Item 1. Business
Overview of Our Business
We were incorporated on June 28, 2010 in the State of Nevada. Our plan is to become a successful commercial FM radio broadcaster of originally programmed audio entertainment throughout the Caribbean region and worldwide over the Internet. We plan to start with the launching of a 24-hour streaming radio program over the Internet and systematically expand through traditional syndicated radio programming which will be broadcast over commercial FM radio spectrum from radio towers located throughout various popular Caribbean islands.
Organizational History
We were incorporated on June 28, 2010 in the State of Nevada. As of April 22, 2013 we had 4,300,000 shares of our common stock, $0.001 par value, issued and outstanding. Because we currently have nominal operations and minimal assets, we are currently considered to be a shell company as defined in Rule 12b-2 of the Exchange Act, as amended. Because we are considered a shell company, the securities previously sold in past offerings can only be resold through (i) registration under the Securities Act of 1933, as amended (“Securities Act”), (ii) Section 4(1) of the Securities Act, if available, for non-affiliates, or (iii) by meeting the conditions of Rule 144(i) of the Securities Act.
We are authorized to issue up to thirty million (30,000,000) shares of capital stock; twenty-five million (25,000,000) shares of which are designated as common stock, $0.001 par value, and five million (5,000,000) shares designated as preferred stock, $0.001 par value. Shares of our preferred stock can be designated by the Board of Directors in one or more classes with voting powers, full or limited, or no voting powers, and such designations, preferences, limitations or restrictions as deemed appropriate by the Board of Directors.
Industry Background
The primary source of revenues for radio broadcasters is the sale of advertising time to local, regional and national advertisers. In the United States over the past decade, local advertising revenue as a percentage of total radio advertising revenue in a given market has ranged from approximately 72% to 87% according to the Radio Advertising Bureau (www.rab.com). We anticipate receiving approximately 70% of our revenue from local advertisers and 30% of our revenue from regional advertisers who tend to operate multiple retail storefronts located throughout the more popular island destinations.
Radio is considered an efficient, cost-effective means of reaching specifically identified demographic groups. Stations are typically classified by their on-air format such as rock, adult contemporary, urban, gospel and news/talk. A station’s format and style of presentation enables it to target specific segments of listeners sharing certain demographic features. By capturing a specific share of a market’s radio listening audience, with particular concentration in a targeted demographic, a station is able to market its broadcasting time to advertisers seeking to reach a specific audience. Advertisers and stations use data published by audience measuring services and technologies to estimate how many people within particular geographical markets and demographics listen to specific stations.
Although the number of advertisements broadcast during a given time period may vary, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year.
According to a study performed by Bridge Ratings (www.bridgeratings.com) earlier this year, the average AM/FM radio listener spent an average of 18 hours per week listening. While this was down from the 22 hours per week reported in a similar study in 2005, Bridge Ratings reports that this decrease was offset by an increase in listening to simulcast radio broadcasts over the Internet.
Streaming Internet Radio
Streaming Internet radio is a relatively new broadcasting media in which live radio programming is simultaneously transmitted to an unlimited number of listeners worldwide over the Internet. In order to listen to a radio Internet broadcast a listener will log in to a radio server which will simulcast the radio broadcast to the listener through media play software such as Windows Media Player. As a result, listeners are able to listen, watch and read available broadcasts through their own computer.
Listening to live radio broadcasts over the Internet provides the listener with certain advantages when compared to traditional AM/FM transmission, including:
·
There are no geographical broadcasting limitations. Anyone with an Internet connection can listen to a live radio broadcast on their own computer (or, in some cases, cell phone) from anywhere in the world;
·
Listeners can interact and communicate directly with the radio DJ more closely and quickly through instant messaging, e-mail, and chat rooms;
·
Listeners can also interact and communicate with each other in real time through chat rooms and radio blogs; and
·
Broadcasters can better track and monitor listener traffic and interactivity trends through the examination of their radio server logs.
Competition
The radio broadcasting industry is highly competitive. The success or failure of our future radio stations and simulcast Internet radio broadcast will depend largely upon our ability to appeal to and retain a large enough listener audience and attract enough local and regional advertisers which will allow us to generate sufficient and sustained advertising revenue.
Radio stations compete for listeners and advertising revenues directly with other radio stations within their respective markets, as well as from other advertising media such as television, print, and evolving technologies including social media, advanced cell phones, and the Internet in general.
Factors that are material to a radio station’s competitive position include brand identity and loyalty, management, the station’s ranking within its own marketplace, transmitter power and location, assigned radio frequency, audience demographics, local programming acceptance, and the number and characteristics of other radio stations and advertising media within the local marketplace.
The Caribbean region is primarily controlled by smaller independent owners and operators of localized radio stations. We are aware of only one other competitor with a similar business strategy to ours and that is Tradewinds Broadcasting Corporation (www.tradewindsradio.com). We consider Tradewinds Broadcasting to be our primary competitor in the Caribbean region.
We believe our business plan is highly competitive in this marketplace and will allow us to grow in a steady and controlled manner utilizing our current management’s vast knowledge and experience in this industry and region.
Plan of Operations
We plan on developing a widely listened to 24-hour radio program that will be transmitted over commercial FM radio spectrum from radio broadcast towers strategically located throughout the Caribbean region and simulcast worldwide over the Internet using current generation streaming media technology. Our radio broadcasting studio will be based in St. Maarten, Dutch West Indies.
It is important to note that we are a development stage business with minimal business activity. As of April 22, 2013 we do not own any radio broadcast licenses nor have we applied for any radio broadcast licenses in any targeted broadcast territory. Further, we do not have any ownership or leaseholds in any radio broadcast towers nor do we have any agreements in place or in principal with any owners of radio broadcast towers to carry our radio programming should we apply for and be granted a license to broadcast our radio programming.
Programming Format
We intend to develop a 24-hour radio broadcast program featuring classic rock & roll and oldies from the 1970s and 1980s. We will have live disc jockeys (DJs) running the music programming, taking musical requests and talking with entertaining listeners live over the air. In addition, our programming will include periodic breaks for international news, local weather, and sports updates.
Targeted Demographic Group
Our radio programming will be aimed at attracting listeners aged 30 - 50 with annual household incomes in excess of $40,000. We anticipate a significant portion of our listeners will be comprised of vacationing tourists, expatriates, and other island visitors such as yacht and aviation crews and cruise ship visitors. Many of these visiting listeners will return home and continue listening to our radio programming over the Internet at www.islandradiolive.com.
