UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: March 31, 2014

 

or

 

¨ 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: 333-173873

 

               SW China Imports, Inc.                      

 (Exact name of registrant as specified in its charter)

 

Nevada	45-0704149
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

 

  15800 Crabbs Branch Way, Ste. 310, Rockville, MD 20855    

 (Address of principal executive offices)

 

  Tel: (240) 477-7738, Fax: (240) 715-9116     

 (Registrant’s telephone number, including area code)

 

                           N/A                             

 (Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or Section 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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 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.  (Check one):

 

Large Accelerated Filer ☐	Accelerated Filer  ☐
Non-Accelerated Filer ☐  Do not check if a smaller reporting company)	Smaller Reporting Company  ☒

  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes x No ¨

 

The number of shares outstanding of the Registrant's common stock, $0.0001 par value, as of May 15, 2014, was 210,000,000.

 

TABLE OF CONTENTS

 

Item				Page
PART I – FINANCIAL INFORMATION				4
	Item 1	Financial Statements		4
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
	Item 3	Quantitative and Qualitative Disclosures About Market Risk		21
	Item 4	Controls and Procedures		21
PART II – OTHER INFORMATION				22
	Item 1	Legal Proceedings		23
	Item 1A	Risk Factors		23
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		23
	Item 3	Defaults Upon Senior Securities		23
	Item 4	Mine Safety Disclosures		23
	Item 5	Other Information		23
	Item 6	Exhibits		23
Signatures				23

 

Forward-Looking Statements

 

Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties, and other factors that may cause actual results, performance, or achievements of the Registrant to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. The Registrant’s plans and objectives are based, in part, on assumptions involving it continuing as a going concern and executing on its stated business plan and objectives. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Registrant. Although the Registrant believes its assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Registrant or any other person that the objectives and plans of the Registrant will be achieved.

 

As used in this Quarterly Report, the terms "we", "us", "our", "SW China", “Registrant”, and “Issuer” refers to SW China Imports, Inc. unless the context clearly requires otherwise.

 

 

PART I – FINANICAL INFORMATION

 

 

Item 1. Financial Statements

 

SW CHINA IMPORTS, INC.

(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

 

 

ASSETS
			3/31/14 (unaudited)				12/31/13
Current assets:
Cash and cash equivalents		$	—			$	37
Total assets:		$	—			$	—
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
Current liabilities:
Accounts payable		$	2,882			$	20,198
Notes payable to stockholders			78,248				50,550
			81,130				70,748
Total liabilities		$	81,130			$	70,748
Commitments and contingencies			—				—
Stockholders’ (deficit):
Preferred stock, $0.0001 par value, 25,000,000 shares authorized; no shares issued and outstanding			—				—
Common stock, $0.0001 par value, 250,000,000 shares authorized; 210,000,000 and 210,000,000 shares issued and outstanding, respectively			21,000				21,000
Additional paid-in capital			59,017,321				59,014,061
(Deficit) accumulated during the development stage			(59,119,451	)			(59,105,772	)
Total stockholders’ (deficit)		$	(81,130	)		$	(70,711	)
Total liabilities and stockholders’ (deficit)		$	—			$	37

 

 

 

 

 

The accompanying notes to the financial statements are an integral part of these statements.

SW CHINA IMPORTS, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

(unaudited)

 

 

		For the three months ended March 31,								Cumulative from (inception)
		2014				2013				to 3/31/14
Revenues, net		$	—			$	4,918			$	8,148
Cost of revenues			—				178				178
Gross profit			—				4,740				7,970
Expenses:
General and      administrative			3,028				616				4,348
Consulting fees			250				—				23,540,625
Legal fees			7,575				7,575				146,938
Accounting fees			1,000				2,500				17,675
Director fees			—				—				35,400,000
Transfer agent fees			372				977				6,395
Total expenses			12,225				11,668				59,115,981
(Loss) from operations			(12,225	)			(6,928	)			(59,108,011	)
Other income (expense)
Interest expense			(1,454	)			(1,003	)			(11,440	)
Total other income (expense)			(1,454	)			(1,003	)			(11,440	)
Provision for income taxes			—				—				—
Net (loss)		$	(13,679	)		$	(7,931	)		$	(59,119,451	)
(Loss) per common share, basic and diluted		$	(0.00	)			(0.00	)
Weighted average number of common shares outstanding, basic and diluted			210,000,000				500,000,000

 

 

 

 

 

 

 

 

The accompanying notes to the financial statements are an integral part of these statements.

