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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended: September 30, 2013
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from __________ to __________
 
Commission File Number 000-53781
 
 
STEVIA CORP.
(Name of registrant as specified in its charter)

Nevada
 
98-0537233
(State or Other Jurisdiction of
 
(I.R.S. Employer
Incorporation or Organization)
 
Identification Number)
     
7117 US 31 S, Indianapolis, IN
 
46227
(Address of Principal Executive Offices)
 
(Zip Code)

(888) 250-2566
(Registrant’s telephone number)

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

None
 
None
(Title of each class)
 
(Name of each exchange on which registered)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes  ¨ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes  ¨ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
¨
 Large accelerated filer
¨
 Accelerated filer
¨
 Non-accelerated filer
 (Do not check if smaller  reporting company)
x
 Smaller Reporting  company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨ Yes  x No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Outstanding at November 17, 2013
     
Common stock, $.001 par value
 
79,445,634

 
 
 

 
 
STEVIA CORP.
FORM 10-Q

September 30, 2013

INDEX

 
PAGE
PART I—FINANCIAL INFORMATION
 
   
Item 1.  Financial Statements.
4
   
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
43
   
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
46
   
Item 4.  Controls and Procedures
46
   
PART II—OTHER INFORMATION
 
   
Item 1.  Legal Proceedings
47
   
Item 1A.  Risk Factors
47
   
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
47
   
Item 3.  Defaults Upon Senior Securities
48
   
Item 4.  Mine Safety Disclosures
48
   
Item 5.  Other Information
48
   
Item 6.  Exhibits
48
   
Signatures
49

 
 
2

 
 
FORWARD-LOOKING STATEMENTS
 
This Report on Form 10-Q contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995.  Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this report.  Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms, or the negative of such terms.  Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements.  Such statements address future events and conditions concerning, among others, capital expenditures, earnings, litigation, regulatory matters, liquidity and capital resources, and accounting matters.  Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which we operate, results of litigation, and other circumstances affecting anticipated revenues and costs, and the risk factors set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2013, filed on July 16, 2013.
 
As used in this Form 10-Q, “we,” “us” and “our” refer to Stevia Corp., which is also sometimes referred to as the “Company.”
 
YOU SHOULD NOT PLACE UNDUE RELIANCE ON THESE FORWARD LOOKING STATEMENTS
 
The forward-looking statements made in this report on Form 10-Q relate only to events or information as of the date on which the statements are made in this report on Form 10-Q.  Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events, or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.  You should read this report and the documents that we reference in this report, including documents referenced by incorporation, completely and with the understanding that our actual future results may be materially different from what we expect or hope.
 

 
3

 

PART I—FINANCIAL INFORMATION
 
Item 1. Financial Statements
 

Stevia Corp.

September 30, 2013 and 2012

Index to the Consolidated Financial Statements

Contents
 
Page(s)
     
Consolidated Balance Sheets at September 30, 2013 (Unaudited) and March 31, 2013
 
5
     
Consolidated Statements of Operations for the Three Months and Six Months Ended September 30, 2013 and 2012 (Unaudited)
 
6
     
Consolidated Statement of Equity (Deficit) for the Interim Period Ended September 30, 2013 (Unaudited) and for the Fiscal Year Ended March 31, 2013
 
7
     
Consolidated Statements of Cash Flows for the Six Months Ended September 30, 2013 and 2012 (Unaudited)
 
8
     
Notes to the Consolidated Financial Statements (Unaudited)
 
9
     
 
 
 
4

 
 
 Stevia Corp.
 Consolidated Balance Sheets
 
 
   
September 30, 2013
   
March 31, 2013
 
   
(Unaudited)
   
(Unaudited)
 
Assets
           
Current assets:
           
Cash
  $ 832,971     $ 424,475  
Accounts receivable
    19,241       158,008  
Seeds
    1,042,000       -  
Prepayments and other current assets
    75,447       33,096  
                 
    Total current assets
    1,969,659       615,579  
                 
Non-current assets:
               
Property and equipment
    24,400       7,925  
Accumulated depreciation
    (3,040 )     (1,234 )
                 
    Property and equipment, net
    21,360       6,691  
                 
Acquired technology
    1,635,300       1,635,300  
Accumulated amortization
    (136,275 )     (81,765 )
                 
    Acquired technology, net
    1,499,025       1,553,535  
                 
Website development costs
    5,315       5,315  
Accumulated amortization
    (2,403 )     (1,869 )
                 
Website development costs, net
    2,912       3,446  
                 
Security deposit
    15,000       15,000  
                 
    Total assets
  $ 3,507,956     $ 2,194,251  
                 
Liabilities and equity
               
Current liabilities:
               
Accounts payable
  $ 1,157,298     $ 948,073  
Accounts payable - president and CEO
    171,942       89,193  
Accrued expenses
    9,100       19,700  
Accrued interest
    69,531       21,627  
Advances from president and significant stockholder
    10,743       21,238  
Convertible notes payable - net of discount
    997,842       357,700  
Current portion of derivative liability
    -       -  
                 
    Total current liabilities
    2,416,456       1,457,531  
                 
Non-Current liabilities:
               
Derivative liability
    456,513       486,113  
                 
    Total non-current liabilities
    456,513       486,113  
                 
    Total liabilities
    2,872,969       1,943,644  
                 
Equity
               
Stevia Corp stockholders' equity:
               
Preferred stock par value $0.001: 1,000,000 shares authorized;
               
none issued or outstanding
    -       -  
Common stock par value $0.001: 250,000,000 shares authorized,
               
77,408,968 and 63,555,635 shares issued and outstanding, respectively
    77,409       63,556  
Additional paid-in capital
    6,423,081       4,760,624  
Accumulated deficit
    (5,545,489 )     (4,359,415 )
                 
    Total Stevia Corp stockholders' equity
    955,001       464,765  
                 
Non-controlling interest in subsidiary
               
Noncontrolling interest - retained earnings in consolidated subsidiaries
    (320,014 )     (214,158 )
                 
Non-controlling interest in subsidiary
    (320,014 )     (214,158 )
                 
    Total Equity
    634,987       250,607  
                 
    Total Liabilities and Equity
  $ 3,507,956     $ 2,194,251  
 
 
See accompanying notes to the consolidated financial statements.
 
 
5

 
 
 Stevia Corp.
 Consolidated Statements of Operations

   
For the Six months
   
For the Three Months
   
For the Six Months
   
For the Three Months
 
   
Ended
   
Ended
   
Ended
   
Ended
 
   
September 30, 2013
   
September 30, 2013
   
September 30, 2012
   
September 30, 2012
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
                         
 Revenues
  $ 1,505,119     $ 547,858     $ 112,797     $ 112,517  
                                 
 Cost of revenues
                               
 Farm produce
    758,809       -                  
 Farm expenses
    313,309       30,270       -       -  
 Farm field lease
    -       -       15,000       7,500  
 Farm management services - related parties
    120,000       60,000       592,550       532,550  
                                 
 Total cost of revenues
    1,192,118       90,270       607,550       540,050  
                                 
 Gross margin
    313,001       457,588       (494,753 )     (427,533 )
                                 
 Operating expenses:
                               
 Directors' fees
    187,500       93,750       187,500       93,750  
 Professional fees
    309,732       100,886       241,993       125,265  
 Research and development
    190,880       74,349       118,669       39,685  
 Salary and compensation - officer
    600,000       -       -       -  
 Salary and compensation - others
    66,178       -       51,877       51,877  
 General and administrative expenses
    253,399       116,320       135,295       88,565  
                                 
 Total operating expenses
    1,607,689       385,305       735,334       399,142  
                                 
 Loss from operations
    (1,294,688 )     72,283       1,230,087       826,675  
                                 
 Other (income) expense:
                               
