10-Q 1 c33288-10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 -------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 OR [ ] 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 000-33119 Yi Wan Group, Inc. (Exact name of registrant as specified in its charter) Florida 33-0960062 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 101 E. 52 Street, 9th Floor, New York, New York 10022 (Address of principal executive offices) (Zip Code) (212) 752-9700 (Registrant's telephone number, including area code) 2 East Camino Real, Suite 202, Boca Raton, Florida 33432 (Former Address) All Correspondence to: Arthur S. Marcus, Esq. Gersten, Savage, Kaplowitz, Wolf & Marcus, LLP 101 E. 52 Street, 9th Floor New York, New York 10022 (212) 752-9700 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 [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes Yes [ ] No [X] The number of shares outstanding of the issuer's common stock as of August 9, 2004 was 16,831,250. YI WAN GROUP, INC. TABLE OF CONTENTS Page PART I FINANCIAL INFORMATION Item 1. Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures about Market Risks 15 Item 4. Controls and Procedures 15 PART II OTHER INFORMATION Item 1 Legal Proceedings 15 Item 2 Changes in Securities, Use of Proceeds 15 and Issuer Purchases of Equity Securities Item 3 Defaults upon Senior Securities 15 Item 4 Submission of Matters to a Vote of Security Holders 16 Item 5 Other Information 16 Item 6 Exhibits and Reports on Form 8-K 16 PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS YI WAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2004 AND DECEMBER 31, 2003 ----------------------------------------- (See Report of Independent Registered Public Accounting Firm)

The accompanying notes are an integral part of this statement. - 1 - YI WAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003 --------------------------------------------------------- (See Report of Independent Registered Public Accounting Firm)

The accompanying notes are an integral part of this statement. - 2 - YI WAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003 ------------------------------------------------ (See Report of Independent Registered Public Accounting Firm)

The accompanying notes are an integral part of this statement. - 3 - YI WAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003 ----------------------------------------------- (See Report of Independent Registered Public Accounting Firm)

The accompanying notes are an integral part of this statement. - 4 - YI WAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE REPORTING ENTITY The financial statements of Yi Wan Group, Inc. and subsidiaries (referred to as the Company or YWG in the accompanying consolidated financial statements) include the activities and financial transactions of its subsidiaries, which are as follows: Percentage Subsidiary Ownership ----------------------------------------------------- ------------- Shun De Yi Wan Communication Equipment Plant Co., Ltd. (TELECOMMUNICATIONS) 100% Jiao Zuo Yi Wan Hotel Co., Ltd. (HOTEL) 90 Qinyang Yi Wan Hotel Co., Ltd. (QINYANG) 80 Yi Wan Group, Inc. was incorporated under the laws of the State of Florida in the United States in May 1999. Yi Wan Group, Inc. is authorized to issue 50,000,000 shares of no par value common stock and 20,000,000 shares of no par value preferred stock. The Company's TELECOMMUNICATIONS, HOTEL and QINYANG subsidiaries are incorporated under the laws of the People's Republic of China (PRC). The Company's subsidiaries are classified as Foreign Invested Enterprises (FIE) in the PRC and are subject to the FIE laws of the PRC. The HOTEL and QINYANG are Foreign Invested Enterprise Joint Ventures, known as FIEJV or sino-foreign joint venture, and TELECOMMUNICATIONS is a Wholly Foreign Owned Enterprise company or WFOE. All three of these companies are Chinese registered limited liability companies, with legal structures similar to regular corporations and limited liability companies organized under state laws in the United States. The respective Articles of Association for these FIE subsidiaries provide a 30-year term for the HOTEL and QINYANG companies and 15 years for the TELECOMMUNICATIONS. BASIS OF PRESENTATION The financial statements represent the activities of Yi Wan Group, Inc. and its subsidiaries. The consolidated financial statements of YWG include its subsidiaries HOTEL, TELECOMMUNICATIONS and QINYANG. All significant inter-company accounts and transactions have been eliminated in the consolidation. FOREIGN CURRENCY TRANSLATION The reporting currency of YWG is the U.S. dollar. The Company's foreign subsidiaries use their local currency, Renminbi, as their functional currency. Results of operations and cash flow are translated at average exchange rates during the period, and assets and liabilities are translated at the end of period exchange rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of shareholders' 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 of the subsidiaries as incurred. These amounts are not material to the financial statements. - 5 - YI WAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 2 - CONDENSED FINANCIAL STATEMENTS AND FOOTNOTES The interim consolidated financial statements presented herein have been prepared by the Company and include the unaudited accounts of YWG and its subsidiaries TELECOMMUNICATIONS, HOTEL, and QINYANG. All significant inter-company accounts and transactions have been eliminated in the consolidation. These condensed financial statements have been prepared in accordance with generally accepted accounting principles of the United States of American for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements presented in accordance with generally accepted accounting principles have been condensed or omitted. YWG believes the disclosures made are adequate to ensure the information presented is not misleading. The condensed consolidated financial statements should be read in conjunction with the YWG's consolidated financial statements for the year ended December 31, 2003 and notes thereto included in YWG's Form 10-K, which was filed with the Securities and Exchange Commission on March 30, 2004. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Company as of June 30, 2004 and the results of operations for the three months and six months ended June 30, 2004 and 2003, respectively. Interim results are not necessarily indicative of an entire year of performance because of the impact of seasonal and short-term variations. NOTE 3 - INVENTORIES Inventories are stated at the lower of cost or market using the first-in, first-out basis and consists of the following: June 30, December 31, 2004 2003 --------------- ---------------- (Unaudited) (Audited) --------------- ---------------- Hotel inventory $ 221,920 $ 210,728 Telecommunication inventory 272,066 302,704 --------------- ---------------- Total inventories $ 493,986 $ 513,432 =============== ================ The HOTEL inventory consists of food products, alcohol, beverages and supplies. At June 30, 2004, TELECOMMUNICATION's inventory are consisted of raw materials, work in process, and finished goods, which amounted to $95,242, $72,739, and $104,085, respectively. NOTE 4 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Income taxes paid amounted to $702,640 and $844,014 for the six months ended June 30, 2004 and 2003, respectively. No interest expense was paid for the six months ended June 30, 2004 and 2003. NON CASH TRANSACTION In the period ending June 30, 2004, the Company acquired equipment in the amount of $380,043 and paid cash of $369,513 and recorded a payable of $10,530 on the accompanying balance sheet. The Company issued 325,000 shares of common stock valued at $422,500 for consulting services as further described in Note 9. NOTE 5 - EARNINGS PER SHARE The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 requires the presentation of earnings per share (EPS) as Basic EPS and Diluted EPS. There are no differences between Basic and Diluted EPS for the six months ended June 30, 2004 and 2003. The weighted average number of shares used to calculate EPS for the six months ended June 30, 2004 (16,508,046) and 2003 (16,506,250) reflect only the shares outstanding for those periods. Weighted average number of shares outstanding as of June 30, 2004 is computed as follows: Dates Shares Weighted - Outstanding Outstanding Days Average Shares ------------------------- ------------- ---------- ------------------ Year - 2004 ------------------------- January 1 - June 30 16,506,250 181 2,987,631,250 June 30 - June 30 325,000 1 325,000 ---------- ------------------ Totals 181 2,987,956,250 ========== ================== Weighted-average shares - 6 months 16,508,046 ================== April 1 - June 30 16,506,250 90 1,485,562,500 June 30 - June 30 325,000 1 325,000 ---------- ------------------ Totals 90 1,485,887,500 ========== ================== Weighted-average shares - 3 months 16,509,861 ================== - 6 - YI WAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - MINORITY INTEREST Minority interest represents the outside shareholders' 10% ownership of the common stock of Jiao Zuo Yi Wan Hotel Co., Ltd and 20% of the common stock of Qinyang Yi Wan Hotel Co., Ltd. NOTE 7 - HOTEL BOWLING OPERATIONS CEASED The HOTEL ceased its bowling operation at the end of September 2003. The Management of Hotel is in the process of finding potential buyers and formalizing a plan to sell the equipment. As of June 30, 2004, the fair market value of the bowling equipment has not been determined and no impairment of the asset value has been calculated. As of June 30, 2004, the related equipment with a net book value of $520,482 has been recorded as equipment held for sale; no gain or loss has been recognized