UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2014
OR
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
For the transition period from ______ to __________
COMMISSION FILE NUMBER: 333-186689
JISHANYE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 46-1992903 |
| (State or other jurisdiction of incorporation or | (IRS Employer Identification No.) |
| organization) |
3F., No.10, Yuanxi 2nd Rd.,
Pingtung Agricultural Biotechnology Park,
Changzhi Township, Pingtung 908,
Taiwan, Republic of China
(Address of principal executive offices)
+00886 08 7621913
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):
| Large Accelerated Filer ¨ | Non-Accelerated Filer ¨ |
| Accelerated Filer ¨ | Smaller Reporting Company x |
Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes ¨ No x
As of May 15, 2014, there are a total of 12,500,001 shares of common stock issued and outstanding.
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | 4 | |
| ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | 4 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 10 |
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK | 13 |
| ITEM 4. | CONTROLS AND PROCEDURES | 13 |
| PART II. OTHER INFORMATION | 14 | |
| ITEM 1. | LEGAL PROCEEDINGS | 14 |
| ITEM 1A. | RISK FACTORS | 14 |
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | 14 |
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES | 14 |
| ITEM 4. | MINE SAFETY DISCLOSURES | 14 |
| ITEM 5. | OTHER INFORMATION | 14 |
| ITEM 6. | EXHIBITS | 14 |
| SIGNATURES | 15 | |
| 2 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievement expressed or implied by the forward-looking statements. These risks and uncertainties include, but are not limited to, the factors described under Part 1 Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements.
Forward-looking statements represent our estimates and assumptions only as of the date of this report. You should read this report and the documents that we reference in this report, or that we filed as exhibits to this report completely and with the understanding that our actual future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
OTHER PERTINENT INFORMATION
References in this report to “we,” “us,” “our” and the “Company” and words of like import refer to Jishanye, Inc., and its subsidiaries.
References to Taiwan refer to Taiwan, Republic of China.
Our business is conducted in Taiwan using NTD, the currency of Taiwan, and our financial statements are presented in United States dollars (“USD” or “$”). In this report, we refer to assets, obligations, commitments and liabilities in our financial statements in USD. These dollar references are based on the exchange rate of NTD to USD, determined as of a specific date. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of USD which may result in an increase or decrease in the amount of our obligations (expressed in USD) and the value of our assets, including accounts receivable (expressed in USD).
| 3 |
JISHANYE, INC. AND SUBSIDIARY
(formerly Yambear Bio-Tech, Inc.)
Consolidated Balance Sheets
(Unaudited)
| March 31, | December 31, | |||||||
| 2014 | 2013 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | 29,438 | $ | 4,184 | ||||
| Other receivables | 7,496 | 7,611 | ||||||
| Total current assets | 36,934 | 11,795 | ||||||
| Property and equipment, net of accumulated depreciation | - | 27,456 | ||||||
| TOTAL ASSETS | $ | 36,934 | $ | 39,251 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payables | $ | 189 | $ | 191 | ||||
| Accrued expenses | 16,150 | 2,331 | ||||||
| Total current liabilities | 16,339 | 2,522 | ||||||
| Loan payable - related party | 149,500 | 149,500 | ||||||
| TOTAL LIABILITIES | 165,839 | 152,022 | ||||||
| STOCKHOLDERS' DEFICIT: | ||||||||
| Common stock, $0.0001 par value; 100,000,000 shares authorized, 12,500,001 shares issued and outstanding | 1,250 | 1,250 | ||||||
| Additional paid-in capital | 98,750 | 98,750 | ||||||
| Accumulated other comprehensive income | (402 | ) | 84 | |||||
| Accumulated deficit | (228,503 | ) | (212,855 | ) | ||||
| Total stockholders' deficit | (128,905 | ) | (112,771 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 36,934 | $ | 39,251 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
JISHANYE, INC. AND SUBSIDIARY
(formerly Yambear Bio-Tech, Inc.)
