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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-33119
Yi Wan Group, Inc.
Exact name of registrant as specified in its charter)
Florida 33-0960062
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
24 Jian Guo Men Wai Road, Suite 1802, Beijing, P.R. China
(Address of principal executive office) (Zip Code)
86-01-6515-6373
(Registrant's telephone number, including area code)
All Correspondence to:
Brenda Lee Hamilton, Esquire
Hamilton, Lehrer & Dargan, P.A.
2 East Camino Real, Suite 202
Boca Raton, Florida 33432
(561) 416-8956
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of Issuer's classes of common equity as
of June 30, 2002 was 16,256,260.
Title of Class Number of Shares Outstanding
Common Stock 16,256,260
Transitional Small Business Disclosure Format Yes No X
--- ---
Yi Wan Group, Inc.
Index
Part I
FINANCIAL INFORMATION
TABLE OF CONTENTS Page
Item 1. Financial Statements ............................................ 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................... 14
Item 3. Qualitative and Quantitative Disclosures about Market Risks...... 19
Part II
Other Information
Item 1 Legal Proceedings ............................................... 19
Item 2 Changes in Securities and Use of Proceeds ....................... 19
Item 3 Defaults upon Senior Securities.................................. 19
Item 4 Submission of Matters to a Vote of Securities ................... 19
Item 5 Other Information ............................................... 19
Item 6 Exhibits and Reports on Form 8-K ................................ 19
2
Item 1 Financial Statements
YI WAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2002 AND DECEMBER 31, 2001
-----------------------------------------
ASSETS
------
June 30, December 31,
2002 2001
----------- -----------
Unaudited Audited
----------- -----------
Cash $ 2,047,891 $ 1,391,113
Accounts receivable, net of allowance for doubtful
accounts of $6,950 at June 30, 2002 and December 31, 2001 932,071 1,044,576
Due to related parties 3,187,326 2,584,104
Inventories 684,109 566,938
Prepaid expenses 9,832 21,371
----------- -----------
Total current assets 6,861,229 5,608,102
----------- -----------
BUILDINGS, EQUIPMENT AND AUTOMOBILES, net 17,381,191 17,744,121
----------- -----------
OTHER ASSETS:
Intangible asset, net 4,187,897 4,211,089
Deferred tax asset 147,742 110,753
Other non-current assets 409,928 346,077
----------- -----------
Total other assets 4,745,567 4,667,919
----------- -----------
Total assets $28,987,987 $28,020,142
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 267,567 $ 330,720
Accounts payable - related party 67,810 10,788
Accrued liabilities 586,454 675,306
Wage and benefits payable 305,582 335,859
Sales tax payable 975,242 1,011,777
Income taxes payable 1,048,885 1,075,680
Due to shareholders 177,601 177,609
Due to prior owners of joint ventures 5,773,081 5,773,130
Notes payable 13,648 13,649
----------- -----------
Total current liabilities 9,215,870 9,404,518
----------- -----------
MINORITY INTEREST 1,547,489 1,464,493
----------- -----------
SHAREHOLDERS' EQUITY:
Common stock, no par value, authorized 50,000,000 shares,
16,256,250 shares issued and outstanding 5,078 5,078
Paid-in-capital 5,106,883 5,104,105
Statutory reserve 9,113,617 9,113,617
Retained earnings 4,026,988 2,945,701
Accumulated other comprehensive income (27,938) (17,370)
----------- -----------
18,224,628 17,151,131
----------- -----------
Total shareholders' equity
Total liabilities and shareholders' equity $28,987,987 $28,020,142
=========== ===========
3
YI WAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
---------------------------------------------------------
Three months ended June 30, Six months ended June 30,
--------------------------------------------------------
2002 2001 2002 2001
----------- ----------- ----------- -----------
Unaudited Unaudited Unaudited Unaudited
----------- ----------- ----------- -----------
NET SALES $ 3,106,379 $ 3,119,568 $ 5,906,270 $ 6,292,619
COST OF SALES 1,025,703 1,139,355 2,016,062 2,302,486
----------- ----------- ----------- -----------
GROSS PROFIT 2,080,676 1,980,213 3,890,208 3,990,133
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,159,936 884,664 2,187,667 1,915,705
----------- ----------- ----------- -----------
INCOME FROM OPERATIONS 920,740 1,095,549 1,702,541 2,074,428
----------- ----------- ----------- -----------
OTHER INCOME 3,912 (35,592) 6,562 (35,119)
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND MINORITY INTEREST 924,652 1,059,957 1,709,103 2,039,309
PROVISION FOR INCOME TAXES 306,986 209,474 544,820 403,705
----------- ----------- ----------- -----------
INCOME BEFORE MINORITY INTEREST 617,666 850,483 1,164,283 1,635,604
MINORITY INTEREST (38,041) (66,072) (82,996) (122,912)
----------- ----------- ----------- -----------
NET INCOME 579,625 784,411 1,081,287 1,512,692
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment (8,554) 2,634 (10,568) 1,854
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME $ 571,071 $ 787,045 $ 1,070,719 $ 1,514,546
