Item 1. Business
Overview of Our Business
We were incorporated on June 28, 2010 in the State of Nevada. Our plan was to become a successful commercial FM radio broadcaster. Our current plan is to become a successful global medical and spa Company within an industry that has been on a rocket trajectory. The wellness and spa business segment alone increased from $60 billion in revenues, in 2007, to $78 billion in 2013. The fastest growing market segment has been the Orient based spas, which have seen a 20 per cent growth in annual revenues during this period. This segment is also projected to increase revenues by an additional 9.1 per cent by year 2017.
Organizational History
We were incorporated on June 28, 2010 in the State of Nevada. As of April 22, 2013 we had 4,300,000 shares of our common stock, $0.001 par value, issued and outstanding. Because we currently have nominal operations and minimal assets, we are currently considered to be a shell company as defined in Rule 12b-2 of the Exchange Act, as amended. Because we are considered a shell company, the securities previously sold in past offerings can only be resold through (i) registration under the Securities Act of 1933, as amended (“Securities Act”), (ii) Section 4(1) of the Securities Act, if available, for non-affiliates, or (iii) by meeting the conditions of Rule 144(i) of the Securities Act.
We are authorized to issue up to 75 million (75,000,000) shares of capital stock; seventy million (70,000,000) shares of which are designated as common stock, $0.001 par value, and five million (5,000,000) shares designated as preferred stock, $0.001 par value. Shares of our preferred stock can be designated by the Board of Directors in one or more classes with voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as deemed appropriate by the Board of Directors.
Industry Background
The growing stresses of modern living and the rise of chronic ailments are among the many 21st century forces fueling the Medical and Day Spa Industry. In addition, people find themselves looking for a change in their diminished limited time off and are demanding destinations that deliver physical, emotional , spiritual , environmental health with of course enjoyment.
The medical and global spa industry combination we we intend to pursue have been on a rocket trajectory, increasing from $160 billion in revenues, in 2007, to an estimated $1988 billion in 2013. For the spas, the fastest growing market segment has been the Orient based spas, which have seen a 20 per cent growth in annual revenues during this period. This segment is also projected to increase revenues by an additional 9.1 per cent by year 2017. For the medical market the growth is in USA, Europe, and the world market in general.
North America and Europe dominate the Non Invasive, No Medication and Day Spa market with well educated , affluent , middle aged consumers. United States , Germany , France , Austria , Switzerland drive this growth and represent 41 per cent of customer traffic world-wide. Combined they accounted for 285 million spa visits in 2013, with an average of $ 87 dollars spent per visit spent. The U.S. market has grown from $13.4 billion, in 2011, to $14 billion, in 2012 and estimated 2013 is in exceed $15 billion. Fueling these numbers is the amazing spa visits in the U.S. which numbered 166 million in 2013, an increase of 2.5 per cent from previous year.
This steady growth is attributed to the industry’s creative marketing approach. These efforts have been backed by some discounting but mainly focus on changing the perception of day spas begin in wellness rather than a luxury that is limited to a few. One of the more successful of these strategies has been targeting men and bringing them into the spa experience. Men accounted for less than 2 per cent of spa visits in 2005 but that number has grown to 12 per cent. Men have also proven to be very good consumers of spa products, purchasing $240 million worth of products in 2013. Other creative marketing strategies include spa dates, mother daughter day, men only days and spa bridal showers. The aging population worldwide and the health issues that need to be addressed makes the rest of the market.
The industry has also learned to embrace the technology information age with the creation of multiple applications on both the Android and Apple platforms which direct customers to a medical and spa capabilities which fits their needs. For instance, sites like www.spafinder.com enables spas to advertise their services and allows the consumer a wide choice in picking out the experience they desire. In the last year, media outlets such as CBS, ABC, and Fox News have run pieces on the various medical and spa experience which describe it as THE NEW PATH TO FULL BODY WELLNESS.
Medical Centers and Spas have also been on the forefront in the development of many specialty beauty products. These range from rejuvenation products and anti aging cleansers , moisturizers, masks, soaps and body oils. With these private label lines medical centers and spas have seen their revenue increase by 12 to 22 per cent in 2012.
U.S. and Europe show combined spa revenue increases of 4.3 per cent f to an outlook of 9.1 per cent by 2017. The industry is on steady ground with respect to revenue and growth. In addition to the aggressive marketing platform created, spas have become part of the wellness revolution taking hold in society. Medical Centers that offer faster healing, treating pain with no medication and other benefits only add to the growth.
Competition
The company is doing an extensive market research into the eastern medicine, spas, and medical devices that support both to stay ahead of the competition. Major US companies include destination spa chains Canyon Ranch and Golden Door, massage clinic franchise Massage Envy, day spa franchise Woodhouse Spa, and Steiner Leisure, which operates spas on cruise ships and at resorts and hotels.
Plan of Operations
We plan on expanding in the Asian, developing North America and Europe dominate the Non Invasive, No Medication and Day Spa market through various acquisitions in the specific markets. We expect to acquire one or more successful companies within in USA and East Asia, and expand the knowledge and technology in the worldwide.
Proposed Milestones to Implement Business Operations
The following milestones are based on estimates made by our management team. The working capital requirements and the projected milestones are approximations and are subject to adjustments. We believe we need to raise a minimum of $20 Million to commence operations and meet our minimal working capital needs over the next 12 months. There is no assurance that any additional financing will be available, or if available, on terms that will be acceptable to us.
The amounts allocated to each line item in the above milestones are subject to change without notice. Our planned milestones are based on the estimated amount of time to complete each milestone following receipt of sufficient capital to begin executing our business plan. Any line item amounts not expended completely, as detailed in the milestones above, shall be held in reserve as working capital and subject to reallocation as required for ongoing operations.
