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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2013
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______to______.
 
Commission File Number: 021-165129
 
SAN LOTUS HOLDING INC.
(Exact name of registrant as specified in its charter)
 
Nevada
45-2960145
(State or other jurisdiction of
(I.R.S. Employer Identification Number)
incorporation or organization)
 
 
3F B302C, No. 185 Kewang Road
Longtan Township, Taoyuan County 325
Taiwan (R.O.C.)
(Address of principal executive office and zip code)
 
+886-3-4072339 (phone) & 886-3-4071534 (fax)
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x   No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated filer ¨
 
Accelerated filer ¨
Non-accelerated filer ¨
 
Smaller reporting company x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No x
 
As of November 14, 2013, 63,432,728 shares of the Registrant’s common stock, $0.1 par value, were outstanding.
 
 
 
SAN LOTUS HOLDING INC.
 
FORM 10-Q
 
For the quarter ended September 30, 2013
 
TABLE OF CONTENTS
 
 
 
Page No.
 
PART I – FINANCIAL INFORMATION
 
Item 1.
Financial Statements.
1
 
Condensed Consolidated Balance Sheets as of September 30, 2013 (Unaudited) and December 31, 2012 (Audited)
1
 
Condensed Consolidated Statements of Income and Comprehensive Income for the Nine Months Ended September 30, 2013 and 2012 (Unaudited)
2
 
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012 (Unaudited)
3
 
Notes to Unaudited Consolidated Financial Statements.
4-7
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
8
Item 3
Quantitative and Qualitative Disclosures About Market Risk.
17
Item 4
Controls and Procedures.
17
 
 
 
 
PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings.
18
Item 1A.
Risk Factors.
18
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
18
Item 3.
Defaults Upon Senior Securities.
18
Item 4.
Mine Safety Disclosures.
18
Item 5.
Other Information.
18
Item 6.
Exhibits.
18
 
 
 
CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements.” Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue,” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements. We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.  Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Report.
 
 
 
SAN LOTUS HOLDING INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
 
 
 
September 30, 2013
 
December 31, 2012
 
 
 
(Unaudited)
 
 
 
 
ASSETS
 
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
 
Cash in Bank
 
$
109,895
 
$
277,210
 
Prepaid and other current assets
 
 
195,549
 
 
196,082
 
Total Current Assets
 
 
305,444
 
 
473,292
 
 
 
 
 
 
 
 
 
Fixed assets- net
 
 
3,729,055
 
 
672,830
 
 
 
 
 
 
 
 
 
Other assets
 
 
7,124
 
 
-
 
 
 
 
 
 
 
 
 
Total Assets
 
$
4,041,623
 
$
1,146,122
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current Liabilities
 
 
 
 
 
 
 
Accrued expenses
 
$
24,623
 
$
10,629
 
Other payable
 
 
172,847
 
 
123,703
 
Total Current Liabilities
 
 
197,470
 
 
134,332
 
 
 
 
 
 
 
 
 
Stockholders' Equity
 
 
 
 
 
 
 
Common stock, $0.1 par value, 1,500,000,000 shares authorized,
    45,278,582 and 14,572,130 shares issued and outstanding
    as of September 30, 2013 and December 31, 2012, respectively
 
 
4,527,858
 
 
1,457,213
 
Additional paid-in capital
 
 
24,000
 
 
24,000
 
Deficit accumulated during the development stage
 
 
(703,841)
 
 
(469,883)
 
Other comprehensive income
 
 
3,078
 
 
7,208
 
Total stockholders' equity
 
 
3,851,095
 
 
1,018,538
 
Noncontrolling interest
 
 
(6,942)
 
 
(6,748)
 
Total Equity
 
 
3,844,153
 
 
1,011,790
 
 
 
 
 
 
 
 
 
Total Liabilities and Equity
 
$
4,041,623
 
$
1,146,122
 
 
The Accompanying Notes Are an Integral Part of the Financial Statements.
 
 
1

 
SAN LOTUS HOLDING INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
AND PERIOD FROM JUNE 21, 2011 (INCEPTION) THROUGH SEPTEMBER 30, 2013
(UNAUDITED)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deficit Accumulated
from
 
 
 
Nine Months Ended
 
Three Months Ended
 
June 21, 2011
(Inception)
 
 
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
 
through September
30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
 
 
234,213
 
 
377,916
 
 
50,777
 
 
328,573
 
 
757,459
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss from Operations
 
 
(234,213)
 
 
(377,916)
 
 
(50,777)
 
 
(328,573)
 
 
(757,459)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expenses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
 
62
 
 
2
 
 
62
 
 
2
 
 
177
 
Loss from long-term investment
 
 
-
 
 
(20,837)
 
 
-
 
 
(13,862)
 
 
(20,837)
 
Gain from disposal of long-term investment
 
 
-
 
 
-
 
 
-
 
 
-
 
 
20,837
 
 
 
 
62
 
 
(20,835)
 
 
62
 
 
(13,860)
 
 
177
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss before income taxes
 
 
(234,151)
 
 
(398,751)
 
 
(50,715)
 
 
(342,433)
 
 
(757,282)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss
 
 
(234,151)
 
 
(398,751)
 
 
(50,715)
 
 
(342,433)
 
 
(757,282)
 
Net loss attributable to noncontrolling interest
 
 
(193)
 
 
(42,515)
 
 
-
 
 
(42,515)
 
 
(53,441)
 
Net loss attributable to San Lotus Holding Inc.
 