=========== =========== =========== ===========
Earnings per share, basic and diluted $ 0.04 $ 0.05 $ 0.07 $ 0.09
=========== =========== =========== ===========
4
YI WAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
-----------------------------------------------
Six months ended June 30,
--------------------------
2002 2001
----------- -----------
(Unaudited) (Unaudited)
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,081,287 $ 1,512,692
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation 633,722 653,129
Amortization 23,192 50,839
Deferred income taxes (36,989) (10,812)
Land use cost 2,778 2,778
Gain from sales of assets (1,345) --
Decrease in accounts receivable 112,505 233,887
Increase in related party receivables (603,222) (335,759)
Increase in inventories (117,171) (93,983)
Decrease in prepaid expenses 11,539 1,159
Increase in due from officers and employees (63,851) (58,818)
(Decrease) increase in accounts payable (63,153) 19,365
Increase (decrease) in accounts payable - related party 57,022 (10,799)
Decrease in accrued liabilities and other current liabilities (88,852) (14,186)
Decrease in wages and benefits payable (30,277) (13,110)
Decrease in sales tax payable (36,535) (25,349)
Decrease in income taxes payable (26,795) (335,372)
Increase in minority interest 82,996 122,912
Foreign currency translation adjustment (10,626) 1,869
----------- -----------
Net cash provided by operating activities 926,225 1,700,442
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets 12,834 --
Purchase of improvements and automobiles (282,281) (95,490)
----------- -----------
Net cash used in investing activities (269,447) (95,490)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment to prior owner of joint venture -- (966,038)
Principal payments on notes payable -- (19,601)
----------- -----------
Net cash used in financing activities -- (985,639)
----------- -----------
INCREASE IN CASH 656,778 619,313
CASH, beginning of period 1,391,113 2,077,002
----------- -----------
CASH, end of period $ 2,047,891 $ 2,696,315
=========== ===========
5
YI WAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
-----------------------------------------------
Number Common Paid-in Statutory
of shares stock capital reserves
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
BALANCE, January 1, 2002, audited 16,256,250 $ 5,078 $ 5,104,105 $ 9,113,617
Net income
Additions to paid in capital (land use right) 2,778
Foreign currency translation adjustments
----------- ----------- ----------- -----------
BALANCE, June 30, 2002 16,256,250 $ 5,078 $ 5,106,883 $ 9,113,617
=========== =========== =========== ===========
BALANCE, January 1, 2001, audited 16,006,250 $ 78 $ 5,098,549 $ 7,833,412
Net income
Additions to paid in capital (land use right) 2,778
Foreign currency translation adjustments
----------- ----------- ----------- -----------
BALANCE, June 30, 2001 16,006,250 $ 78 $ 5,101,327 $ 7,833,412
=========== =========== =========== ===========
6
YI WAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUIT CONTINUED
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
-----------------------------------------------
Accumulated
other
Retained comprehensive
earnings income Totals
----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited)
----------- ----------- -----------
BALANCE, January 1, 2002, audited $ 2,945,701 $ (17,370) $17,151,131
Net income 1,081,287 1,081,287
Additions to paid in capital (land use right) 2,778
Foreign currency translation adjustments (10,568) (10,568)
----------- ----------- -----------
BALANCE, June 30, 2002 $ 4,026,988 $ (27,938) $18,224,628
=========== =========== ===========
BALANCE, January 1, 2001, audited $ 1,674,763 $ 2,994 $14,609,796
0
Net income 1,512,692 1,512,692
Additions to paid in capital (land use right) 2,778
Foreign currency translation adjustments (780) (780)
----------- ----------- -----------
BALANCE, June 30, 2001 $ 3,187,455 $ 2,214 $16,124,486
=========== =========== ===========
7
YI WAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Review Report)
--------------------------------
Note 1 - Summary of significant accounting policies
The reporting entity
- --------------------
The financial statements of Yi Wan Group, Inc. and subsidiaries (referred to as
the Company or YWG in the accompanying financial statements) reflect the
activities and financial transactions of its subsidiaries, which are as follows:
Percentage
Subsidiary Ownership
- ---------------------------------------- ----------
Shun De Yi Wan Communication Equipment 100 %
Plant Co., Ltd. (TELECOMMUNICATIONS)
Jiao Zuo Yi Wan Hotel Co., Ltd. (HOTEL) 90
Yi Wan Maple Leaf High Technology 90
Agriculture Developing Ltd. Co. (FARM)
Yi Wan Group, Inc. was incorporated under the laws of the State of Florida in
the United States in May 1999. Yi Wan Group, Inc. is authorized to issue
50,000,000 shares of no par value common stock and 20,000,000 shares of no par
value preferred stock. The Company's TELECOMMUNICATIONS, HOTEL and FARM
subsidiaries are incorporated under the laws of the People's Republic of China
(PRC).
