Merion, Inc. - Quarter Report: 2015 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended March 31, 2015

For the transition period from __________ to __________

Commission file number 333-184863

E-World USA Holding, Inc.

9550 Flair Dr, Suite 308

El Monte CA 91731

(626) 448-3737

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

N/A

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

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

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

As of December 14, 2016, there were 142,828,993 shares issued and outstanding of the registrant’s common stock.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

The accompanying notes are an integral part of these financial statements

The accompanying notes are an integral part of these financial statements

The accompanying notes are an integral part of these financial statements

E-WORLD USA HOLDING, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization

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

The Company is a provider of health and nutritional supplements and personal care products currently sold on the Internet through our website www.dailynu.com. In June 2014, we suspended our prior sales model which involved sales of our products through another website by means of a network of Direct Sales Associates, or “DSA’s”.

On October 20, 2014, the Company established a wholly owned subsidiary, E-World Canada Holding, Inc. for the purpose of acquiring a company in Canada.

Note 2 – Discontinued Operations

On October 20, 2014, the Company entered into a Share Purchase Agreement for the purchase of the outstanding shares Prime Nutrisource Inc., Nugale Pharmaceutical Inc., and Prime Nutrisource Inc. (New Jersey), and together “Prime”. Total purchase price included:

On April 21, 2015, the Company terminated its purchase of the Prime, and entered into a Termination and Release Agreement with each of the Prime, the former owners of the Prime , Guo Yin Xie, Jian Long, Hong Shu Zhu, 2434689 Ontario Inc., 2434691 Ontario Inc., and 2434694 Ontario Inc., and the Company’s subsidiary E-World Canada Holding, Inc. Upon termination of the agreement:

In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph ASC 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, committing to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.

Reconciliation of the carrying amounts of major classes of assets and liabilities of discontinued operations classified as held for sale in the consolidated balance sheet is as follows:

Reconciliation of the amounts of major classes of income and losses from discontinued operations in the consolidated statements of operations and comprehensive income (loss) is as follows:

The Company’s acquisition of Prime was accounted for as a business combination in accordance with ASC 805. The Company allocated the purchase price of Prime based upon the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date. Management determined the fair value of assets acquired, liabilities assumed and intangible assets identified, as of the acquisition date, and considered a number of factors including valuations from independent appraisers. Acquisition-related costs incurred for the acquisition were not material and were expensed as incurred in general and administrative expense. The valuation methodologies, all level 3 inputs were as follows:

The following table summarizes the fair value of the identifiable assets acquired and liabilities assumed on the acquisition date October 20, 2014, which represents the net purchase price allocation of Prime based on valuation performed by an independent appraisal firm engaged by the Company: 

The following table represents total consideration paid for the acquisition of Prime:

Valuation of the 25,000,000 exchangeable shares of the Company

The Company valued the 25,000,000 shares issued to acquire Prime using the following assumptions:

(1)   Discounted cash flow on a consolidated basis using the Capital Asset Pricing Model.

(2)   Percentage of ownership interest of the 25,000,000 exchangeable shares of the Company out of a total of 142,828,993 prior to the issuance of the 25,000,000 exchangeable shares.

(3)   Using a discount rate of 40% for low and 30% for high.

The Company has determined two valuations of the 25,000,000 exchangeable shares in one high and one low valuation and takes the midpoint of the valuation and recorded $3,117,311 in equity for the 25,000,000 exchangeable shares issued.

Valuation of the contingent shares

The Company valued the option to obtain 25% ownership of E-World using the following assumptions in a Binomial Tree model:

The Company has determined two valuations of the 25% pro-rated option in one high and one low valuation and takes the midpoint of the valuation at $481,938 and recorded the fair value of the contingent shares in the balance sheet.

Note 3 - Going Concern

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

Management is trying to alleviate the going concern by: securing various financing resources, including but not limited to, borrowing from major shareholders, and the possibility of raising funds through a future public offering.

Note 4 - Summary of Significant Accounting Policies

Basis of Presentation

These unaudited condensed financial statements have been presented by the Company in accordance with accounting principles generally accepted in the United States, are expressed in U.S. dollars and include the accounts of E-World USA Holding, Inc. and its subsidiaries, E-World Canada Holding, Inc., Prime Nutrisource Inc., Nugale Pharmaceutical Inc. and Prime Nutrisource Inc. (New Jersey). In the opinion of management, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of the financial statements have been included. Interim results are not necessarily indicative of results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with information included in the 2014 annual report on Form 10-K filed on October 3, 2016.

