Chief Operating Officer
and 5 part-time employees.
ITEM
1A. RISK FACTORS
Risk
Factors Associated with Our Business
Opening
a restaurant requires significant capital, and we have no agreements or understandings with any party to provide us with necessary
funds.
Before
we can open any restaurant, we will require sufficient capital to cover our cash outlays before we generate revenue. These expenditures
relate to finding an acceptable location, negotiating a lease and making the initial payments under the lease, making the leasehold
improvements, including the purchase or lease of restaurant equipment, obtaining necessary permits, developing relationships with
food suppliers and the media, and recruiting and training staff and payroll during the preopening period. Until we have demonstrated
we are able to operate an upscale restaurant profitably, we may have difficulty in obtaining financing. It may be necessary for
us to provide the financing source with an equity position in a restaurant, which would reduce our percentage interest in the
restaurant. To the extent we raise funds through the sale of our equity securities, it would be necessary for us to issue equity
at a discount from the market price, which could result in significant dilution to our stockholders. We do not have any agreement
or understanding with any financing source and we cannot assure you we will be able to obtain the funding required for any restaurant.
To the extent that we are not able to obtain the necessary financing, we may not be able to open restaurants, which would severely
impair our ability to operate profitably.
As
a start-up company in the restaurant business, you have no way to evaluate our ability to operate profitably, and we cannot assure
you that we can or will operate profitably.
We
are just commencing our operations in the restaurant business. Because we have no history of operations in this business
and our financial statements do not reflect our restaurant business, you will have no way to evaluate our ability to generate
revenue and profits in the restaurant business. We are subject to risks common to start-up enterprises, including, among other
factors, undercapitalization, cash shortages, limitations with respect to personnel, financial and other resources and lack of
revenues. There is no assurance that we will be successful in achieving profitability and the likelihood of our success
must be considered in light of our early stage of operations. There can be no assurance that we will be able to operate profitably
or generate positive cash flow.
We
may not be able to implement our strategy which is to open restaurants and operate them profitably.
Our
financial success depends on our ability to execute our growth strategy. One key element of our growth strategy is opening new
restaurants. However, there can be no assurance we will be able to operate profitably any restaurants that we may open. Our ability
to open new restaurants and food and beverage hospitality services locations and operate them profitably depends upon a number
of factors, many of which are beyond our control, including without limitation:
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finding
and obtaining quality site locations and reaching acceptable lease or management agreements;
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obtaining
necessary government approvals, permits and licenses, such as liquor licenses;
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complying
with applicable zoning, land use, environmental and health and safety regulations;
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having
adequate capital for construction and opening costs and efficiently managing the time and resources committed to building
and opening each new restaurant;
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timely
hiring and training and retaining the skilled management and other employees necessary to meet staffing needs;
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successfully
promoting our new locations and competing in the market;
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acquiring
food and other supplies for new restaurants and food and beverage hospitality services operations from local suppliers; and
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addressing
unanticipated problems or risks that may arise during the development or opening of a new restaurant or food and beverage
hospitality services operation or entering a new market.
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We
may have difficulty recouping our substantial pre-opening costs.
Once
a restaurant is open, how quickly it achieves a desired level of profitability is impacted by many factors, including the level
of market familiarity and acceptance when we enter new markets. Our business and profitability may be adversely affected if the
“ramp-up” period for a new location lasts longer than we expect or if the profitability of a new location is not sufficient
to cover our start-up costs for the restaurant.
Our
restaurants may not operate profitably.
Although
we expect to develop a budget to reflect profitable operations before we open a restaurant, actual operations may significantly
differ from the projections and we cannot assure you that we can or will be able to operate profitably. Further, to the extent
that we seek to open restaurants in cities in which we have no experience, it may more difficult for us to operate profitably.
A
general economic downturn, a recession in China or sudden disruption in business conditions may affect discretionary spending,
which may impair our ability to operate profitably.
Dining
in upscale restaurants depends in part on discretionary spending by both individuals and businesses. We will be susceptible to
changes in discretionary patterns or economic slowdowns both in the geographic areas in which our restaurants are located and
in the economy at large. We believe that consumers generally are more willing to make discretionary purchases, including high-end
restaurant meals, during favorable economic conditions. Disruptions in the overall economy, including high unemployment, financial
market volatility and unpredictability, and the related reduction in consumer confidence could negatively affect customer traffic
and sales throughout our industry, including our segment. Also, we believe the majority of our weekday revenues are derived from
business customers using expense accounts and our business therefore may be affected by reduced expense account or other business-related
dining by our business clientele. If business clientele were to dine less frequently at our locations or to spend at reduced levels,
our business and results of operations would be adversely affected as a result of a reduction in customer traffic or average revenues
per customer. In addition, if uncertain economic conditions persist for an extended period of time or economic conditions worsen,
consumers might make long-lasting changes to their discretionary spending behavior, including dining out less frequently. Since
our initial restaurants will be in China, any economic downturn resulting from changes in trade relations with the United States,
including the potential imposition of tariffs by both the United States and China may impact discretionary spending.
Changes
in consumer preferences could adversely impact our business and results of operations.
The
restaurant industry is characterized by the continual introduction of new concepts and is subject to rapidly changing consumer
preferences, tastes, trends and eating and purchasing habits. Our ability to operate successful and profitable restaurants in
part on our ability to anticipate and respond quickly to changing consumer preferences, as well as other factors affecting the
restaurant industry, including new market entrants and demographic changes. Shifts in consumer preferences away from upscale restaurants,
whether as a result of economic, competitive or other factors or media reviews or reviews posted on social media could adversely
affect our business and results of operations.
To
the extent that our restaurants are located in regions that may be susceptible to severe weather conditions, adverse weather conditions
could impair our ability to generate revenue and operate profitably.
Our
restaurant revenues may be adversely impacted by severe weather conditions, which could result in a drop in customer traffic,
failures of utilities to provide us with electricity and gas, cause us to close operations for a period of time if for permanently
and/or incur costly repairs and/or require us to dispose of spoiled food. In addition, the impact of severe weather conditions
could cause us to cease operations at the affected location altogether. Weather conditions are impossible to predict as is the
negative impact on our business that such conditions might cause, and, accordingly, we cannot assure you that our business will
not be impaired by adverse or severe weather conditions..
If
our restaurants are not able to compete successfully with other restaurants, our business and results of operations may be adversely
affected.
The
restaurant industry is intensely competitive with respect to price, quality of service, location, ambiance of facilities and type
and quality of food. Because we market to a high end clientele, price, while important, is not likely to be as important a factor
as the menu, the quality of the food and service and the restaurant’s ambience and location. We will compete with a substantial
number of national and regional restaurant chains and independently owned restaurants for customers, restaurant locations and
qualified management, including chefs, and other restaurant staff, including medium and lower price restaurants, since our target
customer base does not limit itself to upscale restaurant. To the extent that our restaurants are located in hotels, casinos,
resorts and similar locations, we are subject to competition in the broader lodging and hospitality markets that could draw potential
customers away from our locations. Since we are a start-up in the restaurant industry, many, if not most, our competitors have
greater financial and other resources, have been in business longer, have greater name recognition and are better established
in the markets where our restaurants are located or where we may open restaurants. Our inability to compete successfully with
other restaurants and food and beverage hospitality services operations may harm our ability to maintain acceptable levels of
revenue growth, limit or otherwise inhibit our ability to grow one or more of our concepts, or force us to close one or more of
our restaurants. We may also need to evolve our concepts in order to compete with popular new upscale restaurant or concepts or
trends that emerge from time to time, and we cannot provide any assurance that we will be successful in doing so or that any changes
we make to any of our concepts in response will be successful or not adversely affect our profitability. In addition, with improving
product offerings at fast casual restaurants and quick-service restaurants combined with the effects of negative economic conditions
and other factors, consumers may choose less expensive alternatives, which could also negatively affect customer traffic at our
restaurants or food and beverage hospitality services operations. Any unanticipated slowdown in demand at any of our restaurants
due to industry competition may adversely affect our business and results of operations.
To
the extent that we rely on licensees to operate our restaurants we will have less control over the operations of the restaurant,
and the failure of the licensee to maintain our standards may affect our ability to operate profitably.
We
may rely on licensees to operate our restaurants. While the licensee may assume all or a significant part of the costs associated
with opening the restaurant and we will provide training to the licensee and require the licensee to maintain our standards, will
not have the control over the licensee that we have over our own restaurants and we will be dependent upon the ability and willingness
of the licensee to meet our standards. The licensee may have interests which are different from our interests. We cannot assure
you that any of our licensees will operate the restaurants in a manner acceptable to us and such failure could have a material
adverse effect upon our reputation which could impair our ability to operate profitably.
If
we cannot develop an effective advertising and marketing programs, we may be unable to operate profitably.
We
are a start-up company in the restaurant industry, and in our initial market we will be an unknown newcomer. In order to drive
traffic to our restaurants, we will need to develop an effective advertising and marketing program to bring attention to our restaurants.
If these programs are not successful or conflict with evolving customer preferences, we may not generate sufficient customer traffic
to our restaurants and we may not be able to operate profitably, which may necessitate the closing of more or more restaurants.
Further, increased marketing and advertising spending by our competitors could have a negative effect on our brand relevance,
customer traffic and results of operations.
Negative
customer experiences or negative publicity about our restaurants could adversely affect revenues in our other locations.
Our
business plan is based on providing high quality of our food and service and ambience. Therefore, adverse publicity, whether or
not accurate, relating to food quality, public health concerns, illness, safety, injury or government or industry findings concerning
our locations could affect us more than it would other venues that compete primarily on price or other factors. If customers perceive
or experience a reduction in our food quality, service or ambiance or in any way believe we have failed to deliver a consistently
positive experience, the value and popularity of one or more of our restaurants could suffer. Any shifts in consumer preferences
away from the kinds of food we offer, whether because of dietary or other health concerns or otherwise, would make our locations
less appealing and could reduce customer traffic and/or impose practical limits on pricing.
Our
inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could materially adversely
impact our business.
There
has been a significant increase in the use of social media platforms and similar devices, including blogs, social media websites
and other forms of Internet-based communications which permit individuals to have access to a broad audience of consumers and
other interested persons. Consumers value readily available information concerning goods and services that they have or plan to
purchase including restaurants that they choose, and may act on such information without further investigation or authentication.
The availability of information on social media platforms is virtually immediate as is its impact. Many social media platforms
immediately publish the content their subscribers and participants can post, often without filters or checks on accuracy of the
content posted. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and
readily available. In addition, our customers may post their judgment on our website. Information concerning our company may be
posted on such platforms at any time, and the information posted may be adverse to our interests or may be inaccurate, each of
which may harm our prospects or business. The harm may be immediate without affording us an opportunity for redress or correction.
