Wings & Things Earnings 2018-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 30, 2018

For the transition period from ___ to ___

Commission file number: 000-30529

WINGS & THINGS, INC.

(Exact name of registrant as specified in its charter)

(801) 323-2395

(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 Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No ☐  The registrant does not have a Web site.

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

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

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

Yes ☐ No ☑

The number of shares outstanding of the registrant’s common stock as of November 14, 2018 was 18,000,000.

TABLE OF CONTENTS

The financial information set forth below with respect to Wings & Things, Inc. consolidated statements of operations for the nine-month period ended September 30, 2018 and 2017 is unaudited. This financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the nine-month period ended September 30, 2018 are not necessarily indicative of results to be expected for any subsequent period.

WINGS & THINGS, INC.

Condensed Consolidated Financial Statements

September 30, 2018

(Unaudited)

Wings & Things, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

See accompanying notes to financial statements

Wings & Things, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to financial statements

Wings & Things, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to financial statement

Wings & Things, Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

September 30, 2018

The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows as of and for the period ended September 30, 2018 and for all periods presented have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed consolidated or omitted. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2017 audited financial statements as reported in its Form 10-K. The results of operations for the period ended September 30, 2018 are not necessarily indicative of the operating results for the full year ended December 31, 2018.

Wings & Things acquired Northern Mountain Silk, Inc., a Utah corporation (“Northern Mountain”) on September 21, 2017 pursuant to a private transaction between VIP Worldnet, Inc. (“VIP Worldnet”), the majority shareholder of Wings & Things, and Northern Mountain. VIP Worldnet transferred 14,100,000 of Wings & Things common stock to Northern Mountain’s shareholders, leaving VIP Worldnet with 900,000 shares of Wings & Things common stock. Based upon this private transaction, Northern Mountain shareholders delivered 15,000,000 of Northern Mountain’s issued and outstanding shares to Wings & Things, resulting in Northern Mountain becoming a wholly-owned subsidiary of Wings & Things and its shareholders, as a group, owning 78.3% of Wings & Things outstanding common stock.

Northern Mountain is a holding company and does not have significant business operations, other than holding of equity interests in its subsidiaries and a variable interest entity (VIE). It has an operating variable interest entity Liaoning Yixing Silk Company Limited (“Yixing Silk”), which operates in the natural raw silk industry in the Peoples Republic of China. On a consolidated basis, Northern Mountain’s operating activities are significant compared to those of Wings & Things, therefore, pursuant to SEC reporting regulations, the acquisition is treated as a reverse acquisition with Northern Mountain becoming the accounting acquirer. Although the legal acquirer in the acquisition is Wings & Things, in a reverse acquisition the accounting acquirer’s financial historical information is presented in the financial statements as though they are the parent company’s history, but in actuality all historical financial information is that of accounting acquirer. In these financial statements, all historical financial information is that of Northern Mountain which consists primarily of the operating activities of its only operating entity, Yixing Silk.

In addition to the historical presentation changes in a reverse acquisition, there is also a reorganization of the parent company’s equity section, as such, the historical retained earnings of Wings & Things prior to the acquisition on September 21, 2017 has been reclassified to paid in capital and the retained earnings have been replaced by those of Northern Mountain.

Inventories consist of the following at September 30, 2018 and December 31, 2017:

The Company repaid a total related party advance of $76,759 during 2018 to one of the shareholders. The repayment of the advance was due on demand. The interest rate and term are under negotiation and will be determined at the end of 2018. The Company received the total advance of $792,150 from the officer and the repayments of $1,322,485 were made by the Company during the 2018. These advances are also due on demand.

The accompanying financial statements include Wings & Things’ notes payable and related party notes payable assumed in the reverse acquisition. Notes payable unrelated parties as of September 30, 2018 were $84,500, due on demand, and bear interest at 8%. Accrued interest at September 30, 2018 was $40,415. Notes payable-related party at September 30, 2018 were $150,900. Accrued interest at September 30, 2018 was $62,998. The notes bear interest at 8% and are due on demand.

For the nine months ended September 30, 2018 and 2017, interest expenses amounted to $184,118 and $176,218, respectively. At September 30, 2018 and December 31, 2017, accrued interest on the outstanding short-term loans was $348,762 and $184,024, respectively.

Apart from the collateral of Company’s fixed assets, there were no other loan covenants required by the loans disclosed above.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business. The Company has an accumulated deficit of $84,234 and $983,510 as of September 30, 2018 and December 31, 2017, respectively. The Company’s ability to meet its cash requirements for the next twelve months largely depends on the related-party loans from a major shareholder and the continued renewal of short-term bank loans. These factors raise substantial doubt about the Company's ability to continue as a going concern.

The Company is in the process of obtaining informal assurance from our current lender that our short-term loans will continue to be renewed and further opening dialog with the lender to convert the short-term loans to long term loans. The Company also may rely on sales of its common stock to raise additional funds. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and has determined that there are no such events that would have a material impact on the financial statements.

In this report references to “Wings & Things,” “the Company,” “we,” “us,” and “our” refer to Wings & Things, Inc.