Principles of consolidation

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

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

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

Foreign Currency

The reporting currency of the Company is the U.S. dollar. The Company’s subsidiaries in Canada use the local currency, Canadian Dollars (“CAD$”), as their functional currency. Assets and liabilities are translated at the unified exchange rate as quoted by the Bank of New York at the end of the period. The statement of operations accounts are translated at the average translation rates and the equity accounts are translated at historical rates. Translation adjustments resulting from this process are included in accumulated other comprehensive income in the statement of change in deficit. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred.

The assets and liabilities of the Company’s subsidiaries in Canada at March 31, 2015 and December 31, 2014 were translated at 0.79 CAD$ and 0.86 CAD$, respectively, to 1.00 USD$. The equity accounts were stated at their historical rate. The average translation rate applied to statement of operations accounts for the three months ended March 31, 2015 was 0.81 CAD$. Cash flows are also translated at average translation rates for the periods, therefore, amounts reported on the statement of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheet.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant accounting estimates reflected in the Company’s consolidated financial statements include fair value of assets and liabilities acquired in a business combination, fair value of contingent liabilities, the useful lives of property and equipment, and collectability of receivables. Actual results could differ from those estimates.

Cash

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

Accounts Receivable

Trade accounts receivable are periodically evaluated for collectability based on credit history with customers and their current financial condition. Bad debt expense or write-offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions. During the three months ended March 31, 2015, the Company had allowance for doubtful accounts recovery of $1,274. There were no write-offs during the three months ended March 31, 2014. The accounts receivable balance and allowance for doubtful accounts are as follows:

Inventory

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

Property and Equipment

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

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

Impairment of Long-Lived Assets

Long-lived assets, including, property and equipment and intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying value of an asset may not be recoverable. The Company assesses the recoverability of the assets based on the undiscounted future cash flows the assets are expected to generate and recognizes an impairment loss when estimated discounted future cash flows expected to result from the use of the asset plus net proceeds expected from disposition of the asset, if any, are less than the carrying value of the asset. When the Company identifies an impairment, the Company reduces the carrying amount of the asset to its estimated fair value based on a discounted cash flows approach or, when available and appropriate, to comparable market values. As of March 31, 2015 and December 31, 2014, no impairment of long-lived assets was recognized.

Fair Value of Financial Instruments

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

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

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

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of March 31, 2015 and December 31, 2014:

The following is a reconciliation of the beginning and ending balance of the assets and liabilities measured at fair value on a recurring basis in operations disposed for the three months ended March 31, 2015 and year ended December 31, 2014:

Revenue Recognition

The Company recognizes revenue when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations of the Company exist and collectability is reasonably assured. The Company generally receives the net sales price in cash or through credit card payments when products are ordered. When the Company has sales events whereby the sales are non-returnable or non-refundable, the revenue is recognized when products are shipped. Advance payments from customers are deferred and revenue is recognized when products are shipped. Deferred revenue for customer deposits as of March 31, 2015 and December 31, 2014 was $1,494,007 and $1,617,369 respectively.

Our service revenue includes shipping and handling fees. Shipping and handling fee revenue is recognized when products have been delivered.

Product returns are allowed for unopened products purchased under regular sales terms within 60 days. Allowances for product returns are provided at the time the sale is recorded using historic return rates for each country and the relevant return pattern. Historically the Company has a nearly zero return rate. Hence, the allowance as of March 31, 2015 and December 31, 2014 are estimated at $0.

In addition to the Company’s 60-day return policy, the Company, at its discretion, may accept a customer’s application for a buy-back of products previously sold within one year at 90% of the original product costs less commissions and shipping costs. The Company implemented its buy-back policy on January 1, 2012. To date, the Company has not received any buy-back applications. As a result, no allowance for buy-backs has been recorded as of March 31, 2015 and December 31, 2014.

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

Shipping and Handling Expenses

Shipping and handling costs paid by the Company are included in selling expenses, and totaled $10,806 and $58,564 for the three months ended March 31, 2015 and 2014, respectively.