SW CHINA IMPORTS, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS’ (DEFICIT)

For the period from February 23, 2011 (inception) to March 31, 2014

(unaudited)

 

 

			Common Stock								Additional Paid-In				Common Stock				(Deficit) Accumulated During the Development
Description			Shares				Amount				Capital				Subscribed				Stage				Total
Balance, February 23, 2011 (inception)			—			$	—			$	—			$	—			$	—			$	—
Issuance of common shares to directors (founder’s shares)			100,000,000				10,000				(10,000	)			—				—				—
Issuance of common shares to consultants			10,000,000				1,000				99,000				—				—				100,000
Issuance of common shares for cash			1,570,000				157				15,543				—				—				15,700
Imputed interest on related party loan			—				—				1,629				—				—				1,629
Net (loss) for the period			—				—				—				—				(138,206	)			(138,206	)
Balance, December 31, 2011			111,570,000			$	11,157			$	106,172			$	—			$	(138,206	)		$	(20,877	)

 

 

 

 

 

 

 

 

 

 

The accompanying notes to the financial statements are an integral part of these statements.

SW CHINA IMPORTS, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS’ (DEFICIT)

For the period from February 23, 2011 (inception) to March 31, 2014

(continued)

(unaudited)

 

 

			Common Stock								Additional Paid-In				Common Stock				(Deficit) Accumulated During the Development
Description			Shares				Amount				Capital				Subscribed				Stage				Total
Balance, December 31, 2011			111,570,000			$	11,157			$	106,172			$	—			$	(138,206	)		$	(20,877	)
Issuance of common shares to officers			236,000,000				23,600				35,376,400				—				—				35,400,000
Issuance of common shares for retiring convertible note			1,007,500				101				20,049				—				—				20,150
Issuance of common shares to consultants			156,422,500				15,642				23,447,733				—				—				23,463,375
Rescinding of consulting agreement			(5,000,000	)			(500	)			500				—				—				—
Imputed interest on related party loan			—				—				3,909				—				—				3,909
Net (loss) for the period			—				—				—				—				(58,906,066	)			(58,906,066	)
Balance, December 31, 2012			500,000,000			$	50,000			$	58,954,763			$	—			$	(59,044,272	)		$	(39,509	)

 

 

 

 

 

 

 

 

The accompanying notes to the financial statements are an integral part of these statements.

 

SW CHINA IMPORTS, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENT OF STOCKHOLDERS’ (DEFICIT)

For the period from February 23, 2011 (inception) to March 31, 2014

(continued)

(unaudited)

 

 

			Common Stock								Additional Paid-In				Common Stock				(Deficit) Accumulated During the Development
Description			Shares				Amount				Capital				Subscribed				Stage				Total
Balance, December 31, 2012			500,000,000			$	50,000			$	58,954,763			$	—			$	(59,044,272	)		$	(39,509	)
Cancellation of shares of common stock			(300,000,000	)			(30,000	)			30,000				—				—				—
Issuance of shares of common stock to consultant			10,000,000				1,000				25,000				—				—				26,000
Imputed interest on related party loan			—				—				4,298				—				—				4,298
Net (loss) for the period			—				—				—				—				(61,500	)			(61,500	)
Balance, December 31, 2013			210,000,000			$	21,000			$	59,014,061			$	—			$	(59,105,772	)		$	(70,711	)
Forgiveness of debt											1,806												1,806
Imputed interest on related party loan											1,454												1,454
Net (loss) for the period																			(13,679	)			(13,679	)
Balance, March 31, 2014			210,000,000				21,000				59,017,321								(59,119,451	)			(81,130	)

 

The accompanying notes to the financial statements are an integral part of these statements.