FORWARD LOOKING STATEMENTS

The U. S. Securities and Exchange Commission (“SEC”) encourages reporting companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions. This report contains these types of statements. Words such as “may,” “expect,” “believe,” “intend,” “anticipate,” “estimate,” “project,” or “continue” or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

Executive Overview

Wings is a holding company without significant business operations, other than holding of equity interests in its subsidiaries and variable interest entities. Wings’ wholly-owned subsidiary, Northern Mountain entered into a series of agreements in December 2016 amongst Northern Mountain’s subsidiaries and Yixing Silk. These agreements granted all decision making rights, all voting rights and all rights to profits and risk of losses to Northern Mountain’s subsidiaries. As a result of the variable interest entity (“VIE”) contractual arrangements, Wings consolidates the results of operations of Yixing Silk as its material operating VIE. In addition, Wings intends to carry on the business operations of Yixing Silk through the various VIE contractual arrangements between Northern Mountain and its subsidiaries and Yixing Silk.

The following information details the results of operations of Yixing Silk and the financial statements for Yixing Silk for the nine-month periods ended September 30, 2018 and 2017. Wings’ reporting currency is the U.S. dollar, but Yixing Silk uses the PRC local currency, Renminbi (RMB), as its functional currency. Therefore, the financial statements are adjusted according to the appropriate exchange rate.

Liaoning Yixing Silk Company Limited was established on November 25, 2010 in Xifeng County, Liaoning Province, in the Peoples Republic of China, as a limited liability company. Yixing Silk is engaged in the manufacturing and retail sale of raw wild silk (tussah silk) and silk related products, such as bedding, comforters, clothing, and silk thread products. Yixing Silk also manufactures raw silk batting that is sold to other manufacturers for inclusion in their varied products.

During 2016 and 2017, Yixing Silk expanded its operations beyond tussah silk manufacturing and cooperated with university partners and research institutes, such as, Liaoning Textile Research Institute, Liaoning University and Shenyang Agricultural University, to draw on the expertise of their professors in the areas of silkworm breeding, silk fabrics, healthy supplements and biotechnology. Management believes this expertise will allow Yixing Silk to develop several new products related to the silkworm’s valuable properties which can be used in several different industries, such as the pharmaceutical industry, health food supplements industry, agriculture and aquaculture industries, and skin care industry.

Yixing Silk’s newest products are being tested by various selected consumers and we are receiving comments and suggestions for future improvements. With proper funding, Yixing Silk intends to commence production and promotion of some or all of their new products. The anticipated potential revenue and profit from these new products has become a focus for the management of Yixing Silk.

Liquidity and Capital Resources

During the nine-month periods ended September 30, 2018 and 2017 and the years ended December 31, 2017 and 2016, Yixing Silk has relied upon revenues and short term loans and advances from related parties to fund operations. Management anticipates it will rely upon those sources to fund operations for the next twelve months. At September 30, 2018 Yixing Silk had cash of $86,968 and working capital of $2,105,031 compared to cash of $64,955 and working capital of $1,298,014 at December 31, 2017. Yixing Silk does not have any material commitments for capital expenditures as of September 30, 2018.

The company’s ability to meet its cash requirements for the next twelve months largely depends on the continued renewal of its short-term bank loans and the related-party loans from its major shareholders. These factors raise substantial doubt about Yixing Silk's ability to continue as a going concern.

Yixing Silk intends to obtain capital from revenues, short term loans or related parties to fund its operations; however, there is no assurance that these sources can supply the needed funding. The company is in the process of obtaining informal assurance from a current lender that its short term loans will continue to be renewed and further opening dialog with the lender to convert the short term loans to long term loans. Also, its management continues to negotiate better costs and terms with key vendors to lower cost of sales. Its management will continue to scrutinize expenses related to operating activities and order fulfillment to determine appropriate actions to take to reduce these costs to maintain profitability in the short term.

Management anticipates that any future additional capital needed for cash shortfalls may be provided by debt financing and/or secondary financing from its parent companies. The secondary financing may alleviate Yixing Silk’s reliance on related-party advances and assist with its continued growth in the silk market.

Commitments and Obligations

At September 30, 2018, Wings & Things recorded short term loans, representing Yixing Silk two-year bank notes, totaling $2,108,274 with accrued interest of $348,762. Notes payable and related party notes payable include those assumed in the reverse acquisition. Notes payable unrelated parties as of September 30, 2018 were $84,500, due on demand, and bear interest at 8%. Accrued interest at September 30, 2018 was $40,415. Notes payable-related party at September 30, 2018 were $150,900. Accrued interest at September 30, 2018 was $62,998. The notes bear interest at 8% and are due on demand.

In February 2012 Yixing Silk committed to an operating lease for showroom space to commence February 1, 2012. The lease expired in January 2018, but was re-negotiated for an additional year to expire January 10, 2019. Annual rent of $35,482 was paid for the lease period ending January 10, 2019.

