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 August 2019

 

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 and six months ended June 30, 2019.

 

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S-8 (File No. 333-229046) filed with the Securities and Exchange Commission on December 27, 2018, to the extent not superseded by information subsequently filed or furnished (to the extent we expressly state that we incorporate such furnished information by reference) by us under the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.

 

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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: August 27, 2019 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 August 27, 2019

 

 

 

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Exhibit 99.1

 

KBS Fashion Group Limited posts strong revenues growth and positive
operating income for the second quarter and the first half of 2019

 

SHISHI, China, August 27th, 2019 — 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 second quarter and the first half of 2019.

 

Second Quarter of 2019 Financial Highlights

 

   For the Three Months Ended June 30, 
($ millions, except per share data)  2019   2018   % Change 
Revenues   4.42    3.89    13.6%
Distribution network   2.39    3.06    -21.8%
Corporate stores   0.12    0.13    -9.3%
OEM   1.91    0.70    172.4%
Gross profit   1.71    1.03    66.1%
Gross margin   38.6%   26.4%   -0.9pp
Operating income (loss)   0.62    -0.56    -209.8%
Operating (loss) margin   13.9%   -14.4%   -77.1pp
Net income (loss)   0.36    -0.47    -177.9%
Earnings (loss) per share   0.15    -0.21    -170.5%

 

Net revenues increased by 13.6% to $4.42 million for the second quarter of 2019 from $3.89 million for the same period of last year. The increase was primarily due to the increased OEM sales during the quarter, up 172.4% compared to the same period of last year.

 

Gross profit increased by 66.1% to $1.71 million for the second quarter of 2019 from $1.03 million for the same period of last year. Gross margin was 38.6% for the second quarter of 2019, compared to 26.4% for the same period of last year.

 

Operating income was $0.62 million for the second quarter of 2019, compared to operating loss of $0.56 million for the same period of last year.

 

Net income was $0.36 million, or $0.15 earnings per basic and diluted share, for the second quarter of 2019, compared to net loss of $0.47 million, or $0.21 loss per basic and diluted share, for the same period of last year.

 

Mr. Keyan Yan, Chief Executive Officer of the Company commented, “we have made substantial progress with our business strategy, resulting in a 66.1% and 56.8% gross profit increase for the second quarter and the first half year compared to the same period of last year. We were able to become profitable by earning $0.15 and $0.25 per share for the second quarter and the first half of 2019, respectively. Additionally, our collaboration with new partners has considerably strengthened our product offerings to support our growth. We are very satisfied with what we have accomplished so far this year. The management team is continuing to broaden our products’ sales network throughout the marketplace to achieve a successful future for our business.”

 

 

 

 

Second Quarter of 2019 Financial Results

   

Revenues

  

Total revenues increased by $0.53 million, or 13.6%, to $4.42 million for the second quarter of 2019 from $3.89 million for the same period of last year. The increase was related to the increased sales from OEM division.

 

   For the Three Months Ended June 30, 
   2019   2018 
($ millions)  Revenues   Gross Profit   Gross Margin   Revenues   Gross Profit   Gross Margin 
Distribution network   2.39    0.82    34.1%   3.06    0.73    23.7%
Corporate stores   0.12    0.12    99.4%   0.13    0.06    46.6%
OEM   1.91    0.77    40.5%   0.70    0.24    34.7%
Total   4.42    1.71    38.6%   3.89    1.03    26.5%

 

Revenues from the Company’s distribution network decreased by $0.67 million, or 21.8%, to $2.39 million for the second quarter of 2018 from $3.06 million for the same period of last year. Distribution network contributed 54.1% of total revenues for the second quarter of 2019, compared to 78.7% for the same period of last year. The Company’s distributor network consisted of 17 distributors in 9 provinces during the second quarter of 2019, compared to 24 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 June 30, 2019, the distributors operated 32 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 distributors operated 38 branded franchise stores as of June 30, 2018.

