The accompanying notes are an
integral part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
The accompanying notes are an integral
part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying interim condensed consolidated
financial statements are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the
same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments,
which includes normal recurring adjustments or a description of the nature and amount of any adjustments other than normal recurring
adjustments, necessary for a fair presentation of the consolidated financial positions and results of operations for the periods
presented. The consolidated financial data and other information disclosed in these notes to the interim condensed consolidated
financial statements are also unaudited. The results for the three months ended March 31, 2020 are not necessarily indicative of
the results to be expected for the year ending December 31, 2020 or for any other interim period or for any future year. These
consolidated financial statements should be read in conjunction with the Group's audited consolidated financial statements appearing
in the Group's Annual Report on Form 10-K for the year ended December 31, 2019. The disclosures made in the unaudited interim condensed
consolidated financial statements generally do not repeat those in the annual statements.
There have been no material changes to the
significant accounting policies during the three months ended March 31, 2020, as compared to the significant accounting policies
described in Note 2 of the "Notes to Consolidated Financial Statements" in the Group's Annual Report on Form 10-K for
the year ended December 31, 2019.
2. Summary of Significant Accounting Policies
Nature of Operations
J.E.M. Capital, Inc. (the “Company”)
was incorporated under the laws of the State of Delaware on September 14, 2011 and has had limited operations since inception.
The Company's current business plan is to seek to identify a privately held operating company desiring to become a publicly held
company by merging with the Company through a reverse merger or acquisition. The Company is a shell company as defined in Rule
12b-2 promulgated under the Securities Exchange Act of 1934. As a shell company, the Company has no operations and assets.
On January 5, 2017, the Company entered into
a Share Exchange Agreement (the "Agreement") with Essential Element Limited, a British Virgin Islands company ("ESEL"),
and Leung Chi Wah Earnest (“Mr. Leung”), the principal shareholder of ESEL, pursuant to which the Company issued an
aggregate of 2,005,400 shares of common stock, or approximately 17% of the issued and outstanding common stock of the Company,
to Mr. Leung in exchange for 100% of the issued and outstanding shares of ESEL. ESEL owns all of the issued and outstanding
shares of J.E.M. Capital Limited, a company organized under the laws of Hong Kong ("JEM Capital").
ESEL and JEM Capital currently have no operations,
but include the corporate structure that the Company believes necessary for the acquisition of assets in Hong Kong and China. ESEL
has incurred material expenses setting up such structure.
Risks and Uncertainties
The Company's activities are subject to significant
risks and uncertainties, including failure to identify a privately held operating company desiring to merge with the Company, failure
to complete a reverse merger transaction, and inability to secure funding to continue as a going concern. (See Note 3 regarding
going concern discussion.)
- 7 -
J.E.M. CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Use of Estimates
The accompanying condensed consolidated financial
statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for
interim financial reporting and as required by Regulation S-X, Rule 10-01. The preparation of the accompanying condensed consolidated
financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the condensed consolidated
financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ
from those estimates.
Principles of Consolidation
The unaudited condensed consolidated financial
statements include the financial statements of the Company and its subsidiaries for which it is the primary beneficiary. Upon making
this determination, the Company is deemed to be the primary beneficiary of the entity, which is then required to be consolidated
for financial reporting purposes. All significant intercompany transactions and balances have been eliminated upon consolidation.
Equipment, net
Equipment is stated at cost less accumulated
depreciation and impairment losses, if any. Depreciation is provided on a straight-line basis, less estimated residual values
over the assets' estimated useful lives. The estimated useful lives are as follows:
Computer hardware and software
|
3 years
|
When equipment is retired or otherwise disposed
of, the related cost, accumulated depreciation and provision for impairment loss, if any, are removed from the respective accounts,
and any gain or loss is reflected in the consolidated statements of operations. Repairs and maintenance costs on equipment are
expensed as incurred.
Impairment of Long-Lived Assets
Long-lived assets, such as equipment, are reviewed
for impairment whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable.
