Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the Company’s consolidated financial statements, which are included elsewhere in this Form 10-K.
Overview
MakingORG, Inc. (“MakingORG”) was incorporated under the laws of the State of Nevada on August 10, 2012. The trading symbol of the Company is "CQCQ" and the fiscal year end is December 31. On October 20, 2016, MakingORG filed documents registering its intention to transact interstate business in the state of California. On November 29, 2016, MakingORG incorporated HK Feng Wang Group Limited (“HKFW”) under the laws of Hong Kong. On August 22, 2017, HKFW incorporated Chongqing Beauty Kenner Biotechnology Co., Ltd (“CBKB”) under the laws of the People’s Republic of China (“PRC”).
On November 29, 2016, the Company incorporated HK Feng Wang Group Limited (“HKFW”) under the laws of Hong Kong. On August 22, 2017, HKFW incorporated Chongqing Beauty Kenner Biotechnology Co., Ltd (“CBKB”) under the laws of the People’s Republic of China (“PRC”).
The Company and its subsidiaries purchase Acer truncatum bunge seed oil from China, outsource to third parties to manufacture Acer truncatum bunge related health product, and sell to end users and distributors in the United States and PRC.
CBKB entered into a Strategic Cooperation Framework Agreement with Hangzhou Life Century Hualian Supermarket Chain Co., Ltd. (“HLCH”), dated May 25, 2018, pursuant to which the Company agreed to assist HLCH in identifying brand-specific, high tech characteristics products, such as acer truncatum nervonic acid oil, acer truncatum seed oil capsule, acer truncatum edible oil, acer truncatum oil with nervonic acid formula, acer truncatum coffe, acer truncatum tea, canned acer truncatum, acer truncatum cosmetics, acer truncatum skin care products, hair wash products and acer trunncatrum food.
Plan of Operation
Our sole officer and director intends to sell Acer truncatum bunge related health product in the United States and PRC, we might just identify and negotiate with another company for the business combination or merger of that entity with and into our company. We would seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of a publicly held corporation. At this time, we have no plan, proposal, agreement, understanding or arrangement to acquire or merge with any specific business or company, and the Company has not identified any specific business or company for investigation and evaluation. No member of management or promoter of the Company has had any material discussions with any other company with respect to any acquisition of that company.
We will not restrict our search for another target company to any specific business, industry or geographical location, and the Company may participate in a business venture of virtually any kind or nature. The discussion of the proposed plan of operation under this caption and throughout this Annual Report is purposefully general and is not meant to be restrictive of the Company’s virtually unlimited discretion to search for and enter into potential business opportunities.
Sources of Opportunities
The Company anticipates that business opportunities for possible acquisition will be referred by various sources, including its officers and directors, professional advisers, securities broker-dealers, venture capitalists, members of the financial community, and others who may present unsolicited proposals.
The Company will seek a potential business opportunity from all known sources but will rely principally on personal contacts of its officer and director and consultants as well as indirect associations between them and other business and professional people. It is not presently anticipated that the Company will engage professional firms specializing in business acquisitions or reorganizations.
Evaluation of Opportunities
The analysis of new business opportunities will be undertaken by or under the supervision of the officer and director of the Company. Management intends to concentrate on identifying prospective business opportunities which may be brought to its attention through present associations with management. In analyzing prospective business opportunities, management will consider such matters as the available technical, financial and managerial resources; working capital and other financial requirements; history of operation, if any; prospects for the future; present and expected competition; the quality and experience of management services which may be available and the depth of that management; the potential for further research, development or exploration; specific risk factors not now foreseeable but which then may be anticipated to impact the proposed activities of the Company; the potential for growth or expansion; the potential for profit; the perceived public recognition or acceptance of products, services or trades; name identification; and other relevant factors. The officer and director of the Company will meet personally with management and key personnel of the firm sponsoring the business opportunity as part of her investigation. To the extent possible, the Company intends to utilize written reports and personal investigation to evaluate the above factors. The Company will not acquire or merge with any company for which audited consolidated financial statements cannot be obtained.
It may be anticipated that any opportunity in which the Company participates will present certain risks. Many of these risks cannot be adequately identified prior to selection of the specific opportunity, and the Company’s stockholders must, therefore, depend on the ability of management to identify and evaluate such risk. In the case of some of the opportunities available to the Company, it may be anticipated that the promoters thereof have been unable to develop a going concern or that such business is in its development stage in that it has not generated significant revenues from its principal business activities prior to the Company’s anticipation. There is a risk, even after the Company’s participation in the activity and the related expenditure of the Company’s funds that the combined enterprises will still be unable to become a going concern or advance beyond the development stage. Many of the opportunities may involve new and untested products, processes, or market strategies which may not succeed. Such risks will be assumed by the Company and, therefore, its stockholders.
