10-Q 1 ybcc_10q-093018.htm FORM 10-Q

 

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended September 30, 2018 or

 

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from _____________ to _____________

 

Commission file number 0-21384

 

YBCC, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Nevada   13-3367421
(State or Other Jurisdiction of   (I.R.S. Employer
Incorporation or Organization)   Identification No.)

 

618 Brea Canyon Rd. Suite A, California

(Address of Principal Executive Offices)

 

91789

(Zip Code)

 

(626) 213-3945

(Registrant’s Telephone Number, Including Area Code)

 

17800 Castleton Street, Suite 386, City of Industry, California 91748

(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          o No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).

 

o Yes       x 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. (Check one)

 

  Large accelerated filer  o Accelerated filer  o
     
  Non-accelerated filer  o Smaller reporting company  x
     
  Emerging growth company  o  

 

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. o

 

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

o Yes       x No

 

The number of shares outstanding of the Issuer’s common stock as of November 14, 2018 was 9,894,214.

 

 

 

   

 

 

YBCC, Inc.

and Subsidiaries

  

FORM 10-Q for the Quarter Ended September 30, 2018

 

INDEX

 

    Page  
PART I - FINANCIAL INFORMATION
             
Item 1.   Financial Statements (unaudited)     3  
             
    Condensed Consolidated Balance Sheets as of September 30, 2018 and December 31, 2017     3  
             
    Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended September 30, 2018 and 2017     4  
             
    Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2018 and 2017     5  
             
    Notes to Condensed Consolidated Financial Statements     6  
             
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations     17  
             
Item 3.   Quantitative and Qualitative Disclosures About Market Risk     21  
             
Item 4.   Controls and Procedures     21  
             
PART II - OTHER INFORMATION
             
Item 1.   Legal Proceedings     23  
             
Item 1A.   Risk Factors     23  
             
Item 2.   Unregistered Sale of Equity Securities and Use of Proceeds     23  
             
Item 3.     Defaults Upon Senior Securities     23  
             
Item 4.   Mine Safety Disclosures     23  
             
Item 5.   Other Information     23  
             
Item 6.   Exhibits     23  
             
Signatures     24  

 

 

 

 

 2 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

YBCC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

   September 30,
2018
   December 31,
2017
 
   (unaudited)     
Assets        
         
Current assets          
Cash and cash equivalents  $29,430   $369,607 
Accounts receivable - net   6,458     
Inventory   465,347    127,335 
Other receivable   52,264    33,251 
Advance to suppliers   78,191    20,007 
Prepaid expenses   30,503    50,753 
Total current assets   662,193    600,953 
           
Property, plant, and equipment - net   2,463,367    2,538,580 
Intangible assets - net   676,637    726,043 
Deposits   2,563    6,052 
           
Total assets  $3,804,760   $3,871,628 
           
           
Liabilities and Equity          
           
Current liabilities          
Accounts payable  $159,154   $160,625 
Accrued expenses   130,186    124,714 
Customer deposits   169,939    31,314 
Customer deposits-related party   2,912     
Taxes payable   102,661    92,122 
Other payable   170,095    313,806 
Other payable-related party   2,724,736    2,900,912 
Loan payable   152,883     
Total current liabilities   3,612,566    3,623,493 
Total liabilities   3,612,566    3,623,493 
           
Equity          
Convertible preferred shares: $0.0001 par value, 50,000,000 shares authorized, 974,370 series A issued and outstanding as of September 30, 2018 and December 31, 2017, respectively   98    98 
Common stock: $0.001 par value, 900,000,000 shares authorized, 9,894,214 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively   9,894    9,894 
Additional paid in capital   1,162,328    1,162,328 
Accumulated foreign currency exchange loss   (57,026)   (36,581)
Accumulated deficit   (1,276,114)   (1,179,676)
Total YBCC, Inc. stockholders' equity   (160,820)   (43,937)
Non-controlling interest   353,014    292,072 
Total equity   192,194    248,135 
Total liabilities and equity  $3,804,760   $3,871,628 

 

See accompanying notes to these unaudited condensed consolidated financial statements

 

 

 

 3 

 

YBCC, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE THREE MONTHS AND NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2018 AND 2017

(UNAUDITED)

 

   For the Three Months Ended
September 30,
   For the Nine Months Ended
September 30,
 
   2018   2017   2018   2017 
Revenue  $606,123   $570,099   $1,541,744   $1,454,187 
                     
Cost of goods sold   448,142    477,093    1,146,292    1,316,750 
                     
Gross profit   157,981    93,006    395,452    137,437 
                     
Operating expenses                    
Selling expenses   4,365    5,119    14,613    18,269 
General & administrative expenses   138,680    161,966    407,533    505,876 
Total operating expenses   143,045    167,085    422,146    524,145 
                     
Income (loss) from operation   14,936    (74,079)   (26,694)   (386,708)
                     
Other income (expenses)                    
Other income (expense)   (246)   6,938    10,681    9,897 
Interest income   26        159     
Total other income   (220)   6,938    10,840    9,897 
                     
Income (loss) before income taxes   14,716    (67,141)   (15,854)   (376,811)
Provision for income tax                
Net Income (Loss)   14,716    (67,141)   (15,854)   (376,811)
                     
Less: net income (loss) attributable to non-controlling interest    40,435    10,745    80,584    (38,861)
Net income (loss) attributable to YBCC, Inc. stockholders   $(25,719)  $(77,886)  $(96,438)  $(337,950)
                     
Net Income (Loss)   14,716    (67,141)   (15,854)   (376,811)
                     
Other Comprehensive Income                    
Foreign currency translation gain (loss)   (26,936)   5,951    (40,088)   12,950 
                     
Comprehensive income (loss)   (12,220)   (61,190)   (55,942)   (363,861)
                     
Less: comprehensive income (loss) attributable to non-controlling interest   (13,199)   10,745    (19,643)   (38,861)
Comprehensive income (loss) attributable to YBCC, Inc. stockholders   $979   $(71,935)  $(36,299)  $(325,000)
                     
Net income (loss) per share - basic& diluted  $0.00   $(0.01)  $(0.00)  $(0.03)
                     
Weighted average shares outstanding - basic & diluted   9,894,214    9,894,214    9,894,214    9,872,236 

 

See accompanying notes to these unaudited condensed consolidated financial statements

 

 

 

 4 

 

YBCC, INC., AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2018 AND 2017

(Unaudited)

 

   For the Nine Months Ended
September 30,
 
   2018   2017 
Cash flows from operating activities          
Net Loss   (15,854)   (376,811)
           