 Change in fair value of derivative liability
    (635,844 )     (318,693 )     -       -  
 Debt discount
    563,183       356,813       -       -  
 Derivative expense
    -       -       -       -  
 Financing cost
    22,000       22,000       -       -  
 Foreign currency transaction gain (loss)
    -       -       1,315       214  
 Interest expense
    47,903       25,850       30,332       18,891  
 Other (income) expense
    -       -       -       -  
                                 
 Total other (income) expense
    (2,758 )     85,970       31,647       19,105  
                                 
 Loss before income tax provision and non-controlling interest
    (1,291,930 )     (13,687 )     1,261,734       845,780  
                                 
 Income tax provision
    -       -       -       -  
                                 
 Net loss
                               
 Net loss before non-controlling interest
    (1,291,930 )     (13,687 )     1,261,734       845,780  
 Net loss attributable to the non-controlling interest
    (105,856 )     (30,509 )     (52,360 )     (52,360 )
                                 
 Net income (loss) attributable to Stevia Corp.
  $ (1,186,074 )   $ 16,822     $ 1,209,374     $ 793,420  
                                 
 Net income (loss) per common share
                               
 - Basic and diluted:
  $ (0.02 )   $ 0.00     $ (0.02 )   $ (0.01 )
                                 
 Weighted average common shares outstanding
                               
 - basic and diluted
    69,429,617       74,104,718       60,666,442       62,953,249  
 
 
 
 
 See accompanying notes to the consolidated financial statements.
 
 
6

 
 
Stevia Corp.
Consolidated Statement of Equity (Deficit)
for the Interim Period Ended September 30, 2013 (Unaudited) and for the Fiscal Year Ended March 31, 2013
 
                            
Total
             
               
Additional
         
STEV Stockholders'
         
Total
 
   
Common Stock Par Value $0.001
   
paid-in
   
Accumulated
   
Equity
   
Non-controlling
   
Equity
 
   
Number of Shares
   
Amount
   
Capital
   
Deficit
   
(Deficit)
   
Interest
   
(Deficit)
 
                                           
Balance, March 31, 2012
    58,354,775     $ 58,355     $ 1,474,751     $ (2,323,551 )   $ (790,445 )   $ -     $ (790,445 )
                                                         
Restricted common shares issued for farm management services to a related party valued at $0.79 per share discounted at 69% on July 5, 2012
    500,000       500       272,050               272,550               272,550  
                                                         
Restricted common shares issued for technology rights valued at $0.79 per share discounted at 69% on July 5, 2012
    3,000,000       3,000       1,632,300               1,635,300               1,635,300  
                                                         
Common shares issued for notes conversion at $0.832143 per share on July 6, 2012
    600,858       601       499,399               500,000               500,000  
                                                         
Common shares issued for conversion of accrued interest at $0.832143 per share on July 6, 2012
    33,335       33       27,707               27,740               27,740  
                                                         
Common shares and warrants issued to two investors for cash at $0.46875 per unit on August 6, 2012
    1,066,667       1,067       498,933               500,000               500,000  
                                                         
Warrants issued to investors in connection with the sale of equity units on August 6, 2012 classified as derivative liability
                    (381,300 )             (381,300 )             (381,300 )
                                                         
Commissions and legal fees paid in connection with the sale of equity units on August 6, 2012
                    (52,500 )             (52,500 )             (52,500 )
                                                         
Warrants issued to placement agent in connection with the sale of equity units on August 6, 2012 classified as derivative liability
                    (30,504 )             (30,504 )             (30,504 )
                                                         
Issuance of warrants in connection with convertible note payable issued in February and March 2013
                    220,438               220,438               220,438  
                                                         
Beneficial conversion feature in connection with convertible note payable issued in February and March 2013
                    224,350               224,350               224,350  
                                                         
Common shares issued for future director services on October 4, 2011 earned during the period
                    375,000               375,000               375,000  
                                                         
Net loss
                            (2,035,864 )     (2,035,864 )     (214,158 )     (2,250,022 )
                                                         
Balance, March 31, 2013
    63,555,635       63,556       4,760,624       (4,359,415 )     464,765       (214,158 )     250,607  
                                                         
Common shares issued for consulting services valued at $0.20 per share on April 30, 2013
    500,000       500       99,500               100,000               100,000  
                                                         
Exercise of warrant with exercise price adjusted to $0.20 per share on May 6, 2013
    853,333       853       169,813               170,666               170,666  
                                                         
Commissions and legal fees paid in connection with the exercise of units on May 6, 2013
                    (18,653 )             (18,653 )             (18,653 )
                                                         
Reclassification of derivative liability to additional paid-in capital associated with the exercise of warrants
                    595,852               595,852               595,852  
                                                         
Warrants issued to investors in connection with warrants exercised on May 6, 2013 classified as derivative liability
                    (833,106 )             (833,106 )             (833,106 )
                                                         
Make good shares released to officer for achieving the second and third milestones on June 21, 2013
    3,000,000       3,000       597,000               600,000               600,000  
                                                         
Common shares issued for future director services on October 4, 2011 earned during the period ending June 30,2013
                    93,750               93,750               93,750  
                                                         
Initial Settlement shares of 7.5mm  issued on July 26, 2013 and additional shares of 2mm issued on September 30, 2013 in accordance with the settlement agreement for past due accounts payables
    9,500,000       9,500       1,032,500               1,042,000               1,042,000  
                                                         
Reclassification of derivative liability to additional paid-in capital associated with reclassification of warrants
                    (167,949 )             (167,949 )             (167,949 )
                                                         
Common shares issued for future director services on October 4, 2011 earned during the period ending September 30,2013
                    93,750               93,750               93,750  
                                                         
Net loss
                            (1,186,074 )     (1,186,074 )     (105,856 )     (1,291,930 )
                                                         
Balance, September 30, 2013
    77,408,968     $ 77,409     $ $6,423,081     $ (5,545,489 )   $ 955,001     $ (320,014 )   $ 634,987  
 
 
See accompanying notes to the consolidated financial statements.
 
 
7

 
 
 Stevia Corp.
 Consolidated Statements of Cash Flows
 

   
For the Six months
   
For the Six Months
 
    Ended     Ended  
   
September 30, 2013
   
September 30, 2012
 
   
(Unaudited)
   
(Unaudited)
 
 Cash flows from operating activities:
               
 Net loss before non-controlling interest
 
 $
                                 (1,291,930)
   
 $
                                (1,261,734)
 
 Adjustments to reconcile net loss to net cash provided by (used in) operating activities
               
 Depreciation expense
   
                                                   1,806
     
                                                        436
 
 Amortization expense - acquired technology
   
                                               54,510
     
                                              27,255
 
 Amortization expense - website development costs
   
                                                        534
     
                                                        534
 
 Amortization of discount of convertible notes payable
   
                                           588,183
     
                                                                 -
 
 Change in fair value of derivative liability
   
                                     (635,844)
     
                                       (231,521)
 
 Common shares issued for director services earned during the period
   
                                           187,500
     
                                           187,500
 
 Common shares issued for services-related party
   
                                          600,000
     
                                          272,550
 
 Common shares issued for outside services
   
                                           100,000
         
 Changes in operating assets and liabilities:
               
 Accounts receivable
   
                                           138,767
     
                                        (112,517)
 
 Prepayments and other current assets
   
                                          (42,351)
     
                                           146,303
 
 Accounts payable
   
                                          209,225
     
                                               78,183
 
 Accounts payable - President and CEO
   
                                              82,749
     
                                                                 -
 
 Accrued expenses
   
                                          (10,600)
     
                                                   4,100
 
 Accrued interest
   
                                              47,904
     
                                               30,314
 
                 
 Net cash provided by (used in) operating activities
   
                                              30,453
     
                                     (627,076)
 