Long-Term Plan (5 Years)
Over the next five years our growth and expansion will focus primarily on the following:
·
Identifying companies for acquisition in the east Asian market
·
Acquisition of one or more revenue companies in Asia and USA
·
Providing growth capital to the acquisitions
·
Explore and expand in other market areas.
Sales and Marketing
Because our primary source of revenue will be from the medical and spa markets, we expect the first hires to be people with significant experience in our industry.
Financing
We are in the process of raising equity capital to cover our initial capital requirements. Once we begin we intend to seek other sources of equity financing on favorable terms to satisfy our growth and expansion plans. However, there are no assurances that any such financing can be obtained or, if obtained, on terms favorable to us. If we are unable to generate profits or unable to obtain additional funds to meet our working capital needs, we may need to cease or curtail our business operations. Further, there is no assurance that the net proceeds from any successful financing arrangement will be sufficient to cover our cash requirements during the initial stages of our business development.
Government Regulation
The Company intends to comply with any and all laws of the regions and countries we plan to make the acquisitions and expand our operations.
Compliance with Environmental Laws
We have not incurred and do not anticipate incurring any expenses associated with environmental laws.
Research and Development Expenditures
We have not incurred any research or development expenditures since our inception on June 28, 2010. However, we intend to conduct proper marketing and R&D research for all of our products and services. This will be needed to sustain the current and ongoing expansions of the product lines we intend to acquire, and to and to offer more new and enhanced products within the product lines we intend to acquire and expand.
Patents and Trademarks
We do not own nor have we applied, either legally or beneficially, for any patents or trademarks. However, the company intends to be innovative and we expect number of patents or trademarks in the future.
Employees
As of December 31, 2013, we had no employees. All functions, including development, strategy, negotiations and administration, are currently being provided by our officers and directors. The planned acquisitions are expected to change this and make the company reasonable size employer.
Stock Transfer Agent
Island Stock Transfer
Roosevelt Office Center
15500 Roosevelt Blvd., Ste. 301
Clearwater, FL 33760
(727) 289-0010 Phone
(727) 289-0069 Fax
www.islandstocktransfer.com
Executive Offices and Telephone Number
In addition to the office in Cina, the company opened an office in Mesa, Arizona. The company is doing proper market research for possible acquisitions in USA and Asia. The office in Arizona is at:
505 w 8th Avenue, Suite 16
Mesa, Az 85210.
Phone:
(480) 525-3241
Fax:
(888) 599-0831
Our office and main telephone number in China is:
4th Floor, Airport Industrial Park Business Center,
No.35 Changjiang South Road, New District,
Wuxi City, Jiangsu Province, China
Phone: +86-13861101616
This space in China is provided to us free of charge by Ms. Qiuping Lu, our shareholder and director. If Ms. Lu decides to no longer allow us access to this office space in the future it would force us to seek outside office space elsewhere, potentially at a market cost.
Item 1A.
Item 1A. Risk Factors
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
The Company does not own office or manufacturing space or equipment.
Item 3.
Item 3. Legal Proceedings
No officer, director, or persons nominated for these positions, and no promoter or significant employee of our corporation has been involved in legal proceedings that would be material to an evaluation of our management. We are not aware of any pending or threatened legal proceedings involving the Company.
During the past ten (10) years, none of our directors and officers has been the subject of the following events:
1)
Any bankruptcy petitions within two (2) years prior to that time;
2)
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding;
3)
An order, judgment, or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting Ms. Edstrom’s involvement in any type of business, securities or banking activities; and
4)
Found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Future Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Item 4.
Item 4. Mine Safety Disclosure
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Market Information
Our common stock is currently quoted on the OTC Bulletin Board under the trading symbol “CHGH”. Our shares of common stock were accepted for quotation on the OTC Bulletin Board on April 18, 2011 and was quoted under the symbol “ISLD” prior to July 17, 2012. For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. The below prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions:
Holders of our Common Stock
As of March 29, 2014, there were 46 registered stockholders holding 36,443,119 shares of our common stock issued and outstanding.
Common Stock
Our Articles of Incorporation authorize us to issue up to 75,000,000 shares of common stock, $0.001 par value. Each holder of our common stock is entitled to one (1) vote for each share held of record on all voting matters we present for a vote of stockholders, including the election of directors. Holders of common stock have no cumulative voting rights or preemptive rights to purchase or subscribe for any stock or other securities, and there are no conversion rights or redemption or sinking fund provisions with respect to our common stock. All shares of our common stock are entitled to share equally in dividends from sources legally available when, and if, declared by our Board of Directors.
Our Board of Directors is authorized to issue additional shares of common stock not to exceed the amount authorized by the Articles of Incorporation, on such terms and conditions and for such consideration as the Board may deem appropriate without further stockholder action.
In the event of our liquidation or dissolution, all shares of our common stock are entitled to share equally in our assets available for distribution to stockholders. However, the rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of preferred stock that our Board of Directors may decide to issue in the future.
As of March 29, 2014, there were 46 registered stockholders holding 36,443,119 shares of our common stock issued and outstanding.
Preferred Stock
Our Articles of Incorporation authorize us to issue up to 5,000,000 shares of preferred stock, $0.001 par value. Our Board of Directors is authorized, without further action by the shareholders, to issue shares of preferred stock and to fix the designations, number, rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms. We believe that the Board of Directors’ power to set the terms of, and our ability to issue, preferred stock will provide flexibility in connection with possible financing or acquisition transactions in the future. The issuance of preferred stock, however, could adversely affect the voting power of holders of common stock and decrease the amount of any liquidation distribution to such holders. The presence of outstanding preferred stock could also have the effect of delaying, deterring or preventing a change in control of our company.
