Notes
to Consolidated Financial Statements
(Unaudited)
1. Basis
of Presentation
The
accompanying interim condensed consolidated financial statements are unaudited. The unaudited interim condensed consolidated financial
statements have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of
management, reflect all adjustments, which includes normal recurring adjustments or a description of the nature and amount of
any adjustments other than normal recurring adjustments, necessary for a fair presentation of the financial positions and results
of operations for the periods presented. The financial data and other information disclosed in these notes to the interim condensed
consolidated financial statements are also unaudited. The results for the three months ended March 31, 2019 are not necessarily
indicative of the results to be expected for the year ending December 31, 2019 or for any other interim period or for any future
year. These consolidated financial statements should be read in conjunction with the Company's audited consolidated financial
statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2018. The disclosures made in
the unaudited interim condensed consolidated financial statements generally do not repeat those in the annual statements.
There
have been no material changes to the significant accounting policies during the three months ended March 31, 2019, as compared
to the significant accounting policies described in Note 2 of the "Notes to Consolidated Financial Statements" in the
Company's Annual Report on Form 10-K for the year ended December 31, 2018.
2. Summary
of Significant Accounting Policies
Nature
of Operations
J.E.M.
Capital, Inc. (the Company) was incorporated under the laws of the State of Delaware on September 14, 2011 and has had limited
operations since inception. The Company's current business plan is to seek to identify a privately held operating company desiring
to become a publicly held company by merging with the Company through a reverse merger or acquisition. The Company is a shell
company as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934. As a shell company, the Company has no
operations and assets.
On
January 5, 2017, the Company entered into a Share Exchange Agreement (the "Agreement") with Essential Elements Limited,
a British Virgin Islands company ("ESEL"), and Leung Chi Wah Earnest (“Mr. Leung”), the principal shareholder
of ESEL, pursuant to which the Company issued an aggregate of 2,005,400 shares of common stock, or approximately 17% of the issued
and outstanding common stock of the Company, to Mr. Leung in exchange for 100% of the issued and outstanding shares of ESEL.
ESEL owns all of the issued and outstanding shares of J.E.M. Capital Limited, a company organized under the laws of
Hong Kong ("JEM Capital").
ESEL
and JEM Capital currently have no operations, but include the corporate structure that the Company believes necessary for the
acquisition of assets in Hong Kong and China. ESEL has incurred material expenses setting up such structure.
Risks
and Uncertainties
The
Company's activities are subject to significant risks and uncertainties, including failure to identify a privately held operating
company desiring to merge with the Company, failure to complete a reverse merger transaction, and inability to secure funding
to continue as a going concern. (See Note 3 regarding going concern discussion.)
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7 -
J.E.M.
CAPITAL, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
Use
of Estimates
The
accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP) for interim financial reporting and as required by Regulation S-X, Rule 10-01. The preparation
of the accompanying condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities
as of the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the
reporting periods. Actual results could differ from those estimates.
Principles
of Consolidation
The
unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries for
which it is the primary beneficiary. Upon making this determination, the Company is deemed to be the primary beneficiary of the
entity, which is then required to be consolidated for financial reporting purposes. All significant intercompany transactions
and balances have been eliminated upon consolidation.
Equipment,
net
Equipment
is stated at cost less accumulated depreciation and impairment losses, if any. Depreciation is provided on a straight-line
basis, less estimated residual values over the assets' estimated useful lives. The estimated useful lives are as follows:
Computer
hardware and software
|
3
years
|
When
equipment is retired or otherwise disposed of, the related cost, accumulated depreciation and provision for impairment loss, if
any, are removed from the respective accounts, and any gain or loss is reflected in the consolidated statements of operations.
Repairs and maintenance costs on equipment are expensed as incurred.
Impairment
of Long-Lived Assets
Long-lived
assets, such as equipment, are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount
of the assets may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds
the sum of the undiscounted cash flows expected to be generated from the asset's use and eventual disposition. An impairment loss
is measured as the amount by which the carrying amount exceeds the fair value of the asset calculated using an undiscounted cash
flow analysis. There was no impairment of long-lived assets for the three months ended March 31, 2019 and 2018.
