NOTES
TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018 AND 2017
Note
1 -
ORGANIZATION
Yosen Group, Inc. (the “Company”
or “Yosen”) is a Nevada corporation, organized on August 20, 1998.
The Company’s former business was conducted
through Capital Future Developments Limited (“Capital”). The sale of Capital included Capital’s subsidiaries
and Capital’s equity interest in its affiliates. On May 22, 2018, the Company transferred all of its equity in Capital and
its affiliates to the former chief executive officer in exchange for the transfer by him to the Company of 1,738,334 shares of
common stock, which was all of the common stock owned by him pursuant to an agreement dated March 29, 2018. The 1,738,334 shares
of common stock were canceled on May 22, 2018.
On February 6, 2018, the Company established
a wholly-owned subsidiary in British Virgin Island, DB-Link Ltd (“DB-Link”). The Company plans to operate franchising
or operations of restaurants through DB-Link. On July 18, 2018, the Company established a wholly-owned subsidiary, DBUB Group
Inc., a Nevada corporation.
Note
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of
Regulation S-X. Accordingly, these interim financial statements do not include all of the information and notes required by GAAP
for complete financial statements. All adjustments (consisting of normal recurring items) necessary to present fairly the Company’s
consolidated financial position have been included. These interim financial statements should be read in conjunction with the
consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December
31, 2017. Operating results for the interim periods presented herein are not necessarily indicative of the results that may be
expected for any other interim period or for the entire year. Reclassifications have been made to conform historical financial
statements to the current period’s presentation.
The
parent company does not have operations. Its main activities were incurring expenses relating to its status as a public company
in the United States. The functional currency of the Company is the United States dollar.
Going
Concern
The
accompanying consolidated financial statements were prepared on a going concern basis which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2018, the Company realized
a net loss from continuing operations of $137,054. The Company generated no revenue from continuing operations and requires significant
funding for its operations with no assurance as to its ability to obtain the funding on reasonable, if any, terms. The Company
has an accumulated deficit of $37,329,771 as of June 30, 2018. There can be no assurance that the Company will become profitable
or obtain necessary financing for our business or that it will be able to continue in business. These issues raise substantial
doubt regarding the Company’s ability to continue as a going concern.
Principles of Consolidation
The consolidated financial statements include
the accounts of Yosen and its subsidiaries. The consolidated results of operations and consolidated financial condition of Capital
is reflected as net income (loss) from discontinued operations, and the assets and liabilities of the discontinued operations at
December 31, 2017 are reflected as current and non-current assets and liabilities of the Company. All material intercompany accounts,
transactions and profits were eliminated in consolidation.
Noncontrolling Interest
Before May 22, 2018, Capital had invested
RMB 6,193,541($898,852) in Zhejiang Lamapai and owned 64.9% interest in Zhejiang Lamapai. The 35.1% owned by the third parties
is presented as non-controlling interest. On May 22, 2018, The Company sold its equity in Capital. Capital includes Capital’s
its subsidiaries as well as Capital’s equity interest in Zhejiang Lamapai . At June 30, 2018, the Company did not have any
non-controlling 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 in
partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate,
among other things, that non-controlling interests be treated as a separate component of equity, not as a liability, that increases
and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than
as step acquisitions or dilution gains or losses, and that losses of a partially owned consolidated subsidiary be allocated to
the non-controlling interest even when such allocation might result in a deficit balance. This standard also required changes
to certain presentation and disclosure requirements.
The
net income attributed to the non-controlling interest is separately designated in the accompanying consolidated statements of
income and other comprehensive income (loss). Losses attributable to the non-controlling interest in a subsidiary may exceed the
non-controlling interest’s interests in the subsidiary’s equity. The excess attributable to the non-controlling interest
is attributed to those interests. The non-controlling interest attributed its share of losses even if that attribution resulted
in a deficit non-controlling interest balance.
