UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2016

 

¨	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from _______ to _______

 

Commission file number 333-184863

 

E-World USA Holding, Inc.

(Name of small business issuer in its charter)

 

Nevada		5122		45-289-8504
(State or Other Jurisdiction of		(Primary Standard Industrial		(I.R.S. Employer
Incorporation or Organization)		Classification Code Number)		Identification No.)

 

E-World USA Holding, Inc.

9550 Flair Dr, Suite 302

El Monte CA 91731

(626) 448-3737

(Address and telephone number of principal executive offices and principal place of business)

 

N/A

(Former name, former address and former three months, if changed since last report)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 o No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 o No x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller Reporting Company	x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

As of April 7, 2017, there were 142,828,993 shares issued and outstanding of the registrant’s common stock.

TABLE OF CONTENTS

 

			Page
PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)			3
Item 2.	Management’s Discussion and Analysis or Plan of Operation.			21
Item 3.	Quantitative and Qualitative Disclosure about Market Risk			28
Item 4.	Controls and Procedures.			28
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings.			29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.			29
Item 3.	Defaults Upon Senior Securities			29
Item 4.	Mine Safety Disclosures.			29
Item 5.	Other Information.			29
Item 6.	Exhibits.			30

2

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

E-WORLD USA HOLDING, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		June 30,				December 31,
		2016				2015
		(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash		$	2,491			$	8,550
Accounts receivable, net			43,700				25,444
Inventory, net			164,802				181,049
Prepaid expenses			32,175				81,624
TOTAL CURRENT ASSETS			243,168				296,667
PROPERTY AND EQUIPMENT, net			89,378				106,202
DEPOSITS AND OTHER ASSETS			9,850				9,850
TOTAL ASSETS		$	342,396			$	412,719
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses		$	997,019			$	1,025,236
Deferred revenue			1,619,628				1,486,360
Due to shareholder, non-interest bearing			3,074,387				3,210,836
Advances from related party, interest bearing			20,000				40,000
Advances from related parties, non-interest bearing			583,839				583,839
Due to employee			95,000				95,000
Due to third parties, interest bearing			89,030				-
Current portion of long term debt			11,410				11,241
Rescission Liability - Type A Warrants			7,165,413				7,165,413
Rescission Liability - Type B Warrants			249,111				249,111
TOTAL CURRENT LIABILITIES			13,904,837				13,867,036
NON-CURRENT LIABILITIES:
Long term debt			32,753				39,016
Due to shareholder, interest bearing			471,603				-
TOTAL NON-CURRENT LIABILITIES			504,356				39,016
TOTAL LIABILITIES			14,409,193				13,906,052
COMMITMENTS AND CONTINGENCIES (NOTE 11)
SHAREHOLDERS' DEFICIT:
Common stock, $0.001 par value, 200,000,000 shares authorized, 142,828,993 shares issued and outstanding, as of June 30, 2016 and December 31, 2015			142,829				142,829
Additional paid-in capital			3,657,949				3,657,949
Accumulated deficit			(17,867,575	)			(17,294,111	)
TOTAL SHAREHOLDERS' DEFICIT			(14,066,797	)			(13,493,333	)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT		$	342,396			$	412,719

 

The accompanying notes are integral part of these financial statements.

 

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E-WORLD USA HOLDING, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(UNAUDITED)

 

		For the three months ended June 30,								For the six months ended June 30,
		2016				2015				2016				2015
SALES		$	211,781			$	58,837			$	399,850			$	309,641
COST OF SALES			50,711				44,619				124,183				274,945
GROSS PROFIT			161,070				14,218				275,667				34,696
OPERATING EXPENSES
Selling expenses			26,292				98,368				64,059				223,169
Depreciation expense			8,305				8,518				16,823				17,036
General and administrative expenses			324,944				941,146				746,209				1,877,182
Total operating expenses			359,541				1,048,032				827,091				2,117,387
LOSS FROM OPERATIONS			(198,471	)			(1,033,814	)			(551,424	)			(2,082,691	)
OTHER INCOME (EXPENSE), net
Gain from disposal of Prime			-				912,563				-				912,563
Finance expenses			(13,219	)			(197,637	)			(22,040	)			(1,084,747	)
Total other expense, net			(13,219	)			714,926				(22,040	)			(172,184	)
LOSS BEFORE INCOME TAXES			(211,690	)			(318,888	)			(573,464	)			(2,254,875	)
PROVISION FOR INCOME TAXES			-				-				-				-
NET LOSS FROM CONTINUING OPERATIONS			(211,690	)			(318,888	)			(573,464	)			(2,254,875	)
NET LOSS FROM DISCONTIUNED OPERATIONS, net of applicable income taxes			-				(20,970	)			-				(123,258	)
NET LOSS			(211,690	)			(339,858	)			(573,464	)			(2,378,133	)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustments			-				650,409				-				(1,014,445	)
COMPREHENSIVE LOSS		$	(211,690	)		$	310,551			$	(573,464	)		$	(3,392,578	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Basic and Diluted			142,828,993				148,598,224				142,828,993				158,160,485
LOSS EARNINGS PER SHARE - BASIC & DILUTED
Continuing operations		$	0.00			$	0.00			$	0.00			$	(0.01	)
Discontinued operations		$	0.00			$	0.00			$	0.00			$	0.00
Net loss		$	0.00			$	0.00			$	0.00			$	(0.01	)

 

The accompanying notes are integral part of these financial statements.

 

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E-WORLD USA HOLDING, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(UNAUDITED)

 

		For the six months ended June 30,
		2016				2015
Cash Flows from Operating Activities:
Net loss		$	(573,464	)		$	(2,378,133	)
Net loss from discontinued operations			-				(123,258	)
Net loss from continuing operations			(573,464	)			(2,254,875	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			16,823				17,036
Bad debt expense			18,040				-
Amortization of promissory note discount			-				1,083,276
Gain on disposal of Prime			-				(912,563	)
Changes in operating assets and liabilities
Accounts receivable			(36,296	)			2,406
Inventory			16,247				(11,659	)
Prepaid expenses			49,449				72,290
Other receivables			-				1,041
Deposits and other assets			-				(3,000	)
Accounts payable and accrued expenses			(28,216	)			24,595
Deferred revenue			133,268				(167,848	)
Net cash provided by operating activities from discontinued operations			-				1,034,924
Net Cash Used in Operating Activities			(404,149	)			(1,114,377	)
Cash Flows from Investing Activities:
Net consideration returned from disposal of Prime			-				1,247,920
Cash held at Prime at disposition			-				(1,975,777	)
Net cash used in investing activities from discontinued operations			-				(65,887	)
Net Cash Used in Investing Activities			-				(793,744	)
Cash Flows from Financing Activities:
Advances from shareholder, interest bearing			471,603				-
Advances from shareholder, non-interest bearing			37,889				1,204,295
Payment to shareholder, non-interest bearing			(174,338	)			(134,721	)
Advances from related parties, interest bearing			20,000				-
Payment to related parties, interest bearing			(40,000	)			-
Advances from third parties, interest bearing			89,030				-
Principal payments on debt			(6,094	)			(14,306	)
Net cash used in financing activities from discontinued operations			-				(10,751	)
Net Cash Provided by Financing Activities			398,090				1,044,517
Effects of exchange rate change in cash			-				(42,011	)
Net Change in Cash			(6,059	)			(905,615	)
Cash from continuing operations, beginning of period			8,550				317,346
Cash from discontinued operations, beginning of period			-				1,059,501
Cash, end of period		$	2,491			$	471,232
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest		$	26,654			$	1,472
Cash paid for income tax		$	-			$	-

 

The accompanying notes are integral part of these financial statements.