                 
 Cash flows from investing activities:
               
 Purchases of property, plant and equipment
   
                                          (16,475)
     
                                              (1,323)
 
                 
 Net cash used in investing activities
   
                                          (16,475)
     
                                              (1,323)
 
                 
 Cash flows from financing activities:
               
 Advances from (repayments to) president and stockholder
   
                                          (10,495)
     
                                                   2,100
 
 Proceeds from issuance of convertible notes, net of costs
   
                                          253,000
     
                                          200,000
 
 Proceeds from sale of common stock, net of costs
   
                                           -
     
                                          447,500
 
    Proceeds from exercise of warrants, net of cost     152,013       -  
                 
 Net cash provided by financing activities
   
                                           394,518
     
                                          649,600
 
                 
 Net change in cash
   
                                          408,496
     
                                                21,202
 
                 
 Cash at beginning of the period
   
                                          424,475
     
                                               15,698
 
                 
 Cash at end of the period
 
 $
                                           832,971
   
 $
                                              36,900
 
                 
 Supplemental disclosure of cash flows information:
               
 Interest paid
 
 $
                                                                 -
   
 $
                                                                 -
 
                 
 Income tax paid
 
 $
                                                                 -
   
 $
                                                                 -
 
                 
                 
 Non-cash investing and financing activities:
               
 Issuance of common stock for past due payables
 
 $
                                     1,042,000
   
 $
                                                                 -
 
                 
 Issuance of common stock for conversion of convertible notes
 
 $
                                                                 -
   
 $
                                          500,000
 
                 
 Issuance of common stock for conversion of accrued interest
 
 $
                                                                 -
   
 $
                                              27,739
 
 
 
 
 
 See accompanying notes to the consolidated financial statements.
 
 
8

 

Stevia Corp.
September 30, 2013 and 2012
Notes to the Consolidated Financial Statements
(Unaudited)

Note 1 – Organization and Operations

Stevia Corp. (Formerly Interpro Management Corp.)

Interpro Management Corp (“Interpro”) was incorporated under the laws of the State of Nevada on May 21, 2007.   Interpro focused on developing and offering web based software that was designed to be an online project management tool used to enhance an organization’s efficiency through planning and monitoring the daily operations of a business. The Company discontinued its web-based software business upon the acquisition of Stevia Ventures International Ltd. on June 23, 2011.

On March 4, 2011, Interpro amended its Articles of Incorporation, and changed its name to Stevia Corp. (“Stevia” or the “Company”) and effectuated a 35 for 1 (1:35) forward stock split of all of its issued and outstanding shares of common stock (the “Stock Split”).

All shares and per share amounts in the consolidated financial statements have been adjusted to give retroactive effect to the Stock Split.

Stevia Ventures International Ltd.

Stevia Ventures International Ltd. (“Ventures”) was incorporated on April 11, 2011 under the laws of the Territory of the British Virgin Islands (“BVI”).  Ventures owns certain rights relating to stevia production, including certain assignable exclusive purchase contracts and an assignable supply agreement related to stevia.

Acquisition of Stevia Ventures International Ltd. Recognized as a Reverse Acquisition

On June 23, 2011 (the “Closing Date”), the Company closed a voluntary share exchange transaction with Ventures pursuant to a Share Exchange Agreement (the “Share Exchange Agreement”) by and among the Company, Ventures and George Blankenbaker, the stockholder of Ventures (the “Ventures Stockholder”).

Immediately prior to the Share Exchange Transaction on June 23, 2011, the Company had 79,800,000 common shares issued and outstanding. Simultaneously with the Closing of the Share Exchange Agreement, on the Closing Date, Mohanad Shurrab, a shareholder and, as of the Closing Date, the Company’s former Director, President, Treasurer and Secretary, surrendered 33,000,000 shares of the Company's common stock to the Company for cancellation.

As a result of the Share Exchange Agreement, the Company issued 12,000,000 common shares for the acquisition of 100% of the issued and outstanding shares of Ventures. Of the 12,000,000 common shares issued 6,000,000 shares were being held in escrow pending the achievement by the Company of certain post-Closing business milestones (the “Milestones”), pursuant to the terms of the Make Good Escrow Agreement, between the Company, Greenberg Traurig, LLP, as escrow agent and the Ventures’ Stockholder (the “Escrow Agreement”).  Even though the shares issued only represented approximately 20.4% of the issued and outstanding common stock immediately after the consummation of the Share Exchange Agreement the stockholder of Ventures completely took over and controlled the board of directors and management of the Company upon acquisition.

As a result of the change in control to the then Ventures Stockholder, for financial statement reporting purposes, the merger between the Company and Ventures has been treated as a reverse acquisition with Ventures deemed the accounting acquirer and the Company deemed the accounting acquiree under the acquisition method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification.  The reverse acquisition is deemed a capital transaction and the net assets of Ventures (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the acquisition.  The acquisition process utilizes the capital structure of the Company and the assets and liabilities of Ventures which are recorded at their historical cost.  The equity of the Company is the historical equity of Ventures retroactively restated to reflect the number of shares issued by the Company in the transaction.
 
 
9

 

 
Formation of Stevia Asia Limited

On March 19, 2012, the Company formed Stevia Asia Limited (“Stevia Asia”) under the laws of the Hong Kong Special Administrative Region (“HK SAR”) of the People’s Republic of China (“PRC”), a wholly-owned subsidiary.

Formation of Stevia Technew Limited (Formerly Hero Tact Limited)/Cooperative Agreement

On April 28, 2012, Stevia Asia formed Hero Tact Limited, a wholly-owned subsidiary, under the laws of HK SAR, which subsequently changed its name to Stevia Technew Limited (“Stevia Technew”).  Stevia Technew intends to facilitate a joint venture relationship with the Company’s technology partner, Guangzhou Health China Technology Development Company Limited, operating under the trade name Tech-New Bio-Technology and Guangzhou’s affiliates Technew Technology Limited.  Prior to July 5, 2012, the date of entry into the Cooperative Agreement, Stevia Technew was inactive and had no assets or liabilities.

On July 5, 2012, Stevia Asia entered into a Cooperative Agreement (the "Cooperative Agreement") with Technew Technology Limited ("Technew"), a company incorporated under the companies ordinance of Hong Kong and an associate of Guangzhou Health China Technology Development Company Limited, and Zhang Jia, a Chinese citizen (together with Technew, the "Partners") pursuant to which Stevia Asia and Partners have agreed to make Stevia Technew, a joint venture, of which Stevia Asia legally and beneficially owns 70% of the shares (representing 70% of the issued shares) and Technew legally and beneficially owns 30% of the shares (representing 30% of the issued shares). The Partners will be responsible for managing Stevia Technew and Stevia Asia has agreed to contribute $200,000 per month, up to a total of $2,000,000 in financing, subject to the performance of Stevia Technew and Stevia Asia's financial capabilities.

The Cooperative Agreement shall automatically terminate upon either Stevia Asia or Technew ceasing to be a shareholder in Stevia Technew, or may be terminated by either Stevia Asia or Technew upon a material breach by the other party which is not cured within 30 days of notice of such breach.

Formation of SC Brands Pte Ltd

On October 1, 2013, the Company formed SC Brands Pte Ltd (“SC Brands”) under the laws of Singapore, with the Company owning 70% of the shares and 30% owned by a Singapore strategic partner that will provide the working capital funds via fixed convertible notes to the Company.
 
Note 2 – Summary of Significant Accounting Policies

Basis of Presentation – Unaudited Interim Financial Information

The unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim consolidated financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Interim results are not necessarily indicative of the results for the full fiscal year.  These consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the fiscal year ended March 31, 2013 and notes thereto contained in the Company’s Annual Report on Form 10-K as filed with the SEC on July 16, 2013.