Proposed Milestones to Implement Business Operations
The following milestones are based on estimates made by our management team. The working capital requirements and the projected milestones are approximations and are subject to adjustments. As of April 22, 2013, we have not raised adequate capital to commence executing on the following plan. We are presently seeking additional sources of funding to initiate operations. We believe we need to raise a minimum of $50,000 in additional funding to commence operations and meet our minimal working capital needs over the next 12 months. There is no assurance that any additional financing will be available, or if available, on terms that will be acceptable to us.
We estimate generating initial revenues approximately ten months following raising enough capital to commence the following operations. We plan to complete our milestones as follows:
0 - 4 Months
We will construct a radio broadcast studio in St. Maarten, Dutch West Indies. This studio will be approximately 150 square feet in size. We anticipate the cost of construction, plus the purchase of some initial recording and broadcasting equipment will cost approximately $7,500, which includes a new Dell PowerEdge R310 Server ($2,000), Internet DSL connection deposit ($1,500), wiring ($500), and construction costs ($3,500 in building materials and labor).
5 - 7 Months
We will develop and beta test our interactive streaming Internet website. This website will allow our listeners to log in from anywhere in the world and listen to our live radio broadcast using the current generation of streaming media technology as well as see what is happening live in the broadcast studio through a fixed webcam and interact in real time with the live DJ and other listeners through an interactive chat room. Visitors to the website will also be able to learn about the radio programming schedule, current and recently played songs (including artists name and the ability to purchase the song directly
through the website), upcoming events, weather, news and sports. We estimate this website will cost approximately $2,500 to complete.
8- 9 Months
We will develop and conduct a limited test market for our radio programming schedule to test varying DJ segments in order to maximize potential listener appeal. We will also be working out any bugs in our website to ensure that, once we are officially live with 24-hour radio broadcasting, our streaming Internet radio broadcast has no unnecessary interruptions.
Concurrently we will apply for a radio broadcasting license for the island of Saba, Dutch West Indies. It is our intent to place a 1,500 watt radio tower at the top of Saba, whose mountain peak is approximately 2,877 feet above sea level. We estimate that we should be able to reach the islands of Saba, St. Maarten, St. Eustatius, Anguilla and St. Barthelemy (St. Barts) with this proposed tower configuration.
We estimate that these activities will cost an aggregate of approximately $3,000.
10 - 12 Months
We will initiate our live 24-hour radio broadcast over the Internet and begin our sales and marketing efforts to sell advertising time on our radio broadcast and banner advertisements on our website.
In addition we will start seeking additional equity financing aimed at raising up to an additional $200,000 for the construction of our planned Saba, Dutch West Indies radio broadcast tower, provided our application for a radio broadcast license is approved.
We estimate that these activities will cost us approximately $3,000.
Note: The amounts allocated to each line item in the above milestones are subject to change without notice. Our planned milestones are based on the estimated amount of time to complete each milestone following receipt of sufficient capital to begin executing our business plan. Any line item amounts not expended completely, as detailed in the milestones above, shall be held in reserve as working capital and subject to reallocation as required for ongoing operations.
Long-Term Plan (5 Years)
Over the next five years our growth and expansion will focus primarily on radio broadcasting licenses on strategic Caribbean islands and then construct or acquire radio broadcasting towers to transmit our simulcast radio programming. In addition to our primary marketplace, St. Maarten, Dutch West Indies, we have identified the following Caribbean islands we intend to focus on during this time period:
·
Curacao, Dutch West Indies;
·
Providenciales, Turks and Caicos; and
·
Nassau, Bahamas.
We estimate that we will need to raise up to an additional $600,000 (estimated at $200,000 per location) for licensing and the establishment of a sufficient radio broadcast tower necessary to service the marketplace on each of the listed Caribbean islands.
Sales and Marketing
Because our primary source of revenue will be from the sale of advertising time on our radio broadcasts, we expect our first employee will be a full-time salesperson with significant experience in our industry.
Financing
We are in the process of raising equity capital to cover our initial capital requirements. Once we begin broadcasting our initial Internet radio programming we intend to seek other sources of equity financing on favorable terms to satisfy our growth and expansion plans. However, there are no assurances that any such financing can be obtained or, if obtained, on
terms favorable to us. If we are unable to generate profits or unable to obtain additional funds to meet our working capital needs, we may need to cease or curtail our business operations. Further, there is no assurance that the net proceeds from any successful financing arrangement will be sufficient to cover our cash requirements during the initial stages of our business development.
Government Regulation
There currently are few laws and regulations directly applicable to radio broadcasting over the Internet. However, worldwide there are numerous laws and licensing requirements related to use of and broadcasting over AM/FM radio spectrum.
Because we intend to eventually own and operate multiple radio broadcasting towers located on various islands throughout the Caribbean region our use of and broadcasting over AM/FM radio spectrum will eventually be regulated by multiple regulatory bodies located in different legal jurisdictions throughout our intended broadcast territories.
In the Dutch West Indies, which is where we intend to locate our radio broadcast studio (St. Maarten), construct our initial radio broadcast tower (Saba), as well as construct one of our expansion radio broadcast towers (Curacao), we will fall under the jurisdiction of the Bureau Telecommunications and Post (BT&P). BT&P is a semi-autonomous regulatory authority for the Dutch West Indies' communications industries, including radio broadcasting and the assignment of broadcast licenses and radio spectrum.
We will be subject to similar regulatory oversight on the other Caribbean islands we intend to eventually obtain a radio broadcasting license and construct or acquire a radio broadcast tower. In Providenciales, Turks and Caicos and Nassau, Bahamas we will be under the regulatory authority of the Turks and Caicos Islands Telecommunications Commission (TCIT) and the Utilities Regulation and Competition Authority (URCA), respectively.
BT&P, TCIT and URCA are also responsible for monitoring radio programming thereby ensuring the content of such programming is consistent with their rules and regulations concerning radio broadcasting, including decency requirements. Failure to comply with any of these policies could result in us losing our broadcasting license(s), if ever granted, and possibly force us to cease operations. If we are forced to cease operations in any broadcast territory it could have a materially adverse affect on our business and you could lose some or all of your investment.
Compliance with Environmental Laws
We have not incurred and do not anticipate incurring any expenses associated with environmental laws.
Research and Development Expenditures
We have not incurred any research or development expenditures since our inception on June 28, 2010.
Patents and Trademarks
We do not own nor have we applied, either legally or beneficially, for any patents or trademarks.
Employees
As of December 31, 2012, we had no employees. All functions, including development, strategy, negotiations and administration, are currently being provided by our officers and directors on a voluntary basis.
