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

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

California	45-2960145
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
9368 VALLEY BLVD, SUITE 202 ROSEMEAD, CA91770
(Address of principal executive office and zip code)
626-800-6861 (phone)
(Registrant's telephone number, including area code)

Large Accelerated filer o		Accelerated filer x
Non-accelerated filer o		Smaller reporting company o

  

 

  

SAN LOTUS HOLDING INC.

  

FORM 10-Q

  

For the quarter ended June 30, 2016

 

  

TABLE OF CONTENTS

  

  

  

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.

  

  

  

  

 

 

 

 

 

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

  

 

 

  

 

 

 

 

 

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

  

 

  

 

 

 

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

  

 

SAN LOTUS HOLDING INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

NOTE 1 NATURE OF OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

 

Nature of Operations

San Lotus Holding Inc.(the “Company” or “San Lotus”), was incorporated on June 21, 2011 in the State of Nevada and changed our state of incorporation from the State of Nevada to the State of California (the "Conversion") on July 21, 2015.

 

The Company is in the initial stages of opening a travel agency in Taiwan through its wholly owned subsidiary, Green Forest Management Consulting Inc., a Taiwan company. The Company has not conducted business operations nor had revenues from operations since its inception. The Company’s business plan is to desig and market global travel packages and affinity travel excursions through out the world, and develop a global travel and leisure agency business.

The Company, through its recent acquisition, is engaged in the provision of travel services, including hotel reservation services, airline ticketing, and travel package in the United States.

The Company’s year-end is December 31.

 

Basis of presentation

The accompanying consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

Consolidation Policy

The consolidated financial statements of the Company include the accounts of San Lotus Holding, Inc. and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

 

Going Concern

The accompanying consolidated financial statements were prepared on a going concern basis, which assumes the realization of assets and discharge of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company had an accumulated deficit of $1,155,270 as of June 30, 2016.

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 consolidated financial statements do not reflect any adjustments that might result from the outcome of this uncertainty.

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 consolidated 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 U.S. 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.

 

Revenue recognition

The Company’s revenues are principally derived from providing hotel reservation, air ticketing, other travel and non-travel services. The Company recognizes revenues when all of the following have occurred: persuasive evidence of arrangement with the customer, services have been performed, fees are fixed or determinable and collectability of the fees is reasonably assured, as prescribed by ASC 605-10, Revenue Recognition, Overall. These criteria as related to revenues are considered to have been met as follows:

Packaged-tour: The Company receives referral fees from travel product providers for packaged -tour products and services through its service platform and branch offices. Referral fees are recognized as commissions on a net basis after the packaged-tour service are rendered and collections are reasonably assured .

In case s where these entities undertake the majority of the business risks and acts as principal related to the travel tour services provided, revenues are recognized at gross amounts received from customers after the services are rendered. Loss due to obligations from cancelled travel services of such principal arrangement is minimal in the past.

Air ticketing services: Commissions from air ticketing services rendered are recognized upon the issuance of air tickets, net of estimated cancellations. Customers purchase the air tickets, and the Company remits the net amount less base commission to the airlines. Estimated cancellations were insignificant for the years ended June 30, 2016. The Company presents revenues from such transactions on a net basis in the consolidated statements of comprehensive income (loss), as the Company acts as an agent, does not assume any inventory risk, and has no obligations for cancelled airline ticket reservations. The Company sometimes also receives additional discretionary commissions from certain airlines when performance targets are met. Such discretionary commissions are recognized on a cash basis because the Company cannot reasonably estimate the amount, or timing of receipt, of such commissions in advance.

Other travel services: Other travel services are mainly commissions from insurance companies for the sale of travel insurance. Customers purchase the travel insurance, and the Company remits the net amount less commission to the insurance companies. The Company recognizes revenue when the travel insurance is issued to the customer, net of estimated cancellations.

 

Cash and Cash Equivalents

Cash and cash equivalents include cash and all highly liquid instruments with original maturities of three months or less.

 

Property and 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:

 

Estimated useful life

 

Depreciation

 

 

 

In June 2016, The Company has sold vehicles, details of which are listed below.

 

 

 

Net Income (Loss) Per Share

The Company has adopted Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”), which specifies the computation, presentation and disclosure requirements of earnings per share information. Basic earnings per share have been calculated based upon the weighted average number of common shares outstanding. Common equivalent shares are excluded from the computation of the diluted loss per share if their effect would be anti-dilutive. For the year ended June 30, 2016, the Company did not have any common equivalent shares.

