UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF THE

SECURITIES EXCHANGE ACT OF 1934

 

For the month of December, 2018

 

Commission File Number 001-35715

 

KBS FASHION GROUP LIMITED

(Translation of registrant’s name into English)

 

Xin Fengge Building

Yupu Industrial Park

Shishi City, Fujian Province 362700

People’s Republic of China

(Address of principal executive offices)

  

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F: Form 20-F ☒  Form 40-F ☐

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

 

 

 

 

 

 

KBS Fashion Group Limited (the “Company”) today announced its unaudited financial results for the three months ended September 30, 2018.

 

The Company’s press release regarding the foregoing matter is attached hereto as Exhibit 99.1.

 

Exhibit 99.1 to this Report on Form 6-K shall be incorporated by reference into the Registration Statement on Form S-8 (File No. 333-229046) filed with the Securities and Exchange Commission on December 27, 2018, to the extent not superseded by information subsequently filed or furnished (to the extent we expressly state that we incorporate such furnished information by reference) by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, in each case as amended.

 

Exhibit 
Number
  Description
     
99.1   Press Release, dated December 31, 2018

 

 1 

 

 

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.

 

Date: December 31, 2018 KBS Fashion Group Limited
     
  By: /s/ Lixia Tu
  Lixia Tu
  Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit Number   Description
     
99.1   Press Release, dated December 31, 2018

 

 

3

 

 

Exhibit 99.1

 

KBS Fashion Group Limited Announces Financial Results for the Third Quarter of 2018

 

SHISHI, China, Dec. 31, 2018 -- KBS Fashion Group Limited (“KBS” or the “Company”) (NASDAQ: KBSF), a leading fully-integrated casual menswear company in China, today announced its unaudited financial results for the quarter ended September 30, 2018.

 

Third Quarter of 2018 Financial Highlights

 

Net revenues decreased by 25.1% to $3.55 million for the third quarter of 2018 from $4.74 million for the same period of last year.

 

Gross profit increased by 144.1% to $0.69 million for the third quarter of 2018 from gross loss of $1.57 million for the same period of last year. Gross margin was 19.5% for the third quarter of 2018, compared to negative gross margin of 33.1% for the same period of last year.

 

Operating loss decreased by 86.0% to $0.77 million for the third quarter of 2018 from operating loss of $5.52 million for the same period of last year.

 

GAAP net loss was $0.62 million, or $0.28 loss per basic and diluted share, for the third quarter of 2018, compared to net loss of $4.32 million, or $1.26 loss per basic and diluted share, for the same period of last year.

 

Mr. Keyan Yan, Chief Executive Officer of the Company commented, “Similar to the second quarter, we continue to face a challenging garment market. In the third quarter, we managed to increase our OEM sales and have been working to increase our sales through cross-broader e-Commerce channels. Given the growing opportunities in the OEM division, we are confident in our ability to improve company profitability and focus on our online sales which have greater growth potential. The management team is committed to improving overall performance in the business and increasing shareholders’ long-term value.”

 

Third quarter of 2018 Financial Results Analysis

 

Table 1            
   For the Three Months Ended September 30, 
($ millions, except per share data)  2018   2017   % Change 
Revenues   3.55    4.74    -25.1%
Distribution network   2.77    3.29    -15.7%
Corporate stores   0.16    1.05    -84.3%
OEM   0.61    0.40    51.9%
Gross profit   0.69    -1.57    -144.1%
Gross margin   19.5%   -33.1%   -0.9 pp 
Operating income (loss)   -0.77    -5.52    -86.0%
Operating (loss) margin   -21.7%   -116.4%   -77.1 pp 
GAAP net income (loss)   -0.62    -4.32    -85.7%
GAAP Earnings (loss) per share   -0.28    -1.26    -78.1%

 

 

 

 

Revenues

 

Total revenues decreased by $1.19 million, or 25.1%, to $3.55 million for the third quarter of 2018 from $4.74 million for the same period of last year. The decrease was primarily due to the decreased sales from distribution network and corporate stores divisions.