Currency
Translation
The
accounts of Capital’s subsidiaries were maintained, and its financial statements were expressed RMB. Such financial statements
were translated into United States dollars in accordance with FASB ASC Topic 830-10,
“Foreign Currency Translation,”
with
the RMB as the functional currency. According to FASB ASC Topic 830-10, assets and liabilities were translated at the ending exchange
rate, stockholders’ equity is translated at the historical rates and income statement items are translated at the average
exchange rate for the year. The resulting translation adjustments are reported as other comprehensive income in accordance with
FASB ASC Topic 220,
“Reporting Comprehensive Income,”
as a component of shareholders’ equity.
Transaction gains and losses are reflected in the consolidated statements of operations and comprehensive loss.
The
impact of foreign translation from our accounts in RMB to United States dollars on the Company’s operating results was not
material in the three and six months ended June 30, 2018 and 2017. During the translation process, the assets and liabilities
of all PRC subsidiaries are translated into US dollars at period-end exchange rates. The revenues and expenses are translated
into United States dollars at average exchange rates of the periods. Resulting translation adjustments are recorded as a
component of accumulated other comprehensive income within stockholders’ equity.
|
|
Six
Months Ended
June 30,
|
|
|
2018
|
|
2017
|
RMB/$ exchange
rate at period end
|
|
|
0.1511
|
|
|
|
0.1475
|
|
Average
RMB/$ exchange rate for the periods
|
|
|
0.1571
|
|
|
|
0.1455
|
|
|
|
Three
Months Ended
June 30,
|
|
|
2018
|
|
2017
|
RMB/$ exchange
rate at period end
|
|
|
0.1511
|
|
|
|
0.1475
|
|
Average
RMB/$ exchange rate for the periods
|
|
|
0.1568
|
|
|
|
0.1458
|
|
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 Statements of Operations and Comprehensive Loss. As a result of the translation,
As a result of the translation, Yosen recorded a foreign currency gain of $86,748 in the six months ended June 30, 2018 and a
loss of $71,696 in 2017, and a foreign currency gain of $253,862 and a loss of $50,807 for the three months ended June 30,
2018 and 2017. These gains and losses relate to the discontinued operations.
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 tastes and requirements, limited operating history, foreign currency exchange rates and the volatility
of public markets as well as other risks associated with the restaurant and related industries.
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.
Long-Lived
Assets
The
Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with FASB ASC
360,
“Property, Plant and Equipment,”
which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to
be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on
the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Losses on long-lived assets
to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost of disposal.
Based on its review, the Company believes that, as of June 30, 2018 (unaudited) and December 31, 2017, there were no
significant impairments of its long-lived assets not related to the discontinued operations.
Fair
Value of Financial Instruments
FASB
ASC Topic 825,
“Financial Instruments,”
requires the Company disclose estimated fair values (“fair
values”) of financial instruments. The carrying amounts reported in the statements of financial position for current assets
and current liabilities qualifying as financial instruments are a reasonable estimate of fair value.
Revenue
Recognition
The Company recognizes revenue in accordance
with ASC Topic 606, “Revenue from Contracts with Customers.” Revenue is recognized when control of the promised goods
or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled
to in exchange for those goods or services. Under Topic 606, revenue is recognized when there is a contract which has commercial
substance which is approved by both parties and identifies the rights of the parties and the payment terms. The Company adopted
Topic 606 as of January 1, 2018. Because all of the Company’s prior operations are discontinued and was disposed of on May
22, 2018, the adoption of Topic 606 does not affect the Company’s prior operations.
Cost
of Sales
Cost
of sales consists of actual product cost, which is the purchase price of the product less any discounts. Cost of sales
excludes freight charges, purchase and delivery costs, internal transfer, freight charges and the other costs of the Company’s
distribution network, which are identified in general and administrative expenses.
General
and Administrative Expenses
General
and administrative expenses are comprised principally of payroll and benefits costs for retail and corporate employees, occupancy
costs of corporate facilities, lease expenses, management fees, traveling expenses and other operating and administrative expenses,
including freight charges, purchase and delivery costs, internal transfer freight charges and other distribution costs.