An impairment loss is recognized when the carrying amount of a long-lived asset exceeds the sum of the undiscounted cash flows
expected to be generated from the asset's use and eventual disposition. An impairment loss is measured as the amount by which the
carrying amount exceeds the fair value of the asset calculated using an undiscounted cash flow analysis. There was no impairment
of long-lived assets for the three months ended March 31, 2020 and 2019.
Fair value of financial instruments
ASC Topic 825, "Financial Instruments",
requires disclosing fair value to the extent practicable for financial instruments which are recognized or unrecognized in the
balance sheets. The fair values of the financial instruments are not necessarily representative of the amount that could be realized
or settled, nor does the fair value amount consider the tax consequences of realization or settlement. For certain financial instruments,
including prepaid expenses, accounts payable and accrued expenses, the fair values were determined based on the near-term maturities
of such the assets and liabilities.
- 8 -
J.E.M. CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
Revenue
The Group has yet to generate revenue from
operations for the three months ended March 31, 2020 and 2019.
Net Loss per Common Share
Basic loss per share is computed by dividing
the net loss attributable to the common stockholders by the weighted average number of shares of common stock outstanding during
the period. Fully diluted loss per share is computed similar to basic loss per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding if the potential common shares had been issued
and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding for the three
months ended March 31, 2020 and 2019.
Stock-based Compensation
The Group adopted ASC Topic 718, using a modified
prospective application transition method, which establishes accounting for stock- based awards in exchange for employee services.
Under this application, the Group is required to record stock-based compensation expense for all awards granted after the date
of adoption and unvested awards that were outstanding as of the date of adoption. ASC Topic 718 requires that stock-based compensation
cost is measured at grant date, based on the fair value of the award, and recognized as expense over the requisite services period.
The stock-based compensation expenses are recognized on a straight-line basis over the shorter of the period over which services
are to be received or the vesting period.
Under ASC Topic 718, the amount of stock-based
compensation expense recognized is based on the portion of the awards that are ultimately expected to vest. Accordingly, the Group
recognize forfeitures as they occur, and will reduce the fair value of the stock option awards for expected forfeitures if deemed
necessary, which are forfeitures of the unvested portion of surrendered options. Based on our historical experience and future
expectations, we have not reduced the amount of stock-based compensation expenses for anticipated forfeitures.
The Group issue shares upon receiving a written
notice of exercise of stock options from a grantee, and the related payment for the shares. As at March 31, 2020, the Group has
not issued any stock options and does not anticipate repurchasing shares in the following annual period.
Income Taxes
The Group accounts for income taxes under ASC
Topic 740, Income Tax. Deferred tax assets and liabilities are provided for the future tax effects attributable to temporary differences
between the financial statement carrying amounts of assets and liabilities and their respective tax bases, and for the expected
future tax benefits from items including tax loss carry forwards.
Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or reversed. The expense or benefit related to adjusting deferred tax assets and liabilities as a result of a change
in tax rates is recognized in income or loss in the period that includes the enactment date.
The Group recognizes and measures uncertain
tax positions and records tax benefits when it is more likely than not that the tax position will be sustained on examination by
the taxing authorities based on the technical merits of the position. The tax benefits recognized in the consolidated financial
statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement. The Group recognizes interest and penalties as a component of income tax expense if applicable. For the
three months ended March 31, 2020 and 2019, the Group had not recognized any interest or penalties on its consolidated financial
statements.
Recent Accounting Pronouncements
The Group has implemented all new accounting
pronouncements that are in effect. These pronouncements did not have any material impact on the consolidated financial statements
unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued
that might have a material impact on our consolidated financial position or results of operations.
- 9 -
J.E.M. CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
3. Going Concern
The accompanying
consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Group
as a going concern. The Group has not established any source of revenues to cover its operating costs, and as such, has incurred
an operating loss since inception. Further, as of March 31, 2020, the cash resources of the Group were insufficient to continue
to conduct its normal business operations. These and other factors raise substantial doubt about the Group's ability to continue
as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future
effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from
the possible inability of the Group to continue as a going concern.