Stock Transfer Agent
Island Stock Transfer
Roosevelt Office Center
15500 Roosevelt Blvd., Ste. 301
Clearwater, FL 33760
(727) 289-0010 Phone
(727) 289-0069 Fax
www.islandstocktransfer.com
Executive Offices and Telephone Number
Our executive office and main telephone number is currently:
4th Floor, Airport Industrial Park Business Center,
No.35 Changjiang South Road, New District,
Wuxi City, Jiangsu Province, China
Phone: +86 13909840703
This space is provided to us free of charge by Ms. Qiuping Lu, our shareholder and director. If Ms. Lu decides to no longer allow us access to this office space in the future it would force us to seek outside office space elsewhere, potentially at a very high cost.
Item 1A.
Item 1A. Risk Factors
As a “smaller reporting company”, we are not required to provide the information required by this Item.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
Our executive office is located at 4th Floor, Airport Industrial Park Business Center, No.35 Changjiang South Road, New District, Wuxi City, Jiangsu Province, China, which is provided to us free of charge by Ms. Qiuping Lu, our shareholder and director.
We do not hold ownership or leasehold interest in any property or equipment.
Item 3.
Item 3. Legal Proceedings
No officer, director, or persons nominated for these positions, and no promoter or significant employee of our corporation has been involved in legal proceedings that would be material to an evaluation of our management. We are not aware of any pending or threatened legal proceedings involving the Company.
During the past ten (10) years, none of our directors and officers has been the subject of the following events:
1)
Any bankruptcy petition filed by or against any business of Ms. Edstrom was a general partner or executive officer either at the time of the bankruptcy or within two (2) years prior to that time;
2)
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding;
3)
An order, judgment, or decree, not subsequently reversed, suspended or vacated, or any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting Ms. Edstrom’s involvement in any type of business, securities or banking activities; and
4)
Found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Future Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Item 4.
Item 4. Mine Safety Disclosure
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Market Information
Our common stock is currently quoted on the OTC Bulletin Board under the trading symbol “CHGH”. Our shares of common stock were accepted for quotation on the OTC Bulletin Board on April 18, 2011 and was quoted under the symbol “ISLD” prior to July 17, 2012. For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. The below prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions:
Holders of our Common Stock
As of April 22, 2013, there were five registered stockholders holding 4,300,000 shares of our common stock issued and outstanding.
Common Stock
Our Articles of Incorporation authorize us to issue up to 25,000,000 shares of common stock, $0.001 par value. Each holder of our common stock is entitled to one (1) vote for each share held of record on all voting matters we present for a vote of stockholders, including the election of directors. Holders of common stock have no cumulative voting rights or preemptive rights to purchase or subscribe for any stock or other securities, and there are no conversion rights or redemption or sinking fund provisions with respect to our common stock. All shares of our common stock are entitled to share equally in dividends from sources legally available when, and if, declared by our Board of Directors.
Our Board of Directors is authorized to issue additional shares of common stock not to exceed the amount authorized by the Articles of Incorporation, on such terms and conditions and for such consideration as the Board may deem appropriate without further stockholder action.
In the event of our liquidation or dissolution, all shares of our common stock are entitled to share equally in our assets available for distribution to stockholders. However, the rights, preferences and privileges of the holders of our common stock are subject to, and may be adversely affected by, the rights of the holders of shares of preferred stock that our Board of Directors may decide to issue in the future.
As of April 15, 2013, we had 4,300,000 shares of common stock issued and outstanding.
Preferred Stock
Our Articles of Incorporation authorize us to issue up to 5,000,000 shares of preferred stock, $0.001 par value. Our Board of Directors is authorized, without further action by the shareholders, to issue shares of preferred stock and to fix the designations, number, rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms. We believe that the Board of Directors’ power to set the terms of, and our ability to issue, preferred stock will provide flexibility in connection with possible financing or acquisition transactions in the future. The issuance of preferred stock, however, could adversely affect the voting power of holders of common stock and decrease the amount of any liquidation distribution to such holders. The presence of outstanding preferred stock could also have the effect of delaying, deterring or preventing a change in control of our company.
As of April 15, 2013, we had no shares of preferred stock issued or outstanding. Further, we have no present plans to issue any shares of preferred stock.
Dividend Policy
We have never declared or paid cash dividends. We currently intend to retain all future earnings for the operation and expansion of our business and do not anticipate paying cash dividends on the common stock in the foreseeable future. Any payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by our directors.
Share Purchase Warrants
We have not issued and do not have outstanding any warrants to purchase shares of our stock.
Options
We have not issued and do not have outstanding any options to purchase shares of our stock.
Convertible Securities
We have not issued and do not have outstanding any securities convertible into shares of our stock or any rights convertible or exchangeable into shares of our stock.
Securities Authorized for Issuance Under Equity Compensation Plans
As of April 15, 2013, we have not adopted an equity compensation plan and have not granted any stock options.
Recent Sales of Unregistered Securities
Set forth below is information regarding the issuance and sales of securities without registration since June 28, 2010 (inception):
On June 29, 2010, we issued 2,000,000 shares of common stock, $0.001 par value, to each Eric Boyer and Nina Edstrom, aggregating 4,000,000 shares of common stock, in consideration of their services to us as officers and directors. We issued these shares as Founder’s Shares. In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of Mr. Boyer’s and Ms. Edstrom’s relationships with us, each had access to all relevant information relating to our business and represented that they each had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
On June 29, 2010, we issued 2,000,000 shares of common stock to Taurus Financial Partners, LLC in consideration of its services of assisting with the creation and early development of our business. We valued these services at $20,000, or $0.01 a share. In connection with this issuance, we relied upon the exemption from the registration requirements pursuant to the provisions of Section 4(2) of the Securities Act as a transaction by an issuer not involving any public offering. By virtue of
its relationship to us, Taurus Financial Partners had access to all relevant information relating to our business and represented that it had the required investment intent. In addition, the securities issued bore an appropriate restrictive legend.
Purchases of Equity Securities by the Issuer and Affiliated Purchases
On September 19, 2011, we repurchased 1,075,000 shares of our common stock in a Stock Buyback Program announced on September 9, 2011. We repurchased these shares at an aggregate price of $10,750, or $0.01 per share. Our former officer and director, Nina Edstrom, loaned us these funds to conclude the repurchase of these shares. The shares were subsequently cancelled.
On October 13, 2011, Taurus Financial Partners, LLC returned 2,000,000 shares of our restricted common stock. We subsequently cancelled these shares.
On October 13, 2011, Blue Water Restaurant Group, Inc. returned 2,000,000 shares of our restricted common stock. We subsequently cancelled these shares.
Item 6.
Item 6. Selected Financial Data
Not applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
We are a development stage corporation with limited operations and are not currently generating any revenues from our business operations. Our independent registered public accounting firm has issued a going concern opinion. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next 12 months. We do not anticipate generating significant revenues until we are able to launch our initial 24-hour streaming radio program over the Internet. Accordingly, we must raise additional cash from sources other than operations.
