PART I – FINANCIAL INFORMATION
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on management's beliefs and assumptions, and on information currently available to management. Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2 of Part I of this Quarterly Report on Form 10-Q. Forward-looking statements also include statements in which words such as "expect," "anticipate," "intend," "plan," "believe," "estimate," "consider," or similar expressions are used.
Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties, and assumptions. Our future results and shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to put undue reliance on any forward-looking statements.
ITEM 1. Financial Statements
The unaudited consolidated financial statements of the registrant for the three and six months ended June 30, 2017 and non-consolidated financial statements for 2016 follows. The financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. All such adjustments are of a normal and recurring nature.
J.E.M. CAPITAL, INC.
Balance Sheets
As of June 30, 2017 and December 31, 2016
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Consolidated and unaudited)
|
|
|
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
Cash
|
|
$
|
424
|
|
|
$
|
-
|
|
Deposit paid
|
|
|
550
|
|
|
|
-
|
|
Total current assets
|
|
|
974
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Equipment, Net
|
|
|
3,973
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
4,947
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
43,736
|
|
|
$
|
9,700
|
|
Due to director
|
|
|
98,019
|
|
|
|
-
|
|
Total current liabilities
|
|
|
141,755
|
|
|
|
9,700
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
141,755
|
|
|
$
|
9,700
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.0001 per share, 5,000,000 shares authorized as of June 30, 2017 and December 31, 2016; none issued or outstanding as of June 30, 2017 and December 31, 2016
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 195,000,000 shares authorized, 12,032,400 shares and 10,027,000 shares issued and outstanding as of June 30, 2017 and December 31, 2016
|
|
|
1,203
|
|
|
|
1,003
|
|
Additional paid-in capital
|
|
|
154,097
|
|
|
|
154,097
|
|
Accumulated deficit
|
|
|
(292,108
|
)
|
|
|
(164,800
|
)
|
Total stockholders' deficit
|
|
|
(136,808
|
)
|
|
|
(9,700
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
4,947
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
J.E.M. CAPITAL, INC.
Statements of Operations
For The Three and Six Months Ended June 30, 2017 and 2016
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
(unaudited)
|
|
(unaudited)
|
|
Operating expense:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
50,324
|
|
|
$
|
11,466
|
|
|
$
|
127,308
|
|
|
$
|
18,839
|
|
Total operating expense
|
|
|
50,324
|
|
|
|
11,466
|
|
|
|
127,308
|
|
|
|
18,839
|
|
Loss before provision for income taxes
|
|
|
(50,324
|
)
|
|
|
(11,466
|
)
|
|
|
(127,308
|
)
|
|
|
(18,839
|
)
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net loss
|
|
$
|
(50,324
|
)
|
|
$
|
(11,466
|
)
|
|
$
|
(127,308
|
)
|
|
$
|
(18,839
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted average number of common shares outstanding - basic and diluted
|
|
|
12,143,811
|
|
|
|
10,027,000
|
|
|
|
11,977,002
|
|
|
|
10,027,000
|
|
The accompanying notes are an integral part of these financial statements.
J.E.M. CAPITAL, INC.
Statements of Cash Flows
For The Six Months Ended June 30, 2017 and 2016
|
|
Six Months Ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Consolidated and unaudited)
|
|
|
(Unaudited)
|
|
Operating activities:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(127,308
|
)
|
|
$
|
(18,839
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
790
|
|
|
|
-
|
|
Changes in assets and liabilities
|
|
|
|
|
|
|
|
|
Increased/(decreased) in Accounts payable and accrued liabilities
|
|
|
29,373
|
|
|
|
(257
|
)
|
Net cash used in operating activities
|
|
$
|
(97,145
|
)
|
|
|
(19,096
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
$
|
(450
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
$
|
(450
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
Increased in Contribution of capital for expenses paid by stockholders
|
|
|
-
|
|
|
|
19,096
|
|
Proceeds from director
|
|
|
98,019
|
|
|
|
-
|
|
Net cash provided by financing activities
|
|
$
|
98,019
|
|
|
|
19,096
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
424
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash - Beginning of period
|
|
|
–
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash - End of period
|
|
$
|
424
|
|
|
|
-
|
|
The accompanying notes are an integral part of these financial statements.
J.E.M. CAPITAL, INC.
Notes to 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 include only normal recurring adjustments, necessary for a fair presentation of the financial positions and results of operations for the periods presented. The financial data and other information disclosed in these notes to the interim condensed consolidated financial statements are also unaudited. The results for the three and six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ending December 31, 2017 or for any other interim period or for any future year. These consolidated financial statements should be read in conjunction with the Company's audited financial statements appearing in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
There have been no material changes to the significant accounting policies during the three and six months ended June 30, 2017, as compared to the significant accounting policies described in Note 3 of the "Notes to Financial Statements" in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
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 Elements 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.
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 2 regarding going concern discussion.)
J.E.M. CAPITAL, INC.
Notes to Financial Statements (Unaudited)
Basis of Presentation and 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.
Income Taxes
The Company accounts for income taxes under ASC Topic 740. Under ASC Topic 740, 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. Under ASC Topic 740, 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.
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share are computed in accordance with ASC Topic 260 by dividing the net income (loss) attributable to holders of common stock by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares including the dilutive effect of common share equivalents then outstanding.
The diluted net loss per share is the same as the basic net loss per share for the three and six months ended June 30, 2017 and 2016, as all potential ordinary shares are anti-dilutive and are therefore excluded from the computation of diluted net loss per share.
J.E.M. CAPITAL, INC.