Consolidated Statements of Operations
and Other Comprehensive Loss
(Unaudited)
| Three Months | Three Months | From Inception | ||||||||||
| Ended | Ended | (April 12, 2012) | ||||||||||
| March 31, | March 31, | to March 31, | ||||||||||
| 2014 | 2013 | 2014 | ||||||||||
| Revenues | $ | - | $ | 16,377 | $ | 46,243 | ||||||
| Cost of revenues | - | (7,002 | ) | (17,514 | ) | |||||||
| Gross profit | - | 9,375 | 28,729 | |||||||||
| Operating expenses: | ||||||||||||
| Selling | - | 15,550 | 51,722 | |||||||||
| General and administrative | 14,102 | 43,592 | 178,616 | |||||||||
| Research and development | - | - | 9,037 | |||||||||
| Total operating expenses | 14,102 | 59,142 | 239,375 | |||||||||
| Loss from operations | (14,102 | ) | (49,767 | ) | (210,646 | ) | ||||||
| Other income (expense): | ||||||||||||
| Loss on disposal of assets | (1,546 | ) | - | (17,198 | ) | |||||||
| Interest income | - | 26 | 110 | |||||||||
| Other expense | (162 | ) | (769 | ) | ||||||||
| Total other expense | (1,546 | ) | (136 | ) | (17,857 | ) | ||||||
| Net loss | (15,648 | ) | (49,903 | ) | (228,503 | ) | ||||||
| Other comprehensive loss | ||||||||||||
| Foreign currency translation loss | (486 | ) | (1,807 | ) | (402 | ) | ||||||
| Comprehensive loss | $ | (16,134 | ) | $ | (51,710 | ) | $ | (228,905 | ) | |||
| Weighted average common shares outstanding: | ||||||||||||
| Basic and diluted | 12,500,001 | 12,500,001 | ||||||||||
| Loss per common share: | ||||||||||||
| Basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
JISHANYE, INC. AND SUBSIDIARY
(Formerly Yambear Bio-Tech, Inc.)
Consolidated Statements of Cash Flows
(Unaudited)
| Three | Three | From Inception | ||||||||||
| Months Ended | Months Ended | (April 12, 2012) | ||||||||||
| March 31, | March 31, | to March 31, | ||||||||||
| 2014 | 2014 | 2013 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | (15,648 | ) | $ | (49,903 | ) | $ | (228,503 | ) | |||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation expenses | 491 | 746 | 6,788 | |||||||||
| Loss on disposals of property and equipment | 1,546 | - | 17,198 | |||||||||
| Change in operating assets and liabilities: | ||||||||||||
| Accounts receivable | - | (4,220 | ) | - | ||||||||
| Other receivables | 115 | (862 | ) | (7,496 | ) | |||||||
| Inventory | - | 1,548 | - | |||||||||
| Deposits | - | 4,926 | - | |||||||||
| Other assets | - | (7,146 | ) | - | ||||||||
| Accounts payables | - | 5,484 | - | |||||||||
| Accrued expenses | 10,635 | 4,054 | 16,339 | |||||||||
| Advances from customers | - | (1,098 | ) | - | ||||||||
| Other payables | - | 11,091 | - | |||||||||
| Net cash used in operating activities | (2,861 | ) | (35,380 | ) | (195,674 | ) | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
| Payments for purchase of property and equipment | - | (19,567 | ) | (48,994 | ) | |||||||
| Payments for purchase of intangible assets | - | (2,492 | ) | (750 | ) | |||||||
| Proceeds from sales of property and equipment | 28,327 | - | 25,143 | |||||||||
| Net cash provided by (used in) investing activities | 28,327 | (22,059 | ) | (24,601 | ) | |||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
| Proceeds from issuance of common stock | - | - | 100,000 | |||||||||
| Proceeds from loan payable - related party | - | 149,500 | 149,500 | |||||||||
| Net cash provided by financing activities | - | 149,500 | 249,500 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (212 | ) | (562 | ) | 213 | |||||||
| NET INCREASE IN CASH | 25,254 | 91,499 | 29,438 | |||||||||
| CASH, BEGINNING OF PERIOD | 4,184 | 16,302 | - | |||||||||
| CASH, END OF PERIOD | $ | 29,438 | $ | 107,801 | $ | 29,438 | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION: | ||||||||||||
| Interest paid | $ | - | $ | - | $ | |||||||
| Income taxes paid | $ | - | $ | - | $ | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
JISHANYE, INC. AND SUBSIDARY
(Formerly Yambear Bio-Tech, Inc.)
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Organization and Basis of Presentation
Jishanye, Inc. (formerly Yambear Bio-Tech, Inc.) (the “Company” or “Jishanye”) was incorporated in the State of Delaware on April 12, 2012. The Company, through its subsidiary is engaged in selling enzymes products to public consumers across Taiwan, and intends to expand business operations by distributing and exporting its enzymes products to Hong Kong, mainland China, Singapore and Malaysia in 2013. The Company’s goal is to distribute and market its enzymes products to high-end consumers by exploring a variety of marketing channels, including, without limitation, telephone sales, sales on TV shopping channels, as well as selling in special counters located in big shopping malls and self-operated stores.
