UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019March 31, 2020
¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from _____________ to _____________
Commission file number 333-173681
Merion, Inc. |
(Name of small business issuer in its charter) |
Nevada |
| 5122 |
| 45-2898504 |
(State or Other Jurisdiction of |
| (Primary Standard Industrial |
| (I.R.S. Employer |
Incorporation or Organization) |
| Classification Code Number) |
| Identification No.) |
100 N. Barranca St. #1000 West Covina, CA |
| 91791 |
(Address of principal executive offices) |
| (Zip Code) |
100 N. Barranca St. #1000
West Covina, CA 91791
(626) 331-7570
(Address(Address and telephone number of principal executive offices and principal place of business)
None.
(Former name, former address and former fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). xYes x No ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer | ¨ | Accelerated filer | ¨ |
Non-accelerated filer | x | Smaller reporting company | x |
(Do not check if a smaller reporting company) | Emerging growth company | ¨ |
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 x
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
None |
| N/A |
| N/A |
As of November 8, 2019,June 24, 2020, there were 177,264,208177,566,608 issued and outstanding shares of the registrant’s common stock.
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2 |
Table of Contents |
SPECIAL NOTE REGARDING RELIANCE ON RELIEF ORDER.
On May 13, 2020 we filed a Current Report on Form 8-K (“Form 8-K”) in compliance with and in reliance upon the SEC Order issued pursuant to Section 36 of the Securities Exchange Act of 1934, as amended, granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules thereunder (SEC Release No. 34-88465 on March 25, 2020) (the “Relief Order”). By way of filing the Form 8-K, we, among other things, extended the time of filing of our quarterly report on Form 10-Q for the quarter ended March 31, 2020 (“Form 10-Q”), until no later than June 29, 2020 in reliance on the Relief Order. The Form 8-K disclosed the reasons that the Form 10-Q could not be timely filed.
Merion, Inc. (the “Company”) is relying on the SEC Order to delay the filing of its quarterly report on Form 10-Q for the quarter ended March 31, 2020, or the Quarterly Report, due to circumstances related to the COVID-19 pandemic. Our headquarters are located in California and our manufacturing facility is located in Nevada. The Company has been following the orders of local government and health authorities to minimize exposure risk for its employees and business partners, including the closures of its offices and having employees work remotely. Substantially all of the Company’s workforce in California has been working from home either all or substantially all of the time, including the Company’s limited number of general administrative and accounting personnel since March 19, 2020. Our office is reopened on June 9, 2020 but some of our employees are still working from home and our manufacturing facility in Nevada has partially suspended its operations since March 23, 2020 due to lack of raw materials. These safety measures have restricted access to the Company’s offices and facilities and books and records, and have disrupted routine interactions among the Company’s staff, advisors and third parties involved in the preparation of the Quarterly Report. Due to these disruptions, the Company is unable to timely file its Quarterly Report, originally due on May 15, 2020.
3 |
Table of Contents |
PART I — FINANCIAL INFORMATION
CONDENSED BALANCE SHEETS September 30 December 31, 2019 2018 (UNAUDITED) ASSETS CURRENT ASSETS: Cash Accounts receivable, net Inventories Prepaid expenses TOTAL CURRENT ASSETS PROPERTY AND EQUIPMENT, net RIGHT-OF-USE ASSET DEPOSITS TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES: Accounts payable and accrued expenses Deferred revenue Accrued bonus Lease liabilities - current Due to shareholder, interest bearing Due to shareholder, non-interest bearing Advances from related parties, interest bearing Advances from related parties, non-interest bearing Due to employee Due to third parties, interest bearing Due to third parties, non-interest bearing TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES: Lease liabilities - non-current Due to shareholder, non-interest bearing Advances from related parties, interest bearing Advances from related parties, non-interest bearing Due to employee Due to third parties, interest bearing Due to third parties, non-interest bearing TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' DEFICIT: Common stock, $0.001 par value, 200,000,000 shares authorized, 177,264,208 and 174,792,364 shares issued and outstanding, as of September 30, 2019 and December 31, 2018, respectively Stock subscription receivable Additional paid-in capital Deferred stock compensation Deficit TOTAL SHAREHOLDERS' DEFICIT TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT Item 1. Financial Statements$ 744,734 $ 295,521 41,219 673 166,236 50,339 35,795 69,631 987,984 416,164 346,568 390,692 551,110 - 15,410 - $ 1,901,072 $ 806,856 $ 1,121,231 $ 1,173,546 8,105 1,522,280 28 679,800 98,485 - 471,603 471,603 418,248 2,508,051 - 30,000 - 518,839 - 95,000 1,480,000 109,030 50,000 101,666 3,647,700 7,209,815 448,281 - 2,000,000 - 30,000 - 518,839 - 95,000 - 20,000 - 50,000 - 3,162,120 - 6,809,820 7,209,815 177,264 174,792 (1,110,695 ) (1,200,000 ) 19,054,535 17,573,900 (815,443 ) (738,185 ) (22,214,409 ) (22,213,466 ) (4,908,748 ) (6,402,959 ) $ 1,901,072 $ 806,856
MERION, INC. |
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| March 31, |
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| December 31, |
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| 2020 |
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| 2019 |
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| (UNAUDITED) |
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ASSETS | |||||||||
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CURRENT ASSETS: |
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Cash |
| $ | 9,856 |
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| $ | 9,237 |
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Accounts receivable, net |
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| 34,669 |
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| 39,781 |
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Inventories |
|
| 170,031 |
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| 165,744 |
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Prepaid expenses |
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| 14,087 |
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| 23,350 |
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TOTAL CURRENT ASSETS |
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| 228,643 |
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| 238,112 |
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PROPERTY AND EQUIPMENT, net |
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| 447,681 |
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| 336,000 |
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RIGHT-OF-USE ASSETS |
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| 766,007 |
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| 522,884 |
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DEPOSITS |
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| 15,410 |
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| 15,410 |
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TOTAL ASSETS |
| $ | 1,457,741 |
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| $ | 1,112,406 |
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LIABILITIES AND SHAREHOLDERS' DEFICIT | |||||||||
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
| $ | 1,449,518 |
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| $ | 1,208,257 |
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Deferred revenue |
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| 5,440 |
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| 6,693 |
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Lease liabilities - current |
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| 165,023 |
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| 113,857 |
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Long term debt - current |
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| 16,066 |
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| - |
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Due to shareholder, non-interest bearing |
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| 436,573 |
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| 438,055 |
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Due to third parties, interest bearing |
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| 1,480,000 |
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| 1,480,000 |
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Due to third parties, non-interest bearing |
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| 60,000 |
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| 50,000 |
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TOTAL CURRENT LIABILITIES |
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| 3,612,620 |
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| 3,296,862 |
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NON-CURRENT LIABILITIES: |
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Lease liabilities - non-current |
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| 580,731 |
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| 417,564 |
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Long term debt |
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| 90,530 |
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| - |
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Due to shareholder, non-interest bearing |
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| 2,000,000 |
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| 2,000,000 |
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Advances from related parties, interest bearing |
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| 30,000 |
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| 30,000 |
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Advances from related parties, non-interest bearing |
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| 518,839 |
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| 518,839 |
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Due to employee |
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| 95,000 |
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| 95,000 |
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Due to third parties, interest bearing |
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| 20,000 |
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| 20,000 |
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Due to third parties, non-interest bearing |
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| 50,000 |
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| 50,000 |
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TOTAL NON-CURRENT LIABILITIES |
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| 3,385,100 |
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| 3,131,403 |
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TOTAL LIABILITIES |
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| 6,997,720 |
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| 6,428,265 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS' DEFICIT: |
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Common stock, $0.001 par value, 200,000,000 shares authorized, 177,566,608 and 177,404,608 shares issued and outstanding, as of March 31, 2020 and December 31, 2019, respectively |
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| 177,566 |
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| 177,404 |
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Stock subscription receivable |
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| (1,110,695 | ) |
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| (1,140,695 | ) | |
Additional paid-in capital |
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| 19,334,233 |
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| 19,184,395 |
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Deferred stock compensation |
|
| (412,443 | ) |
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| (601,093 | ) | |
Deficit |
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| (23,528,640 | ) |
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| (22,935,870 | ) | |
TOTAL SHAREHOLDERS' DEFICIT |
|
| (5,539,979 | ) |
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| (5,315,859 | ) | |
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TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT |
| $ | 1,457,741 |
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| $ | 1,112,406 |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
Table of Contents |
MERION, INC. | MERION, INC. | MERION, INC. | ||||||||||||||||||||||
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CONDENSED STATEMENTS OF OPERATIONS | CONDENSED STATEMENTS OF OPERATIONS | |||||||||||||||||||||||
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 | ||||||||||||||||||||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 | FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 | |||||||||||||||||||||||
(UNAUDITED) | (UNAUDITED) | (UNAUDITED) | ||||||||||||||||||||||
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| For the Three Months Ended September 30, |
| For the Nine Months Ended September 30, |
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| For the Three Months Ended March 31, |
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| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
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| 2020 |
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| 2019 |
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SALES |
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Direct Sales |
| $ | 21,770 |
| $ | 24,484 |
| $ | 1,494,117 |
| $ | 169,742 |
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| $ | 20,977 |
| $ | 113,329 |
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OEM and Packaging |
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| 76,041 |
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| 29,076 |
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| 229,720 |
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| 80,564 |
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| 45,011 |
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| 35,048 |
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TOTAL SALES |
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| 97,811 |
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| 53,560 |
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| 1,723,837 |
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| 250,306 |
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| 65,988 |
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| 148,377 |
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COST OF SALES |
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Direct Sales |
| 8,309 |
| 24,115 |
| 52,861 |
| 60,906 |
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| 6,530 |
| 11,982 |
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OEM and Packaging |
| 36,289 |
| 22,079 |
| 106,275 |
| 38,108 |
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| 17,660 |
| 28,379 |
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Idle Capacity |
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| 4,349 |
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| 45,852 |
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| 4,349 |
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| 178,961 |
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| 23,499 |
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TOTAL COST OF SALES |
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| 48,947 |
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| 92,046 |
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| 163,485 |
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| 277,975 |
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| 47,689 |
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| 40,361 |
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GROSS PROFIT |
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| 48,864 |
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| (38,486 | ) |
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| 1,560,352 |
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| (27,669 | ) |
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| 18,299 |
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| 108,016 |
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OPERATING EXPENSES |
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Selling expenses |
| 18,531 |
| 28,548 |
| 58,001 |
| 271,493 |
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| 13,431 |
| 23,918 |
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General and administrative expenses |
| 350,301 |
| 290,700 |
| 1,092,961 |
| 965,931 |
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| 383,608 |
| 390,421 |
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Stock compensation expense |
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| 214,350 |
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| 208,653 |
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| 642,742 |
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| 732,653 |
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| 188,650 |
| 174,742 |
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Gain on disposal of equipment |
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| (16,000 | ) |
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| - |
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Total operating expenses |
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| 583,182 |
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| 527,901 |
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| 1,793,704 |
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| 1,970,077 |
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| 569,689 |
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| 589,081 |
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LOSS FROM OPERATIONS |
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| (534,318 | ) |
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| (566,387 | ) |
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| (233,352 | ) |
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| (1,997,746 | ) |
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| (551,390 | ) |
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| (481,065 | ) |
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OTHER INCOME (EXPENSE), net |
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Other income (expense) |
| 1,035 |
| 3,601 |
| 45,222 |
| 105,684 |
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OTHER (EXPENSE) INCOME, net |
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Other income |
| 207 |
| 32,841 |
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Finance expenses |
| (22,791 | ) |
| (18,291 | ) |
| (54,239 | ) |
| (54,589 | ) |
| (41,587 | ) |
| (15,326 | ) | ||||||
Gain on debt settlement |
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| - |
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| - |
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| 241,426 |
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| - |
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| - |
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| 241,426 |
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Total other (expense) income, net |
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| (21,756 | ) |
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| (14,690 | ) |
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| 232,409 |
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| 51,095 |
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| (41,380 | ) |
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| 258,941 |
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LOSS BEFORE INCOME TAXES |
| (556,074 | ) |
| (581,077 | ) |
| (943 | ) |
| (1,946,651 | ) |
| (592,770 | ) |
| (222,124 | ) | ||||||
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PROVISION FOR INCOME TAXES |
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| - |
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| - |
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| - |
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| - |
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| - |
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| - |
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NET LOSS |
| $ | (556,074 | ) |
| $ | (581,077 | ) |
| $ | (943 | ) |
| $ | (1,946,651 | ) |
| $ | (592,770 | ) |
| $ | (222,124 | ) |
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LOSS PER SHARE |
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Basic |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.01 | ) | ||||||||
Diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.00 | ) |
| $ | (0.01 | ) | ||||||||
Basic and diluted |
| $ | (0.00 | ) |
| $ | (0.00 | ) | ||||||||||||||||
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES |
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Basic |
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| 177,264,208 |
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| 172,402,389 |
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| 176,531,447 |
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| 171,227,977 |
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Diluted |
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| 177,264,208 |
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| 172,402,389 |
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| 176,531,447 |
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| 171,227,977 |
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Basic and diluted |
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| 177,528,749 |
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| 175,054,276 |
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The accompanying notes are an integral part of these unaudited condensed financial statements.
