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 April 15, 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 June 30, 2020 and 2019
Three Months Ended
June 30,
2020 2019 Change Percent
Net Sales $ 10,780 $ 33,064 $ (22,284 ) (67 )%
Cost of Sales 7,734 18,294 (10,560 ) (58 )%
Gross Profit 3,046 14,770 (11,724 ) (79 )%
Operating expenses:
Selling, general and administrative
expenses 15,429 9,201 6,228 68 %
Professional fees 25,649 152,548 (126,899 ) (83 )%
Total operating expenses 41,078 161,749 (120,671 ) (75 )%
Loss from operations (38,032 ) (146,979 ) 108,947 (74 )%
Other income (expense):
Interest income 115 10 105 1050 %
Interest expense (19,600 ) (16,000 ) (3,600 ) 23 %
Loss on inventory write-down (2404 ) (2,775 ) 371 (13 )%
Total other income (expense) (21,889 ) (18,765 ) (3,124 ) 17 %
Loss before income taxes (59,921 ) (165,744 ) 105,823 (64 )%
Income tax expense 780 800 (20 ) (3 )%
Net loss $ (60,701 ) $ (166,544 ) $ 105,843 (64 )%
Net sales
The Company consolidated net sales for the three months ended June 30, 2020 and
2019 was $10,780 and $33,064, respectively. The cost of sales for the three
months ended June 30, 2020 and 2019 was $7,734 and $18,294, respectively,
resulting in a gross profit of $3,046 and $14,770 for the three months ended
June 30, 2020 and 2019, respectively. Revenue decreased due to decrease sales in
PRC for related party sales caused by COVID19. The sales concentrate on one
customer which consists of 100% of the revenue.
Total operating expenses
During the three months ended June 30, 2020, total operating expenses were
$41,078, which consisted of professional fees of $25,649, 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 June 30, 2019, total operating expenses were
$161,749, which mainly consisted of professional fees of $152,548, rent expenses
of $2,157 and China expense of $6,478. Total operating expenses decreased
$120,671, or 75%, primarily due to the decrease in professional fees for the
three months ended June 30, 2020 compared with the three months ended June 30,
2019.
Total other income (expense)
During the three months ended June 30, 2020, the Company had total other
expenses of $21,889, which consists of interest income of $115, interest expense
of $19,600 and inventory write-down of $2,404. During the three months ended
June 30, 2019, the Company total other expenses were $18,765, which consisted of
interest expense of $16,000, interest income of $10, and loss on inventory
write-down of $2,775.
Net loss
During the three months ended June 30, 2020, the Company had a net loss of
$60,701, a $105,843 or 64% decrease compared with a net loss of $166,544 for the
three months ended June 30, 2019. The decrease in net loss was predominantly due
to the reasons stated above.
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For the six months ended June 30, 2020 and 2019
Six Months Ended
June 30,
2020 2019 Change Percent
Net Sales $ 131,527 $ 33,064 $ 98,463 298 %
Cost of Sales 71,976 18,294 53,682 293 %
Gross Profit 59,551 14,770 44,781 303 %
Operating expenses:
Selling, general and administrative
expenses 24,397 19,586 4,811 25 %
Professional fees 35,949 280,996 (245,047 ) (87 )%
Total operating expenses 60,346 300,582 (240,236 ) (80 )%
Loss from operations (795 ) (285,812 ) 285,017 (100 )%
Other income (expenses):
Interest income 227 28 199 711 %
Interest expense (39,200 ) (32,000 ) (7,200 ) 23 %
Other income 1 - 1 -
Loss on inventory write-down (4,611 ) (5,550 ) 939 (17 )%
Total other income (expenses) (43,583 ) (37,522 ) (6,061 ) 16 %
Loss before income taxes (44,378 ) (323,334 ) 278,956 (86 )%
Income tax expense 3,282 800 2,482 310 %
Net loss $ (47,660 ) $ (324,134 ) $ 276,474 (85 )%
Net sales
The Company consolidated net sales for the six months ended June 30, 2020 and
2019 was $131,527 and $33,604, respectively. The cost of sales for the six
months ended June 30, 2020 and 2019 was $71,976 and $18,294, respectively,
resulting in a gross profit of $59,551 and $14,770 for the six months ended June
30, 2020 and 2019, respectively. Revenue increased due to the Company sales
quantity increased based on the sales contract entered with one customer in
2019. The sales concentrate on one customer which consists of 100% of the
revenue.