The inappropriate use of social media vehicles by our customers or employees could increase our costs, lead to litigation or result
in negative publicity that could damage our reputation.
Increases
in food prices could adversely affect our business and results of operations.
Our
profitability depends in part on our ability to anticipate and react to changes in commodity costs, which have a substantial effect
on our total costs, which we may not be able to pass on to customers. In addition to fluctuations in prices in food products,
including beef and fish, we may be subject to additional price increases as a results of tariffs imposed by the United States
and China. We do not have any present plans to engage in futures contracts or other financial risk management strategies with
respect to potential price fluctuations,
We
will depend upon frequent deliveries of food, alcohol and other supplies, which subjects us to the possible risks of shortages,
interruptions and price fluctuations.
Our
ability to maintain consistent quality in our restaurants depends in part upon our ability to acquire fresh products, including
beef, seafood, quality produce and related items from reliable sources in accordance with our specifications. We will rely on
our suppliers to provide us with the quality we require in a timely manner at a reasonable price. We do not presently have any
supply relationships and we cannot assure you that we will be able to develop such relationships. Our failure to develop and maintain
supply relationships may have a material adverse affect upon our ability to operate profitably.
Our
business is subject to substantial government regulation.
We
are subject to China’s National Environmental Protection Law, as well as a number of other national and local laws and regulations
regulating concerning waste disposal, pollution, protection of the environment, and the presence, discharge, storage, handling,
release and disposal of, and exposure to, hazardous or toxic substances and health and safety. The environmental laws provide
for significant fines and penalties for noncompliance and liabilities for remediation. Our failure to comply with these regulations
could result in monetary penalties and could result in the temporary or permanent closing of one or more restaurants. We are subject
to China’s National and State Food Hygiene Law, Food Safety Law, Food Safety Law Implementation Regulations and Food Safety
Supervision and Administration Measures for Catering Services. We are also subject to China’s Law on Quality and Safety
of Agricultural Products, and Product Quality Law. In addition, the costs of operating our locations may increase if there are
changes in laws that affect our operations.
If
we open restaurants in the United States we will be subject to extensive federal, state and local government regulation, including
regulations related to the preparation and sale of food, the sale of alcoholic beverages, the sale and use of tobacco, zoning
and building codes, land use and employee, health, sanitation and safety matters. For example, the preparation, storing and serving
of food and the use of certain ingredients is subject to heavy regulation. Alcoholic beverage control regulations would govern
various aspects of our locations’ daily operations, including the minimum age of patrons and employees, hours of operation,
advertising, wholesale purchasing and inventory control, handling and storage. If we operate in different states, we are also
required to comply with a number of different laws covering the same topics. The failure of any of our locations to timely obtain
and maintain necessary governmental approvals, including liquor or other licenses, permits or approvals required to serve alcoholic
beverages or food could delay or prevent the opening of a new location or prevent regular day-to-day operations, including the
sale of alcoholic beverages, at a location that is already operating, any of which would adversely affect our business and results
of operations.
In
addition, the costs of operating our locations may increase if there are changes in laws governing minimum hourly wages, working
conditions, overtime and tip credits, health care, workers’ compensation insurance rates, unemployment tax rates, sales
taxes or other laws and regulations such as those governing access for the disabled, including the Americans with Disabilities
Act. For example, the Federal Patient Protection and Affordable Care Act, or PPACA, among other things, includes guaranteed coverage
requirements and imposes new taxes on health insurers and health care benefits that could increase the costs of providing health
benefits to employees. In addition, if we have a significant number of locations in certain states, regulatory changes in these
states could have a disproportionate impact on our business. If any of the foregoing increased costs were to occur and we were
unable to offset the change by increasing our menu prices or by other means, our business and results of operations could be adversely
affected.
Government
regulation can also affect customer traffic at our locations. A number of states, counties and cities have enacted menu labeling
laws requiring multi-unit restaurant operators to disclose certain nutritional information. These regulations would apply if we
have 20 or more locations operating under the same trade name and offering substantially the same menus. If we are subject to
these laws, we would be required to post nutritional information on their menus to provide to consumers, upon request, a written
summary of detailed nutritional information. The FDA is also permitted to require additional nutrient disclosures, such as trans-fat
content. Although we do not presently anticipate that we will be subject to these requirements, we cannot assure you that we will
not become subject to these requirements in the future or that the laws will not change so that they apply to our restaurants
in the United States. Our compliance with the PPACA or other similar laws to which we may become subject could reduce demand for
our menu offerings, reduce customer traffic and/or reduce average revenue per customer, which would have an adverse effect on
our revenue. Also, further government regulation restricting smoking in restaurants and bars, may reduce customer traffic. Any
reduction in customer traffic related to these or other government regulations could affect revenues and adversely affect our
business and results of operations.
We
are also subject to federal, state and local laws and regulations concerning waste disposal, pollution, protection of the environment,
and the presence, discharge, storage, handling, release and disposal of, and exposure to, hazardous or toxic substances. These
environmental laws provide for significant fines and penalties for noncompliance and liabilities for remediation, sometimes without
regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of hazardous
toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries and property
damage associated with releases of, or actual or alleged exposure to, such hazardous or toxic substances at, on or from our locations.
Environmental conditions relating to releases of hazardous substances at prior, existing or future locations could materially
adversely affect our business, financial condition or results of operations. Further, environmental laws, and the administration,
interpretation and enforcement thereof, are subject to change and may become more stringent in the future, each of which could
materially adversely affect our business, financial condition or results of operations.
To
the extent that governmental regulations impose new or additional obligations on our suppliers, including, without limitation,
regulations relating to the inspection or preparation of meat, food and other products used in our business, product availability
could be limited and the prices that our suppliers charge us could increase. We may not be able to offset these costs through
increased menu prices, which could have a material adverse effect on our business. If any of our restaurants were unable to serve
particular food products, even for a short period of time, or if we are unable to offset increased costs, our business and results
of operations could be adversely affected.
Further,
the U.S. Congress and Department of Homeland Security from time to time consider and may implement changes to federal immigration
laws, regulations or enforcement programs. Some of these changes may increase our obligations for compliance and oversight, which
could subject us to additional costs and make our hiring process more cumbersome, or reduce the availability of potential employees.
Even if we operate our restaurants in strict compliance with U.S. Immigration and Customs Enforcement and state requirements,
some of our employees may not meet federal work eligibility or residency requirements, which could lead to a disruption in our
work force. Although we intend to require all of our new employees in the United States to provide us with the government-specified
documentation evidencing their employment eligibility, some of our employees may, without our knowledge, be unauthorized workers.
Unauthorized workers are subject to seizure and deportation and may subject us to fines, penalties or loss of our business license
in certain jurisdictions. Additionally, a government audit could result in a disruption to our workforce or adverse publicity
that could negatively impact our brand and/or potential for receipt of letters from the Social Security Administration requesting
information (commonly referred to as no-match letters) could make it more difficult to recruit and/or retain qualified employees.
If
we open restaurants in the United States, changes in minimum wage laws could affect our profitability.
Under
the minimum wage laws in most jurisdictions in the United States, we are permitted to pay certain hourly employees a wage that
is less than the base minimum wage for general employees because these employees receive tips as a substantial part of their income.
Cities and states may change the laws to require all employees to be paid the general employee minimum base wage regardless of
supplemental tip income. Such changes would increase our labor costs substantially. Certain states also have adopted or are considering
adopting minimum wage statutes that exceed the federal minimum wage. We may be unable or unwilling to increase our prices in order
to pass these increased labor costs on to our customers, in which case, our business and results of operations could be adversely
affected.
We
may not be able to duplicate the success the restaurants operated by Alvin Leung.
Our
agreement with Alvin Leung gives us the right to use his names for our restaurants he is to provide us with consulting services
and he will have a 34% interest in the restaurants and catering services based on his names and model. However, Mr. Leung is not
an officer or employee, and he will not be involved in our day-to-day operations. We may not be able to implement his model,
and we may not be able to duplicate the success of Mr. Leung’s existing restaurants. You should not assume that Mr. Leung’s
reputation or success will carry over to our restaurants.
We
depend on the services of our chief operating officer, and our business and growth strategy could be materially harmed if we are
unable to hire qualified executive personnel.
Only
one of our executive officers, Shu Yu Poon, our chief operating officer, has experience in the restaurant industry. We do not
have an employment agreement with Mr. Poon, and the loss of Mr. Poon could materially affect our ability to operate profitably.
In order for us to develop our business, we need to identify key executive and management personnel who have experience is various
aspects of the restaurant industry. If we are unable to identify, hire and retain these key personnel, we will not be able to
operate profitably. We cannot assure you that we will be able to identify, hire and retain the necessary qualified personnel.
Our
lack of internal controls over financial reporting may affect the market for and price of our common stock.
Our
disclosure controls and our internal controls over financial reporting are not effective. We do not have the financial resources
or personnel to develop or implement systems that would provide us with the necessary information on a timely basis so as to be
able to implement financial controls. Our continued poor financial condition together with the fact that we have one part-time
employee, who is both our chief executive officer and chief financial officer, makes it difficult for us to implement a system
of internal controls over financial reporting, and we cannot assure you that we will be able to develop and implement the necessary
controls. The absence of internal controls over financial reporting may inhibit investors from purchasing our shares and may make
it more difficult for us to raise debt or equity financing.
Risks
Related to Doing Business in China
We
anticipate that a significant portion of our business will take place in China. Because Chinese laws, regulations and policies
are continually changing, our Chinese operations will face several risks summarized below.
Limitations
on Chinese economic market reforms may discourage foreign investment in Chinese businesses.
The
value of investments in Chinese businesses could be adversely affected by political, economic and social uncertainties in China.
The economic reforms in China in recent years are regarded by China’s central government as a way to introduce economic
market forces into China. Given the overriding desire of the central government leadership to maintain stability in China amid
rapid social and economic changes in the country, the economic market reforms of recent years could be slowed, or even reversed.
Certain
political and economic considerations relating to China could adversely affect our company.
China
is transitioning from a planned to a market economy. While the PRC government has pursued economic reforms since its adoption
of the open-door policy in 1978, a large portion of the Chinese economy still operates under five-year and annual state plans.
Through these plans and other economic measures, such as control on foreign exchange, taxation and restrictions on foreign participation
in the domestic market of various industries, the PRC government exerts considerable direct and indirect influence on the economy.