$
(233,958)
 
$
(356,236)
 
$
(50,715)
 
$
(299,918)
 
$
(703,841)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss Per Share-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and Diluted
 
$
(0.01)
 
$
(0.07)
 
$
(0.00)
 
$
(0.02)
 
$
(0.08)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and Diluted
 
 
16,146,820
 
 
5,406,623
 
 
19,244,851
 
 
13,912,116
 
 
9,781,672
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(234,151)
 
$
(398,751)
 
$
(50,715)
 
$
(342,433)
 
$
(757,282)
 
Foreign currency translation adjustment, net of tax
 
 
(4,130)
 
 
4,994
 
 
(547)
 
 
4,994
 
 
3,078
 
Total comprehensive income (loss)
 
 
(238,281)
 
 
(393,757)
 
 
(51,262)
 
 
(337,439)
 
 
(754,204)
 
Comprehensive income (loss) attributable to the noncontrolling interest
 
 
(193)
 
 
(42,515)
 
 
-
 
 
(42,515)
 
 
(53,441)
 
Comprehensive income (loss) attributable to
San Lotus Holding Inc.
 
$
(238,088)
 
$
(351,242)
 
$
(51,262)
 
$
(294,924)
 
$
(700,763)
 
 
The Accompanying Notes Are an Integral Part of the Financial Statements.
 
 
2

 
SAN LOTUS HOLDING INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012
AND PERIOD FROM JUNE 21, 2011 (INCEPTION) THROUGH SEPTEMBER 30, 2013
(UNAUDITED)
 
 
 
Nine Months
Ended
 
Nine Months 
Ended
 
Accumulated from
June 21, 2011 (Inception)
 
 
 
September 30,
2013
 
September 30,
2012
 
through September 30,
2013
 
Cash flows from operating activities
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(233,958)
 
$
(356,236)
 
$
(703,841)
 
Adjustments to reconcile net loss to net cash used in operations:
 
 
 
 
 
 
 
 
 
 
Depreciation
 
 
37,948
 
 
10,508
 
 
63,529
 
Loss from long-term investment
 
 
-
 
 
20,837
 
 
20,837
 
Gain from disposal of investments
 
 
-
 
 
 
 
 
(20,837)
 
Changes in assets and liabilities:
 
 
 
 
 
 
 
 
 
 
Decrease (increase) in prepaid and other current assets
 
 
533
 
 
(31,405)
 
 
(195,549)
 
Increase in other assets
 
 
(7,124)
 
 
(7,231)
 
 
(7,124)
 
Increase (decrease) in accrued expenses
 
 
13,994
 
 
(861)
 
 
24,623
 
Increase in other payable
 
 
49,144
 
 
6,338
 
 
172,847
 
Noncontrolling interest
 
 
(193)
 
 
(42,515)
 
 
(53,441)
 
Net cash used in operating activities
 
 
(139,656)
 
 
(400,565)
 
 
(698,956)
 
Cash flows from investing activities
 
 
 
 
 
 
 
 
 
 
Purchase of fixed assets
 
 
(3,095,388)
 
 
(697,808)
 
 
(3,792,642)
 
Long-term investments
 
 
-
 
 
(156,000)
 
 
(156,000)
 
Disposal of long-term investments
 
 
-
 
 
-
 
 
156,000
 
Net cash used in investing activities
 
 
(3,095,388)
 
 
(853,808)
 
 
(3,792,642)
 
Cash flows from financing activities
 
 
 
 
 
 
 
 
 
 
Issuance of shares
 
 
3,070,645
 
 
1,257,213
 
 
4,551,858
 
Noncontrolling interest
 
 
-
 
 
-
 
 
46,500
 
Net cash provided by financing activities
 
 
3,070,645
 
 
1,257,213
 
 
4,598,358
 
Effect of exchange rate changes on cash and cash equivalents
 
 
(2,916)
 
 
51,494
 
 
3,135
 
Net change in cash
 
 
(167,315)
 
 
54,334
 
 
109,895
 
Cash and cash equivalents
 
 
 
 
 
 
 
 
 
 
Beginning
 
 
277,210
 
 
178,950
 
 
-
 
Ending
 
$
109,895
 
$
233,284
 
$
109,895
 
Supplemental disclosure of cash flows
 
 
 
 
 
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
 
 
 
 
 
 
Interest expense
 
$
-
 
$
-
 
$
-
 
Income tax
 
$
-
 
$
-
 
$
-
 
 
The Accompanying Notes Are an Integral Part of the Financial Statements.
 
 
3

 
SAN LOTUS HOLDING INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
 
NOTE 1- NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES
 
Basis of Presentation
 
The accompanying unaudited condensed interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and generally accepted accounting principles for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the unaudited condensed consolidated financial statements contained in this report reflect all adjustments that are normal and recurring in nature and considered necessary for a fair presentation of the financial position and the results of operations for the interim periods presented. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles of the United States of America (“GAAP”). The results of operations for the interim period are not necessarily indicative of the results expected for the full year. These unaudited, condensed consolidated financial statements, footnote disclosures and other information should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
 
Nature of Business
 
San Lotus Holding Inc., a company in the developmental stage (the “Company” or “San Lotus”), was incorporated on June 21, 2011 in the State of Nevada. The Company has not conducted business operations nor had revenues from operations since its inception. The Company’s business plan is to design and market global travel packages and affinity travel excursions throughout the world, and develop a global travel and leisure agency business.
 
The Company’s year-end is December 31.
 
Basis of Consolidation
 
The consolidated financial statements include the accounts of San Lotus Holding Inc. and its majority-owned subsidiaries. All significant intercompany accounts and transactions are eliminated.
 
Going Concern
 
These financial statements were prepared on the basis of accounting principles applicable to a going concern, which assumes the realization of assets and discharge of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company had an accumulated deficit of $703,841 as of September 30, 2013, and it has had no revenue from operations since its inception.
 
The Company faces all the risks common to companies at the development stage, including capitalization and uncertainty of funding sources, high initial expenditure levels, uncertain revenue streams and difficulties in managing growth. The Company's losses raise substantial doubt about its ability to continue as a going concern. The Company's financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.
 
 
4

 
The Company is currently addressing its liquidity issue by continually seeking investment capital through private placements of common stock and debt. The Company believes its current and future plans enable it to continue as a going concern. The Company's ability to achieve these objectives cannot be determined at this time. These financial statements do not give effect to any adjustments which would be necessary should the Company be unable to continue as a going concern and therefore be required to realize its assets and discharge its liabilities other than the normal course of business and at amounts which may differ from those in the accompanying consolidated financial statements.
 