We presently are exploring other such sources of funding, including raising funds through a second public offering, a private placement of securities, or loans. If we are unable to raise this additional funding, we will either have to suspend operations until we do raise the cash or cease operations entirely.
The following discussion should be read in conjunction with our Financial Statements and the notes thereto and the other information included in this Annual Report as filed with the SEC on Form 10-K.
Limited Operating History; Need for Additional Capital
There is limited historical financial information about us upon which to base an evaluation of our performance. We are in the start-up stage of operations and have yet to generate any revenues. We cannot guarantee that we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns, such as increases in marketing costs, increases in administration expenditures associated with daily operations, increases in accounting and audit fees, and increases in legal fees related to filings and regulatory compliance.
To become profitable and competitive, we have to successfully develop and sell marketing time on our radio programming. We anticipate relying on equity sales of our common stock in order to continue to fund our business operations until we are able to generate sufficient revenues to cover our operating expenses, which may never happen. Issuances of additional shares will result in dilution to our then existing stockholders. There is no assurance that we will be able to make any additional sales of our equity securities or arrange for debt or other financing to fund our planned business activities. We may also rely on loans from our directors. However, there are no assurances that our directors will provide us with any additional funds.
Currently, we do not have any arrangements for additional financing. We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Equity financing could result in additional dilution to existing shareholders.
Status as a Shell Company
As of December 31, 2012, because we have nominal operations and minimal assets, we are considered to be a shell company under the Securities Exchange Act of 1934, as amended. Because we are considered a shell company, the securities sold in previous offerings can only be resold through (i) registration under the Securities Act of 1933, as amended (“Securities Act”), (ii) Section 4(1) of the Securities Act, if available, for non-affiliates, or (iii) by meeting the conditions of Rule 144(i) of the Securities Act.
Results of Operations
Revenues. As of December 31, 2012, we had not generated any revenues and remain a development stage company.
Net Loss. We had net losses of $34,170 and $24,757 for fiscal 2012 and fiscal 2011, respectively. This represents an increase of $9,413 in our net loss compared to fiscal 2011. Our net loss was attributable to costs related to an early offering of our common stock and complying with our ongoing SEC reporting requirements, and have consisted primarily of legal, accounting and outside consulting fees. The increase in net loss was primarily attributable to higher expenses in fiscal 2012.
Operating Expenses. Our total operating expenses for fiscal 2012 and fiscal 2011 were $33,898 and $ 24,470 , respectively. This represents an increase of $9,428 in operating expenses compared to fiscal 2011. Our operating expenses were related to an early offering of our common stock and complying with our ongoing SEC reporting requirements, and have consisted primarily of legal, accounting and outside consulting fees. The increase in our operating expenses was primarily attributable to higher expenses in fiscal 2012.
Cumulative During the Development Stage - June 28, 2010 (inception) through December 31, 2012
For ease of reading we refer to the period of June 28, 2010 (inception) through December 31, 2012 as the “Developmental Period”.
Revenues. We have not generated any revenues during the Developmental Period.
Net Loss. We have incurred a net loss of $ 102,917 during the Developmental Period. The net loss was primarily attributable to organizational costs related to our formation, an early offering of our common stock, obtaining a listing on the OTC Bulletin Board, and complying with our ongoing SEC reporting requirements. These expenses have consisted primarily of legal, accounting, and outside consulting fees.
Operating Expenses. Our total operating expenses for the Developmental Period were $102,360. These operating expenses were primarily attributable to organizational costs related to our formation, an early offering of our common stock, obtaining a listing on the OTC Bulletin Board, and complying with our ongoing SEC reporting requirements. These expenses have consisted primarily of legal, accounting, and outside consulting fees.
Total Stockholders’ Deficit. Our stockholders’ deficit was $0 as of December 31, 2012.
Accounts Payable and Accrued Expenses.
As of December 31, 2011 we had notes payable to our former officer and director, Nina Edstrom, aggregating $12,145, which includes $10,750 she loaned the Company to repurchase and cancel 1,075,000 shares of its common stock.
Ms. Edstrom voluntarily forgave these outstanding debts on March 1, 2012 which was recorded in the financial statements as additional paid-in capital. Additionally, during the12 month ended December 31, 2012, these debts had accrued $272 in imputed interest that was recorded in the financial statements as additional paid-in capital.
On June 27, 2012, Taurus Financial Partners, LLC, as a shareholder of the Company, forgave the $40,060 total outstanding account payables that the Company owed to it. As of September 30, 2012, there is no note payable to any shareholders.
During the12 month ended December 31, 2012, Chin Yung Kong, the director and shareholder of the Company, paid $7,155 for the Company’s various expenses including legal fee, accounting fee and filing fee. These payments were classified as contributed capital.
Liquidity and Capital Resources
As of December 31, 2012, we had no assets and no liabilities.
We expect to incur continued losses over the next 12 months, possibly even longer. As of December 31, 2012, we had no assets or cash on hand, and we believe that we need at least $50,000 to commence operations and meet our minimal working capital requirements over the next 12 months.
We presently are exploring other such sources of funding. Without limiting our available options, future equity financings will most likely be through the sale of additional shares of our common stock. It is possible that we could also offer warrants, options and/or rights in conjunction with any future issuances of our common stock. However, we can give no assurance that financing will be available to us, and if available to us, in amounts or on terms acceptable to us. If we cannot secure adequate financing, we may be forced to cease operations and you will lose your entire investment.
Going Concern Consideration
Our independent auditors included an explanatory paragraph in their report on the accompanying financial statements regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Off -Balance Sheet Operations
As of December 31, 2012, we had no off-balance sheet activities or operations.
CRITICAL ACCOUNTING POLICIES
The accompanying financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP) for financial information and in accordance with the Securities and Exchange Commission’s (SEC) Regulation S-X. They reflect all adjustments which are, in the opinion of Company’s management, necessary for a fair presentation of the financial position and operating results as of December 31, 2012 and for the period June 28, 2010 (inception) to December 31, 2012.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting periods. Because of the use of estimates inherent in the financial reporting process, actual results may differ significantly from those estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. As of December 31, 2012, we had no cash or cash equivalents.
Fair Value of Financial Instruments
ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
As of December 31, 2012 we believe that the recorded values of all of our financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Net Loss per Share Calculation
Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per shares is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. During the period June 28, 2010 (inception) to December 31, 2012 we had no dilutive financial instruments issued or outstanding.
Revenue Recognition
For the period June 28, 2010 (inception) to December 31, 2012, we did not realize any revenue.
Income Taxes
We account for income taxes pursuant to FASB ASC 740, Income Taxes. Under FASB ASC 740-10-25, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
We maintain a valuation allowance with respect to deferred tax assets. Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.