Many of the economic reforms carried out by the PRC government are unprecedented or experimental, and are expected to be refined
and improved. Other political, economic and social factors can also lead to further readjustment of such reforms. This refining
and readjustment process may not necessarily have a positive effect on our operations or future business development. Our operating
results may be adversely affected by changes in China’s economic and social conditions as well as by changes in the policies
of the PRC government, such as changes in laws and regulations, or the official interpretation thereof, which may be introduced
to control inflation, changes in the interest rate or method of taxation, and the imposition of additional restrictions on currency
conversion.
Accordingly,
government actions in the future, including any decision not to continue to support recent economic reforms and to return to a
more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant
effect on economic conditions in China or particular regions thereof, and could require us to divest ourselves of any interest
we then hold in Chinese properties or joint ventures.
Due
to various restrictions under PRC laws on the distribution of dividends by our PRC operating companies, we may not be able to
pay dividends to our stockholders
.
The
Wholly Foreign Owned Enterprise (“WFOE”) Law (1986), as amended and The WFOE Law Implementing Rules (1990), as amended,
contain the principal regulations governing dividend distributions by WFOEs. Under these regulations, WFOEs, such as Zhejiang
and Wang Da, may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards
and regulations. Additionally, Zhejiang and Wang Da are required to set aside a certain amount of any accumulated profits each
year (a minimum of 10%, and up to half of their registered capitals), to fund certain reserve funds. These reserves are not distributable
as cash dividends except in the event of liquidation and cannot be used for working capital purposes. The PRC government also
imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. If
we ever determine to pay a dividend, we may experience difficulties in completing the administrative procedures necessary to obtain
and remit foreign currency for the payment of such dividends from the profits of Wang Da and Zhejiang.
Currency
conversion and exchange rate volatility could adversely affect our financial condition and the value of our common stock.
The
PRC government imposes control over the conversion of Renminbi, or RMB, into foreign currencies. Under the current unified floating
exchange rate system, the People’s Bank of China, or PBOC, publishes an exchange rate, which we refer to as the PBOC exchange
rate, based on the previous day’s dealings in the inter-bank foreign exchange market. Financial institutions authorized
to deal in foreign currency may enter into foreign exchange transactions at exchange rates within an authorized range above or
below the PBOC exchange rate according to market conditions.
Pursuant
to the Foreign Exchange Control Regulations of the PRC issued by the State Council which came into effect on April 1, 1996, and
the Regulations on the Administration of Foreign Exchange Settlement, Sale and Payment of the PRC which came into effect on July
1, 1996, regarding foreign exchange control, conversion of RMB into foreign exchange by Foreign Investment Enterprises, which
are referred to as FIEs, for use on current account items, including the distribution of dividends and profits to foreign investors,
is permissible. FIEs are permitted to convert their after-tax dividends and profits to foreign exchange and remit such foreign
exchange to their foreign exchange bank accounts in China. Conversion of RMB into foreign currencies for capital account items,
including direct investment, loans, and security investment, is still under certain restrictions. On January 14, 1997, the State
Council amended the Foreign Exchange Control Regulations and added, among other things, an important provision, which provides
that the PRC government shall not impose restrictions on recurring international payments and transfers under current account
items.
Enterprises
in China, including FIEs, which require foreign exchange for transactions relating to current account items, if within a certain
limited amount may, without approval of the State Administration of Foreign Exchange, or SAFE, effect payment from their foreign
exchange account or convert and pay at the designated foreign exchange banks by providing valid receipts and proofs.
Convertibility
of foreign exchange for capital account items, such as direct investment and capital contribution, is still subject to certain
restrictions, and prior approval from the SAFE or its relevant branches must be sought.
Our
wholly owned subsidiary Zhejiang is a FIE to which the Foreign Exchange Control Regulations are applicable. There can be no assurance
that we will be able to obtain sufficient foreign exchange to pay dividends or satisfy other foreign exchange requirements in
the future.
Between
1994 and 2004, the exchange rate for RMB against the US dollar remained relatively stable, most of the time in the region of RMB8.28
to $1.00. However, in 2005, the Chinese government announced it would begin pegging the exchange rate of the RMB against a number
of currencies, rather than just the US dollar. As our operations are primarily in China, any significant revaluation of the RMB
may materially and adversely affect our cash flows, revenues, financial condition and the value of our common stock. For example,
to the extent that we need to convert US dollars into RMB for our operations, appreciation of this currency against the US dollar
could have a material adverse effect on our business, financial condition, results of operations and the value of our common stock.
Conversely, if we decide to convert our Renminbi into US dollars for the purpose of declaring dividends on our common stock or
for other business purposes and the US dollar appreciates against the RMB, the US dollar equivalent of our earnings from our subsidiaries
in China would be reduced.
The
legal system in China has inherent uncertainties that may limit the legal protections available in the event of any claims or
disputes with third parties.
The
legal system in China is based on written statutes. Prior court decisions may be cited for reference but have limited precedential
value. Since 1979, the central government has promulgated laws and regulations dealing with economic matters such as foreign investment,
corporate organization and governance, commerce, taxation and trade. As China’s foreign investment laws and regulations
are relatively new and the legal system is still evolving, the interpretation of many laws, regulations and rules is not always
uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit the remedies available in
the event of any claims or disputes with third parties. In addition, any litigation in China may be protracted and result in substantial
costs and diversion of resources and management attention.
Risks
Associated With Our Common Stock
There
is a limited public market for our common stock.
There
is currently a limited public market for our common stock. Holders of our common stock may, therefore, have difficulty selling
shares of common stock, should they decide to do so. In addition, there can be no assurances that such markets will continue or
that any shares of common stock will be able to be sold without incurring a loss. The market price of the common stock may not
necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established
criteria of value, and may not be indicative of the market price for the common stock in the future. Further, the market price
for the common stock may be volatile depending on a number of factors, including business performance, industry dynamics, news
announcements or changes in general economic conditions.
Our
common stock is traded on the OTC Pink marketplace.
Our
common stock is quoted on the OTC Pink marketplace. The OTC Pink market is not a national securities exchange and does not provide
the benefits to stockholders which a national exchange provides. Furthermore, according to the OTC Markets website, the OTC Pink
“is for all types of companies that are there by reasons of default, distress or design, which is why they are further segmented
based on the level of information that they provide.”
Because
our common stock is a penny stock, you may have difficulty selling our common stock in the secondary trading market.
Our
stock fits within the definition of a penny stock and therefore is subject to the rules adopted by the SEC regulating broker-dealer
practices in connection with transactions in penny stocks. The SEC rules may have the effect of reducing trading activity in our
common stock making it more difficult for investors to purchase and sell their shares. The SEC’s rules require a broker
or dealer proposing to effect a transaction in a penny stock to deliver the customer a risk disclosure document that provides
certain information prescribed by the SEC, including, but not limited to, the nature and level of risks in the penny stock market.
The broker or dealer must also disclose the aggregate amount of any compensation received or receivable by him in connection with
such transaction prior to consummating the transaction. In addition, the SEC’s rules also require a broker or dealer to
make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction before completion of the transaction. The existence of the SEC’s rules may result in
a lower trading volume of our common stock and lower trading prices. Further, some broker-dealers will not process transactions
in penny stocks.
Our
stock price may be volatile and your investment in our common stock could suffer a decline in value.
There
is limited trading activity in our common stock. There can be no assurance that any significant market will ever develop in our
common stock. Because of the low public float and the absence of any significant trading volume, any reported prices may not reflect
the price at which you would be able to sell shares if you want to sell any shares you own or buy shares if you wish to buy share.
Further, stocks with a low public float may be more subject to manipulation than a stock that has a significant public float.
The price may fluctuate significantly in response to a number of factors, many of which are beyond our control. These factors
include, but are not limited to, the following, in addition to the risks described above and general market and economic conditions:
|
•
|
our
low stock price, which may result in a modest dollar purchase or sale of our common stock having a disproportionately large
effect on the stock price;
|
|
|
|
|
•
|
the
market’s perception as to our ability to generate positive cash flow or earnings;
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|
|
|
|
•
|
changes
in our or securities analysts’ estimate of our financial performance;
|
|
|
|
|
•
|
our
ability or perceived ability to obtain necessary financing for our operations;
|
|
|
|
|
•
|
the
perception of the future market for our products;
|
|
|
|
|
•
|
the
anticipated or actual results of our operations;
|
|
|
|
|
•
|
changes
in market valuations of other natural supplement companies;
|
|
|
|
|
•
|
any
discrepancy between anticipated or projected results and actual results of our operations;
|
|
|
|
|
•
|
actions
by third parties to either sell or purchase stock in quantities which would have a significant effect on our stock price;
and
|
|
|
|
|
•
|
other
factors not within our control.
|
We
do not expect to pay cash dividends on our common stock.
We
do not expect to pay cash dividends on our common stock in the foreseeable future. Further, as described in the risk factor entitled
“Due to various restrictions under PRC laws on the distribution of dividends by our PRC operating companies, we may not
be able to pay dividends to our stockholders,” the laws of the PRC may prohibit or restrict us from paying dividends.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
The
Company does not own any real estate properties
.
We have a lease for the headquarter office in Zhuhai City, Guangdong.
ITEM
3. LEGAL PROCEEDINGS
None.
ITEM
4. MINE SAFETY DISCLOSURE
Not
Applicable.
Part
II
ITEM
5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The
Company’s common stock is quoted on the OTC Pink market under the symbol YOSN. The following table sets forth the quarterly
high and low closing bids of our common stock as reported by the OTC Markets during 2016 and 2017.
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|
Low Bid*
|
|
High Bid*
|
2016
|
|
|
|
|
|
|
|
|
Quarter
ended March 31
|
|
$
|
0.90
|
|
|
$
|
1.37
|
|
Quarter
ended June 30
|
|
$
|
0.75
|
|
|
$
|
1.35
|
|
Quarter
ended September 30
|
|
$
|
0.54
|
|
|
$
|
1.02
|
|
Quarter
ended December 31
|
|
$
|
0.35
|
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
Quarter
ended March 31
|
|
$
|
0.28
|
|
|
$
|
0.38
|
|
Quarter
ended June 30
|
|
$
|
0.30
|
|
|
$
|
0.45
|
|
Quarter
ended September 30
|
|
$
|
0.16
|
|
|
$
|
0.30
|
|
Quarter
ended December 31
|
|
$
|
0.08
|
|
|
$
|
0.20
|
|
* The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
Stockholders
As
of the close of business on April 16, 2018, we had 92 stockholders of record of our common stock.
Dividends
The
Company did not pay any dividends during 2017 and 2016 and we do not anticipate paying dividends in the foreseeable future.
