U. S. 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 the quarterly period ended March 31,June 30, 2019
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number: 000-54107
COLORSTARS GROUP
(Exact name of registrant as specified in its charter)
| Nevada | 06-1766282 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
10F, No. 566 Jung Jeng Rd. Sindian City, New Taipei City 231, Taiwan, R.O.C.
(Address of principal executive offices)
(+886) 2-8667-6600(949) 336-6161
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 [ ][X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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 [ ] No [X]
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 the definitions of “large accelerated filer”, “accelerated filer,” “non-accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | [ ] | Accelerated filer | [ ] |
| Non-accelerated filer | [X] | Smaller reporting company | [X] |
| Emerging growth | [ ] |
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. [ ]
Check whether the issuer is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of MayAugust 10, 2019, there were 102,274,515 shares of common stock, par value $0.001, issued and outstanding.
COLORSTARS GROUP
FORM 10-Q
INDEX
COLORSTARS GROUP
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
TABLE OF CONTENTS
CONSOLIDATED BALANCE SHEETS
March 31,June 30, 2019(Unaudited) and December 31, 2018(Audited)
(in USD)
| March 31, 2019 | December 31, 2018 | June 30, 2019 | December 31, 2018 | |||||||||||||
| Assets | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash and equivalents | $ | 17,305 | $ | 18,054 | $ | 14,893 | $ | 18,054 | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $146,970 at March 31, 2019 and $148,336 at December 31, 2018 | - | - | ||||||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $146,325 at June 30, 2019 and $148,336 at December 31, 2018 | - | - | ||||||||||||||
| Prepaid expenses and other current assets | 2,933 | 3,025 | 2,779 | 3,025 | ||||||||||||
| Total current assets | 20,238 | 21,079 | 17,672 | 21,079 | ||||||||||||
| Equipment, net of accumulated depreciation | 40,780 | 41,554 | 40,211 | 41,554 | ||||||||||||
| Right-of-use lease asset | 71,061 | 61,965 | ||||||||||||||
| Other assets | 973 | 982 | - | 982 | ||||||||||||
| Total assets | $ | 133,052 | $ | 63,615 | $ | 119,848 | $ | 63,615 | ||||||||
| Liabilities and stockholders’ equity | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable | 508 | 20,537 | 88 | 20,537 | ||||||||||||
| Advance from shareholder | 294,921 | 269,198 | 358,174 | 269,198 | ||||||||||||
| Accrued expenses- related party | 6,375 | 5,614 | 5,571 | 5,614 | ||||||||||||
| Lease liabilities, current | 46,474 | 0 | ||||||||||||||
| Other current liabilities | 154 | 159 | 149 | 159 | ||||||||||||
| Total current liabilities | 301,958 | 295,508 | 410,456 | 295,508 | ||||||||||||
| Lease liability | 71,061 | - | 15,491 | - | ||||||||||||
| Total liabilities | $ | 373,019 | $ | 295,508 | $ | 425,947 | $ | 295,508 | ||||||||
Commitments & Contingencies | - | - | - | - | ||||||||||||
| Stockholders equity | ||||||||||||||||
| Common Stock –Par Value $0.001 102,274,515 shares issued and outstanding, 450,000,000 shares are authorized at March 31, 2019 and December 31, 2018 | 102,275 | 102,275 | ||||||||||||||
| Common Stock –Par Value $0.001 102,274,515 shares issued and outstanding, 450,000,000 shares are authorized at June 30, 2019 and December 31, 2018 | 102,275 | 102,275 | ||||||||||||||
| Additional paid in capital | 4,157,518 | 4,157,518 | 4,157,518 | 4,157,518 | ||||||||||||
| Accumulated other comprehensive income | 149,471 | 147,185 | 150,480 | 147,185 | ||||||||||||
| Accumulated deficit | (4,649,231 | ) | (4,638,871 | ) | (4,716,372 | ) | (4,638,871 | ) | ||||||||
| Total stockholders’ equity | (239,967 | ) | (231,893 | ) | (306,099 | ) | (231,893 | ) | ||||||||
| Total liabilities and stockholders’ equity | $ | 133,052 | $ | 63,615 | $ | 119,848 | $ | 63,615 | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 4 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(in USD)
| Three months ended June 30, | ||||||||
| 2019 | 2018 | |||||||
| Net sales | $ | - | $ | - | ||||
| Cost of goods sold | - | - | ||||||
| Gross profit | - | - | ||||||
| Operating expenses | ||||||||
| Selling, general and administrative | 16,799 | 41,097 | ||||||
| Professional fees | 37,439 | 36,620 | ||||||
| Rent | 11,572 | 1,548 | ||||||
| Depreciation & Amortization | 388 | 448 | ||||||
| Total operating expenses | 66,198 | 79,713 | ||||||
| Loss from operations | (66,198 | ) | (79,713 | ) | ||||
| Other expenses | ||||||||
| Interest expense (net) | 4 | 25 | ||||||
