U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

Form 10-Q

 

Mark One

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

 

For the quarterly period ended September 30, 2020

 

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

 

For the transition period from ___________ to ___________

 

Commission File No. 000-55260

 

MakingORG, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada		6770		39-2079723
(State or Other Jurisdiction of Incorporation or Organization)		(Primary Standard Industrial Classification Number)		(IRS Employer Identification Number)

  

385 S. Lemon Avenue #E 301

Walnut, CA 91789

(213) 805-5799

(Address and telephone number of principal executive offices)

 

Securities registered pursuant to Section 12(b) of the Act: 

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None

                   

Indicate by checkmark whether the issuer: (1) has 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 ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-K (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

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

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐     No ☒

 

Applicable Only to Issuer Involved in Bankruptcy Proceedings During the Preceding Five Years. N/A

 

Indicate by checkmark whether the issuer has filed all documents and reports required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes ☐      No ☒

 

Applicable Only to Corporate Registrants

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date:

 

Class	Outstanding as of November 13, 2020
Common Stock: $0.001	35,540,000

 

            

PART 1	FINANCIAL INFORMATION		3
Item 1	Financial Statements (Unaudited)			3
	Balance Sheets			3
	Statements of Operations			4
	Statements of Change in Stockholders’ Deficit			5
	Statements of Cash Flows			7
	Notes to the Financial Statements			8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			27
Item 4.	Controls and Procedures			27
PART II.	OTHER INFORMATION			28
Item 1	Legal Proceedings			28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			28
Item 3	Defaults Upon Senior Securities			28
Item 4	Mine safety disclosures			28
Item 5	Other Information			28
Item 6	Exhibits			29
	Signatures			30

 

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PART I.

FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

MAKINGORG, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30, 2020				December 31, 2019
		(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents		$	28,394			$	94,211
Accounts receivable – related party			33,513				-
Inventories (net of inventory reserve of $26,442 and $19,426)			17,804				43,532
Prepaid expenses and other current assets			30,633				34,358
Due from related party			11,759				-
Total Current Assets			122,103				172,101
Right-of-use assets - operating leases			111,360				5,588
Total Assets		$	233,463			$	177,689
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Interest payable		$	98,000			$	80,000
Accrued liabilities			9,581				14,876
Customer deposit -related party			-				6,676
Lease liabilities - operating leases			66,800				5,838
Due to related party			315,926				285,869
Convertible note payable, net of discount $0 and $36,267			200,000				163,733
Total Current Liabilities			690,307				556,992
Long-Term Liabilities
Lease Liabilities – operating lease, noncurrent			29,490				-
TOTAL LIABILITIES			719,797				556,992
Stockholders’ Deficit
Preferred stock, par value $0.001; 50,000,000 shares authorized, zero shares issued and outstanding			-				-
Common stock, par value $0.001; 150,000,000 shares authorized, 35,540,000 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively			35,540				35,540
Additional paid-in capital			583,882				583,882
Accumulated other comprehensive income (loss)			(542	)			(2,882	)
Accumulated deficit			(1,105,214	)			(995,843	)
Total Stockholders’ Deficit			(486,334	)			(379,303	)
Total Liabilities and Stockholders’ Deficit		$	233,463			$	177,689

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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MAKINGORG, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

    

		For the three months ended September 30,								For the nine months ended September 30,
		2020				2019				2020				2019
Net Sales-Related Party		$	29,532			$	231,580			$	161,059			$	264,644
Cost of Sales			19,428				123,634				91,404				141,928
Gross Profit			10,104				107,946				69,655				122,716
OPERATING EXPENSES
Selling, general and administrative			26,145				12,791				50,541				32,377
Professional fees			28,237				137,021				64,186				418,017
TOTAL OPERATING EXPENSES			54,382				149,812				114,727				450,394
LOSS FROM OPERATIONS			(44,278	)			(41,866	)			(45,072	)			(327,678	)
OTHER INCOME (EXPENSE)
Interest income			51				31				278				59
Interest expense			(15,067	)			(16,000	)			(54,266	)			(48,000	)
Loss on inventory write-down			(2,404	)			(2,776	)			(7,016	)			(8,326	)
TOTAL OTHER INCOME (EXPENSE)			(17,420	)			(18,745	)			(61,004	)			(56,267	)
LOSS BEFORE INCOME TAX			(61,698	)			(60,611	)			(106,076	)			(383,945	)
Income tax			13				4,333				3,295				5,133
NET LOSS		$	(61,711	)		$	(64,944	)		$	(109,371	)		$	(389,078	)
OTHER COMPREHENSIVE ITEM:
Foreign currency translation income (loss)			4,464				(4,632	)			2,340				(4,596	)
TOTAL COMPREHENSIVE LOSS		$	(57,247	)		$	(69,576	)		$	(107,031	)		$	(393,674	)
NET LOSS PER COMMON SHARE: BASIC AND DILUTED		$	(0.002	)		$	(0.002	)		$	(0.003	)		$	(0.011	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: BASIC AND DILUTED			35,540,000				35,540,000				35,540,000				35,540,000

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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MAKINGORG, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

   

		Three Months Ended September 30, 2020
														Accumulated
										Additional				Other								Total
		Common Stock								Paid-in				Comprehensive				Accumulated				Stockholders’
		Shares				Amount				Capital				Income				Deficit				Deficit
Balance, June 30, 2020			35,540,000			$	35,540			$	583,882			$	(5,006	)		$	(1,043,503	)		$	(429,087	)
Foreign currency translation loss			-				-				-				4,464				-				4,464
Net loss			-				-				-				-				(61,711	)			(61,711	)
Balance, September 30, 2020			35,540,000			$	35,540			$	583,882			$	(542	)		$	(1,105,214	)		$	(486,334	)

     

		Three Months Ended September 30, 2019
														Accumulated
										Additional				Other								Total
		Common Stock								Paid-in				Comprehensive				Accumulated				Stockholders’
		Shares				Amount				Capital				Income				Deficit				Deficit
Balance, June 30, 2019			35,540,000			$	35,540			$	529,482			$	(677	)		$	(802,785	)		$	(238,440	)
Foreign currency translation loss			-				-				-				(4,632	)			-				(4,632	)
Issuance of promissory note											40,000												40,000
Net loss			-				-				-				-				(64,944	)			(64,944	)
Balance, September 30, 2019			35,540,000			$	35,540			$	569,482			$	(5,309	)		$	(867,729	)		$	(268,016	)

 

