Image Chain Group Limited, Inc. - Quarter Report: 2018 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

For the quarterly period ended March 31, 2018

Or

For the transition period from _____________________ to_____________________

Commission File Number 000-55326

IMAGE CHAIN GROUP LIMITED, INC.

(Exact name of registrant as specified in its charter)

(852) 3188-2700

(Registrant’s telephone number, including area code)

N/A

(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.

[X] YES           [  ] 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).

[X] YES           [  ] NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

[  ] YES           [X] NO

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.

[  ] YES           [  ] NO

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 507,270,882 common shares issued and outstanding as of May 18, 2018.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

IMAGE CHAIN GROUP LIMITED, INC.

Unaudited Consolidated Balance Sheets

See accompanying notes to Unaudited Consolidated Financial Statements

IMAGE CHAIN GROUP LIMITED, INC.

Unaudited Consolidated Statements of Operations and Comprehensive Loss

See accompanying notes to Unaudited Consolidated Financial Statements

IMAGE CHAIN GROUP LIMITED, INC.

Unaudited Consolidated Statements of Cash Flows

See accompanying notes to Unaudited Consolidated Financial Statements

IMAGE CHAIN GROUP LIMITED, INC.

Notes to Unaudited Consolidated Financial Statements

1. THE COMPANY AND PRINCIPAL BUSINESS 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.

On February 13, 2017, the Company filed with the Secretary of State of the State of Nevada a Certificate of Correction (the “Certificate of Correction”) to correct a mistake made in the Company’s original Articles of Incorporation with regard to the preferred stock issued in connection with the FDHG Exchange Agreement. As a result, ICGL had 395,000,000 shares of common stock and 5,000,000 shares of preferred stock issued and outstanding. The Company subsequently entered into an agreement pursuant to which the holder of the preferred stock agreed to retire the preferred stock in exchange for receiving an equal number of shares of common stock of the Company. As of the date of this Report, that exchange of preferred stock for common stock has not yet occurred.

Effective May 1, 2017, the Company increased the authorized shares of Common Stock from 3,950,000 to 2,000,000,000 shares with a par value of $0.001 per share, and to decrease the authorized shares of Preferred Stock from 50,000 to zero (0). As of the date of this Report, the decrease in shares of Preferred Stock is still in process.

FDHG, previously, through its wholly-owned operating subsidiaries, was 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 was previously located in Guangzhou, Guangdong Province, PRC.

Share Exchange and Reorganization

On November 14, 2017, the Company entered into a share exchange agreement (the “SEA”) with Image P2P Trading Group Limited (“Image P2P”) and Image P2P’s shareholders whereby the Company issued 500,000,000 new common shares in exchange for all of the issued and outstanding ordinary shares of Image P2P, which totaled 50,000. Image P2P is an investment holding company incorporated and domiciled in the British Virgin Islands.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. Notes to the unaudited interim condensed consolidated financial statements that would substantially duplicate the disclosures contained in the audited consolidated financial statements for fiscal year 2017 have been omitted. This report should be read in conjunction with the audited consolidated financial statements and the footnotes thereto for the fiscal year ended December 31, 2017 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on April 17, 2018.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. 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.

The Company’s subsidiaries are listed as follows:

Use of estimates

The preparation of the financial statements 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 periods. Management makes these estimates using the best information available at the time the estimates are made; however, actual results could differ materially from those estimates.

Foreign currency translation

The accompanying financial statements are presented in United States dollars (“USD”). The functional currency of the Company is the USD. The functional currency of AGW is the Hong Kong dollar (“HKD”). The functional currency of SZFY and JXFZYBL is the Renminbi (“RMB”). The financial statements of the Companies subsidiaries have been translated into United States dollars from RMB and HKD at year-end exchange rates as to assets and liabilities and average exchange rates as to revenues and expenses. Capital accounts are translated at their historical exchange rates when the capital transactions occurred.

The 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 Dollars at the rates used in translation.

