Attached files
| file | filename |
|---|---|
| EX-32.1 - Image Chain Group Limited, Inc. | ex32-1.htm |
| EX-31.1 - Image Chain Group Limited, Inc. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 2015
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _______________ to ______________
Commission File Number: 000-1554594
| IMAGE CHAIN GROUP LIMITED, INC. |
| (Exact name of registrant as specified in its charter) |
| NEVADA | 46-4333787 | |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
Unit 07, 15F Convention Plaza Office Tower1 Harbour Rd.,
Wanchai, Hong Kong, China
(Address of principal executive offices) (Zip Code)
(852) 3188-2700
Registrant’s telephone number, including area code
(Former name, former address and former fiscal year, if changed since last report)
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 [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One).
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
Non-accelerated filer |
[ ] | Smaller reporting company | [X] |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
As of November 13, 2015, the number of shares outstanding of the registrant’s class of common stock was 395,000,000.
TABLE OF CONTENTS
| 2 |
IMAGE CHAIN GROUP LIMITED, INC.
UNaudited Consolidated Financial statements
AS OF SEPTEMBER 30, 2015 AND December 31, 2014
(STATED IN U.S. DOLLARS)
| 3 |
IMAGE CHAIN GROUP LIMITED, INC.
| 4 |
REPORT OF REGISTERED INDEPENDENT PUBLIC ACCOUNTING FIRM
| To: | The Board of Directors and Stockholders of |
| Image Chain Group Limited, Inc. |
We have reviewed the accompanying interim consolidated balance sheets of Image Chain Group Limited, Inc. (the “Company”) as of September 30, 2015 and December 31, 2014, and the related statements of operations and comprehensive loss for the three and nine month periods ended September 30, 2015 and 2014, and the statements of cash flows for the nine month periods ended September 30, 2015 and 2014. These interim consolidated financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
| San Mateo, California | WWC, P.C. |
| November 16, 2015 | Certified Public Accountants |
| 5 |
IMAGE CHAIN GROUP LIMITED, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2015 AND DECEMBER 31, 2014
| September 30, 2015 | December 31, 2014 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 136,150 | $ | 70,107 | ||||
| Accounts receivable, net | 57,431 | 12,819 | ||||||
| Advanced to suppliers | 1,076,794 | 513,122 | ||||||
| Inventories | 1,250,558 | 36,075 | ||||||
| Other deposits | 48,920 | 1,242 | ||||||
| Other receivables, net | 1,655,669 | 167,205 | ||||||
| Related party receivable | 470,501 | - | ||||||
| Total current assets | $ | 4,696,023 | $ | 800,570 | ||||
| Non-current assets | ||||||||
| Property, plant and equipment, net | 245,492 | 51,180 | ||||||
| Goodwill | 323,493 | 323,493 | ||||||
| TOTAL ASSETS | $ | 5,265,008 | $ | 1,175,243 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| Current liabilities | ||||||||
| Accounts payable | 835,044 | 486,950 | ||||||
| Tax payable | 3,203 | 331 | ||||||
| Other payables | 835,044 | 469,448 | ||||||
| Accrued liabilities | 386,681 | 1,006 | ||||||
| Related party payable | 425,531 | 1,675 | ||||||
| Customer advance | 1,767,060 | 651,244 | ||||||
| TOTAL LIABILITIES | $ | 4,309,127 | $ | 1,610,654 | ||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred Stock, $0.001 par value, 5,000,000 shares authorized, issued and outstanding as of September 30, 2015 and December 31, 2014 | 5,000 | - | ||||||
| Common stock, US$0.001 par value, 400,000,000 shares authorized, 395,000,000 and 70,000,000 shares issued; 146,975,000 and 70,000,000 shares outstanding as of September 30, 2015 and December 31, 2014 | 395,000 | 70,000 | ||||||
| Additional paid in capital | 57,920,948 | (70,000 | ) | |||||
| Subscription receivable | (50,575,064 | ) | - | |||||
| Accumulated deficit | (6,826,361 | ) | (476,542 | ) | ||||
| Accumulated other comprehensive income | 36,358 | 41,131 | ||||||
| TOTAL STOCKHOLDERS’ EQUITY | 955,881 | (435,411 | ) | |||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 5,265,008 | $ | 1,175,243 | ||||
See Notes to Financial Statements and Accountants’ Report
| 6 |
IMAGE CHAIN GROUP LIMITED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE three and NINE MONTH PERIODs ENDED SEPTEMBER 30, 2015 AND 2014
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Sales, net | $ | 37,490 | $ | 5,500 | $ | 260,383 | $ | 24,000 | ||||||||
| Cost of sales | 44,173 | - | 131,900 | - | ||||||||||||
| Gross (loss) profit | (6,683 | ) | 5,500 | 128,483 | 24,000 | |||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | 1,404,295 | 14,133 | 6,487,409 | 27,506 | ||||||||||||
| Total operating expenses | 1,404,295 | 14,133 | 6,487,409 | 27,506 | ||||||||||||
| Loss from operations | (1,410,978 | ) | (8,633 | ) | (6,358,926 | ) | (3,506 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 40 | - | 147 | - | ||||||||||||
| Other (expense) income, net | (70 | ) | - | 8,960 | - | |||||||||||
| (30 | ) | - | 9,107 | - | ||||||||||||
| Loss before income taxes | (1,411,008 | ) | (8,633 | ) | (6,349,819 | ) | (3,506 | ) | ||||||||