In order to continue as a going concern, the
Group will need, among other things, additional capital resources. The directors of the Group have agreed to provide financial
support to the Group continuously as and when required so as to enable the Group meeting all its obligations and cash requirements.
In addition, the Group will consider to raise funds through the sale of its equity securities and issuance of debt instruments
to obtain additional operating capital. The Group is and will continue to be dependent upon its ability, and will continue to attempt,
to secure additional equity and/or debt financing until the Group can earn revenue and realize positive cash flow from its operations.
Based on the Group’s best estimates, the Group believes that there are sufficient financial resources to meet the cash requirements
for the coming twelve months and the consolidated financial statements have been prepared on a going concern basis. However, there
can be no assurance the Group will be able to continue as a going concern.
4. General and Administrative
Expenses
The following summarizes the type of expenses incurred during the
three months ended March 31, 2020 and 2019:
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(Consolidated and unaudited)
|
|
(Consolidated and unaudited)
|
|
General and administrative expense:
|
|
|
|
|
Professional fees
|
|
$
|
12,496
|
|
|
$
|
4,350
|
|
Franchise tax expense
|
|
|
450
|
|
|
|
-
|
|
Directors’ fees
|
|
|
6,000
|
|
|
|
-
|
|
Depreciation
|
|
|
-
|
|
|
|
125
|
|
Write off of equipment
|
|
|
-
|
|
|
|
371
|
|
Total general and administrative expense
|
|
$
|
18,946
|
|
|
$
|
4,846
|
|
5. Commitments and contingencies
Contingencies
The Group accounts for loss contingencies in
accordance with ASC Topic 450 and other related guidelines. As of March 31, 2020 and December 31, 2019, the Group's management
is of the opinion that there are no commitments and contingencies to account for.
- 10 -
J.E.M. CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
6. Stockholders' Equity
Preferred Stock
In September 2013, the Company adopted
an amended and restated certificate of incorporation by which the Company is authorized to issue 5,000,000 shares of preferred
stock with a $0.0001 par value. As of March 31, 2020 and December 31, 2019, there were no shares of preferred stock issued or outstanding.
Common Stock, Stock Split and
Dividend
In September 2013, the Company adopted
an amended and restated certificate of incorporation by which the Company is authorized to issue 195,000,000 shares of common stock
with a $0.0001 par value, which amended and restated certificate of incorporation went effective on October 21, 2013.
In anticipation of the acquisition
of the Company’s common stock by Zosano Pharma and on October 21, 2013, the Company completed a 1-for-200 reverse stock split.
As a result, existing stockholders held an aggregate of 10,027 shares on a post-split basis. All share and per share amounts have
been retroactively restated for the effect of this split.
On October 31, 2013, the Company issued
10,016,973 shares of common stock to Zosano Pharma in exchange for an aggregate cash purchase price of $365,000. Concurrently with
the receipt of the proceeds from the sale of its common stock to Zosano Pharma, the Company declared a dividend of the purchase
price to its stockholders of record immediately prior to the closing of the purchase transaction.
On January 5, 2017, the Company entered
into a Share Exchange Agreement with Essential Element Limited, a British Virgin Islands company (“ESEL”), and Leung
Chi Wah Earnest, the principal shareholder of ESEL, pursuant to which the Company issued an aggregate of 2,005,400 shares of common
stock, or approximately 17% of the issued and outstanding common stock of the Company, to Mr. Leung in exchange for 100% of the
issued and outstanding shares of ESEL. ESEL owns all of the issued and outstanding shares of J.E.M. Capital Limited, a company
organized under the laws of Hong Kong (“JEM Capital”). ESEL and JEM Capital currently have no operations, but include
the corporate structure that the Company believes necessary for the acquisition of assets in Hong Kong and China. ESEL has incurred
material expenses setting up such structure.