Table of Contents |
MERION, INC. CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT For the Nine Months Ended September 30, 2018 Common Stock Stock Additional Deferred Subscription Paid-in Stock Shares Amount Receivable Capital Compensation Deficit Total BALANCE, January 1, 2018 Net loss Issuance of common stock for cash Issuance of common stock for purchase of machinery and intangible assets Cancellation of stock subscription Collection of stock subscription Transfer of common stock from major shareholder for services BALANCE, March 31, 2018 (Unaudited) Net loss Issuance of common stock for cash Issuance of common stock for financing related services Issuance of common stock for debt settlement Issuance of common stock for consulting services Collection of stock subscription BALANCE, June 30, 2018 (Unaudited) Net loss Issuance of common stock for cash Issuance of common stock for financing related services Issuance of common stock for consulting services Issuance of common stock for financial advisory services Issuance of common stock for sales commission Issuance of unvested restricted common stock to employees Amortization of deferred stock compensation BALANCE, September 30, 2018 (Unaudited) 169,161,896 $ 169,162 $ (123,455 ) $ 11,870,808 $ - $ (19,066,648 ) $ (7,150,133 ) - - - - - (1,039,764 ) (1,039,764 ) 759,563 760 (57,709 ) 682,838 - - 625,889 1,000,000 1,000 - 319,000 - - 320,000 (111,110 ) (111 ) 100,000 (99,889 ) - - - - - 23,455 - - - 23,455 - - - 480,000 - - 480,000 170,810,349 170,811 (57,709 ) 13,252,757 - (20,106,412 ) (6,740,553 ) - - - - - (325,810 ) (325,810 ) 715,011 714 - 642,786 - - 643,500 46,668 47 - (47 ) - - - 400,000 400 - 359,600 - - 360,000 200,000 200 - 43,800 - - 44,000 - - 57,709 - - - 57,709 172,172,028 172,172 - 14,298,896 - (20,432,222 ) (5,961,154 ) - - - - - (581,077 ) (581,077 ) 109,000 110 - 108,890 - - 109,000 8,720 8 - (8 ) - - - 150,000 150 - 149,850 - - 150,000 67,916 68 - 20,307 (20,375 ) - - 15,500 15 - 4,789 - - 4,804 - - - 851,000 (851,000 ) - - - - - 58,653 - 58,653 172,523,164 $ 172,523 $ - $ 15,433,724 $ (812,722 ) $ (21,013,299 ) $ (6,219,774 )
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| For the Nine Months Ended September 30, 2019 |
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| Common Stock |
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| Stock |
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| Additional |
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| Deferred |
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| Subscription |
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| Paid-in |
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| Stock |
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| Shares |
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| Amount |
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| Receivable |
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| Capital |
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| Compensation |
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| Deficit |
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| Total |
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BALANCE, January 1, 2019 |
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| 174,792,364 |
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| $ | 174,792 |
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| $ | (1,200,000 | ) |
| $ | 17,573,900 |
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| $ | (738,185 | ) |
| $ | (22,213,466 | ) |
| $ | (6,402,959 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (222,124 | ) |
|
| (222,124 | ) |
Issuance of common stock for consulting services |
|
| 1,150,000 |
|
|
| 1,150 |
|
|
| - |
|
|
| 1,078,850 |
|
|
| (1,080,000 | ) |
|
| - |
|
|
| - |
|
Amortization of deferred stock compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 174,742 |
|
|
| - |
|
|
| 174,742 |
|
Issuance of common stock for debt settlement |
|
| 1,271,844 |
|
|
| 1,272 |
|
|
| - |
|
|
| 761,835 |
|
|
| - |
|
|
| - |
|
|
| 763,107 |
|
Collection of stock subscription |
|
| - |
|
|
| - |
|
|
| 62,500 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 62,500 |
|
BALANCE, March 31, 2019 (Unaudited) |
|
| 177,214,208 |
|
|
| 177,214 |
|
|
| (1,137,500 | ) |
|
| 19,414,585 |
|
|
| (1,643,443 | ) |
|
| (22,435,590 | ) |
|
| (5,624,734 | ) |
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 777,255 |
|
|
| 777,255 |
|
Issuance of common stock for consulting services |
|
| 50,000 |
|
|
| 50 |
|
|
| - |
|
|
| (50 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Cancellation of common stock for consulting services |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (360,000 | ) |
|
| 360,000 |
|
|
| - |
|
|
| - |
|
Amortization of deferred stock compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 253,650 |
|
|
| - |
|
|
| 253,650 |
|
Collection of stock subscription |
|
| - |
|
|
| - |
|
|
| 26,805 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 26,805 |
|
BALANCE, June 30, 2019 (Unaudited) |
|
| 177,264,208 |
|
|
| 177,264 |
|
|
| (1,110,695 | ) |
|
| 19,054,535 |
|
|
| (1,029,793 | ) |
|
| (21,658,335 | ) |
|
| (4,567,024 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (556,074 | ) |
|
| (556,074 | ) |
Amortization of deferred stock compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 214,350 |
|
|
| - |
|
|
| 214,350 |
|
BALANCE, September 30, 2019 (Unaudited) |
|
| 177,264,208 |
|
| $ | 177,264 |
|
| $ | (1,110,695 | ) |
| $ | 19,054,535 |
|
| $ | (815,443 | ) |
| $ | (22,214,409 | ) |
| $ | (4,908,748 | ) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
MERION, INC. CONDENSED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 (UNAUDITED) For the Nine Months Ended September 30, 2019 2018 Cash Flows from Operating Activities: Net loss Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization Stock compensation expense Gain (loss) on debt settlement Amortization of deferred stock compensation Amortization of right-of-use asset Bad debt expense Changes in operating assets and liabilities Accounts receivable Inventories Prepaid expenses Deposits and other assets Accounts payable and accrued expenses Deferred revenue Lease liabilities Net Cash Used in Operating Activities Cash Flows from Financing Activities: Proceeds from issuance of common stock and stock subscription Advances from shareholder, non-interest bearing Repayment of shareholder loan, non-interest bearing Advances from third parties, interest bearing Advances from third parties, non-interest bearing Repayment of advances from third parties, non-interest bearing Principal payments of debt Net Cash Provided by Financing Activities Net Change in Cash Cash, beginning of period Cash, end of period Supplemental Disclosure of Cash Flow Information: Cash paid for interest Cash paid for income tax Non-cash transactions of investing and financing activities Purchase of machinery and intangible assets Stock issued for purchase of machinery and intangible assets Stock issued for debt settlement Stock issued on deferred stock compensation Initial recognition of right-of-use assets and lease liabilities $ (943 ) $ (1,946,651 ) 44,124 120,846 - 674,000 (241,426 ) 4,804 642,742 58,653 67,116 35,127 24,308 - (64,854 ) 1,665 (115,897 ) 23,676 33,836 8,546 (15,410 ) - 55,548 35,149 (1,418,307 ) (87,576 ) (71,460 ) - (1,060,623 ) (1,071,761 ) 89,305 1,459,553 193,272 84,041 (283,075 ) (214,797 ) 1,480,000 - 50,000 - (19,666 ) (249,318 ) - (9,739 ) 1,509,836 1,069,740 449,213 (2,021 ) 295,521 5,038 $ 744,734 $ 3,017 $ - $ 47,452 $ - $ - . $ - $ 1,000,000 $ - $ 320,000 $ 763,107 $ 360,000 $ 720,000 $ 20,375 $ 618,226 $ -
MERION, INC. | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| For the Three Months Ended March 31, 2019 |
| |||||||||||||||||||||||||
|
|
|
| Stock |
|
| Additional |
|
| Deferred |
|
|
|
|
|
|
| |||||||||||
|
| Common Stock |
|
| Subscription |
|
| Paid-in |
|
| Stock |
|
|
|
|
|
|
| ||||||||||
|
| Shares |
|
| Amount |
|
| Receivable |
|
| Capital |
|
| Compensation |
|
| Deficit |
|
| Total |
| |||||||
BALANCE, January 1, 2019 |
|
| 174,792,364 |
|
| $ | 174,792 |
|
| $ | (1,200,000 | ) |
| $ | 17,573,900 |
|
| $ | (738,185 | ) |
| $ | (22,213,466 | ) |
| $ | (6,402,959 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (222,124 | ) |
|
| (222,124 | ) |
Issuance of common stock for consulting services |
|
| 1,150,000 |
|
|
| 1,150 |
|
|
| - |
|
|
| 1,078,850 |
|
|
| (1,080,000 | ) |
|
| - |
|
|
| - |
|
Amortization of deferred stock compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 174,742 |
|
|
| - |
|
|
| 174,742 |
|
Issuance of common stock for debt settlement |
|
| 1,271,844 |
|
|
| 1,272 |
|
|
| - |
|
|
| 761,835 |
|
|
| - |
|
|
| - |
|
|
| 763,107 |
|
Collection of stock subscription |
|
| - |
|
|
| - |
|
|
| 62,500 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 62,500 |
|
BALANCE, March 31, 2019 (Unaudited) |
|
| 177,214,208 |
|
| $ | 177,214 |
|
| $ | (1,137,500 | ) |
| $ | 19,414,585 |
|
| $ | (1,643,443 | ) |
| $ | (22,435,590 | ) |
| $ | (5,624,734 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended March 31, 2020 |
| |||||||||||||||||||||||||
|
|
|
| Stock |
|
| Additional |
|
| Deferred |
|
|
|
|
|
|
| |||||||||||
|
| Common Stock |
|
| Subscription |
|
| Paid-in |
|
| Stock |
|
|
|
|
|
|
| ||||||||||
|
| Shares |
|
| Amount |
|
| Receivable |
|
| Capital |
|
| Compensation |
|
| Deficit |
|
| Total |
| |||||||
BALANCE, January 1, 2020 |
|
| 177,404,608 |
|
| $ | 177,404 |
|
| $ | (1,140,695 | ) |
| $ | 19,184,395 |
|
| $ | (601,093 | ) |
| $ | (22,935,870 | ) |
| $ | (5,315,859 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
|
|
|
| (592,770 | ) |
|
| (592,770 | ) |
Amortization of deferred stock compensation |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 188,650 |
|
|
| - |
|
|
| 188,650 |
|
Issuance of common stock for cash and financing related services |
|
| 162,000 |
|
|
| 162 |
|
|
| (20,000 | ) |
|
| 149,838 |
|
|
| - |
|
|
| - |
|
|
| 130,000 |
|
Collection of stock subscription |
|
| - |
|
|
| - |
|
|
| 50,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 50,000 |
|
BALANCE, March 31, 2020 (Unaudited) |
|
| 177,566,608 |
|
| $ | 177,566 |
|
| $ | (1,110,695 | ) |
| $ | 19,334,233 |
|
| $ | (412,443 | ) |
| $ | (23,528,640 | ) |
| $ | (5,539,979 | ) |
The accompanying notes are an integral part of these unaudited condensed financial statements.
Table of Contents |
MERION, INC. | ||||||||
|
|
|
|
| ||||
FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 | ||||||||
(UNAUDITED) | ||||||||
|
|
|
| |||||
|
| For the Three Months Ended March 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Cash Flows from Operating Activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (592,770 | ) |
| $ | (222,124 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
| 12,221 |
|
|
| 17,211 |
|
Gain on disposal of equipment |
|
| (16,000 | ) |
|
| - |
|
Stock compensation expense |
|
| 188,650 |
|
|
| 174,742 |
|
Gain on debt settlement |
|
| - |
|
|
| (241,426 | ) |
Amortization of right-of-use assets |
|
| 35,760 |
|
|
| 11,595 |
|
Bad debt expense |
|
| 17,434 |
|
|
| - |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (12,322 | ) |
|
| (43,863 | ) |
Inventories |
|
| (4,287 | ) |
|
| (120,071 | ) |
Prepaid expenses |
|
| 9,263 |
|
|
| 47,406 |
|
Deposits |
|
| - |
|
|
| (15,410 | ) |
Accounts payable and accrued expenses |
|
| 241,261 |
|
|
| 115,145 |
|
Deferred revenue |
|
| (1,253 | ) |
|
| (59,970 | ) |
Lease liabilities |
|
| (64,550 | ) |
|
| (19,788 | ) |
Net Cash Used in Operating Activities |
|
| (186,593 | ) |
|
| (356,553 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and stock subscription |
|
| 180,000 |
|
|
| 62,500 |
|
Advances from shareholder, non-interest bearing |
|
| 8,953 |
|
|
| 84,616 |
|
Repayment of shareholder loan, non-interest bearing |
|
| (10,435 | ) |
|
| (61,644 | ) |
Repayment of advances from third parties, non-interest bearing |
|
| - |
|
|
| (19,666 | ) |
Advances from third parties, non-interest bearing |
|
| 10,000 |
|
|
| - |
|
Principal payments of debt |
|
| (1,306 | ) |
|
| - |
|
Net Cash Provided by Financing Activities |
|
| 187,212 |
|
|
| 65,806 |
|
|
|
|
|
|
|
|
|
|
Net Change in Cash |
|
| 619 |
|
|
| (290,747 | ) |
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
| 9,237 |
|
|
| 295,521 |
|
|
|
|
|
|
|
|
|
|
Cash, end of period |
| $ | 9,856 |
|
| $ | 4,774 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 409 |
|
| $ | - |
|
Cash paid for income tax |
| $ | - |
|
| $ | - |
|
|
|
|
|
|
|
| ||
Non-cash Transactions of Investing and Financing Activities: |
|
|
|
|
|
|
|
|
Stock issued for debt settlement |
| $ | - |
|
| $ | 763,107 |
|
Stock issued on deferred stock compensation |
| $ | - |
|
| $ | 1,080,000 |
|
Initial recognition of right-of-use assets and lease liabilities |
| $ | 278,883 |
|
| $ | 618,226 |
|
Nonmonetary exchange of equipment and issuance of debt for equipment |
| $ | 123,902 |
|
| $ | - |
|
The accompanying notes are an integral part of these unaudited condensed financial statements.