| Provision for income tax | - | - | - | - | ||||||||||||
| Net loss | $ | (1,411,008 | ) | $ | (8,633 | ) | $ | (6,349,819 | ) | $ | (3,506 | ) | ||||
| Other Comprehensive income: | ||||||||||||||||
| Foreign currency translation adjustment | 22,131 | - | (4,773 | ) | $ | - | ||||||||||
| Comprehensive loss | $ | (1,388,877 | ) | $ | (8,633 | ) | $ | (6,354,592 | ) | $ | (3,506 | ) | ||||
| Net loss per share | ||||||||||||||||
| Basic | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.03 | ) | $ | (0.00 | ) | ||||
| Diluted | (0.00 | ) | (0.00 | ) | (0.03 | ) | (0.00 | ) | ||||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic | 395,000,000 | 10,119,511 | 202,628,676 | 9,045,769 | ||||||||||||
| Diluted | 395,000,000 | 10,119,511 | 202,628,676 | 9,045,769 | ||||||||||||
| 7 |
IMAGE CHAIN GROUP LIMITED, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODs ENDED SEPTEMBER 30, 2015 AND 2014
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2015 | 2014 | |||||||
| CASH FLOWS USED IN OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (6,349,819 | ) | $ | (3,506 | ) | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation | 21,655 | 128 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (44,612 | ) | - | |||||
| Advance to suppliers | (563,672 | ) | - | |||||
| Inventories | (1,214,483 | ) | - | |||||
| Other deposit | (47,678 | ) | - | |||||
| Other receivables | (1,488,464 | ) | - | |||||
| Related party receivable | (470,501 | ) | - | |||||
| Accounts payable | 404,658 | (3,945 | ) | |||||
| Tax payable | 2,872 | - | ||||||
| Other payable | 365,596 | - | ||||||
| Accrued liabilities | 385,675 | - | ||||||
| Related party payable | 423,856 | - | ||||||
| Customer advanced | 1,115,816 | - | ||||||
| Net cash used in operating activities | (7,459,101 | ) | (7,323 | ) | ||||
| CASH FLOWS USED IN FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property, plant and equipment | (215,967 | ) | (4,346 | ) | ||||
| Net cash used in investing activities | (215,967 | ) | (4,346 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from stock issuance | 7,745,884 | 37,600 | ||||||
| Net cash provided by financing activities | 7,745,884 | 37,600 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | (4,773 | ) | - | |||||
| Net increase in cash and cash equivalents | 66,043 | 25,931 | ||||||
| Cash and cash equivalents, beginning balance | 70,107 | 20,000 | ||||||
| Cash and cash equivalents, ending balance | $ | 136,150 | $ | 45,931 | ||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Interest received | $ | 147 | $ | - | ||||
| Interest paid | $ | - | $ | - | ||||
| Income tax paid | $ | - | $ | - | ||||
| 8 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ORGANIZATION AND PRINCIPAL ACTIVITIES |
Business
Image Chain Group Limited, Inc. (formerly Have Gun Will Travel Entertainment, Inc.) (“ICGL” or the “Company”) was incorporated under the laws of Nevada on December 18, 2013. From inception through the date of the Share Exchange as defined below, the Company was an emerging forward-thinking full-service television pre-production company dedicated to the creation of original concepts and programming with a bold and innovative edge in the reality television space for sale, option and licensure to independent producers, cable television networks, syndication companies, and other entities. On June 11, 2015, the Company amended its Articles of Incorporation with the State of Nevada in order to change its name to Image Chain Group Limited, Inc. and to increase the authorized shares of common stock from 70,000,000 to 400,000,000 (the “Amendments”). The name change was undertaken in order to more closely align with the operations of the Company’s wholly-owned subsidiary, Fortune Delight Holdings Group Ltd (“FDHG”). The increase in authorized shares was undertaken to allow the Company to utilize the newly available shares to raise capital. The board of directors and the stockholders of the Company approved the Amendments on May 8, 2015.
FDHG, through its wholly-owned operating subsidiaries, is in the business of promoting and distributing its own branded teas that are grown, harvested, cured, and packaged in the People’s Republic of China (“PRC”). The Company’s headquarters is located in Guangzhou, Guangdong Province, PRC. Currently, the Company’s products are sold in the PRC for domestic consumption.
Share Exchange
On May 5, 2015, ICGL entered into a share exchange agreement (the “Exchange Agreement”) with FDHG and Wu Jun Rui, on behalf of himself and certain other individuals who were to receive shares of ICGL pursuant to the Exchange Agreement (the “Shareholders”). On the terms and subject to the conditions set forth in the Exchange Agreement, on May 5, 2015, Wu Jun Rui transferred all 50,000 shares of FDHG common stock, consisting of all of the issued and outstanding shares of FDHG, to ICGL in exchange for the issuance to the shareholders of 59,620,000 shares of the Company’s common stock, par value $.001 per share and 5,000,000 shares of the Company’s preferred stock, par value $.001 per share.