As of March 29, 2014, we had no shares of preferred stock issued or outstanding.
Dividend Policy
We have never declared or paid cash dividends. We currently intend to retain all future earnings for the operation and expansion of our business and do not anticipate paying cash dividends on the common stock in the foreseeable future. Any payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by our directors.
Share Purchase Warrants
We have not issued and do not have outstanding any warrants to purchase shares of our stock.
Options
We have not issued and do not have outstanding any options to purchase shares of our stock.
Convertible Securities
We have not issued and do not have outstanding any securities convertible into shares of our stock or any rights convertible or exchangeable into shares of our stock.
Securities Authorized for Issuance Under Equity Compensation Plans
As of March 29, 2014, we have not adopted an equity compensation plan and have not granted any stock options.
Recent Sales of Unregistered Securities
Set forth below is information regarding the issuance and sales of securities without registration since June 28, 2010 (inception):
On August 16, 2013, we issued 125,000 shares of common stock to 6 individuals for the price of $0.001 per share. In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering.
On Nov 20, 2013, we issued 16,018,119 shares of common stock to 35 individuals for the price of $0.001 per share. In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering.
On Nov 21, 2013, we issued 16,000,000 shares of common stock to Chin Yung Kong, Qiuping Lu and Fumin Feng for the price of $0.001 per share. In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering.
On June 29, 2010, we issued 2,000,000 shares of common stock, $0.001 par value, to each Eric Boyer and Nina Edstrom, aggregating 4,000,000 shares of common stock, in consideration of their services to us as officers and directors. We issued these shares as Founder’s Shares. In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of Mr. Boyer’s and Ms. Edstrom’s relationships with us, each had access to all relevant information relating to our business and represented that they each had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
On June 29, 2010, we issued 2,000,000 shares of common stock to Taurus Financial Partners, LLC in consideration of its services of assisting with the creation and early development of our business. We valued these services at $20,000, or $0.01 a share. In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of its relationship to us, Taurus Financial Partners had access to all relevant information relating to our business and represented that it had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
Purchases of Equity Securities by the Issuer and Affiliated Purchases
On September 19, 2011, we repurchased 1,075,000 shares of our common stock in a Stock Buyback Program announced on September 9, 2011. We repurchased these shares at an aggregate price of $10,750, or $0.01 per share. Our former officer and director, Nina Edstrom, loaned us these funds to conclude the repurchase of these shares. The shares were subsequently cancelled.
On October 13, 2011, Taurus Financial Partners, LLC returned 2,000,000 shares of our restricted common stock. We subsequently cancelled these shares.
On October 13, 2011, Blue Water Restaurant Group, Inc. returned 2,000,000 shares of our restricted common stock. We subsequently cancelled these shares.
Item 6.
Item 6. Selected Financial Data
Not applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We are a development stage corporation with limited operations and are not currently generating any revenues from our business operations. Our independent registered public accounting firm has issued a going concern opinion. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months. We do not anticipate generating significant revenues until we are able to launch our initial 24-hour streaming radio program over the Internet. Accordingly, we must raise additional cash from sources other than operations.
We presently are exploring other such sources of funding, including raising funds through a second public offering, a private placement of securities, or loans. If we are unable to raise this additional funding, we will either have to suspend operations until we do raise the cash or cease operations entirely.
The following discussion should be read in conjunction with our Financial Statements and the notes thereto and the other information included in this Annual Report as filed with the SEC on Form 10-K.
Limited Operating History; Need for Additional Capital
There is limited historical financial information about us upon which to base an evaluation of our performance. We are in the start-up stage of operations and have yet to generate any revenues. We cannot guarantee that we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns, such as increases in marketing costs, increases in administration expenditures associated with daily operations, increases in accounting and audit fees, and increases in legal fees related to filings and regulatory compliance.
To become profitable and competitive, we have to successfully develop and sell marketing time on our radio programming. We anticipate relying on equity sales of our common stock in order to continue to fund our business operations until we are able to generate sufficient revenues to cover our operating expenses, which may never happen. Issuances of additional shares will result in dilution to our then existing stockholders. There is no assurance that we will be able to make any additional sales of our equity securities or arrange for debt or other financing to fund our planned business activities. We may also rely on loans from our directors. However, there are no assurances that our directors will provide us with any additional funds.
Currently, we do not have any arrangements for additional financing. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Equity financing could result in additional dilution to existing shareholders.
Status as a Shell Company
As of December 31, 2013, because we have nominal operations and minimal assets, we are considered to be a shell company under the Securities Exchange Act of 1934, as amended. Because we are considered a shell company, the securities sold in previous offerings can only be resold through (i) registration under the Securities Act of 1933, as amended (“Securities Act”), (ii) Section 4(1) of the Securities Act, if available, for non-affiliates, or (iii) by meeting the conditions of Rule 144(i) of the Securities Act.
Results of Operations
The year Ended December 31, 2013 and 2012
Revenues. As of December 31, 2013, we have not generated any revenues and remain a development stage company.
Net Loss. We had a net loss of $21,314 for the year ended December 31, 2013 compared to a net loss of $34,170 for the year of 2012. This represents a decrease in net loss of $12,856. Our net loss was attributable to complying with our ongoing SEC reporting requirements, which have consisted primarily of legal and accounting fees.
Operating Expenses. Our total operating expenses for the year ended December 31, 2013 were $20,450 compared to $33,898 for the year of 2012. This represents a decrease in operating expenses of $13,448. Our operating expenses were entirely related to complying with our ongoing SEC reporting requirements, which have consisted primarily of legal and accounting fees.