| Loss on foreign exchange, net | (147 | ) | (5 | ) | ||||
| Loss before income tax | (66,341 | ) | (79,693 | ) | ||||
| Income tax provision | (800 | ) | (800 | ) | ||||
| Net loss | (67,141 | ) | (80,493 | ) | ||||
| Other comprehensive gain/(loss): | ||||||||
| Foreign currency translation gain/(loss) | 1,009 | 9,519 | ||||||
| Comprehensive loss | $ | (66,132 | ) | $ | (70,974 | ) | ||
| Earnings per share attributable to common stockholders: | ||||||||
| Basic and diluted per share | $ | 0.00 | $ | 0.00 | ||||
| Weighted average shares outstanding: | ||||||||
| Basic and diluted | 102,274,515 | 102,274,515 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 5 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(in USD)
| Three months ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Net sales | $ | 6,768 | $ | 1,185 | ||||
| Cost of goods sold | - | 597 | ||||||
| Gross profit | 6,768 | 588 | ||||||
| Operating expenses | ||||||||
| Selling, general and administrative | 17,389 | 21,053 | ||||||
| Professional fees | 2,600 | 15,555 | ||||||
| Rent | 11,731 | 15,566 | ||||||
| Depreciation & Amortization | 394 | 470 | ||||||
| Total operating expenses | 32,114 | 52,644 | ||||||
| Loss from operations | (25,346 | ) | (52,056 | ) | ||||
| Other expenses | ||||||||
| Interest expense (net) | - | (11,364 | ) | |||||
| Loss on foreign exchange, net | (1 | ) | (3,991 | ) | ||||
| Gain on forgiveness of debt | 14,987 | - | ||||||
| Loss before income tax | (10,360 | ) | (67,411 | ) | ||||
| Income tax provision | - | - | ||||||
| Net loss | (10,360 | ) | (67,411 | ) | ||||
| Other comprehensive gain/(loss): | ||||||||
| Foreign currency translation gain/(loss) | 2,286 | (2,144 | ) | |||||
| Comprehensive loss | $ | (8,074 | ) | $ | (69,555 | ) | ||
| Earnings per share attributable to common stockholders: | ||||||||
| Basic and diluted per share | $ | 0.00 | $ | 0.00 | ||||
| Weighted average shares outstanding: | ||||||||
| Basic and diluted | 102,274,515 | 98,274,515 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
in USD
| For three months ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities | ||||||||
| Net (loss) | $ | (10,360 | ) | $ | (67,411 | ) | ||
| Depreciation | 394 | 470 | ||||||
| Gain on forgiveness of debt | (14,987 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 102 | 14,951 | ||||||
| Accounts payable | (5,044 | ) | 1,028 | |||||
| Accrued expenses | 761 | 1,264 | ||||||
| Receipts in advance and other current liabilities | (5 | ) | (199,909 | ) | ||||
| Cash flows provided by (used for) operating activities | (29,139 | ) | (249,607 | ) | ||||
| Cash flows from financing activities | ||||||||
| Advance from shareholder | 28,202 | 96,475 | ||||||
| Repay advance from shareholder | (157,963 | ) | ||||||
| Increase (decrease) in long-term loans | - | (87,538 | ) | |||||
| Increase (decrease) in capital | - | 410,258 | ||||||
| Cash flows provided by financing activities | 28,202 | 261,232 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 188 | (2,924 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | (749 | ) | 8,701 | |||||
| Beginning cash and cash equivalents | 18,054 | 359,403 | ||||||
| Ending cash and cash equivalents | $ | 17,305 | $ | 368,104 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Tax paid | $ | - | $ | - | ||||
| Six months ended June 30, | ||||||||
| 2019 | 2018 | |||||||
| Net sales | $ | 6,723 | $ | 1,182 | ||||
| Cost of goods sold | - | 595 | ||||||
| Gross profit | 6,723 | 587 | ||||||
| Operating expenses | ||||||||
| Selling, general and administrative | 34,188 | 62,190 | ||||||
| Professional fees | 40,039 | 52,175 | ||||||
| Rent | 23,303 | 17,077 | ||||||
| Depreciation & Amortization | 782 | 918 | ||||||
| Total operating expenses | 98,312 | 132,360 | ||||||
| Loss from operations | (91,589 | ) | (131,773 | ) | ||||
| Other expenses | ||||||||
| Interest expense (net) | 4 | (11,308 | ) | |||||
| Loss on foreign exchange, net | (1 | ) | (3,986 | ) | ||||
| Gain on forgiveness of debt | 14,885 | - | ||||||
| Loss before income tax | (76,701 | ) | (147,067 | ) | ||||
| Income tax provision | (800 | ) | (800 | ) | ||||
| Net loss | (77,501 | ) | (147,867 | ) | ||||
| Other comprehensive gain/(loss): | ||||||||
| Foreign currency translation gain/(loss) | 3,295 | 7,375 | ||||||
| Comprehensive loss | $ | (74,206 | ) | $ | (140,492 | ) | ||
| Earnings per share attributable to common stockholders: | ||||||||
| Basic and diluted per share | $ | 0.00 | $ | 0.00 | ||||
| Weighted average shares outstanding: | ||||||||
| Basic and diluted | 102,274,515 | 100,274,515 | ||||||
The accompanying notes are an integral part of the consolidated financial statements.