-
8 -
J.E.M.
CAPITAL, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
Fair
value of financial instruments
ASC
Topic 825, "Financial Instruments", requires disclosing fair value to the extent practicable for financial instruments
which are recognized or unrecognized in the balance sheets. The fair values of the financial instruments are not necessarily representative
of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or
settlement. For certain financial instruments, including accounts payable and accrued expenses, the fair values were determined
based on the near-term maturities of such the assets and obligations.
Revenue
The
Company has yet to generate revenue from operations for the three months ended March 31, 2019 and 2018.
Net
Loss per Common Share
Basic
loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of
shares of common stock outstanding during the period. Fully diluted loss per share is computed similar to basic loss per share
except that the denominator is increased to include the number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial
instruments issued or outstanding for the three months ended March 31, 2019 and 2018.
Income
Taxes
The
Company accounts for income taxes under ASC Topic 740, Income Tax. Deferred tax assets and liabilities are provided for the future
tax effects attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and
their respective tax bases, and for the expected future tax benefits from items including tax loss carry forwards.
Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or reversed. The expense or benefit related to adjusting deferred tax assets
and liabilities as a result of a change in tax rates is recognized in income or loss in the period that includes the enactment
date.
The
Company recognizes and measures uncertain tax positions and records tax benefits when it is more likely than not that the tax
position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits
recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than
50% likelihood of being realized upon ultimate settlement. The company recognizes interest and penalties as a component of income
tax expense if applicable. For the three months ended March 31, 2019 and 2018, the Company had not recognized any interest or
penalties on its consolidated financial statements.
Recent
Accounting Pronouncements
The
Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact
on the consolidated financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting
pronouncements that have been issued that might have a material impact on our consolidated financial position or results of operations.
-
9 -
J.E.M.
CAPITAL, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
3. Going
Concern
The
accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation
of the Company as a going concern. The Company has not established any source of revenues to cover its operating costs, and as
such, has incurred an operating loss since inception. Further, as of March 31, 2019, the cash resources of the Company were insufficient
to continue to conduct its normal business operations. These and other factors raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities
that may result from the possible inability of the Company to continue as a going concern.
4. General
and Administrative Expenses
The
following summarizes the type of expenses incurred during the three months ended March 31, 2019 and 2018:
|
Three
Months Ended
March 31,
|
|
|
2019
|
|
2018
|
|
|
(Consolidated
and unaudited)
|
|
(Consolidated
and unaudited)
|
|
General
and administrative expense:
|
|
|
|
|
Professional
fees
|
|
$
|
4,350
|
|
|
$
|
8,554
|
|
Filing
fees
|
|
|
-
|
|
|
|
1,410
|
|
Franchise
tax expense
|
|
|
-
|
|
|
|
409
|
|
Salary
and related expense
|
|
|
-
|
|
|
|
8,885
|
|
Depreciation
|
|
|
125
|
|
|
|
125
|
|
Loss
on write off of equipment
|
|
|
371
|
|
|
|
-
|
|
Other
office expenses
|
|
|
-
|
|
|
|
516
|
|
Total
general and administrative expense
|
|
$
|
4,846
|
|
|
$
|
19,899
|
|
5.
Commitments and contingencies
Contingencies
The
Company accounts for loss contingencies in accordance with ASC Topic 450 and other related guidelines. As of March 31, 2019 and
December 31, 2018, the Company's management is of the opinion that there are no commitments and contingencies to account for.
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10 -
J.E.M.
CAPITAL, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
6. Stockholders'
Equity
Preferred
Stock
The
Company is authorized to issue 5,000,000 shares of preferred stock with a $0.0001 par value. As of March 31, 2019 and December
31, 2018, there were no shares of preferred stock issued or outstanding.
Common
Stock
On
January 5, 2017, the Company entered into a Share Exchange Agreement with Essential Elements Limited, a British Virgin Islands
company ("ESEL"), and Leung Chi Wah Earnest, the principal shareholder of ESEL, pursuant to which the Company issued
an aggregate of 2,005,400 shares of common stock, or approximately 17% of the issued and outstanding common stock of the Company,
to Mr. Leung in exchange for 100% of the issued and outstanding shares of ESEL. ESEL owns all of the issued and outstanding
shares of J.E.M. Capital Limited, a company organized under the laws of Hong Kong ("JEM Capital"). ESEL and JEM Capital
currently have no operations, but include the corporate structure that the Company believes necessary for the acquisition of assets
in Hong Kong and China. ESEL has incurred material expenses setting up such structure.