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   169,511    150,211 
Amortization   11,781    11,276 
           
Changes in operating assets and liabilities:          
Accounts receivable   (6,811)   123,256 
Accounts receivable - related party       (7,290)
Other receivable   (22,756)   20,372 
Advance to suppliers   (62,476)   30,114 
Prepaid expenses   19,893    7,885 
Inventory   (363,557)   (136,146)
Deposits   132    5,879 
Accounts payable   7,369    85,487 
Accrued expense   6,358    38,514 
Customer deposit   147,940    60,208 
Customer deposit - related party   3,071    (35,083)
Tax payable   16,232    19,865 
Other payable   (134,135)   (62,894)
Cash used in operating activities   (223,302)   (65,157)
           

Cash flows from investing activities:

          
Deferred cost       15,095 
Purchase of property and equipment   (92,777)   (50,855)
Construction in progress   (138,204)    
Cash used in investing activities   (230,981)   (35,760)
           

Cash flows from financing activities:

          
Advance from (repayment to) related party   (46,432)   430,943 
Proceeds from (repayment of) short term borrowing   161,238    (74,961)
Net cash provided by financing activities   114,806    355,982 
           
Effects of currency translation on cash and cash equivalents   (700)   1,733 
           
Net increase (decrease) in cash and cash equivalents   (340,177)   256,798 
Cash and cash equivalents at beginning of period   369,607    339,147 
Cash and cash equivalents at end of period  $29,430   $595,945 
           
Supplementary Disclosures of Cash Flow          
Cash paid during the year for          
Income taxes  $   $ 
Interest  $   $ 
           
Non-cash investing and financing activities:          
Issuance of common stock for subscription received previously  $   $300,000 

 

 

See accompanying notes to these unaudited condensed consolidated financial statements

 

 

 5 

 

 

ybcc, Inc. and Subsidiaries

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 1 - ORGANIZATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization and Operations – YBCC, Inc., (The “Company” or “YBAO”), formerly known as International Packaging and Logistic Group, Inc., a Nevada corporation, was originally incorporated on June 2, 1986, in the state of Delaware. On April 17, 2008, the Company redomiciled from the State of Delaware to the State of Nevada.

 

On July 2, 2007, the Company through its wholly-owned subsidiary, YesRx.com (“YesRx”) acquired all the outstanding shares of H&H Glass, Inc. (“H&H Glass”), in exchange for 3,915,000 shares of its common stock in a reverse triangular merger.

 

On May 15, 2016, the Company and Xiuhua Song (the “Purchaser”) entered into a Stock Purchase Agreement (the “Purchase Agreement”), pursuant to which IPLO (the “Seller”) would sell to the Purchaser, and the Purchaser will purchase from the Seller, an aggregate of 3,915,000 newly issued shares of IPLO Common Stock (the “Shares”), which Shares represented 87% of the issued and outstanding shares of common stock. On July 1, 2016, this transaction was completed.

 

On July 1, 2016, Standard Resources Ltd. (“Standard”), previously IPLO’s majority stockholder, and IPLO entered into a share purchase agreement (“H&H Vend Out”) whereby Standard would cancel 3,915,000 shares of IPLO common stock held by it in exchange for all of the outstanding shares of H&H Glass. The H&H Glass Vend Out was completed on August 31, 2016.

 

On July 1, 2016, the Company executed a Share Exchange Agreement (“Exchange Agreement”) by and among Yibaoccyb Limited, a British Virgin Islands limited liability company (“Yibaoccyb”), and the stockholders of 51% of Yibaoccyb’s common stock (the “Yibaoccyb Shareholders”), on the one hand, and the Company, on the other hand. Yibaoccyb owns 100% of YibaoConfucian Co., Ltd. (“YibaoHK”), a Hong Kong company. YibaoHK will own 100% of Shenzhen Confucian Biologics Co. Ltd. (yet to be formed, “Yibao”), which will be a wholly foreign-owned enterprise (“WFOE”) under the laws of the Peoples’ Republic of China (“PRC” or “China”). On August 31, 2016, YibaoHK entered into a series of contractual arrangements with Shandong Confucian Biologics Co., Ltd. (“Confucian”) which is a limited liability company headquartered in, and organized under the laws of, the PRC. The contractual arrangements are discussed below.

 

The Exchange Agreement was completed on August 31, 2016 concurrent with the H&H Vend Out. The Company issued 2,040,000 shares of the Company’s common stock (the “IPLO Shares”) to the Yibaoccyb Shareholders in exchange for 51% of the common stock of Yibaoccyb.

 

On December 22, 2016, the Company amended its Certificate of Incorporation (the “Amendment”). As a result of the Amendment, the Company’s corporate name was changed from International Packaging and Logistics Group, Inc. to YBCC, Inc.

 

Yibaoccyb is a limited liability company incorporated under the laws of the British Virgin Islands on May 30, 2016. Other than all the issued and outstanding shares of YibaoHK, Yibaoccyb has no other assets or operations.

 

YibaoHK is a limited liability company incorporated under the laws of the Hong Kong on June 15, 2016, which was formed by Yibaoccyb.

 

Confucian was founded on October 31, 2012. Confucian is in the Food Industrial Park inside the economic development Zone of JinXiang County, Jining City in the province of Shandong in China.

 

Confucian possesses manufacturing permits for food product, hygienic products, sanitary products, and health products. The Company's main business includes research and development of chondroitin and garlic oil; trading, cold storage, and pretreating of garlic, fruit, and vegetables products; trading of chemical products (excluding hazardous chemicals); import and export of goods and technology (excluding those restricted by China government); and, the manufacturing and sale of health products including powder, granules, tablets, hard capsule, soft capsule products.

  

 

 

 6 

 

 

Details of the Company’s structure as of September 30, 2018 is as follow:

 

 

 

Reverse Merger Accounting – Since YBCC and Yibaoccyb were entities under Ms. Song’s common control prior to the share exchange, the transaction was accounted for as a restructuring transaction in accordance with generally accepted accounting principles in the United States ("GAAP"). YBCC has recast prior period unaudited consolidated financial statements to reflect the conveyance of Yibaoccyb’s common shares as if the restructuring transaction had occurred as of the earliest date of the unaudited consolidated financial statements.

 

Basis of Presentation - The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles (“U.S. GAAP”) for complete audited financial statements. The accompanying unaudited financial information should be read in conjunction with the audited consolidated financial statements, including the notes thereto, as of and for the year ended December 31, 2017, included in our 2017 Annual Report on Form 10-K filed with the SEC. The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the nine months ended September 30, 2018 are not necessarily indicative of the results for the year ending December 31, 2018 or for any future period.