Share
Based Payment
The
Company follows FASB ASC 718-10,
“Stock Compensation,”
which addresses the accounting for transactions in which
an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains
employee services in share-based payment transactions. ASC 718-10 requires measurement of the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental
compensation costs arising from subsequent modifications of awards after the grant date must be recognized.
Income
Taxes
The
Company utilizes FASB ASC Topic 740,
“Income Taxes.”
Deferred income taxes are recognized for the tax consequences
in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period
end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to
be realized.
Basic
and Diluted Earnings (Loss) per Share
Earnings (loss) per share are calculated in
accordance with FASB ASC Topic 260,
“Earnings per Share,”
Basic earnings (loss) per share is based upon the
weighted average number of common shares outstanding. Diluted earnings (losses) per share is based on the assumption that all dilutive
convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later),
and as if funds obtained thereby were used to purchase common stock at the average market price during the period. If convertible
shares and stock options are anti-dilutive, the impact of conversion is not included in the diluted net income per share. Excluded
from the calculation of diluted earnings per share for 2018 and 2017 were warrants to purchase 1,475,583 shares of common stock
because the inclusion of such warrants would have been anti-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. Following the disposal of the discontinued operations, cash from operations, investing and financing
activities for the six months ended June 30, 2018 is net of the effect of such disposal.
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. Since the Company has not generated any revenues or commenced operations in its continuing business, the
Company cannot evaluate the risk of a concentration of credit risk.
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 disposal
of its existing business, the Company has one operating segment which has not commenced active operations.
Recent
Accounting Pronouncements
The
Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption
of any such pronouncements may be expected to cause a material impact on the Company’s financial statements.
N
ote
3 -
STOCK WARRANTS, OPTIONS, AND COMPENSATION
Stock
options - Options issued have a 10-year life and were vested upon issuance. The option holder has no voting or dividend rights.
The grant price was the market price at the date of grant. The Company records the expense of the stock options over the related
vesting period. The options were valued using the Black-Scholes option-pricing model at the date of grant stock option pricing
and are classified as equity.
Outstanding
options and warrants by exercise price consisted of the following as of June 30, 2018:
Outstanding
|
|
Exercisable
|
Exercise Price
|
|
Number of
Shares
|
|
Weighted
Average
Remaining
Life (Years)
|
|
Weighted
Average
Exercise Price
|
|
Number
of Shares
|
|
Weighted
Average
Exercise
Price
|
Warrants:
|
|
|
|
|
|
|
|
|
|
|
$
|
0.75
|
|
|
|
1,218,076
|
(1)
|
|
|
0.25
|
|
|
$
|
0.75
|
|
|
|
1,218,076
|
|
|
$
|
0.75
|
|
$
|
0.75
|
|
|
|
66,975
|
(2)
|
|
|
0.40
|
|
|
$
|
0.75
|
|
|
|
66,975
|
|
|
$
|
0.75
|
|
$
|
0.75
|
|
|
|
190,532
|
(3)
|
|
|
0.60
|
|
|
$
|
0.75
|
|
|
|
190,532
|
|
|
$
|
0.75
|
|
(1)
On September 1, 2015, the Company issued warrants to purchase 1,218,076 shares of common stock at $0.75 per share. The stock warrants
expire on August 31, 2018. The Company determined that the fair value of these warrants was $1,183,970 based on the following
assumptions:
Term
|
|
3
years
|
Expected
volatility
|
|
|
196
|
%
|
Risk
– free interest rate
|
|
|
1.1
|
%
|
Dividend
yield
|
|
|
0
|
%
|
Weighted-average
grant date fair value
|
|
$
|
0.972
|
|
(2)
On November 16, 2015, the Company issued stock warrants to purchase 66,975 shares of common stock at $0.75 per share. The warrants
expire on November 15, 2018. The Company determined that the fair value of these warrants was $81,375 based on the following assumptions:
Term
|
|
3
years
|
Expected
volatility
|
|
|
203
|
%
|
Risk
– free interest rate
|
|
|
1.2
|
%
|
Dividend
yield
|
|
|
0
|
%
|
Weighted-average
grant date fair value
|
|
$
|
1.215
|
|
(3)
On March 18, 2016, the Company issued warrants to purchase 190,532 shares of common stock at $0.75 per shares as part of a private
placement of 190,532 units with each unit consisting of one share of common stock and a three-year warrant to purchase one share
of common stock. The Company determined that the fair value of these warrants was $206,917 based on the following assumptions:
Term
|
|
3
years
|
Expected
volatility
|
|
|
178
|
%
|
Risk
– free interest rate
|
|
|
1.0
|
%
|
Dividend
yield
|
|
|
0
|
%
|
Weighted-average
grant date fair value
|
|
$
|
1.086
|
|
Note
4 -
INCOME TAXES
The
parent company is subject to the United States federal income tax at 21% in 2018 and 34% in 2017. The parent company does not
conduct any operations and only incurs expenses, such as legal fees, accounting fees, investor relations expenses and filing fees,
relating to the Company’s status as a reporting company under the United States securities laws. DB-Link Ltd is not
subject to United States or PRC income tax and is not subject to income tax in the British Virgin Islands.