On October 25, 2013, the Company amended its Certificate of Incorporation to change the Company's name to "Jishanye, Inc." which was approved by the Board on October 24, 2013.
The unaudited consolidated financial statements were prepared by Company pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes. The results for the three ended March 31, 2014, are not necessarily indicative of the results to be expected for the year ending December 31, 2014.
Note 2 - Going Concern
The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), which contemplate continuation of the Company as a going concern. As of March 31, 2014, the Company has no recurring revenue, and has accumulated deficit of $228,503 since inception. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Major shareholders will continue to fund the Company until it is able to sustain positive cash flows from operations.
Note 3 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements were prepared in conformity with US GAAP. The Company’s functional currency is the New Taiwanese Dollar (“NTD”); however, the accompanying consolidated financial statements were translated and presented in United States Dollars (“$” or “USD”).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Jishanye and its wholly-owned subsidiary, Jishanye (Taiwan), Inc. All significant intercompany transactions and balances were eliminated in consolidation.
Foreign Currency
Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to Other Comprehensive Income (“OCI”).
| 7 |
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Specific estimates include the collectability of accounts receivable and the valuation of inventory, Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash in hand and in time deposits, certificates of deposit and all highly liquid debt instruments with original maturities of three months or less.
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-line method over the shorter of the estimated life of the asset. The Company applies ASC Topic 360, “Property, Plant, and Equipment,” which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. Loss on disposal of property and equipment is determined in a similar manner, except that fair values are reduced to recognize the cost of disposal.
Income Taxes
An asset and liability approach is used for financial accounting and reporting for income taxes. Deferred income taxes arise from temporary differences between income tax and financial reporting and principally relate to recognition of revenue and expenses in different periods for financial and tax accounting purposes and are measured using currently enacted tax rates and laws. In addition, a deferred tax asset can be generated by net operating loss carryforwards (“NOLs”). If it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is recognized
Revenue Recognition
The Company’s revenue recognition policies comply with SEC Staff Accounting Bulletin 104 (codified in FASB ASC Topic 605). Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The Company provides sales incentives such as buy a dozen and get one free. The Company recognizes the cost of the free product at the time of sale. The Company does not provide unconditional return. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers. For products sold through distributors, the Company recognizes revenue net of discount at the date of sale.
Sales represent the invoiced value of products, net of value-added tax (“VAT”). All of the Company’s products sold in Taiwan are subject to a value-added tax of 5% of the gross sales price. This VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing the finished product. The Company records VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as the Company acts as an agent for the government.
Research and Development
The Company expenses its research and development (“R&D”) costs as incurred. R&D expenses consist of expenses incurred for the development of 5 products the Company currently sells. This R&D was incurred jointly with the contract manufacturer. In addition, the Company has ongoing R&D expenses for the development of new products.
Basic and Diluted Loss Per Common Share
Loss per common share is calculated in accordance with the ASC Topic 260, “Earnings Per Share.” Loss per share is based upon the weighted average number of common shares outstanding. There were no options, warrants or other instruments convertible into common stock outstanding during the three months periods ended March 31, 2014 and year ended December 31, 2013, therefore basic and diluted loss per share are the same.
Subsequent Events
The Company’s management reviewed all material events from March 31, 2014 through the issuance date of these financial statements for disclosure consideration.
| 8 |
Note 4 – Related Party
Loan Payable
In 2013, the Company issued a promissory note to a shareholder for $149,500. The promissory note is interest free and is due on demand. As of March 31, 2014 and December 31, 2013, the entire balance was outstanding.
Employment Agreement
Pursuant to an employment agreement between the Company and Hsin-Lung Lin dated September 1, 2012, Hsin-Lung earns a salary of NTD32,000 (approximately $1,102) per month to serve as Chief Executive Officer of the Company. The employment agreement is for an indefinite term. Either party may terminate the agreement with at least 30 days prior notice.
Note 5 - Commitments and Contingencies
The Company entered into a leases agreement to rent office space located at, Pingtung, Taiwan for $1,590 (NTD48,480) per month. The lease will expire on October 31, 2014. As of March 31, 2014, the Company accrued 2014 rent expense and payable for approximately $4,700 (NTD145,000). Future committed payment for this non-cancelable operating lease is approximately $15,900 (NTD484,800).