| 6 |
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
in USD
| For six months ended June 30, | ||||||||
| 2019 | 2018 | |||||||
| Cash flows from operating activities | ||||||||
| Net (loss) | $ | (77,501 | ) | $ | (147,867 | ) | ||
| Depreciation | 782 | 918 | ||||||
| Gain on forgiveness of debt | (14,885 | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 1,229 | 26,149 | ||||||
| Accounts payable | (5,566 | ) | 608 | |||||
| Accrued expenses | (42 | ) | 1,248 | |||||
| Receipts in advance and other current liabilities | (10 | ) | (199,799 | ) | ||||
| Cash flows provided by (used for) operating activities | (95,993 | ) | (318,743 | ) | ||||
| Cash flows from financing activities | ||||||||
| Advance from shareholder | 92,625 | 91,919 | ||||||
| Repay advance from shareholder | - | (267,678 | ) | |||||
| Increase (decrease) in long-term loans | - | (87,538 | ) | |||||
| Increase (decrease) in capital | - | 410,258 | ||||||
| Cash flows provided by financing activities | 92,625 | 146,961 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 207 | 8,297 | ||||||
| Net increase (decrease) in cash and cash equivalents | (3,161 | ) | (163,485 | ) | ||||
| Beginning cash and cash equivalents | 18,054 | 359,403 | ||||||
| Ending cash and cash equivalents | $ | 14,893 | $ | 195,918 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Tax paid | $ | 800 | $ | 800 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(IN US$)
| Shares | Value | Additional Paid in capital | Accumulated deficit | Accumulated other comprehensive income | Total Stockholder’s equity | Shares | Value | Additional Paid in capital | Accumulated deficit | Accumulated other comprehensive income | Total Stockholder’s equity | |||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2018 | 102,274,515 | $ | 102,275 | $ | 4,157,518 | $ | (4,371,259 | ) | $ | 137,681 | $ | 26,215 | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | 9,519 | 9,519 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | (80,493 | ) | - | (80,493 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2018 | 102,274,515 | $ | 102,275 | $ | 4,157,518 | $ | (4,451,752 | ) | $ | 147,200 | $ | (44,759 | ) | |||||||||||||||||||||||||||||||||||
| Balance, December 31, 2017 | 90,274,515 | $ | 90,275 | $ | 3,759,260 | $ | (4,303,885 | ) | $ | 139,825 | $ | (314,525 | ) | 90,274,515 | $ | 90,275 | $ | 3,759,260 | $ | (4,303,885 | ) | $ | 139,825 | $ | (314,525 | ) | ||||||||||||||||||||||
| Capital increase | 12,000,000 | 12,000 | 398,258 | - | - | 410,258 | 12,000,000 | 12,000 | 398,258 | - | - | 410,258 | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | (2,144 | ) | (2,144 | ) | - | - | - | - | 7,375 | 7,375 | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | (67,411 | ) | - | (67,411 | ) | - | - | - | (147,867 | ) | - | (147,867 | ) | ||||||||||||||||||||||||||||||||
| Balance, March 31, 2018 | 102,274,515 | $ | 102,275 | $ | 4,157,518 | $ | (4,371,296 | ) | $ | 137,681 | $ | 26,178 | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2018 | 102,274,515 | $ | 102,275 | $ | 4,157,518 | $ | (4,638,871 | ) | $ | 147,185 | $ | (231,893 | ) | |||||||||||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | 2,286 | 2,286 | ||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | (10,360 | ) | - | (10,360 | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2019 | 102,274,515 | $ | 102,275 | $ | 4,157,518 | $ | (4,649,231 | ) | $ | 149,471 | $ | (239,967 | ) | |||||||||||||||||||||||||||||||||||
| Balance, June 30, 2018 | 102,274,515 | $ | 102,275 | $ | 4,157,518 | $ | (4,451,752 | ) | $ | 147,200 | $ | (44,759 | ) | |||||||||||||||||||||||||||||||||||
| Shares | Value | Additional Paid in capital | Accumulated deficit | Accumulated other comprehensive income | Total Stockholder’s equity | |||||||||||||||||||
| Balance, March 31, 2019 | 102,274,515 | $ | 102,275 | $ | 4,157,518 | $ | (4,649,231 | ) | $ | 149,471 | $ | (239,967 | ) | |||||||||||
| Foreign currency translation | - | - | - | - | 1,009 | 1,009 | ||||||||||||||||||
| Net loss | - | - | - | (67,141 | ) | - | (67,141 | ) | ||||||||||||||||
| Balance, June 30, 2019 | 102,274,515 | $ | 102,275 | $ | 4,157,518 | $ | (4,716,372 | ) | $ | 150,480 | $ | (306,099 | ) | |||||||||||
| Balance, December 31, 2018 | 102,274,515 | $ | 102,275 | $ | 4,157,518 | $ | (4,638,871 | ) | $ | 147,185 | $ | (231,893 | ) | |||||||||||
| Foreign currency translation | - | - | - | - | 3,295 | 3,295 | ||||||||||||||||||
| Net loss | - | - | - | (77,501 | ) | - | (77,501 | ) | ||||||||||||||||
| Balance, June 30, 2019 | 102,274,515 | $ | 102,275 | $ | 4,157,518 | $ | (4,716,372 | ) | $ | 150,480 | $ | (306,099 | ) | |||||||||||
The accompanying notes are an integral part of the financial statements
COLORSTARS GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Nature of Business and Basis of Presentation
Nature of Business –Circletronics Inc., now ColorStars Group (“the Company”), was incorporated in Canada on January 21, 2005. Circletronics Inc.- was redomiciled to Nevada and its name changed to ColorStars Group on November 3, 2005. ColorStars Group owns 100% of the shares of ColorStars Inc.