 

The following table lists by region the number of retail stores operated by distributors and sub-distributors as of June 30, 2019: 

 

Location  As of June 30,
2019
 
Fujian   7 
Guangdong   2 
Guangxi   2 
Jiangsu   4 
Anhui   2 
Sichuan   4 
Chongqing   4 
Tianjin   3 
Hebei   4 
Total   32 

 

Revenues from corporate stores sales was $0.12 million for the second quarter of 2019 compared to $0.13 million in the same period of last year. Corporate stores accounted for 2.7% of total revenues for the second quarter of 2019, compared to 3.4% for the same period of last year. As of both June 30, 2019 and June 30, 2018, the Company operated 1 corporate store.

 

Revenues from OEM sales increased by $1.21 million, or 172.4%, to $1.91 million for the second quarter of 2019 from $0.70 million for the same period of last year. OEM accounted for 43.1% of total revenues for the second quarter of 2019, compared to 17.7% 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 sales contracts from two new customers.

 

Cost of Sales and Gross Profit

 

Total cost of sales decreased by $0.15 million, 5.3%, to $2.71 million for the second quarter of 2019 from $2.86 million for the same period of last year.

 

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Total gross profit increased by $0.68 million, or 66.1%, to $1.71 million for the second quarter of 2019 from $1.03 million for the same period of last year. Gross profits for distribution network, corporate stores and OEM were $0.82 million, $0.12 million, and $0.77 million, respectively, for the second quarter of 2019, compared to $0.73 million, $0.06 million, and $0.24 million, respectively, for the same period of last year.

 

Overall gross margin was 38.6% for the second quarter of 2019, compared to 26.5% for the same period of last year. On a segment basis, gross margins for distribution network, corporate stores and OEM were 34.1%, 99.4%, and 40.5%, respectively, for the second quarter of 2019, compared to 23.7%, 46.6%, and 34.7%, respectively, for the same period of last year. The increase in gross margin was due to the launch of newly developed OEM products and distributors’ wholesale price adjustment. Additionally, our domestic VAT rate reduced to 13% from 16%.

 

Operating Expenses and Operating Income (Loss)

 

Distribution and selling expenses decreased by $0.41 million, or 60.3%, to $0.27 million for the second quarter of 2019 from $0.68 million for the same period of last year. The decrease in distribution and selling expenses was mainly due to the decrease in unnecessary advertising expenses, labor cost, and reduced subsidy to our distributors to increase the company’s profit target throughout the year.

 

Administrative expenses decreased by $0.10 million, or 10.7%, to $0.86 million for the second quarter of 2019 from $0.96 million for same period of last year The slight decrease in administrative expenses was mainly due to our efforts in the expense control including reduced compensation for senior executives and R&D expenses.

 

Other operating expenses, including other income and other gains and loss, totaled $0.04 million for the second quarter of 2019, compared to $0.05 million for the same period of last year. Total operating expense decreased by $0.50 million, or 31.2%, to $1.09 million for the second quarter of 2019 from $1.59 million for the same period of last year. The decrease was mainly due to the implementation of operational strategy to improve profitability this year, as well as reduced compensation expenses, R&D expenses, and external designing cost. Lastly, after Anhui property is impaired, the depreciation expenses are reduced accordingly.

 

Total income from operations was $0.62 million for the second quarter of 2019, compared to operating loss of $0.56 million for the same period of last year. Operating income margin was 13.9% for the second quarter of 2019, compared to operating loss margin of 14.4% for the same period of last year.

 

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Income (Loss) before Income Taxes

 

Income before income taxes was $0.60 million for the second quarter of 2019, compared to loss before tax of $0.59 million for the same period of last year.

 

Income tax expense was $0.23 million for the second quarter of 2019, compared to income tax benefit of $0.12 million for the same period of last year.

 

Net Income (Loss) and Earnings (Loss) per Share

 

Net income was $0.36 million, or $0.15 earnings per basic and diluted share, for the second quarter of 2019, compared to GAAP net loss of $0.47 million, or $0.21 loss per basic and diluted share, for the same period of last year.