Total operating expenses
During the six months ended June 30, 2020, total operating expenses were
$60,346, which consisted of professional fees of $35,949, China salaries, office
expenses and miscellaneous expenses of $11,004 and rent expenses of $7,648, and
US expenses of $5,745. During the six months ended June 30, 2019, total
operating expenses were $300,582, which mainly consisted of professional fees of
$280,996, rent expenses of $4,313 and China expense of $14,278. Total operating
expenses decreased $240,236, or 80%, primarily because of the decrease in
professional fees for the six months ended June 30, 2020 compared with the six
months ended June 30, 2019.
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Total other income (expenses)
During the six months ended June 30, 2020, the Company had interest expense of
$43,583, which consists of interest income of $227, interest expenses of 39,200
and loss on inventory write-down of $4,611. During the six months ended June 30,
2019, the Company total other expenses were $37,522, which consisted of interest
expense of $32,000, interest income of $28, and loss on inventory write-down of
$5,550. The decrease of $6,061 or 16% in other income (expenses) is caused
primarily by the decrease of interest expense for the six months ended June 30,
2020 compared to the same period in 2019.
Net loss
During the six months ended June 30, 2020, the Company had a net loss of
$47,660, a decrease of $276,474 or 85% as compared with a net loss of $324,134
for the six months ended June 30, 2019. The decrease in net loss was
predominantly due to the reasons stated above.
Liquidity and Capital Resources
As of June 30, 2020, the Company had cash and cash equivalents and total assets
of $131,267 and $281,499, respectively. As of said date, the Company has total
liabilities of $710,586, of which $190,933 is due to convertible note payable
and $304,525 is due to our sole officer and director as an unsecured,
non-interest-bearing demand loan. As of June 30, 2020, and December 31, 2019,
the Company had working capital amount of $(509,000) and $(384,891),
respectively.
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.
Cash Flows from Operating Activities
For the six months ended June 30, 2020, net cash flows provided in operating
activities was $19,898 resulting from a net loss of $47,660, an increase caused
by inventories of $33,794, an decrease caused by prepaid expenses and other
current assets of $13,303, a decrease caused by accrued liabilities of $1,487,
an increase caused by loss on inventory write-down of $4,612, increase of
interest payable of $12,000, a decrease caused by net lease liability of
$15,250, increase caused by amortization of debt discount of $27,200, and return
of customer deposit of $6,614. For the six months ended June 30, 2019, net cash
flows used in operating activities was $65,976 resulting from a net loss of
$324,134, an increase in accounts receivable of $14,945, an increase in prepaid
expenses and other current assets of $5,270, an increase in accrued liabilities
of $22,011, loss on inventory write-down of $5,550, shares issued for
compensation of $231,000, amortization of right-of use assets of $188 and
amortization of debt discount of $20,000.
Cash Flows from Investing Activities
For the six months ended June 30, 2020 and 2019, the Company did not have any
cash flow from investing activities.
Cash Flows from Financing Activities
For the six months ended June 30, 2020 and 2019, advances from the Company's
sole officer and director provided $18,656 and $40,000, respectively.
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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 $47,660 and $324,134 for the six months ended June
30, 2020 and 2019, respectively. In addition, the Company had an accumulated
deficit of $1,043,503 as of June 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.
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.
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The Company recognized interest expense related to the convertible note of
$19,600 and $16,000, respectively, for the three months ended June 30, 2020 and
2019. The Company recognized interest expense related to the convertible note of
$39,200 and $32,000, respectively, for the six months ended June 30, 2020 and
2019. The unamortized debt discount at June 30, 2020 and December 31, 2019 was
$9,067 and $36,267, respectively. As of June 30, 2020, and December 31, 2019,
net balance of the convertible note amounted to $190,333 and $163,733,
respectively.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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MAKINGORG, INC. 