Color Stars Inc. (“Color Stars TW”, “the Subsidiary”) was incorporated as a limited liability company in Taiwan, Republic of China in April 2003 and commenced its operations in May 2003. The Company through its wholly owned Subsidiary is mainly engaged in manufacturing, designing and selling light-emitting diode and lighting equipment.
The company signed a joint venture agreement with an entity in the Kingdom of Saudi Arabia in February of 2019. According to this joint venture agreeemntagreement the company will transfer its IPs, trade marks,trademarks, and technologies in LED lighting to this new joint venture company. The company will stop the LED lighting business line and pursue other business opportunities, including solar power projects, waste-tire-to-oil systems, and LNG trading projects. There are certain conditions to be met before the company can start the execution of this joint venture agreement. As of to date, the parties have not closed the agreement and it is expected that the company shall break the ground of this joint venture project in the next reporting period.
Basis of Presentation -The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for a complete presentation of the financial statements.
In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair statement of the financial position, results of operations and cash flows for the threesix months ended March 31,June 30, 2019 and 2018 have been included. Operating results for the three and six months ended March 31,June 30, 2019 are not necessarily indicative of the results to be expected for any subsequent interim period or for the year ending December 31, 2019.
The balance sheet at December 31, 2018 included herein was derived from the consolidated financial statements included in the Company’s Annual Report on Form 10-K as of that date. Accordingly, the consolidated financial statements included herein should be reviewed in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as filed with the Securities and Exchange Commission (“SEC”) on April 12, 2019.
Certain previsoulypreviously reported amounts have been adjusted to conform to current-period presentation, however there is no net effect to the previously-reported financial information.
Basis of Consolidation- The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated.
COLORSTARS GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has negative working capital of $281,720$392,784 and an accumulated deficit of $4,649,231$4,716,372 as of March 31,June 30, 2019, and it reported net losses for past two years. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company needs to raise additional capital from external sources or from shareholder loans to support its operation. There is no assurance that the Company will be able to obtain funding with acceptable terms.
Note 3 - Concentration of Risk
For the threesix months ended March 31,June 30, 2019, products sold to largest customers accounted for approximately 54% of total revenue. No purchases occurred in this period
For the threesix months ended March 31,June 30, 2018, products sold to largest customers accounted for approximately 100% of total revenue. Products purchased from largest suppliers accounted for approximately 100% of the total purchases during the threesix months ended March 31,June 30, 2018.
On Feb. 26, 2019, the company signed a joint venture agreement (JVA) with an entity in the Kingdom of Saudi Arabia (KSA). According to this JVA, the company shall make transfer of its patents, trademarks, and customer list to the new joint company to be formed. The company will also help to build an electronic manufacturing plant in the KSA, and to provide training of its staff and operators for the engineering, manufacturing, and selling of LED lighting products. For the patents and trademarks granted in the JVA, the company shall be compensated with US$1.5 million dollars in cash payment. In addition, for the technology and training support, the company shall be awarded with US$2.65 million dollars in the form of shares in the new joint venture company, calculated based on fair price. The closing conditions for the cash payment and the shares granted for the joint venture company are mainly (1) government approvals for the investment in the joint venture company for both parties, (2) formation of the joint company, and (3) board approval of the joint venture company to undertake activities in the JVA. We are not sure when the Company will start the execution of the JVA and will receive the cash payment and share grants of the joint venture company. There is no consideration exchanged between the parties as of to date.
Note 4 - Long Term Investments
The Company adopted the provisions of ASC 820, which require us to determine the fair value of financial assets and liabilities using a specified fair-value hierarchy. The objective of the fair-value measurement of our financial instruments is to reflect the hypothetical amounts at which we could sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date (exit price). ASC 820 describes three levels of inputs that may be used to measure fair value, as follows:
Level 1 value is based on observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
COLORSTARS GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Level 2 value is based on inputs other than quoted market prices included in Level 1 that are observable for the asset or liability either directly or indirectly.