Changes in circumstances, such as Company generating taxable income, could cause a change in judgment about its ability to realize the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Recently Issued Accounting Pronouncements
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income” in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 is not expected to have a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact, if any, that the adoption of this pronouncement may have on its results of operations or financial position.
Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial statements.
Contractual Obligations
As of December 31, 2012, Company had no contractual obligations.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data
Item
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations
Statements of Stockholders’ (Deficit)
Statements of Cash Flows
Notes to the Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
China Herb Group Holdings Corporation (formerly Island Radio, Inc.)
(A Development Stage Company)
We have audited the accompanying balance sheets of China Herb Group Holdings Corporation (formerly Island Radio, Inc. - a Development Stage Company) as of December 31, 2012 and 2011 the related statements of operations, changes in stockholders' (deficit), and cash flows for the years ended December 31, 2012 and 2011 and for the period from June 28, 2010 (inception) through December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of China Herb Group Holdings Corporation (formerly Island Radio, Inc. - a Development Stage Company), as of December 31, 2012 and 2011, and the results of its operations and cash flows for the periods described above in conformity with U.S. generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has not established a source of revenue sufficient to cover its operating costs, and as such has incurred an operating loss since inceptions. As of December 31, 2012, the Company had an accumulated deficit during development stage of $109,919, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
May 1, 2013
CHINA HERB GROUP HOLDINGS CORPORATION
FORMERLY KNOWN AS “ISLAND RADIO, INC.”
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
December 31, 2012
December 31, 2011
Total assets:
$
-
$
-
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
The accompanying notes to the financial statements are an integral part of these statements.
CHINA HERB GROUP HOLDINGS CORPORATION
FORMERLY KNOWN AS “ISLAND RADIO, INC.”
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
For the 12-months ended 12/31/12
For the 12-months ended 12/31/11
Cumulative from 6/28/10 (inception) to 12/31/12
Revenues
$
-
$
-
$
-
Expenses:
General and administrative
1,298
2,328
Legal consulting fees
27,500
16,155
82,180
Accounting fees
4,000
4,000
10,000
Transfer agent fees
1,100
3,777
7,852
Total expenses
33,898
24,470
102,360
Loss from operations
(33,898)
(24,470)
(102,360)
Other expense:
Interest expense
(272)
(287)
(559)
Total other expense
(272)
(287)
(559)
Provision for income taxes
-
-
-
Net loss
$
(34,170)
$
(24,757)
$
(102,917)
Net Loss per common share,
basic and diluted
$
(0.01)
$
(0.00)
Weighted average number of
common shares outstanding,
basic and diluted
4,300,000
7,794,192
The accompanying notes to the financial statements are an integral part of these statements.
CHINA HERB GROUP HOLDINGS CORPORATION
FORMERLY KNOWN AS “ISLAND RADIO, INC.”
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDER (DEFICIT)
Forgiveness of loan from officer
-
-
12,145
-
-
12,145
Forgiveness of accounts payable - related party
-
-
40,060
-
-
47,215
Forgiveness of loan from shareholder
-
-
7,155
-
-
12,145
Imputed interest
-
-
-
-
Net (loss) for the period
-
-
-
-
(34,170)
(34,170)
Balance,
December 31, 2011
4,300,000
$
4,300
$
98,619
$
-
$
(102,919)
$
-
The accompanying notes to the financial statements are an integral part of these statements.
CHINA HERB GROUP HOLDINGS CORPORATION
FORMERLY KNOWN AS “ISLAND RADIO, INC.”
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
The accompanying notes to the financial statements are an integral part of these statements.
CHINA HERB GROUP HOLDINGS CORPORATION
FORMERLY KNOWN AS “ISLAND RADIO, INC.”
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
NOTE 1 - Summary of Significant Accounting Policies
Organization
China Herb Group Holdings Corporation (“Company”) is a development stage company with minimal operations. Company was incorporated under the name “Island Radio, Inc” under the laws of the State of Nevada on June 28, 2010. The Company’s business plan calls for the development of a 24-hour radio program that will be transmitted over commercial FM radio spectrum from radio broadcast towers strategically located throughout the Caribbean region and simulcast worldwide over the Internet. The Company's broadcasting studio will be based in St. Maarten, Dutch West Indies. On July 17, 2012, Company changed its name to China Herb Group Holdings Corporation.
Basis of Presentation
The accompanying financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (US GAAP) for financial information and in accordance with the Securities and Exchange Commission’s (SEC) Regulation S-X. They reflect all adjustments which are, in the opinion of the Company’s management, necessary for a fair presentation of the financial position and operating results as of and for the years ended December 31, 2012 and December 31, 2011, and cumulative from June 28, 2010 (inception) to December 31, 2012.
Use of Estimates
The accompanying financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment. Actual results may vary from these estimates.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. As of December 31, 2012 and 2011, the Company had no cash or cash equivalents.
Investments
The Company accounts for its marketable securities, which are classified as trading securities, in accordance with generally accepted accounting principles for certain investments in debt and equity securities, which requires that trading securities be carried at fair value. Unrealized gains and losses due to changes in fair value as well as realized gains and losses resulting from sales of securities are reported as Other Income/Expenses in the statement of operations. Fair value of the securities is based upon quoted market prices in active markets or estimated fair value when quoted market prices are not available. The cost basis for realized gains and losses is determined on a specific identification basis. As of December 31, 2012, the Company had no investments.
Fair Value of Financial Instruments
ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
As of December 31, 2012 we believe that the recorded values of all of our financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
Net Loss per Share Calculation
Basic net loss per common share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per shares is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. For the year ended December 31, 2012 and December 31, 2011, and cumulative from June 28, 2010 (inception) to December 31, 2012 the Company had no dilutive financial instruments issued or outstanding.
Income Taxes
The Company accounts for income taxes pursuant to FASB ASC 740, Income Taxes. Under FASB ASC 740-10-25, deferred tax assets and liabilities are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences.
The Company maintains a valuation allowance with respect to deferred tax assets. The Company establishes a valuation allowance based upon the potential likelihood of realizing the deferred tax asset and taking into consideration the Company’s financial position and results of operations for the current period. Future realization of the deferred tax benefit depends on the existence of sufficient taxable income within the carryforward period under the Federal tax laws.
Changes in circumstances, such as the Company generating taxable income, could cause a change in judgment about its ability to realize the related deferred tax asset. Any change in the valuation allowance will be included in income in the year of the change in estimate.
Fiscal Year
The Company elected December 31st for its fiscal year end.
Recent Accounting Pronouncements
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and
Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income” in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 is not expected to have a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact, if any, that the adoption of this pronouncement may have on its results of operations or financial position.