In
the six months ended June 30, 2018, the United States operating subsidiaries incurred a net operating loss of $128,964. As a result,
$27,082 of deferred tax assets and valuation allowance was recorded. In the six months ended June 30, 2017, the US operating
subsidiaries incurred a net operating loss of $124,334. As a result, $42,274 of deferred tax assets and valuation allowance was
recorded.
In
the three months ended June 30, 2018, the United States operating subsidiaries incurred a net operating loss of $69,422. As a
result, $14,579 of deferred tax assets and valuation allowance was recorded. In the three months ended June 30, 2017, the
US operating subsidiaries incurred a net operating loss of $189,478. As a result, $47,370 of deferred tax assets and valuation
allowance was recorded.
All
PRC subsidiaries, were sold on May 22, 2018. These entities are subject to the PRC income tax at a rate of 25% before May 22,
2018.
The
components of deferred tax assets and liabilities as of June 30, 2018 and December 31, 2017 were as follows:
|
|
2018
|
|
2017
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
U.S.
net operating losses
|
|
$
|
27,082
|
|
|
$
|
20,978
|
|
Discontinued
operation
|
|
|
55,519
|
|
|
|
97,950
|
|
Total
deferred tax assets
|
|
|
82,602
|
|
|
|
72,022
|
|
Less
valuation allowance
|
|
|
(82,602
|
)
|
|
|
(72,022
|
)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Reconciliation
of the differences between the statutory United States Federal income tax rate and the effective rate for the six months ended
June 30, 2018 and 2017 is as follows:
|
|
2018
|
|
2017
|
Tax
(Credit) at statutory rate
|
|
|
(21.0
|
)%
|
|
|
(34.0
|
)%
|
Tax rate
difference
|
|
|
(2.0
|
)%
|
|
|
7.6
|
%
|
Valuation
allowance
|
|
|
23.0
|
%
|
|
|
26.4
|
%
|
Effective
rate
|
|
|
—
|
%
|
|
|
—
|
%
|
Reconciliation
of the differences between the statutory United States Federal income tax rate and the effective rate for the three months ended
June 30, 2018 (unaudited) and 2017 (unaudited) is as follows:
|
|
2018
|
|
2017
|
Tax
(Credit) at statutory rate
|
|
|
(21.0
|
)%
|
|
|
(34.0
|
)%
|
Tax rate
difference
|
|
|
(2.0
|
)%
|
|
|
7.8
|
%
|
Valuation
allowance
|
|
|
23.0
|
%
|
|
|
26.2
|
%
|
Effective
rate
|
|
|
—
|
%
|
|
|
—
|
%
|
Note
5–
DISCONTINUED OPERATIONS
The
Company’s former business was the distribution of imported products, including digital products, baby products, health nutrition
and frozen food through its online store, applications on mobile devices and also in physical stores. The Company had sustained
continuing losses in this business and did not believe it will be able to operate that business profitably. As a result, the Company
transferred the equity in Capital to its former chief executive officer. The Company’s former business is treated as a discontinued
operation.