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 1 – Organization

  

E-World USA Holding, Inc. (the "Company"), a Nevada corporation, was formed February 4, 2011. Its predecessor, with the same name was a California company incorporated in 2007. In April 2011, E-World USA Holding, Inc., a California corporation, entered into a merger agreement with its wholly-owned subsidiary, E-World USA Holding, Inc., a Nevada corporation which was the survivor of the merger. Under the Merger Agreement, the Company issued 90,000,000 shares of its common stock on a one share for one share basis for each share of E-World USA Holding, Inc., a California corporation, common stock issued and outstanding at the date of the merger. In addition, the Company issued the Type A Warrants and Type B Warrants in exchange for comparable warrants issued and outstanding of E-World USA Holding, Inc., a California corporation, at the date of the merger.

 

The Company is a provider of health and nutritional supplements and personal care products currently sold on the Internet through our website, www.dailynu.com and wholesale distributors.

 

Note 2 – Discontinued Operations

 

On October 20, 2014, the Company entered into a Share Purchase Agreement for the purchase of the outstanding shares of Prime Nutrisource Inc., Nugale Pharmaceutical Inc., and Prime Nutrisource Inc. (New Jersey), and together “Prime.” Total purchase price included:

 

·	CAD$2,000,000 (approximately $1,773,600);
·	Promissory note totaling CAD$22,780,000 (approximately $20,201,304);
·	25,000,000 shares of E-World Common Stock representing 14% ownership in E-World with an opportunity to acquire additional E-World Common Stock attaining a 25% ownership (“Contingent Shares”).

 

On April 21, 2015, the Company terminated its purchase of Prime, and entered into a Termination and Release Agreement with each of Prime, the former owners of the Prime, Guo Yin Xie, Jian Long, Hong Shu Zhu, 2434689 Ontario Inc., 2434691 Ontario Inc., and 2434694 Ontario Inc., and the Company’s subsidiary E-World Canada Holding, Inc. Upon termination of the agreement:

 

·	Prime returned CAD$1,500,000 of the CAD$2,000,000 cash portion of the purchase (approximately $1,247,920);
·	The CAD$22,780,000 (approximately $20,201,304) promissory note was cancelled;
·	The 25,000,000 shares of Common Stock were returned to the Company, and Prime’s 25% Contingent Shares were cancelled.

 

Total gain from disposal of Prime on April 21, 2015 was calculated as follows:

 

Long-term investment in Prime		$	(22,486,914	)
Net consideration			1,247,920
Cancellation of promissory note			20,201,304
Cancellation of 25,000,000 shares of common stock			3,117,311
Cancellation of 25% contingent shares			481,938
Accumulated other comprehensive loss			(1,648,996	)
Gain from disposal of Prime		$	912,563

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meet the criteria in paragraph ASC 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, committing to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.

 

Reconciliation of the amounts of major classes of income and losses from discontinued operations in the consolidated statements of operations is as follows:

 

Discontinued operations:		Three Months Ended June 30, 2015				Six Months Ended June 30, 2015
Sales		$	478,342			$	4,602,342
Cost of sales			(301,311	)			(3,043,730	)
Gross profit			177,031				1,558,612
Selling expense			(41,949	)			(257,524	)
Depreciation and amortization expenses			(60,847	)			(333,149	)
General and administrative expenses			(109,907	)			(1,099,302	)
Other income			14,702				20,127
Loss from operations before income taxes			(20,970	)			(111,236	)
Provision for income tax			-				12,022
Net loss		$	(20,970	)		$	(123,258	)

 

Note 3 - Going Concern

 

There is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues, significant recurring losses and negative working capital. If we are unable to generate significant revenue or secure financing, we may be required to cease or curtail our operations. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.

 

Management is trying to alleviate the going concern risk by: securing various financing resources, including but not limited to, borrowing from the Company’s major shareholder, and the possibility of raising funds through a future public offering.

 

Note 4 - Summary of Significant Accounting Policies

 

Basis of Presentation

 

These unaudited condensed financial statements have been presented by the Company in accordance with accounting principles generally accepted in the United States, are expressed in U.S. dollars and include the accounts of E-World USA Holding, Inc. and its subsidiaries, E-World Canada Holding, Inc., Prime Nutrisource Inc., Nugale Pharmaceutical Inc. and Prime Nutrisource Inc. (New Jersey). As of April 21, 2015, these subsidiaries mentioned above were deconsolidated from E-World USA Holding, Inc. For more details, see Note 2. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of the financial statements, have been included. Interim results are not necessarily indicative of results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2015 annual report on Form 10-K filed on February 7, 2017.

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Principles of consolidation

 

The accompanying consolidated financial statements include the financial statements of E-World USA Holding, Inc. and its subsidiaries.

 

Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.

 

All significant inter-company transactions and balances have been eliminated upon consolidation.

 

Foreign Currency

 

The reporting currency of the Company is the U.S. dollar. The Company’s subsidiaries in Canada use the local currency, Canadian Dollars (“CAD$”), as their functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the Bank of New York at the end of the period. The statement of operations accounts are translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of change in deficit. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

 

The equity accounts were stated at their historical rate. The average translation rate applied to statement of operations accounts for the three and six months ended June 30, 2015 was 0.80 CAD$ and 0.81 CAD$, respectively. Cash flows are also translated at average translation rates for the periods; therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of property and equipment, collectability of receivables and fair value of rescission liability – Type A & B Warrants. Actual results could differ from those estimates.

 

Cash

 

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised primarily of money market accounts and foreign and domestic bank accounts. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents.

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Accounts Receivable

 

Trade accounts receivable are periodically evaluated for collectability based on credit history with customers and their current financial condition. Bad debt expense or write-offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions.

 

The accounts receivable balance and allowance for doubtful accounts are as follows:

 

		June 30, 2016				December 31, 2015
Accounts receivable		$	86,976			$	50,680
Allowance for doubtful accounts			(43,276	)			(25,236	)
Accounts receivable, net		$	43,700			$	25,444

 

Movement of allowance for doubtful accounts are as follows:

 

		Six months ended June 30, 2016				Year ended December 31, 2015
Beginning balance		$	25,236			$	-
Provision for doubtful accounts			18,040				25,236
Ending balance		$	43,276			$	25,236

 

Inventory

 

Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or market. Inventory consists of nutritional and skin-care products. Management reviews inventory on hand for estimated obsolescence or unmarketable items, as compared to future demand requirements and the shelf life of the various products. Based on the review, the Company records inventory write-downs when costs exceed expected net realizable value. The inventories’ shelf lives are approximately 3 years.

 

Property and Equipment

 

Property and equipment are stated at cost, net of accumulated depreciation. Upon disposition, the cost and related accumulated depreciation is removed from the books, and any resulting gain or loss is included in operations. The Company provides for depreciation using straight-line methods over the estimated useful lives of various classes as follow:

 

Computer and software		3 to 5 years
Furniture and fixtures		5 to 10 years
Vehicles		5 to 7 years
Leasehold improvement		over expected lease term

 

Repair and maintenance is charged to operations when incurred while betterments and renewals are capitalized.

 

Impairment of Long-Lived Assets

 

Long-lived assets, including, property and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognizes an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, the Company reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of June 30, 2016 and December 31, 2015, no impairment of long-lived assets was recognized.

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Fair Value of Financial Instruments

 

ASC 825 requires that the Company discloses estimated fair values of financial instruments. The Company believes the carrying value of short-term debt is a reasonable estimate of fair value due to rates being currently offered.