The Company will not restrict its search for any specific kind of business but may acquire a venture which is in its preliminary or development stage, which is already in operation, or in essentially any stage of its corporate life. It is currently impossible to predict the status of any business in which the Company may become engaged, in that such business may need additional capital, may merely desire to have its shares publicly traded, or may seek other perceived advantages which the Company may offer.
Acquisition of Opportunities
In implementing a structure for a particular business acquisition, the Company may become a party to a merger, consolidation, reorganization, joint venture, franchise or licensing agreement with another corporation or entity. It may also purchase stock or assets of an existing business. On the consummation of a transaction, it is possible that the present management and shareholders of the Company will not be in control of the Company. In addition, the Company’s officer and director may, as part of the terms of the acquisition transaction, resign and be replaced by new officers and directors without a vote of the Company’s stockholders.
It is anticipated that any securities issued in any such reorganization would be issued in reliance on exemptions from registration under applicable Federal and state securities laws. In some circumstances, however, as a negotiated element of this transaction, the Company may agree to register such securities either at the time the transaction is consummated, under certain conditions, or at specified time thereafter. The issuance of substantial additional securities and their potential sale into any trading market which may develop in the Company’s common stock may have a depressive effect on such market. While the actual terms of a transaction to which the Company may be a party cannot be predicted, it may be expected that the parties to the business transaction will find it desirable to avoid the creation of a taxable event and thereby structure the acquisition in a so called “tax free” reorganization under Sections 368(a)(1) or 351 of the Internal Revenue Code of 1986, as amended (the “Code”). In order to obtain tax free treatment under the Code, it may be necessary for the owners of the acquired business to own 80% or more of the voting stock of the surviving entity. In such event, the shareholders of the Company, including investors in this offering, would retain less than 20% of the issued and outstanding shares of the surviving entity, which could result in significant dilution in the equity of such shareholders.
As part of the Company’s investigation, the officer and director of the Company will meet personally with management and key personnel, may visit and inspect material facilities, obtain independent analysis or verification of certain information provided, check references of management and key personnel, and take other reasonable investigative measures, to the extent of the Company’s limited financial resources and management expertise.
The manner in which each Company participates in an opportunity will depend on the nature of the opportunity, the respective needs and desires of the Company and other parties, the management of the opportunity, and the relative negotiating strength of the Company and such other management.
With respect to any mergers or acquisitions, negotiations with target company management will be expected to focus on the percentage of the Company which target company shareholders would acquire in exchange for their stockholdings in the target company. Depending upon, among other things, the target company’s assets and liabilities, the Company’s stockholders will in all likelihood hold a lesser percentage ownership interest in the Company following any merger or acquisition. The percentage ownership may be subject to significant reduction in the event the Company acquires a target company with substantial assets. Any merger or acquisition effected by the Company can be expected to have a significant dilutive effect on the percentage of shares held by the Company’s then stockholders.
The Company will not have sufficient funds (unless it is able to raise funds in a private placement) to undertake any significant development, marketing and manufacturing of any products which may be acquired.
Accordingly, following the acquisition of any such product, the Company will, in all likelihood, be required to either seek debt or equity financing or obtain funding from third parties, in exchange for which the Company would probably be required to give up a substantial portion of its interest in any acquired product. There is no assurance that the Company will be able either to obtain additional financing or interest third parties in providing funding for the further development, marketing and manufacturing of any products acquired.
It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity the costs therefore incurred in the related investigation would not be recoverable.
Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in a loss to the Company of the related costs incurred.
Management believes that the Company may be able to benefit from the use of “leverage” in the acquisition of a business opportunity. Leveraging a transaction involves the acquisition of a business through incurring significant indebtedness for a large percentage of the purchase price for that business.
Through a leveraged transaction, the Company would be required to use less of its available funds for acquiring the business opportunity and, therefore, could commit those funds to the operations of the business opportunity, to acquisition of other business opportunities or to other activities. The borrowing involved in a leveraged transaction would ordinarily be secured by the assets of the business opportunity to be acquired. If the business opportunity acquired is not able to generate sufficient revenues to make payments on the debt incurred by the Company to acquire that business opportunity, the lender would be able to exercise the remedies provided by law or by contract. These leveraging techniques, while reducing the amount of funds that the Company must commit to acquiring a business opportunity, may correspondingly increase the risk of loss to the Company. No assurance can be given as to the terms or the availability of financing for any acquisition by the Company. During periods when interest rates are relatively high, the benefits of leveraging are not as great as during periods of lower interest rates because the investment in the business opportunity held on a leveraged basis will only be profitable if it generates sufficient revenues to cover the related debt and other costs of the financing. Lenders from which the Company may obtain funds for purposes of a leveraged buy-out may impose restrictions on the future borrowing, distribution, and operating policies of the Company. It is not possible at this time to predict the restrictions, if any, which lenders may impose or the impact thereof on the Company.
