NOTES TO FINANCIAL STATEMENTS
Note 1 – Organization
Merion, Inc. (the "Company"), a Nevada corporation, was formed on February 4, 2011. Its predecessor, E-World USA Holding, Inc., was a California company incorporated in 2007 (“E-World CA”). In April 2011, E-World CA entered into a merger agreement with its wholly-owned subsidiary, E-World USA Holding, Inc., a Nevada corporation (“E-World NV”) that was the survivor of the merger and became the Company. Under the Merger Agreement, the Company issued 90,000,000 shares of its common stock on a one share for one share basis for each share of E-World CA’s common stock issued and outstanding at the date of the merger. In addition, the Company issued Type A Warrants and Type B Warrants in exchange for comparable warrants issued and outstanding of E-World CA at the date of the merger. On June 27, 2017, the Company filed an amendment to its Articles of Incorporation with the Secretary of State for the State of Nevada to change its name from E-World NV, effective immediately, to Merion, Inc.
The Company is a provider of health and nutritional supplements and personal care products currently sold on the Internet through our website, www.dailynu.com, www.merionus.com, and to wholesale distributors.
Note 2 – Going Concern
There is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues, significant recurring losses and negative working capital. If we are unable to generate significant revenue or secure additional financing, we may be required to cease or curtail our operations. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
Management is trying to alleviate the going concern risk by: engaging external sales representatives to sell the Company’s products, securing various financing resources, including but not limited to, borrowing from the Company’s major shareholder, private placements and the possibility of raising funds through a future public offering.
Note 3 – Summary of Significant Accounting Policies
Basis of Presentation
These financial statements have been presented by the Company in accordance with accounting principles generally accepted in the United States, are expressed in U.S. dollars. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of the financial statements, have been included.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s financial statements include the useful lives of property and equipment, collectability of receivables and the fair value of the rescission liability for the Company’s Type A & B Warrants. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised primarily of money market accounts and foreign and domestic bank accounts. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents.
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
Accounts Receivable
Trade accounts receivable are periodically evaluated for collectability based on credit history with customers and their current financial condition. Bad debt expense or write-offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions.
The accounts receivable balance and allowance for doubtful accounts are as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Accounts receivable
|
|
$
|
94,140
|
|
|
$
|
121,207
|
|
Allowance for doubtful accounts
|
|
|
(43,276
|
)
|
|
|
(43,276
|
)
|
Accounts receivable, net
|
|
$
|
50,864
|
|
|
$
|
77,931
|
|
Movement of allowance for doubtful accounts is as follows:
|
|
Year ended
December 31,
2017
|
|
|
Year ended December 31,
2016
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
43,276
|
|
|
$
|
25,236
|
|
Provision for doubtful accounts
|
|
|
-
|
|
|
|
18,040
|
|
Ending balance
|
|
$
|
43,276
|
|
|
$
|
43,276
|
|
Inventory
Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value. Inventory consists of nutritional and skin-care products. Management reviews inventory on hand for estimated obsolescence or unmarketable items, as compared to future demand requirements and the shelf life of the various products. Based on the review, the Company records inventory write-downs when costs exceed expected net realizable value. The inventories’ shelf lives are approximately 3 years.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation. Upon disposition, the cost and related accumulated depreciation is removed from the books, and any resulting gain or loss is included in operations. The Company provides for depreciation using the straight-line method over the estimated useful lives of various classes as follow:
Computer and software
|
|
3 to 5 years
|
Furniture and fixtures
|
|
5 to 10 years
|
Vehicles
|
|
5 to 7 years
|
Leasehold improvements
|
|
over the lesser of the remaining lease term or the expected life of the improvement
|
Repairs and maintenance is charged to operations when incurred while betterments and renewals are capitalized.
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
Impairment of Long-Lived Assets
Long-lived assets, including, property and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognizes an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, the Company reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of December 31, 2017 and December 31, 2016, no impairment of long-lived assets was recognized.
Deferred Revenue
Deferred revenue represents product deposits advanced by customers on specified product orders or on future orders that have not been shipped as of the balance sheet date. Deferred revenue also represents shipping fee deposits advanced by customers in relation to the unshipped product orders. Deferred revenue is reduced when the related sale is recognized in accordance with the Company’s revenue recognition policy.