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		Nine Months Ended September 30, 2020
														Accumulated
										Additional				Other								Total
		Common Stock								Paid-in				Comprehensive				Accumulated				Stockholders’
		Shares				Amount				Capital				Income				Deficit				Deficit
Balance, December 31, 2019			35,540,000			$	35,540			$	583,882			$	(2,882	)		$	(995,843	)		$	(379,303	)
Foreign currency translation loss			-				-				-				2,340				-				2,340
Net loss			-				-				-				-				(109,371	)			(109,371	)
Balance, September 30, 2020			35,540,000			$	35,540			$	583,882			$	(542	)		$	(1,105,214	)		$	(486,334	)

 

		Nine Months Ended September 30, 2019
														Accumulated
										Additional				Other								Total
		Common Stock								Paid-in				Comprehensive				Accumulated				Stockholders’
		Shares				Amount				Capital				Income				Deficit				Deficit
Balance, December 31, 2018			35,430,000			$	35,430			$	67,592			$	(713	)		$	(478,651	)		$	(376,342	)
Foreign currency translation loss			-				-				-				(4,596	)			-				(4,596	)
Common stock issued for service			110,000				110				461,890				-				-				462,000
Issuance of promissory note			-				-				40,000				-				-				40,000
Net loss			-				-				-				-				(389,078	)			(389,078	)
Balance, September 30, 2019			35,540,000			$	35,540			$	569,482			$	(5,309	)		$	(867,729	)		$	(268,016	)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

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MAKINGORG, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

  

		For the nine months ended September 30,
		2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(109,371	)		$	(389,078	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on inventories write-down			7,016				8,325
Shares issued for compensation			-				346,500
Amortization of debt discount			36,267				30,000
Amortization of Right-of-use assets			-				(281	)
Changes in assets and liabilities:
Accounts receivable			(32,591	)			-
Inventories			18,995				(5,353	)
Prepaid expenses and other current assets			2,399				(15,248	)
Deposit			2,000				-
Interest payable			18,000				18,000
Accrued liabilities			(5,289	)			26,457
Lease liabilities			(14,904	)			-
Customer deposit – related party			(6,649	)			-
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES			(84,127	)			19,322
CASH FLOWS FROM INVESTING ACTIVITIES
Loan to related party			(11,436	)			-
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES			(11,436	)			-
CASH FLOWS FROM FINANCING ACTIVITIES
Loan from related party			30,057				48,966
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES			30,057				48,966
EFFECT OF EXCHANGE RATE CHANGES ON CASH			(311	)			(4,388	)
NET CHANGE IN CASH AND CASH EQUIVALENTS			(65,817	)			63,900
Cash and cash equivalents, beginning of period			94,211				57,372
Cash and cash equivalents, end of period		$	28,394			$	121,272
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid		$	-			$	-
Income taxes paid		$	4,095			$	-
NON-CASH TRANSACTION:
Deferred consulting fee paid in common stock		$	-			$	462,000
Beneficial conversion feature recognition		$	-			$	40,000

 

See accompanying notes to unaudited condensed consolidated financial statements.

  

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MakingORG, Inc. and Subsidiaries

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

 

MakingORG, Inc. (“MakingORG”) was incorporated under the laws of the State of Nevada on August 10, 2012. The trading symbol is “CQCQ” and the fiscal year end is December 31. On October 20, 2016, MakingORG filed documents registering its intention to transact interstate business in the state of California. On November 29, 2016, MakingORG incorporated HK Feng Wang Group Limited (“HKFW”) under the laws of Hong Kong. On August 22, 2017, HKFW incorporated Chongqing Beauty Kenner Biotechnology Co., Ltd (“CBKB”) under the laws of the People’s Republic of China (“PRC”).

 

MaingORG, Inc. and subsidiaries (“the Company”) purchase Acer truncatum bunge seed oil from entities in China, outsource to third party to manufacture Acer truncatum bunge related health product, and sell to end user and distributor in the United States and PRC.

 

In January 2020, the World Health Organization declared an outbreak of the coronavirus (“COVID-19”) to be a Public Health Emergency of International Concern, subsequently declared COVID-19 a global pandemic, and recommended containment and mitigation measures worldwide on March 11, 2020. The Company had experienced some adverse impacts on its business in the PRC Segment, such as limited access to its staff in the PRC in the beginning of the outbreak and restrictions on business travel within the PRC and between USA and PRC. Even though the operations in the PRC segment fully resumed in the third quarter of 2020, the pandemic has created global economic uncertainties and led to negative impact on the financial markets. The extent of the COVID-19 impact to the Company will depend on numerous factors and developments related to COVID-19. Consequently, any potential impacts of COVID-19 remain highly uncertain and cannot be predicted with confidence.

 

NOTE 2 – GOING CONCERN

 

Pursuant to ASU 2014-15, the Company has assessed its ability to continue as a going concern for a period of one year from the date of the issuance of these unaudited consolidated financial statements. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to repay its debt obligations, to obtain necessary equity financing to continue operations, and the attainment of profitable operations. Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company may seek additional funding through additional issuance of common stock and/or borrowings from financial institutions or the majority shareholder to support its normal business operations. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company had net loss of $109,371 and $389,078 for the nine months ended September 30, 2020 and 2019, respectively. In addition, the Company had an accumulated deficit of $1,105,214 as of September 30, 2020. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital. The Company’s consolidated financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company may seek additional funding through additional issuance of common stock and/or borrowings from financial institutions or the majority shareholder to support its normal business operations. In light of management’s efforts, there is no assurance that the Company will be successful in this or any of its endeavors or become financially viable to continue as a going concern.

 

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NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.

 

Principles of Consolidation

 

The Company’s unaudited consolidated financial statements include the accounts of MakingORG, and its wholly owned subsidiaries, HKFW and CBTB. All intercompany transactions and balances were eliminated in consolidation.

 

Use of Estimates

 

The preparation of unaudited consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Company’s unaudited consolidated financial statement date and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with the original maturities of three months or less to be cash equivalents.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are reported realizable value, net of allowance for contractual credits and doubtful accounts, which are recognized in the period the related revenue is recorded. Accounts receivable consists principally of receivables from distributor or end user, arising from the sale of the Company’s product. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Management evaluated that there was no allowance for doubtful accounts as of September 30, 2020 and December 31, 2019, respectively.

 

Inventories

 

Inventories consist of (a) packing materials (b) raw materials and (c) finished goods, which are stated at the lower of cost or net realizable value under the first-in-first-out method. The Company reviews its inventories periodically for possible excess and obsolescence to determine if any reserves are necessary. As of September 30, 2020 and December 31, 2019, inventory reserve amounted to $26,442 and $19,426, respectively.