 

As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

 

The three levels of the fair value hierarchy are as follows:

 

Level 1 –	Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 –	Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 –	Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

 

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of June 30, 2016 and December 31, 2015:

 

Recurring Fair Value Measures		Level 1				Level 2				Level 3				Total
Rescission Liability – Type A Warrants			--				--			$	7,165,413			$	7,165,413
Rescission Liability – Type B Warrants			--				--				249,111				249,111
Total			--				--			$	7,414,524			$	7,414,524

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Revenue Recognition

 

The Company recognizes revenue when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The Company generally receives the net sales price in cash or through credit card payments when products are ordered. When the Company has sales events whereby the sales are non-returnable or non-refundable, the revenue is recognized when products are shipped. Advance payments from customers are deferred, and revenue is recognized when products are shipped. Deferred revenue for customer deposits as of June 30, 2016 and December 31, 2015 was $1,619,628 and $1,486,360, respectively.

 

The Company also recognized revenue on shipping and handling fees charged to the Company’s customers. Shipping and handling fee revenue is recognized when products have been delivered. Shipping and handling fee revenues are immaterial to the Company’s financial statements for the three and six months ended June 30, 2016 and 2015.

 

Product returns are allowed for unopened products purchased under regular sales terms within 60 days. Allowances for product returns are provided at the time the sale is recorded using historic return rates for each country and the relevant return pattern. Historically the Company has a nearly zero return rate. Hence, the allowance as of June 30, 2016 and December 31, 2015 is estimated at $0.

 

In addition to the Company’s 60-day return policy, the Company, at its discretion, may accept a customer’s application for a buy-back of products previously sold within one year at 90% of the original product costs less commissions and shipping costs. The Company implemented its buy-back policy on January 1, 2012. To date, the Company has not received any buy-back applications. As a result, no allowance for buy-backs has been recorded as of June 30, 2016 and December 31, 2015.

 

The majority of the Company’s revenues are generated from China. Revenues generated from other countries or within the United States are immaterial to our consolidated financial statements. While all products are priced in US currency, the Company accepts payments in USD, Hong Kong dollars and Chinese RMB.

 

Shipping and Handling Expenses

 

Shipping and handling costs paid by the Company are included in selling expenses, totaled $17,819 and $8,622 for the three months ended June 30, 2016 and 2015, respectively, and totaled $23,339 and $19,428 for the six months ended June 30, 2016 and 2015, respectively.

 

Operating Leases

 

The Company leases all of its properties under operating leases. Lease agreements generally include rent holidays and tenant improvement allowances. The Company records tenant improvement allowances and rent holidays as deferred rent liabilities and amortizes the deferred rent over the term of the lease. There were no deferred rent liabilities.

 

Income Taxes

 

The Company utilizes ASC 740, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Basic and Diluted Earnings Per Share

 

Accounting principles generally accepted in the United States regarding earnings per share (“EPS”) require presentation of basic and diluted earnings (loss) per share in conjunction with the disclosure of the methodology used in computing such earnings (loss) per share.

 

Basic earnings (loss) per share are computed by dividing income available to common stockholders by the weighted average of common shares outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

 

For the three and six months ended June 30, 2016 and 2015, Contingent Shares and Type A and Type B Warrants did not have a dilutive effect on loss per share as the Company had incurred a loss for the periods.

 

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation (FDIC) insured limits for the banks located in the United States, may exceed Canada Deposit Insurance Corporation (CDIC) insured limits for the banks located in Canada or may exceed Hong Kong Deposit Protection Board (HKDPB) insured limits for the banks located in Hong Kong. Balances at financial institutions or state-owned banks within the PRC are not covered by insurance. At June 30, 2016, the bank balance of the Company consisted of $1,986 in the United States and $486 in Hong Kong and these balance are all insured by FDIC or HKDPB. At December 31, 2015, the bank balance of the Company consisted of $3,211 in the United States and $3,371 in Hong Kong and these balance are all insured by FDIC or HKDPB.

 

For the three months ended June 30, 2016, one customer accounted for approximately 64% of the Company’s sales and for the six months ended June 30, 2016, two customers accounted for approximately 51% of the Company’s sales.

 

No customer accounted for more than 10% of the sales during the three and six months ended June 30, 2015.

 

For the three months ended June 30, 2016, two suppliers accounted for approximately 98% of the Company’s product purchases and for the three months ended June 30, 2015, two suppliers accounted for approximately 74% of the Company’s product purchases.

 

For the six months ended June 30, 2016, three suppliers accounted for approximately 95% of the Company’s product purchases, and for the six months ended June 30, 2015, two suppliers accounted for approximately 71% of the Company’s product purchases.

 

Contingencies

 

The Company may have inadvertently issued Type A Warrants and Type B Warrants to U.S. citizens or residents in violation of federal securities laws and may be subject to sanctions for such violations. Further, the exchange of the warrants for common shares may also have been in violation of Section 5 of the Securities Act of 1933. Thus, risk exists that former warrant holders may bring legal action against the Company, its officers and directors for securities law violations. The Company determined it is reasonably possible that a loss may have been incurred as a result of these issuances. The Company has recorded a liability equal to the amount it expects to pay to redeem the warrants. See Note 5.

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Related Parties

 

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

 

New Accounting Pronouncements

 

In November 2015, the FASB issued “Accounting Standards Update No. 2015-17—Income Taxes (Topic 740)”.    Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. To simplify the presentation of deferred income taxes, this Update requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. We do not expect the implementation of this ASU to have a material impact on our financial position or statement of operations.

 

In August 2014, the FASB issued Accounting Standards Update No. 2014-15, “Presentation of Financial Statements – Going Concern”, Subtopic 205-40, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.”    The amendments in this ASU apply to all entities and require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term    substantial doubt,    (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. We adopted this ASU in 2016 and the implementation did not have a material impact on our financial position or results of operations.

  

In February 2016, the FASB issued ASU 2016-02 Amendments to the ASC 842 Leases. This update requires lessee to recognize the assets and liability (the lease liability) arising from operating leases on the balance sheet for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Within a twelve months or less lease term, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. If a lessee makes this election, it should recognize lease expense on a straight-line basis over the lease term. In transition, this update will be effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company does not expect the adoption of ASU 2016-02 to have a material impact on the Company’s consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-07 Investments-Equity and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The objective is to simplify investor’s accounting for equity method investments as a result of an increase in ownership level or degree of influence over the investee from prior period and requires prospective application of equity method accounting from the date when an equity investment qualifies for equity method of accounting. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. The adoption of ASU 2016-07 did not have a material impact on the Company’s consolidated financial statements.

 

In March 2016, the FASB issued ASU 2016-08—Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The object is to reduce the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance and to reduce the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company does not expect the adoption of ASU 2016-08 to have a material impact on the Company’s consolidated financial statements.

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (ASC 718): Improvements to Employee Share-Based Payment Accounting. The objective is to identity, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintain or improving the usefulness of the information provided to users of financial statements. The areas for simplification include the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas apply only to nonpublic entities. For public business entities, the ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company does not expect the adoption of ASU 2016-09 to have a material impact on the Company’s consolidated financial statements.

 

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing. The objective is to clarify the two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for these areas. The ASU affects the guidance in ASU 2014-09, Revenue from Contracts with Customers (ASC 606), which is not yet effective. The effective date and transition requirements for this ASU are the same as the effective date and transition requirements in ASC 606 (and any other Topic amended by ASU 2014-09). ASU 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, defers the effective date of ASU 2014-09 by one year. The Company does not expect the adoption of ASU 2016-10 to have a material impact on the Company’s consolidated financial statements.

 

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients. The object is to address certain issues identified by the FASB-IASB Joint Transition Resource Group for Revenue Recognition. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for ASC 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company does not expect the adoption of ASU 2016-12 to have a material impact on the Company’s consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in Securitization Transactions; and (9) Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company does not expect the adoption of ASU 2016-15 to have a material impact on the Company’s consolidated financial statements.

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective in the first quarterly of 2018 and early adoption is permitted. The Company does not expect the adoption of ASU 2016-18 to have a material impact on the Company’s consolidated financial statements.