Critical Accounting Policies and Estimates
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new revenue recognition standard provides a five-step analysis of contracts to determine when and how revenue is recognized. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective date of ASU No. 2014-09 for all entities by one year to annual reporting periods beginning after December 15, 2017. The FASB has issued several updates subsequently, including implementation guidance on principal versus agent considerations, on how an entity should account for licensing arrangements with customers, and to improve guidance on assessing collectability, presentation of sales taxes, noncash consideration, and contract modifications and completed contracts at transition. In general, the Company’s performance obligation is to transfer it products to its end user or distributor. Revenues from product sales are recognized when the customer obtains control of the Company’s finished goods product, which occurs at a point in time, typically upon delivery to the customer.
In July 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-10, Codification Improvements to Topic 842, Leases, or ASU 2018-10. The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued Accounting Standards Update No. 2016-02, Leases (Topic 842), or ASU 2016-02 and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2016-02 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. In July 2018, the FASB has also issued the following standards which clarify ASU 2016-02 and have the same effective date as the original standard: ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements, amending certain aspects of the new leasing standard. The Company plans to adopt this ASU 2016-02 on January 1, 2019. The Company is currently evaluating the effects the adoption of ASU 2016-02 will have on its consolidated financial statements.
The preparation of consolidated 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 reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.
Results of Operations
For the years ended December 31, 2018 and December 31, 2017
|
|
Years Ended
December 31,
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
|
Percent
|
|
Net Sales
|
|
$
|
-
|
|
|
$
|
54,605
|
|
|
$
|
(54,605
|
)
|
|
|
-100%
|
|
Cost of Sales
|
|
|
-
|
|
|
|
33,571
|
|
|
|
(33,571
|
)
|
|
|
-100%
|
|
Gross Profit
|
|
|
-
|
|
|
|
21,034
|
|
|
|
(21,034
|
)
|
|
|
-100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
33,373
|
|
|
|
34,463
|
|
|
|
(1,090
|
)
|
|
|
-3%
|
|
Professional fees
|
|
|
89,932
|
|
|
|
84,447
|
|
|
|
5,485
|
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
123,305
|
|
|
|
118,910
|
|
|
|
4,395
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
80
|
|
|
|
-
|
|
|
|
80
|
|
|
|
-%
|
|
Interest expense
|
|
|
(50,286
|
)
|
|
|
(43,427
|
)
|
|
|
(6,859
|
)
|
|
|
16
|
%
|
Loss on inventory write-off
|
|
|
(11,101
|
)
|
|
|
-
|
|
|
|
(11,101
|
)
|
|
|
-%
|
|
Loss on inventory write-down
|
|
|
(10,666
|
)
|
|
|
-
|
|
|
|
(10,666
|
)
|
|
|
-%
|
|
Total other income (expenses)
|
|
|
(71,973
|
)
|
|
|
(43,427
|
)
|
|
|
(28,546
|
)
|
|
|
66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(195,278
|
)
|
|
|
(141,303
|
)
|
|
|
(53,975
|
)
|
|
|
38
|
%
|
Income tax expense
|
|
|
800
|
|
|
|
5,606
|
|
|
|
(4,806
|
)
|
|
|
-86%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(196,078
|
)
|
|
$
|
(146,909
|
)
|
|
$
|
(49,169
|
)
|
|
|
33
|
%
|
Net sales, cost of sales and gross profit
The Company consolidated net sales for the years ended December 31, 2018 and 2017 was $nil and $54,605, respectively. The cost of sales for the years ended December 31, 2018 and 2017 was $nil and $33,571, respectively, resulting in a gross profit of $nil and $21,034 for the years ended December 31, 2018 and 2017, respectively.
Total operating expenses
During the year ended December 31, 2018, total operating expenses were $123,305, which consisted of professional fees of $89,932, rent expenses of $10,875, China salary and China office expense of $11,518, marketing expense of $7,555, bank charges of $1,422, , permits and licenses of $989, and others of $1,014. During the year ended December 31, 2017, total operating expenses were $118,910, which consisted of professional fees of $84,447, rent expenses of $12,000, marketing and product exam fees of $10,275, research and development fees of $7,000, website expense of $1,800, bank service charge of $1,302, and office expenses of $2,086. Total operating expenses increased $4,395, or 4%, primarily as a result of the increase in China personnel fee in the year ended December 31, 2018 from year ended December 31, 2017.
Total other income (expense)
During the year ended December 31, 2018, the Company total other expenses were $71,973, which consisted of interest expense of $50,286, interest income of $80, loss on inventory write-down of $11,101 and loss on inventory write-off of $10,666. During the year ended December 31, 2017, the Company interest expenses of $43,427.