NOTE 2 - Development Stage Activities and Going Concern
The Company is in the development stage and has minimal operations, and as such has devoted most of its efforts since its inception to developing its business plan, issuing common stock, attempting to raise capital, establishing its accounting systems and other administrative functions. The Company’s business plan calls for the development of a 24-hour radio program that will be transmitted over commercial FM radio spectrum from radio broadcast towers strategically located throughout the Caribbean region and simulcast worldwide over the Internet with its broadcasting studio to be based in St. Maarten, Dutch West Indies. The Company intends to conduct additional capital formation activities through the issuance of its common stock and to achieve these long-term business growth strategies.
While management of the Company believes that Company will be successful in its planned operating activities under its business plan and capital formation activities, there can be no assurance that it will be able to successfully execute on either of these or that it will be able to generate adequate revenues to earn a profit or sustain its operations.
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United State of America, which contemplate continuation of the Company as a going concern. The Company has not established a source of revenues sufficient to cover its operating costs, and as such, has incurred an operating loss since its inception. Further, as of December 31, 2012, the Company had an accumulated deficit during development stage of ($102,919). These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern.
NOTE 3 - Share Exchange and Subsequent Sale of Blue Water Restaurant Group, Inc. Common Stock Holdings
On March 29, 2011 we entered into a Share Exchange Agreement with Blue Water Restaurant Group, Inc. (“Blue Water”), a Nevada corporation planning a going public initiative and starting a chain of restaurants in St. Maarten, Dutch West Indies. Under the terms of the agreement we issued Blue Water 2,000,000 shares of our restricted common stock in exchange for 2,000,000 restricted shares of Blue Water common stock, $0.001 par value. These shares were valued at $20,000, or $0.01 a share.
Blue Water registered 1,300,000 of our total holdings of 2,000,000 shares of their common stock in a SEC Registration Statement on Form S-1 that was declared effective on September 8, 2011. Subsequently, we sold these 1,300,000 registered shares without restrictions to 36 different individuals at a price of $0.01 per share, or $13,000 in total. Our remaining 700,000 shares were transferred to Taurus Financial Partners, LLC (“Taurus”) in exchange for a $7,000 reduction in our outstanding accounts payable. All of the cash proceeds from the sale of our Blue Water shares were paid to Taurus to reduce our outstanding accounts payable to them. As of December 31, 2012 we had no remaining accounts payable and had no remaining holdings in Blue Water.
NOTE 4 - Notes Payable to Officer and Shareholders
As of December 31, 2011 we had notes payable to our former officer and director, Nina Edstrom, aggregating $12,145, which includes $10,750 she loaned the Company to repurchase and cancel 1,075,000 shares of its common stock.
Ms. Edstrom voluntarily forgave these outstanding debts on March 1, 2012 which was recorded in the financial statements as additional paid-in capital. Additionally, during the year ended December 31, 2012 these debts had accrued $272 in imputed interest that was recorded in the financial statements as additional paid-in capital.
On June 27, 2012, Taurus Financial Partners, LLC, as a shareholder of the Company, forgave $40,060 of outstanding accounts payable that the Company owed, which was recorded as contributed capital.
During the year ended December 31, 2012, Chin Yung Kong, the director and shareholder of the Company, paid $7,155 for the Company’s various expenses including legal fee, accounting fee and filing fee. These payments were classified as contributed capital.
NOTE 5 - Common Stock
The total number of common shares authorized that may be issued by the Company is 25,000,000 shares with a par value of $0.001 per share.
During the period June 28, 2010 (inception) to December 31, 2012 the Company issued an aggregate of 9,375,000 shares as follows:
·
4,000,000 shares to its directors as Founder’s Shares;
·
2,000,000 shares to a consultant for total consideration of $20,000, or $0.01 per share, based on the value of the services performed;
·
1,375,000 shares in exchange for aggregate cash consideration of $13,750, or $0.01 per share;
·
2,000,000 shares in exchange for 2,000,000 shares of restricted common stock in Blue Water Restaurant Group, Inc. (“Blue Water”), a Nevada corporation, presently undertaking a going public initiative. This investment was valued at $20,000, or $0.01 per share, based on the most recent private transaction price of Blue Water common stock, which was $0.01 per share. In addition, Blue Water registered 1,300,000 of our shares of its common stock for unrestricted resale in a SEC Registration Statement on Form S-1 which was declared “effective” on September 8, 2011.
On September 19, 2011 the Company repurchased 1,075,000 shares of its common stock, which were subsequently cancelled. These shares were purchased for $10,750, or $0.01 a share. This purchase was financed by a non-interest bearing demand loan from our former officer and director, Nina Edstrom. During the twelve months ended December 31, 2012 this note had accrued $272 in imputed interest that was recorded in the financial statements as additional paid-in capital.
On October 13, 2011, two shareholders returned to the Company an aggregate of 4,000,000 shares of restricted common stock. These shares were subsequently cancelled.
As of December 31, 2012, the Company had 4,300,000 shares of its common stock issued and outstanding.
NOTE 6 - Preferred Stock
The total number of preferred shares authorized that may be issued by the Company is 5,000,000 shares with a par value of $0.001 per share.
As of December 31, 2012, the Company had no shares of its preferred stock issued and outstanding.
NOTE 7 - Income Taxes
The provision (benefit) for income taxes for the years ended December 31, 2012 and 2011 was as follows, assuming a 35% effective tax rate:
As of December 31, 2012, the Company had approximately $82,360 in tax loss carryforwards that can be utilized in future periods to reduce taxable income through 2031.
The Company provided a valuation allowance equal to the deferred income tax assets for the period from June 28, 2010 (inception) to December 31, 2012 because it is not presently known whether future taxable income will be sufficient to utilize the tax loss carryforwards.
The Company has no uncertain tax positions.
NOTE 8 - Related Party Transactions
From June 28, 2010 (inception) through June 27, 2012, the Company operated out of office space that was provided to us by our former president and chief executive officer, Eric Boyer, free of charge.
As of December 31, 2011 we had notes payable to our former officer and director, Nina Edstrom, aggregating $12,145, which includes $10,750 she loaned the Company to repurchase and cancel 1,075,000 shares of its common stock.
Ms. Edstrom voluntarily forgave these outstanding debts on March 1, 2012 which was recorded in the financial statements as additional paid-in capital. Additionally, during the twelve months ended December 31, 2012 these debts had accrued $272 in imputed interest that was recorded in the financial statements as additional paid-in capital.
On June 27, 2012, Taurus Financial Partners, LLC, as a shareholder of the Company, forgave the $40,060’s total outstanding account payables that the Company owed to it. As of December 31, 2012, there is no note payable to any shareholders.
During the year ended December 31, 2012, Chin Yung Kong, the director and shareholder of the Company, paid $7,155 for the Company’s various expenses including legal fee, accounting fee and filing fee. These payments were classified as contributed capital.