 

Impairment of Long-Lived Assets

The Company has adopted Accounting Standards Codification subtopic 360-10, Property, Plant and Equipment (“ASC 360-10”). ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates its long lived assets for impairment annually or more often if events and circumstances warrant. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a forecasted inability to achieve break-even operating results over an extended period. The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows. Should impairment in value be indicated, the carrying value of intangible assets will be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset. ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell. Management has determined that no impairments of long-lived assets currently exist.

 

Goodwill and intangible assets

Goodwill represents the excess of costs over fair value of the net assets of businesses acquired. The Company follows ASC subtopic 350-20, Intangibles-Goodwill and Other: Goodwill. Goodwill and intangible assets acquired in a business combination and determined to have an indefinite useful life are not amortized, but instead tested for impairment at least annually, or more frequently if certain circumstances indicate a possible impairment may exist. The Company performs its annual impairment assessment for goodwill and indefinite-lived intangible assets in December of each year.

The Company adopted ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment, which amends the guidance in ASC subtopic 350-30 on testing indefinite-lived intangible assets, other than goodwill, for impairment. ASU 2012-02 provides an entity testing an indefinite-lived intangible asset for impairment the option of performing a qualitative assessment before calculating the fair value of the asset. Although ASU 2012-02 revises the examples of events and circumstances that an entity should consider in interim periods, it does not revise the requirements to test indefinite-lived intangible assets (1) annually for impairment and (2) between annual tests if there is a change in events or circumstances. If the Company determines, on the basis of qualitative factors, that the fair value of indefinite-lived intangible assets is more likely than not less than the carrying amount, further testing is required. Under the further testing, the impairment test on indefinite-lived intangible assets that are not subject to amortization consists of a comparison of the fair value of each intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Assets with definite lives are carried at cost less accumulated amortization. Intangible assets with definite lives are amortized using the straight-line method over the estimated economic life.

 

Income TaxesThe 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.

 

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash and cash equivalents, accounts receivables, prepaid expenses, accounts payable and accruals, due to/from related party and shareholder accounts arising from its normal business activities. 

The Company maintains cash and cash equivalents with major financial institutions.  In addition, the due to/from affiliated companies is under common control.  Management considers the risk of non-performance of these instruments to be remote.

The Company has a diversified customer-base. The Company controls credit risk related to accounts receivables through merchant credit card approvals, credit limits and monitoring procedures.  The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk, establishes an allowance, if required, for uncollectible accounts and, believes that its accounts receivable related credit risk exposure beyond such allowance is limited. Based on the historical experience, Management considers the that it is low risk of non-performance of this instruments.

The Company’s business is subject to certain risks and concentrations including risks relating to the condition of the economy, outbreak of disease or the occurrence of natural or man-made disasters, dependence on relationships with travel suppliers, primarily hotels and airlines, dependence on third-party technology, internet service, utility services and telecommunications providers, exposure to risks associated with online commerce security, data privacy, online payment and credit card fraud.

 

 

4

 

Foreign Currency Translation Adjustment

The Company’s financial statements are presented in the U.S. dollar ($), which is the Company’s reporting currency, while its functional currency is New Taiwan Dollar (NTD). Transactions in foreign currencies are initially recorded at the functional currency rate prevailing at the date of transaction. Any differences between the initially recorded amount and the settlement amount are recorded as a gain or loss on foreign currency transaction in the statements of operations. Monetary assets and liabilities denominated in foreign currency are translated at the functional currency rate of exchange prevailing at the balance sheet date. Any differences are taken to profit or loss as a gain or loss on foreign currency translation in the statements of operations.

In accordance with ASC 830, Foreign Currency Matters, the Company translates the assets and liabilities into U.S. dollars using the rate of exchange prevailing at the balance sheet date and the statements of operations and cash flows are translated at an average rate during the reporting period. Adjustments resulting from the translation from RMB into U.S. dollar are recorded in stockholders’ equity as part of accumulated other comprehensive income. The exchange rates used for financial statements in accordance with ASC 830, Foreign Currency Matters, are as follows:

 

Foreign currency exchange rates

 

Statement of Cash Flows

Cash flows from the Company's operations are based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheet.