 

 

 

 7 

 

 

Principles of Consolidation - The unaudited condensed consolidated financial statements include the accounts of YBCC and its subsidiaries. The Company’s subsidiaries include 51% of Yibaoccyb, YibaoHK and Confucian, of which 49% of Yibaoccyb’s consolidated operating results was shown in non-controlling interest on the consolidated balance sheets.

 

Intercompany accounts and transactions have been eliminated upon consolidation.

 

Use of Estimates - The preparation of unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimate and assumptions that affect certain 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. Actual results could differ from those estimates. The most significant estimates reflected in the condensed consolidated financial statements include allowance for doubtful accounts, allowance for inventory, depreciation, useful lives of property and equipment, deferred income taxes, useful life of intangible assets, and contingencies. Estimates and assumptions are periodically reviewed and the effects of revisions are reflected in the unaudited condensed consolidated financial statements in the period they are determined to be necessary.

 

Cash and Cash Equivalents – For purpose of the unaudited condensed consolidated statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents. 

 

Accounts Receivable - The Company extends credit to its customers. Accounts receivable was recorded at the contract amount after deduction of trade discounts and, allowances, if any, and do not bear interest. The allowance for doubtful accounts, when necessary, is the Company’s best estimate of the amount of probable credit losses from accounts receivable. The Company determines the allowance based on historical write-off experience, customer specific facts and economic conditions.

 

As of September 30, 2018 and December 31, 2017, accounts receivable were $6,458 and $0, respectively. The Company believes that its accounts receivables are fully collectable and determined that an allowance for doubtful accounts was not necessary.

 

Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.

 

Inventories - Inventory is valued at the lower of cost or market. Cost is determined using first-in, first-out method.

 

Inventory, comprised principally of finished goods, raw material and packaging material, are valued at the lower of cost or net realizable value.

 

   September 30,
2018
   December 31,
2017
 
Finished goods  $139,001   $7,106 
Work in progress   96,476    47,292 
Raw materials   157,784    46,902 
Packaging material   72,086    26,035 
Total  $465,347   $127,335 

  

The Company periodically estimates an inventory allowance for estimated unmarketable inventories. Inventory amounts are reported net of such allowances, if any. There were no allowances for inventory as of September 30, 2018 and December 31, 2017.

 

 

 

 

 8 
 

 

Property, Plant and Equipment – Property, plant, and equipment are stated at cost less accumulated depreciation. The costs of a constructed asset are accumulated in the account Construction-in-Progress until the asset is placed into service. When the asset is completed and placed into service, the account Construction-in-Progress will be credited for the accumulated costs of the asset and will be debited to the appropriate Property, Plant and Equipment account. Depreciation begins after the asset has been placed into service.

 

Expenditures for maintenance and repairs are charged to operations; major expenditures for renewals and betterments are capitalized. Assets that are still kept in service after reaching the end of their estimated useful lives are depreciated over the estimated useful life of their residual value. Gain or loss on disposal of property, plant, and equipment is recognized as non-operating income or expenses.

 

Depreciation is computed by applying the following methods and estimated lives: 

 

Category Estimated Life Method
Manufacturing equipment 10 Straight Line
Office equipment 5 Straight Line
Buildings 20 Straight Line

 

Intangible Assets - Land use rights represent the exclusive right to occupy and use a piece of land in the PRC during the contractual term of the land use right. Land use rights are carried at cost and charged to expense on a straight-line basis over the respective periods of the rights of 50 years or the remaining period of the rights upon acquisition.

 

Non-Controlling Interest – The Company accounted for its non-controlling interest of 49% in Yibaoccyb as a separate component of equity. In addition, net loss, and components of other comprehensive income are attributed to both the Company and non-controlling interest.

 

Revenue Recognition - The Company recognizes product revenue in accordance with ASC 606. The core principle of ASC 606 is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve the core principle of ASC 606, an entity should take the following actions: Step 1: Identify the contract with a customer; Step 2: Identify the performance obligations in the contract; Step 3: Determine the transaction price; Step 4: Allocate the transaction price; Step 5: Recognize revenue when or as the entity satisfies a performance obligation. The Company complies with ASC 606 revenue recognition and follows the five-step revenue recognition model along with other guidance impacted by this standard.

 

Cost of goods sold- Cost of goods sold includes cost of inventory sold during the period, net of discounts and inventory allowances, freight and shipping costs, warranty and rework costs, and sales tax.

 

Impairment of Long-Live Assets – The Company applies FASB ASC 360, “Property, Plant and Equipment,” which addresses the financial accounting and reporting for the recognition and measurement of impairment losses for long-lived assets. In accordance with ASC 360, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company will recognize the impairment of long-lived assets in the event the net book value of such assets exceeds the future undiscounted cash flows attributable to those assets. There is no impairment of our long-lived assets for the nine months ended September 30, 2018 and 2017.

 

Foreign Currency Translation - The Company's functional currency is the Chinese Renminbi (RMB). The reporting currency is that of the US Dollar. Assets, liabilities and owners’ contribution are translated at the exchange rates as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the year. The RMB is not freely convertible into foreign currency and all foreign currency 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 dollar at the rates used in translation.

 

 

 

 9 

 

 

The exchange rates used to translate amounts in RMB into USD for the purposes of preparing the financial statements were as follows:

 

Balance sheet  
Balance sheet as of September 30, 2018 RMB 6.87 to US $1.00
Balance sheet as of December 31, 2017 RMB 6.51 to US $1.00
   
Statement of operation and other comprehensive income  
Statement of operation and other comprehensive income for three months ended September 30, 2018 RMB 6.81 to US $1.00
Statement of operation and other comprehensive income for three months ended September 30, 2017 RMB 6.67 to US $1.00
Statement of operation and other comprehensive income for nine months ended September 30, 2018 RMB 6.51 to US $1.00
Statement of operation and other comprehensive income for nine months ended September 30, 2017 RMB 6.80 to US $1.00

  

Fair Value of Financial Instruments – FASB ASC 820, “Fair Value Measurement” specifies a hierarchy of valuation techniques based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). In accordance with ASC 820, the following summarizes the fair value hierarchy:

 

Level 1 Inputs— Unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

 

Level 2 Inputs— Inputs other than the quoted prices in active markets that are observable either directly or indirectly.