 

   For the Three Months Ended June 30, 
   2019   2018 
   USD   EPS   USD   EPS 
Net income  $363,603   $0.149   $(2,235,493)  $(1.262)
Change in fair value of warrants   -   $0.149   $-   $- 

 

First Half of 2019 Financial Results

 

   For the Six Months Ended June 30, 
($ millions, except per share data)  2019   2018   % Change 
Revenues   9.04    8.35    8.2%
Distribution network   5.43    6.96    -22.0%
Corporate stores   0.30    0.28    4.2%
OEM   3.31    1.11    198.3%
Gross profit   3.32    2.12    56.8%
Gross margin   36.8%   25.4%   -2.6pp
Operating income (loss)   1.09    -2.56    -142.7%
Operating (loss) margin   12.1%   -30.7%   -60.2pp
Net income (loss)   0.61    -2.36    -125.9%
Earnings (loss) per share   0.25    -1.07    -123.4%

 

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Revenues

   

Total revenues increased by $0.69 million, or 8.2%, to $9.04 million for the first half of 2019 from $8.35 million for the same period of last year. The increase was due to the increasing sales from corporate stores and OEM.

 

   For the Six Months Ended June 30, 
   2019   2018 
($ millions)  Revenues   Gross Profit   Gross Margin   Revenues   Gross Profit   Gross Margin 
Distribution network   5.43    1.78    32.9%   6.96    1.62    23.3%
Corporate stores   0.30    0.19    63.1%   0.28    0.12    42.6%
OEM   3.31    1.35    40.8%   1.11    0.38    34.2%
Total   9.04    3.32    36.8%   8.35    2.12    25.4%

 

Revenues from the Company’s distribution network decreased by $1.53 million, or 22.0%, to $5.43 million for the first half of 2019 from $6.96 million for the same period of last year. Distribution network contributed 60.1% of total revenues for the first half of 2019, compared to 83.4% for the same period of last year. The decrease in revenues from the distribution network was due to the discontinuation of selected branded franchise stores operated by our distributors. Our distributors integrated underperformed stores in order to manage the cost and avoid the heavy backlog.

 

Revenues from corporate stores sales increased by $0.01 million, or 4.2%, to $0.30 million for the first half of 2019 from $0.28 million for the same period of last year. Corporate stores accounted for 3.3% of total revenues for the first half of 2019, compared to 3.4% for the same period of last year. The slight increase in corporate stores sales was due to the improved products with higher sales prices.

 

Revenues from OEM sales increased by $2.20 million, or 198.3%, to $3.31 million for the first half of 2019 from $1.11 million for the same period of last year. OEM accounted for 36.7% of total revenues for the first half of 2019, compared to 13.3% 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 newly signed sales contracts with two new customers.

 

Cost of Sales and Gross Profit

 

As a result of cost management, total cost of sales decreased by $0.52 million, 8.3%, to $5.72 million for the first half of 2019 from $6.23 million for the same period of last year.

 

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Total gross profit increased by $1.20 million, or 56.8%, to $3.32 million for the first half of 2019 from $2.12 million for the same period of last year. Gross profits for distribution network, corporate stores and OEM were $1.78 million, $0.19 million, and $1.35 million, respectively, for the first half of 2019, compared to $1.62 million, $0.12 million, and $0.38 million, respectively, for the same period of last year.

 

Overall gross margin was 36.8% for the first half of 2019, compared to 25.4% for the same period of last year. On a segment basis, gross margins for distribution network, corporate stores and OEM were 32.9%, 63.1%, and 40.8%, respectively, for the first half of 2019, compared to 23.3%, 42.6%, and 34.2%, respectively, for the same period of last year. The increase in gross margin for all three divisions was due to additional customers, price adjustment for increasing OEM products, and reduced domestic VAT resulting improved gross margin.

 

Operating Expenses and Operating Income (Loss)

 

Distribution and selling expenses decreased by $0.84 million, or 59.7%, to $0.57 million for the first half of 2019 from $1.41 million for the same period of last year. The decrease in distribution and selling expenses was mainly due to the decrease in unnecessary advertising expenses, labor cost, and reduced subsidy to our distributors to increase the company’s profit target throughout the year.

 

Administrative expenses decreased by $1.56 million, or 46.6%, to $1.79 million for the first half of 2019 from $3.35 million for same period of last year. The decrease was due to reduced compensation for senior executives and R&D expenses.