Accrued Bonus
Accrued bonus represents amounts earned by the Company’s affiliates (the “Affiliated Members”) for successful product sales. These bonuses are in the form of rebate credits that can be used to order the Company’s products, or the Affiliate Members can request a rebate in cash.
Fair Value of Financial Instruments
The Financial Accounting Standard Board (“FASB”) accounting standards codification (“ASC”), FASB ASC 825
Financial Instruments
, requires that the Company discloses estimated fair values of financial instruments. The Company believes the carrying value of short-term debt is a reasonable estimate of fair value due to rates being currently offered.
As defined in ASC 820
Fair Value Measurement
, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
The three levels of the fair value hierarchy are as follows:
Level 1 –
|
|
Quoted prices that are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
|
|
|
|
Level 2 –
|
|
Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
|
|
|
|
Level 3 –
|
|
Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
|
The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of:
December 31, 2016:
Recurring Fair Value Measures
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Rescission Liability – Type A Warrants
|
|
|
--
|
|
|
|
--
|
|
|
$
|
7,165,413
|
|
|
$
|
7,165,413
|
|
Rescission Liability – Type B Warrants
|
|
|
--
|
|
|
|
--
|
|
|
|
249,111
|
|
|
|
249,111
|
|
Total
|
|
|
--
|
|
|
|
--
|
|
|
$
|
7,414,524
|
|
|
$
|
7,414,524
|
|
The following is a reconciliation of the beginning and ending balance of the assets and liabilities measured at fair value on a recurring basis for the year ended December 31, 2017 and for the year ended December 31, 2016:
|
|
Year ended
December 31,
2017
|
|
|
Year ended December 31,
2016
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
7,414,524
|
|
|
$
|
7,414,524
|
|
Change in fair value of Rescission Liability – Type B Warrants
|
|
|
248,031
|
|
|
|
|
|
Conversion of Rescission Liability - Type A & B Warrants
|
|
|
(7,662,555
|
)
|
|
|
-
|
|
Ending balance
|
|
$
|
-
|
|
|
$
|
7,414,524
|
|
Revenue Recognition
The Company recognizes revenue 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 generally receives the net sales price in cash or through credit card payments when products are ordered. When the Company has sales events whereby the sales are non-returnable or non-refundable, the revenue is recognized when products are shipped.
The Company also recognized revenue on shipping and handling fees charged to the Company’s customers. Shipping and handling fee revenue is recognized when products have been delivered. Shipping and handling fee revenues totaled $10,978 and $24,009 for the years ended December 31, 2017 and 2016, respectively.
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
Product returns are allowed for unopened products purchased under regular sales terms within 60 days. Allowances for product returns are provided at the time the sale is recorded using historic return rates for each country and the relevant return pattern. Historically the Company has a nearly zero return rate. Hence, the allowance as of December 31, 2017 and December 31, 2016 is estimated at $0.
In addition to the Company’s 60-day return policy, the Company, at its discretion, may accept a customer’s application for a buy-back of products previously sold within one year at 90% of the original product’s cost less commissions and shipping costs. The Company implemented its buy-back policy on January 1, 2012. To date, the Company has not received any buy-back applications. As a result, no allowance for buy-backs has been recorded as of December 31, 2017 and December 31, 2016.
The majority of the Company’s revenues are generated from China. Revenues generated from other countries or within the United States are immaterial to our financial statements. While all products are priced in U.S. currency, the Company accepts payments in U.S. dollars and Hong Kong dollars.
Shipping and Handling Expenses
Shipping and handling costs incurred by the Company are included in selling expenses and totaled $28,318 and $49,106 for the years ended December 31, 2017 and 2016.
Operating Leases
The Company leases all of its properties under operating leases. Lease agreements generally include rent holidays and tenant improvement allowances. The Company records tenant improvement allowances and rent holidays as deferred rent liabilities and amortizes the deferred rent over the term of the lease. There were no deferred rent liabilities.
Income Taxes
The Company utilizes ASC 740
Income Taxes
, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Deferred taxes are also recognized for net operating losses that can be carried forward. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Basic and Diluted Earnings (Loss) Per Share
Accounting principles generally accepted in the United States regarding earnings per share (“EPS”) require presentation of basic and diluted earnings (loss) per share in conjunction with the disclosure of the methodology used in computing such earnings (loss) per share.
Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average of common shares outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. These common stock equivalents are not included when the Company has a loss because they would be anti-dilutive.
