Merion, Inc. - FORM 10-Q

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EX-32.1 - CERTIFICATION - Merion, Inc.	eworld_ex321.htm
EX-31.1 - CERTIFICATION - Merion, Inc.	eworld_ex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _______ to _______

Commission file number 333-184863

E-World USA Holding, Inc.

(Name of small business issuer in its charter)

Nevada	5122	45-289-8504
(State or Other Jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
Incorporation or Organization)	Classification Code Number)	Identification No.)

E-World USA Holding, Inc.

9550 Flair Dr, Suite 302

El Monte CA 91731

(626) 448-3737

(Address and telephone number of principal executive offices and principal place of business)

N/A

(Former name, former address and former three months, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. Yes o No x

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). Yes o No x

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	o	Accelerated filer	o
Non-accelerated filer	o	Smaller Reporting Company	x
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 15, 2017, there were 142,828,993 shares issued and outstanding of the registrant’s common stock.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis or Plan of Operation.	19
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	25
Item 4.	Controls and Procedures.	25

PART II — OTHER INFORMATION

Item 1.	Legal Proceedings.	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures.	26
Item 5.	Other Information.	26
Item 6.	Exhibits.	27

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

E-WORLD USA HOLDING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2017			2016
	(UNAUDITED)
ASSETS

CURRENT ASSETS:
Cash	$	1,684		$	2,054
Accounts receivable, net		10,931			77,931
Inventory, net		75,961			81,790
Prepaid expenses		23,769			22,559
TOTAL CURRENT ASSETS		112,345			184,334

PROPERTY AND EQUIPMENT, net		64,998			73,028

DEPOSITS AND OTHER ASSETS		9,850			9,850

TOTAL ASSETS	$	187,193		$	267,212

LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	248,019		$	260,738
Deferred revenue		1,574,162			1,588,969
Accrued bonus		680,980			682,356
Due to shareholder, non-interest bearing		2,951,110			2,947,170
Advances from related parties, interest bearing		30,000			30,000
Advances from related parties, non-interest bearing		533,839			533,839
Due to employee		95,000			95,000
Due to third parties, interest bearing		109,030			109,030
Due to third parties, non-interest bearing		656,292			326,292
Current portion of long term debt		11,668			11,582
Rescission Liability - Type A Warrants		7,165,413			7,165,413
Rescission Liability - Type B Warrants		249,111			249,111
TOTAL CURRENT LIABILITIES		14,304,624			13,999,500

NON-CURRENT LIABILITIES:
Long term debt		23,183			26,397
Due to shareholder, interest bearing		471,603			471,603
TOTAL NON-CURRENT LIABILITIES		494,786			498,000

TOTAL LIABILITIES		14,799,410			14,497,500

COMMITMENTS AND CONTINGENCIES (NOTE 4 AND 10)

SHAREHOLDERS' DEFICIT:
Common stock, $0.001 par value, 200,000,000 shares authorized, 142,828,993 shares issued and outstanding, as of March 31, 2017 and December 31, 2016		142,829			142,829
Additional paid-in capital		3,657,949			3,657,949
Accumulated deficit		(18,412,995	)		(18,031,066	)
TOTAL SHAREHOLDERS' DEFICIT		(14,612,217	)		(14,230,288	)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	187,193		$	267,212

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

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E-WORLD USA HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED)

	For the three months ended March 31,
	2017			2016

SALES	$	32,496		$	188,069

COST OF SALES		5,732			73,472

GROSS PROFIT		26,764			114,597

OPERATING EXPENSES
Selling expenses		4,984			37,767
Depreciation expense		8,030			8,518
General and administrative expenses		377,830			421,265
Total operating expenses		390,844			467,550

LOSS FROM OPERATIONS		(364,080	)		(352,953	)

OTHER INCOME (EXPENSE), net
Finance expenses		(17,849	)		(8,821	)
Total other expense, net		(17,849	)		(8,821	)

LOSS BEFORE INCOME TAXES		(381,929	)		(361,774	)

PROVISION FOR INCOME TAXES		-			-

NET LOSS	$	(381,929	)	$	(361,774	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Basic and Diluted		142,828,993			142,828,993

LOSS PER SHARE - BASIC & DILUTED
Net loss	$	0.00		$	0.00

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

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E-WORLD USA HOLDING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2017 AND 2016
(UNAUDITED)

	For the three months ended March 31,
	2017			2016
Cash Flows from Operating Activities:
Net loss	$	(381,929	)	$	(361,774	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		8,030			8,518
Bad debt expense		-			17,660
Changes in operating assets and liabilities
Accounts receivable		67,000			(58,337	)
Inventory		5,829			(35,020	)
Prepaid expenses		(1,210	)		57,662
Accounts payable and accrued expenses		(12,719	)		5,350
Deferred revenue		(14,807	)		(49,668	)
Accrued bonus		(1,376	)		34,752
Net Cash Used in Operating Activities		(331,182	)		(380,857	)

Cash Flows from Financing Activities:
Advances from shareholder, interest bearing		-			471,603
Advances from shareholder, non-interest bearing		21,137			36,282
Payment to shareholder, non-interest bearing		(17,197	)		(87,046	)
Payment to related parties, interest bearing		-			(40,000	)
Advances from third parties, non-interest bearing		340,000			-
Payment to third parties, non-interest bearing		(10,000	)		-
Principal payments on debt		(3,128	)		(3,036	)
Net Cash Provided by Financing Activities		330,812			377,803

Net Change in Cash		(370	)		(3,054	)

Cash, beginning of period		2,054			8,550

Cash, end of period	$	1,684		$	5,496

Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	15,705		$	13,821
Cash paid for income tax	$	-		$	-

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

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization

E-World USA Holding, Inc. (the "Company"), a Nevada corporation, was formed February 4, 2011. Its predecessor, with the same name was a California company incorporated in 2007. In April 2011, E-World USA Holding, Inc., a California corporation, entered into a merger agreement with its wholly-owned subsidiary, E-World USA Holding, Inc., a Nevada corporation which was the survivor of the merger. Under the Merger Agreement, the Company issued 90,000,000 shares of its common stock on a one share for one share basis for each share of E-World USA Holding, Inc., a California corporation, common stock issued and outstanding at the date of the merger. In addition, the Company issued the Type A Warrants and Type B Warrants in exchange for comparable warrants issued and outstanding of E-World USA Holding, Inc., a California corporation, at the date of the merger.