Earnings per share

The Company computes earnings per share (“EPS”) in accordance with ASC Topic 260, “Earnings per share”. Basic EPS is measured as the income or loss available to common shareholders divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options, and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e. those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. As of for the three ended March 31, 2018 and 2017, the Company did not have any potentially dilutive securities outstanding.

Financial Instruments

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities and due to stockholders. The carrying amounts of such financial instruments approximate their respective estimated fair value due to the short-term maturities and approximate market interest rates of these instruments.

Revenue Recognition

Our revenue recognition policies are in compliance with SEC Staff accounting bulletin (SAB) 104. 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 exist on our part and collectability is reasonably assured. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposits. Our revenue consists of invoiced value of goods, net of a value-added tax (VAT).

Effective January 1, 2018, the Company adopted ASC 606, “Revenue from Contracts with Customers.” The Company has evaluated the new guidance and its adoption did not have a significant impact on the Company’s financial statements and a cumulative effect adjustment under the modified retrospective method of adoption will not be necessary. The will be no change to the Company’s accounting policies.

Cost of revenue

Cost of revenue includes the following expenses; inventory and various expenses related to make the products.

Reclassifications

Certain prior period amounts have been reclassified to conform with the current period presentation.

Recent Accounting Pronouncements

The Company is currently assessing the above the accounting pronouncements and their potential impact from their adoption on the financial statements.

3. GOING CONCERN

These financial statements have been prepared assuming that Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

As of March 31, 2018, the Company had accumulated deficits of $4,892,699 and incurred losses to maintain its listing as an U.S. public company. There was substantial doubt regarding the Company’s ability to continue as going concern at March 31, 2018. Management continues to employ its previous plan to support the Company’s operations and maintain its business strategy by raising additional funds through public and private offerings, or loans from related parties, or to rely on officers and directors to perform essential functions with minimal compensation was unsuccessful.

If the Company does not raise additional money via public or private offerings or related party loans, the Company may be unable to continue as going concern. Additional financing may not become available on acceptable terms and there can be no assurance that any additional financing that the Company does obtain will be sufficient to meet its needs in the long term.

The accompanying financial statements have been adjusted to the expected recoverable amounts. Management believes no further adjustments for recoverability and classification of assets or liabilities are necessary.

4. ACCOUNTS RECEIVABLE

Accounts receivable at March 31, 2018 and December 31, 2017, consist of the following:

5. INVENTORIES

Inventories at March 31, 2018 and December 31, 2017 consist of the following:

6. PLANT AND EQUIPMENT

Plant and equipment at March 31, 2018 and December 31, 2017 consist of the following:

Depreciation expenses translated at the average exchange rates for the three months ended March 31, 2018 and 2017 were $59,099 and $44,160, respectively.

7. INTANGIBLE ASSETS

Intangible assets at March 31, 2018 and December 31, 2017 consist of the following:

Amortization expenses translated at the average exchange rates for the three months ended March 31, 2018 and 2017 were $14,175 and $13,093, respectively.

8. LOANS AND INTEREST

Bank loans at March 31, 2018 and December 31, 2017 consist of the following:

Interest expenses translated at the average exchange rates for the three months ended March 31, 2018 and 2017 were $56,561 and $37,072, respectively.

Short term loans

On March 30, 2017, FZY entered into a short-term loan with Jiangxi Rural Credit Union & Rural Commercial Bank due on March 28, 2018. The loan was for general working capital purposes in the amount $1,536,148 (RMB 10,000,000). The loan carried an interest rate of 6.30% and was secured by personal guarantee of Mr. Peng Qiu, the authorized representative of FZY and Director of the Company and Mr. Ming Guang Li, a friend of Mr. Peng Qiu. During the three months ended March 31, 2018, the Company repaid $334,109. The Company is negotiating an extension for the short-term loan with Jiangxi Rural Credit Union & Rural Commercial Bank.