Net loss
During the year ended December 31, 2018, the Company had a net loss of $196,078, as compared with a net loss of $146,909 for the year ended December 31, 2017.
Liquidity and Capital Resources
As of December 31, 2018, the Company had cash and cash equivalents and total assets of $57,372 and $86,073, respectively. We have total liabilities of $462,415, of which $173,333 is convertible note payable and $230,903 is due to our sole officer and director as an unsecured, non-interest bearing demand loan. As of December 31, 2018, and 2017, the Company had working capital amount of $(377,717) and $(219,146), respectively.
Other than an oral agreement with Mrs. Cui to fund the expenses of the Company, we currently have no agreements and arrangements with any person to obtain funds through bank loans, lines of credit or any other sources. Since the Company has no such arrangements or plans currently in effect, its inability to raise funds for the above purposes will have a severe negative impact on its ability to remain a viable company.
Cash Flows from Operating Activities
For the year ended December 31, 2018, net cash flows used in operating activities was $84,298 resulting from a net loss of $196,078, a decrease in accounts receivable of $50,145, an increase in inventories of $11,813, a decrease in prepaid expenses and other current assets of $12,676, an increase in deposit of $2,000, a decrease in accounts payable of $627, an increase in accrued liabilities of $14,208, an increase in deferred rent of $625, and amortization of debt discount of $26,286, amortization expense of $513, loss on inventory write-down of $11,101 and loss on inventory write-off of $10,666. For the year ended December 31, 2017, net cash flows used in operating activities was $178,043 resulting from a net loss of $146,909, an increase in accounts receivable of $49,088, inventories of $32,155, prepaid expenses and other current assets of $5,026, an increase in accounts payable of $614 and accrued liabilities of $35,093, and amortization of debt discount of $19,428.
Cash Flows from Investing Activities
For the year ended December 31, 2018, the Company did not have any cash flow from investing activities. For the year ended December 31, 2017, net cash flows used in investing activities was $502 resulting from the purchase of intangible assets.
Cash Flows from Financing Activities
We have financed our operations primarily from the advances from the Company’s sole officer and director. For the year ended December 31, 2018, we had cash flows provided by advances from the Company’s sole officer and director of $105,124. For the year ended December 31, 2017, we had cash flows provided by advances from the Company’s sole officer and director of $51,200.
Going Concern Consideration
These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to repay its debt obligations, to obtain necessary equity financing to continue operations, and the attainment of profitable operations. Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company may seek additional funding through additional issuance of common stock and/or borrowings from financial institutions or the majority shareholder to support its normal business operations. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company had net loss of $196,078 for the year ended December 31, 2018 and a net loss of $146,909 for the year ended December 31, 2017. In addition, the Company had an accumulated deficit of $478,651 and generated negative cash flow from operating activities as of and for year ended December 31, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital. The Company’s consolidated financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Convertible Note Payable
On September 1, 2016, the Company entered into a Convertible Note Agreement in the principal amount of $200,000 with an unrelated party. The note bears interest at 12% per annum and the holder is able to convert all unpaid interest and principal into common shares at $3.50 per share. The note matures on September 1, 2018. The Company recognized a discount on the note of $38,857 at the agreement date. The interest expense was due every six months commencing on March 1, 2017 until the principal amount of this convertible note is paid in full.
On September 1, 2018, the Company entered into an Amended and Restated 12% Convertible Promissory Note. Pursuant to an Amended and Restated 12% Convertible Promissory Note, both parties agreed to extend a Convertible Note Agreement to September 1, 2019 with no additional consideration. The Company recognized a discount on the note of $40,000 at the amended agreement date.
The Company recognized interest expense related to the convertible note of $50,286 and $43,427, respectively, for the years ended December 31, 2018 and 2017. The unamortized debt discount at December 31, 2018 and 2017 was $26,667 and $12,953, respectively. As of December 31, 2018, and 2017, net balance of the convertible note amounted to $173,333 and $187,047, respectively.