NOTE 9 - Subsequent Events
No subsequent events occurred after the date of these financial statements and prior to their issuance, which would require disclosure in these financial statements.
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Under the supervision and with the participation of our officers and directors, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act as of a date ("Evaluation Date") within ninety (90) days prior to the filing of our December 31, 2012 Annual Report with the SEC on Form 10-K.
Based upon that evaluation, our management has concluded that, as of December 31, 2012, our disclosure controls and procedures were not effective in timely alerting management to the material information relating to us required to be included in our periodic filings with the SEC.
Our officers and directors have concluded that our disclosure controls and procedures had the following material weaknesses:
·
We were unable to maintain any segregation of duties within our financial operations due to our reliance on limited personnel in the finance function. While this control deficiency did not result in any audit adjustments to our 2012 interim or annual financial statements, it could have resulted in a material misstatement that might have been prevented or detected by a segregation of duties;
·
We lack sufficient resources to perform the internal audit function and does not have an Audit Committee;
·
We do not have an independent Board of Directors, nor do we have a board member designated as an independent financial expert to the Company. The Board of Directors is comprised of one (1) member who is also our only executive officer. As a result, there is a lack of independent oversight of the management team, lack of independent review of our operating and financial results, and lack of independent review of disclosures made by the Company; and
·
Documentation of all proper accounting procedures is not yet complete.
To the extent reasonably possible given our limited resources, we intend to take measures to cure the aforementioned material weaknesses, including, but not limited to, the following:
·
Considering the engagement of consultants to assist in ensuring that accounting policies and procedures are consistent across the organization and that we have adequate control over financial statement disclosures;
·
Hiring additional qualified financial personnel, including a Chief Financial Officer, on a full-time basis;
·
Expanding our current board of directors to include additional independent individuals willing to perform directorial functions; and
·
Increasing our workforce in preparation for exiting the development stage and commencing revenue producing operations.
Since the recited remedial actions will require that we hire or engage additional personnel, these material weaknesses may not be overcome in the near-term due to our limited financial resources. Until such remedial actions can be realized, we will continue to rely on the limited advice of outside professionals and consultants.
We anticipate that these initiatives will be at least partially, if not fully, implemented by April 28, 2014, subject to our ability to obtain sufficient future financing and subject to our ability to start generating revenue.
Internal Control over Financial Reporting
(a) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the registrant’s annual or interim financial statements will not be prevented or detected on a timely basis.
Our officers assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of The Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on that assessment under such criteria, management concluded that our internal controls over financial reporting were not effective as of December 31, 2012 due to control deficiencies that constituted material weaknesses.
Management has identified a lack of sufficient personnel in the accounting function due to the limited resources of the Company with appropriate skills, training and experience to perform the review processes to ensure the complete and proper application of generally accepted accounting principles.
We are in the process of developing and implementing remediation plans to address our material weaknesses in our internal controls.
Management has identified specific remedial actions to address the material weaknesses described above:
·
Improve the effectiveness of the accounting group by augmenting our existing resources with additional consultants or employees to improve segregation procedures and to assist in the analysis and recording of complex accounting transactions and preparation of tax disclosures. We plan to mitigate the segregation of duties issue by hiring additional personnel in the accounting department once we have achieved positive cash flow from operations and/or have raised significant additional working capital; and
·
Improve segregation procedures by strengthening cross approval of various functions including cash disbursements and quarterly internal audit procedures where appropriate.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
(b) Attestation Report of the Registered Public Accounting Firm
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report. We were not required to have, nor have we, engaged our independent registered public accounting firm to perform an audit of internal control over financial reporting pursuant to the rules of the Commission that permit us to provide only management’s report in this Annual Report.
(c) Changes in Controls and Procedures
There were no significant changes made in our internal controls over financial reporting during the year ended December 31, 2012 that have materially affected or are reasonably likely to materially affect these controls. Thus, no corrective actions with regard to significant deficiencies or material weaknesses were necessary.
Item 9B.
Item 9B. Other Information
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Our executive officers and directors and their respective ages as of the date of this prospectus are as follows:
Name
Age
Position
Qiuping Lu
President, Treasurer, Chief Executive Officer, Chief Financial Officer and Director
Fumin Feng
Vice President, Director
Yubo Zheng
Secretary, Director
Chin Yung Kong
Director
Qiuping Lu, age 42, graduated from the Accounting Major of Changzhou Industrial Institute in 1991. She was the Accounting Director of Changzhou Nonferrous Metal Factory from 1991 to 1998. She was the Accounting Director of Jiangsu Jiu Jiu Accounting Firm from 1998 to 2003. She was the Board Director of Hong Kong Han Fang Zhen Bao Group Holding Company from 2003 to present.
Fumin Feng, age 47, graduated from the Engineering Design major of Nanjing Science and Technology University in 1987. He was the Chairman of the Board of Jiangsu Nantong Fuyuan Machinery Company, Ltd. From 1987 to 2003. He was the Chairman of the Board of Jiangsu Nantong Fuyuan Investment Fund Management Company, Ltd from 2003 to 2006. He was the Chairman of the Board of Hong Kong Han Fang Zhen Bao Group Holding Company from 2006 to present.
Yubo Zheng, age 48, graduated from Heilongjiang University in 1986. From 1986 to May 1995, he worked in the Sanitary Bureau of Harbin City. From May 1995 to March 2012, he worked in Tianshi Group. From April 2012 to present, he worked in Hong Kong Hanfang Zhenbao Group.
Chin Yung Kong, age 60, resides in Dalian, China. Mr. Chin is the Managing Director of QMIS Capital Finance. Since 2002 Mr. Chin has devoting most of his time advising Chinese clients on financial restructuring, pre-audit evaluation before going public, pre-IPO investment strategies, and on the process of going public in the United States. From 1995 to 2002, Mr. Chin was financial controller for the Kwok Group Company in China. Prior to 1995 Mr. Chin was a practicing auditor and Certified Public Accountant (CPA) with Foo Kon & Tan in Singapore. Mr. Chin graduated from University of Hull in the United Kingdom with a Masters degree in Finance.
Involvement in Legal Proceedings
To the knowledge of the Company, no executive officer or director has been involved in the last ten years in any of the following:
Any bankruptcy petition filed by or against any business or property of such person, or of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
Being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
Being the subject of or a party to any judicial or administrative order, judgment, decree or finding, not subsequently reversed, suspended or vacated relating to an alleged violation of any federal or state securities or commodities law or regulation, or any law or regulation respecting financial institutions or insurance companies, including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail, fraud, wire fraud or fraud in connection with any business entity; or
Being the subject of or a party to any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Committees of the Board of Directors
We do not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committee of our Board of Directors. As such, our entire Board of Directors acts as our audit committee.