Long term loans

On October 30, 2015, the Company entered into a loan agreement with Industrial and Commercial Bank of China – Wan An County Branch for an interest only construction loan in the amount of approximately $2,403,808 (RMB 15,000,000). The loan bares an adjustable interest rate, at the time origination was 4.75%. The interest rates are adjustable every twelve months. The interest-only construction loan was collateralized by the lands and buildings off the Company with variable maturity dates of up to 5 years.

On April 28, 2017, FZY entered into a bank loan with Bank of Beijing due on April 25, 2021. The loan was for construction of a new Polyphenols production line in the amount of $307,230 (RMB 2,000,000). The loan carried an interest rate of 4.35% and was secured by personal guarantee of Mr. Peng Qiu, the authorized representative of FZY and Ms. Huang Min, spouse of Mr. Qiu Peng.

On April 28, 2017, FZY entered into a bank loan with Jiangxi Rural Credit Union & Rural Commercial Bank due on April 25, 2020. The loan was for general working capital purposes in the amount of $768,074 (RMB 5,000,000). The loan carried an interest rate of 4.35% and was secured by personal guarantee of Mr Peng Qiu, the authorized representative of FZY and Director of the Company and Mr. Ming Guang Li, a friend of Mr. Peng Qiu.

Loan maturity schedule as of December 31, 2017:

9. RELATED PARTY TRANSACTIONS

Related parties’ relationships are as follows:

Amounts due to related parties at March 31, 2018 and December 31, 2017 consist of the following:

The owing to related parties consist of working capital advances and borrowings. These amounts are due on demand and are non-interest bearing.

Advances and prepayments to suppliers at March 31, 2018 and December 31, 2017 consist of the following:

The advances and prepayments to suppliers account includes an outstanding balance paid to Wan An Fu Zhi Yuan Cha Ye Ltd. Co. for the purchase of tea leaves, a primary raw material, in the normal course of business. These amounts are due on demand and are non-interest bearing. The advances and prepayments to suppliers account balance is reduced when the Company takes physical delivery of the inventory.

Accounts payable at March 31, 2018 and December 31, 2017 consist of the following:

The accounts payables to related party includes an outstanding balance payable to Wan An Huan Sheng Biomass Energy Ltd. Co. for purchases of raw materials in the normal course of business.

10. Stockholders’ Deficit

Preferred Stock

The Company is authorized to issue 50,000 shares, with a stated par value of $0.001 per share with such powers, preferences, rights and restrictions which shall be determined by the Corporation’s Board of Directors in its sole discretion, and which designations and issuances shall not require the approval of the shareholders of the Corporation.

During the three months ended March 31, 2018, there were no issuances of Preferred Stock.

As of March 31, 2018 and December 31, 2017, 50,000 shares of preferred stock were issued and outstanding.

Common Stock

The Company is authorized to issue 2,000,000,000 shares of common stock at a par value of $0.001.

During the three months ended March 31, 2018, there were no issuances of common stock.

As of March 31, 2018 and December 31, 2017, 507,270,882 shares of common stock were issued and outstanding.

12. RISKS

13. SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date which the financial statements were available to be issued. All subsequent events requiring recognition as of March 31, 2018 have been incorporated into these financial statements and there are no subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”

Item 2. Management’s Discussion and Analysis of Financial Condition or Plan of Operation

Cautionary Statements

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements, including, without limitation, in the sections captioned “Management’s Discussion and Analysis of Financial Condition or Plan of Operation,” and elsewhere. Any and all statements contained in this Quarterly Report that are not statements of historical fact may be deemed forward-looking statements. Terms such as “may,” “might,” “would,” “should,” “could,” “project,” “estimate,” “pro-forma,” “predict,” “potential,” “strategy,” “anticipate,” “attempt,” “develop,” “plan,” “help,” “believe,” “continue,” “intend,” “expect,” “future” and terms of similar import (including the negative of any of the foregoing) may be intended to identify forward-looking statements. However, not all forward-looking statements may contain one or more of these identifying terms.