Operating Lease
The Company has operating leases for its office. Rental expenses for the years ended December 31, 2018 and 2017 were $10,875 and $12,000, respectively. As of December 31, 2018, total future minimum annual lease payments under operating lease was as follows, by years:
Twelve months ending December 31, 2019
|
|
$
|
8,625
|
|
Twelve months ending December 31, 2020
|
|
|
5,750
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
14,375
|
|
Material Definitive Agreement
MakingOrg, Inc.’s subsidiary, Chonogquing Beauty Kenner Biotechnology Co., Ltd., entered into a Strategic Cooperation Framework Agreement (the “Agreement”) with Hangzhou Life Century Hualian Supermarket Chain Co., Ltd. (“HLCH”), dated May 25, 2018, pursuant to which the Company agreed to assist HLCH in identifying brand-specific, high tech characteristics products, such as acer truncatum nervonic acid oil, acer truncatum seed oil capsule, acer truncatum edible oil, acer truncatum oil with nervonic acid formula, acer truncatum coffe, acer truncatum tea, canned acer truncatum, acer truncatum cosmetics, acer truncatum skin care products, hair wash products and acer trunncatrum food. The Company has initiated the marketing effort per agreement, however, the result has not met the expectation and the Company is still finding solutions.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 8. Financial Statements.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and shareholders of MakingORG, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of MakingORG, Inc. and subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, accumulated deficit and generated negative cash flows from operating activities that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinions
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Simon & Edward, LLP
Los Angeles, California
April 15, 2019
We have served as the Company's auditor since 2016.
MAKINGORG, INC. AND SUBSIDIARIES
|
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
|
December 31,
2017
|
|
|
|
|
|
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
57,372
|
|
|
$
|
37,605
|
|
Accounts receivable
|
|
|
-
|
|
|
|
50,979
|
|
Inventories (net of inventory reserve of $11,101 and $nil)
|
|
|
22,201
|
|
|
|
32,155
|
|
Prepaid expenses and other current assets
|
|
|
4,500
|
|
|
|
17,176
|
|
Total Current Assets
|
|
|
84,073
|
|
|
|
137,915
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
|
-
|
|
|
|
522
|
|
Deposit
|
|
|
2,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
86,073
|
|
|
$
|
138,437
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
|
$
|
638
|
|
Interest payable
|
|
|
56,000
|
|
|
|
32,000
|
|
Accrued liabilities
|
|
|
1,554
|
|
|
|
11,597
|
|
Due to related party
|
|
|
230,903
|
|
|
|
125,779
|
|
Convertible note payable, net of discount $26,667 and $12,953
|
|
|
173,333
|
|
|
|
187,047
|
|
Total Current Liabilities
|
|
|
461,790
|
|
|
|
357,061
|
|
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
625
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
462,415
|
|
|
|
357,061
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.001; 50,000,000 shares authorized, zero shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, par value $0.001; 150,000,000 shares authorized, 35,430,000 shares issued and outstanding
|
|
|
35,430
|
|
|
|
35,430
|
|
Additional paid-in capital
|
|
|
67,592
|
|
|
|
27,592
|
|
Accumulated other comprehensive income (loss)
|
|
|
(713
|
)
|
|
|
927
|
|
Accumulated deficit
|
|
|
(478,651
|
)
|
|
|
(282,573
|
)
|
Total Stockholders’ Deficit
|
|
|
(376,342
|
)
|
|
|
(218,624
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Deficit
|
|
$
|
86,073
|
|
|
$
|
138,437
|
|
See accompanying notes to consolidated financial statements.
MAKINGORG, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
|
|
|
|
|
|
|
|
|
|
For the years ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net Sales
|
|
$
|
-
|
|
|
$
|
54,605
|
|
Cost of Sales
|
|
|
-
|
|
|
|
33,571
|
|
Gross Profit
|
|
|
-
|
|
|
|
21,034
|
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
33,373
|
|
|
|
34,463
|
|
Professional fees
|
|
|
89,932
|
|
|
|
84,447
|
|
TOTAL OPERATING EXPENSES
|
|
|
123,305
|
|
|
|
118,910
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(123,305
|
)
|
|
|
(97,876
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
80
|
|
|
|
-
|
|
Interest expense
|
|
|
(50,286
|
)
|
|
|
(43,427
|
)
|
Loss on inventories write-down
|
|
|
(11,101
|
)
|
|
|
-
|
|
Loss on inventories write-off
|
|
|
(10,666
|
)
|
|
|
-
|
|
TOTAL OTHER INCOME (EXPENSE)
|
|
|
(71,973
|
)
|
|
|
(43,427
|
)
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAX
|
|
|
(195,278
|
)
|
|
|
(141,303
|
)
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
800
|
|
|
|
5,606
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
$
|
(196,078
|
)
|
|
$
|
(146,909
|
)
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE ITEM:
|
|
|
|
|
|
|
|
|
Foreign currency translation income (loss)
|
|
|
(1,640
|
)
|
|
|
927
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE LOSS
|
|
$
|
(197,718
|
)
|
|
$
|
(145,982
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE: BASIC AND DILUTED
|
|
$
|
(0.006
|
)
|
|
$
|
(0.004
|
)
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC AND DILUTED
|
|
|
35,430,000
|
|
|
|
35,430,000
|
|
See accompanying notes to consolidated financial statements.