For the years ended December 31, 2017 and 2016, Type A and Type B Warrants did not have a dilutive effect on loss per share, as the Company had incurred a loss for the periods.
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation (FDIC) insured limits for the banks located in the United States, or may exceed Hong Kong Deposit Protection Board (HKDPB) insured limits for the banks located in Hong Kong.
For the year ended December 31, 2017, two customers, who collectively owned approximately 1% of the Company’s common stock, accounted for approximately 51% of the Company’s sales and for year ended December 31, 2016, one customer accounted for approximately 54% of the Company’s sales.
For the year ended December 31, 2017, three suppliers accounted for approximately 94% of the Company’s product purchases and for the year ended December 31, 2016, three suppliers accounted for approximately 97% of the Company’s product purchases.
Contingencies
The Company may have inadvertently issued Type A Warrants and Type B Warrants to U.S. citizens or residents in violation of federal securities laws and may be subject to sanctions for such violations. Further, the exchange of the warrants for common shares may also have been in violation of Section 5 of the Securities Act of 1933. Thus, risk exists that the SEC or former warrant holders may bring legal action against the Company, its officers and directors for securities law violations. The Company determined it is reasonably possible that a loss may have been incurred as a result of these issuances. The Company has recorded a liability equal to the amount it expects to pay to redeem the warrants as of December 31, 2016. On October 21, 2017, the Company determined that the statute of limitations for the redemption rights had lapsed and, for recording purpose, converted these Type A Warrants and Type B Warrants into common stock.
Related Parties
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. In August 2015, the FASB issued ASU No. 2015-14, “Deferral of the Effective Date” (“ASU 2015-14”), which defers the effective date for ASU 2014-09 by one year. For public entities, the guidance in ASU 2014-09 will be effective for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods), which means it will be effective for the Company’s fiscal year beginning January 1, 2018. In March 2016, the FASB issued ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue versus Net)” (“ASU 2016-08”), which clarifies the implementation guidance on principal versus agent considerations in the new revenue recognition standard. In April 2016, the FASB issued ASU No. 2016-10, “Identifying Performance Obligations and Licensing” (“ASU 2016-10”), which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12 “Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”), which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. In December 2016, the FASB further issued ASU 2016-20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” (“ASU 2016-20”), which makes minor corrections or minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. The amendments are intended to address implementation and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. These amendments have the same effective date as the new revenue standard. Preliminarily, the Company plans to adopt Topic 606 in the first quarter of its fiscal 2018 using the retrospective transition method. The Company believes that its current revenue recognition policies are generally consistent with the new revenue recognition standards set forth in ASU 2014-09. Potential adjustments to input measures are not expected to be pervasive to the majority of the Company’s contracts.
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the definition of a business. The amendments in this ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company does not believe the adoption of this ASU would have a material effect on the Company’s financial statements.
In May 2017, the FASB issued ASU 2017-09, Scope of Modification Accounting, which amends the scope of modification accounting for share-based payment arrangements and provides guidance on the types of changes to the terms or conditions of share-based payment awards to which an entity would be required to apply modification accounting under ASC 718. For all entities, this ASU is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period. The adoption of this ASU would not have a material effect on the Company’s financial statements.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications have no effect on the accompanying statements of operations and other comprehensive loss and cash flows.
Note 4 – Rescission Liability – Type A & B Warrants
Type A Warrants
As an incentive to increase sales and bring in additional members, the Company’s predecessor, E-World CA, issued type A warrants to its sales members. Upon the merger of E-World CA with and into the Company in 2011, the Company issued to those sales member replacement type A warrants with substantially similar terms and conditions (the “Type A Warrants”).
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
Upon issuance, Type A Warrants had no expiration and could be exercised for:
|
(1)
|
common shares of the Company at a ratio of 1:1 upon a going public event in the U.S.,
|
|
(2)
|
products of the Company at their retail prices, or
|
|
(3)
|
cancelled membership and a refund in cash at 75% of face value.