 

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Revenue Recognition

 

Effective January 1, 2018, the Company adopted Topic 606, Revenue from Contracts with Customers, using the modified retrospective transition method. The adoption of the new revenue standards as of January 1, 2018 did not change the Company’s revenue recognition as the majority of its revenues continue to be recognized when the customer takes control of its product. As the Company did not identify any accounting changes that impacted the amount of reported revenues with respect to its product revenues, no adjustment to retained earnings was required upon adoption.

 

In general, the Company’s performance obligation is to transfer it products to its end user or distributor. Revenues from product sales are recognized when the customer obtains control of the Company’s finished goods product, which occurs at a point in time, typically upon delivery to the customer.

 

The Company’s revenue mainly generates from sale of acer truncatum bunge related health products, such as Nervonic Acid Oil, coffee and tea. The Company evaluated its product sales contracts and determined that those contracts are generally capable of being distinct and accounted for as separate performance obligations. Performance obligation is satisfied when the finished goods product delivered to the customer.

 

Shipping and handling costs paid by the Company are included in cost of sales.

 

During the three and nine months ended September 30, 2020, the Company recognized revenue from sale of acer truncatum bunge related health products in an amount of $29,532 and $161,059, respectively. During the three and nine months ended September 30, 2019, the Company recognized revenue from sale of acer truncatum bunge related health products in an amount of $231,580 and $264,644, respectively.

 

Advertising Expenses

 

Advertising costs are expensed as incurred. There was no advertising expense incurred for the nine months ended September 30, 2020 and 2019, respectively. 

 

Research and Development

 

Research and development costs are expensed as incurred and are included in general and administrative expenses in the accompanying consolidated statement of operations and There was no research and development cost for the nine months ended September 30, 2020 and 2019, respectively.

 

Income Taxes

 

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are using enacted tax rate expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, if more likely than not that the company will not realize tax assets through future operation.

 

On December 22, 2017, the U.S. enacted the 2017 Tax Cuts and Jobs Act which contains several key tax provisions that affect the Company, including, but not limited to, a one-time mandatory transition tax on accumulated foreign earnings, changes in the sourcing and calculation of foreign income, and a reduction of the corporate income tax rate to 21% effective January 1, 2018. The Company is required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, re-measuring its U.S. deferred tax assets and liabilities as well as reassessing the net realizability of its deferred tax assets and liabilities. 

 

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Basic Income (Loss) Per Share

 

Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.

 

Foreign Currency Transactions

 

The functional currency for the Company and HKFW is the US dollar. The functional currency for the China subsidiary (CBKB) is the Renminbi (RMB). Assets and liabilities of the China operation are translated from RMB into U.S. dollars at period-end rates, while statements of operations and cash flows are translated at the weighted-average exchange rates for the period. The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive income/(loss) within shareholders’ deficit.

 

 

		Average Rates for the Nine Months Ended September 30,
		2020				2019
China yuan (RMB)		RMB	6.995696			RMB	6.861782
United States dollar ($)		$	1.000000			$	1.000000

 

		Spot Rates as of
		September 30, 2020				December 31, 2019
China yuan (RMB)		RMB	6.803297			RMB	6.865570
United States dollar ($)		$	1.000000			$	1.000000

 

Related Parties

 

The Company follows Accounting Standards Codification (“ASC”) 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transactions.

 

Lease

 

The Company determines if an arrangement is or contains a lease at inception. Operating leases with lease terms of more than 12 months are included in operating lease assets, accrued and other current liabilities, and long-term operating lease liabilities on its consolidated balance sheet. Operating lease assets represent its right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments over the lease term. Operating lease assets and liabilities are recognized based on the present value of the remaining lease payments discounted using its incremental borrowing rate. Lease expense is recognized on a straight-line basis over the lease term.

 

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Segment Reporting

 

The Company follows Financial Accounting Standards Board (“FASB”) ASC Topic 280, “Segment Reporting” for its segment reporting. The Company aggregates its operating segments into one reporting segment, as management believes that its operating segments have similar operating characteristics and similar long-term operating performance.

 

Fair Value of Financial Instruments

 

Fair value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction between market participants at the measurement date and in the principal or most advantageous market for that asset or liability. The fair value should be calculated based on assumptions that market participants would use in pricing the asset or liability, not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk including the Company’s own credit risk.

 

In addition to defining fair value, the standard expands the disclosure requirements around fair value and establishes a fair value hierarchy for valuation inputs. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of the three levels which are determined by the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

 

Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

 

Level 2 – inputs are based upon significant observable inputs other than quoted prices included in Level 1, such as quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

 

The carrying amounts of financial assets and liabilities in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accrued expenses and due to related party approximate their fair value due to the short-term duration of those instruments. Notes payable are recorded at agreed values.

 

Stock-Based Compensation

 

The Company accounts for share-based compensation awards to nonemployees in accordance with FASB ASC 718 and FASB ASC 505-50. Under FASB ASC 718 and FASB ASC 505-50, stock compensation granted to non-employees has been determined as the fair value of the consideration received or the fair value of equity instrument issued, whichever is more reliably measured and is recognized as an expense as the goods or services are received.

 

Recently Issued Accounting Pronouncement Not Yet Adopted

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes which is intended to simplify various aspects related to accounting for income taxes. The standard is effective for fiscal years, and interim period within those years, beginning after December 15, 2020, with early adoption permitted. The standard will be adopted upon the effective date for us beginning January 1, 2021. The Company is currently evaluating the effects of the standard on its consolidated financial statements and related disclosures.

 

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In June 2016, the FASB issued ASU No. 2016-13, (Topic 326), Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments which amends the current accounting guidance and requires the use of the new forward-looking “expected loss” model, rather than the “incurred loss” model, which requires all expected losses to be determined based on historical experience, current conditions and reasonable and supportable forecasts. This guidance amends the accounting for credit losses for most financial assets and certain other instruments including trade and other receivables, held-to-maturity debt securities, loans and other instruments. ASU 2016-13 is effective for public entities for annual periods beginning after December 15, 2019, and interim periods within those annual periods. In November 2019, the FASB issued ASU No. 2019-10 to postpone the effective date of ASU No. 2016-13 for public business entities eligible to be smaller reporting companies defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company believes the adoption of ASU No. 2016-13 will not have a material impact on its financial position and results of operations.