 

 

SW CHINA IMPORTS, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

(unaudited)

 

 

			For the three months ended March 31,								Cumulative from 2/23/11 (inception) to
			2014				2013				3/31/14
Cash flows from operating activities:
Net (loss)		$	(13,679	)		$	(7,931	)		$	(59,119,451	)
Adjustments to reconcile net (loss) to net cash (provided by) operating activities
Common stock issued in connection with services provided by consultants			—				—				23,589,375
Common stock issued to officers			—				—				35,400,000
Imputed interest on related party loan			1,454				1,003				11,440
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable			—				(293	)			—
Increase (decrease) in accounts payable			(12,188	)			7,524				32,386
Net cash provided (used) by operating activities			(37	)			303				(86,250	)
Cash flows from financing activities:
Increase in notes payable to a stockholder			—				3,800				70,550
Decrease in notes payable to a stockholder			—				(3,950	)			(20,000	)
Borrowings on debt			—				—				20,000
Proceeds from issuance of common stock			—				—				15,700
Net cash provided (used) by financing activities			—				(150)				86,250
Net increase (decrease) in cash			(37	)			153				—
Cash – beginning of period			37				600				—
Cash – end of period		$	—			$	753			$	—

 

 

 

 

The accompanying notes to the financial statements are an integral part of these statements.

SW CHINA IMPORTS, INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

(unaudited)

(continued)

 

 

			For the three months ended  March 31,								Cumulative From 2/23/11 (inception) to
			2014				2013				3/31/14
Non-cash investing and financing activities:
Foregiveness of debt		$	1,806			$	—			$	1,806
Assumption of accounts payable			(29,502	)			—				(29,502	)
Issuance of common shares to directors (founder’s shares)			—				—				10,000
Conversion of note payable into common stock			—				—				20,150
Rescinding of common shares			—				—				500
Cancellation of common shares			—				—				30,000
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest		$	—			$	—			$	—
Income taxes		$	—			$	—			$	—

 

 

 

 

 

 

The accompanying notes to the financial statements are an integral part of these statements.

SW CHINA IMPORTS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

March 31, 2014

(unaudited)

 

 

NOTE 1 – Summary of Significant Accounting Policies

 

Unaudited Interim Financial Information

 

The accompanying Balance Sheet as of March 31, 2014, Statements of Operations for the three months ended March 31, 2014 and 2013, and cumulative from February 23, 2011 (Inception) to March 31, 2014, Statement of Stockholder’s (Deficit) for the cumulative period from February 23, 2011 (Inception) to March 31, 2014, and the Statements of Cash Flows for the three months ended March 31, 2014 and 2013, and cumulative from February 23, 2011 (Inception) to March 31, 2014, are unaudited. These unaudited interim financial statements have been prepared in accordance with accounting principles accepted in the United States of America (“GAAP”). In the opinion of the company’s management, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and included all adjustments necessary for the fair presentation of the Company’s statement of financial position at March 31, 2014 and its results of operations and its cash flows for the period ended March 31, 2014 and cumulative from February 23, 2011 (inception) to March 31, 2014. The results for the period ended March 31, 2014 are not necessarily indicative of the results to be expected for the fiscal year ending December 31, 2014.

 

Organization

 

SW China Imports, Inc. (“Company” or “SW China Imports”) is a development stage company with minimal operations. SW China Imports was incorporated under the laws of the State of Nevada on February 23, 2011.

 

Basis of Presentation

 

The accompanying financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP) for financial information and in accordance with the Securities and Exchange Commission’s (SEC) Regulation S-X. They reflect all adjustments which are, in the opinion of the Company’s management, necessary for a fair presentation of the financial position and operating results as of and for the period ended March 31, 2014 and for the period February 23, 2011 (inception) to March 31, 2014.

 

Use of Estimates

 

The accompanying financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment. Actual results may vary from these estimates.

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. As of March 31, 2014, the Company had $0 in cash and equivalents and $37 at December 31, 2013.

 

Investments

 

The Company accounts for its marketable securities, which are classified as trading securities, in accordance with generally accepted accounting principles for certain investments in debt and equity securities, which requires that trading securities be carried at fair value. Unrealized gains and losses due to changes in fair value as well as realized gains and losses resulting from sales of securities are reported as Other Income/Expenses in the statement of operations. Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available. The cost basis for realized gains and losses is determined on a specific identification basis. As of March 31, 2014 the Company had no investments.