|
From inception on January 5, 2007 to December 31, 2010, new sales members of E-World CA who purchased a package of products received an option to include the equivalent Type A Warrants in the purchase. Net cash proceeds from the equivalent Type A Warrants sold to sales members by E-World CA through December 31, 2010 were $8,169,707. During 2011, a total of 18,000 Type A Warrants were exercised for cash refunds totaling $22,950 and products of the Company for $7,200. During 2012, all of the remaining Type A Warrants were exchanged by the Company for the following:
|
(1)
|
842,300 warrants for $495,170 in cash refunds
|
|
(2)
|
10,300 warrants for $16,650 in products
|
|
(3)
|
23,296,688 warrants for shares of common stock
|
The Company’s Type A Warrants may have been issued and exercised in violation of United States federal securities laws. We recorded the fair value of these warrants as a liability on the date of issuance (“Rescission Liabilities – Type A Warrants”). The value of the Rescission Liabilities – Type A Warrants was determined by calculating the maximum potential cash outlay if all Type A Warrant holders exercised using option 3 above. The total fair value was determined by calculating how much each Type A Warrant holder would receive in cash if they exercised the warrant by canceling their membership and receiving 75% of the face value of their warrant in cash and then adding these amounts together to reach the total potential cash outlay. The face value of the warrant was the stated value assigned to each Type A Warrant. The face value determines how much the sales member could receive if exercised for cash and a canceled membership. If sales members exercise their warrants for cash, the Company reduces the liability by the amount of cash paid. If sales members exercise their warrants for products, the Company recognizes revenue equal to the retail value of the related products once they have been delivered. As of December 31, 2016, 23,206,888 shares are included in Rescission Liabilities – Type A Warrants and totaled $7,165,413. On October 21, 2017, the Company determined that the statute of limitations for the redemption rights had lapsed and, for recording purposes, converted these warrants into common stock with a fair value of $7,165,413.
Type B Warrants
During 2009 and 2010, the Company’s predecessor, E-World CA, issued a total of 2,491,108 type B warrants as sales incentive compensation to sales members. The type B warrants entitled the holders to collectively receive 2,491,108 common shares upon a going public event in the U.S. as specified in the warrant. No additional consideration for the common shares was required upon exercise. Upon the merger of E-World CA with and into the Company in 2011, the Company issued to those sales members replacement type B warrants with substantially similar terms and conditions (the “Type B Warrants”). During 2012, 2,485,708 of the Company’s Type B Warrants were exercised for shares of common stock. The Type B Warrants may have been issued and exercised in violation of United States federal securities laws. We recorded “Rescission Liabilities – Type B Warrants” at the fair value of the shares issued upon exercise of these warrants. The fair value of the common shares was initially estimated using comparable sales of common stock prior to August 9, 2017. The Company determined that comparable sales of stock is more reliable as the fair value because goods or services received cannot be reliably measured. The fair value of the Type B warrants as of December 31, 2016 was $249,111.
On October 21, 2017, the Company determined that the statute of limitations for the redemption rights had lapsed and, for recording purpose, converted these Type B warrants into common stock.
On August 9, 2017, the Company’s common stock was resumed trading in the OTC market. As a result, the Company began valuing the fair value of the common shares using the closing price of the Company’s common stock. The fair value of the Type B warrants as of October 21, 2017 was $497,142
.
As a result, the Company recorded a loss of $248,031 of change in fair value of Rescission Liabilities for the year ended December 31, 2017 and converted fair value of $497,142 from rescission liability into equity.
Note 5 – Inventory
Inventories consist of finished goods available for resale and can be categorized as:
|
|
December 31,
2017
|
|
|
December 31, 2
016
|
|
Nutrition supplements
|
|
$
|
80,555
|
|
|
$
|
81,390
|
|
Skin-care products
|
|
|
214
|
|
|
|
400
|
|
Inventories
|
|
$
|
80,769
|
|
|
$
|
81,790
|
|
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
Note 6 – Property and Equipment
Property and equipment consist of following:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Computer equipment and software
|
|
$
|
114,953
|
|
|
$
|
114,953
|
|
Furniture and fixtures
|
|
|
26,686
|
|
|
|
26,686
|
|
Automobiles
|
|
|
179,677
|
|
|
|
179,677
|
|
Leasehold improvement
|
|
|
40,053
|
|
|
|
40,053
|
|
Total
|
|
|
361,369
|
|
|
|
361,369
|
|
Accumulated depreciation
|
|
|
(320,120
|
)
|
|
|
(288,341
|
)
|
Property and equipment, net
|
|
$
|
41,249
|
|
|
$
|
73,028
|
|
Depreciation expense totaled $31,779 and $33,174 for the years ended December 31, 2017 and 2016, respectively.