Bonus Expense

Prior to June 1, 2014, the Company offered a network membership to individuals interested in selling E-World products. Members could earn bonuses, similar to commissions, based on retail sales volume of certain other downline members referred by the member. Bonus expenses were accrued in the period in which the member met the qualifications to receive the related benefits. Bonuses were redeemed by members in cash, either by withdrawal or by applying their cash balance against future product purchases. As bonus expenses result in cash payments to our customers, we net these expenses with revenue in accordance with ASC 605-50-45-2. Bonus expenses netted with revenue for the three months ended March 31, 2014 were $1,328,943. In June 2014, the Company ceased utilizing its membership network to sell its products.

Operating Leases

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

Income Taxes

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

Basic and Diluted Earnings Per Share

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

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

For three months ended March 31, 2015, contingent shares did not have a dilutive effect on loss per share as the Company had incurred a loss for the period. For three months ended March 31, 2014, the potential dilutive effect on earnings per share reflected Type A and Type B Warrants in total shares of 25,787,796. Diluted earnings per share was $0.02, compared to $0.01 basic earnings per share.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation (FDIC) insured limits for the banks located in the United States, may exceed Canada Deposit Insurance Corporation (CDIC) insured limits for the banks located in Canada or may exceed Hong Kong Deposit Protection Board (HKDPB) insured limits for the banks located in Hong Kong. Balances at financial institutions or state-owned banks within the PRC are not covered by insurance. At March 31, 2015, the bank balance of the Company consisted of $254,101 in the United States and $63,245 in Hong Kong and these balance are all insured by FDIC or HKDPB. At December 31, 2014, the bank balance of the Company consisted of $312,054 in the United States and $2,895 in Hong Kong and these balance are all insured by FDIC or HKDPB.

The Company requires pre-payments for its sales, which eliminates the exposure to credit risks arising from its customers.

No customer accounted for more than 10% of our sales during the three months ended March 31, 2015 and 2014.

During the three months ended March 31, 2015, one supplier accounted for approximately 83% of product purchases and during the three months ended March 31, 2014, two suppliers accounted for approximately 87% of product purchases.

Contingencies

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

Related Parties

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

New Accounting Pronouncements

In January 2015, FASB issued Accounting Standards Update (“ASU”) No. 2015-01, Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This Update is issued as part of its initiative to reduce complexity in accounting standards (the Simplification Initiative). The objective of the Simplification Initiative is to identify, evaluate, and improve areas of generally accepted accounting principles (GAAP) for which cost and complexity can be reduced while maintaining or improving the usefulness of the information provided to the users of financial statements. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The effective date is the same for both public business entities and all other entities. The Company does not expect the adoption of ASU 2015-01 to have a material impact on the Company’s unaudited condensed consolidated financial statements.

In April 2015, the FASB issued authoritative guidance on accounting for Interest-Imputation of Interest (Subtopic 835-30); Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). This update requires that debt issuance cost related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts, without changing existing recognition and measurement guidance for debt issuance costs. The new guidance is required to be applied on a retrospective basis and to be accounted for as a change in an accounting principle. The amendments in this update are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years and early adoption of the amendments in this update is permitted. The Company does not expect the adoption of ASU 2015-03 to have a material impact on the Company’s unaudited condensed consolidated financial statements.

In July 2015, the FASB issued ASU No. 2015-11, an amendment to ASC 330 for simplifying the measurement of inventory. The update requires that inventory be measured at the lower of cost and net realizable value where net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendment is intended to provide clarification on the measurement and disclosure of inventory in ASC 330 and not intended for those clarifications to result in any changes in practice. The ASU is effective for interim and annual periods beginning after December 15, 2016. Early application is permitted for all entities and should be applied prospectively. The Company does not expect the adoption of ASU 2015-11 to have material impact on the Company’s unaudited condensed consolidated financial statements.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, to defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company does not expect the adoption of ASU 2015-11 to have material impact on the Company’s unaudited condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 Amendments to the ASC 842 Leases. This update requires lessee to recognize the assets and liability (the lease liability) arising from operating leases on the balance sheet for the lease term. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Within a twelve months or less lease term, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. If a lessee makes this election, it should recognize lease expense on a straight-line basis over the lease term. In transition, this update will be effective for public entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company does not expect the adoption of ASU 2015-11 to have material impact on the Company’s unaudited condensed consolidated financial statements.