 

Level 3 Inputs— Inputs based on valuation techniques that are both unobservable and significant to the overall fair value measurements

 

ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure, fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The Company did not identify any assets or liabilities that are required to be presented at fair value on a recurring basis. Carrying values of non-derivative financial instruments, including cash and cash equivalents, accounts receivable, inventories, prepaid expenses, advances from customers, accounts payable, taxes payable, accrued liabilities and other payables, and loan from bank, approximated their fair values due to the short maturity of these financial instruments. There were no changes in methods or assumptions during the periods presented.

 

Net Earnings (Loss) Per Share – Earnings/(loss) per common share is computed on the weighted average number of common shares outstanding during each year. Basic earnings per share is computed as net loss applicable to common stockholders divided by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur from common shares issuable through convertible preferred shares, stock options, warrants and other convertible securities when the effect would be dilutive. In this case, the Preferred Shares would not be dilutive since the conversion price is $3.00 and the quoted price is significantly lower than the conversion price. Therefore, there were no dilutive securities for the nine months ended September 30, 2018 and 2017, respectively.

 

Reclassifications – Certain classifications have been made to the prior year consolidated financial statements to conform to the current year presentation. The reclassification had no impact on previously reported net loss or accumulated deficit.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” (“ASU 2014-09”). ASU 2014-09 supersedes the revenue recognition requirements in ASC 605 - Revenue Recognition (“ASC 605”) and most industry-specific guidance throughout ASC 605. The FASB has issued numerous updates that provide clarification on a number of specific issues as well as requiring additional disclosures. The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The guidance also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The guidance may be adopted through either retrospective application to all periods presented in the financial statements (full retrospective approach) or through a cumulative effect adjustment to retained earnings at the effective date (modified retrospective approach). The Company had evaluated the effect that will result from adopting the guidance in this standard and concluded that the new revenue standards are not expected to have a material impact on the amount and timing of revenue recognized in the Company’s consolidated financial statements.

 

 

 

 10 

 

    

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash”. These amendments require that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The amendments should be applied using a retrospective transition method to each period presented. The Company has evaluated the impact of adopting ASU 2016-18 noting it will only impact the Company to the extent it has restricted cash in the future.

 

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

 

In February 2018, the FASB issued ASU No. 2018-02 Income Statement—Reporting Comprehensive Income (Topic 220)—Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The amendments in this Update affect any entity that is required to apply the provisions of Topic 220, Income Statement-Reporting Comprehensive Income, and has items of other comprehensive income for which the related tax effects are presented in other comprehensive income as required by GAAP. The Company is currently in the process of evaluating the impact of the adoption on its consolidated financial statements.

 

The Company has considered all new accounting pronouncements and has concluded that there are no new pronouncements that may have a material impact on results of operations, financial condition, or cash flows, based on current information.

 

NOte 2 - going concern

 

Net income and net losses for the three months ended September 30, 2018 and 2017 were $14,716 and $67,141, respectively. The Company sustained net losses of $15,854 and $376,811 during the nine months ended September 30, 2018 and 2017, respectively. The Company has accumulated deficit of $1,276,114 and $1,179,676 as of September 30, 2018 and December 31, 2017, respectively. The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtain additional financing, as may be required.

 

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

   

Management’s Plan to Continue as a Going Concern

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plans to obtain such resources for the Company include (1) obtaining capital from the sale of its equity securities, (2) sales of the Company’s products, (3) short-term and long-term borrowings from banks, and (4) short-term borrowings from stockholders or other related party(ies) when needed. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.

 

 

 

 11 

 

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually to secure other sources of financing and attain profitable operations.

 

NOte 3 - concentration of credit risk

 

We maintain our cash balance in several banks in China and United States. The consolidated cash balances as of September 30, 2018 and December 31, 2017 were $29,430 and $369,607, respectively. The cash balances in China as of September 30, 2018 and December 31, 2017 were $7,771 and $307,361, respectively. The accounts in China were not insured which we believe were exposed to credit risks on cash. As of September 30, 2018, the balance of our US account was $21,659 which is within federal insured limit of $250,000. As of December 31, 2017, the balance of our US account was $62,246, which is within federal insured limit of $250,000.

 

NOTe 4 - other receivable

 

Total other receivable consists of balances of VAT receivable of $29,347 and $33,251 as of September 30, 2018 and December 31, 2017, respectively and other temporary funding receivable from a third party of $19,702 and $0 as of September 30, 2018 and December 31, 2017, respectively. The temporary funding was transferred to the Company’s consulting firm, which makes payments of operating expenses on behalf of the Company.

 

NOTe 5 - prepaid expenses

 

Prepaid expenses were comprised of the following:

 

   September 30,
2018
   December 31,
2017
 
Utilities  $1,456   $1,537 
Professional fees   25,407    44,974 
Other   3,640    4,242 
Total  $30,503   $50,753 

 

Note 6 - property, plant and equipment

 

Property, plant and equipment as of September 30, 2018 and December 31, 2017 are summarized as following:

 

   September 30,
2018
   December 31,
2017
 
Buildings  $1,758,779   $1,858,989 
Vehicles   11,284    11,912 
Manufacturing equipment   1,161,343    1,133,045 
Office equipment   89,283    93,961 
Construction in progress   133,349     
Property, plant, and equipment - total   3,154,038    3,097,907 
Less: accumulated depreciation   (690,671)   (559,327)
Fixed assets, net  $2,463,367   $2,538,580 

 

For the three months ended September 30, 2018 and 2017, depreciation expenses were $54,385 and $51,356, respectively. For the nine months ended September 30, 2018 and 2017, depreciation expenses were $169,511 and $150,211, respectively.

 

 

 

 12 

 

 

note 7 - intangible assets -net

 

All land in the PRC is owned by the government and cannot be sold to any individual or entity. Instead, the government grants landholders a "land use right" after a purchase price for such "land use right" is paid to the government. The "land use right" allows the holder to use the land for 50 years and enjoys all the incidents of ownership of the land. As of September 30, 2018 and December 31, 2017, the land use rights net of accumulated amortization was $676,637 and $726,043, respectively. The use term was 50 years.

   

The summary of land use rights as of September 30, 2018 and December 31, 2017 are summarized as following:

 

The land use right term  September 30,
2018
   December 31,
2017
 
May, 2013 - Apr. 2063  $524,190   $553,332 
Dec. 2015 - Sept. 2065   196,564    207,491 
Dec. 2015 – Sept. 2065   23,923    25,252 
Intangible assets- total   744,677    786,075 
Less: accumulated amortization   (68,040)   (60,032)
Intangible assets, net  $676,637   $726,043 

 

For the three months ended September 30, 2018 and 2017, amortization expenses were $3,746 and $3,835, respectively. For the nine months ended September 30, 2018 and 2017, amortization expenses were $11,781 and $11,276, respectively.