 

Fair Value of Financial Instruments

 

ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:

 

Level		Description
Level 1		Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2		Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3		Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

The estimated fair values of the Company’s financial instruments are as follows:

 

  

		Fair Value Measurement at March 31, 2014 Using:
Description			3/31/14		Quoted Prices In Active Markets For Identical Assets  (Level 1)		Significant Other Observable Inputs  (Level 2)		Significant Unobservable Inputs  (Level 3)
Assets
	Cash and equivalents	$	-	$	-	$	-	$	-
		$	-	$	-	$	-	$	-
Liabilities
	Accounts payable	$	2,882	$	2,882	$	-	$	-
	Note payable to stockholder		78,248		78,248		-		-
		$	81,130	$	81,130	$	-	$	-

 

 

		Fair Value Measurement at December 31, 2013 Using:
Description			12/31/13		Quoted Prices In Active Markets For Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)
Assets
	Cash and equivalents	$	37	$	37	$	-	$	-
		$	37	$	37	$	-	$	-
Liabilities
	Accounts payable	$	20,198	$	20,198	$	-	$	-
	Note payable to stockholder		50,550		50,550		-		-
		$	70,748	$	70,748	$	-	$	-

  

 

Net Loss per Share Calculation

 

Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per shares is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. During the period ended March 31, 2014 and cumulative from February 23, 2011 (inception) to March 31, 2014 the Company had no dilutive financial instruments issued or outstanding.

 

Income Taxes

 

The Company accounts for income taxes pursuant to FASB ASC 740, Income Taxes. Under FASB ASC 740-10-25, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.

 

The Company maintains a valuation allowance with respect to deferred tax assets. SW China Imports establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.

 

Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about its ability to realize the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.

 

Fiscal Year

 

The Company elected December 31st for its fiscal year end.

 

NOTE 2 – Development Stage Activities and Going Concern

 

The Company is in the development stage and has minimal operations, and as such has devoted most of its efforts since its inception to developing its business plan, issuing common stock, attempting to raise capital, establishing its accounting systems and other administrative functions. The Company plans on importing high-end handmade lace wigs and hairpieces manufactured in China and South Korea into the United States. After import, the Company intends to sell its products in bulk to beauty supply stores, hair salons, and independent hair stylists. The Company also intends to sell its products directly to the retail consumer via the Internet. Additionally, the Company intends to conduct additional capital formation activities through the issuance of its common stock to achieve these long-term business growth strategies.

 

While management of the Company believes that SW China Imports will be successful in its planned operating activities under its business plan and capital formation activities, there can be no assurance that it will be able to successfully execute on either of these or that it will be able to generate adequate revenues to earn a profit or sustain its operations.

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United State of America, which contemplate continuation of the Company as a going concern. The Company has not established a source of revenues sufficient to cover its operating costs, and as such, has incurred an operating loss since its inception. Further, as of March 31, 2014, the Company had a working capital deficiency of ($81,130). These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern.

 

NOTE 3 – Common Stock

 

The total number of common shares authorized that may be issued by the Company is 250,000,000 shares with a par value of $0.0001 per share.

 

 

During the period February 23, 2011 (inception) to March 31, 2014 the Company issued an aggregate of 516,000,000 shares as follows:

  

During the period February 23, 2011 (inception) to March 31, 2014 the Company cancelled an aggregate of 306,000,000 split adjusted shares of its common stock as follows:

  

As of March 31, 2014, the Company had 210,000,000 shares of its common stock issued and outstanding.

 

NOTE 4 – Preferred Stock

 

The total number of preferred shares authorized that may be issued by the Company is 25,000,000 shares with a par value of $0.0001 per share.

 

As of March 31, 2014, the Company had no shares of its preferred stock issued and outstanding.