MAKINGORG, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Deficit
|
|
|
Deficit
|
|
Balance, December 31, 2016
|
|
|
35,430,000
|
|
|
$
|
35,430
|
|
|
$
|
27,592
|
|
|
$
|
-
|
|
|
$
|
(135,664
|
)
|
|
$
|
(72,642
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
927
|
|
|
|
-
|
|
|
|
927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(146,909
|
)
|
|
|
(146,909
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
35,430,000
|
|
|
$
|
35,430
|
|
|
$
|
27,592
|
|
|
$
|
927
|
|
|
$
|
(282,573
|
)
|
|
$
|
(218,624
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,640
|
)
|
|
|
-
|
|
|
|
(1,640
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of promissory note
|
|
|
-
|
|
|
|
-
|
|
|
|
40,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(196,078
|
)
|
|
|
(196,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
35,430,000
|
|
|
$
|
35,430
|
|
|
$
|
67,592
|
|
|
$
|
(713
|
)
|
|
$
|
(478,651
|
)
|
|
$
|
(376,342
|
)
|
See accompanying notes to consolidated financial statements.
MAKINGORG, INC. AND SUBSIDIARIES
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
For the years ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(196,078
|
)
|
|
$
|
(146,909
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Loss on inventories write-down
|
|
|
11,101
|
|
|
|
-
|
|
Loss on inventories write-off
|
|
|
10,666
|
|
|
|
-
|
|
Amortization expense
|
|
|
513
|
|
|
|
-
|
|
Amortization of debt discount
|
|
|
26,286
|
|
|
|
19,428
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
50,145
|
|
|
|
(49,088
|
)
|
Inventories
|
|
|
(11,813
|
)
|
|
|
(32,155
|
)
|
Prepaid expenses and other current assets
|
|
|
12,676
|
|
|
|
(5,026
|
)
|
Depsoit
|
|
|
(2,000
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
(627
|
)
|
|
|
614
|
|
Accrued liabilities
|
|
|
14,208
|
|
|
|
35,093
|
|
Deferred rent
|
|
|
625
|
|
|
|
-
|
|
CASH FLOWS USED IN OPERATING ACTIVITIES
|
|
|
(84,298
|
)
|
|
|
(178,043
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase of intangible assets
|
|
|
-
|
|
|
|
(502
|
)
|
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES
|
|
|
-
|
|
|
|
(502
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Loan from related party
|
|
|
105,124
|
|
|
|
51,200
|
|
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
|
|
|
105,124
|
|
|
|
51,200
|
|
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATE CHANGES ON CASH
|
|
|
(1,059
|
)
|
|
|
(531
|
)
|
|
|
|
|
|
|
|
|
|
NET CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
19,767
|
|
|
|
(127,876
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
37,605
|
|
|
|
165,481
|
|
Cash and cash equivalents, end of period
|
|
$
|
57,372
|
|
|
$
|
37,605
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes paid
|
|
$
|
2,111
|
|
|
$
|
800
|
|
|
|
|
|
|
|
|
|
|
NON-CASH FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Beneficial conversion feature recognition
|
|
$
|
(40,000
|
)
|
|
$
|
-
|
|
See accompanying notes to consolidated financial statements.
MAKINGORG, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS
MakingORG, Inc. (“MakingORG”) was incorporated under the laws of the State of Nevada on August 10, 2012. The trading symbol is “CQCQ” and the fiscal year end is December 31. On October 20, 2016, MakingORG filed documents registering its intention to transact interstate business in the state of California. On November 29, 2016, MakingORG incorporated HK Feng Wang Group Limited (“HKFW”) under the laws of Hong Kong. On August 22, 2017, HKFW incorporated Chongqing Beauty Kenner Biotechnology Co., Ltd (“CBKB”) under the laws of the People’s Republic of China (“PRC”).
MaingORG, Inc. and subsidiaries (“the Company”) purchase Acer truncatum bunge seed oil from China, outsource to third party to manufacture Acer truncatum bunge related health product, and sell to end user and distributor in the United States and PRC.
NOTE 2 – GOING CONCERN
Pursuant to ASU 2014-15, the Company has assessed its ability to continue as a going concern for a period of one year from the date of the issuance of these consolidated financial statements. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year from the financial statement issuance date. The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate continuation of the Company as a going concern. The Company currently suffered recurring loss, generated negative cash flow from operating activities and has an accumulated deficit and has not completed its efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time. These conditions raise substantial doubt as to its ability to continue as a going concern. These consolidated financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company may seek additional funding through additional issuance of common stock and/or borrowings from financial institutions or the majority shareholder to support its normal business operations. In light of management’s efforts, there is no assurance that the Company will be successful in this or any of its endeavors or become financially viable to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The Company’s consolidated financial statements refer to MakingORG, Inc. and its subsidiaries. All intercompany transactions and balances were eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Company’s consolidated financial statement date and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are reported realizable value, net of allowance for contractual credits and doubtful accounts, which are recognized in the period the related revenue is recorded. Accounts receivable consists principally of receivables from distributor or end user, arising from the sale of the Company’s product. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Management evaluated that there was no allowance for doubtful accounts as of December 31, 2018 and 2017, respectively.