Forward-looking statements in this Quarterly Report may include, without limitation, statements regarding (i) the plans and objectives of management for future operations, including plans or objectives relating to the growth of tea polyphenol sales and development of our tea polyphenol-based products, (ii) the plans or objectives relating to our future business acquisitions, if any, (iii) a projection of income (including income/loss), earnings (including earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items, (iv) our future financial performance, including any such statement contained in a discussion and analysis of financial condition by management or in the results of operations included pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, and (v) the assumptions underlying or relating to any statement described in points (i), (ii), (iii) or (iv) above.

The forward-looking statements are not meant to predict or guarantee actual results, performance, events or circumstances and may not be realized because they are based upon our current projections, plans, objectives, beliefs, expectations, estimates and assumptions and are subject to a number of risks and uncertainties and other influences, many of which we have no control over. Actual results and the timing of certain events and circumstances may differ materially from those described by the forward-looking statements as a result of these risks and uncertainties. Factors that may influence or contribute to the inaccuracy of the forward-looking statements or cause actual results to differ materially from expected or desired results may include, without limitation:

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 Quarterly Report. 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 Quarterly Report, or to reflect the occurrence of unanticipated events, except as required by law.

Overview

Image Chain Group Limited, Inc.

Image Chain Group Limited, Inc. (formerly Have Gun Will Travel Entertainment, Inc.) was incorporated under the laws of Nevada on December 18, 2013, and initially sought to create reality television programming. References in this Quarterly Report to “ICGL”, “Image Chain”, the “Company”, the “Registrant”, “we”, “our” or “us” are to Image Chain Group Limited, Inc.

On May 5, 2015, ICGL entered into a share exchange agreement (the “FDHG Exchange Agreement”) with Fortune Delight Holdings Group Ltd (“FDHG”) and Wu Jun Rui, on behalf of himself and certain other individuals who were to receive shares of ICGL pursuant to the FDHG Exchange Agreement (the “FDGH Shareholders”). On the terms and subject to the conditions set forth in the FDHG 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 stockholders of FDHG of 59,620,000 shares of the Company’s common stock, par value $.001 per share (“Common Stock”) and 5,000,000 shares of the Company’s preferred stock, par value $.001 per share (“Preferred Stock”).

As a result of the closing of the FDHG Exchange Agreement, FDHG became the Company’s wholly owned subsidiary. FDHG, through its subsidiaries, manufactured and sold “Image Tea”-branded tea products from its tea garden in Yunnan Province.

On June 11, 2015, the Company amended its Articles of Incorporation 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 name change was undertaken in order to more closely align with the operations of the Company’s wholly-owned subsidiary, The increase in authorized Common Stock was undertaken to allow the Company to utilize the newly available shares to raise capital.

On or about November 15, 2016, FDHG disposed of its ownership of all operating assets, and as a result ICGL became a shell company, as defined by Rule 12b-2 under the Exchange Act (the “Disposition Event”). The Disposition Event is evidenced by a bought and sold note stamped by the Inland Revenue Department of Hong Kong, which we believe is a legally binding document.

On February 13, 2017, the Company filed with the Secretary of State of the State of Nevada a Certificate of Correction (the “Certificate of Correction”) to correct a mistake made in the Company’s original Articles of Incorporation with regard to the Preferred Stock issued in connection with the FDHG Exchange Agreement. As a result, ICGL had 395,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock issued and outstanding. The Company subsequently entered into an agreement pursuant to which the holder of the Preferred Stock agreed to retire the Preferred Stock in exchange for receiving an equal number of shares of Common Stock of the Company. As of the date of this Quarterly Report, that exchange of Preferred Stock for Common Stock has not yet occurred.