 

NOTE 4 – INVENTORIES

 

The components of the Company’s inventories were packaging materials, raw materials and finished goods. Inventory consisted of the following as of September 30, 2020 and December 31, 2019:

 

		September 30, 2020				December 31, 2019
Raw materials		$	15,400			$	34,112
Finished goods			28,846				28,846
Inventory reserve			(26,442	)			(19,426	)
Total inventories		$	17,804			$	43,532

 

NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets include primarily prepaid consulting fee, prepaid production processing fee, deposit for packaging materials and security deposit for rent. As of September 30, 2020, and December 31,2019, prepaid expenses and other current assets was $30,633 and $34,358, respectively.

 

NOTE 6 – RELATED PARTY TRANSACTIONS

 

Due from Related Party

 

During the nine months ended September 30, 2020, the Company loaned $11,759 to its related party, an entity in which CBKB’s supervisor is a shareholder. The loan term is six months, with a monthly interest rate of 1%. It will be due on March 31, 2021. As of September 30, 2020, loan to related party was $11,759.

 

Due to Related Party

 

During the nine months ended September 30, 2020 and 2019, the Company’s sole officer loaned the Company $30,057 and $48,966, respectively. As of September 30, 2020 and December 31, 2019, the Company was obligated to the officer, for an unsecured, non-interest bearing demand loan with a balance of $315,926 and $285,869, respectively.

 

Sales to Related Party

 

The Company sells its product to its related party, an entity in which CBKB’s supervisor is a shareholder. For the three and nine months ended September 30, 2020, the Company consolidated net sales to the related party were $29,532 and $161,059, respectively. For the three and nine months ended September 30, 2019, the Company consolidated net sales to related party were $231,580 and $264,644, respectively. As of September 30, 2020 and December 31, 2019, the Company consolidated accounts receivable – related party were $33,513 and $0, respectively. The Company consolidated customer deposit – related party were $0 and $6,676, respectively.

 

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Consulting Agreement

 

On January 4, 2019, the Company entered into a consulting agreement with related party, the legal representative of CBKB. The agreement is for a one-year term, from January 4, 2019 to January 3, 2020. Pursuant to the Consulting Agreement, the Company agreed to issue 110,000 shares with a fair value of the Company’s common stock to the related party to devote appropriate time and attention to providing advice to the Company in regards to sales and marketing in China; or such other services as the Company and the related party may agree. Consulting fees was $0 and $462,000 for the nine months ended September 30, 2020 and September 30, 2019, respectively.

 

Lease Agreement

 

On June 1, 2020, the Company entered into a lease agreement with its related party in China, an entity in which CBKB’s supervisor is a shareholder. The agreement term is from June 1, 2020 to May 31, 2021. Pursuant to the lease agreement, the Company pays a monthly rent of RMB40,000 (approximately $5,659) paid quarterly before the start of each quarter. The lease is for a one-year term and the Company has the priority to sign a new lease agreement by a written notice to the landlord 60 days before the current lease term ends if the Company decided to keep renting the property. The Company tend to keep leasing the property after the lease term ends. Therefore, based on the lease agreement, we did the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term as of the commencement date. Because the leases do not provide an explicit or implicit rate of return, the Company determines incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 5.25%. Lease expense is recognized on a straight-line basis over the lease term.

 

NOTE 7 – BUSINES CONCENTRATION AND RISKS

 

Concentration of Risk

 

The Company maintains cash with banks in the USA, People’s Republic of China (“PRC” or “China”), and Hong Kong. Should any bank holding cash become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose the cash with that bank; however, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant risks on its cash in bank accounts. In China, a depositor has up to RMB500,000 insured by the People’s Bank of China Financial Stability Bureau (“FSD”). In Hong Kong, a depositor has up to HKD500,000 insured by Hong Kong Deposit Protection Board (“DPB”). In the United States, the standard insurance amount is $250,000 per depositor in a bank insured by the Federal Deposit Insurance Corporation (“FDIC”).

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents, and accounts receivable. As of September 30, 2020 and December 31, 2019, $28,082 and $93,656 of the Company’s cash and cash equivalents, was insured, and the remaining balance of approximately $312 and $555, was not insured. With respect to accounts receivable, the Company generally does not require collateral and does not have an allowance for doubtful accounts.

 

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Major customer

  

For the three months ended September 30, 2020 and 2019, the Company’s revenues from the major customer were: 

 

		Three Months Ended September 30,
		2020								2019
		Amount				% of Total Sales				Amount				% of Total Sales
Customer A		$	29,532				100	%		$	231,580				100	%

 

For the nine months ended September 30, 2020 and 2019, the Company’s revenues from the major customer were: 

 

		Nine Months Ended September 30,
		2020								2019
		Amount				% of Total Sales				Amount				% of Total Sales
Customer A		$	161,059				100	%		$	264,644				100	%

 

Major vendor

 

For the three months ended September 30, 2020 and 2019, the Company’s purchase from one major vendor was: 

 

		Three Months Ended September 30,
		2020								2019
		Amount				% of Total Purchase				Amount				% of Total Purchase
Vendor A		$	31,765				100	%		$	144,146				100	%

 

For the nine months ended September 30, 2020 and 2019, the Company’s purchase from one major vendor was: 

 

		Nine Months Ended September 30,
		2020								2019
		Amount				% of Total Purchase				Amount				% of Total Purchase
Vendor A		$	64,249				100	%		$	164,389				100	%

 

NOTE 8 – CONVERTIBLE NOTE PAYABLE

 

On September 1, 2016, the Company entered into a convertible note agreement in the principal amount of $200,000 with an unrelated party. The note bears interest at 12% per annum and the holder is able to convert all unpaid interest and principal into common shares at $3.50 per share. The note matures on September 1, 2018. The Company recognized a discount on the note of $38,857 at the agreement date. The interest expense was due every six months commencing on March 1, 2017 until the principal amount of this convertible note is paid in full.

 

On September 1, 2018, the Company entered into an amended and restated 12% convertible promissory note. Pursuant to the amended convertible promissory note, both parties agreed to extend the convertible note agreement to September 1, 2019 with no additional consideration. The Company recognized a discount on the note of $40,000 at the amended agreement date.

 

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On September 1, 2019, the Company entered into an amended agreement and restated 12% convertible promissory note. Pursuant to the amended convertible promissory note, both parties agreed to extend the convertible note agreement to September 1, 2020 with no additional consideration. The Company recognized a discount on the note of $54,400 at the amended agreement date. Since the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

 

On September 1, 2020, the Company entered into an amended and restated 12% convertible promissory note. Pursuant to the amended convertible promissory note, both parties agreed to extend the convertible note agreement to September 1, 2022 with no additional consideration. The Company recognized a discount on the note of $0 at the amended agreement date.