Inventories
Inventories consist of (a) packing materials (b) raw materials and (b) finished goods, which are stated at the lower of cost or net realizable value under the first-in-first-out method. The Company reviews its inventories periodically for possible excess and obsolescence to determine if any reserves are necessary. As of December 31, 2018 and 2017, inventory reserve amounted to $11,101 and $nil, respectively.
Revenue Recognition
Effective January 1, 2018, the Company adopted Topic 606, Revenue from Contracts with Customers, using the modified retrospective transition method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.
In general, the Company’s performance obligation is to transfer it products to its end user or distributor. Revenues from product sales are recognized when the customer obtains control of the Company’s finished goods product, which occurs at a point in time, typically upon delivery to the customer.
The Company's revenue mainly generates from sale of acer truncatum bunge related health products, such as Nervonic Acid Oil, coffee and tea. The Company evaluated its product sales contracts and determined that those contracts are generally capable of being distinct and accounted for as separate performance obligations. Performance obligation is satisfied when the finished goods product delivered to the customer.
Shipping and handling costs paid by the Company are included in cost of sales.
During the years ended December 31, 2018 and 2017, the Company recognized revenue from sale of acer truncatum bunge related health products in an amount of $nil and $54,605, respectively.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expenses incurred for the years ended December 31, 2018 and 2017 totaled $7,555 and $9,285, respectively.
Research and Development
Research and development costs are expensed as incurred and are included in general and administrative expenses in the accompanying consolidated statement of operations and totaled $nil and $7,000 for the years ended December 31, 2018 and 2017, respectively.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are using enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, if more likely than not that the company will not realize tax assets through future operation.
On December 22, 2017, the U.S. enacted the 2017 Tax Cuts and Jobs Act which contains several key tax provisions that affect the Company, including, but not limited to, a one-time mandatory transition tax on accumulated foreign earnings, changes in the sourcing and calculation of foreign income, and a reduction of the corporate income tax rate to 21% effective January 1, 2018. The Company is required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring its U.S. deferred tax assets and liabilities as well as reassessing the net realizability of its deferred tax assets and liabilities.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
Foreign Currency Transactions
The functional currency for MakingORG and HKFW is the US dollar. The functional currency for the China subsidiary (CBKB) is the Renminbi (RMB). Assets and liabilities of the China operation are translated from RMB into U.S. dollars at period-end rates, while the statements of operations and cash flows are translated at the weighted-average exchange rates for the period. The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive income/(loss) within shareholders’ deficit.
Related Parties
The Company follows ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions.
Segment Reporting
The Company follows FASB ASC Topic 280, “
Segment Reporting
” for its segment reporting. The Company aggregates its operating segments into one reporting segment, as management believes that its operating segments have similar operating characteristics and similar long-term operating performance.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including the Company’s own credit risk.
In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:
Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
The carrying amounts of financial assets and liabilities in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and due to related party approximate their fair value due to the short-term duration of those instruments. Notes payable are recorded at agreed values.
Recent Accounting Pronouncements
In July 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-10, Codification Improvements to Topic 842, Leases, or ASU 2018-10. The amendments in ASU 2018-10 provide additional clarification and implementation guidance on certain aspects of the previously issued Accounting Standards Update No. 2016-02, Leases (Topic 842), or ASU 2016-02 and have the same effective and transition requirements as ASU 2016-02. Upon the effective date, ASU 2016-02 will supersede the current lease guidance in ASC Topic 840, Leases. Under the new guidance, lessees will be required to recognize for all leases, with the exception of short-term leases, a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis. Concurrently, lessees will be required to recognize a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The guidance is required to be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative periods presented in the financial statements. In July 2018, the FASB has also issued the following standards which clarify ASU 2016-02 and have the same effective date as the original standard: ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements, amending certain aspects of the new leasing standard. The Company plans to adopt this ASU 2016-02 on January 1, 2019. The Company is currently evaluating the effects the adoption of ASU 2016-02 will have on its consolidated financial statements.
Management has considered all other recent accounting pronouncements issued since the last audit of the Company’s consolidated financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s consolidated financial statements.