Securities
Authorized For Issuance Under Equity Compensation Plans
Equity
Compensation Plan Information
The
following is a summary of all of our equity compensation plans as of December 31, 2017:
Plan Category
|
|
Number of securities
issued upon
exercise of
outstanding options,
warrants and rights
|
|
Number of restricted
shares issued
|
|
Weighted average
exercise price of
outstanding options,
warrants and rights
|
|
Number of securities
remaining available
for future issuance
under
equity compensation
plan (excluding
securities reflected
in column (a)
|
|
|
|
(a)
|
|
|
|
(b)
|
|
|
|
(c)
|
|
|
|
(d)
|
|
Equity
Compensation Plans Approved by Shareholders
|
|
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Equity
Compensation Plans Not Approved by Shareholders
|
|
|
—
|
|
|
|
3,943,333
|
|
|
$
|
—
|
|
|
|
210,000
|
|
On
December 23, 2016, our board of directors adopted the Yosen Group 2016 Restricted Stock Plan (the “2016 Plan”). The
2016 Plan provides for the granting of restricted stock awards to employees, directors and consultants of the Company and the
employees, directors and consultants of the Company’s affiliates. Under the 2016 Plan, 1,360,000 shares of the Company’s
common stock were initially available for issuance for awards. As of December 31, 2017, 1,150,000 of the shares available
for issuance under the 2016 Plan were issued and 210,000 shares were available for issuance. In addition, 2,553,333 shares were
issued pursuant to prior plans and warrants,
Repurchase
of Securities
We
did not repurchase any of shares of our common stock during 2016 and 2017.
Recent
Sales of Unregistered Securities
There
were no sales of unregistered securities during 2017, the period covered by this Annual Report, which were not previously reported
on a Quarterly Report on Form 10-Q or Current Report on Form 8-K.
ITEM
6. SELECTED FINANCIAL DATA
Not
applicable.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated
financial statements and related notes included elsewhere in this report. This discussion contains forward-looking statements
that involve risks, uncertainties and assumptions. See “Note Regarding Forward-Looking Statements.” Our actual results
could differ materially from those anticipated in the forward-looking statements as a result of certain factors discussed in “Risk
Factors” and elsewhere in this report.
Overview
From
2007 until the first quarter of 2017, we were engaged in the resale and distribution of third party products such as mobile phones,
facsimile machines, DVD players, stereos, speakers, MP3 and MP4 players, iPods, electronic dictionaries, CD players and audio
systems. As a result of declining sales and continuing losses, we discontinued this business. We had previously imported into
China digital products, baby products, health nutrition and frozen food products, but this business had been discontinued prior
to December 31, 2017.
On
February 15, 2018, our directors and officers resigned and we brought in new management and changed our business plan. We intend
to open, manage and operate upscale restaurants and license our restaurants to restaurant operators. We may also enter into agreements
with licensees pursuant to which DB-Link and the licensee would invest in the restaurant. Our business plan contemplates that
DB-Link will have a majority interest in the joint venture entity that operates the restaurants, DB-Link will manage the restaurants
for which it will receive a management fee, DB-Link will establish a restaurant business related training school to train chefs
and wait staff, and DB-Link will operate its own online restaurant supplies store to service the restaurants we own or license.
However, we cannot assure you that we will be able to open and operate restaurants or enter into license agreements with qualified
licensees or the terms of any license or management agreement.
In
furtherance of our plan to engage in the upscale restaurant business, on April 3, 2018, our wholly-owned subsidiary, DB-Link Ltd.
entered into a cooperation agreement dated March 16, 2018, with Alvin Leung, regarding brand cooperation and the catering business
in the initial territory of. The agreement provides that Mr. Leung will exclusively work with DB-Link in the initial territory
and will provide DB-Link with the brand names of “Bo” and “Daimon” in the initial territory, and he granted
DB-Link a first right of cooperation before seeking similar cooperation with other third parties in Canada, Hong Kong and Europe.
DB-Link’s business will be operated by joint venture entities in which DB-Link will hold a 66% equity interest and Mr. Leung
a 34% interest. In addition, DB-Link will pay Mr. Leung RMB 800,000 (approximately $127,000), half of which has been paid with
the balance being payable in 2019.
In
view of our desire to disengage in our former business, on March 29, 2018, we entered into an agreement with Zhenggang Wang, who
was a director, chief executive officer and chairman of the board of the Company until his resignation on February 1, 2018, pursuant
to which we agreed to sell to Mr. Wang all of the stock in our wholly-owned subsidiary, Capital Future Development Limited, a
British Virgin Islands company, in exchange for the transfer by Mr. Wang to us of 1,738,334 shares of our common stock, which
represents all of the common stock owned by Mr. Wang. All of our consolidated liabilities are liabilities of Capital Future Development
and its subsidiaries. shares acquired by the Company will be cancelled. All of our former business was conducted through Capital
Future Development and its subsidiaries. We are in the process of consummating the transfer of the stock of Capital Future Development.
As
a result of the transfer of the stock of Capital Future Development, we have one subsidiary, DB-Link, and our business will be
conducted through DB-Link and its subsidiaries. We anticipate we will have separate subsidiaries for the restaurants we own or
operate although we may have one subsidiary owning more than one restaurant in a city. To the extent that these restaurants are
operated in the manner contemplated by our agreement with Mr. Leung, BD-Link will own a 66% interest in the subsidiary and Mr.
Leung will own a 34% interest.
The
discussion below reflects our former resale and distribution business and does not reflect or relate to our proposed restaurant
business. As of the date of this report, our restaurant operations are in the planning stage. We have not generated any revenue
from this business and we cannot assure you that we will be able to operate our proposed restaurant business profitably. The nature
of revenue from our restaurant business will be from the sale of food and beverages at our restaurants as well as license fees
from any licenses which we may negotiate.
Results
of Discontinued Operations
Net
sales from discontinued operations for 2017 totaled $2,833,237, a year-over-year decrease of $2,909,102 or 50.7% compared to $5,742,339
for 2016. The decrease in revenue was because the company ceased operation of two subsidiaries in 2017.
Cost
of sales from discontinued operations for 2017 totaled $2,824,484, or 99.7% of sales compared to $5,374,654, or 93.6% of for 2016.
The decrease in the COS was a result of discontinued operation of two subsidiaries in 2017.
Gross
profit decreased $358,932 from $367,685 for 2016 to $8,753 for 2017. The decrease was primarily due to decrease in net sales.
The decrease in gross margin was a result of clearance on inventory when the subsidiaries ceased operations.
Because
we do not include the costs for its distribution network in cost of sales, our gross profit and profit margin may not be comparable
to those of other retailers that may include distribution costs in cost of sales, which would be reflected in gross profit and
profit margin.
Selling,
general and administrative expenses from discontinued operations for 2017 totaled $1,104,428, or 39.0% of net sales, compared
to $1,648,714, or 28.7% for 2016. General and administrative expenses increased as a percentage of sales primarily due to
higher expenses related to closing stores and disposing inventories. Our distribution expenses, which are included in selling,
general and administrative expenses, relate to our discontinued operations. General and administrative expenses also included
public company expenses, including stock compensation, accounting and legal expenses and other expenses or $158,667 in 2017 and
$462,500 in 2016, which are continuing expenses..
Loss
from discontinued operations for 2017 was $1,095,675 compared to $1,281,029 for 2016. Low gross profit margin was the key factors
for the increase in operating loss from discontinued operations.
Other
income for 2017 was $150,276 compared to $34,995 for 2016. Other expense for 2017 was $443,674 compared to $569,607 for 2016.
The increase in other income was due to part of the accounts payable was forgiven in 2017.
Provision
for income taxes for 2017 was $2,123 compared to $0 for 2016 resulting from taxes paid by our United States subsidiary.
Net
loss from discontinued operations for 2017 was $1,391,093 compared to $1,815,135 for 2016, a decrease of $424,042. The decrease
in net loss from discontinued operations was due to two subsidiaries ceased operations to cut losses in 2017.
Net
loss including noncontrolling interest for 2017 was $1,391,093 compared to $1,815,135 for 2016, a decrease of $424,042. The
decrease in net loss including noncontrolling interest was primarily due to decreased operating expenses in discontinued operations.
Net
loss attributable to noncontrolling interest was $254,273 in 2017 compared to $308,244 in 2016. Net loss attributable to noncontrolling
interest represents the elimination of the income or loss attributable to the minority interest in one of our subsidiaries.
For
the reasons described above, our net loss attributable to Yosen Group was $1,136,820, or ($0.10) per share (basic and diluted)
in 2017 compared to $1,506,891, or ($0.15) per share (basic and diluted) in 2016, a decrease of $370,071.
Foreign
Currency Translation Adjustments
The
impact of foreign translation from our accounts in RMB to US dollar on our operating results was not material. During the translation
process, the assets and liabilities of all PRC subsidiaries are translated into US dollars at period-end exchange rates. The revenues
and expenses are translated into US dollars at average exchange rates of the periods. Resulting translation adjustments are recorded
as a component of accumulated other comprehensive income within stockholders’ equity.
|
|
2017
|
|
2016
|
RMB/$ exchange
rate at year end
|
|
|
0.1480
|
|
|
|
0.1440
|
|
Average
RMB/$ exchange rate for the years
|
|
|
0.1537
|
|
|
|
0.1505
|
|
Transaction
gains or losses arising from exchange rate fluctuation on transactions denominated in a currency other than the functional currency
were included in the consolidated results of operations. As a result of the translation, Yosen recorded a foreign currency loss
of $256,056 in 2017 and gain of $160,910 in 2016, which is a separate line item on the Statements of Operations and Comprehensive
Loss.
Liquidity
and Capital Resources
Cash
has historically been generated from operations. Operations and liquidity needs are funded primarily through cash flows from operations
and short-term borrowings. All of the borrowings were are the subsidiary level, and, accordingly, are not reflected as our liabilities
on an ongoing basis.
Cash
and equivalents were $23,048 at December 31, 2017 and current assets totaled $1,074,764. The Company’s current liabilities
were $5,736,041 at December 31, 2017. Working capital deficiency at December 31, 2017 was $(4,661,277). During 2017, net cash
used in operating activities was $386,239.
Cash
and equivalents were $135,847 at December 31, 2016 and current assets totaled $2,411,976. The Company’s current liabilities
were $5,687,532 at December 31, 2016. Working capital deficiency at December 31, 2016 was $3,275,556. During 2016, net cash used
in operating activities was $1,054,399.