Note 6 – Sale of Property and Equipment
On January 2014, the Company sold its vehicle to a third party for cash of NTD761,904 ($25,143). The Company received additional NTD96,470 ($3,184) from the third party for reimbursement to the dealer. Net value of the vehicle at selling date was NTD808,743 ($26,965). The company recorded loss on disposal of vehicle for NTD46,839 ($1,546), and other comprehensive loss from effect of exchange rate changes for $276.
| 9 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this Management’s Discussion and Analysis in conjunction with the Consolidated Financial Statements and the related notes. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.
Overview
We were incorporated in the State of Delaware on April 12, 2012 under the name “Yambear Bio-Tech, Inc.” On October 24, 2013, we changed our corporate name to “Jishanye, Inc.” Through our subsidiary we are engaged in selling enzymes products to public consumers across Taiwan, and we intend to expand business operations by distributing and exporting our enzymes products to Hong Kong, mainland China, Singapore and Malaysia in 2014. Our goal is to distribute and market our enzymes products to high-end consumers by exploring a variety of marketing channels, including, without limitation, telephone sales, sales on TV shopping channels, as well as selling in special counters located in big shopping malls. Our goal is to establish an international brand of enzymes products with high quality and name recognition. With our competitive strengths discussed below, we expect to become a major player in dietary supplements industry and grow into an internationally recognized brand of enzymes products.
We currently have a limited line of enzymes products, consisting of five-phases enzymes products. We’ve been marketing the five enzymes products in one package to our customers, as we have deliberately designed the formula for each of them to contain ingredients, especially certain Traditional Chinese Medicine (“TCM”), allegedly with corresponding nutritional effect on each of five key organs of human bodies, namely, heart, liver, stomach, lung and kidney. Our creative combination of TCM concept “Five Fundamental Elements,” namely, gold, wood, water, fire and earth, with our enzymes products and the meticulously designed formula constitute the unique feature of our enzymes products. In addition, each of the above-mentioned enzymes products, other than our water enzymes product, requires over 60 different ingredients. Furthermore, we specifically instructed Bioenergy Biotechnology Corp., our manufacturer, to apply a six-stage fermentation manufacturing process on all of our enzymes products. Though the production cycle for our enzymes products usually take approximately fourteen months, which is substantially longer than the production cycle required for similar enzymes products manufactured with one-stage traditional method in Taiwan, which are in the range of one to three months, it creates superior quality in one key parameter of our enzymes products, the number of SOD-like characteristics contained in the enzymes products. SOD means Superoxide Dismutase, one of the enzymes with alleged antioxidation effect to delay the aging process of human body. However, due to the relatively large size of the molecules of SOD, human body cannot directly assimilate it. SOD-like characteristics refers to certain enzymes with similar antioxidation effect but of relatively small molecules, which can be more easily and effectively assimilated by human body. Generally speaking, the more SOD-like contained per unit, the better antioxidation effect on human bodies to delay the aging process. Based on the SGS report issued by SGS Taiwan Ltd. on September 25, 2013, the SOD-like characteristics in our enzyme products is approximately 12,600 per gram, which is substantially greater than enzyme products of our main competitor Biozyme Biotechnology Corp., whose SOD-like characteristics are approximately 3,000 per gram.
For the traditional one-stage fermentation manufacturing process, all of the ingredients will be put into the container in one batch for fermentation, which will take approximately one to three months to complete the fermentation process; while in the six-stage fermentation manufacturing process, the ingredients, depending on their respective features, will be divided into several batches for fermentation process. For example, those ingredients requiring longer time for fermentation will be in our earlier batches, while those requiring relatively shorter time for fermentation will be in our later batches, so as to better retain the essence of all the ingredients and to improve the stability of the fermentation process. In addition, through the whole six-stage fermentation manufacturing process, which will usually take more than fourteen months, the ingredients will be fully fermented, which we believe not only make our enzymes products taste better, but also make the nutrient substances easier to be assimilated by human bodies. We have designed our formula to limit the addition of synthetic chemicals during the fermentation process, such as sugar and instead have relied on the natural ingredients that we believe improve the flavor of our enzymes products.
