Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used in this Form 10-Q, references to “Oriental Magic Soup, Inc.,” the “Company,” “we,” “our” or “us” refer to Oriental Magic Soup, Inc. unless the context otherwise indicates.
Forward-Looking Statements
The following discussion should be read in conjunction with our financial statements, which are included elsewhere in this Form 10-Q (the “Report”). This Report contains forward-looking statements which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.
Overview
We were incorporated under the laws of the State of Nevada on March 25, 2013 under the name Dinamo Corp. We changed our name to "Oriental Magic Soup, Inc.", effective March 23, 2015.
In addition to our name change, we amended and restated our Articles of Incorporation to increase the amount of authorized shares of our common stock from 75,000,000 to 150,000,000 shares and to increase the authorized share capital of our company by providing for the adoption of 5,000,000 shares of blank check preferred stock.
On February 27, 2015, we approved a 6:1 forward stock split of our common stock outstanding in the form of a dividend, under which each stockholder of record on that date received 5 additional shares of our common stock for every one share owned. The forward split was effective on March 23, 2015.
On October 20, 2014, Jolanta Gajdzis, the principal shareholder of the Company consummated the transactions contemplated by a stock purchase agreement dated as of October 20, 2014 which provided for the sale of an aggregate of 4,500,000 shares of common stock of the Company (the "Shares") to Zhufeng Wang (3,600,000 shares), Qingran Yang (679,500 shares) and De Hou Wang (220,500 shares). The consideration paid for the Shares, which represented 79.65% of the issued and outstanding share capital of the Company on a fully-diluted basis, was $325,000. The source of the cash consideration for the Shares was personal funds of the purchasers. In connection with the transaction, Ms. Gajdzis released the Company from all debts owed to her.
Effective as of October 20, 2014, in connection with the sale of the Shares, Jolanta Gajdzis resigned from her positions as the sole officer and director of the Company. The Board of Directors of the Company elected Zhufeng Wang as President, Chief Executive Officer, Chief Financial Officer and Secretary and as a director of the Company, to serve until his successor is duly appointed and qualified.
In connection with the sale of the Shares the Company no longer intends to be involved in redemption machines distribution business. The Company now intends to be involved in making and distributing oriental soup for the United States. The target market is in areas where there is a higher density of people of China, Taiwan, or Hong Kong descent. However, the Company might also identify and negotiate with another company for the business combination or merger of that entity with and into the Company.
To date, we have minimal assets. Our operations to have been merely preparatory and have not generated any revenues and we have incurred losses since inception. We currently have no employees other than our sole executive officer and director.
Plan of Operation
The Company intends to be involved in making and distributing oriental soup in the United States. The target market is in areas where there is a higher density of people of China, Taiwan, or Hong Kong descent. However, the Company might also identify and negotiate with another company for the business combination or merger of that entity with and into the Company.
We do not have sufficient cash to meet our obligations for the next twelve month period. As a result, we will need to seek additional funding in the near future. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding may be in the form of equity financing from the sale of shares of our common stock. We currently have no plans or arrangements to obtain financing through private offerings of debt or equity. We may also seek to obtain short-term loans from our directors or unrelated parties. Our stockholders may lend us funds. However, those shareholders have no formal commitment, arrangement or legal obligation to advance or loan funds to the Company.
We currently have no agreements, arrangements or understandings 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, our inability to raise funds will have a severe negative impact on our ability to remain a viable company.
Results of Operations
We have not generated any revenue to date and have incurred recurring losses since inception. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect we will require additional capital to meet our long term operating requirements.
Results of Operations
For the three months ended July 31, 2016 and July 31, 2015
Revenues
The Company did not generate any revenues during the three months ended July 31, 2016 and July 31, 2015.
Total operating expenses
During the three months ended July 31, 2016, our total operating expenses were $5,481 which consisted of $4,800 of professional fees and general and administrative expenses of $681, as compared to total operating expenses during the three months ended July 31, 2015 of $9,865 which consisted of $9,784 of professional fees and $81 of general and administrative expenses. The decrease in total operating expenses during the three months ended July 31, 2016 resulted primarily from a decrease in professional fees during such period.