Note 7 – Debt
Due to third parties, interest bearing
The Company has borrowed money from third parties to fund operations. These third parties consist of the Chief Executive and Financial Officer’s friends and the spouse of the former board member of the Company. These advances have an annual interest rate of 6%, are unsecured, and are due on demand. As of December 31, 2017 and 2016, the Company owed $109,030 to these third parties.
Following the resignation of one of the Company’s board members in January 2017, the Company reclassified an outstanding loan balance of $20,000 from the spouse of the former board member from advances from related parties, interest bearing, to due to third parties, interest bearing, as of December 31, 2016 to conform to the current year presentation.
Interest expenses for the years ended December 31, 2017 and 2016 for the above loans amounted to $6,333 and $3,219, respectively.
Due to third parties, non-interest bearing
The Company has borrowed money from third parties to fund operations. These third parties consist of the Chief Executive and Financial Officer’s friends and the former board member of the Company. These advances do not bear interest, are unsecured, and are due on demand. As of December 31, 2017 and 2016, the Company owed $729,175 and $326,292 to these third parties, respectively.
Following the resignation of one of the Company’s board members in January 2017, the Company reclassified the former board member’s outstanding loan balance of $50,000 from advances from related parties, non-interest bearing, to due to third parties, non-interest bearing, as of December 31, 2016 to conform to the current year presentation.
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
Long term loan
In December 2015, the Company refinanced a loan balance of $51,263 with an annual interest rate of 2.99% to be repaid over 48 months. During the years ended December, 2017 and 2016, the Company paid $12,651 and $12,278, respectively, for the loan.
Future maturities of long term debt are as follows:
Year ended December 31, 2018
|
|
$
|
11,933
|
|
Year ended December 31, 2019
|
|
|
13,395
|
|
Total
|
|
|
25,328
|
|
Current portion of long term debt
|
|
|
(11,933
|
)
|
Long term debt
|
|
$
|
13,395
|
|
Interest expenses for the years ended December 31, 2017 and 2016 for the above loan amounted to $995 and $1,366, respectively.
Note 8 – Related Party Transactions
Due to shareholder, interest bearing
In January 2016, Mr. Dinghua Wang, a major shareholder, director, Chief Executive and Financial Officer of the Company, pledged certain of his personal assets and obtained a personal loan from which he funded the operations of the Company. In consideration for the funds the Company received, the Company agreed to pay the interest of this loan on Mr. Wang’s behalf. This loan has an annual borrowing rate of 9.99%. During the year ended December 31, 2016, advances totaled $471,603. As of December 31, 2017 and 2016, the balance due to Mr. Wang, interest bearing, amounted to $471,603. The full balance of $471,603 is to be repaid on February 1, 2019.
Interest expense for the years ended December 31, 2017 and 2016 for the above loan amounted to $49,950 and $45,788, respectively.
Due to shareholder, non-interest bearing
From time to time, Mr. Dinghua Wang, a major shareholder, director, Chief Executive and Financial Officer of the Company, advances monies to the Company and the Company repays such advances. Such business transactions are recorded as due to or from Mr. Wang at the time of the transaction. During the years ended December 31, 2017 and 2016, advances totaled $65,402 and $174,093, respectively, and payments to Mr. Wang totaled $221,626 and $437,759, respectively. As of December 31, 2017 and 2016, the balance due to shareholder, non-interest bearing, amounted to $2,790,946 and $2,947,170, respectively. This balance does not bear interest, is unsecured and is due on demand.
Due to employee
The Company has borrowed money from Vickie Ho, Executive Vice President of the Company since May 2017, to fund operations. These advances do not bear interest, are unsecured and are due on demand. As of December 31, 2017 and 2016, the Company owed $95,000 to such employee.
Advances from related parties, interest bearing
During the year ended December 31, 2016, the Company borrowed $30,000 from a related party to fund operations. This related party is the son of the Company’s Chief Executive and Financial Officer. These advances have an annual interest rate of 10% for the years ended December 31, 2017 and 2016, are unsecured and are due on demand. Repayment to this related party amounted to $0 and $40,000 for the years ended December 31, 2017 and 2016, respectively. As of each of December 31, 2017 and 2016, the Company owed $30,000 to this related party.