Audit Committee Financial Expert
Our Board of Directors does not currently have any member who qualifies as an audit committee financial expert. We believe that the cost of retaining such a financial expert at this time is prohibitive. Further, because we are in the start-up stage of our business operations, we believe the services of an audit committee financial expert are not necessary at this time.
Information Concerning Non-Director Executive Officers
We currently have no executive officers serving who are non-directors.
Code of Ethics
We do not currently have a Code of Ethics applicable to our principal executive, financial and accounting officers.
Potential Conflict of Interest
Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our Board of Directors. Thus, there is a potential conflict of interest in that our sole director has the authority to determine issues concerning management compensation, in essence her own, and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our officers or directors.
Compliance with Section 16(A) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, require the Company's executive officers, directors and persons who own more than 10% of a registered class of the Company's equity securities, to file with the SEC initial statements of beneficial ownership, reports of changes in ownership, and annual reports concerning their ownership of common stock and other equity securities of the Company on Form(s) 3, 4, and 5, respectively. Executive officers, directors and greater than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that for the fiscal year ended December 31, 2012, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with, except that Chin Yung Kong did not file the Form 3 to report his initial beneficial ownership in the Company.
Item 11.
Item 11. Executive Compensation
Our fiscal year end is December 31. No compensation has been paid to our officers from inception on June 28, 2010 through December 31, 2012. We have no plans to begin paying our officers any cash compensation until our business becomes operationally profitable.
Director Compensation
Our fiscal year end is December 31. No compensation has been paid to our directors from inception on June 28, 2010 through December 31, 2012. We have no plans to begin paying our directors any cash compensation until our business becomes operationally profitable.
Employment Agreements
We have not entered into any employment agreements with any of our officers or directors.
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth information regarding beneficial ownership as of the date of this prospectus by (i) each named executive officer, (ii) each member of our Board of Directors, (iii) each person deemed to be the beneficial owner of more than five percent (5%) of any class of our common stock, and (iv) all of our executive officers and directors as a group. Unless otherwise indicated, each person named in the following table is assumed to have sole voting power and investment power with respect to all shares of our common stock listed as owned by such person.
As of April 22, 2013, we had 4,300,000 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding.
(1) Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
(2) Based on 4,300,000 shares of common stock issued and outstanding as of April 30, 2013
Securities Authorized for Issuance Under Equity Compensation Plans
We do not have any authorized Equity Compensation Plans nor do we intend to establish any such plans during the fiscal year ending December 31, 2012.
Changes in Control
On June 27, 2012, Eric R. Boyer and Nina Edstrom (“Sellers”), who are the major shareholders of the Company, entered into a Share Purchase Agreement with Chin Yung Kong, Qiuping Lu and Fumin Feng (“Purchasers”), under which Sellers sold to Purchasers 4,000,000 shares of common stock of the Company (2,000,000 shares to Chin Yung Kong, 1,000,000 shares to Qiuping Lu and 1,000,000 shares to Fumin Feng), which represented approximately 93% of the total issued and outstanding stock of the Company, for a total purchase price of $159,970.00 (“Total Purchase Price”). As result of this share purchase transaction, Chin Yung Kong, Qiuping Lu and Fumin Feng became the controlling shareholders of the Company.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
From June 28, 2010 (inception) through June 27, 2012, the Company operated out of office space that was provided to us by our former president and chief executive officer, Eric Boyer, free of charge.
Our current executive office is located at 4th Floor, Airport Industrial Park Business Center, No.35 Changjiang South Road, New District, Wuxi City, Jiangsu Province, China, which is provided to us free of charge by Ms. Qiuping Lu, our shareholder and director.
As of December 31, 2011 we had notes payable to our former officer and director, Nina Edstrom, aggregating $12,145, which includes $10,750 she loaned the Company to repurchase and cancel 1,075,000 shares of its common stock.
Ms. Edstrom voluntarily forgave these outstanding debts on March 1, 2012 which was recorded in the financial statements as additional paid-in capital.
On June 27, 2012, Taurus Financial Partners, LLC, as a shareholder of the Company, forgave the $40,060 total outstanding account payables that the Company owed to it. As of December 31, 2012, there is no note payable to any shareholders.
During the year ended December 31, 2012, Chin Yung Kong, the director and shareholder of the Company, paid $7,155 for the Company’s various expenses including legal fee, accounting fee and filing fee. These payments were classified as contributed capital.
Indemnification
Under our Articles of Incorporation and Bylaws, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his/her position, if he/she acted in good faith and in a manner he/she reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he/she is to be indemnified, we must indemnify him/her against all expenses incurred, including reasonable attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to officers or directors under Nevada law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
Director Independence
The OTC Bulletin Board, where our common stock is listed under the trading symbol “CHGH”, does not have any director independence requirements. In determining whether our directors are independent, we refer to NASDAQ Stock Market Rule 4200(a)(15). Based on these widely-accepted criteria, we have determined that none of our directors are independent at this time.
No member of management is or will be required by us to work on a full time basis. Accordingly, certain conflicts of interest may arise between us and our officer(s) and director(s) in that they may have other business interests in the future to which they devote their attention, and they may be expected to continue to do so although management time must also be devoted to our business. As a result, conflicts of interest may arise that can be resolved only through their exercise of such judgment as is consistent with each officer's understanding of his/her fiduciary duties to us.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, New York Stock Exchange (NYSE), American Stock Exchange (AMEX), and NASDAQ Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the NASDAQ Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.
Because none of our directors is an independent director, we do not currently have independent audit or compensation committees. As a result, our directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive
officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.
Item 14.
Item 14. Principal Accounting Fees and Services
Audit Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the annual audit of our financial statements and review of financial statements included in our quarterly reports and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Given the small size of our Board of Directors, as well as the limited financial resources and minimal operations of the Company, our Board acts as our Audit Committee. Our Board pre-approves all audit and permissible non-audit services. These services may include audit services, audit-related services, tax services and other services. Our Board approves these services on a case-by-case basis.
PART IV
Item 15.
Item 15. Exhibits, Financial Statements Schedules
The following documents are filed as a part of this Annual Report:
(1)
Financial Statements
The financial statements required to be filed as part of this report are set forth in Item 8 of Part II of this Annual Report.
(2)
Financial Statement Schedules
All schedules are omitted for the reason that the information is included in the financial statements or the notes thereto or that they are not required or are not applicable.
(3)
Exhibits
* Incorporated by our Registration Statement on Form S-1/A filed October 12, 2010.
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
China Herb Group Holdings Corporation
(Registrant)
By:
/s/ Qiuping Lu
Qiuping Lu
President, Director, CEO, CFO
Date:
May 1, 2013