We understand that the two dominant players in Taiwan enzymes market, Yamato Enzyme Co., Ltd. and Biozyme Biotechnology Corp., currently employ a four-stage and five-stage fermentation process respectively. However, based on the key parameters of enzymes products described above, we believe that our six-stage fermentation process enzymes products are with superior quality.
| 1. | Multiplicity of vegetables and fruits through the whole year in Taiwan. |
| 2. | Multiplicity of spawns used depend on vegetables and fruits used through four seasons a year. |
| 3. | The SOD-like characteristics could be increased effectively through six-stage fermentation process. Based on the SGS report issued by SGS Taiwan Ltd. on September 25, 2013, the SOD-like characteristics in our enzyme products is approximately 12,600 per gram, which is substantially greater than enzyme products of our main competitor Biozyme Biotechnology Corp., whose SOD-like characteristics are approximately 3,000 per gram. Such SGS report shall expire on September 24, 2015, at such time we shall apply for new SGS reports for our products. |
| 10 |
With a history of more than 2000 years, TCM has formed a unique system to diagnose and cure illness. The TCM approach is fundamentally different from that of Western medicine. In TCM, the understanding of the human body is based on the holistic understanding of the universe as described in Daoism, and the treatment of illness is based primarily on the diagnosis and differentiation of syndromes. The TCM approach treats zang-fu organs as the core of the human body. Tissue and organs are connected through a network of channels and blood vessels inside human body. Qi (or Chi) acts as a kind of carrier of information that is expressed externally through jingluo system. Pathologically, a dysfunction of the zang-fu organs may be reflected on the body surface through the network, and meanwhile, diseases of body surface tissues may also affect their related zang or fu organs. Affected zang or fu organs may also influence each other through internal connections. Traditional Chinese medicine treatment starts with the analysis of the entire system, then focuses on the correction of pathological changes through readjusting the functions of the zang-fu organs. The Chinese herbs we are using in our enzymes products are considered to have related improvement effect to relevant organs of human bodies pursuant to TCM theories as elaborated in detail in the Products and Services section.
Our enzymes products fall into the food category and are solely for human consumption. To ensure the safety of our enzymes products, we have selected Bioenergy Biotechnology Corp., one of the well-established Taiwanese companies specializing on enzymes production and with both International Organization for Standardization (ISO) 9001: 2008 and Hazard Analysis Critical Control Point (HACCP) certifications, to be our manufacturer. In addition, substantially all of raw material ingredients for our enzymes products are from local plantations in Taiwan, where the climate, soil and environment are most suitable for the growing of such ingredients. Furthermore, to effectively monitor quality of our enzymes products, we have voluntarily submitted sampled products in each manufacturing batch to SGS (SGS Group-Societe Generale de Surveillance), an inspection agency widely recognized as the safety certificate for food industry, on a regular basis and implemented our Dr. Chip Biotech Examination, where for each batch of enzymes products, a micro-chip will be pre-installed into to the manufacturing process for inspection, to ensure that the number of non-essential bacteria contained in the enzymes products must not exceed 1x10^5 per cc (cubic centimeter).
Going Concern
The consolidated financial statements included elsewhere in this Form 10-Q have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation as a going concern. We have an accumulated deficit of $228,503 since exception, and have incurred non-recurring revenue. These conditions raise substantial doubt as to our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. We are planning to open a retail location in a shopping mall in the coming months to create brand image and brand awareness and are currently negotiating an agency agreement with an insurance company in Taiwan. Major shareholders will continue to fund the Company until it is able to sustain positive cash flows from operations.
Results of Operations
Revenues. For the three months ended March 31, 2014 and 2013, we had revenue of $0 and $16,377, respectively. The decrease was because we were revising our business plans, and had no sales in 2014.
Cost of revenues.For the three months ended March 31, 2014 and 2013, we had cost of revenues of $0 and $7,002, respectively. The decrease was because we had no sale in 2014.
Selling expenses. For the three months ended March 31, 2014 and 2013, we had selling expense of $0 and $15,550, respectively. The decrease was because we were revising our business plans, and had no sale in 2014.
General and administrative expenses. For the three months ended March 31, 2014 and 2013, we had general and administrative expenses of $14,102 and $43,592, respectively. The decrease was because we were revising our business plans, and had limited operations. We tried to minimize costs and keep cash on hand.
Net loss.For three months period ended March 31, 2014 and 2013, our net loss was $15,648 and $49,903, respectively. The decrease was because we incurred more general and administrative expenses for operation. We were revising our business plans, and tried to minimize our costs in 2014.
| 11 |
Liquidity and Capital Resources
On July 16, 2012, we raised $100,000 from the sale of 12,500,001 shares of our common stock and we received $149,500 from the issuance of a loan payable that were used to fund our operations. As of March 31, 2014, we had cash on hand of $29,438.