As a result of the closing of the Exchange Agreement, FDHG became the Company’s wholly owned subsidiary. FDHG is an investment holding company incorporated and domiciled in the British Virgin Islands. From inception through March 24, 2015, the Company did not engage in any active business operations other than in search and evaluation of potential business opportunity to become an acquiree of a reverse-merger deal.
Reverse-Merger
On March 24, 2015, FDHG entered into a securities purchase agreement with Mr. Wu, Jun Rui and Mr. Wu, Ping as beneficial owners whereby FDHG issued 50,000 common shares to its shareholders as consideration for the Company’s reverse-merger with Silver Channel Industrial Limited.
The securities purchase agreement transaction is referred to hereafter as the “reverse-merger transaction.” The share exchange transaction has been accounted for as a recapitalization of FDHG where FDHG (the legal acquirer) is considered the accounting acquiree and Silver Channel Industrial Limited (the acquiree) is considered the accounting acquirer. As a result of this transaction, FDHG is deemed to be a continuation of the business of Silver Channel Industrial Limited.
Accordingly, the accompanying consolidated financial statements are those of the accounting acquirer, Silver Channel Industrial Limited. The historical stockholders’ equity of the accounting acquirer prior to the share exchange has been retroactively restated as if the share exchange transaction occurred as of the beginning of the first period presented.
| 9 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Directly and Indirectly Held Wholly-Owned Subsidiaries
On March 24, 2015, FDHG signed equity transfer agreement with Wu Ping, sole shareholder of Silver Channel Industrial Limited (“Silver Channel”). FDHG paid HKD 2 to Wu Ping for 100% equity of Silver Channel based on the net assets value as of December 31, 2014. Silver Channel is a limited company incorporated, registered, and domiciled in Hong Kong. Silver Channel was incorporated on May 4, 2007. Silver Channel since its incorporation has not engaged in operations. Silver Channel has registered and paid up capital of HKD 2.
Organization History of Silver Channel Industrial Limited and its subsidiaries
On January 28, 2011, Silver Channel incorporated Heiyuan Image Equipment Import Export Co., Ltd. (“Heiyuan Image”) as a wholly foreign owned enterprise (“WFOE”) registered in Heiyuan City, Guangdong Province, PRC. Heiyuan Image was dormant for the nine months ended September 30, 2015 and for the year ended December 31, 2014. Heiyuan Image is wholly owned by Silver Channel. Heiyuan Image has a registered capital of HKD 4,000,000 of which HKD 3,380,000 has been paid up.
On August 18, 2014, the Company, through its subsidiary Heiyuan Image, acquired 100% equity of Guangzhou Image Agricultural Technology Co., Ltd. (“Guangzhou Image”). Guangzhou Image is a limited liability company registered in Guangzhou City, Guangdong Province, PRC. Guangzhou Image has not yet engaged in operating activities since its incorporation. Guangzhou Image is wholly owned by Heiyuan Image. Guangzhou Image has a registered capital of RMB 10 million of which is still outstanding.
On February 16, 2015, Guangzhou Image entered into an equity transfer agreement with all the shareholders of Yunnan Image Tea Industry Co., Ltd. (“Yunnan Image”). Guangzhou Image paid RMB 3,000,000 to all the shareholders of Yunnan Image for 100% equity interest in Yunnan Image. Yunnan Image is a limited liability company registered in Xishuangbanna, Yunnan Province PRC. Yunnan Image was incorporated on August 23, 2013. Yunnan Image is the primary operating entity to carry out the Company’s core business activities of selling and marketing its own branded teas. Yunnan Image is wholly-owned by Guangzhou Image. Yunnan Image has a registered capital of RMB 3 million. The capital has been paid up in its entirety.
| 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
| (a) | Method of Accounting |
The Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.
| (b) | Basis of Presentation |
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”).
| (c) | Principles of Consolidation |
The consolidated financial statements include the accounts of the Company, its subsidiaries for which the Company is the primary beneficiary. All significant inter-company accounts and transactions have been eliminated. The consolidated financial statements include 100% of assets, liabilities, and net income or loss of those wholly-owned subsidiaries.
| 10 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2015, the detailed identities of the consolidating subsidiaries are as follows:
| Name of company | Place of incorporation | Attributable equity interest % | Registered capital | |||||||
| Fortune Delight Holdings Group Limited | BVI | 100 | % | 50,000 | ||||||
| Silver Channel Industrial Limited | Hong Kong | 100 | % | $ | - | |||||
| Heiyuan Image Equipment Import Export Co., Ltd. | PRC | 100 | % | 515,849 | ||||||
| Guangzhou Image Agricultural Technology Co., Ltd. | PRC | 100 | % | 1,636,902 | ||||||
| Yunnan Image Tea Industry Co., Ltd. | PRC | 100 | % | 491,071 | ||||||
| (d) | Economic and Political Risks |
The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, restriction on international remittances, and rates and methods of taxation, among other things.
| (e) | Use of Estimates |
In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting years. These accounts and estimates include, but are not limited to, the estimation on useful lives of property, plant and equipment. Actual results could differ from those estimates.
| (f) | Cash and Cash Equivalents |
Cash and cash equivalents include cash in hand and cash in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less. As of September 30, 2015, cash and cash equivalents were mainly denominated in RMB and were placed with banks in the PRC. These cash and cash equivalents may not be freely convertible into foreign currencies and the remittance of these funds out of the PRC may be subjected to exchange control restrictions imposed by the PRC government.
| (g) | Accounts Receivable |
The Company maintains allowances 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 allowances. Terms of sales vary. Allowances are recorded primarily on a specific identification basis.