The Company is a provider of health and nutritional supplements and personal care products currently sold on the Internet through our website, www.dailynu.com, and to wholesale distributors.

Note 2 – Going Concern

There is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues, significant recurring losses and negative working capital. If we are unable to generate significant revenue or secure financing, we may be required to cease or curtail our operations. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.

Management is trying to alleviate the going concern risk by: engaging external sales representatives to sell the Company’s products, securing various financing resources, including but not limited to, borrowing from the Company’s major shareholder, and the possibility of raising funds through a future public offering.

Note 3 – Summary of Significant Accounting Policies

Basis of Presentation

These unaudited condensed financial statements have been presented by the Company in accordance with accounting principles generally accepted in the United States, are expressed in U.S. dollars and include the accounts of E-World USA Holding, Inc., a Nevada corporation, and its subsidiary, E-World USA Holding, Inc., a California corporation. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of the financial statements, have been included. Interim results are not necessarily indicative of results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2016 annual report on Form 10-K filed on May 1, 2017.

Principles of consolidation

The accompanying consolidated financial statements include the financial statements of E-World USA Holding, Inc. and its subsidiary.

Subsidiaries are those entities in which the Company, directly or indirectly, controls more than one half of the voting power; or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast a majority of votes at the meeting of directors.

All significant inter-company transactions and balances have been eliminated upon consolidation.

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s consolidated financial statements include the useful lives of property and equipment, collectability of receivables and fair value of rescission liability – Type A & B Warrants. Actual results could differ from those estimates.

Cash and cash equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are comprised primarily of money market accounts and foreign and domestic bank accounts. To reduce its credit risk, the Company monitors the credit standing of the financial institutions that hold the Company’s cash and cash equivalents.

Accounts Receivable

Trade accounts receivable are periodically evaluated for collectability based on credit history with customers and their current financial condition. Bad debt expense or write-offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions.

The accounts receivable balance and allowance for doubtful accounts are as follows:

	March 31, 2017			December 31, 2016
Accounts receivable	$	54,207		$	121,207
Allowance for doubtful accounts		(43,276	)		(43,276	)
Accounts receivable, net	$	10,931		$	77,931

Movement of allowance for doubtful accounts is as follows:

	Three months ended March 31, 2017		Year ended December 31, 2016

Beginning balance	$	43,276	$	25,236
Provision for doubtful accounts		-		18,040
Ending balance	$	43,276	$	43,276

Inventory

Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or market. Inventory consists of nutritional and skin-care products. Management reviews inventory on hand for estimated obsolescence or unmarketable items, as compared to future demand requirements and the shelf life of the various products. Based on the review, the Company records inventory write-downs when costs exceed expected net realizable value. The inventories’ shelf lives are approximately 3 years.

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Upon disposition, the cost and related accumulated depreciation is removed from the books, and any resulting gain or loss is included in operations. The Company provides for depreciation using straight-line methods over the estimated useful lives of various classes as follow:

Computer and software		3 to 5 years
Furniture and fixtures		5 to 10 years
Vehicles		5 to 7 years
Leasehold improvement		over expected lease term

Repair and maintenance is charged to operations when incurred while betterments and renewals are capitalized.

Impairment of Long-Lived Assets

Long-lived assets, including, property and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognizes an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, the Company reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of March 31, 2017 and December 31, 2016, no impairment of long-lived assets was recognized.

Deferred Revenue

Deferred revenue represents product deposits advanced by customers on specified product orders or on future orders that have not been shipped as of the balance sheet date. Deferred revenue also represents shipping fees deposits advanced by customers in relation to the unshipped product orders. Deferred revenue is reduced when the related sale is recognized in accordance with the Company’s revenue recognition policy.

Accrued Bonus

Accrued bonus represents amounts earned by the Company’s Affiliated Members for successful customer purchase. These bonuses are in the form of rebate credits that can be used to order the Company’s products, or the Affiliate Members can request a rebate in cash.

Fair Value of Financial Instruments

ASC 825 requires that the Company discloses estimated fair values of financial instruments. The Company believes the carrying value of short-term debt is a reasonable estimate of fair value due to rates being currently offered.

As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilized the market data of similar entities in its industry or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The three levels of the fair value hierarchy are as follows:

Level 1 –	Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 –	Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 –	Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of March 31, 2017 and December 31, 2016:

Recurring Fair Value Measures	Level 1		Level 2		Level 3		Total
Rescission Liability – Type A Warrants		--		--	$	7,165,413	$	7,165,413
Rescission Liability – Type B Warrants		--		--		249,111		249,111
Total		--		--	$	7,414,524	$	7,414,524

Revenue Recognition

The Company recognizes revenue when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The Company generally receives the net sales price in cash or through credit card payments when products are ordered. When the Company has sales events whereby the sales are non-returnable or non-refundable, the revenue is recognized when products are shipped.

The Company also recognized revenue on shipping and handling fees charged to the Company’s customers. Shipping and handling fee revenue is recognized when products have been delivered. Shipping and handling fee revenues totaled $1,068 and $6,389 for the three months ended March 31, 2017 and 2016, respectively.

Product returns are allowed for unopened products purchased under regular sales terms within 60 days. Allowances for product returns are provided at the time the sale is recorded using historic return rates for each country and the relevant return pattern. Historically the Company has a nearly zero return rate. Hence, the allowance as of March 31, 2017 and December 31, 2016 is estimated at $0.