On May 1, 2017, upon recommendation of the Board of Directors, a majority of Image Chain’s common stockholders consented in writing to amendment of Image Chain’s Articles of Incorporation to (i) effect a reverse stock split on a 1 for 100 stock split basis from 400,000,000 authorized shares with a par value of $0.001 per share to 4,000,000 authorized shares with a par value of $0.001, and (ii) after the reverse stock split, to increase the authorized shares of Common Stock from 3,950,000 to 2,000,000,000 shares with a par value of $0.001 per share, and to decrease the authorized shares of Preferred Stock from 50,000 to zero (0). As of the date of this Quarterly Report, the reverse stock split and increase in authorized shares have been completed, and the decrease in shares of Preferred Stock is still in process, as a result 50,000 shares of Preferred Stock are authorized and outstanding.

Image P2P Trading Group Limited

Image P2P Trading Group Limited (“Image P2P”), a company organized under the laws of the British Virgin Islands, was incorporated on April 21, 2015. Asia Grand Will (“AGW”) was incorporated on March 18, 2017 in the Hong Kong SAR. AGW wholly owns Fuzhi Yuan (Shenzhen) Holdings Limited (“FYSZ”) which was established on June 20, 2017 in the PRC. FYSZ is a wholly owned foreign entity under PRC law. FYSZ wholly owns Jiangxi Fuzhiyuan Biotechnology Limited (“Fuzhiyuan Biotechnology”), which was established on January 5, 2013 in the PRC. FYSZ acquired Fuzhiyuan Biotechnology on July 14, 2017. AGW and FYSZ are intermediary holding companies. Image P2P conducts its operations through Fuzhiyuan Biotechnology. Image P2P acquired AGW on Jul 28, 2017.

The reorganization of Image P2P and its subsidiaries via the acquisitions detailed above, by and amongst Image P2P and AGW, FYSZ, and Fuzhiyuan Biotechnology, have been accounted for under US GAAP as business combinations under common control.

The Share Exchange

On November 14, 2017, Image Chain entered into a share exchange agreement (the “Exchange Agreement”) with Image P2P and the shareholders of Image P2P (the “Sellers”). Pursuant to the Exchange Agreement, the Sellers transferred all 50,000 shares of Image P2P outstanding common stock to the Company in exchange for 500,000,000 shares of Common Stock (the “Share Exchange”). As a result of the Share Exchange, Image P2P became the Company’s wholly-owned subsidiary. Image P2P, through its subsidiaries, is engaged in producing, marketing and selling tea polyphenol products, and is developing for production tea polyphenol-based products. Image P2P is located in the PRC.

The Share Exchange has been accounted for as a reverse- merger and recapitalization of Image Chain where Image Chain (the legal acquirer) is considered the accounting acquiree and Image P2P (the acquiree) is considered the accounting acquirer. As a result of this transaction, the Company is deemed to be a continuation of the business of Image P2P.

Accordingly, the accompanying consolidated financial statements are those of the accounting acquirer, Image P2P. The historical stockholders’ equity of the accounting acquirer prior to the share exchange has been retroactively restated as if the Share Exchange occurred as of the beginning of the first period presented.

As used in this Quarterly Report, unless otherwise stated or the context clearly indicates otherwise, the terms “ICGL”, “Image Chain”, the “Company,” the “Registrant,” “we,” “us” and “our” refer to Image Chain after having given effect to the acquisition of Image P2P.

Our authorized capital stock currently consists of 2,000,000,000 shares of Common Stock and 50,000 shares of Preferred Stock. Our Common Stock is quoted on the OTC Markets under the symbol “ICGL”.

Our principal executive offices are located at Room 503, 5/F, New East Ocean Centre, 9 Science Museum Road, Kowloon, Hong Kong, S.A.R. Our telephone number is (852) 3188-2700. Our periodic and current reports with the SEC can be obtained from the SEC website, www.sec.gov.