in the current period. NOTE 8 - INVESTMENT - OTHERS The Company is planning to launch a fast food chain business in Beijing, with two outlets scheduled to open in August 2004. The balance in Investment - other account represented cash deposit the Company made to the fast food chain, totaling $118,983 as of June 30, 2004. NOTE 9 - STOCK ISSUANCE The Company has entered into two consulting agreements with individuals to provide business and financial consulting services. These agreements expire May 31, 2005 and June 15, 2005, respectively. The Company has agreed to issue a total of 325,000 shares of no par value common stock pursuant to a Form S-8 in exchange for their services. The 325,000 shares of common stock has been recorded at $1.30 per share or $422,500 based upon the trading price of the shares at June 30, 2004. The Company has recorded a deferred charge to shareholders' equity which represents the future consulting services to be rendered. The Company is amortizing the consulting services over one year using the straight line method which amounted to $35,209 for the period ending June 30, 2004. The 325,000 shares of common stock were issued to the consultants in July 2004. NOTE 10 - SEGMENT INFORMATION YWG includes four major operating segments: restaurant, lodging, entertainment and telecommunication equipment. YWG evaluates the performance of its segments based primarily on operating profit before corporate expenses and depreciation and amortization. The following table presents revenues and other financial information by business segment for the periods presented: Telecom- Inter- munication segment Hotel equipment elimination Totals ------------- ------------- ------------- ------------- TOTAL ASSETS: June 30, 2004 $ 25,865,924 $ 6,782,220 $ (2,163,818) $ 30,484,326 ============= ============= ============= ============= December 31, 2003 $ 24,667,327 $ 6,837,457 $ (1,834,594) $ 29,670,190 ============= ============= ============= ============= - 7 - YI WAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - SEGMENT INFORMATION, (CONTINUED)

- 8 - YI WAN GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 10 - SEGMENT INFORMATION, (CONTINUED)

- 9 - Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION FORWARD-LOOKING STATEMENTS The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes thereto. The following discussion contains forward-looking statements. Yi Wan Group, Inc. is referred to herein as "we" or "our." The words or phrases "would be," "will allow," "intends to," "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements". Such statements include those concerning expected financial performance, corporate strategy, and operational plans. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties, including: (a) general economic conditions in China; (b) regulatory factors in China that may lead to additional costs or otherwise negatively affect our business; (c) whether we are able to manage our planned growth efficiently, including whether our management will be able to: (i) identify, hire, train, retain, motivate and manage required personnel or (ii) successfully manage and exploit existing and potential market opportunities; (d) whether we are able to generate sufficient revenues or obtain financing to sustain and grow our operations; (e) whether we are able to successfully fulfill our primary cash requirements which are explained below under "Liquidity and Capital Resources"; (f) whether there will be continuing negative economic effects upon China and the China hotel and tourist industries due to possible continuing negative perceptions pertaining to SARS; and (g) whether worldwide economic conditions will negatively affect the tourist industry in China and our hotel related revenues. Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement. GENERAL RESULTS OF OPERATIONS As of June 30, 2004, we had $3,832,947 of retained earnings. As of June 30, 2004, we had cash of $4,276,768 and total shareholders' equity of $ 20,157,329. For the six months ended June 30, 2004, we had revenues of $5,800,206 and general, administrative and sales expenses of $2,251,804 respectively. CONSOLIDATED RESULTS (1) SALES. Consolidated sales decreased by $326,276, or approximately 5.33%, from $6,126,482 for the six months ended June 30, 2003 to $5,800,206 for the six months ended June 30, 2004. The 5.33% decrease was a direct result of a decrease in sales of our telecommunications operations of $793,730 which was offset by an increase in sales in our Hotel operations. The reasons for this decrease are (1) our telecommunication operation has been unsuccessful in developing new products to bring to the market, and (2) highly competitive industry. In addition the Company is focusing more of its efforts in developing and promoting their hotel and restaurant operations. - 10 - (2) COST OF GOODS SOLD. Consolidated cost of goods sold