In addition to the Company’s 60-day return policy, the Company, at its discretion, may accept a customer’s application for a buy-back of products previously sold within one year at 90% of the original product costs less commissions and shipping costs. The Company implemented its buy-back policy on January 1, 2012. To date, the Company has not received any buy-back applications. As a result, no allowance for buy-backs has been recorded as of March 31, 2017 and December 31, 2016.

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The majority of the Company’s revenues are generated from China. Revenues generated from other countries or within the United States are immaterial to our consolidated financial statements. While all products are priced in US currency, the Company accepts payments in U.S. dollars and Hong Kong dollars.

Shipping and Handling Expenses

Shipping and handling costs paid by the Company are included in selling expenses and totaled $2,600 and $5,520 for the three months ended March 31, 2017 and 2016, respectively.

Operating Leases

The Company leases all of its properties under operating leases. Lease agreements generally include rent holidays and tenant improvement allowances. The Company records tenant improvement allowances and rent holidays as deferred rent liabilities and amortizes the deferred rent over the term of the lease. There were no deferred rent liabilities.

Income Taxes

The Company utilizes ASC 740, which requires the 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 income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Basic and Diluted Earnings (Loss) Per Share

Accounting principles generally accepted in the United States regarding earnings per share (“EPS”) require presentation of basic and diluted earnings (loss) per share in conjunction with the disclosure of the methodology used in computing such earnings (loss) per share.

Basic earnings (loss) per share are computed by dividing income available to common stockholders by the weighted average of common shares outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock.

For the three months ended March 31, 2017 and 2016, Contingent Shares and Type A and Type B Warrants did not have a dilutive effect on loss per share, as the Company had incurred a loss for the periods.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation (FDIC) insured limits for the banks located in the United States, or may exceed Hong Kong Deposit Protection Board (HKDPB) insured limits for the banks located in Hong Kong.

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended March 31, 2017 and 2016, three customers accounted for approximately 63% and 69% of the Company’s sales, respectively.

No suppliers accounted for more than 10% of the Company’s product purchases for the three months ended March 31, 2017. For the three months ended March 31, 2016, three suppliers accounted for approximately 94% of the Company’s product purchases.

Contingencies

The Company may have inadvertently issued Type A Warrants and Type B Warrants to U.S. citizens or residents in violation of federal securities laws and may be subject to sanctions for such violations. Further, the exchange of the warrants for common shares may also have been in violation of Section 5 of the Securities Act of 1933. Thus, risk exists that former warrant holders may bring legal action against the Company, its officers and directors for securities law violations. The Company determined it is reasonably possible that a loss may have been incurred as a result of these issuances. The Company has recorded a liability equal to the amount it expects to pay to redeem the warrants. See Note 4.

Related Parties

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence 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. A party which can significantly influence the management or operating policies of the transacting parties or if it has 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 is also a related party.

New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02 Amendments to the ASC 842 Leases. This update requires lessee to recognize the assets and liability (the lease liability) arising from operating leases on the balance sheet for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Within a twelve months or less lease term, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. If a lessee makes this election, it should recognize lease expense on a straight-line basis over the lease term. In transition, this update will be effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company does not expect the adoption of ASU 2016-02 to have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU 2016-08—Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The objective is to reduce the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance and to reduce the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company does not expect the adoption of ASU 2016-08 to have a material impact on the Company’s consolidated financial statements.

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (ASC 718): Improvements to Employee Share-Based Payment Accounting. The objective is to identity, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to users of financial statements. The areas for simplification include the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. Some of the areas apply only to nonpublic entities. For public business entities, the ASU is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company does not expect the adoption of ASU 2016-09 to have a material impact on the Company’s consolidated financial statements.

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing. The objective is to clarify the two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for these areas. The ASU affects the guidance in ASU 2014-09, Revenue from Contracts with Customers (ASC 606), which is not yet effective. The effective date and transition requirements for this ASU are the same as the effective date and transition requirements in ASC 606 (and any other Topic amended by ASU 2014-09). ASU 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, defers the effective date of ASU 2014-09 by one year. The Company does not expect the adoption of ASU 2016-10 to have a material impact on the Company’s consolidated financial statements.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients. The objective is to address certain issues identified by the FASB-IASB Joint Transition Resource Group for Revenue Recognition. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for ASC 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company does not expect the adoption of ASU 2016-12 to have a material impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in Securitization Transactions; and Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company does not expect the adoption of ASU 2016-15 to have a material impact on the Company’s consolidated financial statements.

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (ASU 2016-18), which requires companies to include amounts generally described as restricted cash and restricted cash equivalents in cash and cash equivalents when reconciling beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This guidance will be effective in the first quarterly of 2018 and early adoption is permitted. The Company does not expect the adoption of ASU 2016-18 to have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the definition of a business. The amendments in this ASU is to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The amendments are effective for public business entities for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company does not believe the adoption of this ASU would have a material effect on the Company’s consolidated financial statements.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications have no effect on the accompanying consolidated statements of operations and other comprehensive loss and cash flows.

Note 4 – Rescission Liability – Type A & B Warrants

Type A Warrants

As an incentive to increase sales and bring in additional members, the Company issued Type A warrants to its members.

Upon issuance, Type A warrants had no expiration and could be exercised for:

(1)

common shares of the Company at a ratio of 1:1 upon a going public event in the U.S.,

(2)

products of the Company at their retail prices, or

(3)

cancelled membership and a refund in cash at 75% of face value.