Other income (expenses). During the year ended December 31, 2013 we recorded $864 in imputed interest expenses related to a note outstanding related to due to related party balance. The interest expense for the year ended December 31, 2012 was $272.
Cumulative During the Development Stage - June 28, 2010 (inception) through December 31, 2013
For ease of reading we refer to the period of June 28, 2010 (inception) through December 31, 2013 as the “Developmental Period”.
Revenues. We have not generated any revenues during the Developmental Period.
Net Loss. We have incurred a net loss of $124,233 during the Developmental Period. This net loss was primarily attributable to organizational costs related to our formation, an offering of our common stock, and complying with our ongoing SEC reporting requirements. These expenses have consisted primarily of legal, accounting, and outside consulting fees.
Operating Expenses. Our total operating expenses for the Developmental Period were $122,810. These operating expenses were primarily attributable to organizational costs related to our formation, an early offering of our common stock, and complying with our ongoing SEC reporting requirements. These expenses have consisted primarily of legal, accounting, and outside consulting fees.
Other income (expenses). During the Development Period we recorded $1,423 in imputed interest expenses related to a note outstanding related to due to related party balance.
Total Stockholders’ Equity. Our stockholders’ equity was $11,693 as of December 31, 2013.
Accounts Payable and Accrued Expenses. On June 27, 2012, and in conjunction with a Share Purchase Agreement executed on the same date, Taurus Financial Partners, LLC, an independent service provider, voluntarily forgave $40,060 in accrued accounts payable. The forgiven accounts payable were recorded in Company’s financial statements under additional paid-in capital. As of December 31, 2013, Company shows accounts payable or other outstanding liabilities of $20,450.
Liquidity and Capital Resources
On June 27, 2012, in connection with the share purchase transaction in which Eric R. Boyer and Nina Edstrom sold to Chin Yung Kong, Qiuping Lu and Fumin Feng 4,000,000 shares of common stock of the Company (2,000,000 shares to Chin Yung Kong, 1,000,000 shares to Qiuping Lu and 1,000,000 shares to Fumin Feng), Taurus Financial Partners, LLC forgave the $40,060 total outstanding account payables that the Company owed to it, which represented all the outstanding liabilities of the Company as of June 27, 2012. As of December 31, 2013, we had $20,450 in liabilities.
We expect to incur continued losses over the remainder of the fiscal year ending December 31, 2014, possibly even longer. As of December 31, 2013, we had $32,143 cash or cash equivalents proceeded from issuance of common shares in the escrow account.
We presently are exploring other such sources of funding. Without limiting our available options, future equity financings will most likely be through the sale of additional shares of our common stock. It is possible that we could also offer warrants, options and/or rights in conjunction with any future issuances of our common stock. However, we can give no assurance that financing will be available to us, and if available to us, in amounts or on terms acceptable to us. If we cannot secure adequate financing, we may be forced to cease operations and you will lose your entire investment.
Going Concern Consideration
Our independent auditors included an explanatory paragraph in their report on the accompanying financial statements regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Off -Balance Sheet Operations
As of December 31, 2013, we had no off-balance sheet activities or operations.
CRITICAL ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP) for financial information and in accordance with the Securities and Exchange Commission’s (SEC) Regulation S-X. They reflect all adjustments which are, in the opinion of Company’s management, necessary for a fair presentation of the financial position and operating results as of December 31, 2013 and for the period June 28, 2010 (inception) to December 31, 2013.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent in the financial reporting process, actual results may differ significantly from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. As of December 31, 2013, the Company had no cash equivalents.
Fair Value of Financial Instruments
ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
As of December 31, 2013 and 2012 we believe that the recorded values of all of our financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Net Loss per Share Calculation
Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per shares 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. During the period June 28, 2010 (inception) to December 31, 2013 we had no dilutive financial instruments issued or outstanding.
Revenue Recognition
For the period June 28, 2010 (inception) to December 31, 2013, we did not realize any revenue.
Income Taxes
We account for income taxes pursuant to FASB ASC 740, Income Taxes. Under FASB ASC 740-10-25, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
We maintain a valuation allowance with respect to deferred tax assets. Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.
Changes in circumstances, such as Company generating taxable income, could cause a change in judgment about its ability to realize the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Recently Issued Accounting Pronouncements
In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
-
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
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Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial statements.
Contractual Obligations
As of December 31, 2013 and 2012 the Company had no contractual obligations.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data
Item
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statement of Stockholders’ Equity (Deficit)
Statements of Cash Flows
Notes to the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
China Herb Group Holdings Corporation (formerly Island Radio, Inc.)
(A Development Stage Company)
We have audited the accompanying balance sheets of China Herb Group Holdings Corporation (formerly Island Radio, Inc. - a Development Stage Company) as of December 31, 2013 and 2012 and the related statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended and for the period from June 28, 2010 (inception) through December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Herb Group Holdings Corporation (formerly Island Radio, Inc. - a Development Stage Company) as of December 31, 2013 and 2012 and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
April 9, 2014
CHINA HERB GROUP HOLDINGS CORPORATION
FORMERLY KNOWN AS “ISLAND RADIO, INC.”
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2013
NOTE 1 - Organization
China Herb Group Holdings Corporation (“Company”) is a development stage company with minimal operations. The Company was incorporated under the name “Island Radio, Inc” under the laws of the State of Nevada on June 28, 2010. Our plan was to become a successful commercial FM radio broadcaster. Our current plan is to become a successful global medical and spa Company within an industry that has been on a rocket trajectory, increasing from $60 billion in revenues, in 2007, to $78 billion in 2013. The fastest growing market segment has been the Orient based spas, which have seen a 20 per cent growth in annual revenues during this period. This segment is also projected to increase revenues by an additional 9.1 per cent by year 2017.