 

In December 2016, the FASB issued ASU No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The amendments in this Update include items brought to the Board’s attention through a variety of sources, including: 1) The Codification’s online feedback mechanism; 2) Submissions to the Transition Resource Group for Revenue Recognition (TRG); and 3) Stakeholder’s technical inquiries. The amendments in this Update affect narrow aspects of the guidance issued in ASU No. 2014-09 for certain areas for correction or improvement. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by ASU No. 2014-09). ASU No. 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of ASU No. 2014-09 by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not expect the adoption of ASU 2016-20 to have a material impact on the Company’s consolidated financial statements.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications have no effect on the accompanying unaudited condensed consolidated statements of operations and other comprehensive loss and cash flows.

 

Note 5 – Rescission Liability – Type A & B Warrants

 

Type A Warrants

 

As an incentive to increase sales and bring in additional members, the Company issued Type A warrants to its members.

 

Upon issuance, Type A warrants had no expiration and could be exercised for:

 

(1)

common shares of the Company at a ratio of 1:1 upon a going public event in the U.S.,

 

(2)

products of the Company at their retail prices, or

 

(3)

cancelled membership and a refund in cash at 75% of face value.

 

From inception, January 5^th, 2007 to December 31, 2010, new members purchased a package of products and received an option to include Type A Warrants in the purchase. Net cash proceeds from Type A Warrants sold to members through December 31, 2010 were $8,169,707. During 2011, a total of 18,000 Type A warrants were exercised for cash refunds totaling $22,950 and products of the Company for $7,200. During 2012, all of the remaining Type A warrants were exchanged for the following:

 

	(1)	842,300 warrants for $495,170 in cash refunds
	(2)	10,300 warrants for $16,650 in products
	(3)	23,296,688 warrants for shares of common stock

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Our Type A Warrants may have been issued and exercised in violation of United States federal securities laws. As a result, the common stock issued upon exercise of these warrants during fiscal 2012 may not be valid. We recorded the fair value of these warrants as a liability on the date of issuance (“Rescission Liabilities – Type A Warrants”). The value of the Rescission Liabilities – Type A Warrants was determined by calculating the maximum potential cash outlay if all warrant holders exercised using option 3 above. The total fair value was determined by calculating how much each warrant holder would receive in cash if he or she exercised the warrant by canceling his or her membership and receiving 75% of the face value of his or her warrant in cash and then adding these amounts together to reach the total potential cash outlay. The face value of the warrant is the stated value assigned to each Type A warrant. The face value determines how much the member could receive if exercised for cash and a canceled membership. If members exercise their warrants for cash, the Company reduces the liability by the amount of cash paid. If members exercise their warrants for products, the Company recognizes revenue equal to the retail value of the related products once they have been delivered. During 2014, the Company refunded $2,250, and members returned 9,300 Type A warrant shares. As of June 30, 2016 and December 31, 2015, 23,206,888 shares are included in Rescission Liabilities – Type A Warrants and totaled $7,165,413.

 

Type B Warrants

 

During 2009 and 2010, the Company issued a total of 2,491,108 Type B warrants as sales incentive compensation to members. Type B warrants entitle the holders to receive 2,491,108 common shares upon a going public event in the U.S. as specified in the Warrant. No additional consideration for the common shares is required upon exercise. During 2012, all of the Company’s Type B Warrants were exercised for shares of common stock. Type B Warrants may have been issued and exercised in violation of United States federal securities laws. As a result, the common stock issued upon exercise of these warrants may not be valid; therefore, we recorded “Rescission Liabilities – Type B Warrants” at the fair value of the shares issued upon exercise of these warrants. The fair value of the common shares was estimated using comparable sales of common stock to members. The Company determined that comparable sales of stock is more reliable as the fair value because goods or services received cannot be reliably measured. The fair value of the Type B warrants as of June 30, 2016 and December 31, 2015 was $249,111.

 

We cannot estimate when this rescission offer liability will end for either the Type A Warrants or the Type B Warrants as this liability will end only when the Company and its legal counsel conclude the rescission liability now shown in the financial statements becomes at least a remote possibility, which has not yet occurred and cannot be reasonably predicted at this time when it will occur.

 

Note 6 – Inventory

 

Inventories consist of finished goods available for resale and can be categorized as:

 

		June 30, 2016				December 31, 2015
Nutrition supplements		$	256,675			$	268,740
Skin-care products			28,722				33,385
Less: inventory reserve			(120,595	)			(121,076	)
Inventories, net		$	164,802			$	181,049

 

For the three months ended June 30, 2016 and 2015, the Company recorded a recovery of prior inventory reserve totaling $0 and $937, respectively.

 

For the six months ended June 30, 2016 and 2015, the Company recorded a recovery of prior inventory reserve totaling $481 and $1,546, respectively.

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 7 - Property and Equipment

 

Property and equipment consist of following:

 

		June 30, 2016				December 31, 2015
Computer equipment and software		$	114,953			$	114,953
Furniture and fixtures			26,686				26,686
Automobiles			179,677				179,677
Leasehold improvement			40,053				40,053
Total			361,369				361,369
Accumulated depreciation			(271,991	)			(255,167	)
Property and equipment, net		$	89,378			$	106,202

 

Depreciation expense totaled $8,305 and $8,518 for the three months ended June 30, 2016 and 2015, respectively.

 

Depreciation expense totaled $16,823 and $17,036 for the six months ended June 30, 2016 and 2015, respectively.

 

Note 8 – Debt

 

Due to employee

 

The Company borrowed money from an employee to fund operations. These advances do not bear interest, are unsecured and are due on demand. As of June 30, 2016 and December 31, 2015, the Company owed $95,000 to an employee.

 

Due to third parties, interest bearing

 

The Company borrowed money from third parties to fund operations. These third parties consist of the CEO's friends. These advances have an annual interest rate of 6%, are unsecured and are due on demand. As of June 30, 2016 and December 31, 2015, the Company owed $89,030 and $0 to these related parties, respectively.

 

Interest expense for the three and six months ended June 30, 2016 for above loans amounted to $318.

 

Long term loan

 

In June 2012, the Company purchased a new vehicle by trade-in of the old vehicle with a loan on the purchase. The vehicle was purchased for $179,678. The loan amount was $141,677, with interest of 4.84% to be repaid over 60 even payments of $2,663. During the six months ended June 30, 2015, the Company paid $14,306 for the loan.

 

In December 2015, the Company paid off this debt with proceeds from a new loan balance of $51,263 with an annual interest rate of 2.99% to be repaid over 48 months. During the six months ended June 30, 2016, the Company paid $6,094 for the loan.

 

Future maturities of long term debt are as follows:

 

Six months ended December 31, 2016		$	5,148
Year ended December 31, 2017			12,619
Year ended December 31, 2018			13,001
Year ended December 31, 2019			13,395
Total			44,163
Current portion of long term debt			(11,410	)
Long term debt		$	32,753

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Promissory note

 

On October 24, 2014, the Company entered into a Share Purchase Agreement to purchase the outstanding shares in Prime Nutrisource Inc., Nugale Pharmaceutical Inc., and Prime Nutrisource Inc. (New Jersey) which included a CAD$22.78 million (approximately $20.2 million) promissory note.

 

This short term debt bears no interest and matures upon the earlier of (a) the effective date of a registration statement filed with the Securities and Exchange Commission in connection the completion by the Company of a $30,000,000 debt or equity offering or (b) March 31, 2015. The discount is amortized over the life of the promissory note.

 

The Company amortized $196,959 and $1,083,276 of the discount for the three and six months ended June 30, 2015, respectively.

 

In April 2015, the Company terminated its purchase of Prime, and the promissory note was cancelled.