On June 21, 2019, the Company passed a unanimous
written consent of the Board of Directors to issue 1,000,000 and 1,000,000 common shares to Mr. MingJing Xia (“Mr. Xia”)
and Mr. Yulong Yang (“Mr. Yang”), respectively. These shares were issued on the same date to Mr. Xia for his service
in the capacity of Chief Financial Officer and Chairperson of the Board, and issued to Mr. Yang for his service in the capacity
of Chief Executive Officer and member of the Board, for their first year’s services commencing from 1 July 2019. Both of
Mr. Xia and Mr. Yang are entitled to a monthly salary of $1,000 during this period. In connection with these stock grants and in
accordance with ASC Topic 718, the Company recognized $6,000 of non-cash stock-based compensation included in general and administrative
expenses on the consolidated statements of operations for the three months ended March 31, 2020.
The Company is authorized to issue 195,000,000
shares of common stock with a $0.0001 par value. As of March 31, 2020 and 31 December, 2019, 14,032,400 shares of common stock
were issued and outstanding.
As of March 31, 2020 and 31 December,
2019, the Company did not have any dilutive securities, such as stock options, warrants or convertible securities, issued or outstanding.
7. Related Party Transactions
During the three months
ended March 31, 2020 and 2019, the Group received loans of $59,166 and $12,436 from its shareholders, respectively. As of March
31, 2020 and December 31, 2019, the Company recorded an amount of $132,597 and $73,431, respectively, payable to its shareholders.
The amounts are unsecured, bear no interest and are repayable on demand.
On June 21, 2019, the Company
passed a unanimous written consent of the Board of Directors to issue 1,000,000 and 1,000,000 common shares to Mr. MingJing Xia
(“Mr. Xia”) and Mr. Yulong Yang (“Mr. Yang”), respectively. These shares were issued on the same date to
Mr. Xia for his service in the capacity of Chief Financial Officer and Chairperson of the Board, and issued to Mr. Yang for his
service in the capacity of Chief Executive Officer and member of the Board, for their first year’s services commencing from
1 July 2019. Both of Mr. Xia and Mr. Yang are entitled to a monthly salary of $1,000 during this period.
- 11 -
J.E.M. CAPITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)
8. Income taxes
Income is subject to taxation in various countries
in which the Company and its subsidiaries operate or are incorporated. The loss before income taxes by geographical locations for
the three months ended March 31, 2020 and 2019 were summarized as follows:
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(Consolidated and unaudited)
|
|
(Consolidated and unaudited)
|
|
United States
|
|
$
|
18,946
|
|
|
$
|
4,350
|
|
Foreign
|
|
|
-
|
|
|
|
496
|
|
|
|
$
|
18,946
|
|
|
$
|
4,846
|
|
The Company
had accumulated tax losses of approximately $241,000 and $222,000 as of March 31, 2020 and December 31, 2019, respectively. The
accumulated tax losses prior to 2018 will expire between 2031 and 2037 while the losses incurred in 2018 and 2019 do not have expiration
date.
The
net operating loss carryforwards indicated above represent the principle component of the Company's deferred tax assets as of March
31, 2020 and December 31, 2019. Deferred tax assets of approximately $67,000 and $62,000 as of March 31, 2020 and December 31,
2019, respectively, will be offset by valuation allowance of the same amounts as realization of such assets is uncertain.
No deferred tax assets have been recognised
in respect of the accumulated net operating losses made by the foreign subsidiaries, as these subsidiaries have not commenced business
and derived income in so far, and the tax losses that incurred are not able to be carry forward and offset against future profits
in their respective tax jurisdictions.
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
67,064
|
|
|
$
|
61,783
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
67,064
|
|
|
|
61,783
|
|
Less: Valuation allowance
|
|
|
(67,064
|
)
|
|
|
(61,783
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Movement in valuation allowance:
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
At the beginning of the period/year
|
|
$
|
61,783
|
|
|
$
|
52,363
|
|
Current period/year addition
|
|
|
5,281
|
|
|
|
9,420
|
|
At the end of the period/year
|
|
$
|
67,064
|
|
|
$
|
61,783
|
|
The provision for income
taxes differs from the expected provision determined by applying the federal statutory tax rate to the loss before income taxes.
The reasons for the difference are state and local income taxes and various non-deductible expenses.
The Company' income tax
returns are subject to examination for three years from the date filed or the due date, whichever is later.
The Company did not identify
any material uncertain tax positions.
- 12 -