Principles of Consolidation

The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification to determine whether and how to consolidate another entity.  Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee.  Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation.  The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries, if any, in which the parent’s power to control exists.
 
 
10

 

 
The Company's consolidated subsidiaries and/or entities are as follows:

Name of consolidated
subsidiary or entity
 
State or other jurisdiction
of incorporation or organization
 
Date of incorporation or formation
(date of acquisition, if applicable)
 
Attributable
interest
 
               
Stevia Ventures International Ltd.
 
The Territory of the British Virgin Islands
 
April 11, 2011
    100 %
                 
Stevia Asia Limited
 
Hong Kong SAR
 
March 19, 2012
    100 %
                 
Stevia Technew Limited
 
Hong Kong SAR
 
April 28, 2012
    70 %
                 
 SC Brands Pte Ltd    Singapore   October 1, 2013     70
 
The consolidated financial statements include all accounts of the Company and the consolidated subsidiaries and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended.

All inter-company balances and transactions have been eliminated.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.   These reclassifications had no effect on reported losses.

Use of Estimates and Assumptions

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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company’s significant estimates and assumptions include the fair value of financial instruments; allowance for doubtful accounts; the carrying value, recoverability and impairment of long-lived assets, including the values assigned to and the estimated useful lives of website development costs; interest rate; revenue recognized or recognizable; sales returns and allowances; foreign currency exchange rate; income tax rate, income tax provision, deferred tax assets and valuation allowance of deferred tax assets; expected term of share options and similar instruments, expected volatility of the entity’s shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk free rate(s); and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
 
Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

Actual results could differ from those estimates.

 
11

 

Fair Value of Financial Instruments

The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels.  The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:

Level 1
 
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
     
Level 2
 
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
     
Level 3
 
Pricing inputs that are generally observable inputs and not corroborated by market data.

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.  If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepayments and other current assets, accounts payable, accrued expenses, and accrued interest, approximate their fair values because of the short maturity of these instruments.

The Company’s convertible notes payable approximates the fair value of such instrument based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at September 30, 2013 and March 31, 2012.

The Company’s Level 3 financial liabilities consist of the derivative warrant issued in August 2012 for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation.  The Company valued the automatic conditional conversion, re-pricing/down-round, change of control; default and follow-on offering provisions using a lattice model, with the assistance of a third party valuation specialist, for which management understands the methodologies.  These models incorporate transaction details such as Company stock price, contractual terms, maturity, risk free rates, as well as assumptions about future financings, volatility, and holder behavior as of the date of issuance and each balance sheet date.

Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis

Level 3 Financial Liabilities – Derivative Warrant Liabilities

The Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative warrant liability at every reporting period and recognizes gains or losses in the consolidated statements of operations and comprehensive income (loss) that are attributable to the change in the fair value of the derivative warrant liability.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts.  The Company follows paragraph 310-10-50-9 of the FASB Accounting Standards Codification to estimate the allowance for doubtful accounts.  The Company performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and economic conditions.

Pursuant to paragraph 310-10-50-2 of the FASB Accounting Standards Codification account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.  The Company has adopted paragraph 310-10-50-6 of the FASB Accounting Standards Codification and determine when receivables are past due or delinquent based on how recently payments have been received.
 
 
12

 
 
Outstanding account balances are reviewed individually for collectability.  The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. Bad debt expense is included in general and administrative expenses, if any.

There was no allowance for doubtful accounts as or September 30, 2013 or March 31, 2013.

The Company does not have any off-balance-sheet credit exposure to its customers.
 
Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property and equipment, acquired technology, and website development costs are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
 
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.  Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes.  The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

The key assumptions used in management’s estimates of projected cash flow deal largely with forecasts of sales levels and gross margins.  These forecasts are typically based on historical trends and take into account recent developments as well as management’s plans and intentions.  Other factors, such as increased competition or a decrease in the desirability of the Company’s products or services, could lead to lower projected sales levels, which would adversely impact cash flows.  A significant change in cash flows in the future could result in an impairment of long lived assets.

The impairment charges, if any, is included in operating expenses in the accompanying consolidated statements of operations.

Fiscal Year End

The Company elected March 31 as its fiscal year ending date.

Cash Equivalents

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

Property and Equipment

Property and equipment is recorded at cost.  Expenditures for major additions and betterments are capitalized.  Maintenance and repairs are charged to operations as incurred.  Depreciation of furniture and fixture is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful life of five (5) years.  Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

Intangible Assets Other Than Goodwill

The Company has adopted paragraph 350-30-25-3 of the FASB Accounting Standards Codification for intangible assets other than goodwill.  Under the requirements, the Company amortizes the acquisition costs of intangible assets other than goodwill inclusive of acquired technology and website development costs on a straight-line basis over their relevant estimated useful lives of fifteen (15) and five (5) years, respectively.  Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

Related Parties

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 
13

 

Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include:  a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Derivative Instruments and Hedging Activities

The Company accounts for derivative instruments and hedging activities in accordance with paragraph 810-10-05-4 of the FASB Accounting Standards Codification (“Paragraph 810-10-05-4”). Paragraph 810-10-05-4 requires companies to recognize all derivative instruments as either assets or liabilities in the balance sheet at fair value.  The accounting for changes in the fair value of a derivative instrument depends upon: (i) whether the derivative has been designated and qualifies as part of a hedging relationship, and (ii) the type of hedging relationship.  For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument based upon the exposure being hedged as either a fair value hedge, cash flow hedge or hedge of a net investment in a foreign operation.

From time to time, the Company may employ foreign currency forward contracts to convert unforeseeable foreign currency exchange rates to fixed foreign currency exchange rates.  The Company does not use derivatives for speculation or trading purposes.  Changes in the fair value of derivatives are recorded each period in current earnings or through other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and the type of hedge transaction.  The ineffective portion of all hedges is recognized in current earnings.  The Company has sales and purchase commitments denominated in foreign currencies.  Foreign currency forward contracts are used to hedge against the risk of change in the fair value of these commitments attributable to fluctuations in exchange rates (“Fair Value Hedges”).  Changes in the fair value of the derivative instrument are generally offset in the income statement by changes in the fair value of the item being hedged.

The Company did not employ foreign currency forward contracts to convert unforeseeable foreign currency exchange rates to fixed foreign currency exchange rates for the interim period ended September 30, 2013 or 2012.

Derivative Liability

The Company evaluates its convertible debt, options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification.  The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability.  In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statement of operations and comprehensive income (loss) as other income or expense.  Upon conversion, exercise or cancellation of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then that the related fair value is reclassified to equity.

 
14

 

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.  Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date.  Derivative instrument liabilities will be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

The Company adopted Section 815-40-15 of the FASB Accounting Standards Codification (“Section 815-40-15”) to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock.  Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions.   The adoption of Section 815-40-15 has affected the accounting for (i) certain freestanding warrants that contain exercise price adjustment features and (ii) convertible bonds issued by foreign subsidiaries with a strike price denominated in a foreign currency.

The Company marks to market the fair value of the embedded derivative warrants at each balance sheet date and records the change in the fair value of the embedded derivative warrants as other income or expense in the consolidated statements of operations and comprehensive income (loss).