Net Loss
For the three months ended July 31, 2016, we had a net loss of $5,481, as compared to a net loss for the three months ended July 31, 2015 of $9,865.
Liquidity and Capital Resources
As of July 31, 2016, we had no cash or other assets. As of July 31, 2016, our current liabilities were 74,382, consisting of $69,967 due to the sole officer and director and $4,415 for accounts payable and accrued liabilities.
We will have to issue debt or equity or enter into a strategic arrangement with a third party in order to finance our operations. There can be no assurance that additional capital will be available to us. We currently have no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
Cash Flows from Operating Activities
We have not generated positive cash flows from operating activities. For the three months ended July 31, 2016, net cash flows used in operating activities were $5,481.
Cash Flows from Investing Activities
For the three months ended July 31, 2016, there were no investing activities.
Cash Flows from Financing Activities
We have financed our operations primarily from advances from the Company’s director. For the three months ended July 31, 2016, we received a $6,074 loan from our director.
Going Concern Consideration
The Company has not commenced planned principal operations. The Company had no revenues since inception and incurred a net loss of $5,481 during the three months ended July 31, 2016. The Company currently has limited working capital, and has not completed its efforts to establish a source of revenues sufficient to cover operating costs over an extended period of time. These factors raise substantial doubt as to the Company’s ability to continue as a going concern
.
The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
The Company believes that it will need approximately $500,000 to fund its expenses and execute its business plan over the next twelve months. If the Company is unable to execute on its business plan, management estimates it will need approximately $50,000 to cover professional fees as a reporting company for the next twelve months. There can be no assurance that additional capital will be available to us or available on terms favorable to us. If additional funds are raised by the issuance of our equity securities, such as through the issuance and exercise of warrants, then existing stockholders will experience dilution of their ownership interest. If additional funds are raised by the issuance of debt or other equity instruments, we may be subject to certain limitations in our operations, and issuance of such securities may have rights senior to those of the then existing holders of common stock. If adequate funds are not available or not available on acceptable terms, we may be unable to fund and develop our business
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d- 15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of July 31, 2016. Based on this evaluation, our principal executive officer and principal financial officer has concluded that our disclosure controls and procedures were ineffective at such time to ensure that information required to be disclosed by us in the reports filed or submitted under the Securities Exchange Act were recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our principal executive officer and principal financial officer also concluded that our disclosure controls, which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is accumulated and communicated to management, was inappropriate to allow timely decisions regarding required disclosure. The Company is continuing to evaluate disclosure controls on an ongoing basis.
Based on management's assessment, the Company determined that there were material weaknesses in its internal control over financial reporting as of July 31, 2016 based on the material weaknesses described below:
Because the Company consists of one person who acts as the sole officer and director of the Company, there are limited controls over information processing.
There is an inadequate segregation of duties consistent with control objectives as management is composed of only one person. In order to remedy this situation, we would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will reassess this matter in the following year to determine whether improvement in segregation of duty is feasible.
The Company does not have a formal audit committee with a financial expert, and thus the Company lacks the board oversight role within the financial reporting process.
There is a lack of formal policies and procedures necessary to adequately review significant accounting transactions.
The Company utilizes a third party independent contractor for the preparation of its financial statements. Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third party independent contractor is not involved in the day to day operations of the Company and may not be provided information from management on a timely basis to allow for adequate reporting/consideration of certain transactions.
As a result of this material weakness, our management concluded that our internal control over financial reporting was not effective as of July 31, 2016. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness; yet important enough to merit attention by those responsible for oversight of the company's financial reporting.
In order to mitigate the foregoing material weakness, we have engaged an outside accounting consultant with significant experience in the preparation of financial statements in conformity with U.S. GAAP to assist us in the preparation of our financial statements to ensure that these financial statements are prepared in conformity to U.S. GAAP. Management believes that this will lessen the possibility of a material misstatement of our annual or interim financial statements or will prevent or detect such misstatement on a timely basis. We will continue to monitor the effectiveness of this action and make any changes that our management deems appropriate.
Changes in Internal Controls over Financial Reporting
During the quarter ended July 15, 2016, there was no changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.