Use of Estimates
 
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
 
Cash and Cash Equivalents
 
Cash and cash equivalents include cash and all highly liquid instruments with original maturities of three months or less.
 
Property & Equipment
 
Property and equipment are stated at cost. Expenditures for maintenance and repairs are charged to earnings as incurred; additions, renewals and betterments are capitalized. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
 
Building
 
40 years
 
Vehicles
 
5 years
 
Equipment
 
3~5 years
 
 
As of September 30, 2013, the Company’s property and equipment consisted of the following:
 
Building
 
$
346,256
 
Land
 
 
3,240,415
 
Vehicles
 
 
168,351
 
Equipment
 
 
37,620
 
Accumulated depreciation
 
 
(63,587)
 
 
 
 
 
 
 
 
$
3,729,055
 
 
Depreciation expense for the nine months ended September 30, 2013 and 2012 were $37,948 and $10,508, respectively.
 
Depreciation expense for the three months ended September 30, 2013 and 2012 were $12,630 and $9,007, respectively.
 
 
5

   
Net Income (Loss) Per Share
 
Basic income (loss) per share is computed by dividing net income by weighted average number of shares of common stock outstanding during each period. Diluted income per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. At September 30, 2013, the Company does not have any outstanding common stock equivalents; therefore, a separate computation of diluted loss per share is not presented.
 
Income Taxes
 
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when, in the opinion of management, it is more likely than not that some or all of any deferred tax assets will not be realized.
 
Recent Accounting Pronouncements
 
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its result of operations, financial position or cash flow.

NOTE 2- INCOME TAXES
 
San Lotus has not yet realized income as of the date of this report, and no provision for income taxes has been made. At September 30, 2013, there were no deferred tax assets or liabilities.

NOTE 3 – BUSINESS ACQUISITION
 
On September 17, 2013, San Lotus Holding Inc.’s wholly-owned subsidiary, Green Forest Management Consulting Inc., a Taiwan (R.O.C.) corporation (“Green Forest”), entered into a stock purchase agreement to purchase Da Ren International Development Inc. from its shareholders (the “Da Ren Sellers”) to acquire 100 percent of the outstanding share of common stock in Da Ren in exchange for a promissory note in the amount of TWD $91,996,524 (US$3,070,645). Following the above transaction, San Lotus Holding entered into stock purchase agreements for the issuance of 30,706,450 shares of its common stock, par value $0.10 per share (the “Shares”), at a purchase price of $0.10 per share, to the Da Ren Sellers and their designees. The Shares were issued at the instruction of the Da Ren Sellers and in satisfaction of the debt owed to the Da Ren Sellers under the Promissory Note.

NOTE 4 – SUBSEQUENT EVENTS
 
On October 29, 2013, the Company’s wholly-owned subsidiary, Green Forest Management Consulting Inc., a Taiwan corporation (“Green Forest”), entered into a land purchase agreement with Yu Chien-Yang, an officer and shareholder of the Company, and Da Chuang Business Management Consulting Co., Ltd., a Taiwan (R.O.C) corporation (“Da Chuang”), (together, the “Sellers”) to acquire 29,332.7 square meters of land located in Xinpi Township, Pingtung County, Taiwan .
 
Green Forest purchased the Land for TWD$53,238,851 (US$1,815,414.60). The purchase price was paid for through Green Forest’s issuance of a promissory note payable to the Sellers.
 
 
6

 
On October 29, 2013, the Company entered into a stock purchase agreement for the issuance of 18,154,146 shares of common stock at $0.10 per share to the Sellers and their designees The Shares were issued at the instruction of the Sellers and in satisfaction of the debt owed to the Sellers under the promissory note.
 
Management has evaluated subsequent events through the date of this filing which the consolidated financial statements were available to be issued. All subsequent events requiring recognition as of September 30, 2013 have been incorporated into these consolidated financial statements, and except for the above disclosure, there are no other material subsequent events that require disclosure in accordance with FASB ASC Topic 855, “Subsequent Events.”
 
******
 
 
7

 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
 
This Quarterly Report on Form 10-Q contains “forward-looking” statements as such term is defined in the Private Securities Litigation Reform Act of 1995.  These forward-looking statements consist of information relating to the Company that is based on the beliefs of the Company’s management as well as assumptions made by and information currently available to the Company’s management. When used in this report, the words “anticipate,” “believe,” “estimate,” “expect” and “intend” and words or phrases of similar import, as they relate to the Company or Company management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitation, competitive factors, general economic conditions, customer relations, relationships with vendors, the interest rate environment, governmental regulation and supervision, seasonality, distribution networks, product introductions and acceptance, technological change, changes in industry practices, onetime events and other factors described herein and in other filings made by the Company with the Securities and Exchange Commission. Based upon changing conditions, should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected or intended. The Company does not intend to update these forward-looking statements.
 
BUSINESS OVERVIEW
 
San Lotus Holding Inc. was incorporated in the state of Nevada on June 21, 2011 to market travel products and services to the growing “baby boomer” market, with an initial focus on the Asian market.
 
We are a development stage company that plans to market global travel products to the retiring baby boomer generation in the Asian markets.  We are in the initial stages of opening a travel agency in Taiwan, Republic of China. On May 21, 2012, we obtained a license from the Investment Commission, Ministry of Economic Affairs, Taiwan (R.O.C.) to invest into Taiwan through our wholly-owned subsidiary, Green Forest Management Consulting Inc., a Taiwan (R.O.C.) company. We anticipate that we will be able to obtain this approval by the fourth quarter of 2013. The challenges we anticipate in obtaining the necessary approvals to operate a travel agency in Taiwan (as well as in other countries) primarily involves meeting the statutory requirements related to capital requirements, statutory reserves and employing fit, proper and qualified management. These challenges have already been addressed by starting our business in Taiwan (as referenced in Risk Factors under government approval). We expect to begin generating revenue in Taiwan in the fourth quarter of 2013, after we obtain the relevant licenses and approval from Taiwan’s government.
 