NOTE 4 – INVENTORIES
The components of the Company’s inventories were packaging materials, raw materials and finished goods. Inventory consisted of the following as of December 31, 2018 and 2017:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Packaging materials
|
|
$
|
-
|
|
|
$
|
10,020
|
|
Raw materials
|
|
|
-
|
|
|
|
22,135
|
|
Finished goods
|
|
|
33,302
|
|
|
|
-
|
|
Inventory reserve
|
|
|
(11,101
|
)
|
|
|
-
|
|
Total inventory
|
|
$
|
22,201
|
|
|
$
|
32,155
|
|
NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets include primarily prepaid consulting fee, deposit for packaging materials and security deposit for rent. As of December 31, 2018 and 2017, prepaid expenses and other current assets was $4,500 and $17,176, respectively.
NOTE 6 – DUE TO RELATED PARTY
During the years ended December 31, 2018 and 2017, the Company’s sole officer loaned the Company $105,124 and $51,200, respectively. As of December 31, 2018 and 2017, the Company was obligated to the officer, for an unsecured, non-interest bearing demand loan with a balance of $230,903 and $125,779, respectively.
NOTE 7 – CONVERTIBLE NOTE PAYABLE
On September 1, 2016, the Company entered into a Convertible Note Agreement in the principal amount of $200,000 with an unrelated party. The note bears interest at 12% per annum and the holder is able to convert all unpaid interest and principal into common shares at $3.50 per share. The note matures on September 1, 2018. The Company recognized a discount on the note of $38,857 at the agreement date. The interest expense was due every six months commencing on March 1, 2017 until the principal amount of this convertible note is paid in full.
On September 1, 2018, the Company entered into an Amended and Restated 12% Convertible Promissory Note. Pursuant to an Amended and Restated 12% Convertible Promissory Note, both parties agreed to extend a Convertible Note Agreement to September 1, 2019 with no additional consideration. The Company recognized a discount on the note of $40,000 at the amended agreement date.
The Company recognized interest expense related to the convertible note of $50,286 and $43,427, respectively, for the years ended December 31, 2018 and 2017. The unamortized debt discount at December 31, 2018 and 2017 was $26,667 and $12,953, respectively. As of December 31, 2018, and 2017, net balance of the convertible note amounted to $173,333 and $187,047, respectively.
NOTE 8 – COMMITMENTS
Operating Lease
The Company has operating leases for its office. Rental expenses for the years ended December 31, 2018 and 2017 were $10,875 and $12,000, respectively. As of December 31, 2018, total future minimum annual lease payments under operating lease was as follows, by years:
Twelve months ending December 31, 2019
|
|
$
|
8,625
|
|
Twelve months ending December 31, 2020
|
|
|
5,750
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
14,375
|
|
NOTE 9 – INCOME TAXES
The Company accounts for income taxes under ASC 740, “Income Taxes”. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. It also requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company is subject to taxation in the United States and certain state jurisdictions. The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 21% to the net loss before provision for income taxes. HKFW in Hong Kong are governed by the Inland Revenue Ordinance Tax Law of Hong Kong, and are generally subject to a profits tax at the rate of 16.5% on the estimated assessable profits. CBNB in the PRC is governed by the Income Tax Law of the PRC concerning the private enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriated adjustments.
Provision (benefit) for income tax for the year ended December 31, 2018 consisted of:
Year ended December 31, 2018
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
Current
|
|
$
|
-
|
|
|
$
|
800
|
|
|
$
|
-
|
|
|
$
|
800
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
800
|
|
|
$
|
-
|
|
|
$
|
800
|
|
Provision (benefit) for income tax for the year ended December 31, 2017 consisted of:
Year ended December 31, 2017
|
|
Federal
|
|
|
State
|
|
|
Foreign
|
|
|
Total
|
|
Current
|
|
$
|
-
|
|
|
$
|
800
|
|
|
$
|
4,806
|
|
|
$
|
5,606
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
-
|
|
|
$
|
800
|
|
|
$
|
4,806
|
|
|
$
|
5,606
|
|
Net deferred tax assets consist of the following components as of:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Deferred tax asset:
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
92,639
|
|
|
$
|
62,353
|
|
Valuation allowance
|
|
|
(92,639
|
)
|
|
|
(62,353
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
Due to the change in ownership provisions of the Income Tax laws of United States of America, net operating loss carry forwards of approximately $351,000, which expires in 2032, for federal income tax reporting purposes are subject to annual limitations. When a change in ownership occurs, net operating loss carry forwards may be limited as to use in future years. Tax filings for the Company for the years after 2014 and 2015 are available for examination by state tax jurisdictions and federal tax purposes.
NOTE 10 – SUBSEQUENT EVENT
On January 4, 2019, the Company entered into an Independent Consulting Agreement with an unrelated party. The agreement term is from January 4, 2019 to January 3, 2020. Pursuant to the Independent Consulting Agreement, the Company agreed to issue 110,000 shares of the Company’s common stock to an unrelated party to devote appropriate time and attention to providing advice to the Company in regards to sales and marketing for China; or such other services as the Company and the Consultant may agree.