Level 3 values are driven by models with one or more significant inputs or significant value drivers that are unobservable.
Anteya Technology Corp (Anteya) is a private company incorporated in Taiwan. The equity interest held by the Company is 13.68% on March 31,June 30, 2019.
Anteya Technology ceased operations in April 2017 and, as a result, no future economic benefit was considered realizable by the Company and, as a result, the investment was fully impaired in the year ended December 31, 2015 resulting in a loss of $113,177.
Note 5- Inventory
Inventories stated at the lower of cost or market value are as follows:
| March 31, 2019 | December 31, 2018 | June 30, 2019 | December 31, 2018 | |||||||||||||
| Finished goods | $ | 769,293 | $ | 776,441 | $ | 765,916 | $ | 776,441 | ||||||||
| Allowance for Inventory Valuation and Obsolescence Losses | (769,293 | ) | (776,441 | ) | (765,916 | ) | (776,441 | ) | ||||||||
| Total | $ | - | $ | - | $ | - | $ | - | ||||||||
The Company decided to shift in operational focus and that it was determined that the remaining inventory had little-to-no value, thus was fully impaired at December 31, 2015.
Note 6 - Income Taxes
The Company is subject to U.S. federal income tax as well as income tax in states and foreign jurisdictions(Taiwan). For the major taxing jurisdictions, the tax years 2017 through 2019 remain open for state and federal examination. The Company believes assessments, if any, would be immaterial to its consolidated financial statements. With respect to the foreign jurisdiction, the Company is no longer subject to income tax audits for the years prior to 2018 (inclusive).
COLORSTARS GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The income tax provision information is provided as follows:
| Three months ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Component of income (loss) before income taxes: | ||||||||
| United States | $ | (2,633 | ) | $ | (15,645 | ) | ||
| Foreign | (7,727 | ) | (51,766 | ) | ||||
| Net loss | $ | (10,360 | ) | $ | (67,411 | ) | ||
| Provision for income taxes | ||||||||
| Current | ||||||||
| U.S. federal | - | - | ||||||
| State and local | - | - | ||||||
| Foreign | - | - | ||||||
| Income tax benefit(loss) | - | - | ||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||
| Component of income (loss) before income taxes: | ||||||||||||||||
| United States | $ | (28,710 | ) | $ | (41,956 | ) | $ | (31,343 | ) | $ | (57,601 | ) | ||||
| Foreign | (37,631 | ) | (37,737 | ) | (45,358 | ) | (89,466 | ) | ||||||||
| Net loss before taxes | $ | (66,341 | ) | $ | (79,693 | ) | $ | (76,701 | ) | $ | (147,067 | ) | ||||
| Provision for income taxes | ||||||||||||||||
| Current | ||||||||||||||||
| U.S. federal | - | - | - | - | ||||||||||||
| State and local | (800 | ) | (800 | ) | (800 | ) | (800 | ) | ||||||||
| Foreign | - | - | - | - | ||||||||||||
| Income tax benefit(loss) | $ | (800 | ) | $ | (800 | ) | $ | (800 | ) | $ | (800 | ) | ||||
Given the Company’s history of operating losses, a full valuation of the deferred tax assets related to the Company’s net operating losses has been recorded, resulting in no material impact on the financial statements.
Note 7 - Geographic Information
Product revenues for the threesix months ended March 31,June 30, 2019 and 2018 are as follows:
| Three months ended March 31, | Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||
| Customers based in: | ||||||||||||||||||||||||
| Europe | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
| Asia | 2,206 | - | - | - | - | - | ||||||||||||||||||
| United States | 4,562 | 1,185 | - | - | 2,192 | 1,182 | ||||||||||||||||||
| Others | - | - | - | - | 4,531 | - | ||||||||||||||||||
| $ | 6,768 | $ | 1,185 | $ | - | $ | - | $ | 6,723 | $ | 1,182 | |||||||||||||
Note 8 - Related Party Transactions
The Company has recorded expenses for the following related party transactions for threesix months ended March 31,June 30, 2019 and 2018:
| Three months ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Purchase from Anteya Technology Corp | $ | - | $ | - | ||||
| Rent paid to Mr. Wei-Rur Chen | 11,731 | - | ||||||
| Six months ended June 30, | ||||||||
| 2019 | 2018 | |||||||
| Purchase from Anteya Technology Corp | $ | - | $ | - | ||||
| Rent paid to Mr. Wei-Rur Chen | 23,303 | - | ||||||
COLORSTARS GROUP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of the balance sheet date indicated, the Company had the following receivable and liabilities recorded with respect to related party transactions:
| March 31, 2019 | March 31, 2018 | June 30, 2019 | June 30, 2018 | |||||||||||||
| Anteya Technology Corp | ||||||||||||||||
| Due to affiliate (liabilities) | $ | - | $ | 14,075 | $ | - | $ | 13,410 | ||||||||
| Mr. Wei-Rur Chen | ||||||||||||||||
| Payable to Shareholder | $ | (294,921 | ) | $ | (380,115 | ) | $ | (358,174 | ) | $ | (265,844 | ) | ||||
| Accrued expenses (wages paid to Mr. Chen) | $ | 4,662 | $ | 3,754 | $ | 4,642 | $ | 3,754 | ||||||||
The Company conducted business with a related party company Anteya Technology Corp. The Company owns 13.68% of the outstanding common stock of Anteya Technology Corp as of December 31, 2018. All transactions were at market-based prices. No (or very little) business activity took place between the Company and Anteya in the 2 years presented
Mr. Wei-Rur Chen made various advances to the Company as personal loan. This personal loan carried no interest and was payable upon request. For the year ended March 31,June 30, 2019, advances from Mr. Chen was $28,202.$92,626. The balance of advance from Mr. Chen was $294,921$358,174 as of March 31,June 30, 2019.