The
following table summarizes the assets and liabilities of the discontinued operations as of June 30, 2018 and December 31,
2017(audited) included in the consolidated balance sheets:
|
|
2018
|
|
2017
|
Cash
|
|
$
|
12,230
|
|
|
$
|
15,167
|
|
Accounts
receivable
|
|
|
57,867
|
|
|
|
94,465
|
|
Inventories
|
|
|
228,425
|
|
|
|
388,609
|
|
Advance
to suppliers
|
|
|
136,032
|
|
|
|
149,530
|
|
Prepaid
expenses and other receivables
|
|
|
104,683
|
|
|
|
101,778
|
|
Intangible
asset
|
|
|
17,820
|
|
|
|
23,694
|
|
Other
non-current assets
|
|
|
249,931
|
|
|
|
319,694
|
|
Property,
plant and equipment
|
|
|
128,387
|
|
|
|
156,973
|
|
Total
assets
|
|
|
2,556,253
|
|
|
|
1,249,910
|
|
|
|
|
|
|
|
|
|
|
Short-term
loans
|
|
|
(2,241,030
|
)
|
|
|
(2,795,441
|
)
|
Accounts
payable
|
|
|
(224,215
|
)
|
|
|
(323,975
|
)
|
Advance
from customers
|
|
|
—
|
|
|
|
(106,292
|
)
|
Accrued
expenses and other payable
|
|
|
(1,416,315
|
)
|
|
|
(710,997
|
)
|
Income
tax payable
|
|
|
818,182
|
)
|
|
|
(832,306
|
)
|
Advance
from related party
|
|
|
—
|
|
|
|
(823,739
|
)
|
Total
liabilities
|
|
|
(4,699,742
|
)
|
|
|
(5,592,750
|
)
|
Net
liabilities
|
|
$
|
(2,143,489
|
)
|
|
$
|
(4,342,840
|
)
|
As
a result of the sale of the equity interest in Capital to former chief executive officer, the Company recognized a gain of
$4,077,267 from the disposition of the equity of Capital and its affiliates stock in the three and six months ended June 30,
2018. This amount consists of a $2,456,389 gain from sale of the Company’s equity in Capital and its affiliates
and $1,620,878 reflecting the principal of loans by Capital on the date of the transfer, which, as a result of the transfer
of the equity in Capital, are no longer obligations of the Company. The obligations were liabilities of Capital with no
recourse to the Company.
The
following table summarizes the operating results of the discontinued operations included in the Consolidated Statements of Operations
and Comprehensive Income (Loss) for the six months ended June 30, 2018 and 2017:
|
|
2018
|
|
2017
|
Sales,
net
|
|
$
|
272,204
|
|
|
$
|
1,982,422
|
|
Cost
of sales
|
|
|
(246,888
|
)
|
|
|
(1,859,823
|
)
|
Gross
profit
|
|
|
25,316
|
|
|
|
122,599
|
|
General
and administrative expenses
|
|
|
(188,110
|
)
|
|
|
(519,069
|
)
|
Loss
from discontinued operations
|
|
|
(162,794
|
)
|
|
|
(396,470
|
)
|
Other
income (expenses)
|
|
|
(59,283
|
)
|
|
|
(298,182
|
)
|
Gain
on disposal of discontinued operations
|
|
|
4,077,267
|
|
|
|
—
|
|
Income
(loss) before income taxes
|
|
|
3,855,190
|
|
|
|
(694,652
|
)
|
Provision
for income taxes
|
|
|
—
|
|
|
|
—
|
|
Net
income (loss) from discontinued operations, net of income tax
|
|
$
|
3,855,190
|
|
|
$
|
(694,652
|
)
|
The
following table summarizes the operating results of the discontinued operations included in the Consolidated Statements of Operations
and Comprehensive Income (Loss) for the three months ended June 30, 2018 and 2017:
|
|
2018
|
|
2017
|
Sales,
net
|
|
$
|
65,427
|
|
|
$
|
645,510
|
|
Cost
of sales
|
|
|
(75,303
|
)
|
|
|
(618,112
|
)
|
Gross
profit
|
|
|
(9,876
|
)
|
|
|
30,398
|
|
General
and administrative expenses
|
|
|
(48,081
|
)
|
|
|
(243,830
|
)
|
Loss
from discontinued operations
|
|
|
(57,957
|
)
|
|
|
(213,432
|
)
|
Other
income (expenses)
|
|
|
(12,086
|
)
|
|
|
(193,131
|
)
|
Gain
on disposition of discontinued operations
|
|
|
4,077,267
|
|
|
|
—
|
|
Income
(loss) before income taxes