Company Overview

We extract tea polyphenol from tea leaves for use in a wide variety of health and beauty products, beverages, filters and purifiers, and other products. We produce tea polyphenol to the specific requirements of end-users, utilizing different types of tea leaves harvested at different points in the growth cycle. We are also developing proprietary tea polyphenol-based products for sale. Our newly-installed tea polyphenol extraction assembly completed ramp up in 2017. Given sufficient access to raw materials and working capital, we expect the annual manufacturing capacity of our currently installed extraction assembly to reach 600 metric tons of tea polyphenol. We operate our business from our newly constructed facilities in Wan’An City, Jiangxi Province, PRC. Our facilities consist of our first extraction assembly, polyphenol drying and processing clean room, warehouse, showroom, research facility and offices.

Since its founding in 2013, Fuzhiyuan Biotechnology focused on acquiring the technical processes, land, equipment and capital for the construction of the largest tea polyphenol extraction and processing facility in the PRC. In 2013 and 2014 we developed working relationships with experts in the field of tea polyphenols and extraction processes, located a suitable site for our facility, negotiated with and applied to relevant government authorities for approval of our project, applied to lenders for financing the acquisition of our land use rights and equipment, applied for construction loans, and negotiated with equipment suppliers and construction firms. Construction of our facility began in 2015 and was substantially completed by the third quarter of 2016, with initial commercial production achieved in the fourth quarter of 2016. The ramp-up of our facility concluded in 2017.

Results of Operations

Three months ended March 31, 2018 compared to three months ended March 31, 2017.

Net Revenues

Net revenues decreased from $1,148,223 for the three months ended March 31, 2017 to $195,731 for the three months ended March 31, 2018 as our tea polyphenol extraction operations continued at a slow pace as demand from our distributors’ customers continued to be low, and our lack of capital meant we were unable to obtain sufficient supply of our primary production input, tea leaves.

Cost of Revenues

Cost of revenues decreased from $1,079,321 for the three months ended March 31, 2017 to $201,277 for the three months ended March 31, 2018, in line with our significant drop in revenue. Our cost of revenues was greater than our revenues for the three months ended March 31, 2018 due to our fixed personnel and depreciation costs remaining constant, while our variable input costs, primarily tea leaves, increased significantly in price due to seasonal fluctuations in price and our inability to buy in bulk.

Operating Expenses

Our selling and marketing expenses increased from $7,917 for the three months ended March 31, 2017 to $45,387 for the three months ended March 31, 2018, as we increased efforts to market the products from our new extraction assembly, as well as our planned tea polyphenol-based products. Our general and administrative expenses increased from $69,728 for the three months ended March 31, 2017 to $138,574 for the three months ended March 31, 2018. Efforts undertaken to secure government approvals, financing and equipment for our enterprise were completed in 2016, reducing general and administrative expenses. However, general and administrative expenses were significantly increased from the fourth quarter of 2017 by (i) research and development expenses for tea polyphenol-based products, (ii) construction expenses for a waste water treatment facility and (iii) legal and accounting professional service fees.

Other Income/Expense

Our interest expense increased from $37,072 for the three months ended March 31, 2017 to $56,561 for the three months ended March 31, 2018 as a result of our increased level of borrowings to finance the acquisition of our extraction assembly, purchase raw materials and otherwise fund our initial operations.

Other Comprehensive Income/Loss

For the three months ended March 31, 2017 we had a foreign currency gain of $30,526, compared to a foreign currency gain of $112,149 for the three months ended March 31, 2018. The variation in foreign currency gain or loss was tied directly to the fluctuation in value of the Renminbi and Hong Kong dollar, our functional currencies, to the US dollar, the currency used for reporting our US GAAP operating results.

Liquidity and Capital Resources

Since the inception of our operating subsidiary Fuzhiyuan Biotechnology in 2013, we have incurred significant net losses and negative cash flows from operations. During the three months ended March 31, 2017 and the three months ended March 31, 2018, we had net losses of $45,815 and $246,666, respectively. At March 31, 2018, we had an accumulated deficit of $4,892,699, short-term bank loans of $934,066 long-term bank loans of $3,424,117 and amounts due to related parties of $5,158,710. As discussed in our financial statements for the three months ended March 31, 2018, these factors raise substantial doubt about our ability to continue as a going concern.