F-4 |
Table of Contents |
MERION, INC.
MERION, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 – Organization
Merion, Inc. (the “Company”), a Nevada corporation, was formed on February 4, 2011. Its predecessor, E-World USA Holding, Inc., was a California company incorporated in 2007 (“E-World CA”). In April 2011, E-World CA entered into a merger agreement with its wholly-owned subsidiary, E-World USA Holding, Inc., a Nevada corporation (“E-World NV”) that was the survivor of the merger and became the Company. Under the Merger Agreement, the Company issued 90,000,000 shares of its common stock on a one for one basis for each share of E-World CA’s common stock issued and outstanding at the date of the merger. In addition, the Company issued Type A Warrants and Type B Warrants in exchange for comparable warrants issued and outstanding of E-World CA at the date of the merger. On June 27, 2017, the Company filed an amendment to its Articles of Incorporation with the Secretary of State for the State of Nevada to change its name from E-World NV to Merion, Inc.
The Company is a manufacturer and provider of health and nutritional supplements and personal care products currently sold on the internet through our websites, www.dailynu.com and www.merionus.com, and to wholesale distributors.
On January 1, 2018, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation (the “Seller”), pursuant to which the Seller agreed to sell to the Company substantially all of the assets associated with the manufacture of dietary supplements (the “Asset Sale”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 1,000,000 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. The Company has evaluated this transaction to determine whether it is considered to be an asset purchase or business purchasealso provides Original Equipment Manufacturer (“OEM”) and concluded such transaction was an asset purchase in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) section 805-10-55.
The Seller was one of our major suppliers during the years ended December 31, 2017 and 2016. These assets meet all industry nutritional and dietary supplement manufacturing standards, including U.S. Food and Drug Administration and Good Manufacturing Practice compliance and Current Good Manufacturing Practice regulations. In addition to manufacturing the nutritional supplements that it sells, the Company also began productionpackaging services of hard capsules, tablets, solid beverage (sachet packaging), teabags, powder, granules, dietary supplements for export, softgel capsules and health food from these assets for any potential new customers who need these products, similar to our Original Equipment Manufacturer (“OEM”) business. In May 2018, the Company began manufacturing certain of the nutritional supplements that it sells.food.
Note 2 – Going Concern
Management has determined there is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues, significant recurring losses, and negative working capital. If we are unable to generate significant revenue or secure additional financing, we may be required to cease or curtail our operations. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
Management is trying to alleviate the going concern risk by: engaging external sales representatives to sell the Company’s products, investigating and securing various financing resources, including but not limited to borrowing from the Company’s major shareholder, private placements, and the possibility of raising funds through a future public offering.
Note 3 – Summary of Significant Accounting Policies
Basis of Presentation
These unaudited condensed financial statements have been presented by the Company in accordance with the accounting principles generally accepted in the United States of America.America (“U.S. GAAP”). In the opinion of management, all adjustments consisting of normal recurring adjustments considered necessary for a fair presentation of the financial statements, have been included. Interim results are not necessarily indicative of results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the Company’s annual report on Form 10-K for the year ended December 31, 2018,2019, filed with the Securities and Exchange Commission on March 28, 2019.April 8, 2020.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include the useful lives of property and equipment, the collectability of receivables and impairment on long-live assets. The inputs into the Company’s judgments and estimates consider the economic implications of COVID-19 on the Company’s critical and significant accounting estimates. Actual results could differ from those estimates.
F-5 |
Table of Contents |
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised primarily of money market accounts and foreign and domestic bank accounts. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents.
Accounts Receivable
Trade accounts receivable are periodically evaluated for collectability based on credit history with customers and their current financial condition. Bad debt expense or write-offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio, and current economic conditions.
The accounts receivable balance and allowance for doubtful accounts are as follows:
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
|
| (Unaudited) |
|
|
|
| (Unaudited) |
|
|
| ||||||
Accounts receivable |
| $ | 65,527 |
| $ | 673 |
|
| $ | 93,114 |
| $ | 80,792 |
| ||
Allowance for doubtful accounts |
|
| (24,308 | ) |
|
| - |
|
|
| (58,445 | ) |
|
| (41,011 | ) |
Accounts receivable, net |
| $ | 41,219 |
|
| $ | 673 |
|
| $ | 34,669 |
|
| $ | 39,781 |
|
Movement of the allowance for doubtful accounts is as follows:
|
| Nine months ended September 30, 2019 |
| Year ended December 31, 2018 |
|
| Three months ended March 31, 2020 |
|
| Year ended December 31, 2019 |
| |||||
|
| (Unaudited) |
|
|
|
| (Unaudited) |
|
| |||||||
|
|
|
|
|
|
|
|
|
|
| ||||||
Beginning balance |
| $ | - |
| $ | 43,276 |
|
| $ | 41,011 |
| $ | - |
| ||
Provision for doubtful accounts |
| 24,308 |
| 46,836 |
|
| 17,434 |
| 41,011 |
| ||||||
Less: write-offs |
|
| - |
|
|
| (90,112 | ) |
|
| - |
|
|
| - |
|
Ending balance |
| $ | 24,308 |
|
| $ | - |
|
| $ | 58,445 |
|
| $ | 41,011 |
|
Inventories
Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value. Inventory consists of nutritional products, beauty products, and raw materials in our manufacturing facility. Management reviews inventory on hand for estimated obsolescence or unmarketable items, as compared to future demand requirements and the shelf life of the various products. Based on the review, the Company records inventory write-downs, when necessary, when costs exceed expected net realizable value. The inventories’ shelf lives are approximately 3 years. As of March 31, 2020 and December 31, 2019, there were no inventory obsolescence reserves or write-downs.
Property and Equipment, net
Property and equipment are stated at cost, net of accumulated depreciation. Upon disposition, the cost and related accumulated depreciation and amortization is removed from the books, and any resulting gain or loss is included in operations. The Company provides depreciation and amortization using the straight-line method over the estimated useful lives of various classes as follows:
F-6 |
Table of Contents |
Machinery |
| 10 years |
Computer and software |
| 3 to 5 years |
Furniture and fixtures |
| 5 to 10 years |
Vehicles |
| 5 to 7 years |
Leasehold improvements |
| over the lesser of the remaining lease term or the expected life of the improvement |
Repairs and maintenance are charged to operations when incurred while betterments and renewals are capitalized.
Right-of-use Asset and Lease Liabilities
In February 2016, the FASBFinancial Accounting Standard Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) 2016-02 “Leases (Topic 842).” The new standard requires lessees to recognize lease assets (“right of use”) and related lease obligations (“lease liabilities”) for leases previously classified as operating leases under generally accepted accounting principles on the balance sheet for leases with terms in excess of 12 months. The standard is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this standard as of January 1, 2019 utilizing the practical expedients approach.
Impairment of Long-Lived Assets
Long-lived assets, including property, equipment and intangible assets with finite lives, are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognizes an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, the Company reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flow approach or, when available and appropriate, to comparable market values. Management reviewed the potential impact of COVID-19 and the related disruptions on the Company’s operating results, and based upon potential orders believes that currently there was no impairment during the three months ended March 31, 2020.
Deferred Revenue
Deferred revenue represents product deposits advanced by customers on specified product orders or on future orders that have not been shipped as of the balance sheet date. Deferred revenue also represents shipping fee deposits advanced by customers in relation to the unshipped product orders. Deferred revenue is reduced when the related sale is recognized in accordance with the Company’s revenue recognition policy.
Accrued Bonus
Accrued bonus represents amounts earned by the Company’s affiliate members (the “Affiliated Members”) for successful product sales. These bonuses are in the form of rebate credits that can be used to order the Company’s products, or cash rebates provided to Affiliate Members upon request.
Fair Value of Financial Instruments
The Financial Accounting Standard Board (“FASB”)FASB accounting standards codification (“ASC”), FASB ASC 825 Financial Instruments, requires that the Company discloses estimated fair values of financial instruments.
As defined in ASC 820 Fair Value Measurement, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
F-7 |
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The three levels of the fair value hierarchy are as follows:
Level 1 –
Level 1 – | Quoted prices that are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2 – | Pricing inputs, other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. |
Level 3 – | Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. |
Revenue Recognition
Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
Revenue Recognition
On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon adoption of this new guidance, as theThe Company’s revenue wasis recognized based on the amount of consideration we expectthe Company expects to receive in exchange for satisfying the performance obligations.obligations in accordance with ASC 606 Revenue from Contracts with Customers.
The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are recognized at a point in time, based on when control of goods and services transfers to a customer.customer and there are no remaining performance obligations under the contract.
The ASUASC 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies each performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition.
The Company continues to deriveaccounts for a contract with a customer when the contract is committed in writing, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration is probable of collection.
The Company derives its revenues from sales contracts with its customers with revenues being recognized upon delivery of products. Persuasive evidence of an arrangement is demonstrated via sales contracts and invoices; and the sales price to the customer is fixed upon acceptance of the sales contract. Sales rebates or discounts are recognized as a reduction of revenue.revenue when the sale is made. The Company recognizes revenue when control of the goods is transferred upon shipment to the customer by the Company and collectability of payment is reasonably assured. These revenues are recognized at a point in time after all performance obligations are satisfied.
The Company also recognizes revenue on shipping and handling fees charged to the Company’s customers. Shipping and handling fee revenue is recognized when products have been delivered at a point in time. Shipping and handling fee revenues totaled $930$699 and $1,136$2,809 for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and totaled $27,354 and $4,299 for the nine months ended September 30, 2019 and 2018, respectively.
Product returns are allowed for unopened products purchased under regular sales terms within 60 days. Allowances for product returns are provided at the time the sale is recorded using historic return rates for each country and the relevant return pattern. Historically the Company has a return rate of nearly zero. Hence,Accordingly, the allowance as of September 30, 2019March 31, 2020 and December 31, 20182019 is estimated at $0.
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In addition to the Company’s 60-day return policy, the Company, at its discretion, may accept a customer’s application for a buy-back of products previously sold within one year at 90% of the original product’s cost less commissions and shipping costs. The Company implemented its buy-back policy on January 1, 2012. To date, the Company has not received any buy-back applications. As a result, no allowance for buy-backs had been recorded as of September 30, 2019March 31, 2020 and December 31, 2018.2019.
The majority of the Company’s product sales are generated from China. Product sales generated from other countries or within the United States are immaterial to our financial statements. Currently,China and all of the Company’s OEM and packaging sales are generated from the United States. While all products are priced in U.S. currency, the Company accepts payments in both U.S. dollars and Hong Kong dollars.
Shipping and Handling Expenses
Shipping and handling costs incurred by the Company are included in selling expenses and totaled $4,154$3,466 and $10,564$10,702 for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and totaled $24,117 and $31,405 for the nine months ended September 30, 2019 and 2018, respectively.
Research and Development (“R&D”) Expenses
Research and development expenses include salaries and other compensation-related expenses paid to the Company’s research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the general and administrative expenses and totaled $0 and $3,223$904 for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively, and totaled $904 and $3,605 for the nine months ended September 30, 2019 and 2018, respectively.
Income Taxes
The Company utilizes ASC 740 Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred taxes are also recognized for net operating losses that can be carried forward. A valuation allowance is established, when necessary, to reduce net deferred tax assets to the amount expected to be realized.
Basic and Diluted Earnings (Loss) Per Share
Generally accepted accounting principles regarding earnings per share (“EPS”) require presentation of basic and diluted earnings (loss) per share in conjunction with the disclosure of the methodology used in computing such earnings (loss) per share.
Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average of common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. These common stock equivalents are not included when the Company has a loss because they would be anti-dilutive.
2,300,000 shares of restricted common stock with weighted average effect of 755,876 and 1,260,686 diluted shares are excluded in the diluted EPS calculation for the three and nine months ended September 30, 2019, respectively,March 31, 2020, due to its anti-dilutive nature. There were no other potential dilutive securities outstanding for the three and nine months ended September 30, 2019March 31, 2020 and 2018.2019.
Concentration of Credit Risk
Financial instruments
Financial instruments that potentially subject the Company to concentrations of credit risk are cash and accounts receivable and other receivables arising from its normal business activities. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation (FDIC) insured limits for the banks located in the United States, or may exceed Hong Kong Deposit Protection Board (HKDPB) insured limits for the banks located in Hong Kong. The Company had approximately $494,000 ofno uninsured balances as of September 30,March 31, 2020 and December 31, 2019.
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Major Customers and Suppliers
For the three months ended September 30, 2019, one customerMarch 31, 2020, three customers accounted for approximately 64%68% (29%, 25% and 14%) of the Company’s sales and for the three months ended September 30, 2018, two customersMarch 31, 2019, one customer accounted for approximately 40% (28% and 12%) of the Company’s sales.
For the nine months ended September 30, 2019, no customer accounted for more than 10% of the Company’s sales and for the nine months ended September 30, 2018, two customers accounted for approximately 55% (42% and 13%)30% of the Company’s sales.
As of September 30, 2019,March 31, 2020, two customers accounted for approximately 95% (83%73% (58% and 12%15%) of the Company’s accounts receivables.receivable. As of December 31, 2018, one customer2019, three customers accounted for 100%approximately 88% (67%, 11% and 10%) of the Company’s accounts receivable.
For the three months ended September 30, 2019, three suppliersMarch 31, 2020, one supplier accounted for 100% (67%, 22% and 11%) of the Company’s product purchases and for the three months ended September 30, 2018, threeMarch 31, 2019, four suppliers accounted for approximately 66% (32%69% (21%, 18%20%, 16% and 16%12%) of the Company’s product purchases.
ForRisk and Uncertainties
In March 2020, the nine months ended September 30, 2019, four suppliers accounted for approximately 70% (24%, 19%, 17%World Health Organization declared the COVID-19 as a pandemic. Given the rapidly expanding nature of the COVID-19 pandemic, and 10%)because substantially all of the Company’s product purchasesbusiness operations and its major customers are concentrated in China and United States, its business, results of operations, and financial condition could be adversely affected for the nine months ended September 30, 2018, three suppliers accounted for approximately 50% (25%, 14%rest of fiscal year 2020 and 11%) of the Company’s product purchases.beyond.
Related Parties
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
New Accounting Pronouncements
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation(Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2018-07. ASU 2018-07 simplifies the accounting for share-based payments made to nonemployees so the accounting for such payments is substantially the same as those made to employees. Under this ASU, share based awards to nonemployees will be measured at fair value on the grant date of the awards, entities will need to assess the probability of satisfying performance conditions if any are present, and awards will continue to be classified according to Accounting Standards Codification (“ASC”) 718 upon vesting, which eliminates the need to reassess classification upon vesting, consistent with awards granted to employees. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this ASU did not have any material effect on the Company’s unaudited condensed consolidated financial statements.
In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this Updateupdate address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. In November 2019, the FASB issued ASU 2019-05No. 2019-10, which to update the effective date of ASU No. 2016-13 for private companies, not-for-profit organizations and certain smaller reporting companies applying for credit losses standard. The new effective date for these preparers is for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company has not early adopted this update and it will become effective on January 1, 2023 assuming the Company will remain eligible to be smaller reporting company. The Company is currently evaluating the impact of this new standard on Company’s unaudited condensed financial statements and related disclosures.
F-10 |
Table of Contents |
In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”. The amendments in this Update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for the Company for annual and interim reporting periods beginning January 1, 2020.2021. Early adoption of the amendments is permitted, including adoption in any interim period for public business entities for periods for which financial statements have not yet been issued. An entity that elects to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period. Additionally, an entity that elects early adoption must adopt all the amendments in the same period. The Company is currently evaluating the impact of this new standard on its consolidatedCompany’s unaudited condensed financial statements and related disclosures.disclosures
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current year presentation. These reclassifications have no effect on the accompanying statements of operations and cash flows.
Note 4 – Inventories
Inventories consist of the following:
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
|
| (Unaudited) |
|
|
|
| (Unaudited) |
|
|
| ||||||
Raw materials |
| $ | 76,593 |
| $ | 31,957 |
|
| $ | 111,858 |
| $ | 101,102 |
| ||
Work-in-progress |
| - |
| 2,775 |
|
| 8.925 |
| 6,776 |
| ||||||
Finished goods |
|
| 89,643 |
|
|
| 15,607 |
|
|
| 49,248 |
|
|
| 57,866 |
|
Inventories |
| $ | 166,236 |
|
| $ | 50,339 |
|
| $ | 170,031 |
|
| $ | 165,744 |
|
Note 5 – Property and Equipment
Property and equipment consist of the following:
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
|
| (Unaudited) |
|
|
|
| (Unaudited) |
|
|
| ||||||
Computer equipment and software |
| $ | 114,953 |
| $ | 114,953 |
|
| $ | 114,953 |
| $ | 114,953 |
| ||
Furniture and fixtures |
| 26,686 |
| 26,686 |
|
| 26,686 |
| 26,686 |
| ||||||
Automobiles |
| 179,677 |
| 179,677 |
|
| 123,902 |
| 179,677 |
| ||||||
Leasehold improvements |
| 40,053 |
| 40,053 |
|
| 40,053 |
| 40,053 |
| ||||||
Machinery |
|
| 420,000 |
|
|
| 420,000 |
|
|
| 420,000 |
|
|
| 420,000 |
|
Total |
| 781,369 |
| 781,369 |
|
| 725,594 |
| 781,369 |
| ||||||
Less: accumulated depreciation and amortization |
|
| (434,801 | ) |
|
| (390,677 | ) |
|
| (277,913 | ) |
|
| (445,369 | ) |
Property and equipment, net |
| $ | 346,568 |
|
| $ | 390,692 |
|
| $ | 447,681 |
|
| $ | 336,000 |
|
Depreciation expense totaled $10,763$12,221 and $17,290$17,211 for the three months ended September 30,March 31, 2020 and 2019, and 2018, respectively.
F-11 |
|
Table of Contents |
Note 6 – Debt
Due to third parties, interest bearing
The Company has borrowed money from third parties to fund operations. These third parties consist of the Chief Executive and Financial Officer’s friends and the spouse of a former board member of the Company. These advances have weighted average annual interest rates of 10% and 6% for the three months ended March 31, 2020 and 10%,2019, respectively, are unsecured, and are due on demand. During the nine months ended Septemberdemand or March 30, 2019 and 2018, advances totaled $1,480,000 and $0, respectively.2024. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the Company owed $1,500,000 and $109,030 to these third parties, respectively. Inamong which, $20,000 are due on March 2019, the Company settled $89,030 of the debt owed to some of these third parties and converted the debt into the Company’s common stock (See Note 10 - Equity).20, 2024.
Interest expense for the three months ended September 30,March 31, 2020 and 2019 and 2018 for the above loans amounted to $4,160$37,198 and $1,649,$1,423, respectively.
Interest expense for the nine months ended September 30, 2019 and 2018 for the above loans amounted to $4,755 and $4,893, respectively.
In March 2019, the repayment term related to the amount of $20,000 was changed by the third party creditor from due on demand to due on March 20, 2024.
Due to third parties, non-interest bearing
The Company has borrowed money from third parties to fund operations. These third parties consist of the Chief Executive and Financial Officer’s friends and a former board member of the Company. These advances do not bear interest, are unsecured, and are due on demand.demand or March 30, 2024. During the ninethree months ended September 30,March 31, 2020 and 2019, and 2018,additional advances totaled $50,000$10,000 and $0, respectively. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the Company owed $100,000$110,000 and $0$100,000 to these third parties, respectively. Inrespectively, of which, $50,000 is due on March 2019, the Company settled $32,000 of the20, 2024
Long term debt owed to a third party and converted the debt into the Company’s common stock (See Note 10 - Equity). The Company also repaid $19,666 and $249,318 to a third party during the nine months ended September 30, 2019 and 2018, respectively.
In March 2019,2020, the repayment term relatedCompany purchased and financed a vehicle with a six year loan for a total of approximately of $124,000. The Company traded in a fully depreciated vehicle and received a credit of $16,000. The monthly payments are $1,715 from March 2020 to the amountFebruary 2026, with interest at 4.56% per annum. As of $50,000 was changed by the third party creditorMarch 31, 2020, $106,596 of loan payments remained outstanding, of which $16,066 are due within one year from due on demand to due on March 20, 2024.31, 2020.
Twelve months ended March 31, |
| Amount |
| |
|
| (Unaudited) |
| |
2021 |
| $ | 16,066 |
|
2022 |
|
| 16,813 |
|
2023 |
|
| 17,594 |
|
2024 |
|
| 18,411 |
|
2025 |
|
| 19,266 |
|
Thereafter |
|
| 18,446 |
|
Total long-term debt payment |
|
| 106,596 |
|
Current portion of long-term debt |
|
| (16,066 | ) |
Long term debt |
| $ | 90,530 |
|
Interest expense for the three months ended March 31, 2020 for the above loan amounted to $409.
Note 7 – Related Party Transactions
Due to shareholder, interest bearing
In January 2016, Mr. Dinghua Wang, a major shareholder, director, Chief Executive and Financial Officer of the Company, pledged certain of his personal assets and obtained a personal loan from which he provided funds for the operations of the Company. In consideration for the funds the Company received, the Company agreed to pay the interest on this loan on Mr. Wang’s behalf. This loan has an annual borrowing rate of 9.99%. As of September 30, 2019 and December 31, 2018, the balance due to Mr. Wang, interest bearing, amounted to $471,603. The full balance of $471,603 was repaid in October 2019.
Interest expense for each of the three month periodsmonths ended September 30,March 31, 2020 and 2019 and 2018 for the above loan amounted to $0 and $12,488.
F-12 |
|
Table of Contents |
Due to shareholder, non-interest bearing
From time to time, Mr. Dinghua Wang, a major shareholder, director, Chief Executive and Financial Officer of the Company, advances monies to the Company and the Company repays such advances. Such business transactions are recorded as due to or from Mr. Wang at the time of the transaction. During the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, advances totaled $193,272$8,953 and $84,041,$84,616, respectively, and payments to Mr. Wang totaled $283,075$10,435 and $214,797,$61,644, respectively. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the balance due to Mr. Wang, non-interest bearing, amounted to $2,418,248$2,436,573 and $2,508,051,$2,438,055, respectively. This balance is unsecured and is due on demand.
In March 2019, the repayment termterms related to $2,000,000 of the total balance was changed by Mr. Wang from due on demand to due on March 20, 2024.
Due to employee
The Company has borrowed money from Vickie Ho, Executive Vice President of the Company, to fund operations. These advances do not bear interest, are unsecured, and are due on demand.March 20, 2024. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the Company owed $95,000 to such employee.
In March 2019, the repayment term related to the balance of $95,000 was changed by the employee from due on demand to due on March 20, 2024.
Advances from related parties, interest bearing
The Company has borrowed $30,000 from a related party to fund operations sincein July 2016. This related party is the son of the Company’s Chief Executive and Financial Officer. These advances haveThe advance has an annual interest rate of 10%, areis unsecured and areis due on demand.March 20, 2024. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the Company owed $30,000 to this related party.
Interest expense for the three months ended September 30,March 31, 2020 and 2019 and 2018 for the above loans amounted to $756.
Interest expense for the nine months ended September 30, 2019$748 and 2018 for the above loans amounted to $2,244.
In March 2019, the repayment term was changed by the related party from due on demand to due on March 20, 2024.$740, respectively.
Advances from related parties, non-interest bearing
The Company has borrowed money from certain related parties to fund operations. The related parties consist of the Chief Executive and Financial Officer’s immediate family members and relatives. These advances do not bear interest, are unsecured and are due on demand.March 20, 2024. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the Company owed $518,839 to these related parties.
In March 2019, the repayment term for the $518,839 was changed by these related parties from due on demand to due on March 20, 2024.