 

   For the Three Months Ended September 30, 
   2018   2017 
($ millions)  Revenues   Gross
Profit
   Gross
Margin
   Revenues   Gross
Profit
   Gross
Margin
 
Distribution network   2.77    0.44    16.0%   3.29    0.36    11.1%
Corporate stores   0.16    0.06    35.9%   1.05    -2.04    -195.0%
OEM   0.61    0.19    30.6%   0.40    0.10    25.4%
Total   3.55    0.69    19.5%   4.74    -1.57    -33.2%

 

Revenues from the Company’s distribution network decreased by $0.52 million, or 15.7%, to $2.77 million for the third quarter of 2018 from $3.29 million for the same period of last year. Distribution network contributed 78.1% of total revenues for the third quarter of 2018, compared to 69.4% for the same period of last year. The decrease in distribution network sales was due to the termination of bad contracts with customers in the third quarter of last year. Additionally, KBS continuously liquidated its previous excess inventory and limited orders based on the customers’ demands.

 

The Company’s distributor network consisted of 14 distributors in 12 provinces during the third quarter of 2018, compared to the same amount of distributors in 12 provinces during the same period of last year. Most of these distributors, either directly or through their sub-distributors, operate KBS-branded stores. Some wholesale distributors sold the products to multi-branded stores and online stores. As of September 30, 2018, the Company’s distributors operated 38 branded franchise stores, primarily in second and third tier cities. KBS products distributed to the fourth and fifth tier cities are primarily sold in multi-branded department stores and online shops. As a comparison, the Company’s distributors operated 46 branded franchise stores as of September 30, 2017. 

 

The following table lists by region the number of retail stores operated by distributors and sub-distributors as of September 30, 2018: 

 

Location  As of September 30, 2018 
Fujian   7 
Guangdong   2 
Guangxi   3 
Jiangsu   4 
Anhui   1 
Zhejiang   2 
Chongqing   4 
Inner Mongolia   1 
Tianjin   3 
Hebei   4 
Heilongjiang   3 
Sichuan   4 
Total   38 

 

Revenues from corporate stores sales decreased by $0.88 million, or 84.3%, to $0.16 million for the third quarter of 2018 from $1.05 million for the same period of last year. Corporate stores accounted for 4.6% of total revenues for the third quarter of 2018, compared to 22.1% for the same period of last year. The decrease in corporate store sales was due to decreased sales volume.

 

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Revenues from OEM sales increased by $0.21 million, or 51.9% to $0.61 million for the third quarter of 2018 from $0.40 million for the same period of last year. OEM accounted for 17.3% of total revenues for the third quarter of 2018, compared to 8.5% for the same period of last year. The OEM segment is comprised of products that are designed by the customers and manufactured by the Company. The increase in revenues from OEM sales was primarily due to the additional orders increased from the newly added client, Hangzhou Yiyuan Apparel Co.

 

Cost of Sales and Gross Profit

 

Total cost of sales decreased by $3.45 million, 54.7%, to $2.86 million for the third quarter of 2018 from $6.31 million for the same period of last year. 

 

Total gross profit increased by $2.26 million, or 144.1%, to $0.69 million for the third quarter of 2018 from negative gross profit of $1.57 million for the same period of last year. Gross profits for distribution network, corporate stores and OEM were $0.44 million, $0.06 million, and $0.19 million, respectively, for the third quarter of 2018, compared to $0.36 million, negative gross profit of $2.04 million, and $0.10 million, respectively, for the same period of last year. 

 

Overall gross margin was 19.5% for the third quarter of 2018, compared to negative gross margin of 33.2% for the same period of last year. On a segment basis, gross margins for distribution network, corporate stores and OEM were 16.0%, 35.9%, and 30.6%, respectively, for the third quarter of 2018, compared to 11.1%, -195.0%, and 25.4%, respectively, for the same period of last year.  The significant increase in gross margin for distribution network is due to the launch of newly developed products and price advantages of the Company’s new products. The increase in the price has helped offset the decreased volume in sales. Additionally, the VAT decreased from 17% to 16% which contributed to an improved growth margin. The increase in overall gross margin was due to the Company buying back inventory from the distributors and selling them at a discount last year, therefore, when the normal prices were resumed this year, the gross margin returned to a normal range. 