The Company utilizes the Lattice model that values the liability of the derivative warrants based on a probability weighted discounted cash flow model with the assistance of the third party valuation firm.  The reason the Company picks the Lattice model is that in many cases there may be multiple embedded features or the features of the bifurcated derivatives may be so complex that a Black-Scholes valuation does not consider all of the terms of the instrument.  Therefore, the fair value may not be appropriately captured by simple models.  In other words, simple models such as Black-Scholes may not be appropriate in many situations given complex features and terms of conversion option (e.g., combined embedded derivatives).  The Lattice model is based on future projections of the various potential outcomes. The features that were analyzed and incorporated into the model included the exercise and full reset features.  Based on these features, there are two primary events that can occur; the Holder exercises the Warrants or the Warrants are held to expiration. The Lattice model analyzed the underlying economic factors that influenced which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e. stock price, exercise price, volatility, etc.).  Projections were then made on the underlying factors which led to potential scenarios.  Probabilities were assigned to each scenario based on management projections.  This led to a cash flow projection and a probability associated with that cash flow.  A discounted weighted average cash flow over the various scenarios was completed to determine the value of the derivative warrants.

Beneficial Conversion Feature

When the Company issues an debt or equity security that is convertible into common stock at a discount from the fair value of the common stock at the date the debt or equity security counterparty is legally committed to purchase such a security (Commitment Date), a beneficial conversion charge is measured and recorded on the Commitment Date for the difference between the fair value of the Company's common stock and the effective conversion price of the debt or equity security. If the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the debt or equity security, the amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the debt or equity security.

Commitment and Contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.  The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 
15

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements.  If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.  Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

Non-controlling Interest

The Company follows paragraph 810-10-65-1 of the FASB Accounting Standards Codification to report the non-controlling interests in its majority owned subsidiaries in the consolidated statements of balance sheets within the equity section, separately from the Company’s stockholders’ equity.  Non-controlling interests represents the non-controlling interest holder’s proportionate share of the equity of the Company’s majority-owned subsidiaries. Non-controlling interest is adjusted for the non-controlling interest holder’s proportionate share of the earnings or losses and other comprehensive income (loss) and the non-controlling interest continues to be attributed its share of losses even if that attribution results in a deficit non-controlling interest balance.

Revenue Recognition

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.  The Company recognizes revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

Research and Development

The Company follows paragraph 730-10-25-1 of the FASB Accounting Standards Codification (formerly Statement of Financial Accounting Standards No. 2 “Accounting for Research and Development Costs”) and paragraph 730-20-25-11 of the FASB Accounting Standards Codification (formerly Statement of Financial Accounting Standards No. 68 “Research and Development Arrangements”) for research and development costs.  Research and development costs are charged to expense as incurred.  Research and development costs consist primarily of remuneration for research and development staff, depreciation and maintenance expenses of research and development equipment, material and testing costs for research and development as well as research and development arrangements with unrelated third party research and development institutions.

Non-refundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities

The research and development arrangements usually involve specific research and development projects.  Often times, the Company makes non-refundable advances upon signing of these arrangements.  The Company adopted paragraph 730-20-25-13 and 730-20-35-1 of the FASB Accounting Standards Codification (formerly Emerging Issues Task Force Issue No. 07-3 “Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities”) for those non-refundable advances.  Non-refundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized.  Such amounts are recognized as an expense as the related goods are delivered or the related services are performed.  The management continues to evaluate whether the Company expect the goods to be delivered or services to be rendered.  If the management does not expect the goods to be delivered or services to be rendered, the capitalized advance payment are charged to expense.

 
 
16

 

Stock-Based Compensation for Obtaining Employee Services

The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.  If shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum ("PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of non-derivative option award is estimated on the date of grant using a Black-Scholes option-pricing valuation model.  The ranges of assumptions for inputs are as follows:

·  
Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding.  Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments.  Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

·  
Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

·  
Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

·  
Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

 
 
17

 

The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

Equity Instruments Issued to Parties other than Employees for Acquiring Goods or Services

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Subtopic 505-50 of the FASB Accounting Standards Codification (“Subtopic 505-50”).

Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.  If shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum ("PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of non-derivative option or warrant award is estimated on the date of grant using a Black-Scholes option-pricing valuation model.  The ranges of assumptions for inputs are as follows:

·  
Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2 of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments.  The Company uses historical data to estimate holder’s expected exercise behavior.  If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

·  
Expected volatility of the entity’s shares and the method used to estimate it.  An entity that uses a method that employs different volatilities during the contractual term shall disclose the range of expected volatilities used and the weighted-average expected volatility.  A thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

·  
Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected contractual life of the option and similar instruments.

·  
Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option and similar instruments.

Pursuant to Paragraphs 505-50-25-8, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity
 
 
18

 
 
instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has the right to exercise expires unexercised.

Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

Income Tax Provision

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of income and comprehensive income (loss) in the period that includes the enactment date.

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”). Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty (50) percent likelihood of being realized upon ultimate settlement.  Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 
19

 

Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the interim period ended September 30, 2013 or 2012.

Limitation on Utilization of NOLs due to Change in Control

Pursuant to the Internal Revenue Code Section 382 (“Section 382”), certain ownership changes may subject the NOL’s to annual limitations which could reduce or defer the NOL.  Section 382 imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.”  In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period.  In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years.  The imposition of this limitation on its ability to use the NOLs to offset future taxable income could cause the Company to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.

Net Income (Loss) per Common Share

Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.   Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.  Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

The following table shows the potentially outstanding dilutive common shares excluded from the diluted net income (loss) per common share calculation as they were anti-dilutive:

   
Potentially Outstanding Dilutive Common Shares
 
   
For Interim Period
Ended
September 30,
2013
   
For Interim Period
Ended
September 30,
2012
 
Make Good Escrow Shares
           
             
Make Good Escrow Agreement shares issued and held with the escrow agent in connection with the Share Exchange Agreement consummated on June 23, 2011 pending the achievement by the Company of certain post-Closing business milestones (the “Milestones”).
    -       3,000,000  
                 
Sub-total Make Good Escrow Shares
    -       3,000,000  
                 
Convertible Note Shares
               
                 
On March 7, 2012, the Company issued a convertible note in the amount of $200,000 with interest at 10% per annum due one (1) year from the date of issuance with the conversion price to be the same as the next private placement price on a per share basis, provided that the Company completes a private placement with gross proceeds of at least $100,000. On August 6, 2012, the Company completed the very next private placement at $0.46875 per share with gross proceeds of at least $100,000. On March 15, 2013, the above note was cancelled and reissued with a new convertible note consisting of the prior principal amount and the entire accrued unpaid interest for the total amount of $220,438 convertible at $0.25 per share with interest at 12% per annum due on September 30, 2013. The note is currently in default with no penalty.
    881,752       881,752  
 
 
 
20

 
 
 
On May 30, 2012, the Company issued a convertible note in the amount of $200,000 with interest at 10% per annum due one (1) year from the date of issuance with the conversion price to be the same as the next private placement price on a per share basis, provided that the Company completes a private placement with gross proceeds of at least $100,000. On August 6, 2012, the Company completed the very next private placement at $0.46875 per share with gross proceeds of at least $100,000. On May 8, 2013, the Company completed a private placement at $0.20 per share with gross proceeds more than $100,000, this event triggered the reset of the conversion price of the convertible note to $0.20 per share.
    1,000,000       426,667  
                 
On February 26, 2013, the Company issued two (2) convertible notes in the amount of $250,000 and $100,000, respectively, convertible at $0.25 per share, with interest at 12% per annum due on September 30, 2013. The note is in default with no penalty.
    1,400,000       -  
                 
On July 16, 2013, the Company issued a convertible note for $400,000, with consideration of  $360,000 and a $40,000 original issue discount. The lender provided $100,000 on July 18, and $ 25,000 on September 26, 2013, respectively, with conversion price at the lesser of $0.26 or 65% of the lowest trade price for the 30 day period before conversion, The notes are due (1) one year from the date of each payment with interest at 12% per annum.
    1,479,290          
                 
On August 27, 2013, the Company issued a convertible notes in the amount of $153,000 convertible at 65% multiplied by the arket price, with interest at 8% per annum due on May 26, 2014.
    1,806,020       -  
                 