Our
cash used and provided in 2017 and 2016 was as follows:
|
|
2017
|
|
2016
|
Net
cash used in operating activities
|
|
$
|
(386,239
|
)
|
|
$
|
(1,054,399
|
)
|
Net
cash provided by (used in) investing activities
|
|
|
2,542
|
|
|
|
(529,013
|
)
|
Net
cash provided by financing activities
|
|
|
304,311
|
|
|
|
955,288
|
|
Effect
of exchange rate change on cash and equivalents
|
|
|
(33,413
|
)
|
|
|
25,360
|
|
Net
decrease in cash and equivalents
|
|
|
(112,799
|
)
|
|
|
(602,764
|
)
|
Cash
and equivalents at beginning of year
|
|
|
135,847
|
|
|
|
738,611
|
|
Cash
and equivalents at end of year
|
|
$
|
23,048
|
|
|
$
|
135,847
|
|
Net
cash used in operating activities was $386,239 in 2017 compared to $1,054,399 in 2016. This decrease was mainly attributable
to (i) decrease in net loss of $424,041, (ii) decrease in inventories of $935,404 (iii) decrease in prepaid expenses of $230,359
(iv) decrease in advance to suppliers of $224,319 offset by the increase in accounts payable of $586,351 in 2017, adding back
the non-cash item, depreciation of $64,748.
|
|
2017
|
|
2016
|
Net
cash provided by (used in) investing activities
|
|
$
|
2,542
|
|
|
$
|
(529,013
|
)
|
Net
cash used in investing activities in 2017 was $529,013 in new store renovation in 2016.
We
had short-term loans of $342,250 and $376,335, respectively as of December 31, 2017 and 2016. We had an advance from related party
of $627,973 compared to advance to related party of $255,576 in 2016. These loans and advances were made to the the subsidiaries
transferred to Mr. Wang, and are not obligations of our continuing operations. Proceeds from equity financing was $18,588 in 2017
compared to $323,377 in 2016.
|
|
2017
|
|
2016
|
Net
cash provided by financing activities
|
|
$
|
304,311
|
|
|
$
|
955,288
|
|
|
|
2017
|
|
2016
|
Net
decrease in cash and equivalents
|
|
$
|
(112,799
|
)
|
|
$
|
(602,764
|
)
|
|
|
2017
|
|
2016
|
Cash
and equivalents
|
|
$
|
23,048
|
|
|
$
|
135,847
|
|
Cash
and equivalents as of December 31, 2017 and 2016 were solely bank accounts in the US and China. All cash and cash equivalents,
other than $7,881 at December 31, 2017 and $40,495 at December 31, 2016, represented cash held by the discontinued operations.
Capital
expenditures for purchase of fixed assets during 2017 and 2016 were $0 and $529,013, respectively.
Working
Capital Requirements
With
the change in our business, our working capital requirements relate to our proposed restaurant business. Before we can open any
restaurant, we will require sufficient capital to cover our cash outlays before we generate revenue. These expenditures relate
to finding an acceptable location, negotiating a lease and making the initial payments under the lease, making the leasehold improvements,
including the purchase or lease of restaurant equipment, obtaining necessary permits, developing relationships with food suppliers
and the media, and recruiting and training staff and payroll during the preopening period. Until we have demonstrated that we
are able to operate an upscale restaurant profitable, we may have difficulty in obtaining the financing. It may be necessary for
us to provide the financing source with an equity position in a restaurant, which would reduce our percentage interest in the
restaurant. To the extent that we have to raise funds through the sale of our equity securities, it would be necessary for us
to issue equity at a discount from the market price, which could result in significant dilution to our stockholders. We do not
have any agreement or understanding with any financing source and we cannot assure you that we will be able to obtain the funding
required for any restaurant. To the extent that we are not able to obtain the necessary financing, we may not be able to open
restaurants, which would severely impair our ability to operate profitably. e currently have no commitments from any financing
sources. There is no assurance we will be able to raise any funds on terms favorable to us, or at all. In the event we issue shares
of equity or convertible securities, the shares held by our existing stockholders would be diluted. Future expansion will be limited
by the availability of financing products and raising capital.
Going
Concern
As
discussed in Note 2 to the financial statements, we had net loss of $1,136,820 and $1,506,891 for 2017 and 2016, respectively.
Our accumulated deficit was $51,977,149 as of December 31, 2017. In addition, our cash position substantially deteriorated from
2010, and we have significant cash requirements for our restaurant business. These issues raise substantial doubt regarding our
ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements,
which were prepared in accordance with US GAAP. The preparation of these requires us to make estimates, judgments and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets
and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates.
An
accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters
that are highly uncertain at the time the estimates are made, and if different estimates that reasonably could have been used,
or changes in the accounting estimates that are reasonably likely to occur, could materially impact the consolidated financial
statements. We believe the following critical accounting policies reflect the more significant estimates and assumptions used
in the preparation of the consolidated financial statements.
Recent
Accounting Pronouncements
In
2014, the U.S. Financial Accounting Standards Board ("FASB") issued new revenue standards under Accounting Standards
Codification ("ASC") 606,
Revenue from Contracts with Customers
(Accounting Standards Update ("ASU")
2014-09), which essentially replaced existing revenue recognition requirements under U.S. generally accepted accounting principles
and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We have adopted
the ASC 606 as of January 1, 2018. Because our financial statements for the years ended December 31, 2017 and 2016 reflect discontinued
operations, we do not believe that our future financial statement will need to reflect the transition to ASC 606.
In
January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”)
2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
. The amendments in this update
clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas
of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual
periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company
is in the process of evaluating the impact of this ASU on our consolidated financial statements.
Management
does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying
consolidated financial statements. As new accounting pronouncements are issued, we will adopt those that are applicable under
the circumstances.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not
applicable.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements of the Company are included following the signature page to this Form 10-K.
ITEM 9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of our disclosure controls and procedures as of December 31, 2017, as such term is defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal
financial officer have concluded that as of December 31, 2017, the Company’s disclosure controls and procedures were not
effective due to the material weakness in our internal controls identified below.
Disclosure
controls and procedures are designed to provide that information required to be disclosed by us in reports that we file or submit
under the Exchange Act is accumulated, recorded, processed, summarized, communicated to our management, including our principal
executive officer and principal financial officer and reported within the time periods specified in Securities and Exchange Commission
rules and forms.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting (“ICFR”),
as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). ICFR refers to the process designed by, or under the supervision
of, our principal executive and principal financial officers, and effected by the 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 US GAAP and includes those policies and procedures that:
1.
|
|
Pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of our assets;
|
2.
|
|
Provide
reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with US GAAP, and that our receipts and expenditures
are being made only in accordance with authorization of our management and directors;
and
|
3.
|
|
Provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisitions,
use or disposition of our assets that could have a material effect on the financial statements.
|
Under
the supervision and with the participation of our management, including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of our ICFR based on the framework in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, and due to the material
weakness described below, management concluded that our internal controls were not effective as of December 31, 2017.
Our
management identified the following material weakness: our inability to record transactions and provide disclosures in accordance
with US GAAP. The current staff in our accounting department is inexperienced in US GAAP. They need substantial training to meet
the demands of a US public company. The accounting skills and understanding necessary to fulfill the requirements of US GAAP-based
reporting, including the preparation of financial statements and consolidation, are inadequate.
All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of
its inherent limitations, ICFR may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance
with the policies or procedures may deteriorate.
Attestation
Report of the Independent Registered Public Accounting Firm
This
Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm. Our management’s
report was not subject to attestation by our registered public accounting firm pursuant to the rules of the Securities and Exchange
Commission that permit us to provide only our management’s report in this Annual Report.
Changes
in Internal Control over Financial Reporting
There
were no changes in our ICFR that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our ICFR.
ITEM 9B.
OTHER INFORMATION
None.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER
31, 2016 AND 2015
Note
1 -
ORGANIZATION
Yosen
Group, Inc. (the “Company” or “Yosen”) was incorporated on August 20, 1998 under the laws of the State
of Nevada. Capital Future Developments Limited (“Capital”) was incorporated on July 22, 2004 under the laws of the
British Virgin Islands. Zhejiang YongXin Digital Technology Company Limited (“Zhejiang”), Yiwu YongXin Communication
Limited (“Yiwu”), Hangzhou Wang Da Electronics Company Limited (“Wang Da”) were incorporated under the
laws of the Peoples Republic of China (“PRC” or “China”) on July 11, 2005, July 18, 1997, March 30, 1998,
respectively. Zhejiang set up a new operating entity, Hangzhou Letong Digital Technology Co., Ltd. (“Letong”) on March
10, 2009. On January 6, 2014 the Company established Yosen Trading Inc. (“Yosen Trading”), its wholly owned US based
subsidiary in New York. On April 23, 2015, the Company established a wholly owned subsidiary Hangzhou Yongxin Lamapai E-commerce
Co., Ltd (“Hangzhou Lamapai”). On September 24, 2015, Hangzhou Lamapai established a new company Zhejiang Yongxin
Lamapai E-commerce Co., Ltd (“Zhejiang Lamapai”). In 2016, Zhejiang Lamapai established Ningbo Yongxin Lamapai E-commerce
Co. Ltd ("Ningbo") and Hangzhou Saizhuo brand management Co., Ltd ("Saizhuo"). Hangzhou Lamaipai, Zhejiang
Lamapai, Saizhuo and Ningbo are collectively referred as Lamapai. The Company invested RMB 6,193,541 to Zhejiang Lamapai. As a
result of the investment, the Company owns 64.8% of Zhejiang Lamapai as of December 31, 2016.
On
December 21, 2005, Capital became a wholly owned subsidiary of Yosen through a reverse merger (“Merger Transaction”).
Yosen acquired all of the issued and outstanding capital stock of Capital pursuant to a Merger Agreement dated December 21, 2005
by and among Yosen, XY Acquisition Corporation, Capital and the shareholders of Capital (the “Merger Agreement”).
Pursuant to the Merger Agreement, Capital became a wholly owned subsidiary of Yosen and, in exchange for the Capital shares, Yosen
issued 7,000,000 shares of its common stock to the shareholders of Capital, representing 93% of the issued and outstanding
capital stock of Yosen at that time and cash of $500,000.
On
August 15, 2007, we executed a series of contractual agreements between Capital and Zhejiang. The contractual agreements give
Capital and its equity owners an obligation, and having ability to absorb, any losses, and rights to receive returns; however,
these contractual agreements did not change the equity ownership of Zhejiang. We did not dispose Capital’s actual equity
ownership of Zhejiang when we execute the contractual agreements. Capital entered into share-holding entrustment agreements with
five individuals - Zhenggang Wang, Yimin Zhang, Huiyi Lv, Xiaochun Wang and Zhongsheng Bao to hold 35%, 20%, 20%, 15% and 10%,
respectively, of the equity interest of Zhejiang on behalf of Capital on November 21, 2005. The entrustment agreements confirm
that Capital is the actual owner of Zhejiang. Capital enjoys the actual shareholder’s rights and has the right to obtain
any benefits received by the nominal holders. Zhenggang Wang is the CEO and shareholder of Yosen. Yimin Zhang, Huiyi Lv, Xiaochun
Wang and Zhongsheng Bao have no other relationship with Yosen. No consideration was given to these individuals who held the equity
of Zhejiang on behalf of Capital.