 

NOTE 5 – Income Taxes

 

The provision (benefit) for income taxes for the period from February 23, 2011 (inception) to March 31, 2014 was as follows, assuming a 35 percent effective tax rate:

 

 

		For the three months ended 3/31/14				For the period February 23, 2011 (inception) to 3/31/14
Current tax provision:
Federal
Taxable income		$	—
Total current tax provision		$	—
Deferred tax provision:
Federal
Loss carryforwards		$	42,004			$	37,296
Change in valuation allowance			(42,004	)			(37,296	)
Total deferred tax provision		$	—			$	—

 

As of March 31, 2014, the Company had approximately $171,284 in tax loss carryforwards that can be utilized in future periods to reduce taxable income through 2032.

 

The Company provided a valuation allowance equal to the deferred income tax assets for the period from February 23, 2011 (inception) to March 31, 2014 because it is not presently known whether future taxable income will be sufficient to utilize the tax loss carryforwards.

 

The Company has no uncertain tax positions.

 

NOTE 6 – Change of Control

 

On March 27, 2014 the shareholders of SW China Imports, Inc. sold their shares, 210,000,000, to Big Sky Oil, Inc. and another investor, resulting in a change of control.

 

NOTE 7 – Related Party Transactions

 

For the period February 23, 2011 (inception) to March 31, 2014 the Company’s rent expense was zero. This is because of the short time period and the minimal level of operating activities that have transpired during this period of time.

 

As of March 31, 2014, the Company had notes payable to a related party stockholder in the amount of $78,248. These notes were assumed during the change of control transaction and are payable on demand and do not bear interest. During the three months ended March 31, 2014 the imputed interest expense on the notes was $1,454.

 

In the change of control agreements dated March 27, 2014, $1,806 of related party debt was forgiven by a former shareholder.

 

NOTE 8 – Recent Accounting Pronouncements

 

The Company does not expect the impact of recent accounting pronouncements to have a material effect on the Company’s financial statemetns.

 

NOTE 9 – Subsequent Events

 

No other material events or transactions have occurred during this subsequent event reporting period which required recognition or disclosure in the financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

We are a development stage corporation with limited operations. Our independent registered public accounting firm has issued a going concern opinion in their audit report dated March 25, 2014, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 25, 2014. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months. Accordingly, we must raise additional cash to sustain our limited operations.

 

We presently are exploring other such sources of funding, including raising funds through a second public offering, a private placement of securities, or loans. If we are unable to raise this additional funding, we will either have to suspend operations until we do raise the cash or cease operations entirely.

 

The following discussion should be read in conjunction with our Financial Statements and the notes thereto and the other information included in this Quarterly Report as filed with the SEC on Form 10-Q.

 

Limited Operating History; Need for Additional Capital

 

There is limited historical financial information about us upon which to base an evaluation of our performance. We remain in the start-up stage of operations and have only begun to generate nominal revenue. We cannot guarantee that we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns, such as increases in marketing costs, increases in administration expenditures associated with daily operations, increases in accounting and audit fees, and increases in legal fees related to filings and regulatory compliance.

  

Currently, we do not have any arrangements for additional financing. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Equity financing could result in additional dilution to existing shareholders.

 

Status as a Shell Company

 

As of March 31, 2014, because we have nominal operations and minimal assets, we are considered to be a shell company under the Securities Exchange Act of 1934, as amended. Because we are considered a shell company, the securities sold in previous offerings can only be resold through (i) registration under the Securities Act of 1933, as amended (“Securities Act”), (ii) Section 4(1) of the Securities Act, if available, for non-affiliates, or (iii) by meeting the conditions of Rule 144(i) of the Securities Act.

 

Plan of Operations

 

The Company plans to acquire medical marijuana collectives and or medical marijuana dispensaries, which are currently in operations legally within the states that medical marijuana has been approved and is legal. Currently the Company has been actively negotiating with existing collectives in the states of Washington and Oregon.

The company intends to further expand by opening new medical marijuana collectives and medical marijuana dispensaries in locations where an acquisition is not readily available such as states where medical marijuana has been newly legalized. The new locations will be based on medicinal demand and location analysis to support maximum potential of success.

The Company currently has offices in Dallas, Texas and Port Townsend Washington.