Sub-total Convertible Note Shares
    6,567,062       1,308,419  
                 
Warrant Shares
               
                 
On August 6, 2012, the Company issued (i) warrants to purchase 1,066,667 shares, in the aggregate, of the Company’s common stock to investors (the “investor warrants”) and (ii) warrants to purchase 85,333 shares of the Company's  common  stock to the placement agent (the "agent warrants") with an exercise price of $0.6405 per share subject to certain adjustments pursuant to Section 3(b) Subsequent Equity Sales of the SPA expiring five (5) years from the date of issuance. On February 26, 2013, warrants issued subsequent to the investor and agent warrants triggered a reset of those warrants exercise price to $0.25 per share and the shares to be issued under the warrants were adjusted accordingly. On May 8, 2013, the Company completed a private placement at $0.20 per share with gross proceeds more than $100,000; this event triggered the reset of the conversion price of the convertible note to $0.20 per share. On May 8, 2013, investors exercised 853,333 of the 1,066,667 investor warrants at $0.20 per share.
    956,481       -  
                 
On February 26, 2013, the Company issued warrants to purchase 1,000,000 and 400,000 shares respectively, or 1,400,000 shares in the aggregate, of the Company’s common stock to two (2) note holders in connection with the issuance of convertible notes.
    1,400,000       -  
                 
On March 15, 2013, the Company issued a warrant to purchase 881,753 shares of the Company’s common stock to the note holder in connection with the issuance of the convertible note.
    881,753       -  
                 
On May 6, 2013, the Company issued three (3) series of warrants. Series A warrants include (i) warrants to purchase 1,877,333 shares of the Company’s common stock to the investor and (ii) warrants to purchase 150,187 shares of the Company's  common  stock to the placement agent (the "agent warrants") with an exercise price of $0.20 per share expiring five (5) years from the date of issuance.
    2,027,520       -  
                 
Series B warrants include (i) warrants to purchase 1,066,666 shares of the Company’s common stock to the investor and (ii) warrants to purchase 85,333 shares of the Company's  common  stock to the placement agent (the "agent warrants") with an exercise price of $0.25 per share expiring five (5) years from the date of issuance.
    1,151,999       -  
                 
Series C warrants include (i) warrants to purchase 2,346,666 shares of the Company’s common stock to the investor and (ii) warrants to purchase 187,733 shares of the Company's  common  stock to the placement agent (the "agent warrants") with an exercise price of $0.25 per share expiring five (5) years from the date of issuance. The warrants are exercisable under the condition of Series A warrants are exercised.
    2,534,399       -  
                 
Sub-total Warrant Shares
    8,952,152       -  
                 
Total potentially outstanding dilutive common shares
    15,519,214       4,308,419  
 
 
 
21

 
 
Cash Flows Reporting

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

Subsequent Events

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued.  Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

Recently Issued Accounting Pronouncements

In January 2013, the FASB issued ASU No. 2013-01, "Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities". This ASU clarifies that the scope of ASU No. 2011-11, "Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities." applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification or subject to a master netting arrangement or similar agreement. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013.

In February 2013, the FASB issued ASU No. 2013-02, "Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income." The ASU adds new disclosure requirements for items reclassified out of accumulated other comprehensive income by component and their corresponding effect on net income. The ASU is effective for public entities for fiscal years beginning after December 15, 2013.

In February 2013, the Financial Accounting Standards Board, or FASB, issued ASU No. 2013-04, "Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date."  This ASU addresses the recognition, measurement, and disclosure of certain obligations resulting from joint and several arrangements including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. The ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2013.

In March 2013, the FASB issued ASU No. 2013-05, "Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity." This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income and is intended by FASB to eliminate some disparity in current accounting practice. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013.
 
 
22

 
 
In March 2013, the FASB issued ASU 2013-07, “Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting.” The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments require financial statements prepared using the liquidation basis of accounting to present relevant information about an entity’s expected resources in liquidation by measuring and presenting assets at the amount of the expected cash proceeds from liquidation. The entity should include in its presentation of assets any items it had not previously recognized under U.S. GAAP but that it expects to either sell in liquidation or use in settling liabilities (for example, trademarks). The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

Note 3 – Going Concern

The consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

As reflected in the consolidated financial statements, the Company had an accumulated deficit at September 30, 2013, a net loss and net cash used in operating activities for the interim period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

While the Company is attempting to generate sufficient revenues, the Company’s cash position may not be sufficient enough to support the Company’s daily operations.  Management intends to raise additional funds by way of a public or private offering.  Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern.  While the Company believes in the viability of its strategy to generate sufficient revenues and in its ability to raise additional funds, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues.

The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 4 – Property and Equipment

Property and equipment, stated at cost, less accumulated depreciation consisted of the following:

 
Estimated Useful
Life (Years)
 
September 30,
2013
   
March 31,
2013
 
                   
Property and equipment
5
   
24,400
   
$
7,925
 
               
Less accumulated depreciation
     
(3,040
)
   
(1,234
)
               
       
21,360
   
$
6,691
 


 
23

 

Depreciation Expense

Depreciation expense was $1,806 and $436 for the interim period ended September 30, 2013 and 2012, respectively.

Note 5 – Acquired Technology

On July 5, 2012, the Company acquired the rights to certain technology from Technew Technology Limited in exchange for 3,000,000 restricted shares of the Company's common stock.  These restricted shares were valued at $0.79 per share discounted at 69% taking into consideration its restricted nature and lack of liquidity and consistent trading in the market for a total value of $1,635,300, which was recorded as acquired technology and amortized on a straight-line basis over the acquired technology's estimated useful life of fifteen (15) years.

 
Estimated Useful
Life (Years)
 
September 30,
2013
   
March 31,
2013
 
                   
Technology right
15
 
$
1,635,300
   
$
1,635,300
 
               
Less accumulated amortization
     
(136,275
)
   
(81,765
)
               
     
$
1,499,025
   
$
1,553,535
 

Amortization Expense

Amortization expense was $54,510 and $27,255 for the interim period ended September 30, 2013 and 2012, respectively.

Note 6 – Website Development Costs

Website development costs, stated at cost, less accumulated amortization consisted of the following:

 
Estimated Useful
Life (Years)
 
September 30,
2013
   
March 31,
2013
 
                   
Website development costs
5
   
5,315
   
$
5,315
 
               
Accumulated amortization
     
(2,403
)
   
(1,869
)
               
       
2,912
   
$
3,446
 

Amortization expense

Amortization expense was $534 each for the interim period ended September 30, 2013 and 2012, respectively.

Note 7 – Related Party Transactions

Related parties

Related parties with whom the Company had transactions are:

Related Parties
 
Relationship
     
George Blankenbaker
 
President and significant stockholder of the Company
     
Leverage Investments LLC
 
An entity owned and controlled by the president and significant stockholder of the Company
     
Technew Technology Limited
 
Non-controlling interest holder
     
Growers  Synergy Pte Ltd.
 
An entity owned and controlled by the president and significant stockholder of the Company
     
Guangzhou Health Technology Development Company Limited
 
An entity owned and controlled by Non-controlling interest holder
 
 
24

 
 
Advances from Stockholder

From time to time, stockholder of the Company advances funds to the Company for working capital purpose. Those advances are unsecured, non-interest bearing and due on demand.

Lease of Certain Office Space from Leverage Investments, LLC

The Company leases certain office space with Leverage Investments, LLC for $500 per month on a month-to-month basis since July 1, 2011.  For the interim periods ended September 30, 2013 and 2012, the Company recorded $1,500 and $1,500 in rent expenses due Leverage Investment LLC, respectively.

Farm Management and Off-Take Agreement with Growers Synergy Pte Ltd.