 

NOTE 8 - COMMITMENTS AND CONTINGENCIES

 

The Company’s lease in City of Industry, California was terminated on September 1, 2018. There are no future commitments.

 

 

NOTE 9 - INCOME TAX

 

At September 30, 2018 and December 31, 2017, based on the weight of available evidence, management determined that it was unlikely that the Company's deferred tax assets would be realized and have provided for a full valuation allowance associated with the net deferred tax assets.

 

The Company periodically analyzes its tax positions taken and expected to be taken and has determined that since inception there has been no need to record a liability for uncertain tax positions. The Company classifies income tax penalties and interest, if any, as part of selling, general and administrative expenses in the accompanying statements of operations. There was no accrued interest or penalties as of September 30, 2018 and December 31, 2017.

 

The Company is neither under examination by any taxing authority, nor has it been notified of any impending examination.

 

Under the Law of People’s Republic of China on Enterprise Income Tax (“EIT Law”), which was effective from January 1, 2008, domestically-owned enterprises and foreign-invested enterprises are subject to a uniform tax rate of 25%. The potential benefit of the Company’s net operating losses has not been recognized in these financial statements because it is more likely-than-not the Company will not utilize the net operating losses carried forward as it does not expect to generate sufficient taxable income in future or the amount involved is not significant.

 

   September 30,
2018
   December 31,
2017
 
Current          
USA  $   $ 
China   41,115     
           
Deferred          
USA        
Deferred tax assets for NOL carryforwards   37,865    37,893 
Valuation allowance   (37,865)   (37,893)
Net changes in deferred income tax under non-current portion        
           
China          
NOL carryforwards   (41,115)   18,256 
Valuation allowance       (18,256)
Net changes in deferred income tax under non-current portion   (41,115)    
           
Total provision for income tax  $   $ 

 

 

 

 13 

 

 

The tax effects of temporary differences that gave rise to significant portions of deferred tax assets at September 30, 2018 and December 31, 2017 are as follows:

  

   September 30,
2018
   December 31,
2017
 
Deferred Tax Assets:          
Net operating loss carry forwards  $324,060   $327,310 
Valuation allowance   (324,060)   (327,310)
Net deferred tax assets  $   $ 

 

A reconciliation between the income tax computed at the U.S. statutory rate and the Company’s provision for income tax in the PRC is as follows: 

 

   September 30,
2018
   December 31,
2017
 
Tax expense at statutory rate-US   21%   34%
Foreign income not recognized in the US   (21%)   (34%)
PRC enterprise income tax rate   25%   25%
Loss not subject to income tax   (25%)   (25%)
Effective income tax rates        

 

On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted, significantly altering U.S. corporate income tax law. The SEC issued Staff Accounting Bulletin 118, which allows companies to record reasonable estimates of enactment impacts where all of the underlying analysis and calculations are not yet complete. The provisional estimates must be finalized within a one-year measurement period. The Company reduced its net domestic deferred tax asset balance by $88,781 due to the reduction in corporate tax rate from 34% to 21%. These adjustments are fully offset by a change in the Company’s U.S. valuation allowance.

 

note 10 - equity

 

Common Stock:

 

On July 1, 2016, the Company issued 3,915,000 shares of common stock to Ms. Song in connection with the change of control.

 

On August 31, 2016, the Company cancelled 3,915,000 shares of outstanding shares belonging to Standard.

 

On August 31, 2016, the Company issued 2,040,000 shares to Yibaoccyb Shareholders in exchange for 51% of the common stock of Yibaoccyb to complete the share exchange and restructuring of entities under common control.

 

On December 22, 2016, the Company issued 350,000 shares for legal counsel services valued at $35,000.

 

On December 23, 2016, the Company received cash payment of $300,000 in advance for issuance of 3,000,000 shares of common stock, or $0.10 per share. On January 3, 2017, 3,000,000 shares were issued to seven investors, none of which is a related-party to the Company.

 

As a result of all common stock issuances, the total issued and outstanding shares of common stock were 9,894,214  as of September 30, 2018 and December 31, 2017, respectively.

 

Series A Preferred Shares:

 

The Series A Preferred shares are convertible into common shares on a 1:1 ratio at a fixed rate of $3 per share. Preferred shares have no voting rights, have no redemption rights and earn no dividends. Holders of Series A Convertible Preferred Stock are not permitted to convert their stock into common shares until the Company’s market capital reaches $15,000,000. Upon dissolution, liquidation or winding up of the Company, whether voluntary or involuntary, the holders of the then outstanding shares of Series A Convertible Preferred Stock shall be entitled to receive out of the assets of the Company the sum of $0.0001 per share (the “Liquidation Rate”) before any payment or distribution shall be made on any other class of capital stock of the Company ranking junior to the Series A Convertible Preferred Stock.

 

 

 

 14 

 

   

ASC Topic 480, “Distinguishing Liabilities from Equity,” establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.

 

A mandatorily redeemable financial instrument shall be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity. A financial instrument issued in the form of shares is mandatorily redeemable if it embodies an unconditional obligation requiring the issuer to redeem the instrument by transferring its assets at a specified or determinable date (or dates) or upon an event certain to occur. A financial instrument that embodies a conditional obligation to redeem the instrument by transferring assets upon an event not certain to occur becomes mandatorily redeemable—and, therefore becomes a liability—if that event occurs, the condition is resolved, or the event becomes certain to occur.

 

The Company determined that the preferred shares are not mandatorily or conditionally redeemable and are properly classified as permanent equity in the accompanying unaudited condensed consolidated financial statements.

 

NOTE 11 - NON-CONTROLLING INTEREST

 

On July 1, 2016, the Company executed the Exchange Agreement with Yibaoccyb and the Yibaoccyb Shareholders. From and after the Closing Date, Yibaoccyb became a 51% owned subsidiary of the Company. Yibaoccyb owns 100% of YibaoHK. YibaoHK will own 100% of Shenzhen Confucian Biologics Co. Ltd. (yet to be formed, “Yibao WFOE”), which will be wholly foreign-owned enterprise (“WFOE”) under the laws of the Peoples’ Republic of China (“PRC” or “China”). On August 31, 2016, YibaoHK entered into a series of contractual arrangements with Confucian and currently is 100% owner of Confucian.