Note 8 – Income Taxes
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended September 30, 2019March 31, 2020 and 2018:2019:
|
| Three months ended September 30, 2019 |
|
| Three months ended September 30, 2018 |
|
| Nine months ended September 30, 2019 |
|
| Nine months ended September 30, 2018 |
|
| Three months ended March 31, 2020 |
|
| Three months ended March 31, 2019 |
| ||||||
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
|
| (Unaudited) |
| (Unaudited) |
| |||||||
Federal statutory rate |
| 21.0 | % |
| 21.0 | % |
| 21.0 | % |
| 21.0 | % |
| 21.0 | % |
| 21.0 | % | ||||||
State statutory rate |
| 7.0 | % |
| 7.0 | % |
| 7.0 | % |
| 7.0 | % |
| 7.0 | % |
| 7.0 | % | ||||||
Valuation allowance |
| (16.5 | )% |
| (17.8 | )% |
| 20,320.9 | % |
| (17.3 | )% |
| (18.4 | )% |
| (4.2 | )% | ||||||
Permanent difference * |
|
| (11.5 | )% |
|
| (10.2 | )% |
|
| (20,348.9 | )% |
|
| (10.7 | )% |
|
| (9.6 | )% |
|
| (23.8 | )% |
Effective tax rate |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 0.0 | % |
_________
*Represents 50% of meal and entertainment expenses and stock compensation expenses that are not deductible.
F-13 |
Table of Contents |
The Company uses the asset and liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. Deferred taxes are also recognized for net operating loss carry forwards which can be utilized to offset taxable income in the future. The cumulative net operating loss carryforwards that may be applied against future taxable income is approximately $7,132,000$8,732,000 for federal and state income taxes as of September 30, 2019.March 31, 2020. The cumulative net operating loss carry forward that may be applied against future taxable income is approximately $7,817,000$8,342,000 for federal and state as of December 31, 2018.2019. Net operating loss for the years ended 2017 and 2018through 2019 will not expire but limited to 80% of income until utilized. Net operating loss for the years ended 2016 and prior will expire in the years 2031 to 2036. As deferred tax assets may not be fully realizable due to potential recurring losses, management has provided a 100% valuation allowance for the deferred tax assets.
The components of the deferred tax assets are as follows:
|
| September 30, 2019 |
|
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||
|
| (Unaudited) |
|
|
|
| (Unaudited) |
|
|
| ||||||
Allowance for doubtful accounts |
| $ | 6,802 |
| $ | - |
|
| $ | 16,355 |
| $ | 11,476 |
| ||
Amortization of intangible assets |
| 200,223 |
| 211,556 |
|
| 192,667 |
| 196,445 |
| ||||||
Net operating losses |
|
| 1,788,794 |
|
|
| 1,975,889 |
|
|
| 2,233,153 |
|
|
| 2,125,102 |
|
Deferred tax assets |
| 1,995,819 |
|
| 2,187,445 |
| ||||||||||
Total deferred tax assets |
| 2,442,175 |
| 2,333,023 |
| |||||||||||
Valuation allowance |
|
| (1,995,819 | ) |
|
| (2,187,445 | ) |
|
| (2,442,175 | ) |
|
| (2,333,023 | ) |
Deferred tax assets, net |
| $ | - |
|
| $ | - |
|
| $ | - |
|
| $ | - |
|
Changes in the value allowance for deferred tax assets decreasedincreased by $191,626$109,152 from $2,187,445$2,333,023 at December 31, 20182019 to $1,995,819$2,442,175 at September 30, 2019.March 31, 2020. During the ninethree months ended September 30, 2019,March 31, 2020, the Company did not utilized $187,095any deferred tax assets from the prior period.
As of September 30, 2019,March 31, 2020, federal tax returns filed for 2016, 2017, 2018 and 20182019 remain subject to examination by the taxing authorities. As of September 30, 2019,March 31, 2020, California tax returns filed for 2015, 2016, 2017, 2018 and 20182019 remain subject to examination by the taxing authorities.
Note 9 – LeasesCommitments
Operating lease
Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that do not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. The Company adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. There is no impact from the adoption of ASC 842 as of January 1, 2019, as the Company did not have any existing leases with a lease term in excess of twelve months on January 1, 2019.
In January 2019, the Company entered a newan office lease agreement with a 5-year lease term starting in March 2019 and terminating in February 2024. Upon adoption of ASU 2016-02, theThe Company recognized lease liabilities of approximately $618,000, with a corresponding right-of-use (“ROU”) assetsasset in the same amount based on the present value of the future minimum rental payments of the lease, using an effective interest rate of 4.78%, which was determined using the Company’s estimated incremental borrowing rate. The remaining term of the lease is 3.92 years.
In March 2020, the Company entered another new office lease agreement with 3-year lease term starting in March 2020 and terminating in February 2023. The Company recognized lease liabilities of approximately $279,000, with a corresponding right-of-use (“ROU”) asset in the same amount based on the present value of the future minimum rental payments of the new lease, using an effective interest rate of 4.78%, which iswas determined using anthe Company’s incremental borrowing rate. The remaining term of the lease is 4.33 years.
F-14 |
Table of Contents |
The Company also leases a factory space on a month-to-month basis, which it classifies as an operating lease. Leases with an initial term of 12 months or fewerless are not recorded on the balance sheet.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
For the three months ended September 30,March 31, 2020 and 2019, and 2018, lease expenses amounted to $45,286$53,620 and $20,392,$22,095, respectively, of which, $10,500 and $0 are short-term lease expenses, respectively.
For the nine months ended September 30, 2019 and 2018, lease expenses amounted to $112,668 and $62,366, respectively, of which, $21,000 and $0 are short-term lease expenses, respectively.
The five-year maturity of the Company’s lease obligations is presented below:
Twelve months ended September 30, |
| Operating lease amount |
| |||||
Twelve months ended March 31, |
| Operating lease amount |
| |||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||
2020 |
| $ | 121,806 |
| ||||
2021 |
| 136,740 |
|
| $ | 205,338 |
| |
2022 |
| 140,844 |
|
| 239,800 |
| ||
2023 |
| 145,064 |
|
| 235,654 |
| ||
2024 |
|
| 98,624 |
|
|
| 135,609 |
|
Total lease payments |
| 643,078 |
|
| 816,401 |
| ||
Less: interest |
|
| (70,322 | ) |
|
| (70,647 | ) |
Present value of lease liabilities |
| $ | 572,756 |
|
| $ | 745,754 |
|
Note 10 – Equity
Share Distribution Plans
1) On July 15, 2017, the Board approved Mr. Dinghua Wang, the Chairman and CEO of the Company, to distribute up to thirty million of his own shares to certain persons outside of the United States who have previously worked with the Company as an incentive for these individuals to assist the Company to develop internationally. Accordingly, special legends regarding restrictions on resale of the securities and no-hedging transactions are required to be included on the securities.
As of the date of this report, Mr. Wang had distributed 1,500,000 shares pursuant to this plan. All of these 1,500,000 shares were distributed on February 14, 2018 pursuant to Regulation S under the Securities Act of 1933. The Company determined that these shares distributed by Mr. Wang were related to the Company’s operations in accordance with ASC 220-10-S99-4. The fair value of these shares was valued at $480,000 and recorded as stock-based compensation expenses in the Company’s nine months ended September 30, 2018 consolidated statement of operations.
2) On July 28, 2017, the Company’s Board of Directors approved Mr. Dinghua Wang, the Chairman and CEO of the Company, to distribute up to 5 million of his own shares to individuals who, directly or indirectly, loaned funds or referred customers to the Company or purchased products from the Company as the Company faces financial difficulty. To the extent that these share distributions are being made to anyone outside of the U.S., those distributions will be made under Regulation S and will contain appropriate Regulation S subscription agreements and legends. If anyone within U.S. is to receive these shares, the Company will consult with its counsel to ensure compliance with U.S. securities laws.
As of the date of this report, Mr. Wang had distributed 4,181,592 shares pursuant to this plan. All of these 4,181,592 shares were distributed on February 14, 2018. The Company determined that these 4,181,592 shares distributed by Mr. Wang were at his own discretion and the recipients of the shares did not expect such distribution at the time when they, directly or indirectly, loaned funds or referred customers to the Company or purchased products from the Company as the Company faced financial difficulty.
3) On June 30, 2017, the Company’s Board of Directors approved the grant of up to twenty million shares (from authorized but unissued shares of the Company’s common stock) to persons outside the U.S. who sell Company products, based on their sales performance in the future. The Company must determine that this type of incentive compensation is legal and appropriate for each country in which it is utilized. For ease of administration, this plan has been, and will continue to be solely for persons outside of the United States, pursuant to Regulation S under the Securities Act of 1933. No shares have been issued during the nine months ended September 30, 2019 and 2018.
Private placements
During the ninethree months ended September 30, 2018,March 31, 2020, the Company entered into a series of Securities Purchase Agreements with various unrelated third party purchasers, pursuant to which the Company sold to these purchasers in private placements an aggregate of 1,474,574162,000 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90$1.00 per share for an aggregate offering price of $1,327,098.$162,000. The sales were completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.amended
As of September 30, 2019March 31, 2020 and December 31, 2018,2019, $1,110,695 and $1,200,000,$1,140,695, respectively, were unpaid and recognized as stock subscription receivables in the accompanying statements of changes in shareholders’ deficit. During the ninethree months ended September 30,March 31, 2020 and 2019, the Company received $89,305$50,000 and $62,500 of the stock subscription receivables.
Purchase of assets
On January 1, 2018, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation, a Nevada corporation (the “Seller”), pursuant to which the Company purchased the assets associated with the Seller’s manufacture of dietary supplements (the “Asset Sale”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 1,000,000 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. No other assets were included with this purchase, and the Company assumed the Seller’s obligations under a lease of real property used in the Seller’s business.
The issuance of the Purchase Shares was completed pursuant to the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The payment of the cash portion of the Purchase Price was to occur in two distributions: (i) the first, in the amount of $600,000, was to occur within nine months of the date of the Purchase Agreement, and (ii) the second, in the amount of $400,000, was to occur within twelve months of the date of the Purchase Agreement. The second distribution may be reduced by any indemnification claims against the Seller under the terms of the Agreement. The distribution of the Purchase Shares was completed in March 2018. The payment date for the $1,000,000 cash portion of the Purchase Price was extended to December 31, 2019.receivables, respectively.
Settlement of debt
On March 19, 2019, the Company entered into two Debt Repayment Agreements with two creditors of the Company (the “Creditors”), pursuant to which the Company agreed to repay $135,851 owed to the Creditors in the form of 295,480 shares of Company’s common stock at an average debt conversion rate of $0.46 per share (the “Debt Repayment”). The Debt Repayment was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended. The closing price of the Company’s common stock on March 19, 2019 was $0.60 per share, which resulted in a loss on settlement of debt of $41,437.
On March 30, 2019, the Company entered into four Debt Repayment Agreements with four creditors of the Company (the “Creditors”), pursuant to which the Company agreed to repay $868,682 owed to the Creditors in the form of 976,364 shares of Company’s common stock at an average debt conversion rate of $0.89 per share (the “Debt Repayment”). The Debt Repayment was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended. The closing price of the Company’s common stock on March 30, 2019 was $0.60 per share, which resulted in a gain on settlement of debt of $282,863.
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Common stock issued for consulting services
On August 30, 2018, the Company entered into two advisory agreements with two advisors (the “Financial Advisors”), pursuant to which the Company engaged the Financial Advisors to provide certain financial advisory services for a service period of Ninesix months. As compensation for the services, the Company agreed to issue the Financial Advisors an aggregate of 67,916 shares of its common stock, par value $0.001. These shares are valued at $20,375, determined using the closing price of the Company’s common stock on August 30, 2018 of $0.30 per share. For the three months ended September 30,March 31, 2020 and 2019, and 2018, amortization of deferred stock compensation of these shares amounted to $0 and $3,396,$6,792, respectively. For the nine months ended September 30, 2019 and 2018, amortization of deferred stock compensation of these shares amounted to $6,792 and $3,396, respectively
On January 23, 2019, the Company entered into a consulting agreement with Redfield Management Service limited for business, finance and investor relations services. The consultant is due a monthly consulting fee of $7,000 and 50,000 shares, to be paid every three months. The term of the agreement iswas for one year. The service agreement was terminated at the end of April 2019 and the Company issued a total of 200,000 shares of its common stock during the nine months ended September 30, 2019.stock. For the three and nine months ended September 30,March 31, 2020 and 2019, amortization of deferred stock compensation of these shares amounted to $0 and $120,000,$80,000, respectively.
On March 13, 2019, the Company entered into a consulting agreement with Global Merchants Union (“GMU”), a company incorporated in California, pursuant to which GMU willwas to provide business and financial operation and planning consultation services to the Company for consideration of $7,500 per month and a one-time stock payment of 1,000,000 shares of common stock of the Company (the “Share Payment”). Shares subject to the Share Payment were to be issued to GMU within 30 days after the agreement was signed. The term of the agreement was for one year but the cash consideration and payment obligation by the Company under this agreement was terminated in May 2019. For the three and nine months ended September 30,March 31, 2020 and 2019, amortization of deferred compensation of these shares amounted to $150,000$125,000 and $325,000,$25,000, respectively. Deferred stock compensation of $275,000 has been recognized as a reduction of shareholders’ deficit as the services had not been performed as of September 30, 2019.