From inception, January 5th, 2007 to December 31, 2010, new members purchased a package of products and received an option to include Type A Warrants in the purchase. Net cash proceeds from Type A Warrants sold to members through December 31, 2010 were $8,169,707. During 2011, a total of 18,000 Type A warrants were exercised for cash refunds totaling $22,950 and products of the Company for $7,200. During 2012, all of the remaining Type A warrants were exchanged for the following:

	(1)	842,300 warrants for $495,170 in cash refunds

	(2)	10,300 warrants for $16,650 in products

	(3)	23,296,688 warrants for shares of common stock

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Our Type A Warrants may have been issued and exercised in violation of United States federal securities laws. As a result, the common stock issued upon exercise of these warrants during fiscal 2012 may not be valid. We recorded the fair value of these warrants as a liability on the date of issuance (“Rescission Liabilities – Type A Warrants”). The value of the Rescission Liabilities – Type A Warrants was determined by calculating the maximum potential cash outlay if all warrant holders exercised using option 3 above. The total fair value was determined by calculating how much each warrant holder would receive in cash if they exercised the warrant by canceling their membership and receiving 75% of the face value of their warrant in cash and then adding these amounts together to reach the total potential cash outlay. The face value of the warrant is the stated value assigned to each Type A warrant. The face value determines how much the member could receive if exercised for cash and a canceled membership. If members exercise their warrants for cash, the Company reduces the liability by the amount of cash paid. If members exercise their warrants for products, the Company recognizes revenue equal to the retail value of the related products once they have been delivered. During 2014, the Company refunded $2,250, and members returned 9,300 Type A warrant shares. As of March 31, 2017 and December 31, 2016, 23,206,888 shares are included in Rescission Liabilities – Type A Warrants and totaled $7,165,413.

Type B Warrants

During 2009 and 2010, the Company issued a total of 2,491,108 Type B warrants as sales incentive compensation to members. Type B warrants entitle the holders to receive 2,491,108 common shares upon a going public event in the U.S. as specified in the Warrant. No additional consideration for the common shares is required upon exercise. During 2012, all of the Company’s Type B Warrants were exercised for shares of common stock. Type B Warrants may have been issued and exercised in violation of United States federal securities laws. As a result, the common stock issued upon exercise of these warrants may not be valid; therefore, we recorded “Rescission Liabilities – Type B Warrants” at the fair value of the shares issued upon exercise of these warrants. The fair value of the common shares was estimated using comparable sales of common stock to members. The Company determined that comparable sales of stock is more reliable as the fair value because goods or services received cannot be reliably measured. The fair value of the Type B warrants as of March 31, 2017 and December 31, 2016 was $249,111.

We cannot estimate when this rescission offer liability will end for either the Type A Warrants or the Type B Warrants as this liability will end only when the Company and its legal counsel conclude the rescission liability now shown in the financial statements becomes at least a remote possibility, which has not yet occurred and cannot be reasonably predicted at this time when it will occur.

Note 5 – Inventory

Inventories consist of finished goods available for resale and can be categorized as:

	March 31, 2017		December 31, 2016
Nutrition supplements	$	75,561	$	81,390
Skin-care products		400		400
Inventories, net	$	75,961	$	81,790

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Property and Equipment

Property and equipment consist of following:

	March 31, 2017			December 31, 2016
Computer equipment and software	$	114,953		$	114,953
Furniture and fixtures		26,686			26,686
Automobiles		179,677			179,677
Leasehold improvement		40,053			40,053
Total		361,369			361,369
Accumulated depreciation		(296,371	)		(288,341	)
Property and equipment, net	$	64,998		$	73,028

Depreciation expense totaled $8,030 and $8,518 for the three months ended March 31, 2017 and 2016, respectively.

Note 7 – Debt

Due to employee

The Company borrowed money from an employee to fund operations. These advances do not bear interest, are unsecured and are due on demand. As of March 31, 2017 and December 31, 2016, the Company owed $95,000 to an employee.

Due to third parties, interest bearing

The Company borrowed money from third parties to fund operations. These third parties consist of the Chief Executive Officer’s (CEO) friends and the spouse of the Company’s former board member. These advances have an annual interest rate of 6%, are unsecured and are due on demand. As of March 31, 2017 and December 31, 2016, the Company owed $109,030 to these third parties.

As one of the Company’s former board member resigned in January 2017, the Company reclassified the balance of $20,000 from the spouse of the Company’s former board member from advances from related parties, interest bearing, to due to third parties, interest bearing, as of December 31, 2016 to conform to the current year presentation.

Interest expense for the three months ended March 31, 2017 and 2016 for above loans amounted to $1,404 and $0, respectively.

Due to third parties, non-interest bearing

The Company borrowed money from third parties to fund operations. These third parties consist of the CEO's friends and the Company’s former board member. These advances do not bear interest, are unsecured, and are due on demand. As of March 31, 2017 and December 31, 2016, the Company owed $656,292 and $326,292 to these third parties, respectively.

As one of the Company’s former board member resigned in January 2017, the Company reclassified the Company’s former board member’s balance of $50,000 from advances from related parties, non-interest bearing, to due to third parties, non-interest bearing, as of December 31, 2016 to conform to the current year presentation.

Long term loan

In December 2015, the Company refinanced a new loan balance of $51,263 with an annual interest rate of 2.99% to be repaid over 48 months. During the three months ended March 31, 2017 and 2016, the Company paid $3,128 and $3,036, respectively, for the loan.

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Future maturities of long term debt are as follows:

Nine months ended December 31, 2017	$	8,454
Year ended December 31, 2018		13,002
Year ended December 31, 2019		13,395
Total		34,851
Current portion of long term debt		(11,668	)
Long term debt	$	23,183

Interest expenses for the three months ended March 31, 2017 and 2016 for the above loan amounted to $284 and $376, respectively.