Letong
ceased operations in 2011. Yiwu closed all its stores in stores locations in 2012. Wang Da closed all its stores in the second
quarter 2014. Yosen Trading ceased operation in 2015.
ORGANIZATIONAL
CHART
Our
corporate structure as of December 31, 2017 is as follows:
ORGANIZATIONAL
CHART
*
These entities ceased operation during 2011.
**
This entity ceased operation during 2012.
***
This entity ceased operation during 2014.
****
This entity ceased operation during 2015.
*****
These entities were disposed or discontinued in 2017.
Note
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying consolidated financial statements (“CFS”) were prepared in conformity with accounting principles generally
accepted in the United States of America (“US GAAP”). The Company’s subsidiaries – Wang Da, Yiwu,
Zhejiang, Hangzhou Lamapai and Zhejiang Lamapai’s functional currency is the Chinese Renminbi (“RMB”), however,
the accompanying consolidated financial statements were translated and presented in United States Dollars (“$”, or
“USD”). Yosen is the parent company incorporated on August 20, 1998 under the laws of the State of Nevada. The parent
company does not have operations. Its main activities were incurring public company expenses. Yosen pays all its expenses in USD,
its functional currency. Capital was incorporated on July 22, 2004 under the laws of the BVI. Capital is a holding company and
does not have operations. As a result, we determined its functional currency is USD.
Going
Concern
The
accompanying CFS have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company had net loss of $1,136,820 and $1,506,891 for 2017 and 2016, respectively.
The Company had accumulated deficit of $51,977,149 as of December 31, 2017. There can be no assurance that the Company will become
profitable or that it will survive as a public company. These issues raise substantial doubt regarding the Company’s ability
to continue as a going concern.
On
March 29, 2018, the Company entered into an agreement with Zhenggang Wang, who was a director, chief executive officer and chairman
of the board of the Company until his resignation on February 1, 2018, pursuant to which the Company agreed to sell to Mr. Wang
all of the stock in its wholly-owned subsidiary, Capital Future Development Limited, a British Virgin Islands company, in exchange
for the transfer by Mr. Wang to the Company of 1,738,334 shares of the Company’s common stock, which represents all of the
Company’s common stock owned by Mr. Wang. The shares acquired by the Company will be cancelled. The Company’s former
business, which was the distribution of a range of imported products, including digital products, baby products, health nutrition
and frozen food, was conducted through Capital Future Development. As previously reported, the Company is treating this business
as a discontinued operation and intends to engage in the franchising or operations of upscale restaurants in China
Principles
of Consolidation
The
CFS include the accounts of Yosen and its wholly owned subsidiaries Capital, Wang Da, Yiwu, Zhejiang, Lamapai, Ningbo and Saizhuo
collectively referred to as the Company. All material intercompany accounts, transactions and profits were eliminated in consolidation.
Noncontrolling
Interest
On
September 24, 2015, the Company established Zhejiang Lamapai under the laws of the PRC. As of December 31, 2017, the Company owns
64.9% interest in Zhejiang Lamapai. The 35.1% owned by the third parties is presented as noncontrolling interest.
The
Company follows Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
Topic 810, “
Consolidation
,” which governs the accounting for and reporting of non-controlling interests (“NCIs”)
in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate,
among other things, that NCIs be treated as a separate component of equity, not as a liability, that increases and decreases in
the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions
or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to the NCI even when such
allocation might result in a deficit balance. This standard also required changes to certain presentation and disclosure requirements.
The
net income attributed to the NCI is separately designated in the accompanying consolidated statements of income and other comprehensive
income (loss). Losses attributable to the NCI in a subsidiary may exceed the NCI’s interests in the subsidiary’s equity.
The excess attributable to the NCI is attributed to those interests. The NCI shall continue to attribute its share of losses even
if that attribution results in a deficit NCI balance.
Currency
Translation
The
accounts of Zhejiang, Wang Da, Yiwu, Hangzhou Lamapai and Zhejiang Lamapai, Ningbo, Saizhuo were maintained, and its financial
statements were expressed RMB. Such financial statements were translated into USD in accordance with FASB ASC Topic 830-10,
“Foreign
Currency Translation,”
with the RMB as the functional currency. According to FASB ASC Topic 830-10, assets and liabilities
were translated at the ending exchange rate, stockholders’ equity is translated at the historical rates and income
statement items are translated at the average exchange rate for the year. The resulting translation adjustments are reported as
other comprehensive income in accordance with FASB ASC Topic 220,
“Reporting Comprehensive Income,”
as a component
of shareholders’ equity. Transaction gains and losses are reflected in the consolidated statements of operations and
comprehensive loss.
Use
of Estimates
The
preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those
estimates.
Risks
and Uncertainties
The
Company is subject to risks from, among other things, intense competition associated with the industry in general, other risks
associated with financing, liquidity requirements, rapidly changing customer requirements, limited operating history, foreign
currency exchange rates and the volatility of public markets.
Contingencies
Certain
conditions may exist as of the date the financial statements are issued, which could result in a loss to the Company but which
will only be resolved when one or more future events occur or fail to occur. The Company’s management assesses such contingent
liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s
management evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the
amount of relief sought or expected to be sought.
If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability
can be estimated, then the estimated liability is accrued in the Company’s financial statements. If the assessment indicates
that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated,
then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material
would be disclosed.
Loss
contingencies considered to be remote by management are generally not disclosed unless they involve guarantees, in which case
the guarantee would be disclosed.
Accounts
Receivable, net
The
Company maintains reserves for potential credit losses on accounts receivable. Management reviews the composition of accounts
receivable and analyzes historical bad debts, customer concentrations, customer credit worthiness, current economic trends and
changes in customer payment patterns to evaluate the adequacy of these reserves. Terms of the sales vary. Reserves are recorded
primarily on a specific identification basis. Allowances for doubtful debts were as follows:
|
|
|
|
Additions
|
|
|
|
|
Year
|
|
Balance at
January 1,
|
|
Charged
to
expenses
|
|
Charged to
other
comprehensive
loss
|
|
Deductions
|
|
Balance at
December 31,
|
|
2017
|
|
|
$
|
1,005,085
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,005,085
|
|
|
2016
|
|
|
$
|
1,005,397
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
315
|
|
|
$
|
1,005,085
|
|
Inventories
Inventories
are valued at the lower of cost (determined on a weighted average basis) or market. Management compares the cost of
inventories with the market value and allowance is made for writing down their inventories to market value, if lower. As of December
31, 2017, and 2016, inventory consisted entirely of finished goods valued at $388,609 and $1,274,526, respectively.
Property
and Equipment, net
Property
and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals
and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property
and equipment is provided using the straight-line method for substantially all assets with estimated lives of:
Automotive
|
5
years
|
Office Equipment
|
5
years
|
As
of December 31, 2017, and 2016, property and equipment consisted of the following:
|
|
2017
|
|
2016
|
Automotive
|
|
$
|
44,015
|
|
|
$
|
39,870
|
|
Office
equipment
|
|
|
163,100
|
|
|
|
152,372
|
|
Plant
and equipment
|
|
|
217,702
|
|
|
|
168,212
|
|
Construction
in progress
|
|
|
—
|
|
|
|
328,103
|
|
Subtotal
|
|
|
424,817
|
|
|
|
689,557
|
|
Less:
accumulated depreciation
|
|
|
(267,844
|
)
|
|
|
(187,942
|
)
|
Total
|
|
$
|
156,973
|
|
|
$
|
501,615
|
|
Long-Lived
Assets
The
Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with FASB ASC Topic 360,
“Property, Plant and Equipment”
, requires impairment losses to be recorded on long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than
the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds
the fair market value of the long-lived assets. Losses on long-lived assets to be disposed of are determined in a similar manner,
except that fair market values are reduced for the cost of disposal. Based on its review, the Company believes that, as of December
31, 2017 and 2016, there were no significant impairments of its long-lived assets.
Fair
Value of Financial Instruments
FASB
ASC Topic 825,
“Financial Instruments”
, requires that the Company disclose estimated fair values (“FVs”)
of financial instruments. The carrying amounts reported in the statements of financial position for current assets and current
liabilities qualifying as financial instruments are a reasonable estimate of FV.
Short-term
Bank Loans
As
of December 31, 2017 and 2016, short-term loans consisted of the following:
|
|
2017
|
|
2016
|
|
|
|
|
|
Line
of credit from China Construction Bank , dated May 27, 2017, due on April 26, 2018, with 5.44% interest.
|
|
$
|
28,743
|
|
|
|
—
|
|
From
Bank of Chouzhou, dated July 6, 2017, due on July 4, 2018, with interest 6.096% payable monthly, personally guaranteed by
the CEO
|
|
|
576,391
|
|
|
|
—
|
|
From
Bank of Chouzhou, dated July 6, 2017, due on July 4, 2018 with interest of 6.096% payable monthly, personally guaranteed by
the CEO
|
|
|
768,521
|
|
|
|
—
|
|
From
Bank of Chouzhou, dated July 5, 2017, due on July 4, 2018, with interest 7.836% payable monthly, personally guaranteed by
the CEO
|
|
|
768,521
|
|
|
|
—
|
|
From
Bank of Chouzhou, dated July 6, 2017, due on July 4, 2018 with interest of 7.836% payable monthly, personally guaranteed by
the CEO
|
|
|
192,130
|
|
|
|
—
|
|
From
Bank of Hangzhou, dated July 13, 2016, due on July 12, 2017, with interest of 6.96% payable monthly
|
|
|
—
|
|
|
|
360,039
|
|
From
Bank of Chouzhou, dated July 9, 2016, due on July 10, 2017, with interest 6.00% payable monthly, personally guaranteed by
the CEO
|
|
|
—
|
|
|
|
720,077
|
|
From
Bank of Chouzhou, dated July 16, 2016, due on July 10, 2017 with interest of 6.0625% payable monthly, personally guaranteed
by the CEO
|
|
|
—
|
|
|
|
1,440,154
|
|
Short
term loan dated June 1, 2016, due on February 28, 2017, with interest payable monthly, personally guaranteed by the CEO
|
|
|
—
|
|
|
|
432,046
|
|
|
|
$
|
2,795,441
|
|
|
$
|
2,952,316
|
|
Revenue
Recognition
In
accordance with FASB ASC Topic 605,
“Revenue Recognition,”
the Company recognizes revenues when there
is persuasive evidence of an arrangement, product delivery and acceptance have occurred, the sales price is fixed and determinable,
and collectability of the resulting receivable is reasonably assured.