 

Note 9 - Income Taxes

 

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three and six months ended June 30, 2016 and 2015:

 

		Three months ended June 30, 2016				Three months ended June 30, 2015				Six months ended June 30, 2016				Six months ended June 30, 2015
Federal statutory rate			34.0	%			34.0	%			34.0	%			34.0	%
State statutory rate			8.8	%			8.8	%			8.8	%			8.8	%
Valuation allowance			(39.7	)%			(36.0	)%			(39.7	)%			(36.4	)%
Permanent difference			(3.1	)%			(6.8	)%			(3.1	)%			(6.4	)%
Effective tax rate			0.0	%			0.0	%			0.0	%			0.0	%

 

The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $9,426,000 for Federal and $8,461,000 for California as of June 30, 2016, and will expire in the years 2030 to 2035. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $8,854,000 for Federal and $7,889,000 for California as of December 31, 2015. During the three and six months ended June 30, 2016 and 2015, the Company incurred a net loss. As deferred tax assets may not be fully realizable due to potential recurring losses, management has provided 100% valuation allowance for the deferred tax assets.

 

As of June 30, 2016 and December 31, 2015, the valuation allowance was approximately $3,698,000 and $3,470,000, respectively.

 

The movement of deferred tax assets is as follows:

 

		Six months ended June 30, 2016				Year ended December 31, 2015
Deferred tax asset, beginning balance		$	-			$	-
Addition from net operating loss carry-forward - federal			183,282				1,023,905
Addition from net operating loss carry-forward - state			31,427				175,461
Addition (deduction) from temporary difference - federal			11,133				(19,452	)
Addition (deduction) from temporary difference - state			1,909				(3,227	)
Addition (deduction) in valuation allowance			(227,751	)			(1,176,687	)
Deferred tax asset, ending balance		$	-			$	-

 

As of June 30, 2016, federal tax returns filed for 2013, 2014 and 2015 remain subject to examination by the taxing authorities. As of June 30, 2016, California tax returns filed for 2012, 2013, 2014 and 2015 remain subject to examination by the taxing authorities.

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 10 - Related Party Transactions

  

Due to shareholder, interest bearing

 

In January 2016, Mr. Dinghua Wang, the CEO of the Company pledged certain of his personal assets and obtained a personal loan and funded the operations of the Company from this loan. The Company agreed to pay for the interest of this loan on Mr. Dinghua Wang’s behalf. This loan has an annual borrowing rate of 9.99%. During the six months ended June 30, 2016, advances totaled $471,603. As of June 30, 2016 and December 31, 2015, the balance due to shareholder, interest bearing, amounted to $471,603 and $0, respectively. The full balance $471,603 is to be repaid on February 1, 2019.

 

Interest expense for the three months and six months ended June 30, 2016 for above loan amounted to $12,488 and $20,813, respectively.

 

Due to shareholder, non-interest bearing

 

From time to time, Mr. Dinghua Wang, the CEO of the Company, advances monies to the Company. Such business transactions are recorded as due to or from shareholder. During the six months ended June 30, 2016 and 2015, advances totaled $37,889 and $1,204,295, respectively and payment to shareholder totaled $174,338 and $134,721, respectively. As of June 30, 2016 and December 31, 2015, the balance due to shareholder, non-interest bearing, amounted to $3,074,387 and $3,210,836, respectively. This balance does not bear interest, is unsecured and is due on demand.

 

Advances from related parties, interest bearing

 

During the year ended December 31, 2015, the Company borrowed $40,000 from a related party to fund operations. This related party is the son of the CEO. These advances bear a one-time $5,000 finance charge, are unsecured and are due on demand. The $40,000 balance as of December 31, 2015 was repaid in January 2016.

 

During the six months ended June 30, 2016, the Company borrowed $20,000 from a related party to fund operations. This related party is the spouse of a board member of the Company. These advances have an annual interest rate of 6%, are unsecured and are due on demand. As of June 30, 2016, the Company owed $20,000 to this related party. Interest expense for the three and six months ended June 30, 2016 for this loan is $69.

 

Advances from related parties, non-interest bearing

 

The Company borrowed money from certain related parties to fund operations. The related parties consist of the CEO's immediate family members and relatives and a board member of the Company. These advances do not bear interest, are unsecured and are due on demand. As of June 30, 2016 and December 31, 2015, the Company owed $583,839 and $583,839 to these related parties, respectively.

 

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Note 11 - Commitments

 

Operating lease

 

The Company rents office and warehouse space for its main corporate office from March 2015 to October 2018 and thereafter on a month to month basis without a future commitment. The Company’s commitment for minimum lease payments under these operating leases as of June 30, 2016 for the next few years is as follows:

 

Six months ended December 31, 2016		$	18,000
Year ended December 31, 2017			36,900
Year ended December 31, 2018			31,000
Total		$	85,900

 

The Company incurred rent expense of $36,150 and $36,179 for the three months ended June 30, 2016 and 2015, respectively.

 

The Company incurred rent expense of $72,300 and $71,329 for the six months ended June 30, 2016 and 2015, respectively.

  

Note 12 – Subsequent Event

 

Share Distribution Plan

 

On March 31, 2017, the Company’s Board of Directors approved the following share distribution plans for the Company in accordance with appropriate time frames consistent with applicable law and in the best interests of the Company.

 

Plan 1. The Company will grant up to 30 million shares of common stock to certain persons outside of the United States who have previously worked with the Company as an incentive for these individuals to assist the Company to develop its international market. In connection with this transaction, Mr. Wang will voluntarily relinquish up to 30 million shares to the Company’s Treasury.

 

Plan 2. To thank the people who, directly or indirectly, loaned funds or referred customers to the Company or purchased products from the Company when the Company faced financial hardship, the Company may grant up to five million shares of common stock to these individuals upon approval by the Board of Directors, and the Company will complete the stock transfer. In connection with this transaction, Mr. Wang will voluntarily relinquish up to five million shares to the Company’s Treasury.

 

Plan 3. The Company will grant up to twenty million shares (from authorized but unissued shares of its common stock) to persons outside the U.S. who sell Company products based on their sales performance in the future.

 

Debt

 

In January 2017 and March 2017, the Company borrowed $80,000 and $260,000 from third parties to fund its operations, respectively.

  

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

 

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and other financial information included in this Form 10-Q.

 

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rate; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

 

Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

 

NOTICE TO INVESTORS:

PLEASE READ BEFORE EXAMINING THE REMAINDER OF THIS FORM 10-Q.

 

If E-World’s new method of marketing in China, called the Affiliate Marketing Program, is considered by Chinese government authorities to violate the laws of the People’s Republic of China, the Company could suffer damages similar to, or harsher than, those which resulted from actions taken by the Chinese government in connection with the Company’s previous, now-discontinued Direct Sales Associate, or DSA, sales method, which could lead to significant decline in revenues as well as the loss of all or a significant amount of the value of your investment.        As noted in “Legal Proceedings” below, the Company suffered significant financial hardship as a result of the Chinese government’s action against E-World’s sales activities under its previous DSA marketing program, now discontinued, which the government alleged violated Chinese law. These hardships include the loss of $3,643,000 in cash that is the property of the Company that is now held in bank accounts in the People’s Republic of China and, to a material extent, a decrease in E-World’s annual revenue from $6,833,768 for the fiscal year ended December 31, 2014 to $379,493 for the fiscal year ended December 31, 2015.      The Chinese legal provisions governing the type of sales activities currently used by E-World, called the Affiliate Marketing Program, or AMP (“AMP”) are called Regulations on Prohibition of Chuanxiao (2005) [“Anti Chuanxiao Regulations”]. The law gives regulatory authorities wide discretion in applying the Anti-Chuanxiao Regulations to sales activities, such as the Affiliate Marketing Program (“AMP”) used by the Company in China.