Note 9 - Commitments
The Company has adopted ASC 842 during the current period, as required by GAAP, utilizing the practical expedients package resulting in a “run off” of its accounting for leases that existed prior to the effective date, given no change in lease classification.
The company leases offices in Taiwan. The main office is relocated in New Taipei City with monthly rent of NTD$120,000, and the term is from 11-7-2015 to 10-6-2020. The company rented a branch office located in Taipei City with a monthly rental of NTD$160,000 on 11-11-2017, and the term is from 12-1-2017 to 11-30-2019. However, this branch office is closed on April 10, 2018 and the lease is cancelled. The lease of the main office remains in effect. Total rent paid for 36 months ended March 31,June 30, 2019 and 2018 are as listed below:
| Three months ended March 31, | ||||||||
| 2019 | 2018 | |||||||
| Rent expenses | $ | 11,731 | $ | 15,566 | ||||
| Six months ended June 30, | ||||||||
| 2019 | 2018 | |||||||
| Rent expenses | $ | 23,303 | $ | 17,077 | ||||
The following table presents our contractual obligations and commitments as of March 31,June 30, 2019:
| Contractual Obligation | Less than 1 Year (US$) | 1-3 years (US$) | 3-5 years (US$) | After 5 years (US$) | Less than 1 Year (US$) | 1-3 years (US$) | 3-5 years (US$) | After 5 years | ||||||||||||||||||||||||
| Operating Leases | 35,193 | 35,868 | 0 | 0 | 46,474 | 15,491 | 0 | 0 | ||||||||||||||||||||||||
| Total contractual cash obligations | 35,193 | 35,868 | 0 | 0 | 46,474 | 15,491 | 0 | 0 | ||||||||||||||||||||||||
Note 10 - Subsequent Events
The Company evaluated all events subsequent to Mar 31,June 30, 2019 through the date of the issuance of the financial statements, there are no other significant or material transactions to be reported.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation.
Forward Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes”, “project”, “expects”, “anticipates”, “estimates”, “intends”, “strategy”, “plan”, “may”, “will”, “would”, “will be”, “will continue”, “will likely result”, and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
(a)Business Overview.
ColorStars Group (“we”, “us”, “our”, the “Company”) was initially incorporated in the Province of Ontario, Canada on January 21, 2005. On November 3, 2005, we converted to a Nevada corporation. We have historically operated as a vertically integrated lighting company that develops light emitting diodes (“LED”) based lighting products for general consumer applications as well as LED lighting products for professional lighting installations. Our LED lighting application development activity has historically ranged from LED packaging to optical lens and heat management, from retrofit LED lamps and bulbs to lighting fixtures designed for general and special lighting applications. Due to environmental changes in 2018 adversely affecting the LED lighting market, in 2018 the Company began to phase out of the LED lighting market and change its business model into a holding company to acquire and operate other companies. There is no assurance that the Company will be able to acquire any operating companies.
(b)Material Transactions During the Reporting Period.
None.
Results of Operations
Comparison of Three Months Ended March 31,June 30, 2019 to Three Months Ended March 31,June 30, 2018
Net Sales.Net sales increased to $6,768were $0 for the three months ended March 31,June 30, 2019 from $1,185and $0 for the three months ended March 31,June 30, 2018. The increase in sales was due to sales of inventory items to existing customers.
Cost of Goods Sold.Cost of goods sold decreased towas $0 for the three months ended March 31,June 30, 2019 from $597and $0 for the three months ended March 31,June 30, 2018. The decrease inlack of cost of goods sold was due to goods are from existing inventory itesm.the lack of net sales during such period.
Gross Profit.Gross profit increased to $6,768was for the three months ended March 31,June 30, 2019 from $588and $0 for the three months ended March 31,June 30, 2018. The increase inlack of gross profit was due to the increase in sales.lack of net sales during such period.
Gross Profit Percentage.Gross profit percentage increased to 100%was 0% for the three months ended March 31,June 30, 2019 from 49.6%and 0% for or the three months ended March 31,June 30, 2018. The increase inThis was due to the lack of net sales or gross profit percentage was due high margin items sold for smaller quantities from the existing inventory.during such period.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $17,389$16,799 for the three months ended March 31,June 30, 2019 from $21,053$41,097 for the three months ended March 31,June 30, 2018. The decrease in selling, general and administrative expenses was due to decrease in maintenancethe lack of sales and repair costreduced sales and business meeting expenses.marketing activities.