 

Operating Expenses and Operating Income (Loss)

 

Distribution and selling expenses decreased by $0.35 million, or 36.1%, to $0.62 million for the third quarter of 2018 from $0.97 million for the same period of last year. The decrease in distribution and selling expenses was mainly due to decreased marketing and advertising expenses.   

 

Administrative expenses decreased by $0.67 million, or 43.9%, to $0.86 million for the third quarter of 2018 from $1.54 million for same period of last year. The decrease in administrative expenses was mainly due to the decreased expenses for external designing service and client entertainment.

 

Total loss from operations was $0.77 million for the third quarter of 2018, compared to operating loss of $5.52 million for the same period of last year. Operating loss margin was 21.7% for the third quarter of 2018, compared to operating loss margin of 116.4% for the same period of last year.

 

Income (Loss) before Income Taxes

 

Loss before income taxes was $0.80 million for the third quarter of 2018, compared to loss before taxes of $5.54 million for the same period of last year. 

 

Income tax expense was $0.18 million for the third quarter of 2018, compared to income tax expense of $1.22 million for the same period of last year. 

 

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About KBS Fashion Group Limited

 

Headquartered in Shishi, China, KBS Fashion Group Limited, through its subsidiaries, is engaged in the business of designing, manufacturing, selling and distributing its own casual menswear brand, KBS, through a network of 38 KBSbranded stores (as of September 30, 2018) and over a number of multi-brand stores. To learn more about the Company, please visit its corporate website at www.kbsfashion.com.

 

Safe Harbor Statement

 

This press release may contain certain “forward-looking statements” relating to the business of KBS Fashion Group Limited, and its subsidiary companies. All statements, other than statements of historical fact included herein, are “forward-looking statements” in nature within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, often identified by the use of forward-looking terminology such as “believes,” “expects” or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company’s periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

 

For further information, please contact:

 

Lisa Tu
Chief Financial Officer
T: +86 158-5972-2469
E: lingsantu@hotmail.com

 

- Tables Below –

 

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KBS Fashion Group Limited

UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Stated in US Dollars)

 

 

   2018/09/30   2017/09/30 
Current assets          
Cash and cash equivalents   20,219,652    21,262,243 
Trade and other receivables   12,695,833    16,868,533 
Other receivables and prepayments   454,126    448,978 
Related parties receivables   -    174,162 
Inventories   3,369,305    8,476,558 
Subsidies prepaid to distributors   -    - 
Prepayments and premiums under operating leases   540,967    85,577 
Prepaid lease payments          
Total current assets   37,279,883    47,316,051 
           
Non-current assets          
Prepayments and premiums under operating leases   2,054,424    2,555,500 
Prepayment for construction of new plant   -    - 
Prepayment for acquisition of land use right   -    - 
Construction in progress   -    - 
Property, plant and equipment   25,346,271    27,776,177 
Prepaid lease payments   605,605    642,249 
Deferred tax asset   9,847,735    7,626,294 
Total non-current assets   37,854,036    38,600,219 
           
Total assets   75,133,919    85,916,270 
           
Current liabilities          
Short-term loans   1,090,243    1,582,064 
Trade and other payables   4,913,871    4,922,507 
Related parties payables   491,885    5,759,740 
Income tax payable   -    (388,038)
Total current liabilities   6,495,999    11,876,273 
           
Warrant liabilities   -      
           
Total liabilities   6,495,999    7,282,509 
           
Equity          
Common stock   227    2,867 
Additional paid-in capital   8,000,561    6,683,501 
Capital reserve   184,272    184,272 
Surplus reserve   6,084,836    6,084,836 
Retained earnings   61,168,114    69,887,114 
Foreign currency translation reserve   (6,800,088)   (8,802,592)
Total equity   68,637,921    74,039,997 
           
Total liabilities and equity   75,133,920    85,916,271 

 

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KBS Fashion Group Limited

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(LOSS)

(Stated in US Dollars)