In March 2016, the FASB issued ASU 2016-07 Investments-Equity and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. The objective is to simplify investor’s accounting for equity method investments as a result of an increase in ownership level or degree of influence over the investee from prior period and requires prospective application of equity method accounting from the date when an equity investment qualifies for equity method of accounting. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. The Company does not expect the adoption of ASU 2016-07 to have a material impact on the Company’s unaudited condensed consolidated financial statements.

In March 2016, 2016-08—Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). The object is to reduce the potential for diversity in practice arising from inconsistent application of the principal versus agent guidance and to reduce the cost and complexity of applying Topic 606 both at transition and on an ongoing basis. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company does not expect the adoption of ASU 2015-11 to have material impact on the Company’s unaudited condensed consolidated financial statements.

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

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (ASC 606): Identifying Performance Obligations and Licensing. The objective is to clarify the two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for these areas. The ASU affects the guidance in ASU 2014-09, Revenue from Contracts with Customers (ASC 606), which is not yet effective. The effective date and transition requirements for this ASU are the same as the effective date and transition requirements in ASC 606 (and any other Topic amended by ASU 2014-09). ASU 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, defers the effective date of ASU 2014-09 by one year. The Company does not expect the adoption of ASU 2015-11 to have material impact on the Company’s unaudited condensed consolidated financial statements.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients. The object is to address certain issues identified by the FASB-IASB Joint Transition Resource Group for Revenue Recognition. The amendments in this Update affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (ASC 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for ASC 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (ASC 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company does not expect the adoption of ASU 2015-11 to have material impact on the Company’s unaudited condensed consolidated financial statements.

In August 2016, the FASB has ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on the following eight specific cash flow issues: (1) Debt Prepayment or Debt Extinguishment Costs; (2) Settlement of Zero-Coupon Debt Instruments or Other Debt Instruments with Coupon Interest Rates That Are Insignificant in Relation to the Effective Interest Rate of the Borrowing; (3) Contingent Consideration Payments Made after a Business Combination; (4) Proceeds from the Settlement of Insurance Claims; (5) Proceeds from the Settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned; (6) Life Insurance Policies; (7) Distributions Received from Equity Method Investees; (8) Beneficial Interests in Securitization Transactions; and Separately Identifiable Cash Flows and Application of the Predominance Principle. The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The amendments should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is evaluating the effect, if any, on the Company’s unaudited condensed consolidated financial statements.

Note 5 – Rescission Liability – Type A & B Warrants

Type A Warrants

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

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

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

Our Type A Warrants may have been issued and exercised in violation of United States federal securities laws. As a result, the common stock issued upon exercise of these warrants during fiscal 2012 may not be valid. We recorded the fair value of these warrants as a liability on the date of issuance (“Rescission Liabilities--Type A Warrants”). The value of the Rescission Liabilities--Type A Warrants was determined by calculating the maximum potential cash outlay if all warrant holders exercised using option 3 above. The total fair value was determined by calculating how much each warrant holder would receive in cash if they exercised the warrant by canceling their membership and receiving 75% of the face value of their warrant in cash and then adding these amounts together to reach the total potential cash outlay. The face value of the warrant is the stated value assigned to each Type A warrant. The face value determines how much the member could receive if exercised for cash and a canceled membership. If members exercise their warrants for cash, the Company reduces the liability by the amount of cash paid. If members exercise their warrants for products, the Company recognizes revenue equal to the retail value of the related products once they have been delivered. During 2014, the Company refunded $2,250, and members returned 9,300 Type A warrant shares. As of March 31, 2015 and December 31, 2014, 23,206,888 shares are included in Rescission Liabilities--Type A Warrants and totaled $7,165,413 as of March 31, 2015 and December 31, 2014.