 

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		There is significant risk that the Chinese regulatory authorities can find the AMP illegal under relevant Chinese law for the following reasons:
·		Under the Affiliate Marketing Program, the activities of the Company or the Affiliate Members may be regarded as Chuanxiao activities prohibited by the Anti-Chuanxiao Regulations.
·		The fact that the Company was regarded as a Chuanxiao organization by the local authorities of Zhushan county, Hubei, China, and that a number of the Company’s products were identified to have been used in the previous Chuanxiao activities also adds to the risk that the Company and the Affiliate Members may be regarded as engaging in Chuanxiao activities under the AMP.
·		The activities of the Company and/or the Affiliate Members may be regarded as a breach of the Food Safety Law (2015) (“Food Safety Law”) and other applicable laws, if the health care products and other products of the Company imported into China do not meet relevant legal requirements, or if the Affiliate Members fail to comply with relevant legal requirements in relation to the advertising of these products in China.
·		The Affiliate Members’ marketing activities may be regarded as a breach of the Regulations on Administration of Direct Sales (2005) (“Direct Sales Regulations”) because the Company is not licensed to engage in direct sales business in China.
		Notwithstanding the past history of being found in violation of Chinese law for its selling methods and the significant adverse consequences described above, the Company has chosen to utilize the AMP anyway.
		INVESTORS ARE URGED TO USE EXTREME CAUTION IN CONNECTION WITH ANY EXISTING OR POTENTIAL INVESTMENT IN THE COMPANY BECAUSE OF THE RISKS CITED ABOVE.

 

Overview

 

Our Company is a provider of Health and Nutritional supplements and Personal Care products directly to customers on the Internet through our website, www.dailynu.com. In June 2014, we ceased utilizing our prior sales model which involved sales of our product through another website by means of a network of Direct Sales Associates, or “DSA’s”. We currently do not use the DSA model in any country.

 

Since June 2014, we have mainly sold our products over the Internet directly to end-user customers through our web site, www.dailynu.com and to wholesale distributors. In March 2016, we implemented an affiliate marketing program.

 

Marketing: The Affiliate Marketing Program (“AMP”)

 

	A more complete description of how the AMP operates is as follows:
	·	The Company’s website (www.dailynu.com) is an online shopping store and everyone in China can purchase the products from this website by credit card;
	·	The Affiliate Marketing Program is a performance-based marketing program in which the Company rewards one or more affiliates (the “Affiliate Members”) for each successful customer purchase brought by the Affiliate Members’ own marketing efforts;
	·	The Company provides the Affiliate Members with a URL (or coupon or advertising banner) which can be shared by the Affiliate Members to anywhere they like to post. If anyone purchases the products from this link, the Company will pay commissions to the relevant Affiliate Members based on the revenue generated from their links;
	·	The Affiliate Members are not employees of the Company;
	·	The Company does not track any customer from the Affiliate Members. Even the Affiliate Members themselves do not know who will purchase the products from the link;
	·	Currently, the Company has two options for the payment of commission rewards. One alternative is that an Affiliate Member may earn 70% of the monthly sales amount generated from his or her affiliate link if that Affiliate Member achieves the total sales in an amount that exceeds $10,000 per month. The other alternative pays every Affiliate Member 20% of the monthly sales amount generated from his or her affiliate link; and
	·	The commission rewards are in the form of rebate credits that can be used to order the Company’s products, or the Affiliate Members can request a rebate in cash.

   

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We believe consumers have become more confident in ordering products, like ours, over the Internet. However, the nutritional supplement and skin care product e-business markets have been, and continue to be, increasingly competitive and are rapidly evolving.

 

The skin care products are acquired from another company which developed the products. They also are marketed and sold through our web site, www.dailynu.com.

 

Barriers to entry are minimal, and current and new competitors can launch new websites at a relatively low cost. Many competitors in this area have greater financial, technical and marketing resources than we do. Continued advancement in technology and increasing access to that technology are paving the way for growth in direct marketing. We also face competition for consumers from retailers, duty-free retailers, specialty stores, department stores and specialty and general merchandise catalogs, many of which have greater financial and marketing resources than we have. Notwithstanding the foregoing, we believe that we are well-positioned within the Asian consumer market with our current plan of supplying American merchandise brands to consumers and that our exposure to both the Asian and American cultures gives us a competitive advantage. There can be no assurance that we will maintain our competitive edge or that we will continue to provide only American-made merchandise.

 

Our products are sensitive to business and personal discretionary spending levels and tend to decline or grow more slowly during economic downturns, including downturns in any of our major markets. The global economy is currently undergoing a period of volatility, and the future economic environment, while improving, continues to remain uncertain. This has led, and could further lead, to reduced consumer spending, and which may include spending on nutritional and beauty products and other discretionary items, such as our products. In addition, reduced consumer spending may force us and our competitors to lower prices. These conditions may adversely affect our revenues and profits.

 

Discontinued operations

 

On October 20, 2014, we entered into a Share Purchase Agreement for the purchase of the outstanding shares of Prime Nutrisource Inc., Nugale Pharmaceutical Inc., and Prime Nutrisource Inc. (New Jersey), and together as “Prime”. Total purchase price included:

 

	·	CAD$2,000,000 (approximately $1,773,600);
	·	Short term debt totaling CAD$22,780,000 (approximately $20,201,304);
	·	25,000,000 shares of E-World Common Stock representing 14% ownership in E-World with an opportunity to acquire additional E-World Common Stock attaining a 25% ownership.

 

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On April 21, 2015, we terminated our purchase of Prime, and entered into a Termination and Release Agreement with each of Prime, the former owners of the Prime Corporations, Guo Yin Xie, Jian Long, Hong Shu Zhu, 2434689 Ontario Inc., 2434691 Ontario Inc., and 2434694 Ontario Inc., and the Company’s subsidiary E-World Canada Holding, Inc. The parties agreed that the Termination Agreement would be deemed effective as of October 20, 2014. Upon termination of the agreement:

 

	·	We received CAD$1,500,000 of the CAD$2,000,000 cash portion of the purchase (approximately $1,247,920);
	·	The CAD$22,780,000 (approximately $20,201,304) short term debt was cancelled;
	·	The 25,000,000 shares of E-World Common Stock have been returned to us, and the 25% contingent option was cancelled.

 

In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meet the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.

 

Results of Operations

 

Comparison of the three months ended June 30, 2016 and 2015

 

		For the three months ended June 30,
														Percentage
		2016				2015				Change				Change
Total Sales		$	211,781			$	58,837			$	152,944				260	%
Total cost of sales			50,711				44,619				6,092				14	%
Gross profit			161,070				14,218				146,852				1,033	%
Operating expenses
Selling			26,292				98,368				(72,076	)			(73	%)
Depreciation			8,305				8,518				(213	)			(3	%)
General and administrative			324,944				941,146				(616,202	)			(65	%)
Total operating expenses			359,541				1,048,032				(688,491	)			(66	%)
Loss from operations before income taxes			(198,471	)			(1,033,814	)			(835,343	)			(81	%)
Other income (expense), net			(13,219	)			714,926				(728,145	)			(102	%)
Provision for income taxes			-				-				-				-	%
Net loss from continuing operations			(211,690	)			(318,888	)			(107,198	)			(34	%)
Net loss from discontinued operations, net of applicable income taxes			-				(20,970	)			(20,970	)			(100	%)
Net loss		$	(211,690	)		$	(339,858	)		$	(128,168	)			(38	%)

 

Total sales increased by $152,944 or 260% from $58,837 in the three months June 30, 2015 to $211,781 in the three months ended June 30, 2016. The increase of sales was mainly due to our implementation of AMP in March 2016 and the increased sales of our new nutritional supplement product, Dibeier Granules & Oral, that is sold in powder and liquid form, offset by the decrease in sales of our existing products, Longevity, US-Liver Gold, Cell Power, OPC spa, Heart Power and O2 Cell Power.