As at March 31, 2018, we had cash and cash equivalents of $14,526. To date, we have financed our operations principally through borrowings from banks and from our related parties. Depending on our future operational results, we may need to conduct one or more equity or debt financings within the next 12 months.

We could potentially need our available financial resources sooner than we currently expect, and we may incur additional indebtedness to meet future financing needs. Adequate additional funding may not be available to us on acceptable terms or at all. In addition, although we anticipate being able to obtain additional financing through non-dilutive means, we may be unable to do so. Our failure to raise capital as and when needed could have significant negative consequences for our business, financial condition and results of operations. Our future capital requirements and the adequacy of available funds will depend on many factors, many of which are beyond our control.

Related Party Loans

See “Related Party Transactions” in Note 9 of Notes to the Financial Statements. for a discussion of our operating capital, equipment purchase and fixture purchase loans from our related parties. These unsecured loans do not bear interest or fixed dates for repayment.

Bank Loans

Short-term and long-term bank loans consisted of the following as of March 31, 2018 and December 31, 2017:

On March 30, 2017, Fuzhiyuan Biotechnology entered into a short-term loan agreement with Jiangxi Rural Credit Union & Rural Commercial Bank due on March 28, 2018 (the “short-term loan”). The short-term loan was for general working capital purposes in the amount of $1,536,148 (RMB10,000,000). The short-term loan carried an interest rate of 6.30% and was secured by the personal guarantee of Mr. QIU Peng, the authorized representative of Fuzhiyuan Biotechnology, Director of Image P2P and a shareholder of the Company, and Mr. LI Ming Guang, a shareholder of the Company. The Company is negotiating an extension of the short-term loan with Jiangxi Rural Credit Union & Rural Commercial Bank.

The above short-term loan may be accelerated, and penalty interest at the rate of 50% of the then-current interest rate imposed, upon standard events of default, including failure to pay principal or interest, fraud, loss of guarantee, cross-default, discontinuation of business, inability to perform under the loan, change in credit worthiness, undisclosed related party transactions, violation of law in connection with the loan, government investigation of Fuzhiyuan Biotechnology or its principals, or other material adverse development in the business of Fuzhiyuan Biotechnology.

On October 30, 2015, Fuzhiyuan Biotechnology entered into a loan agreement with Industrial and Commercial Bank of China – Wan An County Branch for an interest-only construction loan in the amount of approximately $2,403,808 (RMB15,000,000)(the “long-term loan”). The long-term loan bears an adjustable interest rate; at the time of origination the interest rate was 4.75%. The interest rate is adjustable every twelve months. The interest only construction loan was collateralized by the lands and buildings of Fuzhiyuan Biotechnology with variable maturity dates of up to five years.

On April 28, 2017, Fuzhiyuan Biotechnology entered into a bank loan agreement with Bank of Beijing due on April 25, 2021. The loan was for construction of a new polyphenols production line in the amount of $307,230 (RMB2,000,000). The loan carried an interest rate of 4.35% and was secured by the personal guarantee of Mr. QIU Peng, the authorized representative of Fuzhiyuan Biotechnology, Director of Image P2P and shareholder of the Company, and Ms. MIN Huang, the spouse of Mr. QIU Peng and a shareholder of the Company.

On April 28, 2017, Fuzhiyuan Biotechnology entered into a bank loan agreement with Jiangxi Rural Credit Union & Rural Commercial Bank due on April 25, 2020. The loan was for general working capital purposes in the amount of $768,074(RMB5,000,000). The loan carried an interest rate of 4.35% and was secured by the personal guarantee of Mr. QIU Peng, the authorized representative of Fuzhiyuan Biotechnology, Director of Image P2P and shareholder of the Company, and Mr. LI Ming Guang, a shareholder of the Company.