Type B Warrants

During 2009 and 2010, the Company issued a total of 2,491,108 Type B warrants as sales incentive compensation to members. Type B warrants entitle the holders to receive 2,491,108 common shares upon a going public event in the U.S. as specified in the Warrant. No additional consideration for the common shares is required upon exercise. During 2012, all of the Company’s Type B Warrants were exercised for shares of common stock. Type B Warrants may have been issued and exercised in violation of United States federal securities laws. As a result, the common stock issued upon exercise of these warrants may not be valid; therefore, we recorded “Rescission Liabilities – Type B Warrants” at the fair value of the shares issued upon exercise of these warrants. The fair value of the common shares was estimated using comparable sales of common stock to members. The Company determined the comparable sales of stock is more reliable as the fair value because goods or services received cannot be reliably measured. The fair value on the date of issuance was $1,245,555. The fair value of the Type B warrants as of March 31, 2015 and December 31, 2014 was $249,111.

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

Note 6 – Impairment Expenses

On May 26, 2015, the Company concluded that a material charge for impairment was required under generally accepted accounting principles. The impaired assets were approximately $3,643,000 in bank accounts in the People’s Republic of China. For administrative reasons, the accounts were held and relate to cash deposited in the name of Mr. Dinghua Wang, President and Chief Executive Officer of the Company. These accounts have been frozen by authorities in the Chinese legal system (the “Frozen Accounts”) in a case involving alleged illegal activities in China by one or more persons claiming to be officers in the Company. The Chinese legal authorities asserted that these activities gave them the right to freeze the accounts. Although the Company believes that the funds in the Frozen Accounts were improperly frozen and that ultimately the funds in the Frozen Accounts will be made available to the Company, under the current factual situation, there is a material uncertainty as to both if and when the Frozen Accounts will be recovered by the Company. Accordingly, the Board of Directors agreed to recognize the impairment in 2014. The Company does not believe this impairment charge that will result in future cash expenditures.

According to the Official Indictment number 2014-133 issued to Mr. Charlie Leung by the District Attorney’s office of ZhuShan County, HuBei Province on November 10, 2014, the district attorney stated that E-World USA Holding, Inc. had not obtained a direct sales license in the PRC. According to the Indictment, Mr. Wang sent Mr. Leung to China as Senior VP of China operations to develop business. Mr. Leung developed a program to award bonuses to members for 1. Achieving sales targets, and 2. Developing new members. This was considered by China Regulatory Authorities to be pyramid sale activities in China which did not comply with what was asserted to be applicable China Law. As a result of the indictment, in May 2014, E-World discontinued its DSA sales model in China and elsewhere and now sells only through its website. The indictment was issued and mentioned that Mr. Wang will be treated in a separate case. As of the date of this report, the Company is not aware of a separate case having been filed against Mr. Wang. The balance in the Frozen Accounts totaled of RMB 22,848,737, or $3,643,000, all of which was impaired.

Note 7 – Inventory

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

For the three months ended March 31, 2015, the Company recorded a recovery of prior allowance totaling ($609). For the three months ended March 31, 2014, the Company recorded valuation allowance of $50,566 due to slow inventory movement and upcoming product expiration dates.

Note 8 - Property and Equipment

Property and equipment consist of following:

Depreciation expense totaled $8,518 and $12,256 for the three months ended March 31, 2015 and 2014, respectively.

Note 9 – Debt

Long term loan

In June 2012, the Company purchased a new vehicle by trading in the old vehicle with a loan on the purchase. The vehicle was purchased for $179,678. The loan amount was $141,677, with interest of 4.84% to be repaid over 60 even payments of $2,663. During the three months ended March 31, 2015 and 2014, the Company paid $7,813 and $9,051 for the loan, respectively. Future maturities of long term debt are as follows:

In December 2015, the Company paid off this debt with proceeds from a new loan balance of $51,263 with annual interest rate of 2.99% to be repaid over 48 months.

Promissory note

On October 24, 2014, the Company entered into a Share Purchase Agreement to purchase the outstanding shares in Prime Nutrisource Inc., Nugale Pharmaceutical Inc., and Prime Nutrisource Inc. (New Jersey) which included a CAD$22.78 million (approximately $20.2 million) promissory note.

This short term debt bears no interest and matures upon the earlier of (a) the effective date of a registration statement filed with the Securities and Exchange Commission in connection the completion by the Company of a $30,000,000 debt or equity offering or (b) March 31, 2015. The Company recorded $1,772,633 as discount on the note. The discount is amortized over the life of the promissory note.