The
Company records revenues when title and the risk of loss pass to the customer. Generally, these conditions occur on
the date the customer takes delivery of the product. Revenue generated is solely from retail of Yosen products.
Cost
of Sales
Cost
of sales (“COS”) consists of actual product cost, which is the purchase price of the product less any discounts. COS
excludes freight charges, purchase and delivery costs, internal transfer, freight charges and the other costs of the Company’s
distribution network, which are identified in general and administrative expenses.
General
and Administrative Expenses
General
and administrative (“G&A”) expenses are comprised principally of payroll and benefits costs for retail and corporate
employees, occupancy costs of corporate facilities, lease expenses, management fees, traveling expenses and other operating and
administrative expenses, including freight charges, purchase and delivery costs, internal transfer freight charges and other distribution
costs.
Shipping
and Handling Fees
The
Company follows FASB ASC 605-45,
“Handling Costs, Shipping Costs”
. The Company does not charge its
customers for shipping and handling. The Company classifies shipping and handling fees as part of G&A expenses which were
$10,982 and $7,765 for 2017 and 2016, respectively.
Vendor
Discounts
The
Company has negotiated preferred pricing arrangements with certain vendors on certain products. These arrangements are not contingent
on any levels of volume and are considered vendor discounts as opposed to rebates. The Company records these discounts along with
the purchase of the discounted items, resulting in lower inventory cost and a corresponding lower COS as the products are sold.
Share
Based Payment
The
Company follows FASB ASC 718-10,
“Stock Compensation”
, which addresses the accounting for transactions in
which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity
obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services
received in exchange for an award of equity instruments based on the grant-date FV of the award (with limited exceptions). Incremental
compensation costs arising from subsequent modifications of awards after the grant date must be recognized.
Advertising
Advertising
expenses consist primarily of costs of promotion for corporate image and product marketing and costs of direct advertising. The
Company expenses all advertising costs as incurred. Advertising expense was $15,989 in 2017 and there was not any advertising
expense for 2016.
Other
Income
Other
income was $129,257 and $8,781 for the years ended December 31, 2017 and 2016, respectively . Other income in 2017was primarily
attributable to the accounts payable forgiven.
Other
Expense
Other
expense was $443,674 and $569,607 for the years ended December 31, 2017 and 2016, respectively. Other expense consists of the following:
|
|
2017
|
|
2016
|
Interest
expense
|
|
$
|
237,206
|
|
|
$
|
169,801
|
|
Bank
fees
|
|
|
9,493
|
|
|
|
3,493
|
|
Miscellaneous
|
|
|
196,975
|
|
|
|
396,313
|
|
Total
other expense
|
|
$
|
443,674
|
|
|
$
|
569,607
|
|
Income
Taxes
The
Company utilizes FASB ASC Topic 740,
“Income Taxes”
. Deferred income taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period
end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to
be realized.
Basic
and Diluted Earnings (Loss) per Share
Earnings
(loss) per share are calculated in accordance with FASB ASC Topic 260,
“Earnings per Share”,
Basic earnings
(loss) per share is based upon the weighted average number of common shares outstanding. Diluted earnings (losses) per share is
based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed
by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of
the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the
average market price during the period. If convertible shares and stock options are anti-dilutive, the impact of conversion is
not included in the diluted net income per share. Excluded from the calculation of diluted earnings per share for 2017 and 2016
were 10,000 options, as they were not dilutive.
Statement
of Cash Flows
In
accordance with FASB ASC Topic 230,
“Statement of Cash Flows”
, cash flows from the Company’s operations
are calculated based upon the functional currency, in our case the RMB. As a result, amounts related to changes in assets and
liabilities reported on the statement of cash flows will not necessarily agree with the changes in the corresponding balances
on the balance sheet.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable, advances to suppliers
and other receivables arising from its normal business activities. The Company places its cash in what it believes to be credit-worthy
financial institutions. The Company has a diversified customer base, most of which is in China. The Company controls credit risk
related to accounts receivable through credit approvals, credit limits and monitoring procedures. The Company routinely assesses
the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required,
for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowance
is limited.
Segment
Reporting
FASB
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting.
The management approach model is based on the way a company’s management organizes segments within the company for making
operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure,
management structure, or any other manner in which management disaggregates a company. Following the Company’s decision
to discontinue its existing business, the Company has no operating segments.
Recent
Accounting Pronouncements
In
January 2017, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”)
2017-01,
Business Combinations (Topic 805) Clarifying the Definition of a Business
. The amendments in this update
clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions or disposals of assets or businesses. The definition of a business affects many areas
of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for interim and annual
periods beginning after December 15, 2017 and should be applied prospectively on or after the effective date. The Company
is in the process of evaluating the impact of this ASU on our CFS.
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which requires restricted
cash to be presented with cash and cash equivalents on the statement of cash flows and disclosure of how the statement of cash
flows reconciles to the balance sheet if restricted cash is shown separately from cash and cash equivalents on the balance sheet.
ASU 2016-18 is effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The
Company is in the process of evaluating the impact of this ASU on our CFS.
In
November 2015, the FASB issued an ASU on the balance sheet classification of deferred taxes, which would require that deferred
tax assets and liabilities be classified as non-current in the balance sheet. Current GAAP requires the presentation of deferred
tax assets and liabilities as either current or non-current in the balance sheet. This ASU is effective for annual reporting periods
beginning after December 15, 2016, including interim reporting periods within those annual reporting periods. Earlier adoption
is permitted. The guidance may be applied either prospectively or retrospectively. The adoption of any such pronouncements did
not cause a material impact on its CFS.
In
October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory
,
which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when
the transfer occurs. ASU 2016-16 is effective for interim and annual periods beginning after December 15, 2018, with early
adoption permitted. The Company is in the process of evaluating the impact of this ASU on our CFS.
In
August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230), Classification of Certain Cash
Receipts and Cash Payments
. ASU 2016-15 provides guidance for targeted changes with respect to how cash receipts and cash
payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. ASU 2016-15 is
effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted. The Company is
in the process of evaluating the impact of this ASU on our CFS.
In
March 2016, the FASB issued ASU 2016-09,
Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting
.
ASU 2016-09, which amends several aspects of accounting for employee share-based payment transactions including the accounting
for income taxes, forfeitures, and statutory tax withholding requirements, and classification in the statement of cash flows.
ASU 2016-09 is effective for fiscal years beginning after December 15, 2016 and interim periods within annual periods beginning
after December 15, 2016, with early adoption permitted. The adoption of any such pronouncements did not cause a material
impact on CFS.
In
February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
ASU 2016-02 requires lessees to recognize lease assets
and lease liabilities on the balance sheet and requires expanded disclosures about leasing arrangements. ASU 2016-02 is effective
for fiscal years beginning after December 15, 2018 and interim periods in fiscal years beginning after December 15, 2018,
with early adoption permitted. The Company is in the process of evaluating the impact of this ASU on our CFS.
In
May 2014, the FASB issued No. 2014-09, Revenue from Contracts with Customers, which supersedes the revenue recognition requirements
in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification.
The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In
August 2015, the FASB approved a one-year deferral of the effective date of the new revenue recognition standard. Public business
entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual
reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier
application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods
within that reporting period. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal
versus Agent Considerations (Reporting Revenue versus Net). In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts
with Customers (Topic 606), Identifying Performance Obligations and Licensing. In May 2016, the FASB issued ASU 2016-11, Revenue
from Contracts with Customers (Topic 606) and Derivatives and Hedging (Topic 815) - Rescission of SEC Guidance Because of ASU
2014-09 and 2014-16, and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow Scope Improvements and Practical
Expedients. These ASUs clarify the implementation guidance on a few narrow areas and adds some practical expedients to the guidance
Topic 606. The Company is evaluating the effect that these ASUs will have on its CFS.
Management
does not believe that any recently issued, but not yet effective, accounting standards could have a material effect on the accompanying
CFS. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
Other
recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the Securities
Exchange Commission (the “SEC”) did not or are not believed by management to have a material impact on the Company’s
present or future CFS.
Note
3 -
ADVANCES TO SUPPLIERS
Advances
to suppliers represent advance payments to suppliers for the purchase of inventory.
Note
4 -
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets in 2017 was $419,112. Prepaid expense consists primarily the deferred stock compensation recorded
at the end of 2016 for restricted stocks issued on December 23, 2016. The deferred stock compensation is expensed over three years.
Note
5 -
OTHER NON-CURRENT ASSETS
Other
non-current assets were $319,694 and $164,927 in 2017 and 2016, respectively. Other non-current assets consist primarily capital
improvement to the retail stores.
Note
6 -
COMMON STOCK
On
March 18, 2016, the Company sold 190,532 Units to two investors with each Unit consisting of: (i) one share of common stock, $0.001
par value per share and (ii) a three-year warrant to purchase one share of Common Stock of the Company at $0.75, for $142,898.
Pursuant to the agreement, 190,532 shares of Common Stock and 190,532 Warrant were issued in 2016. The Proceeds from the issuance
of shares and warrants were assigned to the respective securities based on relative fair values.
On
May 19, 2016, the board approved an amendment to Yosen’s Certificate of Incorporation effecting a one-for-three reverse
split of Yosen’s common stock. The reverse split was effective as of September 30, 2016. The accompanying CFS and notes
to the CFS give retroactive effect to the reverse stock split for all periods presented. In addition, the reverse stock split
resulted in an adjustment in the number of shares of common stock issuable upon conversion of our warrants to a 3:1 ratio.
On
December 23, 2016, the Company’s board of directors adopted the Yosen Group 2016 Restricted Stock Plan (the “2016
Plan”). The 2016 Plan provides for the granting of restricted stock awards to employees, directors and consultants
of the Company and the employees, directors and consultants of the Company’s affiliates. Under the 2016 Plan, 1,360,000
shares of the Company’s common stock were initially available for issuance for awards. As of December 31, 2016,
1,150,000 of the shares available for issuance under the 2016 Plan were issued. In January 2017, 210,000 shares available for
issuance were issued. The common stock was valued at grant date with a FV of $476,000. During the three and nine months ended
September 30, 2017, $39,666 and $119,000 was recognized as stock based compensation expense, respectively.
Stock
options - Options issued have a ten-year life and were fully vested upon issuance. The option holder has no voting or dividend
rights. The grant price was the market price at the date of grant. The Company records the expense of the stock options over the
related vesting period. The options were valued using the Black-Scholes option-pricing model at the date of grant stock option
pricing.