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
Following the resignation of one of the Company’s board members in January 2017, the Company reclassified an outstanding loan balance of $20,000 from the spouse of the former board member from advances from related parties, interest bearing, to due to third parties, interest bearing, as of December 31, 2016 to conform to the current year presentation.
Interest expense for the years ended December 31, 2017 and 2016 for the above loans amounted to $3,000 and $2,038, respectively.
Advances from related parties, non-interest bearing
The Company has borrowed money from certain related parties to fund operations. The related parties consist of the Chief Executive and Financial Officer’s immediate family members and relatives. These advances do not bear interest, are unsecured and are due on demand. During the year ended December 31, 2017, payment to related parties totaled $15,000. As of December 31, 2017 and 2016, the Company owed $518,839 and $533,839, respectively, to these related parties.
Following the resignation of one of the Company’s board members in January 2017, the Company reclassified the Company’s former board member’s outstanding loan balance of $50,000 from advances from related parties, non-interest bearing, to due to third parties, non-interest bearing, as of December 31, 2016 to conform to the current year presentation.
Note 9 – Income Taxes
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the years ended December 31, 2017 and 2016:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Federal statutory rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
State statutory rate
|
|
|
5.8
|
%
|
|
|
8.8
|
%
|
Valuation allowance
|
|
|
(30.2
|
)%
|
|
|
(39.6
|
)%
|
Permanent difference
|
|
|
(9.7
|
)%
|
|
|
(3.3
|
)%
|
Effective tax rate
|
|
|
(0.1
|
)%
|
|
|
(0.1
|
)%
|
The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $6,386,000 for Federal and $5,338,000 for California as of December 31, 2017. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $9,466,000 for Federal and $8,501,000 for California as of December 31, 2016, and will expire in the years 2031 to 2037. During the years ended December 31, 2017 and 2016, the Company incurred a net loss. As deferred tax assets may not be fully realizable due to potential recurring losses, management has provided 100% valuation allowance for the deferred tax assets.
On December 22, 2017, the “Tax Cuts and Jobs Act” (“The Act”) was enacted. Under the provisions of the Act, the U.S. corporate tax rate decreased from 34% to 21% beginning in 2018. Accordingly, we have remeasure our deferred tax assets as of December 31, 2017. However, this remeasurment has no effect on the Company’s income tax expense as the Company has provided a 100% valuation allowance on its deferred tax assets.
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
The components of the deferred tax assets is as follows:
|
|
December 31,
2017
|
|
|
December 31,
2016
|
|
Property and equipment - depreciation
|
|
$
|
-
|
|
|
$
|
35,838
|
|
Allowance for doubtful accounts
|
|
|
12,110
|
|
|
|
17,237
|
|
Net operating loss
|
|
|
1,701,704
|
|
|
|
3,661,022
|
|
Deferred tax assets
|
|
|
1,713,814
|
|
|
|
3,714,097
|
|
Valuation allowance
|
|
|
(1,713,814
|
)
|
|
|
(3,714,097
|
)
|
Deferred tax assets, net
|
|
$
|
-
|
|
|
$
|
-
|
|
As of December 31, 2017, federal tax returns filed for 2014, 2015 and 2016 remain subject to examination by the taxing authorities. As of December 31, 2017, California tax returns filed for 2013, 2014, 2015 and 2016 remain subject to examination by the taxing authorities.
Note 10 – Commitments
Operating lease
The Company has contracted to rent office and warehouse space for its main corporate office through October 2018 and thereafter on a month to month basis without future commitment. The Company’s commitment for minimum lease payments under this operating lease as of December 31, 2017 for the following periods is as follow:
Year ending December 31, 2018
|
|
$
|
31,000
|
|
The Company incurred rent expense of $36,046 and $126,500 for the years ended December 31, 2017 and 2016, respectively.
Note 11 – Equity
Share Distribution Plan
On March 31, 2017, the Company’s Board of Directors approved the following share distribution plans for the Company in accordance with appropriate time frames consistent with applicable law and in the best interests of the Company.
1) The Company would grant up to thirty million shares of common stock to certain persons outside of the United States who have previously worked with the Company as an incentive for these individuals to assist the Company to develop its international market. In connection with this transaction, Mr. Wang would voluntarily relinquish up to thirty million shares of common stock owned by him to the Company’s Treasury, and thereafter the Company would issue to persons not citizens or residents of the U.S. only an equal number of shares pursuant to Regulation S under the Securities Act of 1933. Accordingly, special legends regarding restrictions on resale of the securities and no-hedging transactions would need to be included on the securities.