NOTE 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP) for financial information and in accordance with the Securities and Exchange Commission’s (SEC) Regulation S-X. They reflect all adjustments which are, in the opinion of the Company’s management, necessary for a fair presentation of the financial position and operating results as of and for the year ended December 31, 2013 and 2012, and cumulative from June 28, 2010 (inception) to December 31, 2013.
Use of Estimates
The accompanying financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment. Actual results may vary from these estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. There was no cash or equivalent at the end of December 31, 2012. As of December 31, 2013, the Company had no cash equivalents.
Investments
The Company accounts for its marketable securities, which are classified as trading securities, in accordance with generally accepted accounting principles for certain investments in debt and equity securities, which requires that trading securities be carried at fair value. Unrealized gains and losses due to changes in fair value as well as realized gains and losses resulting from sales of securities are reported as Other Income/Expenses in the statement of operations. Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available. The cost basis for realized gains and losses is determined on a specific identification basis. As of December 31, 2013, and 2012 the Company had no investments.
Fair Value of Financial Instruments
ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
As of December 31, 2013 and 2012 we believe that the recorded values of all of our financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Net Loss per Share Calculation
Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per shares 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. During the year ended December 31, 2013 and 2012, and cumulative from June 28, 2010 (inception) to December 31, 2013, the Company had no dilutive financial instruments issued or outstanding.
Income Taxes
The Company accounts for income taxes pursuant to FASB ASC 740, Income Taxes. Under FASB ASC 740-10-25, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
The Company maintains a valuation allowance with respect to deferred tax assets. Island Radio establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carry-forward period under the Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about its ability to realize the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Fiscal Year
The Company elected December 31st for its fiscal year end.
NOTE 3 - Development Stage Activities and Going Concern
The Company is in the development stage and has minimal operations, and as such has devoted most of its efforts since its inception to developing its business plan, issuing common stock, attempting to raise capital, establishing its accounting systems and other administrative functions.
As of December 31, 2013, we had $32,143 cash or cash equivalents proceeded from issuance of common shares in the escrow account. We presently are exploring other such sources of funding. Without limiting our available options, future equity financings will most likely be through the sale of additional shares of our common stock. It is possible that we could also offer warrants, options and/or rights in conjunction with any future issuances of our common stock. However, we can give no assurance that financing will be available to us, and if available to us, in amounts or on terms acceptable to us. If we cannot secure adequate financing, we may be forced to cease operations and you will lose your entire investment.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United State of America, which contemplate continuation of the Company as a going concern. The Company has not established a source of revenues sufficient to cover its operating costs, and as such, has incurred an operating loss since its inception. Further, as of December 31, 2013, the Company had an accumulated deficit during development stage of ($124,233). These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern.
NOTE 4 - Share Exchange and Subsequent Sale of Blue Water Restaurant Group, Inc. Common Stock Holdings
On March 29, 2011 we entered into a Share Exchange Agreement with Blue Water Restaurant Group, Inc. (“Blue Water”), a Nevada corporation planning a going public initiative and starting a chain of restaurants in St. Maarten, Dutch West Indies. Under the terms of the agreement we issued Blue Water 2,000,000 shares of our restricted common stock in exchange for 2,000,000 restricted shares of Blue Water common stock, $0.001 par value. These shares were valued at $20,000, or $0.01 a share.
Blue Water registered 1,300,000 of our total holdings of 2,000,000 shares of their common stock in a SEC Registration Statement on Form S-1 that was declared effective on September 8, 2011. Subsequently, we sold these 1,300,000 registered shares without restrictions to 36 different individuals at a price of $0.01 per share, or $13,000 in total. Our remaining 700,000 shares were transferred to Taurus Financial Partners, LLC (“Taurus”) in exchange for a $7,000 reduction in our outstanding accounts payable. All of the cash proceeds from the sale of our Blue Water shares were paid to Taurus to reduce our outstanding accounts payable to them. As of December 31, 2013 we had no remaining accounts payable due to Taurus and had no remaining holdings in Blue Water.
NOTE 5 - Notes Payable to Officer and Shareholders
As of December 31, 2011 we had notes payable to our former officer and director, Nina Edstrom, aggregating $12,145, which includes $10,750 she loaned the Company to repurchase and cancel 1,075,000 shares of its common stock.
Ms. Edstrom voluntarily forgave these outstanding debts on March 1, 2012 which was recorded in the financial statements as additional paid-in capital. Additionally, these debts had accrued total $559 in imputed interest that was recorded in the financial statements as additional paid-in capital.
On June 27, 2012, Taurus Financial Partners, LLC, as a shareholder of the Company, forgave $40,060 of outstanding accounts payable that the Company owed, which was recorded as due to related party.
During the year ended December 31, 2013, Chin Yung Kong, the director and shareholder of the Company, paid $20,000 for the Company’s expense. These payments were classified as due to related party. Imputed interst of $864 was recorded for the year ended December 31, 2013.
NOTE 6 - Common Stock
The total number of common shares authorized that may be issued by the Company is 75,000,000 shares with a par value of $0.001 per share.
During the period June 28, 2010 (inception) to December 31, 2011 the Company issued an aggregate of 9,375,000 shares as follows:
·4,000,000 shares to its directors as Founder’s Shares;
·2,000,000 shares to a consultant for total consideration of $20,000, or $0.01 per share, based on the value of the services performed;
·1,375,000 shares in exchange for aggregate cash consideration of $13,750, or $0.01 per share;
·2,000,000 shares in exchange for 2,000,000 shares of restricted common stock in Blue Water Restaurant Group, Inc. (“Blue Water”), a Nevada corporation, presently undertaking a going public initiative. This investment was valued at $20,000, or $0.01 per share, based on the most recent private transaction price of Blue Water common stock, which was $0.01 per share. In addition, Blue Water registered 1,300,000 of our shares of its common stock for unrestricted resale in a SEC Registration Statement on Form S-1 which was declared “effective” on September 8, 2011.