  

The Company recognized interest expense related to the convertible note of $15,067 and $16,000, respectively, for the three months ended September 30, 2020 and 2019. The Company recognized interest expense related to the convertible note of $54,266 and $48,000, respectively, for the nine months ended September 30, 2020 and 2019. The unamortized debt discount at September 30, 2020 and December 31, 2019 was $0 and $36,267, respectively. As of September 30, 2020, and December 31, 2019, net balance of the convertible note amounted to $200,000 and $163,733, respectively.

    

NOTE 9 – LEASE

 

The Company has an operating lease for its office space from a third party in the United States. The Company determined if an arrangement is a lease inception of the contract and whether a contract is or contains a lease by determining whether it conveys the right to control the use of identified asset for a period of time. The contact provides the right to substantially all the economic benefits from the use of the identified asset and the right to direct use of the identified asset, we consider it to be, or contain, a lease. Leases is classified as operating at inception of the lease. Operating leases result in the recognition of ROU assets and lease liabilities on the balance sheet. ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term as of the commencement date. Because the leases do not provide an explicit or implicit rate of return, the Company determines incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis. The incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 7.33%. Lease expense for the lease is recognized on a straight-line basis over the lease term. The lease does not contain any residual value guarantees or material restrictive covenants. Leases with a lease term of 12 months or less are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease term. The lease expired on August 31, 2020.

 

The Company signed a new lease agreement with a related party in China in June 2020, an entity in which CBKB’s supervisor is a shareholder. It calls for a monthly rent of RMB40,000 (approximately $5,659). The lease is for one year and subject to renewal. Leases is classified as operating at inception of the lease. Operating leases result in the recognition of ROU assets and lease liabilities on the balance sheet. ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease terms of the commencement date. Because the leases do not provide an explicit or implicit rate of return, the Company determines incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis. The incremental borrowing rate fora lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount equal to the lease payments for the asset under similar term, which is 5.25%. The lease does not contain any residual value guarantees or material restrictive covenants. The remaining terms of September 30, 2020 is 8 months and subject to the priority of signing a new lease agreement within a 60-day written notice before the current lease agreement is due. The Company currently has no finance leases.

 

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The components of lease expense consist of the following:

 

				Nine Month Ended September 30,
		Classification		2020				2019
Operating lease cost		Selling, General & Administrative expenses		$	28,621			$	6,469
Net lease cost				$	28,621			$	6,469

 

Balance sheet information related to leases consists of the following:

 

		Classification		September 30, 2020				December 31, 2019
Assets
Operating lease ROU assets		Right-of-use assets		$	111,360			$	5,588
Total leased assets				$	111,360			$	5,588
Liabilities
Current portion
Operating lease liabilities		Current maturities of operating lease liabilities		$	66,800			$	5,838
Non-current portion
Operating lease liabilities		Long-term portion of operating lease liabilities			29,490				-
Total lease liabilities				$	96,290			$	5,838
Weighted average remaining lease term
Operating leases					0.42				0.67
Weighted average discount rate
Operating leases					5.25-7.33	%			7.33	%

 

Cash flow information related to leases consists of the following:

 

		Nine Month Ended September 30,
		2020				2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	46,025			$	6,094
Right-of-use assets obtained in exchange for lease obligations:
Operating leases			27,248				5,813

 

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As previously discussed, the Company adopted Topic 842 by applying the guidance at adoption date, January 1, 2019. As required, the following disclosure is provided for periods prior to adoption, which continue to be presented in accordance with ASC 840. Future minimum lease payment under non-cancellable lease as of September 30, 2020 are as follows:

 

Ending September 30,		Operating Leases
2021		$	70,554
2022			29,398
Total lease payments			99,952
Less: Interest			(3,662	)
Present value of lease liabilities		$	96,290

 

NOTE 10 – STOCKHOLDERS’ DEFICIT

 

Common Stock

 

As of September 30, 2020 the Company had 35,540,000 shares of common stock issued and outstanding. During the nine months ended September 30, 2020, the Company did not issue common stock. On January 4, 2019, the Company issued 110,000 shares of common stock with a fair value of $462,000 for consulting service. During the nine months ended September 30, 2020 and 2019, the Company incurred non-cash stock compensation expense consulting fee of $0 and $346,500, respectively.

  

NOTE 11 – INCOME TAXES

 

The Company accounts for income taxes under ASC 740, “Income Taxes”. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax basis of assets and liabilities and the tax rates in effect when these differences are expected to reverse. It also requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

The Company is subject to taxation in the United States and certain state jurisdictions. The provision for income taxes differs from the amounts which would be provided by applying the statutory federal income tax rate of 21% to the net loss before provision for income taxes. HKFW in Hong Kong are governed by the Inland Revenue Ordinance Tax Law of Hong Kong, and are generally subject to a profits tax at the rate of 16.5% on the estimated assessable profits. CBNB in the PRC is governed by the Income Tax Law of the PRC concerning the private enterprises, which are generally subject to tax at 25% on income reported in the statutory financial statements after appropriated adjustments.

 

The Company’s income tax expense is mainly contributed by its subsidiaries in PRC.

 

In addition, the 2017 Tax Act also creates a new requirement that certain income (i.e., Global Intangible Low-Taxed Income (“GILTI”)) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S. shareholder income. GILTI is the excess of the shareholder’s net CFC tested income over the net deemed tangible income return, which is currently defined as the excess of (1) 10 percent of the aggregate of the U.S. shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it is a U.S. shareholder over (2) the amount of certain interest expense taken into account in the determination of net CFC-tested income. The Company has elected to recognize the tax on GILTI as a period expense in the period the tax is incurred. For the three and nine months ended September 30, 2020 and 2019, no GILTI tax obligation existed and the GILTI tax expense was $0.