Note 8 – Income Taxes

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended March 31, 2017 and 2016:

	Three months ended March 31, 2017			Three months ended March 31, 2016
Federal statutory rate		34.0	%		34.0	%
State statutory rate		8.8	%		8.8	%
Valuation allowance		(42.7	)%		(39.7	)%
Permanent difference		(0.1	)%		(3.1	)%
Effective tax rate		0.0	%		0.0	%

The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $9,847,000 for Federal and $8,882,000 for California as of March 31, 2017. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $9,466,000 for Federal and $8,501,000 for California as of December 31, 2016, and will expire in the years 2030 to 2037. During the three months ended March 31, 2017 and 2016, the Company incurred a net loss. As deferred tax assets may not be fully realizable due to potential recurring losses, management has provided 100% valuation allowance for the deferred tax assets.

The components of the deferred tax assets is as follows:

	March 31, 2017			December 31, 2016
Property and equipment - depreciation	$	38,044		$	35,838
Allowance for doubtful accounts		18,539			17,237
Net operating loss		4,076,572			3,661,022
Deferred tax assets		4,133,155			3,714,097
Valuation allowance		(4,133,155	)		(3,714,097	)
Deferred tax assets, net	$	-		$	-

As of March 31, 2017, federal tax returns filed for 2014, 2015 and 2016 remain subject to examination by the taxing authorities. As of March 31, 2017, California tax returns filed for 2013, 2014, 2015 and 2016 remain subject to examination by the taxing authorities.

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 9 – Related Party Transactions

Due to shareholder, interest bearing

In January 2016, Mr. Dinghua Wang, the CEO of the Company pledged certain of his personal assets and obtained a personal loan and funded the operations of the Company from this loan. The Company agreed to pay for the interest of this loan on Mr. Dinghua Wang’s behalf. This loan has an annual borrowing rate of 9.99%. During the year ended December 31, 2016, advances totaled $471,603. As of March 31, 2017 and December 31, 2016, the balance due to shareholder, interest bearing, amounted to $471,603. The full balance $471,603 is to be repaid on February 1, 2019.

Interest expense for the three months ended March 31, 2017 and 2016 for the above loan amounted to $12,488 and $8,325, respectively.

Due to shareholder, non-interest bearing

From time to time, Mr. Dinghua Wang, the CEO of the Company advances monies to the Company. Such business transactions are recorded as due to or from shareholder. During the three months ended March 31, 2017 and 2016, advances totaled $21,137 and $36,282, respectively and payment to shareholder totaled $17,197 and $87,046, respectively. As of March 31, 2017 and December 31, 2016, the balance due to shareholder, non-interest bearing, amounted to $2,951,110 and $2,947,170, respectively. This balance does not bear interest, is unsecured and is due on demand.

Advances from related parties, interest bearing

During the years ended December 31, 2016 and 2015, the Company borrowed $30,000 and $40,000 from a related party to fund operations, respectively. This related party is the son of the CEO. These advances have an annual interest rate of 10% for the year ended December 31, 2016 and bear a one-time $5,000 finance charge for the year ended December 31, 2015, are unsecured and are due on demand. Repayment to this related party amounted to $0 and $40,000 for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017 and December 31, 2016, the Company owed $30,000 to this related party.

Interest expense for the three months ended March 31, 2017 and 2016 for the above loans amounted to $740 and $0, respectively.

Advances from related parties, non-interest bearing

The Company borrowed money from certain related parties to fund operations. The related parties consist of the CEO's immediate family members and relatives. These advances do not bear interest, are unsecured and are due on demand. As of March 31, 2017 and December 31, 2016, the Company owed $533,839 to these related parties.

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E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 10 – Commitments

Operating lease

The Company rents office and warehouse space for its main corporate office from March 2015 to October 2018 and thereafter on a month to month basis without future commitment. The Company’s commitment for minimum lease payments under these operating leases as of March 31, 2017 for the following periods is as follow:

Nine months ended December 31, 2017	$	27,900
Year ended December 31, 2018		31,000
Total	$	58,900

The Company incurred rent expenses of $9,000 and $36,150 for the three months ended March 31, 2017 and 2016, respectively.

Note 11 – Equity

Share Distribution Plan

On March 31, 2017, the Company’s Board of Directors approved the following share distribution plans for the Company in accordance with appropriate time frames consistent with applicable law and in the best interests of the Company.

1) The Company will grant up to thirty million shares of common stock to certain persons outside of the United States who have previously worked with the Company as an incentive for these individuals to assist the Company to develop its international market. In connection with this transaction, Mr. Wang will voluntarily relinquish up to thirty million shares of common stock owned by him to the Company’s Treasury, and thereafter the Company will issue to persons not citizens or residents of the U.S. only an equal number of shares pursuant to Regulation S under the Securities Act of 1933. Accordingly, special legends regarding restrictions on resale of the securities and no-hedging transactions will need to be included on the securities. No shares has been issued or relinquished.

2) To thank the people who, directly or indirectly, loaned funds or referred customers to the Company or purchased products from the Company when the Company faced financial hardship, the Company will grant up to five million shares of common stock to these individuals upon approval by the Board of Directors, and the Company will complete the stock transfer. In connection with this transaction, Mr. Wang will voluntarily relinquish up to five million shares of common stock owned by him to the Company’s Treasury. To the extent that these share distributions are being made to anyone outside of the U.S., those distributions will be made under Regulation S and must contain appropriate Regulation S subscription agreements and legends. If anyone within U.S. is to receive those shares, the Company must consult with the Company counsel to comply with U.S. securities laws. No shares has been issued or relinquished.

3) The Company will grant up to twenty million shares (from authorized but unissued shares of its common stock) to persons outside the U.S. who sell Company products based on their sales performance in the future. The Company must determine that this type of incentive compensation is legal and appropriate for each country in which it is utilized. For ease of administration, this plan will be implemented solely for persons outside of the United States pursuant to Regulation S under the Securities Act of 1933. No shares has been issued or relinquished.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and other financial information included in this Form 10-Q.

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rates; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.

Although the forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.

NOTICE TO INVESTORS:

PLEASE READ BEFORE EXAMINING THE REMAINDER OF THIS FORM 10-Q.