On September 19, 2011 the Company repurchased 1,075,000 shares of its common stock, which were subsequently cancelled. These shares were purchased for $10,750, or $0.01 a share. This purchase was financed by a non-interest bearing demand loan from our sole officer and director, Nina Edstrom. During 2012 this note had accrued $272 in imputed interest that was recorded in the financial statements as additional paid-in capital.
On October 13, 2011, two shareholders returned to the Company an aggregate of 4,000,000 shares of restricted common stock. These shares were subsequently cancelled.
On August 30, 2013, the Company issued 125,000 shares of common stock to a group of 6 individuals for the price of $0.001 per share. Total proceeds $125.
On November 20, 2013, the Company issued 16,018,119 shares of common stock to a group of 35 individuals for the price of $0.001 per share. Total proceeds $16,018.
On November 21, 2013, the Company issued 16,000,000 shares of common stock to 3 existing majority shareholders for the price of $0.001 per share. Total proceeds 16,000.
As of December 31, 2013, the Company had 36,443,119 shares of its common stock issued and outstanding.
NOTE 7- Preferred Stock
The total number of preferred shares authorized that may be issued by the Company is 5,000,000 shares with a par value of $0.001 per share.
As of December 31, 2013, the Company had no shares of its preferred stock issued and outstanding.
NOTE 8 - Income Taxes
The provision (benefit) for income taxes for the period from June 28, 2010 (inception) to December 31, 2013 was as follows, assuming a 35 percent effective tax rate:
As of December 31, 2013, the Company had approximately $102,810 in tax loss carry-forwards that can be utilized in future periods to reduce taxable income through 2030.
The Company provided a valuation allowance equal to the deferred income tax assets for the period from June 28, 2010 (inception) to December 31, 2013 because it is not presently known whether future taxable income will be sufficient to utilize the tax loss carry-forwards.
The Company has no uncertain tax positions.
NOTE 9 - Related Party Transactions
From June 28, 2010 (inception) through June 27, 2012, the Company operated out of office space that was provided to us by our former president and chief executive officer, Eric Boyer, free of charge.
For the year ended December 31, 2013 and cumulative from June 28, 2010 (inception) to December 31, 2013, the Company’s rent expense was zero. This is because of the minimal level of operating activities that have transpired during this period of time.
As of December 31, 2011 we had notes payable to our sole officer and director, Nina Edstrom, aggregating $12,145, which includes $10,750 she loaned the Company to repurchase and cancel 1,075,000 shares of its common stock.
Ms. Edstrom voluntarily forgave these outstanding debts on March 1, 2012 which was recorded in the financial statements as additional paid-in capital.
On June 27, 2012, Taurus Financial Partners, LLC, as a shareholder of the Company, forgave the $40,060 total outstanding account payables that the Company owed to it. As of December 31, 2013, there is no note payable to any shareholders.
During the year ended December 31, 2013, Chin Yung Kong, the director and shareholder of the Company, paid $20,000 for the Company’s expense. These payments were classified as due to related party. Due on demand, no interest. Imputed interest of $864 was recorded for the year ended December 31, 2013.
NOTE 10 - Recent Accounting Pronouncements
In July 2013, FASB issued ASU No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists." The provisions of ASU No. 2013-11 require an entity to present an unrecognized tax benefit, or portion thereof, in the statement of financial position as a reduction to a deferred tax asset for a net operating loss carryforward or a tax credit carryforward, with certain exceptions related to availability. ASU No. 2013-11 is effective for interim and annual reporting periods beginning after December 15, 2013. The adoption of ASU No. 2013-11 is not expected to have a material impact on the Company's Consolidated Financial Statements.
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial statements.
NOTE 11 - Subsequent Events
On March 26, 2014 Mr. Chin Yung Kong resigned from the Board of Directors of the Company. Mr. Kong stated personal reasons for his resignation.
The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and has determined there are no additional events to disclose.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our officers and directors, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act as of a date ("Evaluation Date") within ninety (90) days prior to the filing of our December 31, 2013 Annual Report with the SEC on Form 10-K.
Based upon that evaluation, our management has concluded that, as of December 31, 2013, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us required to be included in our periodic filings with the SEC.
Our officers and directors have concluded that our disclosure controls and procedures had the following material weaknesses:
·
We were unable to maintain any segregation of duties within our financial operations due to our reliance on limited personnel in the finance function. While this control deficiency did not result in any audit adjustments to our 2012 interim or annual financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties;
·
We lack sufficient resources to perform the internal audit function and does not have an Audit Committee;
·
We do not have an independent Board of Directors, nor do we have a board member designated as an independent financial expert to Island Radio. The Board of Directors is comprised of one (1) member who is also our only executive officer. As a result, there is a lack of independent oversight of the management team, lack of independent review of our operating and financial results, and lack of independent review of disclosures made by Island Radio; and
·
Documentation of all proper accounting procedures is not yet complete.
To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned material weaknesses, including, but not limited to, the following:
·
Considering the engagement of consultants to assist in ensuring that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures;
·
Hiring additional qualified financial personnel, including a Chief Financial Officer, on a full-time basis;
·
Expanding our current board of directors to include additional independent individuals willing to perform directorial functions; and
·
Increasing our workforce in preparation for exiting the development stage and commencing revenue producing operations.
Since the recited remedial actions will require that we hire or engage additional personnel, these material weaknesses may not be overcome in the near-term due to our limited financial resources. Until such remedial actions can be realized, we will continue to rely on the limited advice of outside professionals and consultants.