 

Advertising expense

The Company incurs advertising expenses to promote the Company’s products and services. The Company expenses the production costs associated with advertisements in the period in which the advertisement first takes place. The Group expenses the advertising costs as incurred each time the advertisement is displayed or broadcasted. For the years ended June 30, 2016, advertising expenses were $56,550 and were recorded as operating expenses.

 

Recently Issued Accounting Pronouncements

In September 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2015-16, “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” (“ASU 2015-16”), which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 is effective for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2015. The Company is currently evaluating the impact of the adoption of this guidance on the Consolidated Financial Statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The standard provides companies with a single model for use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The core principle of the model is to recognize revenue when control of the goods or services transfers to the customer, as opposed to recognizing revenue when the risks and rewards transfer to the customer under the existing revenue guidance. On July 9, 2015, FASB voted to defer the effective date of ASU 2014-09 by one year. The guidance would be effective for annual and interim reporting periods beginning after December 15, 2018 and early adoption is permitted. We are currently assessing the impact that adoption of ASU 2014-09 will have on our financial position, results of operations or cash flows.

 

 

5

 

NOTE 2 INCOME TAXES

 

The Company and its subsidiaries file separate income tax returns.

The subsidiaries were incorporated in Taiwan and are subject to Taiwan’s Income Tax Law. For the years ended June 30, 2016, the Company recorded income tax expense as below.

 

 

 

San Lotus has not yet realized income as of the date of this report, and no provision for income taxes has been made.

As of June 30, 2016, there were no deferred tax assets or liabilities.

 

NOTE 3 RELATED PARTY TRANSACTIONS

 

The principal related party transactions for the years ended December 31, 2015, and 2014 were as follows:

 

Xinpi Land

In December 2014, our wholly-owned subsidiary, Green Forest, a Taiwanese corporation, entered into a land sale agreement with Yu Chien-Yang, our vice president to sell him 29,332.7000 square meters of land located in the Xinhua Section of Xinpi Township, Pingtun County, Taiwan. Green Forest sold the Land for NTD$53,238,851 (US$1,815,414.60) and Mr. Yu transferred his 1,815,415 shares of common stock in San Lotus Holding Inc. to the Company. The shares were retired as treasury stock.

 

Miaoli Land

As the titles to Land in Miaoli County, Taiwan have not been transferred to Green Forest by the end of 2014 as stipulated in sales agreement, Green Forest cancelled the December 2013, March 2014 and August 2014 land purchase transactions in accordance with terms of the sales agreement whereby the Company is not obligated to pay any termination costs. The shares issued in connection with these cancelled deals were retired as treasury stock.

 

Dataoping Land

On March 31, 2015, our wholly-owned subsidiary, Green Forest, a Taiwanese corporation, entered into a land purchase agreement with Yu, Chien-Yang , our vice president to acquire 35,251 square meters of land in Dataoping Section of Zaoqiao Township, Miaoli County, and 41,184 square meters of land in Laotianliao Section of Touwu Township, Miaoli County, Taiwan, all of which is 76,435 square meters for NTD$192,060,000  (US$6,195,484). The Purchase Price was paid for through Green Forest's issuance of a promissory note payable to the Seller. On the same date, the Company entered into a stock purchase agreement for the issuance of 6,195,484 shares of its common stock, par value $1 per share, at a purchase price of $1 per share, to the seller and their designees pursuant to stock purchase agreement.

 

Glendale Condominium

In July 2015, the Company sold the condominium unit in Glendale, California to its CEO, Chih-Ying ChenTseng for a total selling price of $487,355.

 

XO Experience

On August 14, 2015, the Company entered into and closed on a stock purchase agreement (the "Stock Purchase Agreement") with Chih-Ying ChenTseng, our CEO and director for the acquisition of XO EXPERIENCE INC. ("XO") to acquire all of the issued and outstanding common stock of XO in exchange for US$1.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date of the acquisition:          

 

Fair value of XO Experience acquisition

 

 

 

6

 

 

 

NOTE 4 COMMON STOCK

 

On March 9, 2015, The Company ‘s wholly-owned subsidiary, Green Forest, a Taiwanese corporation, has terminated the land purchase agreement dated December 27, 2013, March 13, 2014 and August 11, 2014 because the Land Seller has not conveyed to Green Forest the entire titles to the Land. Concurrently with the termination of the land purchase agreement, we have discharged all our obligations we assumed from the promissory note, and the Shares issued under the stock purchase agreements shall be cancelled from the record in our transfer agent, Computershare Inc. and Computershare Trust Company, N.A.