Issuance of restricted common stock
On July 13, 2018, the Board of Directors of the Company approved the grant of 2,300,000 restricted stock units (the “RSUs”) to three employees of the Company, pursuant to the Merion, Inc. 2018 Omnibus Equity Plan. Thirty percent of the RSUs will vestvested on July 13, 2019, thirty percent of the RSUs will vest on July 13, 2020, and the remaining forty percent of the RSUs will vest on July 13, 2021, in each case provided that the employee remains employed, in good standing, by the Company. These shares arewere valued at $851,000, determined using the closing price of the Company’s common stock on July 13, 2018 of $0.37 per share, and will beare being amortized ratably over the term of the vesting periods of three years on a straight line basis. The Company accounts for the restricted common stock as equity-settled awards in accordance with ASC 718. For the three months ended September 30,March 31, 2020 and 2019, and 2018, amortization of deferred stock compensation of these shares amounted to $64,349$63,650 and $55,257, respectively. For the nine months ended September 30, 2019 and 2018, amortization of deferred stock compensation of these shares amounted to $190,950 and $55,257,$62,951, respectively. Deferred stock compensation of $540,443$412,443 and $731,394$476,093 has been recognized as a reduction of shareholders’ deficit as the services have not been performed as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
The following table summarizes unvested restricted common stock activity for the ninethree months ended September 30, 2019March 31, 2020 and for the year ended December 31, 2018:2019:
|
| Number of shares |
|
| Weighted average grant-date fair value per share |
|
| Number of shares |
|
| Weighted average grant-date fair value per share |
| ||||
Outstanding as of December 31, 2017 |
| - |
| $ | - |
| ||||||||||
Granted |
| 2,300,000 |
| 0.37 |
| |||||||||||
Vested |
| - |
| - |
| |||||||||||
Forfeited |
|
| - |
|
|
| - |
| ||||||||
Outstanding as of December 31, 2018 |
|
| 2,300,000 |
|
| $ | 0.37 |
|
| 2,300,000 |
| $ | 0.37 |
| ||
Granted |
| - |
| - |
|
| - |
| - |
| ||||||
Vested |
| 690,000 |
| - |
|
| 690,000 |
| - |
| ||||||
Forfeited |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Outstanding as of September 30, 2019 |
|
| 1,610,000 |
|
| $ | 0.37 |
| ||||||||
Outstanding as of December 31, 2019 |
|
| 1,610,000 |
|
| $ | 0.37 |
| ||||||||
Granted |
| - |
| - |
| |||||||||||
Vested |
| - |
| - |
| |||||||||||
Forfeited |
|
| - |
|
|
| - |
| ||||||||
Outstanding as of March 31, 2020 |
|
| 1,610,000 |
|
| $ | 0.37 |
|
Table of Contents |
Note 11 – Subsequent Events
The Company evaluated all events and transactions that occurred after March 31, 2020 up through the date the Company issued these unaudited condensed financial statements on June 26, 2020.
Coronavirus (COVID-19)
Recently, a novel strain of coronavirus (COVID-19) surfaced and has spread rapidly to many parts of China and other parts of the world, including the United States. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities in China, United States, and elsewhere around the world.
Substantially all of the Company’s revenues are concentrated in China and the United States. Consequently, the COVID-19 outbreak may materially adversely affect the Company’s business operations, financial condition and operating results for 2020, including but not limited to the material negative impact to the Company’s production and delivery, total revenues, slower collection of accounts receivables and additional allowance for doubtful accounts.
Although the impact of the COVID-19 lead the Company to the temporary closure of its offices from March 19, 2020 and June 8, 2020, the Company’s CEO has been working remotely from home and effectively using video/telephone conference to market its products and its OEM/packaging services. The Company had successfully signed an OEM contract with a customer in China in April 2020 and the Company is expecting to generate a significant amount of revenue from this customer in the last two quarters of 2020. In addition, considering the Company’s products are health supplements, it also expects growth in demand at a time when everyone’s health is at risk. The Company is hoping this translates into sustainable growth as the awareness of the importance of health expands.
Although the Company expects that its health supplement products and its OEM/packaging services will still be in demand due to awareness of the importance of health growing along with the realities of COVID-19, the global economy may be negatively affected by COVID-19 and there is continued uncertainty about the duration and intensity of the impact of COVID-19. Many of our customers are individuals and small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to a pandemic outbreak and slowing macroeconomic conditions. If the SMEs cannot weather the COVID-19 pandemic and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, the Company’s revenues and business operations may be materially and adversely impacted.
Because of the uncertainty surrounding the COVID-19 outbreak, the financial impact cannot be reasonably estimated at this time. The Company’s total revenues in April and May of 2020 were lower as compared to the same period of 2019, and there is no guarantee that its total revenues will grow or remain at a similar level year over year in the last two quarters of 2020, although the Company recently signed an OEM contract as mentioned above.
Paycheck Protection Program (“PPP”)
On April 17, 2020, the Company received loan proceeds in the amount of approximately $131,100 under the U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The loans and accrued interest are forgivable after eight weeks (or an extended 24-week covered period) as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The loan forgiveness amount will be reduced for any Economic Injury Disaster Loan (“EIDL”) advance of $10,000 that the Company received on April 28, 2020. The amount of loan forgiveness will be further reduced if the borrower terminates employees or reduces salaries during the eight-week period by more than 25%. The Company intends to use the proceeds for purposes consistent with the PPP. While the Company currently believes that its use of the loan proceeds of $121,100, net of EIDL advances, will meet the conditions for forgiveness of the loan and intends to file for loan forgiveness after eight weeks after receipt of loan proceeds. There can be no assurance that the full amount of the loan will be forgiven.
F-17 |
Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and other financial information included in this Form 10-Q and our financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 20182019 (the “2018“2019 Form 10-K”).
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “potential,” “believes,” “seeks,” “hopes,” “estimates,” “should,” “may,” “will,” “with a view to” and variations of these words or similar expressions are intended to identify forward-looking statements.These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rates; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission. For more information, see our discussion of risk factors located at Part I, Item 1A of our 20182019 Form 10-K.
Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
Overview
Our Company is a provider of health and nutritional supplements and personal care products. Currently, we are mainly selling our products over the Internet directly to end-user customers through our websites, www.dailynu.com and www.merionus.com, and to wholesale distributors through phone and electronic communication. Our major customers of our nutritional and beauty products are located in the Asian market, predominantly in the People’s Republic of China. Our major customers of our OEM and packaging products are located in the United States.
Since June 2014, we have sold our products primarily over the Internet directly to end-user customers and by phone/email orders directly to our wholesale distributors. Certain miscellaneous sales are made directly to customers who walk into the Company offices and customers who call the Company directly for products. We are now focusing on selling health and nutritional supplements and personal care products directly on the internet through our websites, www.dailynu.com and www.merionus.com. As of the date of filing of this report, we market thirteen individual nutritional supplement products, three and five of which were introduced in 2018 and 2019 respectively, and one beauty product, which was also introduced in 2018, on our websites. We are no longer selling similar products of third parties on our websites.
In January 2018, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation, a Nevada corporation (the “Seller”), pursuant to which the Seller agreed to sell to the Company substantially all of the assets associated with the Seller’s manufacture of dietary supplements (the “Asset Sale”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 1,000,000 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. The Seller was one of our major suppliers during the year ended December 31, 2017. Upon purchasing these assets from the Seller, we started to manufacture some of the nutritional supplements that we sell. These assets meet all industry nutritional and dietary supplement manufacturing standards, including U.S. Food and Drug Administration and Good Manufacturing Practice compliance and Current Good Manufacturing Practice regulations. In addition to manufacturing the nutritional supplements that we sell, we produce hard capsules, tablets, solid beverages (sachet packaging), teabags, powder, granules, dietary supplements, softgel capsules and health foods from these assets for any potential new customers who need such products. These are the products that were added to our existing products, similar toas a part of our OEM and packaging businesses.
Table of Contents |
In January 2018, we introduced a new beauty product, Noir Naturel, a gentle formula for grey coverage from the first application into hair care.
In September 2018, we introduced three different types of natural aphrodisiac supplements, Viwooba (1-3) for men that may support kidney health, improve immunity, enhance physical fitness, eliminate fatigue, improve sexual desire and enhance body energy, strength and sexual ability.
In March 2019, we introduced 1) Lady-S, a female dietary supplement that may assist with weight loss, 2) Gold King, a nutritional supplement that may provide antioxidant support and liver health, 3) New Power, a nutritional supplement that may support heart health, and 4) Taibao, a nutritional supplement that may enhance physical performance and energy metabolism.
In MayDecember 2019, we introduced M-Power,ReMage Power, a nutritional supplement that may provide anti-aging support.Nicotinamide adenine dinucleotide (NAD)+ support and promote energy & cell metabolism.
In December 2019, a novel strain of coronavirus (COVID-19) surfaced in Wuhan, China, which has spread rapidly to many parts of the world, including the United States. On March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of offices and facilities in China, the United States, and elsewhere around the world.
We have been following the orders of local government and health authorities to minimize exposure risk for its employees and business partners, including the closures of our offices and having employees work remotely. Substantially all of our workforce in California has been working from home either all or substantially all of the time, including our limited number of general administrative and accounting personnel since March 19, 2020. Our office is reopened on June 9, 2020 but some of our employees are still working from home, and our manufacturing facility in Nevada has partially suspended its operations since March 23, 2020 due to lack of raw materials.
In addition, substantially all of our revenues are concentrated in China and the United States. Consequently, the COVID-19 outbreak has and may continue to materially adversely affect our business operations, financial condition and operating results for 2020, including but not limited to material negative impact to our production and delivery of our products, revenues and collection of accounts receivables and additional allowance for doubtful accounts. Because of the significant uncertainties surrounding the COVID-19 outbreak, the extent of the business disruption and the related financial impact cannot be reasonably estimated at this time.
Principal Factors Affecting Our Financial Performance
We believe consumers have become more confident in ordering products like ours over the internet. However, the nutritional supplement and skin care products e-businesse-commerce markets have been, and continue to be, increasingly competitive and are rapidly evolving due to the reasons discussed below.
Barriers to entry are minimal in the nutritional supplement and skin care businesses, and current and new competitors can launch new websites at a relatively low cost. Many competitors in this area have greater financial, technical and marketing resources than we do. Continued advancement in technology, and increased access to that technology, is paving the way for growth in direct marketing. We also face competition for consumers from retailers, duty-free retailers, specialty stores, department stores and specialty and general merchandise catalogs, many of which have greater financial and marketing resources than we have. Notwithstanding the foregoing, we believe that we are well-positioned within the Asian consumer market with our current plan of supplying American merchandise to consumers in Asia. There can be no assurance that we will maintain or increase our competitive position or that we will continue to provide only American-made merchandise.
5 |
Table of Contents |
Our products are sensitive to business and personal discretionary spending levels, and demand tends to decline or grow more slowly during economic downturns, including downturns in any of our major markets. The global economy is currently undergoing a period of volatility,downturn now due to COVID-19, and the future economic environment while improving, continues to remain uncertain. This has led, and could further lead, to reduced consumer spending, which may include spending on nutritional and beauty products and other discretionary items. Also, theThe increase of trade tensions between US and China and the spread of COVID-19 have and might continue to have negative impacts on our business. In addition,The reduced consumer spending may force us and our competitors to lower prices. These conditions may adversely affect our revenues and results of operations.
Coronavirus (COVID-19)
Recently, there was an outbreak of a novel strain of coronavirus (COVID-19) in China, which has spread rapidly to many parts of the world, including the U.S. In March 2020, the World Health Organization declared COVID-19 a pandemic. The pandemic has resulted in quarantines, travel restrictions, and the temporary closure of office buildings and facilities in China and in the U.S. The President of the United States declared the COVID-19 pandemic a national emergency, invoking powers under the Stafford Act, the legislation that directs federal emergency disaster response. Similarly, the Governor of California has issued a stay-at-home order, which took effect on March 19, 2020, and the Governor of Nevada has issued a stay-at-home order which took effect on April 1, 2020.
Our headquarters are located in California and have been closed since March 19, 2020 and just reopened on June 9, 2020 although some of our employees are still working from home. Our manufacturing facility is located in Nevada and has partially suspended its operations since March 23, 2020 due to lack of raw materials. Substantially all of our product sales revenues are generated in China and all of our OEM and packaging revenues are generated in the U.S. Consequently, our results of operations will be adversely, and may be materially, affected, to the extent that COVID-19 harms the Chinese and U.S. economy. Any potential impact to our results will depend on, to a large extent, future developments and new information that may emerge regarding the duration and severity of COVID-19 and the actions taken by government authorities and other entities in China and U.S. to contain COVID-19 or treat its impact, almost all of which are beyond our control.