We anticipate that these initiatives will be at least partially, if not fully, implemented by March 12, 2015, subject to our ability to obtain sufficient future financing and subject to our ability to start generating revenue.
Internal Control over Financial Reporting
(a) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.
Our officers assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of The Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment under such criteria, management concluded that our internal controls over financial reporting were not effective as of December 31, 2013 due to control deficiencies that constituted material weaknesses.
Management has identified a lack of sufficient personnel in the accounting function due to the limited resources of Island Radio with appropriate skills, training and experience to perform the review processes to ensure the complete and proper application of generally accepted accounting principles.
We are in the process of developing and implementing remediation plans to address our material weaknesses in our internal controls.
Management has identified specific remedial actions to address the material weaknesses described above:
·
Improve the effectiveness of the accounting group by augmenting our existing resources with additional consultants or employees to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions and preparation of tax disclosures. We plan to mitigate the segregation of duties issue by hiring additional personnel in the accounting department once we have achieved positive cash flow from operations and/or have raised significant additional working capital; and
·
Improve segregation procedures by strengthening cross approval of various functions including cash disbursements and quarterly internal audit procedures where appropriate.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
(b) Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by Island Radio's independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit Island Radio to provide only management's report in this Annual Report. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management’s report in this Annual Report.
(c) Changes in Controls and Procedures
There were no significant changes made in our internal controls over financial reporting during the year ended December 31, 2013 that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Our executive officers and directors and their respective ages as of the date of this prospectus are as follows:
Name
Age
Position
Qiuping Lu
President, Treasurer, Chief Executive Officer, Chief Financial Officer and Director
Fumin Feng
Vice President, Director
Yubo Zheng
Secretary, Director
Chin Yung Kong
Director
Qiuping Lu, age 43, graduated from the Accounting Major of Changzhou Industrial Institute in 1991. She was the Accounting Director of Changzhou Nonferrous Metal Factory from 1991 to 1998. She was the Accounting Director of Jiangsu Jiu Jiu Accounting Firm from 1998 to 2003. She was the Board Director of Hong Kong Han Fang Zhen Bao Group Holding Company from 2003 to present.
Fumin Feng, age 48, graduated from the Engineering Design major of Nanjing Science and Technology University in 1987. He was the Chairman of the Board of Jiangsu Nantong Fuyuan Machinery Company, Ltd. From 1987 to 2003. He was the Chairman of the Board of Jiangsu Nantong Fuyuan Investment Fund Management Company, Ltd from 2003 to 2006. He was the Chairman of the Board of Hong Kong Han Fang Zhen Bao Group Holding Company from 2006 to present.
Yubo Zheng, age 50, graduated from Heilongjiang University in 1986. From 1986 to May 1995, he worked in the Sanitary Bureau of Harbin City. From May 1995 to March 2012, he worked in Tianshi Group. From April 2012 to present, he worked in Hong Kong Hanfang Zhenbao Group.
Chin Yung Kong, age 61, resides in Dalian, China. Mr. Chin is the Managing Director of QMIS Capital Finance. Since 2002 Mr. Chin has devoting most of his time advising Chinese clients on financial restructuring, pre-audit evaluation before going public, pre-IPO investment strategies, and on the process of going public in the United States. From 1995 to 2002, Mr. Chin was financial controller for the Kwok Group Company in China. Prior to 1995 Mr. Chin was a practicing auditor and Certified Public Accountant (CPA) with Foo Kon & Tan in Singapore. Mr. Chin graduated from University of Hull in the United Kingdom with a Masters degree in Finance.
Mr. Chin Yung Kong resigned from the Board of Directors on March 26, 2014.
The company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued and has determined there are no additional events to disclose.
Involvement in Legal Proceedings
To the knowledge of the Company, no executive officer or director has been involved in the last ten years in any of the following:
Any bankruptcy petition filed by or against any business or property of such person, or of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
Being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
Being the subject of or a party to any judicial or administrative order, judgment, decree or finding, not subsequently reversed, suspended or vacated relating to an alleged violation of any federal or state securities or commodities law or regulation, or any law or regulation respecting financial institutions or insurance companies, including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail, fraud, wire fraud or fraud in connection with any business entity; or
Being the subject of or a party to any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Committees of the Board of Directors
We do not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committee of our Board of Directors. As such, our entire Board of Directors acts as our audit committee.
Audit Committee Financial Expert
Our Board of Directors does not currently have any member who qualifies as an audit committee financial expert. We believe that the cost of retaining such a financial expert at this time is prohibitive. Further, because we are in the start-up stage of our business operations, we believe the services of an audit committee financial expert are not necessary at this time.
Information Concerning Non-Director Executive Officers
We currently have no executive officers serving who are non-directors.
Code of Ethics
We do not currently have a Code of Ethics applicable to our principal executive, financial and accounting officers.
Potential Conflict of Interest
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our Board of Directors. Thus, there is a potential conflict of interest in that our sole director has the authority to determine issues concerning management compensation, in essence her own, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our officers or directors.
Compliance with Section 16(A) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, require Island Radio's executive officers, directors and persons who own more than 10% of a registered class of Island Radio's equity securities, to file with the SEC initial statements of beneficial ownership, reports of changes in ownership, and annual reports concerning their ownership of common stock and other equity securities of Island Radio on Form(s) 3, 4, and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by SEC regulations to furnish Island Radio with copies of all Section 16(a) reports they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that for the fiscal year ended December 31, 2013, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with, except that Chin Yung Kong did not file the Form 3 to report his initial beneficial ownership in the Company and did not file the Form 4 to report his change of percentage of ownership in the Company, Qiuping Lu did not file the Form 4 to report her change of percentage of ownership in the Company and Fumin Feng did not file the Form 4 to report his change of percentage of ownership in the Company.