As of September 30, 2015, no provision for allowance for doubtful accounts was provided.
| (h) | Other receivables |
Other receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is made when recovery of the full amount is doubtful.
| 11 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (i) | Inventories |
Inventories are stated at the lower of cost or market value. Cost is computed using the first-in, first-out method and includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Market value is determined by reference to the sales proceeds of items sold in the ordinary course of business or estimates based on prevailing market conditions.
| (i) | Property, plant and equipment |
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:
| Building | 20 years |
| Computer | 3 years |
| Motor vehicles | 4 years |
| (k) | Accounting for Impairment of Long-Lived Assets |
The Company adopts Accounting Standards Codification (“ASC”) 360, “Accounting for the Impairment or Disposal of Long-Live Assets”, which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with ASC 360 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.
The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Recoverability of assets to be held and used is determined by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.
If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the reporting periods, there was no impairment loss.
| (l) | Revenue Recognition |
The Company’s revenue recognition policies are in compliance with Staff Accounting Bulletin (“SAB”) 104, included in the Codification as ASC 605, Revenue Recognition. Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as unearned revenue.
The Company does not allow its customers to return products. The Company’s customers can exchange products only if they are damaged in transportation.
Revenue reported is net of value added tax.
| 12 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (m) | Cost of Sales |
The Company’s cost of sales is comprised of the inbound acquisition cost of packaged finished goods for resale, inbound shipping, value added tax and business taxes recognized upon sales of goods.
| (n) | Selling Expenses |
Selling expenses are comprised of salaries for the sales force, client entertainment, commissions, advertising, and travel and lodging expenses.
| (o) | General & Administrative Expenses |
General and administrative expenses include executive compensation, general overhead such as the finance department and administrative staff, depreciation, office rental and utilities.
| (p) | Foreign Currency Translation |
The Company maintains its financial statements in the functional currencies on Chinese Renminbi (RMB) and Hong Kong Dollars (“HKD”). Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Translation adjustments are not included in determining net loss but are included in foreign exchange adjustment to other comprehensive loss, a component of stockholders’ equity.
| Exchange Rates | 9/30/2015 | 12/31/2014 | 9/30/2014 | |||||||||
| Period end RMB : US$ exchange rate | 6.3468 | 6.1385 | 6.1517 | |||||||||
| Average period RMB : US$ exchange rate | 6.1614 | 6.1432 | 6.1459 | |||||||||
| Period end HKD : US$ exchange rate | 7.7499 | 7.7574 | 7.7540 | |||||||||
| Average period HKD : US$ exchange rate | 7.7527 | 7.7544 | 7.7649 | |||||||||
RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation. The HKD is freely convertible into other foreign currencies.
| (q) | Income Taxes |
The Company adopts SFAS No. 109, Accounting for Income Taxes, included in the Codification as ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, 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.
| 13 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 1, 2007, The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”), included in the Codification as ASC 740, Income Taxes. The topic addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under ASC 740, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. ASC 740 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
| (r) | Statutory Reserve |
Statutory reserve refers to the amount appropriated from the net income in accordance with PRC laws or regulations, which can be used to recover losses and increase capital, as approved, and, are to be used to expand production or operations. PRC laws prescribe that an enterprise operating at a profit, must appropriate, on an annual basis, from its earnings, an amount to the statutory reserve to be used for future company development. Such an appropriation is made until the reserve reaches a maximum equal to 50% of the enterprise’s registered capital.
| (s) | Fair Value of Financial Instruments |
For certain of the Company’s financial instruments, including cash and equivalents, accounts and other receivables, accounts and other payables, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| ● | Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets. | |
| ● | Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. | |
| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.
The Company’s financial instruments include cash and equivalents, accounts receivable, and accounts payable. Cash and cash equivalents consist deposits financial institutions with original maturities of three months or less. Management estimates the carrying amounts of the non-related party financial instruments approximate their fair values due to their short-term nature.
| 14 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is table of the Company’s financial instruments:
As of September 30, 2015:
| Carrying amount | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Estimated fair value | |||||||||||||
| Financial assets | ||||||||||||||||
| Carried at (amortized) cost: | ||||||||||||||||
| Cash and cash equivalents | $ | 136,150 | $ | - | $ | - | $ | 136,150 | ||||||||
As of December 31, 2014:
| Carrying amount | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Estimated fair value | |||||||||||||
| Financial assets | ||||||||||||||||
| Carried at (amortized) cost: | ||||||||||||||||
| Cash and cash equivalents | $ | 70,107 | $ | - | $ | - | $ | 70,107 | ||||||||
| (t) | Other Comprehensive Income |
The Company’s functional currency is the Renminbi (“RMB”). For financial reporting purposes, RMB were translated into United States Dollars (“USD” or “$”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders’ equity as “Accumulated other comprehensive income”. Gains and losses resulting from foreign currency transactions are included in income.