Our travel services entity in Taiwan will provide both outbound travel services for customers based in Taiwan and inbound travel services for customers based abroad and coming to Taiwan. Both the outbound and inbound services will be conducted in our Taiwan office, except the inbound services will rely in part on advertising conducted or directed outside of Taiwan.
 
We will not only book airplane tickets, hotels and tours, but design specialized destination-related travel services for our customers based on their specific needs and desires while they are in Taiwan. In this way, our market will consist of both those potential travelers based in Taiwan, but also anyone from any other country who might be planning a trip to Taiwan or need assistance with designing a travel itinerary once they arrive in Taiwan. We will market our products and services to the travel population in Taiwan and abroad through our website, www.sanlotusholding.com, as well as through services such as Twitter and other media outlets. In addition, we have already taken steps to begin marketing our services to the Chinese market in California through a California television station, TBWTV Inc. (“TBWTV”). We plan to use this entity for purposes of gaining access to a means of advertising our services to the California market of potential Taiwan travelers. Our vice president and secretary, Yu Chien-Yang and Chen Kuan-Yu, own TBWTV and, as a result, have knowledge of when preferred advertising slots become available and may be able to assist us in gaining preferable advertising rates, although we have no contractual guarantees on either of these issues. In addition, we have purchased three vehicles to provide transportation to our customers while they are in California, a common destination for Taiwan business travelers and tourists. We intend to use the cars, with hired drivers, to provide car service for our customers from the airport to their hotels or other desired destinations upon their arrival in California. Providing car service is an experimental project at this point as we only have three vehicles available for use. We will charge our customers an amount that will cover our expenses in providing the car and driver. In the event the service is popular and appears to benefit our services, we may add to the service in the future, at which time we would reevaluate the amount we charge for the service.
 
 
8

 
In addition to developing our business in Taiwan, in the first quarter of 2013, we entered into non-binding letters of intent to acquire existing travel services agencies in Taipei City, Taiwan, Hong Kong, Vietnam, Vancouver, British Columbia and California. We plan to proceed in negotiating terms for these acquisitions over the course of the next several months while we simultaneously gather operational data from our module operation in Taiwan. At the same time, we have recently acquired land in Taiwan and have entered into non-binding letters of intent to acquire land in Taiwan, for a total of 2.06 million square meters, which land we intend to use to develop destination-related travel services. Each of these non-binding letters of intent were disclosed to the SEC in a Current Report on Form 8-K shortly after our entry into each such non-binding letter of intent.
 
Regarding the development of our travel services entity in Taiwan, our plan is to build up a successful module operation in Taiwan and to gain meaningful operational data for one year before using it as a model to replicate throughout Asia. It is critically important for us to obtain credible data in terms of the following (per module main office, plus branch officers):
 
1.     Start-up Cost
A.       Capital requirements - $100,000 upon application license – June 2013
B.       Statutory reserve - $20,000 upon approval of license – June 2013
C.       Fees – estimated at $1,000 upon application for license – June 2013
D.       Rent deposit – estimated at $2,000 upon rental of office – September 2012
E.       Equipment, etc. – estimated at $5,000 – September 2012
F.       Purchase of condominium and automobiles in California - $628,141 – June 2012
G.       Purchase of interest in A Peace World Holding Inc. - $46,500 – January 2012
2.     Operating Expenses
A.       Number of employees and salary per office – two employees at $1,500 each per month for a total of $3,000 – Sept. 2012-April 2013; one employee at $1,000 per month as of May 2013
B.       Office size and rent – approximately 700 square feet @ $1,500 per month – September 2012
C.       Telecommunications – estimated at $200 per month starting in June and increasing to $700 starting September 2012
D.       Utilities, etc. – estimated at $500 per month starting in September 2012
E.       Advertising – estimated at $5,000 for initial television advertising development – November 2012
F.       Condominium expenses – estimated at $1,500 per month starting in June 2013
G.       Automobile-related expenses – estimated at $1,500 per month starting in June 2013
3.     Projected Sales
A.       Dollar sales/commission per office
B.       Breakdown of sales by product
4.     Projected Cash Flow
5.     Breakeven point and Projected Earnings
 
Making projections using real figures based on the module operations should lower our level of risk as we expand into other countries.  While it is premature to set any definitive dates in applying for obtaining statutory approval to operate travel agencies beyond Taiwan (R.O.C.), we anticipate that after one full year of operation, we will have sufficient data to construct an expansion plan for establishing ventures beyond Taiwan.
 
Products and Services Offered:
 
·                 Transportation: airlines / buses / car rentals / railways / cruises;
 
·                 Accommodation: hotels / resorts / cruises; and
 
·                 Packaged holidays / local tours.
 
Our business strategy is to generate revenue mainly through commissions or mark-ups for selling travel products. For example, for airplane tickets, for which we do not take inventory, we will receive commission revenue from the airlines as compensation for selling airplane tickets to our customers. In other words, our revenue will not come directly from the payments which the customers make to the airlines, but instead our commission revenue will be paid by the product provider (e.g. airlines) directly to our Company. The size of commission will vary from product to product, depending on how product providers (e.g. airlines) set their distribution strategy. Below is an estimate of the commission percentage we expect to be able to obtain for each type of product:
 
 
9

 
Type of Product
 
Estimated Commission %
 
Transportation
 
3 ~ 10%
 
Accommodation
 
3 ~ 10%
 
Packaged Tours
 
3 ~ 10%
 
 
Another type of revenue would come from mark-ups. Our mark-up revenue will be earned when we choose to take inventory on products such as hotel stays, cruise trips or tours. This type of revenue is different from commission-based revenue in that we will secure the product outright before customers purchase the product. After we purchase the product, we would then sell the product to the customer at a higher price, thereby earning the difference or mark-up as profit. The size of the mark-up will vary depending on our inventory level, market conditions and customer preference.
 