The Company's subsidiaries are classified as Foreign Invested Enterprises in the
PRC and are subject to the FIE laws of the PRC. The HOTEL and FARM are Foreign
Invested Enterprise Joint Ventures, known as FIEJV or Sino-Foreign Joint
Venture, and TELECOMMUNICATIONS is a Wholly Foreign Owned Enterprise company or
WFOE. All three of these companies are Chinese registered limited liability
companies, with legal structures similar to regular corporations and limited
liability companies organized under state laws in the United States. The
respective Articles of Association for these FIE subsidiaries provide a 30-year
term for the HOTEL and FARM companies and 15 years for the TELECOMMUNICATIONS.
Principles of consolidation
- ---------------------------
The consolidated financial statements of YWG include its subsidiaries
TELECOMMUNICATIONS, HOTEL and FARM. All significant inter-company accounts and
transactions have been eliminated in the consolidation.
Foreign currency translation
- ----------------------------
The reporting currency of YWG is the US dollar. The Company's foreign
subsidiaries use their local currency, Renminbi, as their functional currency.
Results of operations and cash flow are translated at average exchange rates
during the period, and assets and liabilities are translated at the end of
period exchange rates. Translation adjustments resulting from this process are
included in accumulated other comprehensive income (loss) in the statement of
shareholders' equity.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency are
included in the results of operations as incurred. These amounts are not
material to the financial statements.
8
YI WAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Review Report)
--------------------------------
Note 2 - Condensed financial statements and footnotes
The interim consolidated financial statements presented herein have been
prepared by the Company and include the unaudited accounts of YWG and its
subsidiaries TELECOMMUNICATIONS, HOTEL and FARM. All significant inter-company
accounts and transactions have been eliminated in the consolidation.
These condensed financial statements have been prepared in accordance with
generally accepted accounting principles in the United States for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Certain information and footnote disclosures normally included
in financial statements presented in accordance with generally accepted
accounting principles have been condensed or omitted. YWG believes the
disclosures made are adequate to make the information presented not misleading.
The condensed consolidated financial statements should be read in conjunction
with the YWG's consolidated financial statements for the year ended December 31,
2001 and notes thereto included in YWG's Form 10, dated March 25, 2002.
In the opinion of management, the unaudited condensed consolidated financial
statements reflect all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position of the Company
as of June 30, 2002, the results of operations for the three months and six
months ended June 30, 2002 and 2001, respectively. Interim results are not
necessarily indicative of full year performance because of the impact of
seasonal and short-term variations.
Note 3 - Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out basis and consists of the following:
June 30, December 31,
2002 2001
---------- ----------
Unaudited Audited
---------- ----------
Hotel inventory $ 192,424 $ 216,940
Telecommunication inventory 491,532 348,598
Others 153 1,400
---------- ----------
Total inventories $ 684,109 $ 566,938
========== ==========
The HOTEL inventory consists of food products, alcohol, beverages and supplies.
At June 30, 2002, TELECOMMUNICATION's inventory consists of raw materials
($176,556), work in process ($83,033) and finished goods ($231,943). At December
31, 2001, TELECOMMUNICATION's inventory consists of raw materials ($92,686),
work in process ($113,926) and finished goods ($141,986).
The FARM inventory consists of fish, shrimp, soft-shelled turtles, crab, feed,
seeds, and supplies. Included as part of the inventoried costs of seafood are
direct labor and applicable overhead incurred over time to raise the seafood
products until taken to market. The quantities of live fish, shrimp,
soft-shelled turtles and crab inventories are determined monthly based upon
estimated growth from purchased hatchlings and fries in each pond and are
reduced for the actual quantities sold and estimated mortality rates. Each pond
is closed periodically and the estimated pounds adjusted to the actual harvest.