We used $2,861, $35,380 and $195,674 of cash in our operations for the three months ended March 31, 2014 and 2013, and for the period from our inception April 12, 2012 to March 31, 2014, respectively, which was principally related to our net loss and the build-up of inventory.
As we are just commencing our operations, we plan to fund our operations from loans from our major shareholders and we plan to raise equity capital by offering shares of our common stock to investors.
On January 15, 2013, our Chief Executive Officer, Chief Financial Officer and Chairman of the Board, Mr. Lin Hsin-Lung, extended a loan in the amount of $149,000 to the Company. The loan is due on demand and has no interest obligations.
We opened up a self-operated store in Jet’s Burg Mall Tianmoo Taipei on March 1, 2013 and the associated cost was approximately $34,423. We closed the store on October 2013, and were revising our business plans in 2014.
The estimated budget for 2014 is as follows:
| Salaries and benefits | $ | 115,663 | ||
| Costs associated with opening self-operated stores | 95,000 | |||
| Marketing | 30,981 | |||
| Management overhead | 5,783 | |||
| Professional fees | 7,917 | |||
| General overhead | 7,917 | |||
| Total | $ | 263,261 |
We believe we will be able to raise the necessary capital to carry out our business plan, but there is no guarantee that we will be able to do so.
Critical Accounting Policies
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States ("US GAAP"). US GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
We believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.
Foreign Currency
Assets and liabilities recorded in foreign currencies are translated at the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates of exchange prevailing during the year. Translation adjustments resulting from this process are charged or credited to Other Comprehensive Income (“OCI”).
Revenue Recognition
Our revenue recognition policies comply with SEC Staff Accounting Bulletin 104 (codified in FASB ASC Topic 605). Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of ours exists and collectability is reasonably assured. We provide sales incentive such as buy a dozen and get one free. We recognize the cost of the free product at the time of sale. We do not provide unconditional return or any other sales incentives. Payments received before all of the relevant criteria for revenue recognition are satisfied are recorded as advances from customers.
Sales represent the invoiced value of products, net of value-added tax (“VAT”). All of our products sold in Taiwan are subject to a value-added tax of 5% of the gross sales price. This VAT may be offset by VAT paid by us on raw materials and other materials included in the cost of producing the finished product. We record VAT payable and VAT receivable net of payments in the financial statements. The VAT tax return is filed offsetting the payables against the receivables. Sales and purchases are recorded net of VAT collected and paid as we act as an agent for the government.
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JOBS Act
We are an “emerging growth company” as defined in the recently-enacted JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting and disclosure requirements that are applicable to public companies that are not “emerging growth companies.” As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain reporting and disclosure requirements, which may make our future public filings different than that of other public companies.
Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain new accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We will remain an “emerging growth company” until the earliest of: (i) the last day of the fiscal year during which we had total annual gross revenues of $1 billion or more, (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of our common stock pursuant to an effective registration statement, (iii) the date on which we have, during the previous 3-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed a “large accelerated filer” as defined under the federal securities laws.
Recent Accounting Pronouncements
The Company does not expect adoption of the new accounting pronouncements will have a material effect on the Company’s financial statements.
Off-Balance Sheet Arrangements
None.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
ITEM 4. INTERNAL CONTROLS OVER FINANCIAL REPORTING.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Our disclosure controls and procedures are also designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, to allow timely decisions regarding required disclosure. Our chief executive officer and chief financial officer have reviewed the effectiveness of our disclosure controls and procedures as of March 31, 2014 and, based on his evaluation, have concluded that the disclosure controls and procedures were not effective due to the material weaknesses, which is that we did not sufficiently segregate duties over incompatible functions at our corporate headquarters.
Changes in internal control over financial reporting
During the three months ended March 31, 2014, there were no changes in our internal control over financial reporting identified in connection with the evaluation performed during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
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None.
Not applicable
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
N/A.
None.
(a) Exhibits:
| Exhibit | ||
| Number | Description of Exhibit | |
| 31.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 | |
| 32.1* | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 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. | |
*The certification attached as Exhibits 32.1 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Quarterly Report on Form 10-Q report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: May 15, 2014 | By: | /s/ Hsin-Lung Lin |
| Name: | Hsin-Lung Lin | |
| Its: | Chief Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer and Principal Financial and Accounting Officer) |
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