decreased by $97,515, from $2,305,714 for the six months ended June 30, 2003 to $2,208,199 for the six months ended June 30, 2004. Cost of goods sold as a percentage of sales increased by 0.43%, from 37.64% for the six months ended June 30, 2003 to 38.07% for the six months ended June 30, 2004. The increase in cost of sales was due to an increase in our cost of raw materials in our hotel operations due to an increase in price for meat, eggs, vegetables and rice in comparison to last year's prices. In addition in the prior year we sold discount cards to customers to be used for discounts on hotel room rates. Based upon this successful promotion in the current year we have offered additional discount cards which can be used for various discounts in the restaurants, sauna and night club as well as for room discounts. (3) GROSS PROFIT. Consolidated gross profit decreased by $228,761, from $3,820,768 for the six months ended June 30, 2003 to $3,592,007 for the six months ended June 30, 2004. Gross profit as a percentage of sales decreased by 0.43%, from 62.36% for the six months ended June 30, 2003 to 61.93% for the six months ended June 30, 2004. This decrease in gross profit as a percentage of sales was the result of a decrease in sales and an increase in the cost of materials and operating expense. (4) SELLING AND ADMINISTRATIVE EXPENSES. Selling and administrative expenses increased by $55,427, from $2,196,377 for the six months ended June 30, 2003 to $2,251,804 for the six months ended June 30, 2004. The selling and administrative expenses as a percentage of sales increased by 2.97%, from 35.85% for the six months ended June 30, 2003 to 38.82% for the six months ended June 30, 2004. The increase in selling and administrative expenses as a percentage of sales is attributed to an increase in corporate expenses such as water, fuel and electricity and a decrease in sales in the telecommunications equipment operation. (5) NET INCOME. Consolidated net income decreased by $291,539, or approximately 28.28%, from $1,031,066 for the six months ended June 30, 2003 to $739,527 for the six months ended June 30, 2004. The decrease was mainly due to: (1) a decrease in sales; and (2) an increase in cost of raw materials and operating costs in the hotel operation. SEGMENTED RESULTS (1) SALES. An itemization of each operating unit's data and an explanation of significant changes are as follows: Hotel operations: Sales increased by $467,454, or approximately 10.84%, from $4,310,334 for the six months ended June 30, 2003 to $4,777,788 for the six months ended June 30, 2004. The increase was a result of a new management team and an improvement in marketing strategies. Telecommunication operations: Sales decreased by $793,730, or approximately 43.70%, from $1,816,148 for the six months ended June 30, 2003 to $1,022,418 for the six months ended June 30, 2004. This decrease was a direct result of (1) our telecommunication operation has been unsuccessful in developing new products to bring to the market, and (2) highly competitive industry. In addition the Company is focusing more of its efforts in developing and promoting their hotel and restaurant operations instead of focusing on the telecommunications operations. - 11 - (2) COST OF GOODS SOLD. An itemization of each operating unit's data and an explanation of significant changes are as follows: Hotel operations: Cost of goods sold increased by $260,634, from $1,313,808 for the six months ended June 30, 2003 to $1,574,442 for the six months ended June 30, 2004. Cost of goods sold as a percentage of sales increased by 2.47%, from 30.48% for the six months ended June 30, 2003 to 32.95% for the six months ended June 30, 2004. The increase is attributed to an increase in our cost of raw material due to an increase in price for meat, eggs, vegetables and rice in comparison to last year's prices. In addition in the prior year we sold discount cards to customers to be used for discounts on hotel room rates. Based upon this successful promotion in the current year we have offered additional discount cards which can be used for various discounts in the restaurants, sauna and night club as well as for room discounts. Telecommunication operations: Cost of goods sold decreased by $358,149, from $991,906 for the six months ended June 30, 2003 to $633,757 for the six months ended June 30, 2004. Cost of goods sold as a percentage of sales increased to 61.99% for the six months ended June 30, 2004 from 54.62% for the six months ended June 30, 2003. The increase in cost of goods sold as a percentage of sales was a result of an increase in cost of raw materials and a decrease in sales in the telecommunication operation. (3) GROSS PROFIT. An itemization of each operating unit's data and an explanation of significant changes are as follows: Hotel operations: Gross profit increased by $206,820, from $2,996,526 for the six months ended