As further disclosed in Note 6. FARM has temporally ceased operations prior to
December 31, 2001 and there is no farm inventory as of June 30, 2002 and
December 31, 2001.
9
YI WAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Review Report)
--------------------------------
Note 4 - Supplemental disclosure of cash flow information
Income taxes paid for the six months ended June 30, 2002 and 2001 amounted to
$608,547 and $749,960, respectively. No interest expense was paid for the six
months ended June 30, 2002 and 2001.
Note 5 - Earnings per share
Basic and diluted earnings per share are calculated based on the weighted
average number of common stock issued and outstanding (16,256,250 and 16,006,250
shares for the six months ended June 30, 2002 and 2001, respectively),
Note 6 - FARM Operations
During 2001, as a result of highway construction, the FARM has lost its source
of natural water necessary to raise and grow the FARM's products. The FARM has
ceased its operations during December 2001 and management is in the process of
formalizing a plan to dispose of the FARM operations. The FARM is also in
negotiation with the local government concerning their land use right and
alternatives concerning the ultimate use of the land. Subsequent to December 31,
2001 there has been no formalized plan adopted to dispose of the FARM's
operations and no provision has been made within these financial statements for
the ultimate disposition of the FARM's operation.
The Company has adopted SFAS No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets" during the year ending December 31, 2002 and once the
Company has adopted a formal plan to dispose of the FARM's operations the
provisions of SFAS No. 144 will be applied. As of June 30, 2002 the assets and
liabilities of the FARM consisted of the following:
Current assets $ 536,934
Buildings and equipment, net 609,137
Intangible assets 2,834,891
----------
Total assets $3,980,962
==========
Current liabilities $ 272,473
==========
10
Note 7 - Segment Information
YWG includes five major operating segments: restaurant, lodging, entertainment,
farm and telecommunication equipment. YWG evaluates the performance of its
segments based primarily on operating profit before corporate expenses and
depreciation and amortization. The following table presents total assets,
revenues and other financial information by business segment for the six months
ended June 30:
HOTEL
-----------------------------------------------------
Telecommu Inter-
Entertain - -nication segment
Restaurant Lodging ment Totals Farm equipment elimination Totals
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Assets:
- -------------
June 30, 2002 21,055,700 3,980,962 5,855,912 (1,904,587) 28,987,987
=========== =========== =========== =========== ===========
December 31, 2001 20,072,689 4,060,246 5,791,885 (1,904,678) 28,020,142
=========== =========== =========== =========== ===========
11
YI WAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Review Report)
--------------------------------
Note 7 - Segment Information, (continued)
HOTEL
--------------------------------------------------
Telecommu- Inter-
Entertain nication segment
Restaurant Lodging -ment Totals Farm equipment elimination Totals
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Three months ended June 30, 2002
- --------------------------------
Net sales $ 1,091,586 $ 573,324 $ 484,162 $ 2,149,072 $ $ 957,307 $ $3,106,379
Cost of sales 457,331 30,070 39,438 526,839 498,864 1,025,703
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Gross profit 634,255 543,254 444,724 1,622,233 -- 458,443 -- 2,080,676
Operating expenses 256,911 132,431 118,891 508,233 6,170 198,948 713,351
Depreciation and
amortization 283,436 (1,126) 5,478 287,788
Unallocated expenses 158,797 158,797
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Income from operations $ 377,344 $ 410,823 $ 325,833 $ 671,767 $ (5,044) $ 254,017 $ -- $ 920,740
Interest income 2,280 113 1,349 3,742
Other income (expense) (542) 712 0 170
Provision for income tax (222,258) 0 (84,728) (306,986)
----------- ----------- --------- ---------- ----------
Income before minority 451,247 (4,219) 170,638 -- 617,666
=========== =========== ========== ========== ==========
Three months ended June 30, 2001
- --------------------------------
Net sales $ 926,707 $ 495,918 $ 503,648 $ 1,926,273 $ 270,710 $ 942,225 $ (19,640) $3,119,568
Cost of sales 430,726 30,644 36,743 498,113 162,006 498,876 (19,640) 1,139,355
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Gross profit 495,981 465,274 466,905 1,428,160 108,704 443,349 -- 1,980,213
Operating expenses 98,941 62,922 49,497 211,360 16,484 64,719 292,563
Depreciation and
amortization 282,367 26,878 26,759 336,004
Unallocated expenses 256,097 256,097
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Income from operations $ 397,040 $ 402,352 $ 417,408 $ 678,336 $ 65,342 $ 351,871 $ -- $1,095,549
Interest income 8,477 378 1,802 10,657