Below is an estimate of the mark-up percentage and the initial cost of obtaining wholesale inventory for each type of product:
 
Type of Product
 
Estimated Mark-up %
 
Initial Cost of Obtaining
Wholesale Inventory
 
Transportation
 
5 ~ 20%
 
$
10,000
 
Accommodation
 
10 ~ 30%
 
$
30,000
 
Packaged Tours
 
10 ~ 20%
 
$
10,000
 
 
We expect to incur the cost of obtaining wholesale inventory starting in the fourth quarter of 2013 or as soon as our license to operate a travel agency has been granted. Consequently, we will recover the cost and make a profit when inventory is turned over or sold. The profitability of our mark-up business will depend on how frequent inventory is turned.
 
We anticipate providing other ancillary travel services such as submitting visa applications on behalf of clients. It is our understanding that it is customary to charge a handling fee of US$5~10 for the submission of a visa application. These types of services, however, should only constitute a small part of our overall revenue.
 
We plan to market our company to high-income individuals and affinity groups, such as private schools, alumni groups and wealth management organizations at banks and investment firms. Our plan to reach these target customers is through seeking lists from the affinity groups and marketing online. In terms of seeking lists from affinity groups, our strategy involves no upfront cost to our company.  We will instead share the profits with the organizations that provided such lists when customers purchase travel products through our company.  Our general rule of thumb is to share 50% of the profit with the affinity group.  This estimate may be adjusted upward or downward depending on the size and quality of the customer list. Separately, we plan to market our company online through our company website. Currently under construction, our company website, www.sanlotusholding.com, will be a vehicle to promote our offerings to a wide audience. We plan on interacting with our retail customers primarily through our website. Our customers will be able to place their purchases via the telephone, through credit card or bank transfer payment.
 
Business Development
 
The Company seeks to develop mutually beneficial business relationships with travel product providers, such as airlines, hotels and tour operators, and will begin offering travel products to our customers. The Company will work on reaching a variety of affinity groups and reaching agreements to service their customers. The Company recently launched a website, www.sanlotusholding.com, to begin marketing our services online. We have projected our costs as a reporting company in our first year to be approximately $150,000 in legal fees and $60,000 in auditing fees, including the preparation of our 10-K filing and annual audit.
 
 
10

 
Marketing and Sales
 
Our initial marketing efforts will be designed to drive prospective clients to our website, www.sanlotusholding.com. We plan to use social media vehicles such as Twitter and Facebook to generate awareness of our website. We expect to engage prospective clients through promoting our website and responding to requests for information. Eventually, we expect to use broader-based email marketing to generate a much larger number of sales leads that will be followed up with a personal exchange, via email or telephone, but there is no guarantee this will be successful.  We will also market to potential customers based in California through TBWTV, a Chinese language television station based in California.
 
We have taken the following steps in implementing our business plan:
 
Vendor Discussion and Supplier Agreements
 
We have contacted vendors to provide travel related products to our customers. Below is a summary of the number of vendors who have responded favorably to our request.  We have not signed any formal supplier agreements with product vendors.
 
Type of Vendor
 
Number of Vendor
 
Airline
 
2
 
Bus Company
 
1
 
Cruise Company
 
2
 
Hotel
 
7
 
Resort
 
2
 
Other Travel Agency
 
2
 
 
Website Development
 
We have completed the initial version of our website, www.sanlotusholding.com, and will use this site to market our services to the general public.
 
Television Advertising in California
 
We will begin advertising our services to potential Taiwan travelers in California through TBWTV Inc., a local California station geared toward Chinese speaking audiences, sometime in the fourth quarter of 2013. With California’s large Asian population and strong business connections with Taiwan, we believe there is potential to develop a strong customer base in California by directing potential customers to our website. As part of this effort, we have purchased a condominium unit in California so that our management and employees will be able to easily be able to travel to California to work on our television advertising campaign, as well as enable them to work with our various U.S. service providers. In addition, we purchased three vehicles that will be used to transport our management, as well as our customers, when in California.
 
Affinity Groups
 
We have used the contacts of our directors and officers in initially contacting various affinity groups.  Thus far, we have had conversations with no less than five groups that have expressed interest in sharing their group list with our company.  However, at this time we have not executed any of agreements with these companies.  Below is a summary of the statistics we wish to reach regarding various affinity groups:
 
Type of Vendor
 
Number of Vendor
 
Airline
 
5
 
Bus Company
 
2
 
Cruise Company
 
2
 
Hotel
 
15
 
Resort
 
5
 
Other Travel Agency
 
5
 
 
 
11

 
We are in the process of applying for our license to operate a travel agency in Taiwan. We expect to receive approval for our business license by sometime in the fourth quarter of 2013.  Once proper licenses and approvals have been granted, we will need to take the following steps in generating revenue:
 
·      Formally launch online operations (by the end of Fourth Quarter 2013)
·      Sign formal supplier agreements with product vendors that have expressed interest previously (by the end of the year 2013)
·      Begin advertising with TBWTV (by June 2013)
·      Sign on additional product vendors (ongoing)
·      Sign profit sharing agreements with affinity groups that have expressed interest previously (completed as of the year 2012)
·      Sign on additional affinity groups (ongoing)
·      Hire office staff (by the end of June 2013)
 
These steps will ensure that we have sufficient product and service offerings to attract customers, both to launch our operations and on an ongoing basis going forward.
 
In addition to the aforementioned steps, we are in the process of investing in and developing scenic/destination real estate sites through the acquisition of land and land holding companies. We recently acquired 37,273.68 square meters of scenic real estate in the Beitun District of Taichung City, Taiwan (R.O.C.) and we have entered into four additional non-binding letters of intent to acquire additional land in scenic and/or agricultural areas in Taiwan.  We aim to complete four acquisitions during the fourth quarter of 2013 and first quarter of 2014. After we have completed these acquisitions, we will evaluate all of our real estate holdings as a group and determine how we will utilize those properties to support our overall goal of developing a travel, tourism and destination real estate business. At that same time, we will evaluate and plan for the costs of developing the properties.
 