 

 

Results of Operations

 

Three Months Ended March 31, 2014 and 2013

 

Revenues. We generated $0 in revenue during the three months ended March 31, 2014 and $4,918 for the same period a year ago. This revenue was derived solely from design consulting services.

 

Gross Profit. Our gross profit was $0 during the three months ended March 31, 2014 and $4,740 for the same period a year ago.

 

Operating Expenses. Our total operating expenses for the three months ended March 31, 2014 were $12,225, which is a $557, or 4.8%, increase compared to operating expenses of $11,668 for the same period a year ago. Our operating expenses were primarily attributable to costs related to our ongoing SEC reporting requirements, which have consisted primarily of legal, accounting and outside consulting fees.

 

Income (Loss) From Operations. We had a loss from operations of ($12,225) for the three months ended March 31, 2014 compared to an operating loss of ($6,928) for the same period a year ago, which represented a $5,297, or 76.5%, increase in operating loss.

 

Other income (expenses). During the three months ended March 31, 2014 we recorded ($1,454) interest expense compared to ($1,003) for the same period a year ago, which represents an increase of $454, or 45.1%. These interest expense in 2013 comprised entirely of imputed interest expenses related to notes outstanding payable to a related party. The imputed interest was recorded in our financial statements under additional paid-in capital.

 

Net Income (Loss). We had a net loss of ($13,679) for the three months ended March 31, 2014 compared to a net loss of ($7,931) for the same period a year ago, which represented an increase of $5,748, or 72.5%, in net loss. The increase in net loss was the result of increases in expenses directly related to maintaining our financial reporting compliance with the SEC.

  

Cumulative During the Development Stage – February 23, 2011 (inception) through March 31, 2014

 

For ease of reading we refer to the period of February 23, 2011 (inception) through March 31, 2014 as the “Developmental Period”.

 

Revenues. We have generated $8,148 in revenue during the Developmental Period. This revenue was derived from selling $260 in products and $7,888 in design consulting services.

 

Cost of Revenues. Our cost of revenues was $178 during the Developmental Period.

 

Gross Profit. Our gross profit was $7,970 during the Developmental Period. Excluding revenue and gross profits generated from design consulting services, our gross profit for product sales was $82, which represents a gross profit margin of 46.1%.

 

Operating Expenses. Our total operating expenses for the Developmental Period were $59,115,981. These operating expenses were primarily attributable to organizational costs related to our formation, an early offering of our common stock, complying with our ongoing SEC reporting requirements, obtaining a listing on the OTC Bulletin Board, applying for DTC Eligibility, and issuing shares of our common stock to our officers – current and former – and outside consultants. These expenses have consisted primarily of legal, accounting, and outside consulting fees.

 

Loss From Operations. We have incurred an operating loss of ($59,108,011) during the Developmental Period. The operating loss was primarily attributable to organizational costs related to our formation, an early offering of our common stock, complying with our ongoing SEC reporting requirements, obtaining a listing on the OTC Bulletin Board, applying for DTC Eligibility, and issuing shares of our common stock to our officers – current and former – and outside consultants. These expenses have consisted primarily of legal, accounting, and outside consulting fees.

 

Other income (expenses). During the Developmental Period we recorded ($11,440) in other expenses, which was comprised of interest expense and imputed interest expenses related to notes outstanding payable to a related party. The imputed interest was recorded in our financial statements under additional paid-in capital.

 

Net Loss. We have incurred a net loss of ($59,119,451) during the Developmental Period. The net loss was primarily attributable to organizational costs related to our formation, an early offering of our common stock, complying with our ongoing SEC reporting requirements, obtaining a listing on the OTC Bulletin Board, applying for DTC Eligibility, and issuing shares of our common stock to our officers – current and former – and outside consultants. These expenses have consisted primarily of legal, accounting, and outside consulting fees.

 

Total Stockholders’ Deficit. Our stockholders’ deficit was ($80,130) as of March 31, 2014.

 

Liquidity and Capital Resources

 

As of March 31, 2014, we had $0 of assets. Our total liabilities were $81,130, which consisted of accounts payable of $2,882 and notes payable aggregating $78,248 to a related party. These are demand notes do not interest. Further, we had no external credit facilities (i.e. bank loans, revolving lines of credit, etc.).