Other income (expense) (6,762) (39,463) (24) (46,249)
Provision for income tax (120,851) (2,233) (86,390) (209,474)
----------- ----------- ---------- ---------- -----------
Income before minority
interest 559,200 24,024 267,259 -- 850,483
=========== =========== ========== ========== ===========
12
Note 7 - Segment Information, (continued)
YI WAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(See Accountants' Review Report)
--------------------------------
HOTEL
--------------------------------------------------
Telecommu- Inter-
Entertain nication segment
Restaurant Lodging -ment Totals Farm equipment elimination Totals
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Six months ended June 30, 2002
- ------------------------------
Net sales $ 2,053,113 $ 1,008,520 $ 989,326 $ 4,050,959 $ $1,855,311 $ $ 5,906,270
Cost of sales 938,799 59,123 76,706 1,074,628 941,434 2,016,062
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Gross profit 1,114,314 949,397 912,620 2,976,331 -- 913,877 -- 3,890,208
Operating expenses 354,355 195,436 191,394 741,185 14,990 419,494 1,175,669
Depreciation and
amortization 563,021 6,972 10,957 580,950
Unallocated expenses 431,048 431,048
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Income from operations $ 759,959 $ 753,961 $ 721,226 $ 1,241,077 $ (21,962) $ 483,426 $ -- $1,702,541
Interest income 3,708 206 3,018 6,932
Other income (expense) (842) 472 (370)
Provision for income tax (392,696) (152,124) (544,820)
----------- ----------- ---------- ---------- ----------
Income before minority
interest 851,247 (21,284) 334,320 -- 1,164,283
=========== =========== ========== ========== ==========
Six months ended June 30, 2001
Net sales $ 1,828,539 $ 930,877 $ 1,021,166 $ 3,780,582 $ 575,937 $1,979,548 $ (43,448) $6,292,619
Cost of sales 860,591 58,158 73,201 991,950 336,144 1,017,840 (43,448) 2,302,486
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Gross profit 967,948 872,719 947,965 2,788,632 239,793 961,708 -- 3,990,133
Operating expenses 190,485 130,753 105,958 427,196 61,567 345,084 833,847
Depreciation and
amortization 565,945 47,106 49,158 662,209
Unallocated expenses 419,649 419,649
----------- ----------- ----------- ----------- ----------- ---------- ---------- ----------
Income from operations $ 777,463 $ 741,966 $ 842,007 $ 1,375,842 $ 131,120 $ 567,466 $ -- $2,074,428
Interest income 6,659 786 4,198 11,643
Other income (expense) (6,762) (39,976) (24) (46,762)
Provision for income tax (210,405) (11,265) (182,035) (403,705)
----------- ----------- ---------- ---------- ----------
Income before minority
interest 1,165,334 80,665 389,605 -- 1,635,604
=========== =========== ========== ========== ==========
13
Item 2. Management's Discussion and AnalysiS of Financial Condition and Results
of Operations
Forward-Looking Statements:
The following discussion of the financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
related notes thereto. The following discussion contains forward-looking
statements. Yi Wan Group, Inc. is referred to herein as "we" or "our." The words
or phrases "would be," "will allow," "intends to," "will likely result," "are
expected to," "will continue," "is anticipated," "estimate," "project," or
similar expressions are intended to identify "forward-looking statements" Such
statements include those concerning our expected financial performance, our
corporate strategy and operational plans. Actual results could differ materially
from those projected in the forward-looking statements as a result of a number
of risks and uncertainties, including: (a) those risks and uncertainties related
to general economic conditions in China, including regulatory factors that may
affect such economic conditions; (b) whether we are able to manage our planned
growth efficiently and operate profitable operations, including whether our
management will be able to identify, hire, train, retain, motivate and manage
required personnel or that management will be able to manage and exploit
existing and potential market opportunities successfully; (c) whether we are
able to generate sufficient revenues or obtain financing to sustain and grow our
operations; and (d) whether we are able to successfully fulfill our primary
requirements for cash which are explained below under "Liquidity and Capital
Resources." Statements made herein are as of the date of the filing of this Form
10-QSB with the Securities and Exchange Commission and should not be relied upon
as of any subsequent date. Unless otherwise required by applicable law, we do
not undertake, and we specifically disclaim any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statement.
General
RESULTS OF OPERATIONS
As of June 30, 2002, we had $4,026,988 of retained earnings. As of June 30,
2002, we had cash on hand of $2,047,891 and reported total shareholders' equity
of $18,224,628. For this same period of time, we had revenues of $5,906,270 and
general, administrative and sales expenses of $2,187,667.