 

Non-controlling interest consisted of the following:

  

   September 30,   December 31, 
   2018   2017 
Beginning balance  $292,072   $304,291 
Net income (loss) attributed to non-controlling interest   80,584    (31,538)
Foreign currency translation gain (loss) attributable to non-controlling interest   (19,642)   19,319 
Ending balance  $353,014   $292,072 

 

note 12 - related party transactions

 

The related parties of the Company with whom transactions are reported in these financial statements are as follows:

 

Name of Entity or Individual   Relationship with the Company and subsidiaries
Shandong Yibao Biologics Co, Ltd.   Affiliated company with common shareholders
Shandong Yibao Import & Export Trading Co, Ltd. Affiliated company with common shareholders
Jinxiang Confucian Food Testing Co, Ltd. Affiliated company with common shareholders
Ms. Xiuhua Song   Director and controlling beneficiary shareholder of the Company
Mr. Hengchun Zhang   Owner of Shandong Confucian Biologics and Jinxiang Confucian Food Testing Co, Ltd.

 

Transactions:

 

   For the Nine Months Ended September 30, 
   2018   2017 
Sales to Shandong Yibao Biologics Co. Ltd.  $766,592   $417,631 
Sales to Shandong Yibao Import & Export Trading Co. Ltd.       45,854 
Total  $766,592   $463,485 

 

 

 

 15 

 

  

   For the Nine Months Ended September 30, 
   2018   2017 
Purchase from Shandong Yibao Biologics Co. Ltd.  $   $227,975 
Total  $   $227,975 

  

Customer Deposit from related party

 

   September 30,
2018
   December 31,
2017
 
Customer deposit from Shandong Yibao Biologics Co. Ltd.  $2,912   $ 
Total  $2,912   $ 

 

Due to related parties

  

   September 30,
2018
   December 31,
2017
 
To Shandong Yibao Biologics Co. Ltd  $14,560   $ 
To Jinxiang Confucian Food Testing Co, Ltd.   58,241     
To Xiuhua Song   2,391,385    2,630,912 
To Hengchun Zhang   260,550    270,000 
Total  $2,724,736   $2,900,912 

 

NOTE 13 - MAJOR SUPPLIERS AND CUSTOMERS

 

The Company purchases majority of its inventory and packaging supplies from one supplier which accounted for 19.97% of the total purchases for the nine months ended September 30, 2018.

 

The Company had three major customers for the nine months ended September 30, 2018: Shandong Yibao Biologics, a related party, accounted for 42.76% of revenue, Anhui Xiancheng Import and Export Company accounted for 27.43% of revenue, Ping Xiang Import and Export Company accounted for 14.85% of revenue for the nine months ended September 30, 2018.

 

The Company purchases majority of its inventory and packaging supplies from three suppliers which accounted for 21.96%, 18.95% and 18.54% of the total purchases for the nine months ended September 30, 2017.

 

The Company had four major customers for the nine months ended September 30, 2017: Shandong Yibao Biologics for 28.72% of revenue, Nanjing Hejian Biologics accounted for 18.51% of revenue, Ping Xiang Import and Export Company accounted for 15.46% of revenue, Jiangshan Huacheng Import and Export Company accounted for 12.32% of revenue for the nine months ended September 30, 2017.

 

NOTE 14 - SUBSEQUENT EVENTS

 

Management has evaluated subsequent events through November 14, 2018, the date which the condensed consolidated financial statements were available to be issued. All subsequent events requiring recognition as of September 30, 2018 have been incorporated into these condensed consolidated financial statements and there are no subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”

  

 

 

 

 16 

 

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2017 and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K. The following discussion and analysis also should be read together with our financial statements and the notes to the financial statements included elsewhere in this Form 10-Q.

 

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements appear in a number of places in this Report, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control. Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements. We strongly encourage investors to carefully read the factors described in our Annual Report on Form 10-K for the year ended December 31, 2017 in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited condensed consolidated Financial Statements and notes thereto that appear elsewhere in this report.

 

Overview

 

The Company is a manufacture and research based bio-science company. It has large capacity in manufacturing tablets, granule, oral liquid, powders, soft gels and capsules products. The Company distributes its products through its own network and white label products. It also has access to a member-based distribution system owned by its affiliated company.

 

The Company possesses manufacturing permits for food product, hygienic products, sanitary products, and health products. The Company's main business scope include technology study and transfer of Chondroitin and Garlic Oil; trading, cold storage, and pretreating of Garlic, fruit, and vegetables products; trading of Chemical products (excluding hazardous chemicals); Import and export of goods and technology (excluding those restricted by government); the manufacturing and sale of health products including powder, granules, tablets, hard capsule, soft capsule products.

 

Product Overview

 

The Company’s main products can be divided into three groups: health food products, hygienic products, and beauty products.

 

Health Food Products

 

  · Phytocholesterol tabletting candy,

 

Phytosterol has strong anti-inflammatory effects to the human body, which can inhibit the absorption of cholesterol for human and biochemical synthesis of cholesterol. Promote the degradation and metabolism of cholesterol. Phytosterol can be used for prevention & therapy of coronary atherosclerosis heart disease. In treating ulcers, skin squamous carcinoma and cervical cancer has obvious curative effect. Can promote wound healing, make muscle proliferation, enhance capillary circulation; also can be used as blocking agent of formation of gallstones.

 

  · Polydextrose tabletting candy,

 

Regulating blood lipid, reduce fat accumulation preventing the fat.

 

 

 

 17 

 

 

  · Dunaliella salina haematococcus pluvialis tabletting candy,

 

Replenishing the body's astaxanthin, Natural carotene and variety of minerals, have a great effect of antioxidant activity, protect skin, protect vision and improve immunity.

 

  · Dunaliella salina Gum Base candy,

   

Dunaliella salina is rich in antioxidant needed by the human body health, resistance to radiation and enhance human immunity of natural carotenoids and 70 kinds of minerals and trace elements.

  

  · Haematococcus pluvialis Gum candy,

 

The main components of Haematococcus Pluvialis is astaxanthin. It has nine anti-aging effect: can be Anti-aging and protect the skin; Protect the eye health; helps to support the cardiovascular system, maintain a healthy joints and connective tissue; increases strength and endurance.

 

  · Fish Oil Gum candy,

 

Adjusting blood liquid, prevent blood clots, cerebral thrombosis, cerebral hemorrhage and stroke; prevent arthritis and alzheimer's disease, improve the memory and vision, control presbyopia.

 

  · Earthworm Protein tabletting candy,

 

Improve blood circulation, inhibiting platelet aggregation, reduce glucose concentrations, prevent blood clots, has the very good control efficiency for coronary heart disease, arteriosclerosis, and other hematologic disorders.

 

  · Collagen Protein tabletting candy,

 

It is rich in glycine, proline hydroxyproline and other amino acid needed for human body. Have a good health care effect for skin, hair, bones and muscles.