 

The cost of sales increased by $6,092 or 14% from $44,619 in the three months ended June 30, 2015 to $50,711 in the three months ended June 30, 2016. The increase was mainly due to the increase cost of sales of our new nutritional supplement product, Dibeier Granules & Oral, that is sold in powder and liquid form, offset by the decrease in cost of sales of our existing products, Longevity, US-Liver Gold, Cell Power, OPC spa, Heart Power and O2 Cell Power during the three months ended June 30, 2016 as compared to the three months ended June 30, 2015.

   

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In March 2016, we introduced new nutritional supplement items on our www.dailynu.com website. These items are Dibeier Granules & Oral, a powder and liquid form of the product. Gross profit percentage is generally higher with the sales of these new powder and liquid products as compared to our existing products, such as, Longevity, US-Liver Gold, Cell Power, OPC spa, Heart Power and O2 Cell Power. As a result, our gross margin increased from $14,218 or 24% in the three months ended June 30, 2015 to $161,070 or 76% in the three months ended June 30, 2016.

 

Selling expenses decreased from $98,368 in the three months ended June 30, 2015 to $26,292 in the three months ended June 30, 2016. The decrease of $72,076 or 73% was mainly due to a decrease in marketing development expenses incurred for promotion of our own website during the three months ended June 30, 2016.

 

General and administrative expenses decreased by $616,202 from $941,146 in the three months ended June 30, 2015 to $324,944 in the three months ended June 30, 2016. General and administrative expenses decreased significantly as we are no longer required to incur significant professional fees for attorneys, consultants and auditors in relation to the acquisition of Prime after the disposal of Prime in April 2015. In addition, the decrease also is attributable to reduction of payroll expenses, as our CEO has decided to forego his salary after January 15, 2016 for so long as he determines advisable, in his sole discretion.

 

Other expense totaled $13,219 in the three months ended June 30, 2016 mainly due to interest expense incurred from the interest bearing loans from our shareholder as compared to other income that totaled $714,926 mainly due to $912,563 of gain from the disposal of Prime in the three months ended June 30, 2015 offset by $196,959 from amortization of promissory note discount related to the short term debt issued to acquire Prime in the three months ended June 30, 2015.

 

Net loss from continuing operations decreased by $107,198 from $318,888 net loss in the three months ended June 30, 2015 to $211,690 net loss in the three months ended June 30, 2016 mainly due to the increase of gross profit and the decrease of selling and general administrative expenses offset by the increase in other expense as mentioned above.

 

Net loss from discontinued operations totaled $20,970 in the three months ended June 30, 2015 due to the acquisition of Prime on October 20, 2014, which we terminated on April 21, 2015.

 

Comparison of the six months ended June 30, 2016 and 2015

 

		For the six months ended June 30,
														Percentage
		2016				2015				Change				Change
Total Sales		$	399,850			$	309,641			$	90,209				29	%
Total cost of sales			124,183				274,945				(150,762	)			(55	%)
Gross profit			275,667				34,696				240,971				695	%
Operating expenses
Selling			64,059				223,169				(159,110	)			(71	%)
Depreciation			16,823				17,036				(213	)			(1	%)
General and administrative			746,209				1,877,182				(1,130,973	)			(60	%)
Total operating expenses			827,091				2,117,387				(1,290,296	)			(61	%)
Loss from operations before income taxes			(551,424	)			(2,082,691	)			(1,531,267	)			(74	%)
Other income (expense), net			(22,040	)			(172,184	)			(150,144	)			(87	%)
Provision for income taxes			-				-				-				-	%
Net loss from continuing operations			(573,464	)			(2,254,875	)			(1,681,411	)			(75	%)
Net loss from discontinued operations, net of applicable income taxes			-				(123,258	)			(123,258	)			(100	%)
Net loss		$	(573,464	)		$	(2,378,133	)		$	(1,804,669	)			(76	%)

 

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Total sales increased by $90,209 or 29% from $309,641 in the six months ended June 30, 2015 to $399,850 in the six months ended June 30, 2016. The increase of sales was mainly due to our implementation of the AMP in March 2016 and the increased sales of our new nutritional supplement products, Dibeier Granules & Oral powder and liquid, offset by the decrease in sales of our existing products, Longevity, US-Liver Gold, Cell Power, OPC spa, Heart Power and O2 Cell Power.

 

The cost of sales decreased by $150,762 or 55% from $274,945 in the six months ended June 30, 2015 to $124,183 in the six months ended June 30, 2016. The decrease was mainly due to the decrease in cost of sales of our existing products, Longevity, US-Liver Gold, Cell Power, OPC spa, Heart Power and O2 Cell Power, which generally have higher unit costs, during the six months ended June 30, 2016 as compared to the six months ended June 30, 2015.

 

In March 2016, we introduced new nutritional supplement items on our www.dailynu.com website. These items are Dibeier Granules & Oral, a powder and liquid form of the same product. Gross profit percentage is generally higher with the sales of these new items, as compared to our existing products, such as, Longevity, US-Liver Gold, Cell Power, OPC spa, Heart Power and O2 Cell Power. As a result, our gross margin increased from $34,696 or 11% in the six months ended June 30, 2015 to $275,667 or 69% in the six months ended June 30, 2016.

  

Selling expenses decreased from $223,169 in 2015 to $64,059 in the six months ended June 30, 2016. The decrease of $159,110 or 71% was mainly due to a decrease in marketing development expenses incurred for promotion of our own website during the six months ended June 30, 2016 as compared to the six months ended June 30, 2015.

 

General and administrative expenses decreased by $1,130,973 from $1,877,182 in the six months ended June 30, 2015 to $746,209 in the six months ended June 30, 2016. General and administrative expenses decreased significantly as we are no longer required to incur significant professional fees for attorneys, consultants and auditors in relation to the acquisition of Prime after the disposal of Prime in April 2015. In addition, the decrease also is attributable to reduction of payroll expenses, as our CEO has decided to forego his salary after January 15, 2016 for so long as he determines advisable, in his sole discretion.

 

Other expense totaled $22,040 in the six months ended June 30, 2016 mainly due to interest expense incurred from the interest bearing loan from our shareholder as compared to other expense that totaled $172,184 mainly due to $912,563 of gain from the disposal of Prime in 2015 offset by $1,083,276 from amortization of promissory note discount related to the short term debt issued to acquire Prime in the six months ended June 30, 2015.

 

Net loss from continuing operations decreased by $1,681,411 from $2,254,875 net loss in the six months ended June 30, 2015 to $573,464 net loss in the six months ended June 30, 2016 mainly due to the increase of gross profit and the decrease of selling and general administrative expenses as mentioned above.

 

Net loss from discontinued operations totaled $123,258 in the six months ended June 30, 2015 due to the acquisition of Prime on October 20, 2014, which we terminated on April 21, 2015.

 

Liquidity and Capital Resources

 

As of June 30, 2016, we had a cash balance of $2,491 and $8,550 at December 31, 2015.

 

In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. Other than operating expenses, the Company does not have significant cash commitments. Cash requirements include cash needed for payroll, payroll taxes, rent, and other operating expenses. However in response to the reduced liquidity factors described above, the Company has continued to find ways to reduce our operating expenses. In addition, should our Company need additional capital, our principal shareholder and Chief Executive Officer may lend money to the Company from time to time to the extent he is in a position to do so. No assurance can be provided that he will be in a position to continue to lend funds to the Company in the future.

 

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Management has concluded under generally accepted accounting principles that there is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues. If we are unable to generate significant revenue or secure financing, we may be required to cease or limit our operations. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.