The Company uses FASB ASC Topic 220, “Reporting Comprehensive Income”. Comprehensive loss is comprised of net loss and all changes to the statements of stockholders’ equity, except for changes in paid-in capital and distributions to stockholders due to investments by stockholders.
| (u) | Business combination |
Business combinations are accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations. Under the acquisition method the acquiring entity in a business combination recognizes 100 percent of the acquired assets and assumed liabilities, regardless of the percentage owned, at their estimated fair values as of the date of acquisition. Any excess of the purchase price over the fair value of net assets and other identifiable intangible assets acquired is recorded as goodwill. To the extent the fair value of net assets acquired, including other identifiable assets, exceed the purchase price, a bargain purchase gain is recognized. Assets acquired and liabilities assumed from contingencies must also be recognized at fair value, if the fair value can be determined during the measurement period. Results of operations of an acquired business are included in the statement of earnings from the date of acquisition. Acquisition-related costs, including conversion and restructuring charges, are expensed as incurred.
| (v) | Recent Accounting Pronouncements |
In August 2014, the FASB issued ASU No. 2014-15, “Disclosure of Uncertainties About an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”), which requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity’s ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. The Company does not expect that the adoption of this standard will have a material effect on the Company’s financial statements.
| 15 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 2014, FASB issued Accounting Standards Update No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force).The amendments permit the use of the Fed Funds Effective Swap Rate (also referred to as the Overnight Index Swap Rate, or OIS) as a benchmark interest rate for hedge accounting purposes. Public business entities are required to implement the new requirements in fiscal years (and interim periods within those fiscal years) beginning after December 15, 2015. All other types of entities are required to implement the new requirements in fiscal years beginning after December 15, 2015, and interim periods beginning after December 15, 2016. The Company does not expect the adoption of ASU 2014-16 to have material impact on the Company’s financial statement.
In January 2015, The FASB issued ASU No. 2015-01, “Income Statement—Extraordinary and Unusual Items (Subtopic 225-20)”.This Update eliminates from GAAP the concept of extraordinary items. Subtopic 225-20, Income Statement—Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item. Paragraph 225-20-45-2 contains the following criteria that must both be met for extraordinary classification:
| 1. | Unusual nature. The underlying event or transaction should possess a high degree of abnormality and be of a type clearly unrelated to, or only incidentally related to, the ordinary and typical activities of the entity, taking into account the environment in which the entity operates. | |
| 2. | Infrequency of occurrence. The underlying event or transaction should be of a type that would not reasonably be expected to recur in the foreseeable future, taking into account the environment in which the entity operates. |
If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from the results of ordinary operations and show the item separately in the income statement, net of tax after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose earnings-per-share data applicable to the extraordinary item.
The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The effective date is the same for both public business entities and all other entities.
In September 2015, the FASB issued ASU 2015-16, the guidance eliminates the requirement to restate prior period financial statements for measurement period adjustments following a business combination. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. The prior period impact of the adjustment should be either presented separately on the face of the income statement or disclosed in the notes. The Company is currently evaluating the impact the pronouncement will have on the Company’s consolidated financial statements.
| 16 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| (w) | Contingencies |
Certain conditions may exist as of the date the consolidated financial statements are issued, which may 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 un-asserted claims that may result in such proceedings, the Company’s management evaluates the perceived merits of any legal proceedings or un-asserted 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 would be accrued in the Company’s consolidated 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.
| 3. | GOODWILL |
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business combination. In accordance with FASB ASC Topic 350, “Goodwill and Other Intangible Assets”, goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
On February 16, 2015, the Company, through Guangzhou Image, entered into an equity transfer agreement to acquire 100% of Yunnan Image. As of December 31, 2014, the net assets of Yunnan Image were USD 166,022. The purchase consideration was USD 489,515 (equivalent to RMB 3,000,000), which resulted in goodwill of USD 323,493.
| September 30, 2015 | December 31, 2014 | |||||||
| Yunnan Image | $ | 323,493 | $ | 323,493 | ||||
| Less: Impairment loss | - | - | ||||||
| Total goodwill | $ | 323,493 | $ | 323,493 | ||||
The Company reviews the carrying value of the goodwill for impairment regularly.
| 4. | OTHER RECEIVABLES |
| September 30, 2015 | December 31, 2014 | |||||||
| Other receivables | $ | 2,098,492 | $ | 625,055 | ||||
| Less: Allowance for doubtful accounts | (442,823 | ) | (457,850 | ) | ||||
| Other receivables, net | $ | 1,655,669 | $ | 167,205 | ||||
| 17 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 5. | INVENTORIES |
| September 30, 2015 | December 31, 2014 | |||||||
| Raw materials | $ | 561,765 | $ | - | ||||
| Packing materials | 14,047 | 36,075 | ||||||
| Finished goods | 674,746 | - | ||||||
| $ | 1,250,558 | $ | 36,075 | |||||
| 6. | PROPERTY, PLANT AND EQUIPMENT |
Property, plant and equipment consisted of the following:
| September 30, 2015 | December 31, 2014 | |||||||
| Building | $ | 19,983 | $ | 20,684 | ||||
| Motor vehicle | 230,829 | 32,416 | ||||||
| Plant and equipment | $ | 22,244 | $ | 4,005 | ||||
| 273,056 | 57,105 | |||||||
| Less: Accumulated depreciation | (27,564 | ) | (5,925 | ) | ||||
| $ | 245,492 | $ | 51,180 | |||||
Depreciation expense for the nine month periods ended September 30, 2015 and 2014 was $21,655 and $128, respectively.
| 7. | INCOME TAX |
The Company is subject to US Income taxes.