We expect the destination real estate portion of our business to make up approximately half of our overall business in the future, with the other half consisting of travel agencies.  By destination real estate, we mean to develop locations that will attract and support visitors for stays of one day or longer, providing outdoor activities and places of interest for visitors from both domestic locales and abroad. In addition to our destination real estate business, we are continuing to develop our travel agency in Taiwan and have entered into nine non-binding letters of intent to acquire travel agencies located outside of Taiwan in both Asia and North America. We aim to complete the acquisition of these nine travel agencies by the end of the second quarter 2014.  We intend to fund all of these acquisitions through the sale of our common stock. While this will cause dilution to the existing shareholders, we do not believe this dilution will negatively affect the shareholders as the acquisitions will add significant value to the Company and will allow the Company to proceed in developing its business.
 
We may also from time to time invest in travel-related service providers that we believe can help us better service our customers and help them meet their travel needs. Through investing in such entities, we may be able to recoup some of our costs through maintaining small ownership interests in the entities our clients use. Furthermore, by investing in these entities, we may be able to work with them to better improve their travel offerings or related services or bring the entities up to the standard of service our customers expect. We recently made one such investment in A Peace World Holding Inc. (“APW”), a company in the early stages of developing destination real estate products and services.  We expect that APW, based on its expressed business plans, will develop destination real estate that our customers will be interested in traveling to, thus enhancing the products and services we can provide to our customers. Any costs involved in offering such products and services to our customers, if there are any such costs, will be incorporated into the fees we charge our customers for our service. At this time we have no further plans for making any additional such investments and therefore have no plans of making further capital expenditures in relation to such investments.
 
Competition
 
We will be operating in two sectors – in the area of destination real estate development and travel agencies. These two sectors will complement each other as , over the long term, the travel agencies will be able to refer clients and visitors to our destination real estate sites. We will face competition from many individuals and companies that also market travel locations and products. As concerns travel destinations, we desire to utilize scenic properties that will allow for outdoor activities. Thus we must create locations that provide both activities of interest and provide convenience and amenities, while allowing visitors to enjoy the natural beauty of the area around them. 
 
 
12

 
Observation tells us that the current travel industry is generally driven by the lowest cost provider. However, different segments of the market, such as the affluent segment, consider factors beyond cost when they plan vacations and travel. Ahead of cost, an affluent consumer may value factors such as convenience, comprehensive service, and luxury and/or prestige, to name a few. We believe that a successful marketing effort to reach the affluent market segment (retiring baby boomers) with the right quality of products should increase our revenue opportunity. In Taiwan, market conditions for the travel industry are similar to those of the U.S. There is a mix of large travel agencies, online service providers and small-scale local operators.  However, since Taiwan is geographically much smaller than the U.S., competition is fierce.   
 
In Taiwan, there are four types of travel agencies:
 
1.     Mega Agencies
A.       Lion Travel
B.       Cola Tour
C.       EZ Travel
2.     Intermediate-Small – locally or regionally owned agencies
A.       Star Travel
B.       SET Tour
3.     Independent Agencies: Usually catering to a special or niche market
A.       Royal Jet Way
B.       Perfect Travel
C.       Life Tour
4.     Airline & other types of travel consolidators
A.       China Airlines
B.       EVA Airlines
C.       American Express
 
We feel at this time we would fall into the Independent Agency category and hope to create our own niche as a more customer-oriented agency or travel service provider with a reputation of going the “extra mile” wherever possible in connecting the right type of customers with the right type of products.
 
Concerning destination real estate sites, there are many competitors who will be vying for the business of our potential clientele. The key will be to develop attractive properties that provide the amenities and activities that visitors would enjoy. In our development plans, we are defining destination real estate as locations that will draw tourist from both domestically and abroad to visit our sites for a period of one or two days or more. So in the long term we will be developing sites that include hotels, restaurants, as well as activity and entertainment centers, among other things. Some of our competitors in the destination real estate sector in Taiwan include the following companies:
 
Elements Innovation Co. Ltd.
E United Group
Taiwan Land Development Inc.
 
EMERGING GROWTH COMPANY STATUS
 
We qualify as an “emerging growth company” under the Jumpstart Our Business Startups Act (the “JOBS Act”). As a result, we are permitted to rely on exemptions from certain disclosure requirements. For so long as we are an emerging growth company, we will not be required to:
 
have an auditor report on our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
 
comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
 
submit certain executive compensation matters to shareholder advisory votes, such as “say-on-pay” and “say-on-frequency”; and
 
disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation.
 
In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.
 
We will remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
 
 
13

 
RESULTS OF OPERATIONS
 
The following table summarizes our historical condensed consolidated statements of operations data.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deficit Accumulated
from
 
 
 
Nine Months Ended
 
Three Months Ended
 
June 21, 2011
(Inception)
 
 
 
September 30,
2013
 
September 30,
2012
 
September 30,
2013
 
September 30,
2012
 
through September
30, 2013
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
$
-
 
$
-
 
$
-
 
$
-
 
$
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
General and administrative expenses
 
 
234,213
 
 
377,916
 
 
50,777
 
 
328,573
 
 
757,459
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss from Operations
 
 
(234,213)
 
 
(377,916)
 
 
(50,777)
 
 
(328,573)
 
 
(757,459)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expenses)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest income
 
 
62
 
 
2
 
 
62
 
 
2
 
 
177
 
Loss from long-term investment
 
 
-
 
 
(20,837)
 
 
-
 
 
(13,862)
 
 
(20,837)
 
Gain from disposal of long-term investment
 
 
-
 
 
-
 
 
-
 
 
-
 
 
20,837
 
 
 
 
62
 
 
(20,835)
 
 
62
 
 
(13,860)
 
 
177
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss before income taxes
 
 
(234,151)
 
 
(398,751)
 
 
(50,715)
 
 
(342,433)
 
 
(757,282)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
 
-
 
 
-
 
 
-
 
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss
 
 
(234,151)
 
 
(398,751)
 
 
(50,715)
 
 
(342,433)
 
 
(757,282)
 
Net loss attributable to noncontrolling interest
 
 
(193)
 
 
(42,515)
 
 
-
 
 
(42,515)
 
 
(53,441)
 
Net loss attributable to San Lotus Holding Inc.
 