Consolidated results
1) SALES. Consolidated sales decreased $386,349, or approximately 6.1%, from
$6,292,619 for the six months ended June 30, 2001 to $5,906,270 for the six
months ended June 30, 2002. The decrease was a result of ceasing our farm
operations at the end of the year 2001. The decrease was also attributed to net
effect of increased sales in our Hotel operations and decrease in
Telecommunication's sales.
2) COST OF GOODS SOLD. Consolidated cost of goods sold decreased $286,424 from
$2,302,486 for the six months ended June 30, 2001 to $2,016,062 for the six
months ended June 30, 2002. Cost of goods sold as a percentage of sales
14
decreased to 34.13% for the six months ended June 30, 2002 from 36.5% for the
six months ended June 30, 2001. The decrease was a result of our Farm operations
ceasing in December 2001. The decrease was also result of our Telecommunication
Division's better management and cost control of purchasing raw materials for
production.
(3) GROSS PROFIT. Consolidated gross profit decreased $99,925, from $3,990,133
for the six months ended June 30, 2001 to $3,890,208 for the six months ended
June 30, 2002. Gross profit as a percentage of sales increased to 65.87% for the
six months ended June 30, 2002 from 63.4% for the six months ended June 30,
2001. This increase in gross profit as a percentage of sales was the result of
our Telecommunication Division's better management in the purchase of raw
materials for production and better control of expenses. The increase in gross
profit as a percentage of sales was also attributed to the ceasing of Farm's
operations which caused lower gross profit as a percentage of sales for the six
months ended June 30, 2001.
(4) SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses
increased $271,962 from $1,915,705 for the six months ended June 30, 2001 to
$2,187,667 for the six months ended June 30, 2002. The selling and
administrative expenses as a percentage of sales increased to 37.0% for the six
months ended June 30, 2002 from 30.4% for the six months ended June 30, 2001.
The increase was due to the increase of research & development cost and business
selling expense in our Telecommunication operation and increased costs paid to
performers and entertainers and consulting expense in our Hotel operation.
(5) NET INCOME. Consolidated net income decreased $431,405, or approximately
28.5%, from $1,512,692 for the six months ended June 30, 2001 to $1,081,287 for
the six months ended June 30, 2002. The decrease was due to ceasing our farm
operations and decrease in Hotel's net income.
Segmented results
(1) SALES. An itemization of each operating unit's data and an explanation of
significant changes are as follows:
Hotel operations: Sales increased $270,377, or approximately 7.15%, from
$3,780,582 for the six months ended June 30, 2001 to $4,050,959 for the six
months ended June 30, 2002. The increase was a result of increased sales
promotions to attract additional customers.
Telecommunication operations: Sales decreased $124,237, or approximately
6.3%, from $1,979,548 for the six months ended June 30, 2001 to $1,855,311
for the six months ended June 30, 2002. The decrease was a result of lower
sale prices and sale discount promotions to meet the market competition.
Farm operations: Sales decreased $575,937, or approximately 100%, from
$575,937 for the six months ended June 30, 2001 to $0 for the six months
ended June 30, 2002. The decrease in sales is due to ceasing our Farm
operations at the end of the year 2001.
(2) COST OF GOODS SOLD. An itemization of each operating unit's data and an
explanation of significant changes is as follows:
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Hotel operations: Cost of goods sold increased $82,678, from $991,950 for
the six months ended June 30, 2001 to $1,074,628 for the six months ended
June 30, 2002.Cost of goods sold as a percentage of sales increased to
26.5% for the six months ended June 30, 2002 from 26.2% for the six months
ended June 30, 2001. The increased cost of goods sold as a percentage of
sales is attributed to the increase in the cost of materials and increased
operating costs.
Telecommunication operations: Cost of goods sold decreased $76,406 from
$1,017,840 for the six months ended June 30, 2001 to $941,434 for the six
months ended June 30, 2002. Cost of goods sold as a percentage of sales
decreased to 50.7% for the six months ended June 30, 2002 from 51.4% for
the six months ended June 30, 2001. The decrease was a result of better
management in purchasing of raw materials for production and better control
of our expenses.
Farm operations: Cost of goods sold decreased $336,144, from $336,144 for
the six months ended June 30, 2001 to $0 for the six months ended June 30,
2002. The decrease was result of Our Farm operation ceasing in December
2001.