Although the impact of the COVID-19 lead us to the temporary closure of our offices from March 19, 2020 and June 8, 2020, our CEO has been working remotely from home and effectively using video/telephone conference to market our products and our OEM/packaging services. We had successfully signed an OEM contract with a customer in China in April 2020 and we expected to generate a significant amount of revenue from this customer in the last two quarters of 2020. In addition, considering our products are health supplements, we also expect demand growth at a time when everyone’s health is at risk. This should translate into sustainable growth once awareness of the importance of health is created.
Although we expect that our health supplement products and our OEM/packaging services will still be in demand due to awareness of the importance of health growing along with the realities of COVID-19, the global economy may be negatively affected by COVID-19 and there is continued uncertainty about the duration and intensity of the impact of COVID-19. Many of our customers are individuals and small and medium-sized enterprises (SMEs), which may not have strong cash flows or be well capitalized, and may be vulnerable to a pandemic outbreak and slowing macroeconomic conditions. If the SMEs cannot weather the COVID-19 pandemic and the resulting economic impact, or cannot resume business as usual after a prolonged outbreak, our revenues and business operations may be materially and adversely impacted.
Because of the uncertainty surrounding the COVID-19 outbreak, the financial impact cannot be reasonably estimated at this time. Our total revenues in April and May of 2020 were lower as compared to the same period of 2019, and there is no guarantee that its total revenues will grow or remain at a similar level year over year in the last two quarters of 2020, although we recently signed an OEM contract as mentioned above.
Looking ahead, we understand that these unprecedented times will bring financial impact to some of our customers, and potentially loss of customers. Our plan has been to promote the awareness of the importance of health and our health supplement products, which in term might be able to offset the loss of any of our existing customers while building sales with new customers.
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Table of Contents |
Results of Operations
Comparison of the three months ended September 30,March 31, 2020 and 2019 and 2018
For the three months ended September 30, Percentage 2019 2018 Change Change Total sales Total cost of sales (46.8% )% Gross profit Operating expenses Selling General and administrative Stock compensation expense Total operating expenses Loss from operations Other income (expenses), net Net loss $ 97,811 $ 53,560 $ 44,251 82.6 % 48,947 92,046 (43,099 ) 48,864 (38,486 ) 87,350 227.0 % 18,531 28,548 (10,017 ) (35.1 )% 350,301 290,700 59,601 20.5 % 214,350 208,653 5,697 2.7 % 583,182 527,901 55,281 10.5 % (534,318 ) (566,387 ) (32,069 ) (5.7 )% (21,756 ) (14,690 ) (7,066 ) (48.1 )% $ (556,074 ) $ (581,077 ) $ (25,003 ) (4.3 )%
|
| For the three months ended March 31, |
| |||||||||||||
|
|
|
|
|
|
|
| Percentage |
| |||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
| Change |
| ||||
Total sales |
| $ | 65,988 |
|
| $ | 148,377 |
|
| $ | (82,389 | ) |
|
| (55.5 | )% |
Total cost of sales |
|
| 47,689 |
|
|
| 40,361 |
|
|
| 7,328 |
|
|
| 18.2 | % |
Gross profit |
|
| 18,299 |
|
|
| 108,016 |
|
|
| (89,717 | ) |
|
| (83.1 | )% |
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling |
|
| 13,431 |
|
|
| 23,918 |
|
|
| (10,487 | ) |
|
| (43.8 | )% |
General and administrative |
|
| 383,608 |
|
|
| 390,421 |
|
|
| (6,813 | ) |
|
| (1.7 | )% |
Stock compensation expense |
|
| 188,650 |
|
|
| 174,742 |
|
|
| 13,908 |
|
|
| 8.0 | % |
Gain on disposal of equipment |
|
| (16,000 | ) |
|
| - |
|
|
| (16,000 | ) |
|
| (100.0 | )% |
Total operating expenses |
|
| 569,689 |
|
|
| 589,081 |
|
|
| (19,392 | ) |
|
| (3.3 | )% |
Loss from operations |
|
| (551,390 | ) |
|
| (481,065 | ) |
|
| (70,325 | ) |
|
| (14.6 | )% |
Other income (expense), net |
|
| (41,380 | ) |
|
| 258,941 |
|
|
| (300,321 | ) |
|
| (116.0 | )% |
Net loss |
| $ | (592,770 | ) |
| $ | (222,124 | ) |
| $ | (370,646 | ) |
|
| (166.9 | )% |
Total sales increaseddecreased by approximately $44,000,$82,000, or 82.6%55.5%, from approximately $54,000$148,000 in the three months ended September 30, 2018March 31, 2019 to approximately $98,000$66,000 in the three months ended September 30, 2019.March 31, 2020. The increasedecrease of sales was mainly due to the increaseoutbreak and economic impact of package revenues. The increase is also attributable to the salescoronavirus or COVID-19 in China, where the majority of our own products: 101 orders of Cell Power, 22 orders of OPC Spa, and 266 orders of Viwooba (1-3) and new products we introducedcustomers are located. The stay-at-home order which existed in March 2019: 211 orders of Lady-S, 36 orders of Gold King, 26 orders of Heart Power, and 75 orders of Taibao, These new products were not availableChina during the three months ended September 30, 2018. The increasemajority of the first quarter of 2020, resulted in sales is offset by the decrease of Noir Naturel sales, with 118 ordersless demand from our wholesale distributor in the three months ended September 30, 2019 as compared to 4,386 orders in the same period in 2018.China.
The cost of sales decreasedincreased by approximately $43,000,$7,000, or 46.8%18.2%, from approximately $92,000$40,000 in the three months ended September 30, 2018March 31, 2019 to approximately $49,000$47,000 in the three months ended September 30, 2019.March 31, 2020. The major reason for the decreaseincrease was due to the deceaseincrease of idle capacity of our idle capacity cost of approximately $42,000 incurred in our Nevada factory during the three months ended September 30, 2018, whereas we were operating at 91% capacity at normal 8 hours shift in the same period in 2019. Furthermore, we wrote down $810,000 of intangible assetsunder capability due to impairment at December 31, 2018, for which we were no longer incurring amortization expenseless orders from our customers. We also partially suspended our factory operations in late March of $22,500 per quarter or $90,000 per year in our manufacturing costs in 2019.2020 due to the impact of the coronavirus and lack of raw materials.
Our overall gross margin percentage increaseddecreased from approximately (71.9)%72.8% in the three months ended September 30, 2018March 31, 2019 to a gross profit of approximately 50.0%27.7% in the three months ended September 30, 2019,March 31, 2020, mainly due to the reductiondecrease of the idle capacity cost incurredsales in the three months ended September 30, 2019March 31, 2020 as compared to the same period in 2018, as described above.2019 while we were still incurring significant overhead cost in our factory which we operated under idle capacity.
Our product sales gross margin percentage increaseddecreased from approximately 1.5%89.4% in the three months ended September 30, 2018March 31, 2019 to approximately 61.8%68.9% in the three months ended September 30, 2019. For the three months ended September 30, 2019, the majority of our product sales were attributable to our Cell Power, Viwooba (1-3), OPC Spa, Lady-S, Gold King, New Power, and Taibao products, which were all manufactured by us.March 31, 2020. The major reason for the increasedecrease of sales gross margin percentage was due to the increase of sales in our ReMage Power product that we were no longer incurring any amortization of the intangible assets that we wrote offintroduced in December 2018. In addition,2019 during the three months ended September 30, 2018, the majority of our product sales were attributable to our beauty product, Noir Naturel, which has a lower profit margin. As a result, our product sales gross margin percentage increased accordingly during the three months ended September 30, 2019March 31, 2020 as compared to the same period in 2018.2019. The ingredients that we used to manufacture our ReMage Power product are more expensive which result in a higher manufacturing unit cost and less gross margin percentage of 68.9% as compared to other products, such as Viwooba (1-3), Lady-S, Gold King, New Power and Tabiao with an average of 89.4% of gross margin percentage, that we sold during the three months ended March 31, 2019, which have a lower unit cost and higher gross margin percentage than ReMage Power.
Our OEM and packaging sales gross margin percentage increased from approximately 24.1%19.0% in the three months ended September 30, 2018March 31, 2019 to approximately 52.3%60.8% in the three months ended September 30, 2019.March 31, 2020. For the three months ended September 30, 2019,March 31, 2020, we had incurred less manufacturing overhead costs for our OEM and packaging sales with fewer labor hours being allocated to such production due to the lesser degree of specified production procedures which required fewer labor hours as compared to the same period in 2018.2019. As a result, our OEM and packaging sales gross margin percentage increased by 28.2%41.8% during the three months ended September 30, 2019March 31, 2020 as compared to the same period in 2018.2019.
Selling expenses decreased from approximately $29,000$24,000 in the three months ended September 30, 2018March 31, 2019 to approximately $19,000$13,000 in the three months ended September 30, 2019.March 31, 2020. The decrease of approximately $10,000,$11,000, or 35.1%43.8%, was mainly due to the decrease of approximately $2,400$7,200 of marketing expenses, the decrease of approximately $1,400 of commissionshipping expenses and the decrease of approximately $6,400$5,500 of shippingmarketing expenses.
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General and administrative (“G&A”) expenses increaseddecreased by approximately $59,000$7,000 from approximately $291,000$390,000 in the three months ended September 30, 2018March 31, 2019 to approximately $350,000$383,000 in the three months ended September 30, 2019.March 31, 2020. The increasedecrease was mainly attributable to the increase of approximately $25,000 of rental expenses and the increase of approximately $53,000 of payroll expenses, offset by the decrease of approximately $13,000$31,000 of professional fees,expenses, such as attorneyattorneys fees, auditor fees and consulting fees, and the decrease of approximately $6,000$1,100 of other miscellaneous G&A expenses, such as traveloffset by the increase of approximately $25,000 of rent expense and lab test expenses.
Stock compensation expenses increased by approximately $6,000$14,000 during the three months ended September 30, 2019March 31, 2020 compared to the same period in 2018.2019. Approximately $64,000 and $63,000, related to the amortization of the value of 2,300,000 shares of restricted common stock to three employees for the three months ended September 30,March 31, 2020 and 2019, respectively, which all have a vesting period of three years. For the three months ended September 30, 2018, such expenses were approximately $55,000. In addition, in January and March 2019, we issued 1,150,000 shares of our common stock with an additional 450,000 shares of our common stock to be issued in each of the next three quarters of 2019 valued at $1,080,000 to two advisors to provide certain financial advisory services, and amortized such cost, which was approximately $150,000. The increase was offset by $150,000 in stock compensation expense incurred in the three months ended September 30, 2018 which we issued 150,000 shares to a consultant for research and strategic planning consulting services during the three months ended September 30, 2018. We did not incur such stock compensation expense for the three months ended September 30, 2019.
Other expenses increased by approximately $7,000 from approximately $15,000 of other expenses in the three months ended September 30, 2018 to approximately $22,000 of other expenses in the three months ended September 30, 2019, mainly due to the increase of approximately $5,000 of interest expenses and the decrease of approximately $2,000 of other income.
Net loss decreased by approximately $25,000 from approximately $581,000 in the three months ended September 30, 2018 to approximately $556,000 in the three months ended September 30, 2019, mainly due to the reasons discussed above.
Comparison of the nine months ended September 30, 2019 and 2018
For the Nine months ended September 30, Percentage 2019 2018 Change Change Total sales Total cost of sales Gross profit Operating expenses Selling General and administrative Stock compensation expense Total operating expenses Loss from operations Other income, net Net income (loss) $ 1,723,837 $ 250,306 $ 1,473,531 588.7 % 163,485 277,975 (114,490 ) (41.2 )% 1,560,352 (27,669 ) 1,588,021 5,739.4 % 58,001 271,493 (213,492 ) (78.6 )% 1,092,961 965,931 127,030 13.2 % 642,742 732,653 (89,911 ) (12.3 )% 1,793,704 1,970,077 (176,373 ) (9.0 )% (233,352 ) (1,997,746 ) (1,764,394 ) (88.3 )% 232,409 51,095 181,314 354.9 % $ (943 ) $ (1,946,651 ) $ (1,945,708 ) (100.0 )%
Total sales increased by approximately $1.5 million or 588.7%, from approximately $250,000 in the nine months ended September 30, 2018 to approximately $1.7 million in the nine months ended September 30, 2019. The increase in sales was mainly due to the shipping of our backlog of 1,329 orders of Auxia and 3,225 orders of Cell Power products to our members who had previously paid for their purchases. The increase is also attributable to the sales of our own products, namely 479 orders of Viwooba (1-3), 107 orders of OPC Spa, and new products we introduced in March 2019: 1,044 orders of Lady-S, 36 orders of Gold King, 104 orders of Heart Power, and 134 orders of Taibao. These products were not available during the nine months ended September 30, 2018. The increase in sales is also attributable to our packaging and OEM revenues, as we have more clients who requested that we perform packaging services in the nine months ended September 30, 2019 as compared to the same period in 2018. The increase was partially offset by the decrease of the sales of 2,276 orders of our Noir Naturel product in the nine months ended September 30, 2019 as compared to the same period in 2018 as the demand of the such product become more saturated. The decrease was also attributable to the decrease of sales of 1,195 orders of our Longevity product during the nine months ended September 30, 2018, as we did not generate any sales during the nine months ended September 30, 2019.
