UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY PERIOD ENDED FEBRUARY 29, 2016

 

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Condensed Consolidated Balance Sheets as of February 29, 2016 (unaudited) and November 30, 2015	5
	Condensed Consolidated Statements of Operations for the Three Months Ended February 29, 2016 and 2015 (unaudited)	6
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended February 29, 2016 and 2015 (unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	12
Item 4.	Controls and Procedures	12
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	13
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
Item 3.	Defaults Upon Senior Securities	13
Item 4.	Mine Safety Disclosures	13
Item 5.	Other Information	13
Item 6.	Exhibits	14
Signatures		15

 

 

 

 

 

 

COSTO INC.

CONDENSED FINANCIAL STATEMENTS

February 29, 2016

(Unaudited)

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COSTO INC.

CONDENSED BALANCE SHEETS

(Unaudited)

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

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COSTO INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

The accompanying notes are an integral part of these unaudited condensed financial statements.

COSTO INC.

CONDENSED STATEMENTS OF CASH FLOW

(Unaudited)

The accompanying notes are an integral part of these unaudited condensed financial statements.

COSTO INC.

NOTES TO THE UNAUDITED CONDENSED FINANCIAL STATEMENTS

February 29, 2016

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

NOTE 2 - GOING CONCERN

The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.  The Company has incurred a loss since Inception, resulting in an accumulated deficit of $48,562 as of February 29, 2016 and further losses are anticipated in the development of its business.  Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.

The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand and loans from directors and/or private placement of common stock.

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES AND RECENT ACCOUNTING PRONOUNCEMENTS

The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, the financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.

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In the opinion of management, all adjustments consisting of normal recurring entries necessary for a fair statement of the periods presented for: (a) the financial position; (b) the result of operations; and (c) cash flows, have been made in order to make the financial statements presented not misleading.  The results of operations for such interim periods are not necessarily indicative of operations for a full year. The accompanying unaudited financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K, for the year ended November 30, 2015, as filed with the SEC on January 21, 2016.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP 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 as well as the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2016-01, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Changes to the current guidance primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, the ASU clarifies guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years and interim periods beginning after December 15, 2017, and upon adoption, an entity should apply the amendments by means of a cumulative-effect adjustment to the balance sheet at the beginning of the first reporting period in which the guidance is effective. Early adoption is not permitted except for the provision to record fair value changes for financial liabilities under the fair value option resulting from instrument-specific credit risk in other comprehensive income. The Company is currently evaluating the impact of adopting this guidance.

NOTE 4 – RELATED PARTY TRANSACTIONS

During the period ended February 29, 2016, a related party paid legal fees of $7,558. As of February 29, 2016 and November 30, 2015, the Company owed related parties $11,035 and $3,477, respectively. The loans are non-interest bearing, due upon demand and unsecured.

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Accounting Periods. We define our accounting periods as follows:

 

“fiscal 2013”—March 1, 2013 through February 28, 2014, and

“fiscal 2014”— March 1, 2014 through February 29, 2015.

Overview

Costo, Inc. was incorporated in the State of Nevada on May 6, 2014 and established a fiscal year end of November 30. We are a development-stage company formed to commence operations in the distribution of auto parts and components necessary for the maintenance and repair of automobiles and other specialty equipment.

The Company’s operations involve the organization and distribution of auto parts and components necessary for maintenance and repair of automobiles and special equipment (i.e construction, road machinery etc.) from China to Europe and certain Commonwealth of Independent States which include Kyrgyzstan, Kazakhstan, Armenia, Azerbaijan, Belarus, Moldova, Tajikistan, Uzbekistan and the Ukraine.

Many manufactures transfer their production facilities to China because of reduced production and operating costs. In addition, China has its own automobile brands that are actively entering the world market. Concurrently, China has developed associative production facilities producing a wide selection of parts and components for various types of equipment and the Chinese parts market also produces alternatives (i.e. parts-analogues), which are virtually no different from the original parts and meet all the standards and the technical properties of the original.

Recent Developments

On February 18, 2016, Yuhua Xu, the controlling shareholder, Chief Executive Officer and sole director of the Company, entered into and closed on a Share Purchase Agreement with Mary Ho, Rudolf Novotny, Shan Ho, Lily Ho and Moana Ho (each a “Purchaser” and collectively, the “Purchasers”) whereby the Purchasers purchased a total of 7,990,000 shares of the Company’s common stock (the “Shares”) from Yuhua Xu, for an aggregate price of $223,720. The Shares acquired represent approximately 74.53% of the issued and outstanding shares of common stock of the Company.  