Item 11.
Item 11. Executive Compensation
Our fiscal year end is December 31. No compensation has been paid to our officers from inception on June 28, 2010 through December 31, 2013. We have no plans to begin paying our officers any cash compensation until our business becomes operationally profitable.
Director Compensation
Our fiscal year end is December 31. No compensation has been paid to our directors from inception on June 28, 2010 through December 31, 2013. We have no plans to begin paying our directors any cash compensation until our business becomes operationally profitable.
Employment Agreements
We have not entered into any employment agreements with any of our officers or directors.
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information regarding beneficial ownership as of the date of this prospectus by (i) each named executive officer, (ii) each member of our Board of Directors, (iii) each person deemed to be the beneficial owner of more than five percent (5%) of any class of our common stock, and (iv) all of our executive officers and directors as a group. Unless otherwise indicated, each person named in the following table is assumed to have sole voting power and investment power with respect to all shares of our common stock listed as owned by such person.
As of March 29, 2014, we had 36,443,119 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding.
(1) Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
(2) Based on 36,443,119 shares of common stock issued and outstanding as of March 12, 2014
Securities Authorized for Issuance Under Equity Compensation Plans
We do not have any authorized Equity Compensation Plans nor do we intend to establish any such plans during the fiscal year ending December 31, 2013.
Changes in Control
On June 27, 2012, Eric R. Boyer and Nina Edstrom (“Sellers”), who are the major shareholders of Island Radio, Inc. (“Company”), entered into a Share Purchase Agreement with Chin Yung Kong, Qiuping Lu and Fumin Feng (“Purchasers”), under which Sellers sold to Purchasers 4,000,000 shares of common stock of the Company (2,000,000 shares to Chin Yung Kong, 1,000,000 shares to Qiuping Lu and 1,000,000 shares to Fumin Feng), which represented approximately 93% of the total issued and outstanding stock of the Company, for a total purchase price of $159,970.00 (“Total Purchase Price”). As result of this share purchase transaction, Chin Yung Kong, Qiuping Lu and Fumin Feng became the controlling shareholders of the Company.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
From June 28, 2010 (inception) through June 27, 2012, the Company operated out of office space that was provided to us by our former president and chief executive officer, Eric Boyer, free of charge.
Our office in USA is at 505 w 8th Avenue, Suite 16. Mesa, Az 85210. Our office in China is located at 4th Floor, Airport Industrial Park Business Center, No.35 Changjiang South Road, New District, Wuxi City, Jiangsu Province, China, which is provided to us free of charge by Ms. Qiuping Lu, our shareholder and director.
As of December 31, 2011 we had notes payable to our former officer and director, Nina Edstrom, aggregating $12,145, which includes $10,750 she loaned the Company to repurchase and cancel 1,075,000 shares of its common stock.
Ms. Edstrom voluntarily forgave these outstanding debts on March 1, 2012 which was recorded in the financial statements as additional paid-in capital.
On June 27, 2012, Taurus Financial Partners, LLC, as a shareholder of the Company, forgave the $40,060 total outstanding account payables that the Company owed to it. As of December 31, 2013, there is no note payable to any shareholders.
On Nov 21, 2013, we issued 16,000,000 shares of common stock to Chin Yung Kong, Qiuping Lu and Fumin Feng for the price of $0.001 per share.
During the year ended December 31, 2013, Chin Yung Kong, the director and shareholder of the Company, paid $20,000 for the Company’s various expenses including legal fee, accounting fee and filing fee. These payments were classified as due to related party. Imputed interest of $864 was recorded for the year ended December 31, 2013.
Indemnification
Under our Articles of Incorporation and Bylaws, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his/her position, if he/she acted in good faith and in a manner he/she reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he/she is to be indemnified, we must indemnify him/her against all expenses incurred, including reasonable attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to officers or directors under Nevada law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
Director Independence
The OTC Bulletin Board, where our common stock is listed under the trading symbol “CHGH”, does not have any director independence requirements. In determining whether our directors are independent, we refer to NASDAQ Stock Market Rule 4200(a)(15). Based on these widely-accepted criteria, we have determined that none of our directors are independent at this time.
No member of management is or will be required by us to work on a full time basis. Accordingly, certain conflicts of interest may arise between us and our officer(s) and director(s) in that they may have other business interests in the future to which they devote their attention, and they may be expected to continue to do so although management time must also be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through their exercise of such judgment as is consistent with each officer's understanding of his/her fiduciary duties to us.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and NASDAQ Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the NASDAQ Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.
Because none of our directors is an independent director, we do not currently have independent audit or compensation committees. As a result, our directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.
Item 14.
Item 14. Principal Accounting Fees and Services
Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the annual audit of our financial statements and review of financial statements included in our quarterly reports and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Given the small size of our Board of Directors, as well as the limited financial resources and minimal operations of the Company, our Board acts as our Audit Committee. Our Board pre-approves all audit and permissible non-audit services. These services may include audit services, audit-related services, tax services and other services. Our Board approves these services on a case-by-case basis.
PART IV
Item 15.
Item 15. Exhibits, Financial Statements Schedules
The following documents are filed as a part of this Annual Report:
(1)
Financial Statements
The financial statements required to be filed as part of this report are set forth in Item 8 of Part II of this Annual Report.
(2)
Financial Statement Schedules
All schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable.
(3)
Exhibits
* Incorporated by our Registration Statement on Form S-1/A filed October 12, 2010.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
China Herb Group Holdings Corporation
(Registrant)
By:
/s/ Qiuping Lu
Qiuping Lu
President, Director, CEO, CFO