Loan maturity schedule as of December 31, 2017:

The long-term loans are subject to financial covenants and are collateralized by substantially all our assets (other than our intellectual property) and limits our ability with respect to additional indebtedness, investments or dividends, among other things, subject to customary exceptions. The long-term loans may be accelerated upon standard events of default, including failure to pay principal or interest, fraud, loss of collateral, cross-default, discontinuation of business, inability to perform under the loan, change in credit worthiness, undisclosed related party transactions, violation of law in connection with the loans, government investigation of Fuzhiyuan Biotechnology or its principals, failure to construct the Fuzhiyuan Biotechology manufacturing facility (or polyphenol production line, as applicable) or to commence operation of the manufacturing facility, significant violations of environmental or worker protection laws at the manufacturing facility, or other material adverse development in the business of Fuzhiyuan Biotechnology.

The foregoing description of the long-term loan agreements does not purport to be complete. The description of the October 30, 2015 loan agreement is qualified in its entirety by the terms and conditions of the long-term loan agreement, as amended, which is attached as Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed April 17, 2018, and incorporated herein by reference.

The following table summarizes our cash flows for the periods presented:

Operating Activities

Prior to 2017, we experienced negative cash outflows as our new business obtained approvals for, and negotiated, the acquisition of land, buildings, equipment and loan facilities to begin our tea polyphenol extraction operations, and we extended credit to our purchasers of our tea polyphenol products. Our net cash provided by operating activities primarily consists of our net loss from continuing operations and increase in accounts receivables, offset by depreciation of fixed assets and increase in accrued liabilities and other payables. Our operations to date have not generated significant cash receipts due to extension of credit to purchasers of our tea polyphenol products. Our primary use of cash from operating activities is for the inputs of our tea polyphenol extraction process. Cash from operating activities also goes to personnel costs, legal, audit and accounting services cost, travel, lodging and meal expenses for our executive staff when traveling on Company business, sales and marketing costs and research and development.

During the three months ended March 31, 2018, operating activities provided $425,661 in cash, a decrease from $783,373 cash provided by operating activities for the three months ended March 31, 2017. The decrease in cash provided was due primarily to a significant decrease in accounts receivable, offset in part by a decrease in cash provided by accrued liabilities and other payables.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2018 was $143,560, and consisted entirely of purchase of equipment. Net cash used in investing activities for the three months ended March 31, 2017 was $79,623 and consisted of purchase of plant and equipment and payments for building construction.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2018 of $334,109 consisted entirely of repayment of bank borrowings. Net cash used in financing activities for the three months ended March 31, 2017 was $704,220 and also consisted entirely of repayment of bank borrowings.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, and capital expenditures or capital resources that are material to stockholders.

GOING CONCERN

These financial statements have been prepared assuming that Company will continue as a going concern. As of March 31, 2018 and December 31, 2017, the Company had accumulated deficits of $4,892,699 and $4,646,033 due to substantial losses. There was substantial doubt regarding the Company’s ability to continue as going concern at March 31, 2018 and December 31, 2017. Refer to Note 3. GOING CONCERN UNCERTAINES of the accompanying notes to the consolidated condensed financial statements.

Recent Accounting Pronouncements

See “Recent Accounting Pronouncements” in Note 2 of Notes to the Financial Statements.

Critical Accounting Policies

We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared and actual results could differ from our estimates and such differences could be material. We have identified below the critical accounting policies which are assumptions made by management about matters that are highly uncertain and that are of critical importance in the presentation of our financial position, results of operations and cash flows. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation our financial statements.

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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2018. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2018, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were not effective.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

As of the date of this Quarterly Report on Form 10-Q, we are not a party to any legal proceedings that could have a material adverse effect on the Company’s business, financial condition or operating results. Further, to the Company’s knowledge no such proceedings have been threatened against the Company.

Item 1A. Risk Factors

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

* Filed herewith.

** In accordance with the SEC Release 33-8238, deemed being furnished and not filed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.