 

Other operating expenses, including other income and other gains and loss, totaled negative $0.13 million for the first half of 2019, compared to $0.08 million for the same period of last year. Total operating expense decreased by $2.45 million, or 52.4%, to $2.23 million for the first half of 2019 from $4.68 million for the same period of last year. The decrease was mainly due to the implementation of operational strategy to improve profitability this year, as well as reduced compensation expenses, R&D expenses, and external designing cost. Lastly, after Anhui property is impaired, the depreciation expenses are reduced accordingly.

 

Total income from operations was $1.09 million for the first half of 2019, compared to operating loss of $2.56 million for the same period of last year. Operating income margin was 12.1% for the first half of 2019, compared to operating loss margin of 30.7% for the same period of last year.

 

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Income (Loss) before Income Taxes

 

Income before income taxes was $1.01 million for the first half of 2019, compared to loss before income taxes of $2.61 million for the same period of last year.

 

Income tax expense was $0.45 million for the first half of 2019, compared to income tax benefit of $0.26 million for the same period of last year.

 

Net Income (Loss) and Earnings (Loss) per Share

 

Net income was $0.61 million, or $0.25 earnings per basic and diluted share, for the first half of 2019, compared to net loss of $2.36 million, or $1.07 loss per basic and diluted share, for the same period of last year.

 

   For the Six Months Ended June 30, 
   2019   2018 
   USD   EPS   USD   EPS 
Net income  $609,649   $0.250   $(3,969,079)  $(2.241)
Change in fair value of warrants   -    -    -   $- 

 

Financial Conditions

   

As of June 30, 2019, the Company had cash and cash equivalents of $20.20 million, working capital of $26.46 million and stockholders’ equity of $55.34 million, compared to $21.03 million, $26.46 million, and $54.30 million, respectively, at December 31, 2018.

 

Net cash provided by operating activities was $0.22 million for the six months ended June 30, 2019, compared to net cash used in operating activities of $4.42 million for the same period of last year. Net cash provided by investing activities was $0.03 million for the six months ended June 30, 2019, compared to net cash provided by investing activities of $0.02 million for the same period of last year. Net cash provided by financing activities was $0.03 million for the six months ended June 30, 2019, compared to net cash provided by financing activities was $0.22 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 32 KBS branded stores (as of June 30, 2019) 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:

 

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

 

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KBS Fashion Group Limited

Unaudited Consolidated Statements of Financial Position

(Stated in US dollars)

 

   2019/06/30   2018/12/31 
Non-current assets        
Property, plant and equipment   11,746,885    12,173,808 
Prepayments and premiums under operating leases   1,029,190    2,371,735 
Prepayment for construction of new plant   -    - 
Prepayment for acquisition of land use right   -    - 
Land use right   595,478    603,503 
Deferred tax asset   14,449,560    14,688,829 
Total non-current assets   27,821,112    29,837,875 
           
Current assets          
Inventories   1,382,031    1,245,800 
Trade receivables   11,385,708    8,122,223 
Other receivables and prepayments   (165,284)   855,473 
Prepayments and premiums under operating leases   1,384,684    78,532 
Cash and cash equivalents   20,198,685    21,026,103 
Total current assets   34,185,824    31,328,132 
           
Total assets   62,006,936    61,166,007 
           
Current liabilities          
Short-term loans   1,090,957    1,092,785 
Trade and other payables   4,930,906    5,278,460 
Related parties payables   521,363    445,614 
Income tax payable   122,634    47,828 
Total current liabilities   6,665,859    6,864,685 
           
Warrant liabilities          
           
Total liabilities   6,665,859    6,864,685 
           
Equity          
Share capital   259    227 
Share premium   9,199,779    8,000,561 
Revaluation reserve   184,272    184,272 
Statutory surplus reserve   6,084,836    6,084,836 
Retained profits   46,787,863    46,178,214 
Foreign currency translation reserve   (6,915,931)   (6,146,787)
Total equity   55,341,077    54,301,321 
           
Total liabilities and equity   62,006,936    61,166,007 

 