Notes to Financial Statements (Unaudited)
Recent Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business", to clarify the definition of a business. The amendments affect all companies and other reporting organizations that must determine whether they have acquired or sold a business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are intended to help companies and other organizations evaluate whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments are effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the impact of ASU 2017-01 on its consolidated financial position, results of operations and cash flows.
In May 2017, the FASB issued ASU 2017-09 "Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting", to provide guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments are effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently assessing the impact of ASU 2017-09 on its consolidated financial position, results of operations and cash flows.
In July 2017, the FASB issued ASU 2017-11 "Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception", to simplify the accounting for certain financial instruments with down round features. The amendments require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Companies that provide earnings per share (EPS) data will adjust their basic EPS calculation for the effect of the feature when triggered (i.e., when the exercise price of the related equity-linked financial instrument is adjusted downward because of the down round feature) and will also recognize the effect of the trigger within equity. The amendments also address navigational concerns within the FASB Accounting Standards Codification® related to an indefinite deferral available to private companies with mandatorily redeemable financial instruments and certain noncontrolling interests, one that created significant "pending content" in the Codification. The FASB decided to reclassify the indefinite deferral as a scope exception, which does not have an accounting effect. The amendments are effective for fiscal years and interim periods beginning after December 15, 2018. Early adoption is permitted. The Company is currently assessing the impact of ASU 2017-11 on its consolidated financial position, results of operations and cash flows.
3.
Going Concern
The accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation of the Company as a going concern. The Company 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 June 30, 2017, the cash resources of the Company were insufficient to continue to conduct its normal business operations. These and other factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying condensed 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 Company to continue as a going concern.
J.E.M. CAPITAL, INC.
Notes to Financial Statements (Unaudited)
4.
General and Administrative Expenses
The following summarizes the type of expenses incurred during the three and six months ended June 30, 2017 and 2016:
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
(Consolidated and unaudited)
|
|
(Consolidated and unaudited)
|
|
General and administrative expense:
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$
|
9,114
|
|
|
$
|
10,669
|
|
|
$
|
16,327
|
|
|
$
|
16,269
|
|
Filing fees
|
|
|
1,325
|
|
|
|
766
|
|
|
|
5,768
|
|
|
|
1,339
|
|
Franchise Tax expense
|
|
|
840
|
|
|
|
31
|
|
|
|
3,307
|
|
|
|
1,231
|
|
Salary and related expenses
|
|
|
33,639
|
|
|
|
-
|
|
|
|
86,249
|
|
|
|
-
|
|
Depreciation
|
|
|
407
|
|
|
|
-
|
|
|
|
789
|
|
|
|
-
|
|
Other office expenses
|
|
|
4,999
|
|
|
|
-
|
|
|
|
14,868
|
|
|
|
-
|
|
Total general and administrative expense
|
|
$
|
50,324
|
|
|
$
|
11,466
|
|
|
$
|
127,308
|
|
|
$
|
18,839
|
|
5.
Stockholders' Equity
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock with a $0.0001 par value. As of June 30, 2017 and December 31, 2016, there were no shares of preferred stock issued or outstanding.
Common Stock
On January 5, 2017, the Company entered into a Share Exchange Agreement with Essential Elements 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.
The Company is authorized to issue 195,000,000 shares of common stock with a $0.0001 par value. As of June 30, 2017 and December 31, 2016,
12,032,400 shares and 10,027,000 shares of common stock were issued and outstanding, respectively.
As of June 30, 2017 and December 31, 2016, the Company did not have any dilutive securities, such as stock options, warrants or convertible securities, issued or outstanding.
J.E.M. CAPITAL, INC.
Notes to Financial Statements (Unaudited)
6. Related Party Transactions
During the six months ended June 30, 2017, the Company received loans of $98,019 from its director. As of June 30, 2017, the Company recorded an amount of $98,019 payable to director. The amount is unsecured, bears no interest and is repayable on demand. Up to November 2016, all of the Company's expenses were paid by Zosano Pharma, the previous parent company, in order to continue as a going concern.
7. 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 and six months ended June 30, 2017 and 2016 were summarized as follows:
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
(Consolidated and unaudited)
|
|
(Consolidated and unaudited)
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
10,523
|
|
|
$
|
11,466
|
|
|
$
|
24,658
|
|
|
$
|
18,839
|
|
Foreign
|
|
|
39,801
|
|
|
|
-
|
|
|
|
102,650
|
|
|
|
-
|
|
|
|
$
|
50,324
|
|
|
$
|
11,466
|
|
|
$
|
127,308
|
|
|
$
|
18,839
|
|
All tax years are open and subject to examination by the US tax authorities.
As of June 30, 2017, the Company had available federal income tax net operating loss carryforwards of approximately $178,935 and state net operating loss carryforwards of approximately $117,606. As of December 31, 2016, the Company had available federal income tax net operating loss carryforwards of approximately $164,800 and state net operating loss carryforwards of approximately $103,471. If not utilized, the federal income tax net operating loss carryforwards will begin to expire in 2031 and state net operating loss carryforwards will begin to expire in 2033.
The net operating loss carryforwards indicated above represent the principle component of the Company's deferred tax assets as of June 30, 2017 and December 31, 2016. Deferred tax assets of approximately $60,800 and $56,000 as of June 30, 2017 and December 31, 2016, respectively, will be offset by valuation allowance of the same amounts as realization of such assets is uncertain.
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.
The Company's policy is to recognize interest and penalties related to income tax matters as a component of income tax expense. For the period ended June 30, 2017 and 2016, the Company did not recognize any interest or penalties in its financial statements.
8. Lease commitment
The Company signed a lease agreement in December 2016 for the period from January 1, 2017 to December 31, 2021. Annual rent is $2,200 lease expense amounted to $1,100 and zero for the six months ended June 30, 2017 and 2016, respectively.