If E-World’s new method of marketing in China, called the Affiliate Marketing Program, is considered by Chinese government authorities to violate the laws of the People’s Republic of China, the Company could suffer damages similar to, or harsher than, those which resulted from actions taken by the Chinese government in connection with the Company’s previous, now-discontinued Direct Sales Associate, or “DSA”, sales method, which could lead to a significant decline in revenues as well as the loss of all or a significant amount of the value of your investment.

As noted in “Legal Proceedings” below, the Company suffered significant financial hardship as a result of the Chinese government’s action against E-World’s sales activities under its previous DSA marketing program, now discontinued, which the government alleged violated Chinese law. These hardships include the loss of $3,643,000 in cash that was the property of the Company that is now held in bank accounts in the People’s Republic of China and, to a material extent, a decrease in E-World’s annual revenue from $6,833,768 for the fiscal year ended December 31, 2014 to $379,493 for the fiscal year ended December 31, 2015 and to $910,766 for the fiscal year ended December 31, 2016.

The Chinese legal provisions governing the type of sales activities currently used by E-World, called the Affiliate Marketing Program, or AMP (“AMP”) are called Regulations on Prohibition of Chuanxiao (2005) (“Anti Chuanxiao Regulations”). The law gives regulatory authorities wide discretion in applying the Anti-Chuanxio Regulations to sales activities, such as the AMP used by the Company in China.

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There is significant risk that the Chinese regulatory authorities can find the AMP illegal under relevant Chinese law for the following reasons:

	·	Under the Affiliate Marketing Program, the activities of the Company or the Affiliate Members may be regarded as Chuanxiao activities prohibited by the Anti-Chuanxiao Regulations.

	·	The fact that the Company was regarded as a Chuanxiao organization by the local authorities of Zhushan county, Hubei, China, and that a number of the Company’s products were identified to have been used in the previous Chuanxiao activities also adds to the risk that the Company and the Affiliate Members may be regarded as engaging in Chuanxiao activities under the AMP.

	·	The activities of the Company and/or the Affiliate Members may be regarded as a breach of the Food Safety Law (2015) (“Food Safety Law”) and other applicable laws, if the health care products and other products of the Company imported into China do not meet relevant legal requirements, or if the Affiliate Members fail to comply with relevant legal requirements in relation to the advertising of these products in China.

	·	The Affiliate Members’ marketing activities may be regarded as a breach of the Regulations on Administration of Direct Sales (2005) (“Direct Sales Regulations”) because the Company is not licensed to engage in direct sales business in China.

Notwithstanding the past history of being found in violation of Chinese law for its selling methods and the significant adverse consequences described above, the Company has chosen to utilize the AMP.

INVESTORS ARE URGED TO USE EXTREME CAUTION IN CONNECTION WITH ANY EXISTING OR POTENTIAL INVESTMENT IN THE COMPANY BECAUSE OF THE RISKS CITED ABOVE.

Overview

Our Company is a provider of Health and Nutritional supplements and Personal Care products directly to customers on the Internet through our website, www.dailynu.com. In June 2014, we ceased utilizing our prior sales model which involved sales of our product through another website by means of a network of Direct Sales Associates, or “DSA’s”. We currently do not use the DSA model in any country.

Since June 2014, we have mainly sold our products over the Internet directly to end-user customers through our web site, www.dailynu.com, and to wholesale distributors. In March 2016, we implemented an affiliate marketing program.

Marketing: The Affiliate Marketing Program (“AMP”)

A more complete description of how the AMP operates is as follows:

	·	The Company’s website (www.dailynu.com) is an online shopping store, and everyone in China can purchase the products from this website by credit card;

	·	The Affiliate Marketing Program is a performance-based marketing program in which the Company rewards one or more affiliates (the “Affiliate Members”) for each successful customer purchase brought by the Affiliate Members’ own marketing efforts;

	·	The Company provides the Affiliate Members with a URL (or coupon or advertising banner) which can be shared by the Affiliate Members to anywhere they like to post. If anyone purchases the products from this link, the Company will pay commissions to the relevant Affiliate Members based on the revenue generated from their links;

	·	The Affiliate Members are not employees of the Company;

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	·	The Company does not track any customer from the Affiliate Members. Even the Affiliate Members themselves do not know who will purchase the products from the link;

	·	Currently, the Company has two options for the payment of commission rewards. One alternative is that an Affiliate Member may earn 70% of the monthly sales amount generated from his or her affiliate link if that Affiliate Member achieves the total sales in an amount that exceeds $10,000 per month. The other alternative pays every Affiliate Member 20% of the monthly sales amount generated from his or her affiliate link; and

	·	The commission rewards are in the form of rebate credits that can be used to order the Company’s products, or the Affiliate Members can request a rebate in cash.

We believe consumers have become more confident in ordering products, like ours, over the Internet. However, the nutritional supplement and skin care product e-business markets have been, and continue to be, increasingly competitive and are rapidly evolving.

The skin care products are acquired from another company which developed the products. They also are marketed and sold through our web site, www.dailynu.com.

Barriers to entry are minimal, and current and new competitors can launch new websites at a relatively low cost. Many competitors in this area have greater financial, technical and marketing resources than we do. Continued advancement in technology and increasing access to that technology are paving the way for growth in direct marketing. We also face competition for consumers from retailers, duty-free retailers, specialty stores, department stores and specialty and general merchandise catalogs, many of which have greater financial and marketing resources than we have. Notwithstanding the foregoing, we believe that we are well-positioned within the Asian consumer market with our current plan of supplying American merchandise brands to consumers and that our exposure to both the Asian and American cultures gives us a competitive advantage. There can be no assurance that we will maintain our competitive edge or that we will continue to provide only American-made merchandise.