 

Concurrently with the closing of the Share Purchase Agreement, Yuhua Xu, resigned as an officer and director of the Company and Moana Ho was appointed President and Chairman of the Board of Directors and Hui Zhou was appointed as a Chief Financial Officer and Director.

RESULTS OF OPERATIONS

We are a development stage company and have not generated revenue to date. We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

The following comparative analysis on results of operations was based primarily on the comparative financials statements, footnotes and related information for the periods identified below and should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report.

Three Month Period Ended February 29, 2016 Compared To The Three Month Period Ended February 28, 2015

Revenue

During the three months ended February 29, 2016 and February 28, 2015 we did not generate any revenue.

Operating Expenses

Total operating expenses for the three months ended February 29, 2016, increased by $17,294 to $23,526 compared to the same period in fiscal 2013. The increase was a result of an increase in general and administrative expenses related to financial and administrative contracted services, such as legal and accounting fees to remain a reporting company with the SEC. We are unable to predict the level of our operating expenses as we continue to develop our business.

Net Loss

The net loss for the three months ended February 29, 2016 was $23,526, an increase of $17,294 compared to the same period in fiscal 2013.  The increase is primarily a result of the increases in operating expenses discussed above.

Liquidity And Capital Resources

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements.  As of February 29, 2016, we had a working capital deficit of $13,362, an increase of $23,526 from the working capital surplus of $10,164 at November 30, 2015.  The increase in the deficit is primarily a result of the increases total current liabilities discussed below. As of February 29, 2016, our total assets were $8,364 compared to $13,641 in total assets at November 30, 2015. Total assets as of February 29, 2016 were comprised of $31 in cash and $8,333 in prepaid expenses for exchange listing fees with the OTCMarkets, while as at November 30, 2015 total assets were comprised entirely of cash of $13,641. As of February 29, 2016, our current liabilities were $21,726 comprised of $11,035 in loans from related parties and $10,691 for accounts payable. As of November 30, 2015, our current liabilities were $3,477 comprised of a loan from a shareholder.

 

As of February 29, 2016, working capital consisted primarily of $31 in cash and $8,333 in prepaid expenses.

Cash Flows From Operating Activities

We have not generated positive cash flows from operating activities. Net cash flows used in operating activities was $13,610 consisting of a net loss of $23,526, legal expenses paid by a related party on behalf of the company of $7,558, increase in accounts payable of $10,691 and a decrease in prepaid expenses of $8,333.  Net cash flows used in operating activities was $5,512 for the three month period ended February 29, 2015, from a loss of $6,232 and reduced by a reduction in prepaid expenses of $720.

Cash Flows From Investing Activities

We neither generated, nor used, funds in investing activities during the three months ended February 29, 2016.

Cash Flows From Financing Activities

We have financed our operations primarily from either advances from shareholders or the sale of shares of our common stock. For the three month period ended February 29, 2016, there were no net cash provided by financing activities. For the three month period from ended February 28, 2015, net cash provided by financing activities was $2,800 received from loan from our principal shareholder.

Plan of Operation and Funding

We expect that working capital requirements will continue to be funded through a combination of our existing funds, further issuances of securities and loans from our principal shareholder. Our working capital requirements are expected to increase in line with the growth of our business.

Existing working capital, further advances and debt instruments, and anticipated cash flow are not expected to be adequate to fund our operations over the next three months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) acquisition of inventory; (ii) developmental expenses associated with a start-up business; and (iii) marketing expenses. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.

Material Commitments

As of February 29, 2016, we had no material commitments.

Purchase of Significant Equipment

We do not intend to purchase any significant equipment during the next twelve months.

Off-Balance Sheet Arrangements

As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Going Concern

The accompanying 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 accompanying condensed consolidated financial statements, the Company had an accumulated deficit at February 29, 2016 of $48,562, a net loss for the three months ended February 29, 2016 of $23,526 and net cash used in operating activities for the three months ended February 29, 2016 of $13,610. These conditions raise substantial doubt about our ability to continue as a going concern.

The Company is attempting to produce sufficient revenue; however, the Company’s cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to produce sufficient revenue 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 its ability to further implement its business plan and generate sufficient revenues and in its ability to raise additional funds.

The unaudited 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.

The independent auditors' audit report accompanying our November 30, 2015 financial statements contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

Critical Accounting Policies

We have identified the following policies below as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.

 

The preparation of financial statements in conformity with U.S. GAAP 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 as well as the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and  procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

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An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of February 29, 2016. Based on that evaluation, our management concluded that our disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

 

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the fiscal quarter ended February 29, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Quarterly Report on Form 10-Q, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

 

ITEM 6. EXHIBITS

 

*Filed herewith

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COSTO, INC.

Name: Moana Ho

Title: Chief Executive Officer

Name: Hui Zhou

Title: Chief Financial Officer