  

For the six months ended June 30, 2016, cash used in operating activities amounted to approximately $404,000 as compared to approximately $1.1 million used in operating activities in the same period ended 2015. Cash used in operating activities was mainly due to approximately $573,000 of net loss from the Company, the increase of accounts receivable of approximately $36,000, as we started to extend credit terms to our wholesale customers, the decrease of approximately $33,000 of accounts payable and accrued expenses as we caught up some of our payments for various of our operating expenses, offset by the increase of approximately $133,000 of deferred revenue as we received more customer deposits for the sales orders of our new items, Dibeier Granules & Oral, the decrease of inventory of approximately $17,000 as we incurred more sales shipment in this period, the decrease of prepaid expenses of approximately $49,000 as we amortized more prepaid expense during the period, and net of approximately $61,000 of non-cash operating activities.

 

For the six months ended June 30, 2016, financing activities provided approximately $0.4 million as compared to approximately $1.0 million during the same period in 2015. Net cash received in the six months ended June 30, 2016 for the amount of approximately $0.6 million was from our principal shareholder and Chief Executive Officer and third parties loan offset by our repayment of principal of approximately $0.2 million to our principal shareholder and Chief Executive Officer and our related party.

 

Due to shareholder, interest bearing

 

In January 2016, Mr. Dinghua Wang, the CEO of the Company pledged certain of his personal assets and obtained a personal loan and funded the operations of the Company from this loan. The Company agreed to pay for the interest of this loan on Mr. Dinghua Wang’s behalf. This loan has an annual borrowing rate of 9.99%. During the six months ended June 30, 2016, advances totaled $471,603. As of June 30, 2016 and December 31, 2015, the balance due to shareholder, interest bearing, amounted to $471,603 and $0, respectively. The full balance $471,603 is to be repaid on February 1, 2019.

 

Interest expense for the three months and six months ended June 30, 2016 for above loan amounted to $12,488 and $20,813, respectively.

 

Due to shareholder, non-interest bearing

 

From time to time, Mr. Dinghua Wang, the CEO of the Company advances monies to the Company. Such business transactions are recorded as due to or from shareholder. During the six months ended June 30, 2016 and 2015, advances totaled $37,889 and $1,204,295, respectively and payment to shareholder totaled $174,338 and $134,721, respectively. As of June 30, 2016 and December 31, 2015, the balance due to shareholder, non-interest bearing, amounted to $3,074,387 and $3,210,836, respectively. This balance does not bear interest, is unsecured and is due on demand.

 

Advances from related parties, interest bearing

 

During the year ended December 31, 2015, the Company borrowed $40,000 from a related party to fund operations. This related party is the son of the CEO. These advances bear a one-time $5,000 finance charge, are unsecured and are due on demand. The $40,000 balance as of December 31, 2015 was repaid in January 2016.

 

During the six months ended June 30, 2016, the Company borrowed $20,000 from a related party to fund operations. This related party is the spouse of a board member of the Company. These advances have an annual interest rate of 6%, are unsecured and are due on demand. As of June 30, 2016, the Company owed $20,000 to this related party. Interest expense for the three and six months ended June 30, 2016 for this loan is $69.

 

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Advances from related parties, non-interest bearing

 

The Company borrowed money from certain related parties to fund operations. The related parties consist of the CEO's immediate family members and relatives. These advances do not bear interest, are unsecured and are due on demand. As of June 30, 2016 and December 31, 2015, the Company owed $583,839 and $583,839 to these related parties, respectively.

 

Item 3. Quantitative and Qualitative Disclosure about Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

The Company has established disclosure controls and procedures to ensure that information required to be disclosed in this quarterly report on Form 10-Q was properly recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. The Company’s controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers to allow timely decisions regarding required disclosure.

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) at June 30, 2016 based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer/Chief Financial Officer concluded that, at June 30, 2016, our disclosure controls and procedures are not effective.

 

Changes in Internal Controls over Financial Reporting

 

There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

 

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PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are not a party to any material legal proceedings nor are we aware of any circumstance that may reasonably lead any third party to initiate material legal proceedings against us, except with respect to the matter described below and as set forth in the "Notice to Investors," in the forepart of this Report on Form 10-Q.

 

Notwithstanding the foregoing, on May 26, 2015, the Board of Directors concluded that a material charge for impairment to one of its assets is required under generally accepted accounting principles. The impaired assets are approximately $3,643,000 in cash that is the property of the Company held in bank accounts in the People’s Republic of China, which for administrative reasons in China, were held in the name of Ding Hua Wang, President and Chief Executive Officer of the Company, that have been frozen by authorities in the Chinese legal system (the “Frozen Accounts”) in a case involving alleged illegal activities in China by one or more persons claiming to be officers in the Company in China. The Chinese legal authorities asserted that these activities gave them the right to freeze property of the Company in China, (i.e., the Frozen Accounts), notwithstanding the fact that Company itself was not named in the case. Accordingly, the Board of Directors recognized an impairment of this amount in our year ended December 31, 2014 financial statements. Although the Company believed that the funds in the Frozen Accounts were improperly frozen, the Company now believes, based on an informal conversation with a person in another company, that the Frozen Accounts will never be returned to the Company. As of the date of this Report, the Company and Mr. Wang are not aware of a separate case having been filed against the Company or Mr. Wang.

 

Mr. Wang, President of the Company, individually filed a complaint to the Commission for Discipline Inspection of the Central Committee of the Communist Party of China and is in the process of attempting to recover the Frozen Accounts. Based upon the foregoing with respect to the status of the matter against the Company, as of the date of this Report, although this action is still pending, neither Mr. Wang nor the Company expects to prevail.

 

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

 

(a) Unregistered Sales of Equity Securities.

 

None.

 

(b) Use of Proceeds.

 

The Registrant did not sell any unregistered securities during the quarter ended June 30, 2016.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

  

In November and December 2016, our Dibeier Granules & Oral powder and liquid products successfully passed the inspection by the Shenzhen Academy of Metrology & Qualify Inspection and the Guangdong Quality Supervision and Inspection Institution for Food (Shenzhen). A copy of these two inspection reports are filed as exhibits to the Company’s Form 10-K for 2015 filed on February 7, 2017. As a result, we believe that that our Dibeier Granules & Oral powder and liquid products will be able to be directly exported to the China market and to be sold at nutritional supplement stores in China as food, rather than only through our website. The Company has confirmed the proper Harmonized Tariff Schedule classification for export of the Dibeier products to China with U.S. counsel. In addition, Chinese counsel has advised that the Chinese importation regulatory requirements are satisfied to export the Dibeier products to China. No assurance can be given that such exports will eventually occur or that issues will not arise with exporting the products to China. We anticipate that we will start exporting this product to China in mid-2017, although this may be delayed due to currently unanticipated matters.

 

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Item 6. Exhibits.

 

(a) Exhibits.

 

Exhibit No.		Document Description
31.1		CERTIFICATION of CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
32.1*		CERTIFICATION of CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

  

Exhibit 101		Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.**
101.INS		XBRL Instance Document**
101.SCH		XBRL Taxonomy Extension Schema Document**
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB		XBRL Taxonomy Extension Label Linkbase Document**
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document**

_________

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

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Table of Contents

 

SIGNATURE

 

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

E-World USA Holding, Inc.

 

Title		Name		Date		Signature
President and CEO		Ding Hua Wang		April 7, 2017		/s/ Ding Hua Wang

 

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.

 

SIGNATURE		NAME		TITLE		DATE
/s/ Ding Hua Wang		Ding Hua Wang		President, CEO, Acting		April 7, 2017
				Principal Financial and Principal Accounting Officer, Director

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EXHIBIT INDEX

 

Exhibit No.		Document Description
31.1		CERTIFICATION of CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEYACT OF 2002.
32.1 *		CERTIFICATION of CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

Exhibit 101

Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.**

 

101.INS		XBRL Instance Document**
101.SCH		XBRL Taxonomy Extension Schema Document**
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document**
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document**
101.LAB		XBRL Taxonomy Extension Label Linkbase Document**
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document**

_________

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

32