$
(233,958)
 
$
(356,236)
 
$
(50,715)
 
$
(299,918)
 
$
(703,841)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Loss Per Share-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and Diluted
 
$
(0.02)
 
$
(0.07)
 
$
(0.00)
 
$
(0.02)
 
$
(0.08)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted Average Shares Outstanding:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic and Diluted
 
 
16,146,820
 
 
5,406,623
 
 
19,244,851
 
 
13,912,116
 
 
9,781,672
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net loss
 
$
(234,151)
 
$
(398,751)
 
$
(50,715)
 
$
(342,433)
 
$
(757,282)
 
Foreign currency translation adjustment, net of tax
 
 
(4,130)
 
 
4,994
 
 
(547)
 
 
4,994
 
 
3,078
 
Total comprehensive income (loss)
 
 
(238,281)
 
 
(393,757)
 
 
(51,262)
 
 
(337,439)
 
 
(754,204)
 
Comprehensive income (loss) attributable to the noncontrolling interest
 
 
(193)
 
 
(42,515)
 
 
-
 
 
(42,515)
 
 
(53,441)
 
Comprehensive income (loss) attributable to San Lotus Holding Inc.
 
$
(238,088)
 
$
(351,242)
 
$
(51,262)
 
$
(294,924)
 
$
(700,763)
 
 
 
14

 
Comparison of Three Months Ended September 30, 2013 and 2012
 
Revenues.  We did not generate any revenue for the three-month periods ended September 30, 2013 and September 30, 2012. We have generated no revenues since our formation on June 21, 2011.
 
General and Administrative Expenses.  We incurred general and administrative expenses of $50,777 and $328,573 during the three-month periods ended September 30, 2013 and 2012, respectively.  This was a decrease of $277,796 or 84.5 percent. The decrease was mainly due to fewer professional service fees for Securities and Exchange Commission filings incurred during the current period this year. The decrease was also attributable to lower office rent and salaries, partially offset by the increase in depreciation expense for the three months ended September 30, 2013  
 
Income (loss) from operations.  Loss from operations decreased approximately $277,796, or 84.5 percent, to $(50,777) for the three months ended September 30, 2013 from $(328,573) for the three months ended September 30, 2012.  This decrease was mainly due to lower development costs expended in implementing our business plan for the three-month ended September 30, 2013 as compared to the period in 2012.
 
Other Income (expenses).  Other income was $62 during the three months ended September 30, 2013 as opposed to $(13,860) during the three months ended September 30, 2012. This was a change in other income of $13,922, or 99.6%. The change from loss to income was due to our long-term investment made in A Peace World Holding Inc. (“APW”), a travel-related real estate investment entity, which was consolidated on San Lotus’s books in the third quarter of 2012. Therefore, there was no loss from long-term investment recognized for the current period in 2013.
 
Net Loss Before Income Taxes.  Loss before income taxes decreased approximately $(291,718), or 85.2 percent, to $(50,715) for the three months ended September 30, 2013 from $(342,433) for the same period in 2012.  This decrease was mainly due to a decrease in operating expense during the development stage.
 
Provision for Income Taxes.  We have not yet generated income and thus have had no income tax liabilities during the three-month periods ending September 30, 2013 and 2012.
 
Net Loss.  As a result of the above factors, we experienced a net loss of approximately $(50,715) for the three months ended September 30, 2013 as compared to net loss of approximately $(342,433) for the three months ended September 30, 2012, representing a decrease of approximately $(291,718), or 85.2%. This decrease was primarily attributable to less development costs, as well as less office rental expenses and  lower payroll expenses, partially offset by the increase in depreciation expenses for the three months ended September 30, 2013 as compared with the same period in 2012.
 
Net Loss Attributable to Noncontrolling Interest. Net loss attributable to noncontrolling interest of our long-term investment in A Peace World Holding Inc., a travel-related real estate development entity, decreased approximately $42,515, or 100 percent, to $0 for the three months ended September 30, 2013 from $(42,515) for the same period in 2012.
 
Comparison of Nine Months Ended September 30, 2013 and 2012
 
Revenues.  We did not generate any revenue for the nine-month periods ended September 30, 2013 and September 30, 2012. We have generated no revenues since our formation on June 21, 2011.
 
General and Administrative Expenses.  We incurred general and administrative expenses of $234,213 and $377,916 during the nine-month periods ended September 30, 2013 and 2012, respectively.  This was a decrease of $143,703 or 38.0 percent. This decrease was mainly due to a decrease in professional service fees for Securities and Exchange Commission filings for the nine months ended September 30, 2013.
 
Income (loss) from operations.  Loss from operations decreased approximately $143,703, or 38.0 percent, to $(234,213) for the nine months ended September 30, 2013 from $(377,916) for the nine months ended September 30, 2012.  This decrease was mainly due to fewer professional service fees incurred for the nine-month ended September 30, 2013.  
 
Other Income (expenses). Other income was $62 for the nine months ended September 30, 2013 and $(20,835) for the nine months ended September 30, 2012. This increase was due to our long-term investment made in A Peace World Holding Inc. (“APW”), a travel-related real estate investment entity, which was consolidated on San Lotus’s books in the third quarter of 2012. Therefore, there was no loss from long-term investment recognized for the current period in 2013.
 
 
15

 
Net loss before Income Taxes.  Net loss before income taxes decreased approximately $(164,600), or 41.3 percent, to $(234,151) for the nine months ended September 30, 2013 from $(398,751) for the same period in 2012.  This decrease was mainly due to a decrease in operating expenses during the development stage.
 