 

Common stock shares issued

 

NOTE 5 ACQUISITIONS

 

On March 31, 2015 (the acquisition date), Green Forest Management Consulting Inc. ("Green Forest"), our wholly-owned subsidiary, entered into and closed on a stock purchase agreement (the "Stock Purchase Agreement") with Chiu, Pao-Chi, Chiun Jing Inc., Haug Inc., Jiu Bang Inc., and Wan Fu Inc., (together, the "Mao Ren Sellers") for the acquisition of Mao Ren International Inc., a Taiwan (R.O.C.) company ("Mao Ren"). Green Forest acquired all of the issued and outstanding common stock of Mao Ren from the Mao Ren Sellers in exchange for $1.

 

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date of the acquisition:

 

Fair value of Mao Ren acquisition

 

Note 6 LONG-TERM RECEIVABLES

The Company entered into several collateral transfer agreements with the creditors in February 2010 to assign the right of debt, which was collateralized by the land. In 2011, Taiwan Taichung District Court has ordered the pay warrants to request debtor pay the Company in the amount of NT$5,851,967,413. Pursuant to the agreement, the creditors agreed with the Company to enforce and execute the auction by the court or itself against the debtor’s remaining assets. In the return, the Company is being compensated by the creditors to use the proceeds from the sale of collateralized land to reinvest or develop the collateralized land to construct the real estate and then sell. There is no timeline to pay off the long-term payable and it’s probable to pay off the debt in exchange of investments of San Lotus Holding Inc.

The Company has hired the independent appraiser to evaluate the fair value of collateralized land and recorded the long-term receivable based on the net realized value of the collaterals.

 

As of June 30,2016 and December 31, 2015, the Company has the other receivable in the following amounts:

 

 

 

Fair value of land

 

 

 

 

7

 

 

NOTE 7 COMMITMENTS

 

The Company has several operating leases, primarily for offices and employee dormitories. Payments under operating leases, including periodic rent escalation and rent holidays, are expensed on a straight-line basis over the lease term.

Future minimum lease payments under non-cancellable operating leases as of December 31, 2015 are as follows:

 

Minimum lease payments

 

Rental expenses

 

NOTE 8 SUBSEQUENT EVENTS

 

On November 27, 2015,  the court  has enforced and executed the land located in Yilan with the auction price of NTD$ 540,256,000. The court has not decided how to distribute the proceeds to the Company. The Company is unable to require further information to determine the amount at this point 

 

  

 

 

 

 

 

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 (1) market travel products and services to the growing "baby boomer" market, with an initial focus on the Asian market, via developing and operating a global travel and leisure agency business; and (2) jointly develop the tourism and travel of He Ping Zhen, Shaowu  City, Fujian Province, China with He Ping Zhen Development Ltd., a China Limited Corporation, the specific plans of which remains under preliminary discussion. Our vision is to consolidate travel products and services and deliver value to the world's travel population. We changed our state of incorporation from the State of Nevada to the State of California (the "Conversion") on July 21, 2015.

  

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 end of 2016. 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 April 2016, 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. 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.

 

 

  

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. We expect to complete the acquisitions of such travel agencies by the end of 2016. At the same time, we also have entered into non-binding letters of intent to acquire land in Taiwan, which land we intend to use to develop destination-related travel services. We expect to complete the acquisitions of such land and/or land holding companies by the end of 2016.

  

Despite of entering the non-binding letters of intent to acquire the travel agencies and land, we remain in the preliminary discussion with the travel agencies and the sellers of the land about the specific considerations to acquire them. Thus, to date, we are not able to estimate any specific costs in completing such acquisitions. Acquiring the travel agencies located both within and outside of Taiwan and land in Taiwan is an ongoing effort that will continue during the life of the Company. To facilitate our acquisition efforts, we will actively seeking additional funding on favorable terms to continue our acquisition. If additional funding is not available on acceptable terms, we may not be able to implement our acquisitions and continue our operations. We plan to be funded by private placement of our equity securities and/or mortgage our land. But, there can be no assurance we will be funded as such. Thus, there can be no assurance we will successfully complete our acquisitions of travel agencies and/or land. If we fail to complete our acquisitions of travel agencies and/or land, we may be forced to cease our operation entirely, and you may lose all your investment.