 

 

   Three months ended
September 30
 
   2018   2017 
   USD   USD 
         
Revenue   3,551,058    4,741,848 
Cost of sales   (2,859,205)   (6,311,858)
Gross profit   691,853    (1,570,010)
GP ratio   19%   -33%
           
Other income   33,686    14,584 
Other gains and losses   (17,421)   (1,457,367)
Distribution and selling expenses   (619,185)   (969,300)
Administrative expenses   (860,708)   (1,535,121)
Operating profit   (771,775)   (5,517,214)
           
Finance costs   (28,853)   (24,554)
Change in fair value of warrant liabilities   -    - 
Profit before tax   (800,628)   (5,541,767)
           
Income tax expense   183,496    1,224,400 
Profit for the year   (617,132)   (4,317,367)
           
Other comprehensive income          
-Currency translation differences   (3,724,998)   (2,174,474)
Total comprehensive income   (4,342,130)   (6,491,841)
           
Attributable to:          
Owner of the Company   (4,342,130)   (6,491,841)
Minority interests   -    - 
Outstanding shares   2,228,497    1,818,634 
Profit per share-basic and diluted   -0.2769    -1.2622 
NON-GAAP Profit per share-basic and diluted   -0.2769    -1.2622 

 

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KBS Fashion Group Limited

UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOW

(Stated in US Dollars)

 

   2018   2017 
   USD   USD 
Operating activities        
Profit before tax   (617,123)   (4,317,367)
Adjustments for:        - 
Finance costs   28,853    (24,554)
change in fair value of warrant liabilities   -    0 
Interest income   (16,888)   (19,167)
Bad debt allowance        (1,458,441)
Share based compensation        629,950 
Depreciation of property, plant and equipment   369,799    383,048 
Amortisation of prepaid lease payments and trademark   3,526    3,623 
Amortisation of subsidies prepaid to distributors   -    - 
Amortisation of prepayments and premiums under operating leases   76,107    26,683 
Provision (Reversal) of inventory obsolescence   13,559    (16,030)
Loss (gain) on disposal of property, plant and equipment   (1,338)   - 
           
Operating cash flows before movements in working capital   (2,858,633)   (4,792,255)
           
(Increase) / Decrease in trade and other receivables   (1,359,254)   8,228,019 
(Increase) / Decrease in prepayments and deferred expenses   (185,546)   854,379 
Subsidies prepaid to distributors   -    - 
(Increase) / Decrease in related parties receivables   (613,971)   (4,866,433)
(Increase) / Decrease in inventories   (130,327)   76,080 
Increase / (Decrease) in trade and other payables   -    (2,417)
Increase / (Decrease) in related parties payables   (96,670)   5,837,288 
Cash generated from operations   (2,529,275)   5,334,662 
Deferred income tax   (183,493)   (1,224,400)
Income taxes paid   -    28,197 
Net cash from operating activities   (2,712,768)   4,138,459 
           
Investing activities          
Interest received   42,538    19,167 
Prepayments and premiums paid under operating leases   -    - 
withdraw the prepayments and premiums paid under operating leases   -    - 
Subsidies prepaid to distributors   -    - 
Prepayment for construction of new plant   -    - 
Prepayment for acquisition of land use right   -    - 
Purchase of property, plant and equipment and construction in process   (23)   (948,204)
Prepayment on prepaid lease payments   -    - 
Proceeds on disposal of property, plant and equipment   -    - 
Net cash used in investing activities   21,523    (929,038)
           
Financing activities          
Advances from related parities   (66,645)   - 
Repayment to related parties   -    - 
Interest paid   (28,853)   24,554 
New bank loans raised   -    - 
Payment of bank loans   (438,590)   - 
Shares issued   -    - 
Net cash used in financing activities   (534,088)   24,554 
Net increase in cash and cash equivalent   (3,204,340)   3,233,975 
Effects of currency translation   (699,118)   (5,303,989)
Cash and cash equivalents at beginning of year   24,123,110    23,332,257 
Cash and cash equivalents at end of year   20,219,652    21,262,243 

 

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