 

  · Krill Oil Gum candy,

 

It is rich in EPA and DHA. Enhancing health effects, including cardiovascular, nerve, bones, joints, vision, skin care, etc.

 

  · Phosphatidylserine tabletting candy,

 

Improve the function of brain; help to repair the injure of brain; promote the recovery of brainfag; protect central nervous system. Used for auxiliary treatment dementia and agedness memory loss.

 

  · Milk Powder tabletting candy.

 

Milk tablet is kind of leisure food. Supplement of the nutrition of human needed in specific environment.

 

Hygienic Products

 

The hygienic product line includes the following products:

 

  · Gel for women,

 

 

 

 18 

 

 

Anti-bacteria product. Auxiliary treatment bacterial, mould sex vaginitis.

 

  · Skin comfortable liquid

 

Anti-bacteria product. Used for sterilization, antibacterial of skin. Inhibit the bromhidrosis and relief beriberi itch.

 

Confucian owns 100,000 stage purification workshops, advanced production lines and manufacturing equipment. The Company has a higher capacity for OEM processing of tablets, hard capsules, soft capsules, oral liquid, granules, and powders.

 

Beauty products

 

·Shampoo

 

Shampoo that is rich in triticum vulgare, hydrolyzed lupine protein, silk collagen and organ oil. It helps to repair hair and gives a visible shine.

 

·Conditioner

 

Conditioner that is rich in triticum vulgare, hydrolyzed lupine protein, silk collagen and organ oil. It helps to nourish and moisturize hair.

 

·Peptides skin care set

 

This set includes moisturizer, eye cream, lotion, serum, facial cleanser. It encourages collagen production for more youthful looking skin.

 

Plan of Operations

 

By following the Company motto of "being passionate for health industry, bringing together the world's resources, focusing on consumer demand, creating a “win-win situation", the Company is eager to develop businesses in the international health and pharmaceutical market.

  

The Company’s near-term goal is to reach breakeven within a nine-month period time. In order to reach such goal, the Company is increasing its sales and production volume through arrangements and networking with its existing customers and its affiliated companies. Additionally, it plans to increase the size of its sales department to develop new customers.

 

The Company’s ultimate goal is to make the business profitable and competitive in the international health and pharmaceutical market. To achieve such goal, the Company needs to cooperate with other businesses having capital, market, technology, or products, recruit sufficient workforce and various talents to serve the company, and actively develop new technology and new product through research and development.

 

Results of Operations

 

Three Months and Nine Months Ending September 30, 2018 Compared to September 30, 2017

 

Revenue

 

For the three months ended September 30, 2018 and 2017, revenues were $606,123 and $570,099 respectively, for an increase of $36,024 over the same period in 2017. For the nine months ended September 30, 2018 and 2017, revenues were $1,541,744 and $1,454,187 respectively, for an increase of $87,557 over the same period in 2017. The sales in RMB were almost the same over the same period in 2017. The slight increase is mainly due to the exchange rate of Chinese RMB against US dollar increased over the same period in 2017.

 

For the three months ended September 30, 2018 and 2017, revenues to related parties were $176,94 and $312,610 respectively, a decrease of $135,669. The revenue to related parties as a percent of revenue were 29% and 55%, a decrease of 26%. For the nine months ended September 30, 2018 and 2017, revenues to related parties were $766,592 and $463,485 respectively, an increase of $303,107. The revenue to related parties as a percent of revenue were 50% and 32%, an increase of 18%.

 

Cost of Goods Sold

 

Cost of goods sold for the three months ended September 30, 2018 and 2017 were $448,142 and $477,093 respectively, for a decrease of $28,951 over the same period in 2017. Cost of goods sold for the nine months ended September 30, 2018 and 2017 were $1,146,292 and $1,316,750 respectively, for a decrease of $170,458 over the same period in 2017. This decrease is mainly due to the decrease in cost of production compared to same periods in 2017.

 

 

 

 19 

 

 

Gross Profit

 

Gross profit was $157,981 and $93,006 for the three months ended September 30, 2018 and 2017, an increase of $64,975 over the same period in 2017. The gross profit margin as a percent of sales for the three months ending September 30, 2018 and 2017 was 26% and 16% respectively.

 

Gross profit was $395,452 and $137,437 for the nine months ended September 30, 2018 and 2017, an increase of $258,015 over the same period in 2017. The gross profit margin as a percent of sales for the nine months ending September 30, 2018 and 2017 was 26% and 9% respectively.

 

The increase of gross profit was mainly due to the increase in domestic sales of new products, primarily sales to a related party, which maintained higher profit margin and to the improvements in production efficiency.

 

Operating Expenses

 

Operating expenses for the three-month period ended September 30, 2018 and 2017 were $143,045 and $167,085 respectively for a decrease of $24,040 or 14% from the same period of prior year. The major expenses for the three-month period ended September 30, 2018 and 2017 consist of payroll, professional fees and tax. The decrease of $24,040 was mainly due to a decrease in payroll expense of $27,739.

 

Operating expenses for the nine-month period ended September 30, 2018 and 2017 were $422,146 and $524,145 respectively for a decrease of $101,999 or 19% from the same period of prior year. The major expenses for the nine-month period ended September 30, 2018 and 2017 consist of payroll, professional fees and tax. The decrease of $101,999 was mainly due to a decrease in payroll expense of $61,523, decrease in professional fee of $52,130 and decrease in tax of $33,508.

 

Other Income (Expense)

 

Other income consists of interest income and expenses and other non-operation related income and expenses. Other expense for the three months ended September 30, 2018 was $220 and other income for the three months ended September 30, 2017 was $6,938. For the nine months ended September 30, 2018 and 2017, the other income was $10,840 and $9,897 respectively for an increase of $943 over the same period in 2017.

  

Liquidity and Capital Resources

 

The Company suffered recurring losses from operations and has an accumulated deficit of $1,276,114 at September 30, 2018. The Company has a cash balance of $29,430 and a working capital deficit of $2,950,373 as of September 30, 2018. Net income and net losses for the three months ended September 30, 2018 and 2017 were $14,716 and $67,141, respectively. The Company has incurred losses of $15,854 and $376,811 for the nine months ended September 30, 2018 and 2017, respectively. The Company has not continually generated significant revenues. Unless our operations continue to generate significant revenues and cash flows from operating activities, our continued operations will depend on whether we are able to raise additional funds through various sources, such as equity and debt financing, other collaborative agreements and strategic alliances. Our management is actively engaged in seeking additional capital to fund our operations in the short to medium term. Such additional funds may not become available on acceptable terms and there can be no assurance that any additional funding that we do obtain will be sufficient to meet our needs in the short or long term.