  

Each of these non-binding letters of intent above was 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 - estimated $100,000 upon application license - end of 2016

  

B.        Statutory reserve - estimated $20,000 upon approval of license - end of 2016

  

C.         Fees - estimated $1,000 upon application for license - end of 2016  

  

D.        Rent deposit - estimated $2,000 upon rental of office - end of 2016

  

E.         Equipment, etc. - estimated $5,000 - end of 2016

  

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 - starting in April 2014

  

B.        Office rent-Green Forest-$2,000 per month-starting in September 2013

  

C.         Office rent-Da Ren-$1,333 per month -starting in September 2013

  

D.        Telecommunications - $200 per month-starting in June 2012 and $700 starting in September 2012

  

E.         Utilities, etc. - $500 per month- starting in September 2013

  

F.         Advertising - estimated $5,000 for initial television advertising development - end of 2016

  

G.        Condominium expenses -$900 per month-starting in September 2013

  

H.        Automobile-related expenses - $1,500- September 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:

  

  

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:

  

  

We expect to incur the cost of obtaining wholesale inventory 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. Our costs as a reporting company in our first year are approximately $165,000 in legal fees and $45,000 in auditing fees, including the preparation of our 10-K filing and annual audit. And, our costs as a reporting company in our second year are approximately $16,193 in legal fees and $50,300 in auditing fees, including the preparation of our 10-K filing and annual audit.

  

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 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.

  

  

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.

  

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:

  

  

 

 

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 the end of 2016. Once proper licenses and approvals have been granted, we will need to take the following steps in generating revenue:

  

-         Formally launch online operations (in or after 2016)

  

-         Sign formal supplier agreements with product vendors that have expressed interest previously (in or after 2016)

  

-         Sign on additional product vendors (in or after 2016)

  

-         Sign profit sharing agreements with affinity groups that have expressed interest previously (completed as of the year 2012)

  

-         Sign on additional affinity groups (in or after 2016)

  

-         Hire office staff (in or after 2016)

  

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 acquired certain land and canceled certain land transactions in Taiwan (R.O.C.), which is specifically described in Item 2 of our annual report on Form 10-K filed on March 9, 2016 ( as amended by the Form 10K/A filed on March 11, 2016).  

  

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 certain 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 five travel agencies by the end of 2016. 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.

 

 

  

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:

  

  

  

  

  

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.

 

 

RESULTS OF OPERATIONS

  

The following table summarizes our historical condensed consolidated statements of operations data.

 

 

 

 Comparison of Six Months Ended June 30, 2016 and 2015

Revenues.  We incurred revenue of $482,421and $0 during the six months ended June 30, 2016 and 2015. The revenue was attributable to XO EXPERIENCE INC., travel agent of wholesaler.

  

General and Administrative Expenses.  We incurred general and administrative expenses of $233,412 and $116,831 during the six months ended June 30, 2016 and 2015, respectively. The increase was mainly attributable to combination of XO EXPERIENCE INC.

 

 

 

  

Tabular disclosure of contractual obligations

  

 

Going Concern

  

At present, we have no enough cash to pay for our selling, general and administrative expenses. As such, in order to continue developing our operations as planned, we may be reliant on obtaining additional funding by private placement of our equity securities and/or obtaining the loan by mortgage our land. But, there can be no assurance we will be funded as such. Thus, there can be no assurance we will successfully continue our operation and/or complete our plan of operations.  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.

  

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 do not take positions or engage in transactions in risk-sensitive market instruments in any substantial degree, nor as defined by SEC rules and instructions. Based on the nature of our current operations, we have not identified any issues of market risk at this time.

  

 

 

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 June 30, 2014 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. 

  

 

 

PART II - OTHER INFORMATION

  

Item 1. Legal Proceedings.

  

Our management knows of no material existing or pending legal proceeding, litigation or claim against us, nor are we involved as a plaintiff in any material existing legal proceeding or pending legal proceeding, litigation or claim.

  

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.) on May 17, 2013. The indictment in no way involves San Lotus Holding Inc. or any of our subsidiaries and the matters described therein do not include any conduct involving, by, or on behalf of the Company or any of our subsidiaries.

  

The enforcement actions were 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 Consultant Co., Ltd. and its subsidiary, Da Ren International Investments Inc., which had conducted a general solicitation of its corporate bonds to the general public in the year 2010. We do not expect this litigation to have a material effect on our business.

  

Item 1A. Risk Factors.

  

There is no any material changes from risk factors as previously disclosed in our Form 10-K.

  

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. xhibits.

  

 

 

  

* 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.

  

  

  

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.