Provision for Income Taxes.  We have not yet generated income and thus have had no income tax liabilities during the nine-month periods ending September 30, 2013 and 2012.
 
Net Loss.  As a result of the above factors, we experienced a net loss of approximately $(234,151) for the nine months ended September 30, 2013 as compared to net loss of approximately $(398,751) for the nine months ended September 30, 2012, representing a decrease of approximately $(164,600), or 41.3%. This decrease was primarily attributable to lower development costs, as well as lower office rental expenses and payroll expenses, partially offset by the increase in depreciation expenses for the nine months ended September 30, 2013 as compared with the same period in 2012.
 
Net Loss Attributable to Noncontrolling Interest. Net loss attributable to noncontrolling interest of our long-term investment in A Peace World Holding Inc., a travel-related real estate development entity, decreased approximately $42,322, or 99.5 percent, to $(193) for the nine months ended September 30, 2013 from $(42,515) for the same period in 2012.
 
Liquidity and Capital Resources
 
Our operations to date have been funded primarily by capital contributions from our initial investors, which is only adequate to fund the development of our operations for the next three months. To continue after that, we will either need to raise additional funds through the private placement of debt or equity securities, or borrow money from our founder and president, Chen Li Tsing.
 
Our working capital at September 30, 2013 totaled $107,974. This amount includes funds that have already been injected into our wholly-owned Taiwan subsidiary, Green Forest Management Consulting Inc., a Taiwan entity (“Green Forest”). Presently, Green Forest has $126 cash on hand, while Green Forest’s newly acquired subsidiary, Da Ren International Development Inc., has $12,250 cash on hand.  These funds are inadequate to support Green Forest’s operations. We are in the process of applying for permission from Taiwan’s Ministry of Economic Affairs for permission to inject capital into Green Forest’s account. We expect to receive permission within the next two to four weeks. Even with investment approval from Taiwan’s government, we lack adequate funds to support our subsidiaries and will likely have to borrow funds from our President and Chairman, Chen Li-Hsing, in order to sustain our operations in the near term until we are able to complete a private placement of our equity securities or otherwise raise funds.
 
Going Concern
 
At present, we have enough cash to pay for the general and administrative expenses of San Lotus Holding Inc. for the next three months and we do not have enough cash to fund our Taiwan subsidiary, Green Forest. As such, and as we have yet to attain profitability, we may be reliant on obtaining additional financing, or taking out loans from our president, in order to continue developing our operations as planned.  Based on these assumptions, our auditor has expressed doubt about our ability to continue as a going concern.
 
Critical Accounting Polices
 
We have made no material changes to our critical accounting policies in connection with the preparation of financial statements included in this Quarterly Report on Form 10-Q.
 
Impact of Accounting Pronouncements
 
There were no recent accounting pronouncements that have had a material effect on the Company’s financial position or results of operations.
 
 
16

 
Recently Issued Accounting Policies
 
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
 
OFF-BALANCE SHEET ARRANGEMENTS
 
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.
 
Item 3. Quantitative and Qualitative Disclosures about Market Risks.
 
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
 
Item 4. Controls and Procedures.
 
Evaluation of disclosure controls and procedures.
 
Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”) are recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow for timely decisions regarding required disclosure.  In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.
 
Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer.  Based on that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were not effective as of September 30, 2013 due to a material weakness in our internal control over financial reporting which is described below.
 
Management identified significant deficiencies related to (i) the lack of U.S. GAAP expertise of our chief financial officer, (ii) the lack of U.S. GAAP expertise of our internal accounting staff, and (iii) the company’s failure to have a board of directors consisting of a majority of independent directors and our lack of a director who qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K. We plan to address these weaknesses in the near term as the Company develops.
 
Changes in internal controls.
 
There were no changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 
 
 
17

 
PART II - OTHER INFORMATION
 
Item 1. Legal Proceedings.
 
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
 
On May 17, 2013, Yu Chien-Yang, our vice president and a member of our board of directors, was indicted by the Taichung District Prosecutor’s Office of Taichung County, Taiwan (R.O.C.). The indictment in no way involves San Lotus Holding Inc. or its subsidiary, Green Forest Management Consulting Inc., and the matters described therein do not include any conduct involving, by, or on behalf of San Lotus Holding Inc. or its subsidiary. The enforcement action was brought against seven individuals, including Mr. Yu, alleging violations of Taiwan’s banking and securities laws in connection with disclosure issues related to a single corporate bond issuance. The action predates Mr. Yu’s employment with the Company and is in connection with Mr. Yu’s service at another company, Da Chuang Business Management Consultants Co., Ltd. and its subsidiary, Da Ren International Investments Co., Ltd., both Taiwan entities, which had conducted a private placement of its corporate bonds to less than 30 individuals in the year 2010. 
 
Item 1A. Risk Factors.
 
Not applicable.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.
 
Item 3. Defaults Upon Senior Securities.

None
 
Item 4.  Mine Safety Disclosures.
 
Not applicable.
 
Item 5.  Other Information.
 
None.
 
Item 6.  Exhibits.
 
Exhibit Number
 
Description
31.1
*
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
*
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
**
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Schema
101.CAL
 
XBRL Taxonomy Calculation Linkbase
101.DEF
 
XBRL Taxonomy Definition Linkbase
101.LAB
 
XBRL Taxonomy Label Linkbase
101.PRE
 
XBRL Taxonomy Presentation Linkbase
 
* Filed herewith.
** This certification is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended (Exchange Act), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
SAN LOTUS HOLDING INC.  
 
 
 
Date: November 14, 2013
By:
/s/ Chen Tseng Chih-Ying  
 
 
Chen Tseng Chih-Ying  
 
 
Chief Executive Officer and
 
 
Principal Executive Officer
 
Date: November 14, 2013  
By:
/s/ Lin Mu-Chen
 
 
Lin Mu-Chen
 
 
Chief Financial Officer and
 
 
Principal Accounting Officer
 
 
19