June 30, 2003 to $3,203,346 for the six months ended June 30, 2004. As a percentage of sales, gross profit decreased from 69.52% for the six months ended June 30, 2003 to 67.05% for the six months ended June 30, 2004. The decrease in gross profit as a percentage of sales was due to an increase in the cost of goods sold and increased promotional discounts as explained above. Telecommunication operations: Gross profit decreased by $435,581, from $824,242 for the six months ended June 30, 2003 to $388,661 for the six months ended June 30, 2004. As a percentage of sales, gross profit decreased from 45.38% for the six months ended June 30, 2003 to 38.01% for the six months ended June 30, 2004. The decrease in gross profit as a percentage of sales was due to an increase in the cost of materials and a decrease in sales. (4) SELLING AND ADMINISTRATIVE EXPENSES. An itemization of each operating unit's data and an explanation of significant changes are as follows: Hotel operations: Selling and administrative expenses decreased by $2,782, from $1,831,726 for the six months ended June 30, 2003 to $1,828,944 for the six months ended June 30, 2004. Selling and administrative expenses as a percentage of sales decreased to 38.28% for the six months ended June 30, 2004 from 42.50% for the six months ended June 30, 2003. This decrease was a result of a decrease in our administrative and selling expenses, such as water, electricity and fuel materials. Telecommunication operations: Selling and administrative expenses decreased by $125,670, from $364,651 for the six months ended June 30, 2003 to $238,981 for the six months ended June 30, 2004. Selling and administrative expenses as a percentage of sales increased to 23.37% for the six months ended June 30, 2004 from 20.08% for the six months ended June 30, 2003. The increase in selling and administrative expenses as a percentage of sales was a result of a decrease in sales. - 12 - (5) NET INCOME. An itemization of each operating unit's data and further explanations of significant changes are as follows: Hotel operations: Net income increased by $114,456, from $808,972, or 16.93% of sales, for the six months ended June 30, 2003 to $923,428, or 19.33% of sales, for the six months ended June 30, 2004. The increase as a percentage of sales was a result of a new management team and an improvement in marketing strategies. Telecommunications operations: Net income decreased by $204,658, from $309,346 or 17.03% of sales, for the six months ended June 30, 2003 to $104,688, or 10.24% of sales, for the six months ended June 30, 2004. The decrease was a result of a decrease in sales and an increase in cost of raw materials, as explained in the above paragraphs. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2004, net cash provided by operating activities was $1,404,589; net cash used in investing activities was $488,496; and net cash used in financing activities was $5,167. As of June 30, 2003, net cash provided by operating activities was $316,772; net cash used in investing activities was $40,972; and net cash provided by financing activities was $703,760. Net cash provided by operating activities increased by $1,087,817, from $316,772 for the six months ended June 30, 2003 to $1,404,589 for the six months ended June 30, 2004, representing an increase of approximately 343.41%. The increase in cash flow from operating activities reflects a decrease in related party receivables and an increase in accounts receivable during the six months ended June 30, 2004. Due to the nature of conducting business in China many financial transaction are completed in cash, instead of by check or draft. Customarily, officers, managers and employees of companies located in China, including our personnel, are advanced cash on a daily basis to pay for normal business operating expenses. These advances are accounted for when the officer or employee submits the paid invoice to the accounting department to support the receipt of goods and services. Net cash used in investing activities increased by $447,524 to $488,496 for the six months ended June 30, 2004, representing a 1092.27% increase, compared with the $40,972 net cash used for the same period ended in 2003. The increase was due to spending on equipment upgrades. Net cash used in financing activities increased by $708,927 to $5,167 for the six months ended June 30, 2004, representing a 100% increase, compared to $703,760 provided by financing activities for the same period of 2003. The increase was primarily due to full collections on existing notes receivable prior to December 31, 2003. Going forward, our primary requirements for cash consist of: (1) the continued implementation of the Hotel and Telecommunications Divisions' existing business model in China, and the general overhead and personnel related expenses in support of this implementation; (2) continued promotional activities to