 

We expect to incur continued losses over the next 12 months, possibly even longer. We believe that we need at least $125,000 in additional funding to commence operations and meet our minimal working capital requirements over the next 12 months.

 

We are presently exploring various sources of funding, including raising funds through a secondary public offering, a private placement of our securities, or loans. Without limiting our available options, future equity financings will most likely be through the sale of additional shares of our common stock. It is possible that we could also offer warrants, options and/or rights in conjunction with any future issuances of our common stock. However, we can give no assurance that financing will be made available to us, and if made available to us, in amounts or on terms acceptable to us. If we cannot secure adequate financing, we may be forced to cease operations and you will lose your entire investment.

 

Going Concern Consideration

 

Our independent registered public accounting firm has issued a going concern opinion in their audit report dated March 25, 2014, which can be found in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 11, 2014. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months. Our financial statements found within this Quarterly Report on Form 10-Q and the aforementioned Annual Report on Form 10-K contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

 

Off –Balance Sheet Operations

 

As of March 31, 2014, we had no off-balance sheet activities or operations.

 

  

 

 

 

CRITICAL ACCOUNTING POLICIES

 

The accompanying financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”) for financial information and in accordance with the Securities and Exchange Commission’s (“SEC”) Regulation S-X. They reflect all adjustments which are, in the opinion of SW China’s management, necessary for a fair presentation of the financial position and operating results as of and for the three months ended March 31, 2014 and 2013, and cumulative from March 3, 2011 (inception) to March 31, 2014.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent in the financial reporting process, actual results may differ significantly from those estimates.

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows, SW China considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. As of March 31, 2014, we had $2,743 in cash and equivalents.

 

Fair Value of Financial Instruments

 

ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:

 

 

Level		Description
Level 1		Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2		Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3		Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

 

 

 

 

 

 

 

 

[This space intentionally left blank.]

The estimated fair values of the Company’s financial instruments are as follows:

 

		Fair Value Measurement at March 31, 2014 Using:
Description			3/31/14		Quoted Prices In Active Markets For Identical Assets  (Level 1)		Significant Other Observable Inputs  (Level 2)		Significant Unobservable Inputs  (Level 3)
Assets
	Cash and equivalents	$	-	$	-	$	-	$	-
		$	-	$	-	$	-	$	-
Liabilities
	Accounts payable	$	2,882	$	2,882	$	-	$	-
	Note payable to stockholder		78,248		78,248		-		-
		$	81,130	$	81,130	$	-	$	-

 

 

		Fair Value Measurement at December 31, 2013 Using:
Description			12/31/13		Quoted Prices In Active Markets For Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs  (Level 3)
Assets
	Cash and equivalents	$	37	$	37	$	-	$	-
		$	37	$	37	$	-	$	-
Liabilities
	Accounts payable	$	20,198	$	20,198	$	-	$	-
	Note payable to stockholder		50,550		50,550		-		-
		$	70,748	$	70,748	$	-	$	-

  

Net Loss per Share Calculation

 

Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per shares is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. During the three and nine months ended September, 2014 and the period February 23, 2011 (inception) to March 31, 2014 we had no dilutive financial instruments issued or outstanding.

 

Revenue Recognition

 

SW China follows the guidance of FASB ASC Topic 605 for revenue recognition. In general, SW China recognizes revenue when (1) the price is fixed and determinable, (2) persuasive evidence of an arrangement exists, (3) the service has been provided, and (4) collectability is reasonably assured.

 

SW China generates revenue from two sources: (i) sales of its high-end handmade lace wigs and hairpieces and other beauty supplies to beauty supply stores, hair salons, independent hair stylists, and retail customers via the Internet and (ii) consulting services consisting of product and retail channel development for beauty and fashion products. Revenue from sales of its high-end handmade lace wigs, hairpieces and other beauty supplies is recognized at the time of the sale and revenues from consulting services are recognized when the services are performed, evidence of an arrangement exists, the fee is fixed and determinable, and collectability is probable.

 

Income Taxes

 

We account for income taxes pursuant to FASB ASC 740, Income Taxes. Under FASB ASC 740-10-25, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.