 

Net cash used in operating activities for the nine months ended September 30, 2018 amounted to $223,302, compared to $65,157 used in operating activities for the nine months ended September 30, 2017. The increase of $158,145 in the net cash used in our operating activities was primarily due to increase in the change of accounts receivable by $130,067, increase in the change of advance to suppliers by $92,590 and increase in the change of inventory by $227,411; partially offset by the decrease in net loss by $360,957, increase in the change of customer deposit by $87,732 and increase in the change of customer deposit-related party by $38,154.

 

 

 

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Net cash used in investing activities for the nine months ended September 30, 2018 amounted at $230,981 compared to net cash used in investing activities of $35,760 for the nine months ended September 30, 2017, resulting in an increase of $195,221 in the net cash used in investing activities. The increase was mainly due to increase in deferred cost by $15,095, increase in construction in progress by $138,204 and increase of purchase of property and equipment by $41,922 for nine months ended September 30, 2018 compared to nine months ended September 30, 2017.

 

Net cash provided by financing activities for the nine months ended September 30, 2018 amounted at $114,806, compared to net cash used in financing activities of $355,982 in the nine months ended September 30, 2017, resulting in a net decrease of $241,176 in the net cash provided by financial activities. The decrease in net cash provided by financing activities was mainly due to decrease in change of advances received from related party; partially offset by the increase in change of loan payable from unrelated party.

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plans to obtain such resources for the Company include (1) obtaining capital from the sale of its equity securities, (2) sales of the Company’s products, (3) short-term and long-term borrowings from banks, and (4) short-term borrowings from stockholders or other related party(ies) when needed. However, management cannot provide any assurance that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually to secure other sources of financing and attain profitable operations.

 

Capital Resources

 

Over the next twelve months, management believes there will not be sufficient working capital obtained from operations due to the Company in its early development stage.

  

Off-Balance Sheet Arrangements

 

As of September 30, 2018, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

 

ITEM 3. Quantitative and Qualitative Disclosures about Mark Risk

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item

  

ITEM 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures:

 

As of September 30, 2018, we conducted an evaluation under the supervision and with the participation of the Company's Chief Executive Officer and the Chief Financial Officer, management has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation and because of the material weaknesses in our internal control over financial reporting described below, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as of September 30, 2018.

 

 

 

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Management identified the following control deficiencies that constitute material weaknesses that are not fully remediated as of the filing date of this report:

 

Our size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties within our internal control system. There is mainly one person involved in processing of transactions. Therefore, it is difficult to effectively segregate accounting duties. We have hired an additional administrative person and retained an outside professional firm to assist in mitigating the separation of duties issues on an ongoing basis. The use of the outside firm has proven successful in assisting in the separation of duties. However, additional people are not needed to do the administrative work therefore segregation of duties will continue to be an ongoing weakness.

  

Similarly, the Shandong Confucian Biologic Co., Ltd. operation also has a material weakness due to lack of segregation of duties. Its size has prevented us from being able to employ sufficient resources to enable us to have an adequate level of supervision and segregation of duties within our internal control system. We have retained an outside professional firm to assist in the separation of duties on an ongoing basis. The use of the outside firm has proven successful in assisting in the separation of duties.

 

Limitations on the Effectiveness of Internal Controls

 

Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity's disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such as simple errors or mistakes or intentional circumvention of the established process.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in internal control over financial reporting that occurred during the current quarter covered by this report that have materially affected, or are reasonably likely to affect, the Company's internal control over financial reporting.

  

 

 

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PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings

 

None

 

ITEM 1A. Risk Factors

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is 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

 

Not Applicable

 

ITEM 4. Mine Safety Disclosures

 

None

 

ITEM 5. Other Information

 

None

  

ITEM 6. Exhibits

 

a) Exhibits

 

  2.1 Share Exchange Agreement among IPLO, Yibaoccyb and Xiuhua Song dated July 1, 2016 (Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 11, 2016.)
  10.1 Stock Purchase Agreement between IPLO and Xiuhua Song dated May 15, 2016. (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 11, 2016.)
  10.2 Stock Purchase Agreement among IPLO, Standard Resources Ltd., and H&H Glass Inc. dated July 1, 2016.  (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 11, 2016.)
  10.3 Consulting Services Agreement between YibaoHK and Shandong Confucian Biologics Co. Ltd. dated August 31, 2016 (Incorporated by reference to Exhibit 99.6 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on September 6, 2016.)
  10.4 Equity Pledge Agreement between YibaoHK, Shandong Confucian Biologics Co. Ltd. and the owners of Shandong Confucian Biologics Co. Ltd. dated August 31, 2016 (Incorporated by reference to Exhibit 99.7 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on September 6, 2016.)
  10.5 Operating Agreement between YibaoHK, Shandong Confucian Biologics Co. Ltd. and the owners of Shandong Confucian Biologics Co. Ltd. dated August 31, 2016 (Incorporated by reference to Exhibit 99.8 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on September 6, 2016.)
  10.6 Voting Rights and Proxy Agreement between YibaoHK, Shandong Confucian Biologics Co. Ltd. and the owners of Shandong Confucian Biologics Co. Ltd. dated August 31, 2016 (Incorporated by reference to Exhibit 99.9 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on September 6, 2016.)
  10.7 Option Agreement between YibaoHK, Shandong Confucian Biologics Co. Ltd. and the owners of Shandong Confucian Biologics Co. Ltd. dated August 31, 2016 (Incorporated by reference to Exhibit 99.10 to the Current Report on Form 8-K/A filed with the Securities and Exchange Commission on September 6, 2016.)
  31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)
  31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) (Section 302 of the Sarbanes-Oxley Act of 2002)
  32.1 Certification of the Chief Executive Officer pursuant to 18 U.S.C.ss.1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
  32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C.ss.1350 (Section 906 of the Sarbanes-Oxley Act of 2002)
  101.INS XBRL Instance Document
  101.SCH XBRL Schema Document
  101.CAL XBRL Calculation Linkbase Document
  101.DEF XBRL Definition Linkbase Document
  101.LAB XBRL Label Linkbase Document
  101.PRE XBRL Presentation Linkbase Document

 

 

 

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

    YBCC, INC.  
    (Registrant)  
       
       
Dated: November 14, 2018 By: /s/ Xiuhua song  
    Xiuhua Song  
    Chief Executive Officer  
    Principal Financial Officer and Director  
         
         

 

 

 

 

 

 

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