increase hotel related revenues; (3) the development costs of the hotel operations in China; (4) the payment of cash contributions to the joint ventures under the existing agreements; and (5) payments due to some of the - 13 - subsidiaries' former equity owners. We do not have any material commitments for capital expenditures as of June 30, 2004. We anticipate that our current operating activities will enable us to meet the anticipated cash requirements for the 2004 fiscal year. Historically, our subsidiary companies have financed operations principally through cash generated from operations. Initial capitals for the Hotel and Telecommunication operations come from shareholders' contributions and are as follows: Hotel operations: $11,960,000; and Telecommunication operations: $1,580,000. No bank loans were obtained for the Hotel or Telecommunications operations. We have to make capital contributions to our subsidiaries by June 2004 to meet the capital registration requirement. Other investment requirements include payments due of $7,371,730 and $4,932,273 to joint venture's former partners. Since the Farm operation ceased on December 31, 2002, only $500,000 additional capital investment for the Telecommunication division remains outstanding. The balances are to be funded from the profits generated from the operations of the subsidiaries and, if necessary, equity financing. There is no assurance, however, that equity financing can be obtained for the above purposes. The joint venture's former partners extended the June 2003 payment date to June 2004 for capital contributions. We intend to fund the hotel operation's capital improvements from the positive cash flow generated from hotel operations. MANAGEMENT ASSUMPTIONS. Management anticipates, based on internal forecasts and assumptions relating to our operations, that existing cash and funds generated from operations will be sufficient to meet working capital and capital expenditure requirements for at least the next 12 months. In the event that plans change, our assumptions change or prove inaccurate, or if other capital resources and projected cash flow otherwise prove to be insufficient to fund operations (due to unanticipated expense, technical difficulties, or otherwise), we could be required to seek additional financing. There can be no assurance that we will be able to obtain additional financing on terms acceptable to us, or at all. EFFECTS OF INFLATION We are subject to commodity price risks arising from price fluctuations in the market prices of the various raw materials that comprise our products. Price risks are managed by each business unit through productivity improvements and cost-containment measures. Management does not believe that inflation risk is material to our business or our consolidated financial position, results of operations or cash flows. EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES Our operating subsidiaries are located in China. These companies buy and sell products in China using Chinese Renminbi as the functional currency. Based on China government regulation, all foreign currencies under the category of current accounts are allowed to be freely exchanged with hard currencies. During the past two years of operation, there were no significant changes in exchange rates; however, unforeseen developments may cause a significant change in exchange rates. OFF-BALANCE SHEET ARRANGEMENTS - 14 - None. CONTRACTUAL OBLIGATIONS Table of Contractual Obligations

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Not applicable. Item 4 CONTROLS AND PROCEDURES With the participation of management, our Chief Executive Officer and Chief Financial Officer evaluated our disclosure controls and procedures within the 90 days preceding the filing date of this quarterly report. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that material information required to be disclosed is included in the reports that we file with the Securities and Exchange Commission. There were no significant changes in our internal control over financial reporting to the knowledge of our management, or in other factors that have materially affected or are reasonably likely to materially affect these internal controls over financial reporting subsequent to the evaluation date. PART II OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Not applicable. Item 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES Not applicable. Item 3. DEFAULT UPON SENIOR SECURITIES - 15 - Not applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- Not applicable. Item 5. OTHER INFORMATION ----------------- Not applicable. Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits 3(i) Articles of Incorporation of the Registrant* 3(ii) Bylaws of the Registrant* 3.1 Jiaozuo Yi Wan Hotel Co., Ltd. Articles of Association* 3.2 Shunde Yi Wan Communication Equipment Plant Co., Ltd. Articles of Association* 4 Form of Common Stock Certificate of the Registrant* 10.1 Form of Employment Agreement Jiaozuo Yi Wan Hotel Co., Ltd.