The Company’s subsidiary Fortune Delight Holdings Group Limited was incorporated in the British Virgin Islands. The British Virgin Islands is an income tax free jurisdiction.
The Company’s subsidiaries that were incorporated in the PRC and are governed by the Income Tax Law of the PRC and various local income tax laws. Effective January 1, 2008, China adopted a uniform tax rate of 25% for all enterprises including foreign-invested enterprises.
Silver Channel was incorporated in Hong Kong and is subject to the Inland Revenue Ordinance of Hong Kong. Hong Kong adopted a uniform tax rate of 16.5% for all enterprises.
For the nine months ended September 30, 2015, no income tax provision has been recorded for the period.
The Company did not recognize any deferred tax assets during the nine months ended September 30, 2015 and 2014 and the Company has not yet determined when it would be able to make use of such potential assets.
| 18 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 8. | LOSS PER SHARE |
The following table sets forth the computation of basic and diluted earnings per share of common stock:
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Basic loss per share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net loss used in computing basic earnings per share | $ | (1,411,008 | ) | $ | (8,633 | ) | $ | (6,349,819 | ) | $ | (3,506 | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted average common shares outstanding | 395,000,000 | 10,119,511 | 202,628,676 | 9,045,769 | ||||||||||||
| Basic loss per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.03 | ) | $ | (0.00 | ) | ||||
| Diluted earnings per share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Net (loss) income used in computing diluted earnings per share | $ | (1,411,008 | ) | $ | (8,633 | ) | $ | (6,349,819 | ) | $ | (3,506 | ) | ||||
| Denominator: | ||||||||||||||||
| Weighted average common shares outstanding | 395,000,000 | 10,119,511 | 202,628,676 | 9,045,769 | ||||||||||||
| Diluted loss per share | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.03 | ) | $ | (0.00 | ) | ||||
Dilutive securities having an anti-dilutive effect on diluted (loss) earnings per share are excluded from the calculation.
| 9. | OTHER COMPREHENSIVE INCOME |
Accumulated other comprehensive income included in stockholders’ equity as of September 30, 2015 was as follows:
| September 30, 2015 | September 30, 2014 | |||||||
| Accumulated other comprehensive income, beginning of period | $ | 41,131 | $ | (3,506 | ) | |||
| Change in cumulative translation adjustment | (4,773 | ) | - | |||||
| Accumulated other comprehensive income, end of period | $ | 36,358 | $ | (3,506 | ) | |||
| 10. | RELATED PARTY TRANSACTION |
Related party receivable consisted of the following:
| September 30, 2015 | December 31, 2014 | |||||||
| Image Industrial Development Limited, same management personnel | $ | 8,392 | $ | - | ||||
| Wu Junrui, former director | 49,328 | - | ||||||
| Image Chain Group Limited, Inc. shareholders | 412,781 | - | ||||||
| $ | 470,501 | $ | - | |||||
The amounts are unsecured, interest-free and due on demand.
| 19 |
IMAGE CHAIN GROUP LIMITED, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Related party payable consisted of the following:
| September 30, 2015 | December 31, 2014 | |||||||
| Wu Ping, director of Yunnan Image | 216,572 | - | ||||||
| Zhou Jun Nan, director of Yunnan Image | - | 1,349 | ||||||
| Lin Qi Shui, chairman of Yunnan Image | 208,959 | 326 | ||||||
| $ | 425,531 | $ | 1,675 | |||||
The amounts are unsecured, interest-free and due on demand.
| 11. | RISKS CONCENTRATION |
For the period ended September 30, 2015, a majority of the Company’s revenue was generated from one customer, which accounted for 11% of total sales.
For the period ended September 30, 2015, the Company had one major supplier in procuring tea. Payment in form of advances were paid to the supplier as part of its procurement process. This is due in part to the Company’s development of its product portfolio specifically for Pu’er tea, which is grown and harvested in Yunnan Province, PRC. As the Company expands its product portfolio to incorporate other teas, it expects to source different teas from different suppliers in different geographic areas in the PRC.
| 12. | SEGMENT INFORMATION |
For nine months ended September 30, 2015 and 2014, all revenues of the Company represented the net sales of Pu’er tea products. No financial information by business segment is presented. Furthermore, as all revenues are derived from the PRC, no geographic information by geographical segment is presented.
| 20 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statements
This Quarterly Report on Form 10-Q (“Form 10-Q”) may contain “forward-looking statements,” as that term is used in federal securities laws, about Image Chain Group Limited, Inc.’s financial condition, results of operations and business. These statements include, among others:
| ● | statements concerning the potential benefits that Image Chain Group Limited, Inc. (“ICGL,” “we,” “our,” “us,” the “Company,” “management”) may experience from its business activities and certain transactions it contemplates or has completed; and | |
| ● | statements of ICGL’s expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. These statements may be made expressly in this Form 10-Q. You can find many of these statements by looking for words such as “believes,” “expects,” “anticipates,” “estimates,” “opines,” or similar expressions used in this Form 10-Q. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause ICGL’s actual results to be materially different from any future results expressed or implied by ICGL in those statements. The most important facts that could prevent ICGL from achieving its stated goals include, but are not limited to, the following: |
| (a) | volatility or decline of ICGL’s stock price; | |
| (b) | potential fluctuation of quarterly results; | |
| (c) | failure of ICGL to earn revenues or profits; | |
| (d) | inadequate capital to continue or expand its business, and inability to raise additional capital or financing to implement its business plans; | |
| (e) | decline in demand for ICGL’s products and services; | |
| (f) | rapid adverse changes in markets; | |
| (g) | litigation with or legal claims and allegations by outside parties against ICGL, including but not limited to challenges to ICGL’s intellectual property rights; | |
| (h) | insufficient revenues to cover operating costs; |
There is no assurance that ICGL will be profitable, ICGL may not be able to successfully develop, manage or market its products and services, ICGL may not be able to attract or retain qualified executives and personnel, ICGL may not be able to obtain customers for its products or services, additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants and stock options, or the exercise of outstanding warrants and stock options, and other risks inherent in ICGL’s businesses.
Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. ICGL cautions you not to place undue reliance on the statements, which speak only as of the date of this Form 10-Q. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that ICGL or persons acting on its behalf may issue. ICGL does not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-Q, or to reflect the occurrence of unanticipated events.
Overview
Image Chain Group Limited, Inc. (formerly Have Gun Will Travel Entertainment, Inc.) (“ICGL” or the “Company”) was incorporated under the laws of Nevada on December 18, 2013. From inception through the date of the Exchange Agreement as defined below, the Company was an emerging forward-thinking full-service television pre-production company dedicated to the creation of original concepts and programming with a bold and innovative edge in the reality television space for sale, option and licensure to independent producers, cable television networks, syndication companies, and other entities.
On May 5, 2015, ICGL entered into a share exchange agreement (the “Exchange Agreement”) with Fortune Delight Holdings Group Ltd., a British Virgin Islands corporation (“FDHG”) and Wu Jun Rui, on behalf of himself and certain other individuals who are to receive shares of ICGL (“Shareholders”) pursuant to the Exchange Agreement. On the terms and subject to the conditions set forth in the Exchange Agreement, on May 5, 2015, Wu Jun Rui transferred all 50,000 shares of FDHG common stock, consisting of all of the issued and outstanding shares of FDHG to ICGL. In exchange for the transfer of such securities by Wu Jun Rui, ICGL issued, to the Shareholders, 59,620,000 shares of the Company’s common stock, par value $.001 per share and 5,000,000 shares of the Company’s preferred stock, par value $.001 per share.
| 21 |
As a result of the closing of the Share Exchange Agreement, FDHG became the Company’s wholly owned subsidiary. FDHG is the parent company of Silver Channel Industrial Ltd., a Hong Kong company, which, in turn, holds 100% equity interest of Heyuan Image Machinery Import and Export Co., Ltd., a PRC corporation (“Heyuan Image”). Heyuan Image, through Guangzhou Image Agricultural Technology Ltd., a PRC corporation, owns 100% of Yunnan Image Tea Industrial Ltd. (“YITIL”). ICGL, through its wholly-owned operating subsidiaries, is in the business of promoting and distributing its owned branded teas that are grown, harvested, cured, and packaged in the People’s Republic of China (“PRC”).
The Company’s headquarters is located in Guangzhou, Guangdong Province, PRC. Currently, the Company’s products are sold in the PRC for domestic consumption.
On June 11, 2015, the Company changed its name to Image Chain Group Limited, Inc. in order to more closely align with its current business.
Results of Operations
Three Months Ended September 30, 2015 Compared to Three Months Ended September 30, 2014
The Company recognized $37,490 in sales revenues for the three months ended September 30, 2015, as compared to $5,500 for the three months ended September 30, 2014. The material change in the amount of sales revenue is a result of the Company’s commencement of the operation in the business of promoting and distributing its own brand teas in 2015.
For the three months ended September 30, 2015, the Company recognized cost of sales of $44,173 as compared to $0 for the same period in 2014. The Company initially began delivering the tea products during the period; accordingly, the cost of sales increased significantly.
Gross loss was $6,683 for the three months ended September 30, 2015 as compared to gross profit of $5,500 for the same period in 2014.
For the three months ended September 30, 2015, the Company recorded operating expenses totaling $1,404,295 which was comprised of selling, general and administrative expenses. The Company’s operating expenses was mainly attributable to the salary and wages. For the three months ended September 30, 2014, our operating expenses were $14,133, which consisted of basic general and administrative expenses. Our increase in operating expenses is primarily due to the Company’s commencement of the operation in 2015.
As a result of the factors discussed above, the Company’s net loss was $1,411,008 for the three months ended September 30, 2015, as compared to a net loss of $8,633 during the three months ended September 30, 2014.
Nine Months Ended September 30, 2015 Compared to Nine Months Ended September 30, 2014
The Company recognized $260,383 in sales revenues for the nine months ended September 30, 2015, as compared to $24,000 for the nine months ended September 30, 2014. The Company began delivering products for orders previously placed in 2014 and new orders placed during the first six months of 2015. The material change in the amount of sales revenue is a result of the Company’s commencement of operations in addition to the initial availability of finished products, namely pu-er tea, that was made available for delivery to customer against orders placed in 2014. The Company had previously received advances from customers for tea dating back to 2014.