Research and Development Expenses. Research and development (R&D) expenses were $0 for the three months ended March 31,June 30, 2019 fromand $0 for the three months ended March 31,June 30, 2018. The lack of research and development expenditure was due to overall lack of profitability.sales and lack of development of any new products.
Depreciation and Amortization.Depreciation and amortization decreased to $394$389 for the three months ended March 31,June 30, 2019 from $470$448 for the three months ended March 31,June 30, 2018. The decrease in depreciation and amortization was mainly due to the decrease of asset value over time.
Interest Expense. Interest expense decreased to $4 for the three months ended June 30, 2019 from $25 for the three months ended June 30, 2018. The decrease in interest expense was due to overall repayment of long term loan.
Net Income (loss). For the three months ended June 30, 2019, we incurred a net loss of $(67,141) as compared to a net loss of $(80,493) for the three months ended June 30, 2018. The decrease in net loss was primarily a result of decrease in selling, general and administrative and rent expenses.
Comparison of Six Months Ended June 30, 2019 to Six Months Ended June 30, 2018
Net Sales.Net sales increased to $6,723 for the six months ended June 30, 2019 from $1,182 for the six months ended June 30, 2018. The increase in sales was due to in increase in sale during the first quarter of 2019 over the first quarter of 2018.
Cost of Goods Sold.Cost of goods sold decreased to $0 for the six months ended June 30, 2019 from $595 for the six months ended June 30, 2018. The decrease in cost of goods sold was primarily due to items sold were from the kept inventory that has been written-off in prior financial period which does not have any value on the books.
Gross Profit.Gross profit increased to $6,723 for the six months ended June 30, 2019 from $587 for the six months ended June 30, 2018. The increase in gross profit was primarily due to the increase in overall sales for the six month period of 2019 over 2018.
Gross Profit Percentage.Gross profit percentage increased to 100% for the six months ended June 30, 2019 from 49.66% for the six months ended June 30, 2018. The increase in gross profit percentage was primarily due to higher margin products were sold for the period in 2019.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to 34,188 or the six months ended June 30, 2019 from $62,190 for the six months ended June 30, 2018. The decrease in selling, general and administrative expenses is primarily due to decrease in sales and marketing activities expenses.
Research and Development Expenses. Research and development (R&D) expenses were $0 for the six months ended June 30, 2019 and $0 for the six months ended June 30, 2018. The lack of research and development expenditure was due to overall lack of profitability and lack of development of any new products.
Depreciation and Amortization.Depreciation and amortization decreased to $782 for the six months ended June 30, 2019 from $918 for the six months ended June 30, 2018. The decrease in depreciation and amortization was mainly due to some assets were of end of life value for the period.
Interest Expense. Interest expense decreasedincreased to $0$4 for the threesix months ended March 31,June 30, 2019 from $(1,364)($11,308) for the threesix months ended March 31,June 30, 2018. The decreaseincrease in interest expense was due to fullaccelerated repayment of the long-term loan.
Net Income (loss). For the threesix months ended March 31,June 30, 2019, we incurred a net loss of $(10,360)$(77,501) as compared to a net loss of $(67,411)$(147,867) for the threesix months ended March 31,June 30, 2018. The decrease in net loss was primarily a result of theis mainly due to an increase in net sales and decrease in operating expensessales and interest payout.marketing expenses.
Financial Condition, Liquidity and Capital Resources
Our historical revenues are primarily derived from the sale of LED devices and systems. Although our historical financial results are mainly dependent on sales, general and administrative, compensation and other operating expenses, our financial results have also been dependent on the level of market adoption of LED technology as well as general economic conditions. As the LED lighting business has become very competitive, the Company has been seeking for other business lines or investment opportunities.
Net cash provided by (used in) operating activities.During the threesix months ended March 31,June 30, 2019, net cash used byin operating activities was $(29,139)($95,993) compared with $(249,607)$(318,743) used in operating activities for the threesix months ended March 31,June 30, 2018. The cash flow used by operating activities in the three months ended March 31, 2019 was primarily the operational loss and account payable for Mr. Chen’s wages. The cash flow used in operating activities in the threesix months ended March 31,June 30, 2019 was primarily the result of net loss in operations and a gain on the forgiveness of debt. The cash flow used in operating activities in the six months ended June 30, 2018 was primarily the result of operational loss and transfer of proceeds paid in by shareholders.the Company’s operating net loss.
Net cash provided by (used in) financing activities. During the threesix months ended March 31,June 30, 2019, net cash provided by financing activities was $28,202$92,625 which was mainly provided by advance from shareholders, compared with $261,232$146,961 provided by the net of increase in capital and repaymnet of long-term loans and advance from shareholders for the threesix months ended March 31,June 30, 2018. The cash flow provided by financing activities in the three months ended March 31, 2019 was primarily from the advance of shareholders. The cash flow provided by financing activities in the three months ended March 31, 2018 was primarily the proceeds from issuance of new shares.