 

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Provision (benefit) for income tax for the three months ended September 30, 2020 consisted of:

 

Three months ended September 30, 2020		Federal				State				Foreign				Total
Current		$	-			$	-			$	13			$	13
Deferred			-				-				-				-
Total		$	-			$	-			$	13			$	13

 

Provision (benefit) for income tax for the three months ended September 30, 2019 consisted of:

 

Three months ended September 30, 2019		Federal				State				Foreign				Total
Current		$	-			$	-			$	4,333			$	4,333
Deferred			-				-				-				-
Total		$	-			$	-			$	4,333			$	4,333

 

Provision (benefit) for income tax for the nine months ended September 30, 2020 consisted of:

 

Nine months ended September 30, 2020		Federal				State				Foreign				Total
Current		$	-			$	800			$	2,495			$	3,295
Deferred			-				-				-				-
Total		$	-			$	800			$	2,495			$	3,295

 

Provision (benefit) for income tax for the nine months ended September 30, 2019 consisted of:

 

Nine months ended September 30, 2019		Federal				State				Foreign				Total
Current		$	-			$	800			$	4,333			$	5,133
Deferred			-				-				-				-
Total		$	-			$	800			$	4,333			$	5,133

 

Net deferred tax assets consist of the following components as of:

 

		September 30, 2020				December 31, 2019
Deferred tax asset:
Net operating loss carry forwards		$	144,049			$	269,052
Valuation allowance			(144,049	)			(269,052	)
Net deferred tax asset		$	-			$	-

 

 Due to the change in ownership provisions of the Income Tax laws of United States of America, net operating loss carry forwards of approximately $350,000, which expires in 2033, for federal income tax reporting purposes are subject to annual limitations. When a change in ownership occurs, net operating loss carry forwards may be limited as to use in future years. Tax filings for the Company for the years 2014 and 2015 are available for examination by stat tax jurisdictions and federal tax purposes.

 

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NOTE 12 – SEGMENT REPORTING

 

The geographical distributions of the Company’s financial information for the nine months ended September 30, 2020 and 2019 were as follows:

 

		For the nine months ended September 30,
Geographic Areas		2020				2019
Revenue
PRC		$	161,059			$	264,644
USA			-				-
Total Revenue		$	161,059			$	264,644
Income (Loss) from Operations
PRC		$	28,642			$	99,451
USA			(73,714	)			(427,128	)
Total Income (Loss) from operations		$	(45,072	)		$	(327,677	)
Net Income (Loss)
PRC		$	26,425			$	95,177
USA			(135,796	)			(484,254	)
Total Net Income (Loss)		$	(109,371	)		$	(389,077	)

 

The geographical distribution of the Company’s financial information as of September 30, 2020 and December 31, 2019 were as follows:

 

		As of
Geographic Areas		September 30, 2020				December 31, 2019
Reportable Assets
PRC			284,365				167,774
USA			(25,145	)			35,672
Elimination Adjustment			(25,757	)			(25,757	)
Total Reportable Assets		$	233,463			$	177,689

  

NOTE 13 – SUBSEQUENT EVENT

 

The Company has evaluated all subsequent events through the date the unaudited consolidated financial statements were issued and determine that there were no subsequent events or transactions that require recognition or disclosures in the unaudited consolidated financial statements.

 

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

 

As used in this Form 10-Q, references to “MakingORG”,” the “Company,” “we,” “our” or “us” refer to MakingORG, Inc. and subsidiaries unless the context otherwise indicates.

 

Forward-Looking Statements

 

The following discussion should be read in conjunction with our financial statements, which are included elsewhere in this Form 10-Q (the “Report”). This Report contains forward-looking statements which relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

 

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. We assume no obligation to update forward-looking statements, except as otherwise required under the applicable federal securities laws.

 

Plan of Operation

 

Our sole officer and director intend to sell Acer truncatum bunge related health product in the United States and PRC, we might just identify and negotiate with another company for the business combination or merger of that entity with and into our company. We would seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of a publicly held corporation. At this time, we have no plan, proposal, agreement, understanding or arrangement to acquire or merge with any specific business or company, and the Company has not identified any specific business or company for investigation and evaluation. No member of management or promoter of the Company has had any material discussions with any other company with respect to any acquisition of that company.

 

We will not restrict our search for another target company to any specific business, industry or geographical location, and the Company may participate in a business venture of virtually any kind or nature. The discussion of the proposed plan of operation under this caption and throughout this Annual Report is purposefully general and is not meant to be restrictive of the Company’s virtually unlimited discretion to search for and enter into potential business opportunities.

 

The following discussion should be read in conjunction with the unaudited interim financial statements contained in this Report and in conjunction with the Company’s Form 10-K filed on August 18, 2020. Results for interim periods may not be indicative of results for the full year.

 

Critical Accounting Policies and Estimates

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new revenue recognition standard provides a five-step analysis of contracts to determine when and how revenue is recognized. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB deferred the effective date of ASU No. 2014-09 for all entities by one year to annual reporting periods beginning after December 15, 2017. The FASB has issued several updates subsequently, including implementation guidance on principal versus agent considerations, on how an entity should account for licensing arrangements with customers, and to improve guidance on assessing collectability, presentation of sales taxes, noncash consideration, and contract modifications and completed contracts at transition. In general, the Company’s performance obligation is to transfer it products to its end user or distributor. Revenues from product sales are recognized when the customer obtains control of the Company’s finished goods product, which occurs at a point in time, typically upon delivery to the customer.

 

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In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“Topic 842”), which requires lessees to recognize leases on the balance sheet and disclose key information about leasing arrangements. Topic 842 was subsequently amended by ASU 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU 2018-10, Codification Improvements to Topic 842, Leases; ASU 2018-11, Targeted Improvements; and ASU 2019-01, Codification Improvements. The new standard establishes a right-of-use model that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases are classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the statement of income.

 

The new standard was effective for the Company on January 1, 2019. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company adopted the new standard on January 1, 2019 and used the effective date as its date of initial application. Consequently, prior period financial information has not been recast and the disclosures required under the new standard have not been provided for dates and periods before January 1, 2019.

 

The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients”, which permits it not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, the latter not being applicable to the Company. The new standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, it has not recognized ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company also elected the practical expedient to not separate lease and non-lease components for all its leases.

 

The Company believe the most significant effects of the adoption of this standard relate to (1) the recognition of new ROU assets and lease liabilities on its condensed consolidated balance sheet for its office operating leases and (2) providing new disclosures about its leasing activities. There was no change in its leasing activities as a result of adoption.

 

Upon adoption, as of January 1, 2019, the Company recognized operating lease liabilities of $14,079 based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases, as well as corresponding ROU assets of $13,454, the $625 difference attributable to elimination of the accrued and prepaid rent existing as of January 1, 2019.

 

The preparation of unaudited consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the unaudited consolidated financial statements, and the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates.

 

Our operations may be affected by the ongoing COVID-19 pandemic. The ultimate disruption that may result from the virus is uncertain, but it may result in a material adverse impact on our financial position, operations and cash flows.