The
Company is authorized to issue 195,000,000 shares of common stock with a $0.0001 par value. As of March 31, 2019 and December
31, 2018, 12,032,400 shares and 12,032,400 shares of common stock were issued and outstanding, respectively.
As
of March 31, 2019 and December 31, 2018, the Company did not have any dilutive securities, such as stock options, warrants or
convertible securities, issued or outstanding.
7. Related
Party Transactions
During
the three months ended March 31, 2019, the Company received loans of $12,436 from its shareholder. As of March 31, 2019 and December
31, 2018, the Company recorded an amount of $60,381 and $47,945, respectively, payable to its shareholder. The amount is unsecured,
bears no interest and is repayable on demand.
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11 -
J.E.M.
CAPITAL, INC.
Notes
to Consolidated Financial Statements
(Unaudited)
8. Income
taxes
Income
is subject to taxation in various countries in which the Company and its subsidiaries operate or are incorporated. The loss before
income taxes by geographical locations for the three months ended March 31, 2019 and 2018 were summarized as follows:
|
Three
Months Ended
March 31,
|
|
|
2019
|
|
2018
|
|
|
(Consolidated
and unaudited)
|
|
(Consolidated
and unaudited)
|
|
United
States
|
|
$
|
4,350
|
|
|
$
|
10,475
|
|
Foreign
|
|
|
496
|
|
|
|
9,424
|
|
|
|
$
|
4,846
|
|
|
$
|
19,899
|
|
The
Company had accumulated tax losses of approximately $192,000 and $188,000 as of March 31, 2019 and December 31, 2018, respectively,
which will expire between 2031 and 2037.
The
net operating loss carryforwards indicated above represent the principle component of the Company's deferred tax assets as of
March 31, 2019 and December 31, 2018. Deferred tax assets of approximately $40,000 and $52,000 as of March 31, 2019 and December
31, 2018, respectively, will be offset by valuation allowance of the same amounts as realization of such assets is uncertain.
No deferred tax assets have been recognised in respect of the accumulated net operating losses made by the foreign subsidiaries,
as these subsidiaries have not commenced business and derived income in so far, and the tax losses that incurred are not able
to be carry forward and offset against future profits in their respective tax jurisdictions.
|
|
March
31,
2019
|
|
|
December
31,
2018
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
40,369
|
|
|
$
|
52,363
|
|
|
|
|
|
|
|
|
|
|
Total
deferred tax assets
|
|
|
40,369
|
|
|
|
52,363
|
|
Less:
Valuation allowance
|
|
|
(40,369
|
)
|
|
|
(52,363
|
)
|
Net
deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Movement
in valuation allowance:
|
|
March
31,
2019
|
|
|
December
31,
2018
|
|
At
the beginning of the period/year
|
|
$
|
52,363
|
|
|
$
|
39,323
|
|
Current
period/year (reduction)/addition
|
|
|
(11,994)
|
|
|
|
13,040
|
|
At
the end of the period/year
|
|
$
|
40,369
|
|
|
$
|
52,363
|
|
The
provision for income taxes differs from the expected provision determined by applying the federal statutory rate to the income
before income taxes. The reasons for the difference are state and local income taxes and various non-deductible expenses. As a
result of the reduction of the corporate income tax rate from 35% to 21% due to the Tax Cuts and Jobs Act which was enacted on
December 22, 2017, U.S. GAAP requires companies to remeasure their deferred tax assets and liabilities as of the date of enactment,
with resulting tax effects accounted for in the period of enactment. (the change in deferred tax balances would have a corresponding
change to valuation allowance thereby resulting in no income tax expense for the year).
The
Company' income tax returns are subject to examination for three years from the date filed or the due date, whichever is later.
The
Company did not identify any material uncertain tax positions.
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12 -