The Company needs to raise additional capital from external sources or from shareholder loans to support its operation. There is no assurance that the Company will be able to obtain funding with acceptable terms.
Recent Developments
There are no recent developments to report.
Inflation
At this time, we do not believe that inflation and changes in price will have a material effect on operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Related Party Transactions
The Company leases office space from Mr. Wei-Rur Chen. The Company leases office space from Mr. Wei-Rur Chen which the term for the monthlyagreement is from November 2015 to November 2020 with amount rent of NTD$120,000, and the term is from 11-7-2015 to 10-6-2020. The rent$46,606. Rent payments were $11,731$23,303 and $0 for the threesix months ended March 31,June 30, 2019 and 2018, respectively. Mr. Wei-Rur Chen owns one hundred percent (100%) interest in the lease agreement. Mr. Wei-Rur Chen is the President, Chief Executive Officer, Chief Financial Officer, and Chairman of the Board of the Company, as well as beneficial owner of more than five percent (5%) of the Company’s common stock.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As we are 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.
We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. As required by exchange Act Rule 13a-15(b), as of the end of the period covered by this report, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of that date.
Changes in internal control over financial reporting.
There were no changes in our internal controls over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
There are no legal proceedings that have occurred within the past five years concerning our directors or control persons which involved a criminal conviction, a criminal proceeding, an administrative or civil proceeding limiting one’s participation in the securities or banking industries, or finding of securities or commodities law violations.
On September 17, 2018, the U.S. Securities and Exchange Commission (“Commission”) announced the temporary suspension of trading in the securities of the Company, commencing at 9:30 a.m. EDT on September 18, 2018 and terminating at 11:59 p.m. EDT on October 1, 2018. The Commission temporarily suspended trading in the securities of the Company due to a lack of current and accurate information about the Company because it has not filed certain periodic reports with the Commission. This order was entered pursuant to Section 12(k) of the Securities Exchange Act of 1934 (“Exchange Act”) and was accompanied by an Order Instituting Administrative Proceedings and Notice of Hearing (the “Proceeding”) pursuant to Section 12(j) of the Exchange Act. The stated purpose of the order and hearing is for the Commission to determine whether it is necessary and appropriate to continue the suspension in the trading of the securities of the Company for a period not exceeding twelve months, or to revoke the registration of the Company’s securities pursuant to Section 12 of the Exchange Act. The Company filed an Answer in the Proceeding on September 26, 2018.
On October 18, 2018, the Company had a pre-hearing telephone conference with the Commission regarding the Proceeding. During the pre-hearing conference, it was agreed that the Commission’s motion for summary disposition against the Company was due on November 15, 2018; the Company’s opposition brief was due on December 13, 2018; and that the Commission’s reply brief was due on December 20, 2018, and such filings were made. In the pre-hearing telephone conference with the Commission, the Commission offered the Company the alternative to consent to the revocation of the registration of the Company’s securities pursuant to Section 12 of the Exchange Act to avoid the time and cost associated with contesting the Proceeding. If the Company were to consent to the revocation of its registration, the Company would then need to file a registration statement (with two years of audited financials) with the Commission and cause that registration statement to become effective in order to reinstate the registration of the Company’s securities. It is the Company’s understanding from the pre-hearing conference with the Commission that the only remedy the Commission has for delinquent filers such as the Company, even if the filer becomes current by the date of the hearing, is the revocation of the registration of the Company’s securities pursuant to Section 12 of the Exchange Act. Therefore, the Company cannot provide any assurances that it will be able to avoid the revocation of the registration of the Company’s securities pursuant to Section 12 of the Exchange Act due to the Company becoming delinquent in its filings. If the registration of the Company’s securities is revoked, the Company intends to file a registration statement with the Commission to reinstate the registration of the Company’s securities. The Company cannot provide any assurances as to the timing of the filing and effectiveness of such a registration statement.
As we are 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.
(a)Unregistered Sales of Equity Securities.
None.
(b)Use of Proceeds.
Not applicable.
(c)Purchases by the Issuer and Affiliated Purchasers of Equity Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
INDEX TO EXHIBITS
| Exhibit | Description | |
| 31.1 | Certification of our Chief Executive Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended | |
| 31.2 | Certification of our Chief Financial Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended | |
| 32.1 | Certification of our Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 | |
| 32.2 | Certification of our Chief Financial Officer pursuant to 18 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 Extension Calculation Linkbase Document | |
| **101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| **101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| **101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| * | Included in previously filed reporting documents. | |
| ** | Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Dated: | By: | /s/ Wei-Rur Chen |
| Wei-Rur Chen | ||
President, Chief Executive Officer (Principal | ||
Executive Officer), Chief Financial Officer | ||
(Principal Financial Officer), | ||
Chairman of the Board of Directors |