The cost of sales decreased by approximately $115,000, or 41.2%, from approximately $278,000 in the nine months ended September 30, 2018 to approximately $163,000 in the nine months ended September 30, 2019. The major reason was the decease of our idle capacity cost of approximately $175,000 incurred in our Nevada factory during the nine months ended September 30, 2018, where we were operating at almost full capacity in the same period in 2019. The decrease is also attributable to the decrease of our cost of sales of our Longevity products, which normally have a higher unit cost as compared to our other products. Furthermore, we wrote down $810,000 of intangible assets due to impairment in December 2018, for which we were no longer incurring amortization of $22,500 per quarter or $90,000 per year in our manufacturing costs in 2019.
Our overall gross margin percentage increased from approximately (11.1) % in the nine months ended September 30, 2018 to approximately 90.5% in the nine months ended September 30, 2019, mainly due to the reduction of the idle capacity cost incurred in the nine months ended September 30, 2018, as described above.
Our product sales gross margin percentage increased from approximately 64.1% in the nine months ended September 30, 2018 to approximately 96.5% in the nine months ended September 30, 2019. For the nine months ended September 30, 2019, the majority of our product sales were attributable to our Auxia, Cell Power, Viwooba (1-3), OPC Spa, Lady-S, Gold King, New Power, and Taibao products, which were all manufactured by us and have a higher profit margin compared to our Longevity product, manufactured by third party, which comprised the majority of our product sales in the nine months ended September 30, 2018. As a result, our product sales gross margin percentage increased accordingly during the nine months ended September 30, 2019 as compared to the same period in 2018.
Our OEM and packaging sales gross margin percentage increased from approximately 52.7% in the nine months ended September 30, 2018 to approximately 53.7% in the nine months ended September 30, 2019. We normally are able to keep our OEM and packaging revenues gross margin percentage consistent between periods unless our customers required us to provide additional specified production procedures, which procedures might incur more labor costs to allocate more of our manufacturing overhead cost. As a result, our OEM and packaging sales gross margin percentage remained consistent and slightly increased by 1.0% during the nine months ended September 30, 2019 as compared to the same period in 2018.
Selling expenses decreased from approximately $271,000 in the nine months ended September 30, 2018 to approximately $58,000 in the nine months ended September 30, 2019. The decrease of approximately $213,000, or 78.6%, was mainly due to the decrease of approximately $206,000 of marketing expenses as we held a conference in Hong Kong to promote our products costing $131,000 during the nine months ended September 30, 2018, and we did not hold any conference during the same period in 2019. In addition, we gave out approximately $54,000 worth of promotional products during the nine months ended September 30, 2018 and we did not give out any promotional products in the same period in 2019. We also did not spent as much on other marketing expenses during the nine months ended September 30, 2019 as compared to the same period in 2018, which resulted in approximately $21,000 less of other marketing expenses. As a result, our selling expenses have decreased approximately $213,000 in the nine months ended September 30, 2019 as compared to the same period in 2018.
General and administrative (“G&A”) expenses increased by approximately $127,000 from approximately $966,000 in the nine months ended September 30, 2018 to approximately $1.1 million in the nine months ended September 30, 2019. The increase was mainly attributable to the increase of approximately $85,000 of payroll related expenses, the increase of approximately $56,000 of rental expenses, the increase of approximately $15,000 of insurance expenses, the increase of approximately $6,000 of printing expenses, the increase of approximately $13,000 of our Nevada factory general G&A expenses, such as office and travel expenses, and the increase of approximately $3,000 of other miscellaneous G&A expenses offset by the decrease of approximately $14,000 of professional fees, such as attorney fees, auditor fees and consulting fees, the decrease of approximately $11,000 of bad debt expenses, the decrease of approximately $11,000 of bank service charges, the decrease of approximately $10,000 of computer expenses, and the decrease of approximately $4,000 of custom inspection fees.
Stock compensation expenses decreased by approximately $90,000 during the nine months ended September 30, 2019 compared to the same period in 2018 because Mr. Wang, our CEO and CFO, distributed 1,500,000 shares of his own stock to certain persons outside of the United States who had previously worked with the Company as an incentive for these individuals to assist the Company in developing its international market during the 2018 period. The Company determined that these 1,500,000 shares distributed by Mr. Wang were related to the Company’s operations in accordance to ASC 225-10-S99-4. As a result, we incurred $480,000 in stock compensation expense for the nine months ended September 30, 2018. In addition, we also incurred $194,000 in stock compensation expense as we issued 350,000 shares to a consultant for research and strategic planning consulting services during the nine months ended September 30, 2018. We did not incur such stock compensation expenses for the nine months ended September 30, 2019.
The increase was offset by the amortization of deferred stock compensation incurred as approximately $191,000 related to the amortization of the value of 2,300,000 shares of restricted shares of common stock to three employees, which grants all have a vesting period of three years. In addition, we also issued 67,916 shares of our common stock valued at $20,375 during the year ended December 31, 2018 to two financial advisors to provide certain financial advisory services for a period of six months and amortized such cost of approximately $7,000. In January andin March 2019, we issued 1,150,000 shares of our common stock with an additional 450,0001,000,000 shares of our common stock to be issued in each of the next three quarters of 2019 valued at $1,080,000 to two advisorsan advisor to provide certain business and financial advisoryoperation and planning consultation services, and amortized such cost, which was $125,000 and $25,000 during the three months ended March 31, 2020 and 2019, respectively. We also issued shares of approximately $445,000. Oneour common stock to other financial advisors which resulted in $105,000 of the service contracts was terminated in April 2019 due to non-performance and the Company is no longer obligated to issue the remaining 400,000 shares with a valuation of $360,000. We did not incur any amortization of deferred stock compensation expense during the same periodthree months ended March 31, 2019.
During the three months ended March 31, 2020, we traded in 2018.one of our vehicles which resulted in a gain of $16,000.
Other income increased(expense) decreased by approximately $181,000$300,000 from approximately $51,000 of other income$259,000 in the ninethree months ended September 30, 2018March 31, 2019 to approximately $232,000($41,000) of other incomeexpense in the ninethree months ended September 30, 2019,March 31, 2020, mainly due to the decrease of approximately $241,000 of gain on settlement of debt settlementin which we issued stock with a fair value of approximately $763,000 in exchange for the settlement of debt of approximately $1.0 million during the ninethree months ended September 30,March 31, 2019. In addition, during the nine months ended September 30, 2019, we generated approximately $11,000 from sales of our sample products. We did not enter into such transactions during the same period in 2018. During the nine months ended September 30, 2018, we had approximately $105,000 of fees charged to our shareholders in assisting them to obtain electronic stock certificates.2020.
Net loss decreasedincreased by approximately $1.9 million$371,000 from approximately $2.0 million$222,000 in the ninethree months ended September 30, 2018March 31, 2019 to approximately $1,000$593,000 in the ninethree months ended September 30, 2019March 31, 2020, mainly due to the reasons discussed above.
Liquidity and Capital Resources
As of September 30, 2019,March 31, 2020, we had a cash balance of approximately $745,000,$10,000, compared to a cash balance of approximately $296,000$9,000 at December 31, 2018.2019.
In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. Other than operating expenses and an outstanding commitment of $1.0 million in relation to the purchase of assets associated with the manufacture of dietary supplements, the Company does not have significant cash commitments. Cash requirements include cash needed for purchase of inventory, payroll, payroll taxes, rent, and other operating expenses. However, in response to the reduced liquidity factors described above, the Company has continued to find ways to reduce its operating expenses. In addition, should our Company need additional capital, our principal shareholder and Chief Executive and Financial Officer may lend additional money to the Company from time to time to the extent he is in a position and willing to do so. No assurance can be provided that he will continue to lend funds to the Company in the future.
Management has concluded under U.S. GAAP that there is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenue and negative working capital. If we are unable to generate significant revenue or secure financing, we may be required to cease or limit our operations. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
8 |
Table of Contents |
For the ninethree months ended September 30, 2019,March 31, 2020, cash used in operating activities amounted to approximately $1.1 million$187,000 as compared to approximately $1.1 million$357,000 used in operating activities in the same period in 2018.2019. Cash used in operating activities for the ninethree months ended September 30, 2019 mainly includedMarch 31, 2020 was primarily the result of our $593,000 net loss, non-cash transactionstransaction of approximately $241,000$16,000 from gain on debt settlement,disposal of equipment, the increase of accountsaccount receivable of approximately $12,000, and the payment of lease liabilities of approximately $65,000 as we have incurred some credit sales from our packing and OEM business, the increase of inventory of approximately $116,000 as we had started production in almost full capacity during the nine months ended September 30, 2019 and stocked up our inventory at September 30, 2019, the increase of deposits and other assets of $15,000 as we depositedpaid for the leasing of our office which we started leasing in March 2019, the decrease of deferred revenue of approximately $1.4 million from shipping our backlog orders of Auxia and Cell Power products for which our members had previously paid, and the decrease of lease liability of approximately $71,000 as we paid off our lease obligations that were undertaken in March 2019.when they become dues. This amount was partially offset by the non-cash expense of approximately $643,000$189,000 in stock based compensation, approximately $44,000$12,000 of depreciation expenses, approximately $67,000$36,000 in amortization of a leaseoperating leases right-of-use asset,assets, approximately $24,000$17,000 of bad debt expense the decrease of prepaid expenses of approximately $34,000, and the increase of accounts payable and accrued expenses of approximately $56,000,$241,000 as we were behind on our payment schedule.
For the ninethree months ended September 30, 2019,March 31, 2020, financing activities provided approximately $1.5 million$187,000 as compared to approximately $1.1 million$66,000 during the ninethree months ended September 30, 2018.March 31, 2019. Net cash received in the ninethree months ended September 30, 2019March 31, 2020 includes approximately $89,000$180,000 from the issuance of common stock and collection of our stock subscription receivable, approximately $193,000$9,000 from a loan from our principal shareholder and Chief Executive and Financial Officer, and approximately $1.5 million$10,000 from a third party loans we received in 2019.loan. These amounts were partially offset by our repayment of principal amounts on various loans of approximately $300,000, of which approximately $283,000 was repaid to our principal shareholder and Chief Executive and Financial Officer andof approximately $20,000 was paid to unaffiliated third parties.$10,000.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company has established disclosure controls and procedures to ensure that information required to be disclosed in this quarterly report on Form 10-Q was properly recorded, processed, summarized and reported within the time periods specified in the Commission'sCommission’s rules and forms. The Company’s controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers to allow timely decisions regarding required disclosure.
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) at September 30, 2019March 31,2020 based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer/Chief Financial Officer concluded that, at September 30, 2019,March 31, 2020, our disclosure controls and procedures are not effective due to the following material weakness that we have identified:
Lack of Accounting and Finance Expertise – Our current accounting staff is relatively small, and we do not have the required infrastructure of meeting the higher demands of being a U.S. public company. This material weakness also relates to a lack of personnel with expertise in preparing financial statements in accordance with U.S. GAAP.
We have taken certain actions to remediate the material weakness related to our lack of U.S. GAAP experience. We have engaged an outside CPA with U.S. GAAP knowledge and SEC reporting experience to supplement our current internal accounting personnel and assist us in the preparation of our financial statements to ensure that our financial statements are prepared in accordance with U.S. GAAP.
The Company’s operations are relatively small and uncomplicated, and as our operations grow and become more complex, we intend to hire additional personnel in financial reporting and other areas. However, there can be no assurance of when, if ever, we will be able to remediate the identified material weaknesses.
Changes in Internal Controls over Financial Reporting
Except as disclosed above, there have been no changes in the Company'sCompany’s internal controls over financial reporting that occurred during the Company'sCompany’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company'sCompany’s internal controls over financial reporting.
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From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently a party to any material legal proceedings, and to our knowledge none is threatened. There can be no assurance that future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our financial position, results of operations or cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
None.
None.
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(a) Exhibits.
The following exhibits are filed herewith and this list is intended to constitute the exhibit index.
Exhibit No. | Document Description | |
| ||
Exhibit 101 | Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows, and (iv) the Notes to the Financial Statements. | |
| ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
_______________
* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.
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In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Merion, Inc.
Title | Name | Date | Signature | |||
President, CEO and CFO | Ding Hua Wang |
| /s/ Ding Hua Wang |
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
SIGNATURE | NAME | TITLE | DATE | |||
/s/ Ding Hua Wang | Ding Hua Wang | President, Chief Executive Officer, |
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| Principal Financial and |
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| Principal Accounting Officer, Director |
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