(3) GROSS PROFIT. An itemization of each operating unit's data and an
explanation of significant changes is as follows:
Hotel operations: Gross profit increased $187,699, from $2,788,632 for the
six months ended June 30, 2001 to $2,976,331 for the six months ended June
30, 2002. As a percentage of sales, gross profit decreased from 73.8% for
the six months ended June 30, 2001 to 73.5% for the six months ended June
30, 2002. The decrease in gross profit as a percentage of sales was a
result of increased cost of material and operating costs.
Telecommunication operations: Gross profit decreased $47,831, from $961,708
for the six months ended June 30, 2001 to $913,877 for the six months ended
June 30, 2002. As a percentage of sales, gross profit increased from 48.6%
for the six months ended June 30, 2001 to 49.3% for the six months ended
June 30, 2002. The increase in gross profit as a percentage of sales was
the result of better management of purchasing materials for production and
better control of expenses.
Farm operations: Gross profit decreased $239,793, from $239,793 for the six
months ended June 30, 2001 to $0 for the six months ended June 30, 2002.
The decreased gross profit was a result of ceasing farm operations prior to
December 31, 2001.
(4) SELLING AND ADMINISTRATIVE EXPENSES. An itemization of each operating unit's
data and an explanation of significant changes are as follows:
Hotel operations: Selling and administrative expenses increased $322,464,
from $1,412,790 for the six months ended June 30, 2001 to $1,735,254 for
the six months ended June 30, 2002. Selling and administrative expenses as
a percentage of sales increase to 42.8% for the six months ended June 30,
2002 from 37.4% for the six months ended June 30, 2001. This increase was a
result of increases in costs paid to performers and entertainers,
consulting expenses, sales taxes and wages expenses.
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Telecommunication operations: Selling and administrative expenses Increased
$36,231, from $394,242 for the six months ended June 30, 2001 to $430,451
for the six months ended June 30, 2002. Selling and administrative expenses
as a percentage of sales increased to 23.2% for the six months ended June
30, 2002 from 20.0% for the six months ended June 30, 2001. The increase in
selling and administrative expenses as a percentage of sales was a result
of research and development cost and business expense increase.
Farm operations: Selling and administrative expenses decreased $86,711,
from $108,673 for the six months ended June 30, 2001 to $21,962 for the six
months ended June 30, 2002. The decrease in selling and administrative
expenses was a result of ceasing our Farm operations.
(5) NET INCOME. An itemization of each operating unit's data and further
explanations of significant changes are as follows:
Hotel operations: Net income decreased $314,087, from $1,165,334, or 30.8%
of sales, for the six months ended June 30, 2001 to $851,247, or 21.0% of
sales, for the six months ended June 30, 2002. The decrease was a combined
result of an increase in cost of goods sold and increase in selling
expense.
Telecommunications operations: Net income decreased $55,285, from $389,605,
or 19.7% of sales, for the six months ended June 30, 2001 to $334,320, or
18.0% of sales, for the six months ended June 30, 2002. The decrease was a
result of increase in selling expenses.
Farm operations: Net income decreased $101,949, from $80,665 for the Six
months ended June 30, 2001 to loss of $21,284 for the six months ended June
30, 2002. The decreased net income was a result of ceasing Farm operations
prior to December 31, 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002, we reported that net cash provided by operating activities
was $926,225, net cash used in investing activities was $269,447, and net cash
used in financing activities was $0.
As of June 30, 2001, net cash provided by operating activities was $1,700,442,
net cash used in investing activities was $95,490, and net cash used in
financing activities was $985,639.
Net cash provided by operating activities decreased by $774,217 to $926,225 for
the six months ended June 30, 2002, representing a decrease of approximately
45.5%. The decrease in cash flow from operating activities reflects a decrease
in gross sales due to ceasing the Farm operations.
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Net cash used in investing activities increased by $173,957 to $269,447 for the
six months ended June 30, 2002, representing a 182% increase, compared to
$95,490 net cash used for the same period of 2001. The increase was due to a
higher level in the purchasing of improvements and automobiles.
Net cash used in financing activities decreased by $985,639 to $0 for the six
months ended June 30, 2002, representing a 100% decrease, compared to $985,639
for the same period of 2001. The decrease was primarily due to no distributions
being paid to the owners of the previous joint ventures of our subsidiaries.
Going forward, our primary requirements for cash consist of: (1) the continued
implementation of the existing business model in China; (2) general overhead
expenses for personnel to support our business model activities; (3) continued
promotional activities pertaining to our business to increase revenues; (4) the
development costs of a hotel in China; (5) the payment of cash contributions to
the joint ventures under the joint venture agreements; and (6) payments due to
the former equity owners of our subsidiaries. We anticipate that current
operating activities will enable us to meet the anticipated cash requirements
for the 2002 fiscal year.