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
On July 15, 2017, the Company’s Board of Directors approved the Company’s withdrawal from plan (1) as approved by the Board on March 31, 2017, as the Board has determined that it is in the best interests of the Company and its shareholders that Mr. Wang distribute these shares directly to the intended recipients. As of the date of this report, Mr. Wang had distributed 1,500,000 shares pursuant to this plan. All of these 1,500,000 shares were distributed on February 14, 2018. The Company determined that these 1,500,000 shares distributed by Mr. Wang were related to the Company’s operations in accordance to ASC 225-10-S99-4. The fair value of these shares were valued at $480,000 and will be recorded as stock-based compensation expenses in the Company’s three months ended March 31, 2018 consolidated statements of operations.
2) To thank the people who, directly or indirectly, loaned funds or referred customers to the Company or purchased products from the Company when the Company faced financial hardship, the Company would grant up to five million shares of common stock to these individuals upon approval by the Board of Directors, and the Company would complete the stock transfer. In connection with this transaction, Mr. Wang would voluntarily relinquish up to five million shares of common stock owned by him to the Company’s Treasury. To the extent that these share distributions are being made to anyone outside of the U.S., those distributions will be made under Regulation S and must contain appropriate Regulation S subscription agreements and legends. If anyone within U.S. is to receive those shares, the Company must consult with the Company counsel to comply with U.S. securities laws.
On July 28, 2017, the Company’s Board of Directors approved the Company’s withdrawal from plan (2) as approved by the Board on March 31, 2017, as the Board has determined that it is in the best interests of the Company and its shareholders that Mr. Wang distribute these shares directly to the intended recipients. As of the date of this report, Mr. Wang had distributed 4,181,592 shares pursuant to this plan. All of these 4,181,592 shares were distributed on February 14, 2018. The Company determined that these 4,181,592 shares distributed by Mr. Wang were at his own discretion and the recipients of the shares did not expect such distribution at the time when they, directly or indirectly, loaned funds or referred customers to the Company or purchased products from the Company when the Company faced financial hardship.
3) The Company would grant up to twenty million shares (from authorized but unissued shares of its common stock) to persons outside the U.S. who sell Company products based on their sales performance in the future. The Company must determine that this type of incentive compensation is legal and appropriate for each country in which it is utilized. For ease of administration, this plan will be implemented solely for persons outside of the United States pursuant to Regulation S under the Securities Act of 1933. No shares have been issued as of the date of this report.
Private placements
On September 1, 2017, the Company entered into a Securities Purchase Agreement with Jinhua Wang, an unrelated third party, pursuant to which the Company sold to him in a private placement 110,045 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $99,400. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On October 10, 2017, November 9, 2017, December 18, 2017, the Company entered into a series of Securities Purchase Agreements with Changlin Cao, an unrelated third party, pursuant to which the Company sold to him in a private placements of 113,089, 222,223, and 22,225 shares, respectively, of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $101,780, $200,000 and $20,002, respectively. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On December 18, 2017, the Company entered into a Securities Purchase Agreement with Xiaoying Liu, an unrelated third party, pursuant to which the Company sold to him in a private placement 50,505 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $45,455. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
On December 22, 2017, the Company entered into a Securities Purchase Agreement with Yongnian Sun, an unrelated third party, pursuant to which the Company sold to him in a private placement 11,110 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $10,000. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On December 23, 2017, the Company entered into a Securities Purchase Agreement with Changqian Liu, an unrelated third party, pursuant to which the Company sold to him in a private placement 111,110 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $100,000. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
Common stocks to be issued on consulting services
On November 9, 2017, the Company entered into a Planning and Establishing Services Agreement (the “
Agreement
”) with Fuzhou Wingo Brand Management LTD., a company incorporated in China (the “
Consultant
”), pursuant to which the Company engaged the Consultant to provide certain research and strategic planning services and to introduce non-U.S. investors to the Company (the “
Services
”). As compensation for the Services, the Company agreed to pay the Consultant RMB 50,000 (approximately $7,541) and issue to the Consultant 500,000 shares of its common stock, par value $0.001 (the “
Shares
”), in two installments. The first installment of 200,000 Shares shall be issued within twenty (20) days of the delivery of a report and investment strategy to the Company, and the second installment of 300,000 Shares shall be delivered following the completion of an investment of at least $3,000,000 in proceeds to the Company. The term of the Agreement is three months and can be extended for an additional one-month period. As of the date of this report, the report of the investment strategy has not been completed by the Consultant and the term of the Agreement was extended to March 31, 2018.