Statutory Reserves

The laws and regulations of the PRC require that before an enterprise distributes profits to its shareholders, it must first satisfy all tax liability, provision for losses in previous years and make allocation to the statutory reserves. Yixing Silk is required to transfer 10% of its net income to a statutory surplus reserve fund until such reserve balance reaches 50% of its registered capital. However, an amendment was made effective in 2016 that the requirement was optional. For the years ended December 31, 2017 and 2016 the company allocated contributions of $0 and $0, respectively, to the statutory reserves.

Concentration of Credit Risk

Financial instruments that potentially subject Yixing Silk to significant concentrations of credit risk consist principally of cash, trade receivables and advances to suppliers. As of September 30, 2018, with respect to trade receivables and advances to suppliers, the company extends credit based on evaluations of the customers' and suppliers' financial position and business history with the company. The company generally is required to make advances to suppliers.

Results of Operations

For the three and nine months ended September 30, 2018 and 2017

The following chart summarizes the consolidated financial statements of Wings & Things for the three and nine months ended September 30, 2018 and 2017. Assets and liabilities are translated at the unified exchange rate as quoted by the People’s Bank of China at the end of the period. The statement of operations accounts are translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of equity. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

SUMMARY OF OPERATING RESULTS

Yixing Silk recognizes revenue from sales on the date of shipment to customers and when a formal arrangement exists, the price is fixed or determinable, and the delivery is completed. Products sold in the PRC are subject to a Chinese valued-added tax at a rate of 3% to 17% of the gross sales price.

For the three month period ended September 30, 2018 (“2018 third quarter”) Yixing Silk recorded revenues of $4,124,537 compared to revenues of $4,178,192 for the three months ended September 30, 2017 (“2017 third quarter”). For the nine month period ended September 30, 2018 (“2018 nine month period”) Yixing Silk recorded revenues of $10,350,964 compared to revenues of $9,887,325 for the nine months ended September 30, 2017 (“2017 nine month period). There were higher sales during the 2018 nine month period because the company launched a promotion to try to sell the out-of-date inventories that have lower margins during the first quarter of 2018.

The changes in the cost of sales reflected the changes in sales during the comparable periods.

Gross profit decreased to $651,061 for the 2018 third quarter compared to $680,209 for the 2017 third quarter due to a slight decrease in sales. Gross profit decreased to $1,385,740 for the 2018 nine month period compared to $1,472,753 for the 2017 nine month period. The decrease in gross profit for the 2018 nine month period reflects increased sales of out-of-date inventories with lower margins. Therefore, during the nine-month period in 2018 the gross profit was lower than the same period in 2017.

Total operating expense decreased to $54,499 for the 2018 third quarter compared to $110,229 for the 2017 third quarter. Total operating expense decreased to $299,050 for the 2018 nine month period compared to $369,102 for the 2017 nine month period. The decrease in operating expenses was expected because the Company was trying to reduce office expenses in order to maintain sufficient cash flow for operations.

Total other expense increased to $63,532 for the 2018 third quarter compared to $58,851 for the 2017 third quarter and increased to $187,414 for the 2018 nine month period compared to $176,119 for the 2017 nine month period remained similar. Total other expense represents the interest expenses to the bank loans.

Yixing Silk recorded a net income of $533,030 for the 2018 third quarter compared to net income of $511,129 for the 2017 third quarter and recorded a net income of $899,276 for the 2018 nine month period compared to net income of $927,432 for the 2017 nine month period. The net income for the 2018 interim periods primarily reflects the higher margin and decreased operating expenses during the 2018 third quarter. However, the company conducted the promotional sales during the 2018 first quarter that contributed to the decrease in net income during the 2018 nine month period.

The significant changes on comprehensive income were due to the fluctuation of foreign currency exchange rate.

Off-Balance Sheet Arrangements

Wings & Things has not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

Emerging Growth Company

Wings qualifies as an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). A company qualifies as an emerging growth company if it has total annual gross revenues of less than $1.07 billion during its most recently completed fiscal year and, as of December 8, 2011, had not sold common equity securities under a registration statement. Under the JOBS Act we are permitted to, and intend to, rely on exemptions from certain disclosure requirements

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

Not applicable to smaller reporting companies.

Disclosure Controls and Procedures

Under the supervision and with the participation of our President, who acts as our Principal Financial Officer, and our Chief Financial Officer, Wings’ management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. The disclosure controls and procedures ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rule and forms; and (ii) accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, management concluded that our controls were not effective as of September 30, 2018.

The material weaknesses relate to the limited number of persons responsible for the recording and reporting of financial information, the lack of separation of financial reporting duties, and the limited size of our management team in general. We are in the process of evaluating methods of improving our internal control over financial reporting, including the possible addition of financial reporting staff and the increased separation of financial reporting responsibility, and intend to implement such steps as are necessary and possible to correct these material weaknesses.

Notwithstanding this finding of ineffective disclosure controls and procedures, we concluded that the consolidated financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.

Changes to Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control - Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Our management has determined that there were no changes made in the implementation of our internal controls over financial reporting during the quarter ended September 30, 2018 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.

A smaller reporting company is not required to provide the information required by this Item.

None.

None.

Not applicable.

None.

SIGNATURES

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

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