Our products are sensitive to business and personal discretionary spending levels and tend to decline or grow more slowly during economic downturns, including downturns in any of our major markets. The global economy is currently undergoing a period of volatility, and the future economic environment, while improving, continues to remain uncertain. This has led, and could further lead, to reduced consumer spending, and which may include spending on nutritional and beauty products and other discretionary items, such as our products. In addition, reduced consumer spending may force us and our competitors to lower prices. These conditions may adversely affect our revenues and profits.

Results of Operations

Comparison of the three months ended March 31, 2017 and 2016

	For the three months ended March 31,
										Percentage
	2017			2016			Change			Change
Total sales	$	32,496		$	188,069		$	(155,573	)	(83		%)
Total cost of sales		5,732			73,472			(67,740	)	(92		%)
Gross profit		26,764			114,597			(87,833	)	(77		%)
Operating expenses
Selling		4,984			37,767			(32,783	)	(87		%)
Depreciation		8,030			8,518			(488	)	(6		%)
General and administrative		377,830			421,265			(43,435	)	(10		%)
Total operating expenses		390,844			467,550			(76,706	)	(16		%)
Loss from operations		(364,080	)		(352,953	)		11,127			3	%
Other income (expense), net		(17,849	)		(8,821	)		9,028			102	%
Provision for income taxes		-			-			-			-	%
Net loss	$	(381,929	)	$	(361,774	)	$	20,155			6	%

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Total sales decreased by $155,573 or 83% from $188,069 in the three months ended March 31, 2016 to $32,496 in the three months ended March 31, 2017. The decrease of sales was mainly due to the fact that we were in the process of preparing to export our Dibeier products into China to be sold over-the-counter in retail locations such as nutritional product stores during the middle of 2017. We are currently in the process of negotiating a contract to sell 300,000 sets of our Dibeier products with a new potential customer. No assurance can be provided that the contract will be finalized. These products needed a specification label that was previously approved by the Guangdong Quality Supervision and Inspection Institution for Food (Shenzhen) in November and December 2016. As a result, we were focusing on selling our remaining Dibeier products that remained in our current inventories, which significantly reduced our sales for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. If the sale contract is secured, we expect our sales for the remainder of 2017 to increase as we are currently solely focusing our Dibeier products to be sold at nutritional supplement stores in China through wholesalers. In addition, the decease of sales also was attributable to the decrease in sales through our www.dailynu.com website of our existing products, such as, Longevity, US-Liver Gold, Cell Power, OPC spa, Heart Power and O2 Cell. Sales were higher during the three months ended March 31, 2016 as we reduced advertising expenses to promote our www.dailynu.com website. Rather, we relied on our AMP sales model to promote our sales over the internet.

The cost of sales decreased by $67,740 or 92% from $73,472 in the three months ended March 31, 2016 to $5,732 in the three months ended March 31, 2017. The decrease in cost of sales was in line with the decreases in sales as for the same reason as mentioned above.

During the three months ended March 31, 2017, we were mainly selling our new nutritional supplement items which we introduced in March 2016, Dibeier Granules & Oral (a powder and liquid form of the same product), through wholesalers which we introduced in March 2016. During the three months ended March 31, 2016, we were selling both our new nutritional supplement items and our existing products, such as, Longevity, US-Liver Gold, Cell Power, OPC spa, Heart Power and O2 Cell through our www.dailynu.com website. Gross profit percentage is generally higher with the sales of our new items as compared to our existing products. As a result, our gross margin percentage increased from approximately 61% in the three months ended March 31, 2016 to approximately 82% in the three months ended March 31, 2017.

Selling expenses decreased from $37,767 in the three months ended March 31, 2016 to $4,984 in the three months March 31, 2017. The decrease of $32,783 or 87% was mainly due to decrease in advertising expenses as we no longer spent money on advertising for our www.dailynu.com website after our implementation of AMP in March 2016.

General and administrative expenses decreased by $43,435 from $421,265 in the three months ended March 31, 2016 to $377,830 in the three months ended March 31, 2017. General and administrative expenses declined mainly due to the decrease in rental and payroll expenses during the three months ended March 31, 2017 as compared to the three months ended March 31, 2016 as we downsized our headquarters to minimize our operating cost starting in October 2016. The decrease also is attributable to the bad debt expenses of approximately $18,000 incurred during the three months ended March 31, 2016 with no such bad debt expenses during the three months ended March 31, 2017.

Other expense increased by $9,028 from $8,821 in the three months ended March 31, 2016 to $17,849 in the three months ended March 31, 2017 mainly due to the increase of our credit card interest expense as we incurred more credit card debt during the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. In addition, the increase of other expense is also attributable to the increase of interest expense of approximately $4,200 in connection to our interest bearing loan from our shareholder for which we started incurring interest expense in February 2016 for two months during the three months ended March 31, 2016 as compared to interest expense incurred for three months during the three months ended March 31, 2017.

Net loss from continuing operations increased by $20,155 from $361,774 net loss in the three months ended March 31, 2016 to $381,929 net loss in the three months ended March 31, 2017 mainly due to the decrease of gross profit offset by the decrease of selling and general administrative expenses as mentioned above.

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Liquidity and Capital Resources

As of March 31, 2017, we had a cash balance of $1,684 and $2,054 at December 31, 2016.

In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. Other than operating expenses, the Company does not have significant cash commitments. Cash requirements include cash needed for payroll, payroll taxes, rent, and other operating expenses. However, in response to the reduced liquidity factors described above, the Company has continued to find ways to reduce our operating expenses. In addition, should our Company need additional capital, our principal shareholder and Chief Executive Officer may lend money to the Company from time to time to the extent he is in a position to do so. No assurance can be provided that he will be in a position to continue to lend funds to the Company in the future.

Management has concluded under generally accepted accounting principles that there is substantial doubt about our ability to continue as a going concern as a result of our lack of significant revenues. If we are unable to generate significant revenue or secure financing, we may be required to cease or limit our operations. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.