Note 12 – Subsequent Events
Purchase of assets
On January 1, 2018, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation, a Nevada corporation (the “Seller”), pursuant to which the Seller agreed to sell to the Company substantially all of the assets associated with the manufacture of dietary supplements (the “Asset Sale”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 1,000,000 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. The Seller’s cash and cash equivalents, minute books, stock ledger and other company records, as well as raw materials and customer lists shall remain with the Seller, and the Company will assume the Seller’s obligations under a lease of real property used in the Seller’s business.
The issuance and sale of the Purchase Shares will be completed pursuant to the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The issuance of the Purchase Shares is contingent on the Seller or its designated recipient executing all certificates and other documents reasonably requested by the Company, the completion of the assignment of the assets subject to the Asset Sale (the “Acquired Assets”), and the completion of all applications for relevant business and manufacturing licenses for the Company’s benefit. The payment of the cash portion of the Purchase Price shall occur in two distributions: (i) the first, in the amount of $600,000, shall occur within six months of the date of the Purchase Agreement, and (ii) the second, in the amount of $400,000, shall occur within twelve months of the date of the Purchase Agreement. Each such distribution will be contingent on the completion of the transfer of the Acquired Assets and all permits and other governmental registrations and licenses relating to the Acquired Assets. The second distribution may be reduced by any indemnification claims against Seller under the terms of the Agreement.
MERION, INC.
(FORMERLY KNOWN AS E-WORLD USA HOLDING, INC.)
NOTES TO FINANCIAL STATEMENTS
Private placements
On January 16, 2018 and February 15, 2018, the Company entered into a series of Securities Purchase Agreements with Liezhi Cui, an unrelated third party, pursuant to which the Company sold to him in private placements of 177,778 and 33,334 shares, respectively, of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $160,000 and $30,000, respectively. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On January 30, 2018 and March 1, 2018, the Company entered into a series of Securities Purchase Agreements with Xukang Ma, an unrelated third party, pursuant to which the Company sold to him in private placements of 22,223 and 11,112 shares, respectively, of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $20,000 and $10,000. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On February 14, 2018, the Company entered into a Securities Purchase Agreement with Changlin Cao, an unrelated third party, pursuant to which the Company sold to him in a private placement 41,623 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $37,460. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On February 16, 2018, the Company entered into a Securities Purchase Agreement with Jinhua Wang, an unrelated third party, pursuant to which the Company sold to him in a private placement 47,362 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $42,625. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On February 23, 2018, the Company entered into a Securities Purchase Agreement with Jufeng Liu, an unrelated third party, pursuant to which the Company sold to him in a private placement 22,223 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $20,000. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On March 1, 2018, the Company entered into a Securities Purchase Agreement with Jianqiong Li, an unrelated third party, pursuant to which the Company sold to him in a private placement 5,556 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $5,000. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On March 1, 2018, the Company entered into a Securities Purchase Agreement with Guiyuan Li, an unrelated third party, pursuant to which the Company sold to him in a private placement 5,556 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $5,000. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On March 2, 2018, the Company entered into a Securities Purchase Agreement with Xuemei Tao, an unrelated third party, pursuant to which the Company sold to him in a private placement 25,445 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $22,900. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On March 11, 2018, the Company entered into a Securities Purchase Agreement with Jun Yang, an unrelated third party, pursuant to which the Company sold to him in a private placement 16,667 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $15,000. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On March 12, 2018, the Company entered into a Securities Purchase Agreement with Xiuying Cheng, an unrelated third party, pursuant to which the Company sold to him in a private placement 11,112 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $10,000. The sale was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.
On March 13, 2018, the Company entered into a supplement agreement to the Service Agreement on New Product Press Release Conference in Hong Kong Agreement with Xiuhua Jiang, an unrelated third party, pursuant to which the Company will issue 145,556 shares of the Company’s common stock to Ms. Jiang, par value $0.001 per share, to pay for the expenses of the conference in the amount of $131,000. The shares issuance will be completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.