 

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Results of Operations

 

For the three months ended September 30, 2020 and 2019

 

		Three Months Ended September 30,
		2020				2019				Change				Percent
Net Sales		$	29,532			$	231,580			$	(202,048	)			(87	)%
Cost of Sales			19,428				123,634				(104,206	)			(84	)%
Gross Profit			10,104				107,946				(97,842	)			(91	)%
Operating expenses:
Selling, general and administrative expenses			26,145				12,791				13,354				104	%
Professional fees			28,237				137,021				(108,784	)			(79	)%
Total operating expenses			54,382				149,812				(95,430	)			(64	)%
Loss from operations			(44,278	)			(41,866	)			(2,412	)			6	%
Other income (expense):
Interest income			51				31				20				(65	)%
Interest expense			(15,067	)			(16,000	)			933				(6	)%
Loss on inventory write-down			(2,404	)			(2,776	)			372				(13	)%
Total other income (expense)			(17,420	)			(18,745	)			1,325				(7	)%
Loss before income taxes			(61,698	)			(60,611	)			1,087				2	%
Income tax expense			13				4,333				(4,320	)			(100	)%
Net loss		$	(61,711	)		$	(64,944	)		$	3,233				(5	)%

 

Net sales

 

The Company consolidated net sales for the three months ended September 30, 2020 and 2019 was $29,532 and $231,580, respectively. The cost of sales for the three months ended September 30, 2020 and 2019 was $19,428 and $123,634, respectively, resulting in a gross profit of $10,104 and $107,946 for the three months ended September 30, 2020 and 2019, respectively. Revenue decreased due to decrease in sales in PRC caused mainly by COVID19. The sales concentrates on one customer which consists of 100% of the revenue.

 

Total operating expenses

 

During the three months ended September 30, 2020, total operating expenses were $54,382, which consisted of professional fees of $28,237, China salary and China office expense of $4,581, rent expenses of $7,648 and $3,200 expenses in U.S. During the three months ended September 30, 2019, total operating expenses were $149,812, which mainly consisted of professional fees of $137,021, rent expenses of $2,156 and China expense of $8,899. Total operating expenses decreased $95,430, or 64%, primarily due to the decrease in professional fees for the three months ended September 30, 2020 compared with the three months ended September 30, 2019.

 

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Total other income (expense)

 

During the three months ended September 30, 2020, the Company had total other expenses of $17,420, which consists of interest income of $51, interest expense of $15,067 and inventory write-down of $2,404. During the three months ended September 30, 2019, the Company’s total other expenses were $18,745, which consisted of interest expense of $16,000, interest income of $31, and gain on inventory write-down of $2,776.

     

Net loss

 

During the three months ended September 30, 2020, the Company had a net loss of $61,711, a $3,233 or 5% decrease compared with a net loss of $64,944 for the three months ended September 30, 2019. The decrease in net loss was predominantly due to the reasons stated above.

  

For the nine months ended September 30, 2020 and 2019

 

		Nine Months Ended September 30,
		2020				2019				Change				Percent
Net Sales		$	161,059			$	264,644			$	(103,585	)			(39	)%
Cost of Sales			91,404				141,928				(50,524	)			(36	)%
Gross Profit			69,655				122,716				(53,061	)			(43	)%
Operating expenses:
Selling, general and administrative expenses			50,541				32,377				18,164				56	%
Professional fees			64,186				418,017				(353,831	)			(85	)%
Total operating expenses			114,727				450,394				(335,667	)			(75	)%
Loss from operations			(45,072	)			(327,678	)			282,606				(86	)%
Other income (expenses):
Interest income			278				59				219				371	%
Interest expense			(54,266	)			(48,000	)			(6,266	)			13	%
Loss on inventory write-down			(7,016	)			(8,326	)			(1,310	)			(17	)%
Total other income (expenses)			(61,004	)			(56,267	)			(4,737	)			8	%
Loss before income taxes			(106,076	)			(383,945	)			277,869				(72	)%
Income tax expense			3,295				5,133				(1,838	)			(36	)%
Net loss		$	(109,371	)		$	(389,078	)		$	279,707				(72	)%

 

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Net sales

 

The Company consolidated net sales for the nine months ended September 30, 2020 was $161,059, a decrease of $103,585 or 39% compared with the sales of $264,644 for the nine months ended September 30, 2019. Cost of sales for the nine months ended September 30, 2020 was $91,404, a 50,524 or 36% decrease compared with the cost of sales of $141,928 for the nine months ended September 30, 2019. It resulted in a gross profit of $69,655 for the nine months ended September 30, 2020, a $53,061 or 43% decrease compared with the gross profit of $122,716 for the nine months ended 2019. Revenue decreased due to the global pandemic of COVID 19 started on January 2020. The sales is still concentrated on one customer which consists of 100% of the revenue.

 

Total operating expenses

 

During the nine months ended September 30, 2020, total operating expenses were $114,727, which consisted of professional fees of $64,186, China salaries of $21,998, office and other expenses of $10,393 and rent expenses of $24,274, and other US expenses of $5,745. During the nine months ended September 30, 2019, total operating expenses were $450,394, which mainly consisted of professional fees of $418,017, rent expenses of $6,469 and China expense of $23,294. Total operating expenses decreased $335,667, or 75%, primarily due to the decrease in professional fees for the nine months ended September 30, 2020 compared with the nine months ended September 30, 2019. The main reason is caused by the decrease of scale of business caused by COVID 19.

 

Total other income (expenses)

 

During the nine months ended September 30, 2020, the Company had other expenses of $61,004, which consists of interest income of $278, interest expenses of 54,266 and loss on inventory write-down of $7,016. During the nine months ended September 30, 2019, the Company total other expenses were $56,267, which consisted of interest expense of $48,000, interest income of $59 and loss on inventory write-down of $8,326. The increase of $4,737 or 8% in other expenses was primarily caused by the increase of interest expense for the nine months ended September 30, 2020 compared to the same period in 2019.

 

Net loss

 

During the nine months ended September 30, 2020, the Company had a net loss of $109,371, a decrease of $279,707 or 72% compared with a net loss of $389,078 for the nine months ended September 30, 2019. The decrease in net loss was due to the reasons stated above.

 

Liquidity and Capital Resources

 

As of September 30, 2020, the Company had cash and cash equivalents and total assets of $28,394 and $233,463, respectively. As of said date, the Company has total liabilities of $719,797, of which $200,000 is convertible note payable and $315,926 is due to our sole officer and director as an unsecured, non-interest-bearing demand loan. As of September 30, 2020, the Company had cash & cash equivalents of $94,211, total assets of 177,689, total liabilities of $556,992, of which $163,733 is convertible note payable, $285,869 is due to the officer as of December 31, 2019.