For the period from July 1, 2011 through October 31, 2011, the Company engaged Growers Synergy Pte Ltd. to provide farm management services on a month-to-month basis, at $20,000 per month.

On November 1, 2011, the Company entered into a Management and Off-Take Agreement (the “Management Agreement”) with Growers Synergy Pte Ltd. (“GSPL”), a Singapore corporation owned and controlled by the president and major stockholder of the Company.  Under the terms of the Management Agreement,  the Company will engage GSPL to supervise the Company’s farm management operations, recommend quality farm management  programs for stevia cultivation, assist in the hiring of employees and provide training to help the Company meet its commercialization  targets, develop successful models to propagate future agribusiness services, and provide back-office and regional logistical support for the development of proprietary stevia farm systems in Vietnam, Indonesia and potentially other countries. GSPL will provide services for a term of two (2) years from the date of signing, at $20,000 per month.  The Management Agreement may be terminated by the Company upon 30 day notice.  In connection with the Management Agreement, the parties agreed to enter into an off-take agreement whereby GSPL agreed to purchase all of the non-stevia crops produced at the Company’s GSPL supervised farms.

Farm management services provided by Growers Synergy Pte Ltd. were as follows:

   
For the interim
period ended
September 30,
2013
   
For the interim
period ended
September 30,
2012
 
                 
Farm management services – related parties
 
$
120,000
   
$
60,000
 
             
   
$
120,000
   
$
60,000
 

Future minimum payments required under this agreement were as follows:

Fiscal Year Ending March 31:
       
         
2014 (remainder of the fiscal year)
 
$
20,000
 
       
   
$
20,000
 

Cash Commitment in Connection with the Operations of Stevia Technew

On July 5, 2012, Stevia Asia, entered into a Cooperative Agreement (the "Cooperative Agreement") with Technew Technology Limited ("Technew"), a company incorporated under the companies ordinance of Hong Kong and an associate of Guangzhou Health China Technology Development Company Limited, and Zhang Jia, a Chinese citizen (together with Technew, the "Partners") pursuant to which Stevia Asia and Partners have agreed to make Stevia Technew, a joint venture, of which Stevia Asia legally and beneficially owns 70% shares (representing 70% of the issued shares) and Technew legally and beneficially owns 30% shares (representing 30% of the of the issued shares). The Partners will be responsible for managing Stevia Technew and Stevia Asia has agreed to provide $200,000 per month, up to a total of $2,000,000 in financing, subject to the performance of Stevia Technew and Stevia Asia's financial capabilities.

 
25

 

For the fiscal year ended March 31, 2013, Stevia Asia provided Stevia Technew $200,000, all of which has been paid to Guangzhou Health and expended and recorded as farm management services - related parties. On March 1, 2013, the partners agreed to terminate the Cooprative Agreement specific to the investment in an agricultural project and no further obligation by either party related to the payment of $200,000.
 
Note 8 – Convertible Notes Payable

On February 14, 2011, the Company issued a convertible note in the amount of $250,000 with interest at 10% per annum due one (1) year from the date of issuance. On October 4, 2011, the note holder converted the entire principal of $250,000 and accrued interest through the date of conversion of $15,890.41 at $0.25 per share to 1,000,000 shares and 63,561 shares of the Company’s common stock, respectively.

On June 23, 2011, the Company issued a convertible note in the amount of $100,000 with interest at 10% per annum due one (1) year from the date of issuance. On October 4, 2011, the note holder converted the entire principal of $100,000 and accrued interest through the date of conversion of $2,821.92 at $0.25 per share to 400,000 shares and 11,288 shares of the Company’s common stock.

On October 4, 2011, the Company issued a convertible note in the amount of $150,000 with interest at 10% per annum due one (1) year from the date of issuance.  On January 18, 2012, the note holder converted the entire principal of $150,000 and accrued interest through the date of conversion of $4,356 at $0.25 per share to 617,425 shares of the Company’s common stock.

(i) February 26, 2013 issuance of convertible notes with warrants

On February 26, 2013, the Company entered into two (2) 12% convertible notes payable of $350,000 in aggregate (“Convertible Notes”) with two investors (the “Payees”) maturing on September 30, 2013. The Payees have the option to convert the outstanding notes and interest due into the Company’s common shares at $0.25 per share at any time prior to September 30, 2013. In connection with the issuance of the Convertible Notes, the Company granted to the Payees a warrant to purchase 1,400,000 common shares exercisable at $0.25 per share expiring three (3) years from the date of issuance.

The Company estimated the relative fair value of these warrants on the date of grant, using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Expected option life (year)
   
3.00
 
         
Expected volatility
   
74.53
%
         
Risk-free interest rate
   
0.37
%
         
Dividend yield
   
0.00
%

The relative fair value of these warrants granted, estimated on the date of grant, was $110,425 in aggregate, which was recorded as a discount to the convertible notes payable. After allocating the $110,425 portion of the proceeds to the warrants as a discount to the Convertible Note, an additional $113,925 was allocated to a beneficial conversion feature by crediting additional $113,925 to additional paid-in capital and debiting the same amount to the beneficial conversion feature.  The Company amortizes the discount and beneficial conversion feature over the term of the Convertible Notes. The amortization of the discount and beneficial conversion feature were fully amortized as of September 30, 2013.

(ii) March 15, 2013 issuance of convertible note with warrant

On March 15, 2013, the Company cancelled a prior convertible note and entered into a 12% convertible note payable of $220,438, which is the total amount of the prior note principal and accrued interest, with the existing investor (the “Payee”), maturing on September 30, 2013. The Payee has the option to convert the outstanding note into the Company’s common shares at $0.25 per share at any time prior to payment in full of the principal balance of the Convertible Note. In connection with the issuance of the Convertible Note, the Company granted the Payee a warrant to purchase 881,753 common shares exercisable at $0.25 per share expiring three (3) years from the date of issuance.
 
 
26

 
 
The Company estimated the relative fair value of these warrants on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

Expected option life (year)
    3.00  
         
Expected volatility
    75.11 %
         
Risk-free interest rate
    0.40 %
         
Dividend yield
    0.00 %
         

The relative fair value of these warrants was $98,095, which was recorded as a discount to the convertible note payable. After allocating the $98,095, portion of the proceeds to the warrants as a discount to the Convertible Note, the effective conversion price of the convertible notes payable was lower than the market price at the date of issuance and per calculation the remaining balance of the face amount was allocated to a beneficial conversion feature by crediting $122,343 to additional paid-in capital and debiting the same amount to the beneficial conversion feature. The Company amortizes the discount and beneficial conversion feature over the term of the Convertible Note and were fully amortized as of September 30, 2013.