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KBS Fashion Group Limited

UNAUDITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(LOSS)

(Stated in US dollars)

 

   Three months ended June 30   Six months ended June 30 
   2019   2018   2019   2018 
   USD   USD   USD   USD 
                 
Revenue   4,421,408    3,893,045    9,038,280    8,352,070 
Cost of sales   (2,712,832)   (2,864,645)   (5,715,026)   (6,232,435)
Gross profit   1,708,576    1,028,400    3,323,254    2,119,635 
GP ratio   39%   26%   37%   25%
                     
Other income   77,537    40,113    144,108    66,877 
Other gains and losses   (41,173)   12,797    (13,729)   13,819 
Distribution and selling expenses   (268,958)   (677,537)   (566,960)   (1,406,499)
Administrative expenses   (860,959)   (963,980)   (1,792,258)   (3,354,952)
Operating profit   615,024    (560,208)   1,094,414    (2,561,121)
                     
Finance costs   (16,894)   (25,670)   (34,101)   (51,185)
Change in fair value of warrant liabilities   -    -    -    - 
Profit before tax   598,130    (585,878)   1,060,313    (2,612,306)
                     
Income tax expense   (234,527)   119,362    (450,664)   256,512 
Profit for the year   363,603    (466,516)   609,649    (2,355,794)
                     
Other comprehensive(loss) income                    
-Currency translation differences   (3,746,542)   (14,470,360)   (3,840,841)   (14,058,817)
Total comprehensive income for the year   (3,382,939)   (14,936,876)   (3,231,192)   (16,414,611)
                     
Weighted average shares outstanding: loss per share of common stock attibutable to the company   2,441,299    2,206,741    2,441,299    2,206,741 
-Basic   0.15    -0.21    0.25    -1.07 
-Diluted   0.15    -0.21    0.25    -1.07 

  

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KBS Fashion Group Limited

Unaudited Consolidated Statements of Cash Flow

For the Six Months ended June 30, 2019 and 2018 USD

 

   2019   2018 
  USD   USD 
Operating activities        
Profit before tax   609,649    (2,355,794)
Adjustments for:          
Adjust statutory reserve for year 2013   -    51,185 
Share based payment   1,199,250    - 
Finance costs   34,101    - 
Change in fair value of warrant liabilities   -    (39,111)
Interest income   (31,800)   - 
Depreciation of property, plant and equipment   413,560    792,939 
Amortisation of prepaid lease payments   7,123    7,554 
Amortisation of subsidies prepaid to distributors   -    - 
Amortisation of prepayments and premiums under operating leases   104,887    27,432 
Provision (Reversal) of inventory obsolescence   -    (28,616)
Bad debt allowance   -    1,314,420 
Gain on disposal of property, plant and equipment   (801)   - 
Operating cash flows before movements in working capital   2,335,968    (229,992)
           
(Increase) / Decrease in trade and other receivables   (3,328,397)   (2,584,533)
(Increase) / Decrease in inventories   (140,425)   (292,727)
Increase / (Decrease) in trade and other payables   260,014    108,615 
Prepayment and premiums paid under operating leases   303,274    (1,464,010)
Subsidies preaid to distributors          
Cash generated from operations   (569,566)   (1,534,821)
DTA   217,972    (256,512)
Income taxes paid   -    - 
Net cash from operating activities   (351,594)   (1,791,333)
           
Investing activities          
Interest received   31,800    42,538 
Purchase of property, plant and equipment   -    (21,022)
Net cash providing in investing activities   31,800    21,517 
           
Financing activities          
Interest paid   (34,101)   (51,185)
New bank loans raised   1,107,594    1,644,448 
Repayment of borrowings   (1,107,594)   (1,644,448)
Advances from related parities   71,833    271,837 
Repayment to related parties   -    - 
Net cash providing in financing activities   37,732    220,652 
           
Net increase in cash and cash equivalent   (282,061)   (4,177,613)
Effects of currency translation   (545,356)   3,079,400 
           
Cash and cash equivalents at beginning of year   21,026,103    25,221,323 
           
Cash and cash equivalents at end of year   20,198,685    24,123,110 

 

 

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