 

Other than an oral agreement with Ms. Cui to fund the expenses of the Company, we currently have no agreements, arrangements or understandings with financial institution or any person to obtain funds through bank loans, lines of credit or any other sources. Since the Company has no such arrangements or plans currently in effect, its inability to raise funds for the above purposes will have a severe negative impact on its ability to remain a viable company.

 

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Cash Flows from Operating Activities

 

For the nine months ended September 30, 2020, net cash flows used in operating activities was $84,127, resulting from a net loss of $109,371, an increase caused by inventories write-down of $7,016, a decrease caused by change of accounts receivable of $32,591, an increase caused by inventory change of $18,995, an increased caused by prepaid expenses and other current assets of $2,399, a decrease caused by accrued liabilities of $5,289, an increase of interest payable of $18,000, a decrease caused by net lease liability of $14,904 and return of customer’s deposit of $6,649. For the nine months ended September 30, 2019, net cash flows provided by operating activities was $19,322 resulting from a net loss of $389,078, an increase in shares issued for compensation of $346,500, an increase in amortization of debt discount of $30,000, decrease caused by change of inventory of $5,353 and increase caused by inventory write-down of $8,326, decrease caused by prepaid expenses and other current assets of $15,248, an increase in accrued liabilities of $26,457 and an increase caused by change of interest payable of $18,000. 

 

Cash Flows from Investing Activities

 

For the nine months ended September 30, 2020 and 2019, loan to the Company’s related party CBKB provided a cash flow of $11,759 and $0, respectively.

     

Cash Flows from Financing Activities

 

For the nine months ended September 30, 2020 and 2019, advances from the Company’s sole officer and director provided a cash flow of $30,057 and $48,966, respectively.

 

Going Concern Consideration

 

These consolidated financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to repay its debt obligations, to obtain necessary equity financing to continue operations, and the attainment of profitable operations. Management anticipates that the Company will be dependent, for the near future, on additional investment capital to fund operating expenses. The Company may seek additional funding through additional issuance of common stock and/or borrowings from financial institutions or the majority shareholder to support its normal business operations. In light of management’s efforts, there are no assurances that the Company will be successful in this or any of its endeavors or become financially viable and continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The Company had net loss of $109,371 and $389,078 for the nine months ended September 30, 2020 and 2019, respectively. In addition, the Company had an accumulated deficit of $1,105,214 as of September 30, 2020. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its ability to raise additional capital. The Company’s consolidated financial statements do not include any adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Convertible Note Payable

 

On September 1, 2016, the Company entered into a Convertible Note Agreement in the principal amount of $200,000 with an unrelated party. The note bears interest at 12% per annum and the holder is able to convert all unpaid interest and principal into common shares at $3.50 per share. The note matures on September 1, 2018. The Company recognized a discount on the note of $38,857 at the agreement date. The interest expense was due every six months commencing on March 1, 2017 until the principal amount of this convertible note is paid in full.

 

On September 1, 2018, the Company entered into an Amended and Restated 12% Convertible Promissory Note. Pursuant to an Amended and Restated 12% Convertible Promissory Note, both parties agreed to extend a Convertible Note Agreement to September 1, 2019 with no additional consideration. The Company recognized a discount on the note of $40,000 at the amended agreement date.

 

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On September 1, 2019, the Company entered into an amended and restated 12% convertible promissory note. Pursuant to the amended convertible promissory note, both parties agreed to extend the convertible note agreement to September 1, 2020 with no additional consideration. The Company recognized a discount on the note of $54,400 at the amended agreement date. Since the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.

 

On September 1, 2020, the Company entered into an amended and restated 12% convertible promissory note. Pursuant to the amended convertible promissory note, both parties agreed to extend the convertible note agreement to September 1, 2022 with no additional consideration. The Company recognized a discount on the note of $0 at the amended agreement date.

   

The Company recognized interest expense related to the convertible note of $15,067 and $16,000, respectively, for the three months ended September 30, 2020 and 2019. The Company recognized interest expense related to the convertible note of $54,266 and $48,000, respectively, for the nine months ended September 30, 2020 and 2019. The unamortized debt discount on September 30, 2020 and December 31, 2019 was $0 and $36,267, respectively. As of September 30, 2020, and December 31, 2019, net balance of the convertible note amounted to $200,000 and $163,733, respectively.

   

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosure about Market Risk

 

As a smaller reporting company, we are not required to provide the information required by this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Our management, including our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act as of the end of the period covered by this report. Our management does not expect that our disclosure controls and procedures will prevent all error and all fraud. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

 

Based on that evaluation, as of June 30, 2019, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There were no changes that have affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the period covered by this report. 

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.

 

 Item 1A. Risk Factors.

 

As a smaller reporti0ng company, we are not required to provide the information required by this item.

 

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

 

Unregistered Sales of Equity Securities

 

None.

 

Purchases of equity securities by the issuer and affiliated purchasers

 

None.

 

Use of Proceeds

 

None

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

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Item 6. Exhibits

 

31.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act
32.1		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act

 

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

 

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SIGNATURES

 

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.

 

	MakingORG, Inc.
Dated: November 16, 2020	By:	/s/ Juanzi Cui
	Name:	Juanzi Cui
		President, Chief Executive Officer and Chief Financial Officer (principal executive officer and principal financial and accounting officer)

   

  

MAKINGORG, INC. Reports 03/21/2014 - 10-K 03/12/2015 - 10-K 03/25/2016 - 10-K 04/17/2017 - 10-K 04/17/2018 - 10-K 05/14/2020 - 10-K 04/15/2021 - 10-K 09/13/2013 - 10-Q 11/14/2013 - 10-Q 05/13/2014 - 10-Q 08/04/2014 - 10-Q 11/14/2014 - 10-Q 05/15/2015 - 10-Q 08/13/2015 - 10-Q 11/12/2015 - 10-Q 05/16/2016 - 10-Q 05/15/2017 - 10-Q 08/07/2017 - 10-Q 11/13/2017 - 10-Q 05/15/2018 - 10-Q 08/09/2018 - 10-Q 11/14/2018 - 10-Q 06/29/2020 - 10-Q 08/18/2020 - 10-Q 11/16/2020 - 10-Q 05/17/2021 - 10-Q 08/16/2021 - 10-Q