Convertible notes payable consisted of the following:
 
   
September 30,
2013
   
March 31,
2013
 
On March 7, 2012, the Company issued a convertible note in the amount of $200,000 with interest at 10% per annum due one (1) year from the date of issuance with the conversion price to be the same as the next private placement price on a per share basis provided that the Company completes a private placement with gross proceeds of at least $100,000. On August 6, 2012, the Company completed the very next private placement at $0.46875 per share with gross proceeds of at least $100,000. On March 15, 2013, the above note was cancelled and reissued with a new convertible note consisting of the prior principal amount and all of the accrued unpaid interest for the total amount of $220,438 convertible at $0.25 per share, with interest at 12% per annum due on September 30, 2013. The note is currently in default with no penalty.
    220,438       220,438  
                 
On May 30, 2012, the Company issued a convertible note in the amount of $200,000 with interest at 10% per annum due one (1) year from the date of issuance with the conversion price to be the same as the next private placement price on a per share basis provided that the Company completes a private placement with gross proceeds of at least $100,000. On August 6, 2012, the Company completed the very next private placement at $0.46875 per share with gross proceeds of at least $100,000.
    200,000       200,000  
                 
On February 26, 2013, the Company issued two (2) convertible notes in the amount of $250,000 and $100,000, respectively, for an aggregate of $350,000 with interest at 12% per annum, due on September 30, 2013, convertible at $0.25 per share. In connection with the issuance of the convertible notes, the Company issued to both notes holders a warrant to purchase 1,000,000 shares and 400,000 shares, respectively, in the aggregate of 1,400,000 shares of the Company’s common stock. The note is currently in default with no penalty.
    350,000       350,000  
                 
On July 16, 2013, the Company issued a convertible note for $400,000, with consideration of  $360,000 and a $40,000 original issue discount. The lender paid $100,000 On July 18, and $ 25,000 on September 26, 2013, respectively, with conversion price the lesser of $0.26 or 65% of the lowest trade price for 30 day period before conversion, The notes are  due one (1) year from the date each payment with interest at 12% per annum.
    125,000       -  
                 
On August 27, 2013, the Company issued a convertible notes in the amount of $153,000 convertible at 65% multiplied by the Market price with interest at 8% per annum due on May 26, 2014.
    153,000       -  
 
 
 
27

 
 
 
Sub-total: convertible notes payable
    1,048,438       770,438  
                 
Discount representing (i) the relative fair value of the warrants issued (ii) the beneficial conversion features and (iii) the derivative liability on conversion feature
    (645,829 )     (444,788 )
                 
Accumulated amortization of discount on convertible notes payable
    595,233       32,050  
                 
Remaining discount
    (50,596 )     (412,738 )
                 
    $ 997,842     $ 357,770  
 
Note 9 – Derivative Instruments and the Fair Value of Financial Instruments

(i) Warrants Issued
 
Description of Warrants and Fair Value on Date of Grant

On August 6, 2012, the Company issued (i) warrants to purchase 1,066,667 shares of the Company’s common stock to the investors (the “investors warrants”) and (ii) warrants to purchase 85,333 shares of the Company's  common  stock to the placement agent (the "agent warrants") with an exercise price of $0.6405 per share, subject to certain adjustments, pursuant to Section 3(b) Subsequent Equity Sales of the SPA, expiring five (5) years from the date of issuance.


On February 26 and March 15, 2013 the Company issued warrants with an exercise price of $0.25 per share. Pursuant to Section 3(b) Subsequent Equity Sales of the SPA, the previously issued warrants’ exercise price was reset to $0.25 per share and the number of warrant shares was increased to 2,732,801 and 218,623, respectively, for a total of 2,951,424.

On May 6, 2013, the Company issued warrants with an exercise price of $0.25 per share. Pursuant to Section 3(b) Subsequent Equity Sales of the SPA the previously issued warrants' exercise price was reset again to $0.20 per share and the number of warrant shares was increased to 3,416,001 and 273,279, respectively, for a total of 3,689,280. On May 6, 2013, investors exercised the warrants to purchase 853,333 of the 1,066,667 shares of the Company’s common stock with the reset exercise price at $0.20 per share (2,732,799 of 3,416,001 warrants exercised with the reset price).

On May 6, 2013, the Company issued (i) warrants to purchase 1,877,333 (Series A), 1,066,667 (Series B) and 2,346,666 (Series C), or in aggregate 5,290,665 shares of the Company’s common stock to the investors (the “investor warrants”) and (ii) warrants to purchase 150,187 (Series A), 85,333 (Series B) and 187,733 (Series C) shares of the Company's  common  stock to the placement agent (the "agent warrants") with an exercise price of $0.20 (Series A) per share, $0.25 (Series B) per share and $0.25 (Series C) per share subject to certain adjustments, pursuant to Section 3(b) Subsequent Equity Sales of the SPA, expiring five (5) years from the date of issuance.
 
Derivative Analysis

The exercise price of the August 6, 2012 warrants and the number of shares issuable upon exercise is subject to reset adjustment in the event of stock splits, stock dividends, recapitalization, most favored nation status and similar corporate events.  Pursuant to Section 3(b) Subsequent Equity Sales of the SPA, if the Company issues any common stock or securities other than the excepted issuances,  to any person or entity at a purchase or exercise price per share less than the share purchase price of the August 6, 2012 Unit Offering without the consent of the subscriber holding purchased shares, warrants or warrant shares of the August 6, 2012 Unit Offering, then the subscriber shall have the right to apply the lowest such purchase price or exercise price of the offering or sale of such new securities to the purchase price of the purchased shares then held by the subscriber (and, if necessary, the Company will issue additional shares), the reset adjustments are also referred to as full reset adjustments.

Because these warrants have full reset adjustments tied to future issuances of equity securities by the Company, they are subject to derivative liability treatment under Section 815-40-15 of the FASB Accounting Standard Codification (“Section 815-40-15”) (formerly FASB Emerging Issues Task Force (“EITF”) Issue No. 07-5: Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock (“EITF 07-5”)). Section 815-40-15 became effective on January 1, 2009 and the Warrants issued in the August 6, 2012 Unit Offering have been measured at fair value using a Lattice model at each reporting period with gains and losses from the change in fair value of derivative liabilities recognized on the consolidated statement of income and comprehensive income.
 
 
28

 
 
Valuation of Derivative Liability

(a) Valuation Methodology

The Company’s August 6, 2012 and May 6, 2013 warrants do not trade in an active securities market, as such, the Company developed a Lattice model that values the derivative liability of the warrants based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. The features that were analyzed and incorporated into the model included the exercise feature and the full ratchet reset.

Based on these features, there are two primary events that can occur; the Holder exercises the Warrants or the Warrants are held to expiration. The model analyzed the underlying economic factors that influenced which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e. stock price, exercise price, volatility, etc.). Projections were then made on these underlying factors which led to a set of potential scenarios. As the result of the large Warrant overhang we accounted for the dilution affects, volatility and market cap to adjust the projections.

Probabilities were assigned to each of these scenarios based on management projections. This led to a cash flow projection and a probability associated with that cash flow. A discounted weighted average cash flow over the various scenarios was completed to determine the value of the derivative warrant liability.

(b) Valuation Assumptions

The Company’s 2013 derivative warrants were valued at each period ending date with the following assumptions:

·  
The stock price would fluctuate with the Company projected volatility.

·  
The stock price would fluctuate with an annual volatility. The projected volatility curve was based on historical volatilities of the Company for the valuation periods.

·  
The Holder would exercise the warrant as they become exercisable (effective registration is projected 4 months from issuance and the earliest exercise is projected 180 days from issuance) at target prices of 2 times the higher of the projected reset price or stock price.

·  
The Holder would exercise the warrant at maturity if the stock price was above the project reset prices.

·  
A 100% probability of a reset event and a projected financing each quarter for 3 years at prices approximating 93% of market

·  
The Warrants with an exercise price of $0.6405 exercise price is projected to reset to $0.087 to $0.192 at maturity; the Warrants with an exercise price of  $0.25 per share  is projected to reset to $0.082 to $0.095 at maturity; and the Warrants with a $0.20 exercise price is projected to rest to $0.070 to $0.073 at maturity.

·  
The Company reset events occurred on 2/26/2013 to $0.25 and 5/6/2013 to $0.20

·  
No warrants have expired.

·  
The Company incentivized an investor to exercise 853,333 warrants on 5/6/2013 at the adjusted exercise price of 40.20 triggering a reset event.

·  
The projected volatility curve for the valuation dates was:

 
 
29

 


 
1 Year
 
2 Year
   
3 Year
   
4 Year
   
5 Year
 
                           
August 6, 2012
129%
 
178%
   
218%
   
252%
   
281%
 
                           
September 30, 2012
127%
 
173%