|
|
|
4,007,224
|
|
|
|
(406,563
|
)
|
Provision
for income taxes
|
|
|
—
|
|
|
|
—
|
|
Net
income (loss) from discontinued operations, net of income tax
|
|
$
|
4,007,224
|
|
|
$
|
(406,563
|
)
|
Note
6-
PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets as of June 30, 2018 (unaudited) and December 31, 2017 were $246,000 and $419,112 respectively.
Prepaid expense consists primarily the deferred stock compensation as a result of restricted stock issued on December 23, 2016.
The deferred stock compensation is expensed over three years .
Note
7 -
OTHER COMPREHENSIVE INCOME
Other
comprehensive income, included in stockholders’ deficit at June 30, 2018 and 2017, is foreign currency translation adjustment.
Following the disposal of Capital, Other comprehensive Income was reclassified in the equity section and included in gain on disposal
in accordance with ASC 830-30-40-1.
Note
8 -
CURRENT VULNERABILITY DUE TO CERTAIN RISK FACTORS
The
Company’s operations are in the PRC. Accordingly, the Company’s business, financial condition and results of operations
may be influenced by the political, economic and legal environments in the PRC and by the general state of the PRC’s economy.
The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary
measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
Note
9 -
SEGMENT INFORMATION
Following
the Company’s decision to discontinue its existing business, the Company only has one operating segment - restaurant franchise
business through DB-Link. DB-Link is currently in the process of setting up wholly foreign-owned entity in China to commence its
restaurant franchise business.
NOTE
10 -
RELATED PARTY TRANSACTION
On
May 22, 2018, pursuant to an agreement dated March 29, 2018, the Company sold to its former chief executive officer, who is also
a former director and chairman of the board, all of the stock in Capital [and its affiliates?] in exchange for the transfer by
the former chief executive officer to the Company of 1,738,334 shares of the Company’s common stock, which is all of the
Company’s common stock owned by him. As of May 22, 2018, the 1,738,334 shares were cancelled. As a result of the sale of
this subsidiary to the former chief executive officer, the Company effectively sold all of its PRC subsidiaries in exchange for
the surrender of 1,738,334 shares of common stock valued at $312,900 at $0.18 per share, which was the market price of Company’s
common stock share on May 22, 2018. The Company recorded a gain of $4,077,267. See Note 5.
NOTE
11 -
STOCKHOLDERS’ EQUITY
On
March 29, 2018, the Company entered into a debt conversion agreement with Qishizhihe Investment Co. Ltd., a British Virgin Island
company (“Qishizhihe”), pursuant to which Qishizhihe agreed to convert loans of RMB4,500,000 ($717,886) into 10,255,522
shares of common stock at $0.07 per share. Qishizhihe had made the loans pursuant to loan and security agreements dated December
22, 2016 and June 1, 2016. The shares were issued and the debt was converted on May 3, 2018.
Following
the disposal of the BVI and PRC subsidiaries, statutory reserve of $ 11,542,623 which was appropriated from retained earnings
in prior years was transferred to accumulated deficit.
On
May 22, 2018, the Company cancelled 1,738,334 shares of common stock acquired from the former chief executive officer in connection
with the transfer by the Company of the equity in Capital. See Notes 5 and 10.