* 10.2 Form of Employment Agreement Shunde Yi Wan Communication Equipment Plant Co., Ltd.* 10.3 Land Use Permits of Shunde Yi Wan Communication Equipment Plant Co., Ltd.* 10.4 Land Use Permits of Jiaozuo Yi Wan Hotel Co., Ltd.* 10.5 Joint Venture Contract Jiaozuo Yi Wan Hotel Co., Ltd.* 10.6 Agreement of Shunde Yi Wan Communication Equipment Plant Co., Ltd.* 10.7 Agreement of Jiaozuo Yi Wan Maple Leaf High Technology Agriculture Development Ltd., Co. on the Transfer of Equity Shares** 10.8 Agreement of Jiaozuo Yi Wan Hotel Co., Ltd. on the Transfer of Equity Shares** 10.9 Transfer of Stock Rights and Property Rights Agreement of Jiaozuo Yi Wan Maple Leaf High Technology Agriculture Development Co., Ltd.*** 10.10 Qinyang Yi Wan Hotel Co., Ltd. Joint Venture Contract*** 10.11 Joint Venture Contract with Qinyang Hotel*** 10.12 Jiaozuo Foreign Trade and Economy Cooperation Bureau Reply about Building Qinyang Yi Wan Hotel Co., Ltd.*** 10.13 Agreement with Jiaozuo Yi Wan Maple Leaf High Technology Agricultural Development Co., Ltd.*** 10.14 Reply To The Transfer Of The Transfer Of The Stock Rights Of Jiaozuo Yi Wan Maple Leaf High Technology Agricultural Development Co., Ltd.*** 10.15 Consulting Agreement, dated as of April 15, 2004, between Yi Wan Group, Inc. and Stanley Wunderlich, an individual***** 10.16 Consulting Agreement, dated as of June 15, 2004, between Yi Wan Group, Inc. and Yale Yu, an individual***** 23.1 Consent of MOORE STEPHENS WURTH FRAZER AND TORBET, LLP for Yi Wan Group, Inc. and Subsidiaries* 23.2 Consent of MOORE STEPHENS FRAZER AND TORBET, LLP for Yi Wan Group, Inc. Reviewed Financial Statements December 31, 2001 and 2000*** 23.3 Consent of MOORE STEPHENS FRAZER AND TORBET, LLP for Yi Wan Group, Inc. Audited Financial Statements December 31, 2000 and 1999** 23.4 Consent of MOORE STEPHENS FRAZER AND TORBET, LLP for Yi Wan Group, - 16 - Inc. Subsidiaries Audited Financial Statements December 31, 1999 and 1998** 23.5 Consent of Independent Accountants for Yi Wan Group, Inc. Audited Financial Statements December 31, 2002 and 2001*** 23.6 Consent of Independent Accountants for Yi Wan Group, Inc. Audited Financial Statements December 31, 2002 and 2003**** 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.1 Application for the Transfer of the Stock Rights of Jiaozuo Yi Wan Maple Leaf High Technology Agriculture Development Co., Ltd.*** 99.2 Reply to the Transfer of the Transfer of the Stock Rights of Jiaozuo Yi Wan Maple Leaf High Technology Agriculture Development Co., Ltd.*** ---------------- * Denotes previously filed exhibit, filed with Form 10-12G/A on 11/07/01, SEC File No. 000-33119, hereby incorporated by reference. ** Denotes previously filed exhibit, filed with Form 10-12G/A on 5/21/02, SEC File No. 000-33119, hereby incorporated by reference *** Denotes previously filed exhibit, filed with Form 10-K on 4/16/03, SEC File No. 000-33119, hereby incorporated by reference **** Denotes previously filed exhibit, filed with Form 10-K on 3/30/04, SEC File No. 000-33119, hereby incorporated by reference ***** Denotes previously filed exhibit, filed with Form S-8 on 6/30/04, hereby incorporated by reference We hereby incorporate the following documents by reference: (a) our Form 10 Registration Statement filed on August 24, 2001 and amendments thereto filed on November 7, 2001, January 7, 2002, February 7, 2002, March 28, 2002, and May 22, 2002; (b) our Form 10Q for the period ended September 30, 2001 filed on December 7, 2001 and an amendment thereto filed on February 6, 2002; (c) our Form 10K for the period ended December 31, 2001 filed on April 1, 2002 and an amendment thereto filed on May 22, 2002; (d) our Form 10Q for the period ended March 31, 2002 filed on May 14, 2002; (e) our Form 10Q for the period ended June 30, 2002 filed on August 13, 2002 and an amendment thereto filed on August 13, 2002 and August 16, 2002; (f) our Form 10Q for the period ended September 30, 2002, filed on November 14, 2002; (g) our Form 10K for the year ended December 31, 2002, filed on April 16, 2003; (h) our Form 10Q for the period ended March 31, 2003, filed on May 15, 2003; (i) our Form 10Q for the period ended June 30, 2003, filed on August 14, 2003 and an amendment thereto filed on September 23, 2003; (j) our Form 10Q for the period ended September 30, 2003, filed on November 14, 2003; (k) our Form 10K for the year ended December 31, 2003, filed on March 30, 2004; and (l) our Form 10Q for the period ended March 31, 2004, filed on May 14, 2004. (b) Reports on Form 8-K None - 17 - 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 16, 2004 YI WAN GROUP, INC. (Registrant) /s/ CHENG WAN MING --------------------------------------------- Name: Cheng Wan Ming Title: President and Chief Executive Officer - 18 -

YI WAN GROUP INC 10-Q