For the three months ended March 31, 2017, cash used in operating activities amounted to approximately $331,000 as compared to approximately $381,000 used in operating activities in the three months ended March 31, 2016. Cash used in operating activities was mainly due to approximately $382,000 of net loss from the Company, the decrease of approximately $13,000 of accounts payable and accrued expenses as we caught up certain payments for various of our operating expenses, the decrease of approximately $15,000 of deferred revenue as we realized more sales from deferred revenues offset by the decrease of accounts receivable of approximately $67,000, as we collected some of our accounts receivable from our wholesale customers during the three months ended March 31, 2017.

For the three months ended March 31, 2017, financing activities provided approximately $331,000 as compared to approximately $377,000 during the three months ended March 31, 2016. Net cash received in the three months ended March 31, 2017 for the amount of approximately $361,000 was from a loan in the approximate amount of $21,000 from our principal shareholder and Chief Executive Officer and approximately $340,000 in loans from unaffiliated third parties offset by our repayment of principal of approximately $27,000, of which, approximately $17,000 was paid to our principal shareholder and Chief Executive Officer and approximately $10,000 was paid to the unaffiliated third parties.

The terms of the loans from our principal shareholder and Chief Executive Officer, from our related parties and from the unaffiliated third parties are set forth below.

Due to shareholder, interest bearing

Interest expense for the three months ended March 31, 2017 and 2016 for the above loan amounted to $12,488 and $8,325, respectively.

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Due to shareholder, non-interest bearing

Advances from related parties, interest bearing

During the years ended December 31, 2016 and 2015, the Company borrowed $30,000 and $40,000 from a related party to fund operations, respectively. This related party is the son of the CEO. These advances have an annual interest rate of 10% for the year ended December 31, 2016 and bear no interest but did have a one-time $5,000 finance charge for the year ended December 31, 2015, are unsecured and are due on demand. Repayment to this related party amounted to $0 and $40,000 for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017 and December 31, 2016, the Company owed $30,000 to this related party.

Interest expense for the three months ended March 31, 2017 and 2016 for the above loans amounted to $740 and $0, respectively.

Advances from related parties, non-interest bearing

Due to employee

Due to third parties, interest bearing

Interest expense for the three months ended March 31, 2017 and 2016 for above loans amounted to $1,404 and $0, respectively.

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Due to third parties, non-interest bearing

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company has established disclosure controls and procedures to ensure that information required to be disclosed in this quarterly report on Form 10-Q was properly recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. The Company’s controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers to allow timely decisions regarding required disclosure.

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) at March 31, 2017 based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer/Chief Financial Officer concluded that, at March 31, 2017, our disclosure controls and procedures are not effective.

Changes in Internal Controls over Financial Reporting

There have been no changes in the Company's internal controls over financial reporting that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are not a party to any material legal proceedings nor are we aware of any circumstance that may reasonably lead any third party to initiate material legal proceedings against us, except with respect to the matter described below and as set forth in the "Notice to Investors," in the forepart of this Report on Form 10-Q.

Notwithstanding the foregoing, on May 26, 2015, the Board of Directors concluded that a material charge for impairment to one of its assets is required under generally accepted accounting principles. The impaired assets are approximately $3,643,000 in cash that is the property of the Company held in bank accounts in the People’s Republic of China, which for administrative reasons in China, were held in the name of Ding Hua Wang, President and Chief Executive Officer of the Company, that have been frozen by authorities in the Chinese legal system (the “Frozen Accounts”) in a case involving alleged illegal activities in China by one or more persons claiming to be officers in the Company in China. The Chinese legal authorities asserted that these activities gave them the right to freeze property of the Company in China, (i.e., the Frozen Accounts), notwithstanding the fact that Company itself was not named in the case. Accordingly, the Board of Directors recognized an impairment of this amount in the financial statements filed in this Report. Although the Company believed that the funds in the Frozen Accounts were improperly frozen, the Company now believes, based on an informal conversation with a person in another company, that the Frozen Accounts will never be returned to the Company. As of the date of this Report, the Company and Mr. Wang are not aware of a separate case having been filed against the Company or Mr. Wang.

Mr. Wang, President of the Company, individually filed a complaint to the Commission for Discipline Inspection of the Central Committee of the Communist Party of China and is in the process of attempting to recover the Frozen Accounts. Based upon the foregoing with respect to the status of the matter against the Company, as of the date of this Report, although this action is still pending, neither Mr. Wang nor the Company expects to prevail.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Unregistered Sales of Equity Securities.

None.

(b) Use of Proceeds.

The Registrant did not sell any unregistered securities during the quarter ended March 31, 2017.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

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Item 6. Exhibits.

(a) Exhibits.

Exhibit No.		Document Description

31.1		CERTIFICATION of CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.

32.1*		CERTIFICATION of CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 101

Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.**

101.INS		XBRL Instance Document**

101.SCH		XBRL Taxonomy Extension Schema Document**

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document**

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document**

101.LAB		XBRL Taxonomy Extension Label Linkbase Document**

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document**

_______________

* This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 of the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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SIGNATURE

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

E-World USA Holding, Inc.

Title	Name	Date	Signature

President and CEO	Ding Hua Wang	May 15, 2017	/s/ Ding Hua Wang

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.

SIGNATURE	NAME	TITLE	DATE

/s/ Ding Hua Wang	Ding Hua Wang	President, CEO, Acting	May 15, 2017
		Principal Financial and Principal Accounting Officer, Director

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EXHIBIT INDEX

Exhibit No.		Document Description

31.1		CERTIFICATION OF CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEYACT OF 2002.

32.1 *		CERTIFICATION OF CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Exhibit 101

101.INS		XBRL Instance Document**

101.SCH		XBRL Taxonomy Extension Schema Document**

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document**

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document**

101.LAB		XBRL Taxonomy Extension Label Linkbase Document**

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document**

_______________

Merion, Inc. - FORM 10-Q - May 15, 2017

Attached files

Merion, Inc. Reports