For the nine months ended September 30, 2015, the Company recognized cost of sales of $131,900 as compared $0 to the same period in 2014. The Company initially began delivering substantial amounts of tea products during the period; accordingly, the cost of sales increased significantly and materially from zero.
For the nine months ended September 30, 2015, the Company recorded operating expenses totaling $6,487,409 which was comprised of selling, general and administrative expenses. The Company’s operating expenses included $4,681,819 of non-cash stock compensation expenses. For the nine months ended September 30, 2014, our operating expenses were $27,506, which consisted of basic general and administrative expenses. The increase in operating expenses is primarily due to the issuance of stock compensation for marketing and consulting services rendered by outside service providers.
Gross profit was $128,483 for the three months ended September 30, 2015 as compared to gross profit of $24,000 for the same period in 2014.
As a result of the factors discussed above, the Company’s net loss was $6,349,819 for the nine months ended September 30, 2015, as compared to a net loss of $3,506 during the nine months ended September 30, 2014.
| 22 |
Liquidity and Capital Resources
The Company’s cash and cash equivalents were $136,150 at September 30, 2015, as compared to $70,107 at December 31, 2014. The increase in cash was due to the issuance of new shares. As of September 30, 2015, the Company had current assets of $4,696,023 and current liabilities of $4,309,127, respectively, compared to $800,570 and $1,610,654 as of December 31, 2014. Net working capital of was $386,896 at September 30, 2015 as compared to net capital deficit of $810,084 at December 31, 2014. The Company’s net working capital increased primarily from an increase in advanced to suppliers, inventories and other receivables and partly offset by an increase in customer advance.
Net cash used in operating activities amounted to $7,459,101 for the nine months ended September 30, 2015, as compared to $7,323 for the nine months ended September 30, 2014. The substantial change in cash used in operating activities was primarily due to the commencement of our operations in the business of promoting and distributing its own brand teas in 2015.
There was net cash of $215,967 used in investing activities for the nine months ended September 30, 2015 and $4,346 of net cash used in investing activities in the nine months ended September 30, 2014. Cash used in investing activities was for purchase of property plant and equipment.
There was net cash of $7,745,884 provided by financing activities for the nine months ended September 30, 2015 and $37,600 for the nine months ended September 30, 2014. This increase was due to the sale and issuance of restricted shares by the Company to certain investors in a private placement in 2015.
On an on-going basis, we may take steps to identify and plan our needs for liquidity and capital resources, to fund our operations and day to day business operations. Our future capital expenditures will include, among others, expanding our product portfolio, large scale long term marketing campaigns, and making acquisitions as deemed appropriate.
Based on our current plans for the next 12 months, we anticipate that the sales of the Company’s tea products will be the primary organic source of funds for future operating activities in 2015. However, to fund continued expansion of our operation and extend our reach to broader markets, and to acquire additional entities, as we may deem appropriate, we may raise capital through public or private offerings. There is no assurance that we will be able to obtain such funding on acceptable terms, if at all.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We consider our critical accounting policies to be those that require the more significant judgments and estimates in the preparation of financial statements, including the following:
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, trade receivables, prepaid expenses, payables and accrued expenses, Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. We consider the carrying values of our financial instruments in the consolidated financial statements to approximate fair value, due to their short-term nature.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is provided for using straight-line methods over the estimated useful lives of the respective assets, usually three to seven years.
| 23 |
Valuation of Long-Lived Assets
We periodically evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset were less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value. We do not believe that there has been any impairment to long-lived assets as of September 30, 2015 and 2014.
Recent Accounting Pronouncements
(See “Recent Accounting Pronouncements” in Note 2 of Notes to the Financial Statements.)
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not Applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company is currently developing a set of disclosure controls and procedures designed to ensure that information required to be disclosed by the Company in the reports filed under the Securities Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to the Company’s management, including the Company’s chief executive officer, as appropriate, to allow timely decisions regarding required disclosure.
Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation with the participation of the Company’s management, including the Company’s chief executive officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the quarter ended September 30, 2015. Based upon that evaluation, the Company’s chief executive officer concluded that the Company’s disclosure controls and procedures were ineffective; however, the Company is taking steps to remediate the deficiency. As noted above the Company is currently developing a set of disclosure controls and procedures and considering engaging outside service providers to provide expertise on this matter.
Changes in Internal Control over Financial Reporting
We will begin to regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities, migrating processes, and consulting with outside experts.
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations over Internal Controls
ICGL’s management does not expect that its disclosure controls or its internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within ICGL have been detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
| 24 |
We are not a party to any material or legal proceeding and, to our knowledge, none is contemplated or threatened.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
.
There have been no defaults upon senior securities.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
Exhibit No. |
Description | |
| 31.1 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
| 32.1 | Certification of the Principal Executive Officer and Principal Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** | |
| 101.INS | XBRL Instance Document* | |
| 101.SCH | XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | XBRL Taxonomy Calculation Linkbase Document* | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | XBRL Taxonomy Label Linkbase Document* | |
| 101.PRE | XBRL Taxonomy Presentation Linkbase Document* |
*Filed herewith.
**Furnished herewith.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Dated: November 16, 2015 | ||
| By: | /s/ Wenchang Gu | |
Wenchang Gu Chief Executive Officer, Chief Financial Officer, President, and Chairman (Principal Executive Officer, Principal Accounting and Financial Officer) |
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