Outstanding
options and warrants by exercise price consisted of the following as of December 31, 2017:
Outstanding
|
|
Exercisable
|
Exercise Price
|
|
Number of
Shares
|
|
Weighted
Average
Remaining
Life (Years)
|
|
Weighted
Average
Exercise Price
|
|
Number
of Shares
|
|
Weighted
Average
Exercise
Price
|
Warrants:
|
|
|
|
|
|
|
|
|
|
|
$
|
0.75
|
|
|
|
1,218,076
|
(1)
|
|
|
0.75
|
|
|
$
|
0.75
|
|
|
|
1,218,076
|
|
|
$
|
0.75
|
|
$
|
0.75
|
|
|
|
66,975
|
(2)
|
|
|
0.90
|
|
|
$
|
0.75
|
|
|
|
66,975
|
|
|
$
|
0.75
|
|
$
|
0.75
|
|
|
|
190,532
|
(3)
|
|
|
1.10
|
|
|
$
|
0.75
|
|
|
|
190,532
|
|
|
$
|
0.75
|
|
(1)
On September 1, 2015, the Company issued stock warrants to purchase 1,218,076 shares of common stock at $0.75 in conjunction with
the common stock offering (See Note 5). The stock warrants expire on August 31,2018. Stock warrants were valued using the Black-Scholes
option pricing model. Assumptions used to value the warrants are similar to those used in valuing the stock options as described
below.
Term
|
|
3
years
|
Expected
volatility
|
|
|
196
|
%
|
Risk
– free interest rate
|
|
|
1.1
|
%
|
Dividend
yield
|
|
|
0
|
%
|
Weighted-average
grant date FV
|
|
$
|
0.972
|
|
The
Company determined the FV of the 1,218,076 warrants was $1,183,970. As of December 31, 2017, warrants to purchase 1,218,076 shares
of common stock remained outstanding. These warrants were plain vanilla warrants and were classified as equity.
(3)
On November 16, 2015, the Company issued stock warrants to purchase 66,975 shares of common stock at $0.75 in conjunction with
the common stock offering (See Note 5). The stock warrants expire on November 15, 2018. Stock warrants were valued using the Black-Scholes
option pricing model. Assumptions used to value the warrants are similar to those used in valuing the stock options as described
below.
Term
|
|
3
years
|
Expected
volatility
|
|
|
203
|
%
|
Risk
– free interest rate
|
|
|
1.2
|
%
|
Dividend
yield
|
|
|
0
|
%
|
Weighted-average
grant date FV
|
|
$
|
1.215
|
|
The
Company determined the FV of the 66,975 warrants was $81,375. As of December 31, 2017, warrants to purchase 66,975 shares of common
stock remained outstanding. These warrants were plain vanilla warrants and were classified as equity.
(4)
On March 18, 2016, the Company issued stock warrants to purchase 190,532 shares of common stock at $0.75 in conjunction with the
common stock offering (See Note 5). The stock warrants expire on March 17, 2019. Stock warrants were valued using the Black-Scholes
option pricing model. Assumptions used to value the warrants are similar to those used in valuing the stock options as described
below.
Term
|
|
3
years
|
Expected
volatility
|
|
|
178
|
%
|
Risk
– free interest rate
|
|
|
1.0
|
%
|
Dividend
yield
|
|
|
0
|
%
|
Weighted-average
grant date FV
|
|
$
|
1.086
|
|
The
Company determined the FV of the 190,532 warrants was $206,917. As of December 31, 2017, warrants to purchase 190,532 shares of
common stock remained outstanding. These warrants were plain vanilla warrants and were classified as equity.
Note
8 -
COMPENSATED ABSENCES
Regulation
45 of the labor laws in the PRC entitles employees to annual vacation leave after one year of service. In general all leaves must
be utilized annually, with proper notification, any unutilized leave is cancelled.
Note
9 -
INCOME TAXES
The
Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income
tax expense. The Company did not have any accrued interest or penalties associated with any unrecognized tax benefits, nor were
any interest expense or penalties recognized during the year ended December 31, 2017 and 2016.
The
US operating entity Yosen Group is subject to the US federal income tax at 34%. Yosen Group does not conduct any operations and
only incurs public company expenses, such as legal fees, accounting fees, investor relations expenses and filing fees. In 2017
and 2016, the US operating subsidiaries incurred a net operating loss of $151,684 and $169,515 As a result, $49,450 and $57,635
of deferred tax assets and the same amount of valuation allowance were recorded to offset deferred tax assets for 2017 and 2016.
The
PRC operating subsidiaries, were treated as discontinued operations following the management’s intent to dispose the previous
businesses. Management believes it is more likely than not that the subsidiaries will not be able to benefit from the deferred
tax assets in association with the operating losses. As a result, $358,722and $469,040 of deferred tax assets and valuation allowance
were recorded in the year ended December 31, 2017.
The
components of deferred income tax assets and liabilities as of December 31, 2017 and 2016 are as follows:
|
|
2017
|
|
2016
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
U.S.
net operating losses
|
|
$
|
49,450
|
|
|
$
|
57,635
|
|
Discontinued
operation
|
|
|
309,322
|
|
|
|
411,405
|
|
Total
deferred tax assets
|
|
|
358,722
|
|
|
|
469,040
|
|
Less
valuation allowance
|
|
|
(358,722
|
)
|
|
|
(469,040
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Reconciliation
of the differences between the statutory US Federal income tax rate and the effective rate is as follows for 2017 and 2016.
|
|
2017
|
|
2016
|
Tax
benefit at US Statutory Rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
Tax
rate difference
|
|
|
8.0
|
%
|
|
|
8.2
|
%
|
State,
net of Federal
|
|
|
0.2
|
%
|
|
|
—
|
|
Valuation
allowance
|
|
|
25.8
|
%
|
|
|
25.8
|
%
|
Effective
rate
|
|
|
—
|
%
|
|
|
—
|
%
|
Note
10 -
COMMITMENTS
The
Company leases office facilities under operating leases that terminate through 2020. Rent expense for 2017 and 2016 was $3,329
and $158,922, respectively.
The
future minimum obligations under these agreements are as follows by years as of December 31, 2017:
2018
|
|
|
$
|
170,458
|
|
Total
|
|
|
$
|
170,458
|
|
Note
11 -
STATUTORY RESERVE
In
accordance with the laws and regulations of the PRC, a wholly-owned Foreign Invested Enterprise’s income, after the payment
of the PRC income taxes, shall be allocated to the statutory surplus reserves and statutory public welfare fund. Prior to January
1, 2006, the proportion of allocation for reserve was 10 % of the profit after tax to the surplus reserve fund and additional
5-10 % to the public affair fund. The public welfare fund reserve was limited to 50 % of the registered capital. Effective January
1, 2006, there is now only one fund requirement. The reserve is 10 % of income after tax, not to exceed 50 % of registered capital.
Statutory
reserve funds are restricted to offset against losses, expansion of production and operation or increase in register capital of
the respective company. Statutory public welfare fund is restricted to the capital expenditures for the collective welfare of
employees. These reserves are not transferable to the Company in the form of cash dividends, loans or advances. These reserves
are therefore not available for distribution except in liquidation. As of December 31, 2017 and 2016, the Company allocated $11,542,623
and $11,542,623 to these non-distributable reserve funds.
Note
12 –
DISCONTINUED OPERATIONS
As
disclosed in the Company’s 8-K filed on February 15, 2018, the Company’s existing business is the distribution of
a range of imported products, including digital products, baby products, health nutrition and frozen food through its online store,
applications on mobile devices and also in physical stores. The Company has sustained continuing losses in this business and does
not believe that it will be able to operate that business profitably. As a result, the Company intends to engage in the franchising
or operations of upscale restaurants in China, and it is negotiating with the operator of a well-known Hong Kong restaurant with
respect to a joint venture that will license or operate such restaurants. The Company believes that its new management has experience
in the operation and management of restaurants; however, the Company does not operate or license any restaurants and cannot give
any assurance that it will be successful in this business. The Company’s existing business will be treated as a discontinued
operation in its financial statements for the year ended December 31, 2017.
The
operating results of discontinued operation is disclosed in the consolidated statements of operations and comprehensive loss.
Note
13 -
OTHER COMPREHENSIVE INCOME
Other
comprehensive income, included in stockholders’ equity for 2017 and 2016, represents foreign currency translation adjustments.
Note
14-
CURRENT VULNERABILITY DUE TO CERTAIN RISK FACTORS
The
Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results
of operations may be influenced by the political, economic and legal environments in the PRC and by the general state of the PRC’s
economy. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations,
anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Note
15 -
MAJOR CUSTOMERS, VENDORS AND CREDIT RISK
During
2016, two customers accounted for 10% or more of our total revenue, representing 35.4% and 23.5% respectively. One vendor comprised
more than 10% of the Company accounts payable, which represented 12.6%.
During
2017, No customer accounted for 10% or more of our total revenue or the Company’s accounts receivable. One vendor comprised
more than 10% of the Company accounts payable, which represented 10.4%.
Note
16 -
SEGMENT INFORMATION
Following
the Company’s decision to discontinue its existing business, the Company has no operating segments.
NOTE
17-
SUBSEQUENT EVENTS
On
March 29, 2018, the Company entered into an agreement with Zhenggang Wang, who was a director, chief executive officer and chairman
of the board of the Company until his resignation on February 1, 2018, pursuant to which the Company agreed to sell to Mr. Wang
all of the stock in its wholly-owned subsidiary, Capital Future Development Limited, a British Virgin Islands company, in exchange
for the transfer by Mr. Wang to the Company of 1,738,334 shares of the Company’s common stock, which represents all of the
Company’s common stock owned by Mr. Wang. The shares acquired by the Company will be cancelled. The Company’s former
business, which was the distribution of a range of imported products, including digital products, baby products, health nutrition
and frozen food, was conducted through Capital Future Development. The Company is treating this business as a discontinued operation
and intends to engage in the franchising or operations of upscale restaurants in China. As a result of the sale of this subsidiary
to the former CEO, the Company effectively sold all of its PRC subsidiaries in exchange for the surrender of 1,738,334 shares
of Yosen valued at $ 225,983 at $0.13 per share, which was the market price of Yosen’s share on March 29, 2018.
On March 29, 2018, the Company entered into
a debt conversion agreement with Qishizhihe Investment Co. Ltd., a British Virgin Island company (“Qishizhihe”), pursuant
to which Qishizhihe agreed to convert loans in the principal amount of RMB4,500,000 ($717,886) into 10,255,522 shares of common
stock at a conversion price of $0.07 per share. Qishizhihe had made the loans pursuant to loan and security agreements dated December
22, 2016 and June 1, 2016.
On February 6, 2018, the Company established a wholly-owned subsidiary in British Virgin Island,
DB-Link Ltd (“DB-Link”). The company plans to operate franchising or operations of restaurants under DB-Link.