 

We maintain a valuation allowance with respect to deferred tax assets. SW China establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration SW China’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.

 

Changes in circumstances, such as SW China generating taxable income, could cause a change in judgment about its ability to realize the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.

 

Recently Issued Accounting Pronouncements

 

The Company does not expect the impact of recent accounting pronouncements to have a material effect on the Company’s financial statements.

 

Contractual Obligations

 

As of March 31, 2014, SW China no contractual obligations.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable since we are a smaller reporting company.

 

 

Item 4. Controls and Procedures

 

Disclosure Controls and Procedures

 

As of the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of our sole officer and director, Gracie Moreno, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act).

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be presented or detected on a timely basis.

 

Based on management’s assessment, we have concluded that, as of March 31, 2014, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us required to be included in our annual and interim filings with the SEC.

 

Management has concluded that our disclosure controls and procedures had the following material weaknesses:

 

• We were unable to maintain any segregation of duties within our financial operations due to our reliance on limited personnel in the finance function. While this control deficiency has not resulted in any audit adjustments to our interim or annual financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties;

 

• SW China lacks sufficient resources to perform the internal audit function and does not have an Audit Committee;

 

• We do not have an independent Board of Directors, nor do we have a board member designated as an independent financial expert to SW China. The Board of Directors is comprised of one (1) member who also serves as SW China’s sole executive officers. As a result, there is a lack of independent oversight of the management team, lack of independent review of our operating and financial results, and lack of independent review of disclosures made by SW China; and

 

• Documentation of all proper accounting procedures is not yet complete.

 

These weaknesses have existed since our inception on February 23, 2011 and, as of March 31, 2014, have not been remedied.

 

To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned material weaknesses, including, but not limited to, the following:

 

• Considering the engagement of consultants to assist in ensuring that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures;

 

• Hiring additional qualified financial personnel, including a Chief Financial Officer, on a full-time basis;

 

21

• Expanding our current board of directors to include additional independent individuals willing to perform directorial functions; and

 

• Increasing our workforce in preparation for exiting the development stage and commencing revenue producing operations.

 

Since the recited remedial actions will require that we hire or engage additional personnel, these material weaknesses may not be overcome in the near-term due to our limited financial resources. Until such remedial actions can be realized, we will continue to rely on the limited advice of outside professionals and consultants.

 

Changes in Controls and Procedures

 

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II

 

Item 1. Legal Proceedings

 

No officer, director, or persons nominated for these positions, and no promoter or significant employee (current or former) of our corporation has been involved in legal proceedings that would be material to an evaluation of our management. We are not aware of any pending or threatened legal proceedings involving SW China Imports, Inc.

 

During the past ten (10) years, Gracie Moreno has not been the subject of the following events:

 

1)

Any bankruptcy petition filed by or against any business of which Mr. Won was a general partner or executive officer either at the time of the bankruptcy or within two (2) years prior to that time;

 

2)

Any conviction in a criminal proceeding or being subject to a pending criminal proceeding;

 

3)

An order, judgment, or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting Mr. Won’s involvement in any type of business, securities or banking activities; and

 

4)

Found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Future Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.

 

Item 1A. Risk Factors

 

Not applicable since we are a smaller reporting company.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Default Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not Applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

 

Exhibit Number		Description of Exhibit
3.1(1)		Articles of Incorporation
3.2(1)		Bylaws
3.3(2)		Amendment to Articles of Incorporation
31.1		Section 302 Certifications under Sarbanes-Oxley Act of 2002
32.1		Section 906 Certification under Sarbanes Oxley Act of 2002

 

(1)

Incorporated by our Registration Statement on Form S-1 filed May 3, 2011.

(2)

Incorporated by our Current Report on Form 8-K filed May 1, 2013.

 

 

 

SIGNATURES

 

 

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereto duly authorized on this fifteenth the day of May, 2014.

 

	SW CHINA IMPORTS, INC.
	By:     /s/ Gracie Moreno
	Gracie Moreno
	President, Chief Executive Officer,
	Principal Executive Officer, Principal
	Accounting Officer, Treasurer, Secretary, and
	Director
	(Sole Officer and Director)