Historically, our subsidiary companies have financed operations principally
through cash generated from operations. Initial capital for each operating unit
was generated by contributions of initial shareholders (Hotel operations:
$11,960,000, Telecommunication operations: $1,580,000, Farm operations:
$2,410,000). No bank loans were obtained for this purpose. The cash
contributions required to be made by June 2002 to our subsidiaries for
registered capital and the additional investment requirements of $7,371,730 and
the $9,936,210 due to our former joint venture partners will be funded from the
profits generated from the operations of our subsidiaries and equity financing,
if necessary. Management anticipates, however, that it will be able to extend
the June 2002 payment date for capital contributions. The capital improvements
to be made to the hotel will be funded from positive cash flow generated from
hotel operations.
MANAGEMENT ASSUMPTIONS.
Management anticipates, based on internal forecasts and assumptions relating to
Operations, that existing cash and funds generated from operations will be
sufficient to meet working capital and capital expenditure requirements for, at
least, the next 12 months. In the event that plans change, assumptions change or
prove inaccurate or if other capital resources and projected cash flow otherwise
prove to be insufficient to fund operations (due to unanticipated expense,
technical difficulties, or otherwise), we could be required to seek additional
financing. There can be no assurance that we will be able to obtain additional
financing on terms acceptable to it, or at all.
EFFECTS OF INFLATION
We are subject to commodity price risks arising from price fluctuations in the
market prices of the various raw materials that comprise our products. Price
risks are managed by each business unit through productivity improvements and
cost-containment measures. Management does not believe that inflation risk is
material to our business or our consolidated financial position, results of
operations or cash flows.
EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES
Our operating subsidiaries are located in China. These companies buy and sell
products in China using Chinese Renminbi as the functional currency. Based on
Chinese government regulation, all foreign currencies under the category of
current accounts are allowed to be freely exchanged with hard currencies. During
the past two years of operation, there were no significant changes in exchange
rates. However, unforeseen developments may cause a significant change in
exchange rates.
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Item 3. Qualitative and Quantitative Disclosures about Market Risks
Not applicable.
Part II: Other Information
Item 1: Legal Proceedings
Not applicable.
Item 2: Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4: Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5: Other information
Not applicable.
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits
3(i) Articles of Incorporation of the Registrant*
3(ii) Bylaws of the Registrant* Organizational Documents of:
3.1 Jiaozuo Yi Wan Hotel Co., Ltd. Articles of Association*
3.2 Shunde Yi Wan Communication Equipment Plant Co., Ltd. Articles of
Association*
3.3 Yi Wan Maple Leaf High Technology Agriculture Developing Ltd. Co.
Articles of Association*
4 Form of common stock Certificate of the Registrant*
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10.1 Form of Employment Agreement Yi Wan Maple Leaf High Technology
Agriculture Developing Ltd. Co.*
10.2 Form of Employment Agreement Jiaozuo Yi Wan Hotel Co., Ltd.*
10.3 Form of Employment Agreement Shunde Yi Wan Communication Equipment
Plant Co., Ltd.*
10.4 Land Use Permits of Yi Wan Maple Leaf High Technology Agriculture
Developing Ltd. Co.*
10.5 Land Use Permits of Shunde Yi Wan Communication Equipment Plant Co.,
Ltd.*
10.6 Land Use Permits of Jiaozuo Yi Wan Hotel Co., Ltd.*
10.7 Joint Venture Contract Yi Wan Maple Leaf High Technology Agriculture
Developing Ltd. Co.*
10.8 Joint Venture Contract Jiaozuo Yi Wan Hotel Co., Ltd.*
10.9 Agreement of Shunde Yi Wan Communication Equipment Plant Co., Ltd.*
* Denotes previously filed exhibit, filed with Form 10-12G/A on 11/07/01, SEC
File No. 000-33119, hereby incorporated by reference.
We hereby incorporate the following documents by reference: (a) our Form 10
Registration Statement filed on August 24, 2001 and amendments thereto filed on
November 7, 2001, January 7, 2002 and March 28, 2002; (b) our Form 10Q for the
period ended September 30, 2001 filed on December 7, 2001; and (c) our Form 10K
for the period ended December 31, 2001 filed on April 1, 2002.
B. Reports on Forms 8-K
No reports on Form 8-K were filed during the first quarter of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
YI WAN GROUP, INC.
-------------------
Date: August 13, 2002 By:/s/ Chang Wan Ming
-------------------------
Chang Wan Ming, President
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