The Company amortized $886,317 of the discount for the three months ended March 31, 2015. As of March 31, 2015, the promissory note amounted to $20,004,345, net of discount of $196,959. As of December 31, 2014, the promissory note amounted to $19,118,028, net of discount of $1,083,276.

In April 2015, the Company terminated its purchase of Prime, and the promissory note was cancelled. See Note 2 and Note 13.

Note 10 - Income Taxes

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended March 31, 2015:

The Company uses the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $7,703,000 for Federal and $6,738,000 for California as of March 31, 2015, and will expire in the years 2030 to 2035. The accumulated net operating loss carry forward is approximately $5,900,000 for Federal and $4,935,000 for California as of December 31, 2014. During the year ended December 31, 2014 and the three months ended March 31, 2015, the Company incurred a net loss. As deferred tax assets may not be fully realizable due to potential recurring losses, Management has provided 100% valuation allowance for the deferred tax assets.

As of March 31, 2015 and December 31, 2014, the valuation allowance was approximately $3,012,000 and $2,294,000, respectively.

The movement of deferred tax assets is as follows:

As of March 31, 2015 and December 31, 2014, federal tax returns filed for 2012, 2013 and 2014 remain subject to examination by the taxing authorities. As of March 31, 2015 and December 31, 2014, California tax returns filed for 2011, 2012, 2013 and 2014 remain subject to examination by the taxing authorities.

Note 11 - Related Party Transactions

Due to shareholder

From time to time, Mr. Dinghua Wang, the CEO of the Company advances monies to, as well as borrows money from, the Company. Such business transactions are recorded as due to or from shareholder. During the three months ended March 31, 2015 and 2014, advances totaled $1,096,810 and $138, respectively and payment to shareholder totaled $34,907 and $10,402, respectively. As of March 31, 2015 and December 31, 2014, the balance due to shareholder amounted to $3,209,052 and $2,147,149, respectively. This balance does not bear interest, is unsecured and is due on demand.

Advances from related parties

Prior to 2014, the Company borrowed money from certain related parties to fund operations. The related parties consist of the CEO's immediate family members and relatives. These advances do not bear interest, are unsecured and are due on demand. As of March 31, 2015 and December 31, 2014, the Company owed $298,562 to these related parties.

Note 12 - Commitments

Operating lease

The Company rents office and warehouse spaces for its main corporate office on a month to month basis without future commitment. The Company incurred rent expense of $35,150 and $44,743 for the three months ended March 31, 2015 and 2014, respectively.

Note 13 – Subsequent event

On April 21, 2015, the Company terminated its purchase of Prime because it was unable to complete the offering contemplated in the Share Exchange Agreement and therefore, was unable to repay the $20,201,304 promissory note. The Company entered into a Termination and Release Agreement with each of the former owners of the Prime: Guo Yin Xie, Jian Long, Hong Shu Zhu, 2434689 Ontario Inc., 2434691 Ontario Inc., and 2434694 Ontario Inc. The effective date of the termination for US GAAP purposes under ASC 810-10-40 was April 21, 2015. As such, all assets acquired and liabilities assumed have been presented as assets and liabilities held for sale in the December 31, 2014 financial statement. Upon termination of the agreement:

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

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

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

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

NOTICE TO INVESTORS:

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

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

As noted in “Legal Proceedings” below, the Company suffered significant financial hardship as a result of the Chinese government’s action against E-World’s sales activities under its previous DSA marketing program, now discontinued, which the government alleged violated Chinese law. These hardships include the loss of $3,643,000 in cash that is the property of the Company that is now held in bank accounts in the People’s Republic of China and, to a material extent, a decrease in E-World’s annual revenue from $6,833,768 for the fiscal year ended December 31, 2014 to $367,393 (unaudited) for the fiscal year ended December 31, 2015.

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

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

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

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

Overview

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

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

Marketing: The Affiliate Marketing Program (“AMP”)

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

In addition, we believe e-commerce for online ordering has become more popular and that consumers have become more confident in ordering products, like ours, over the Internet. However, the nutritional supplement and skin care product e-business markets have been competitive and are rapidly evolving.

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

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

Our products are sensitive to business and personal discretionary spending levels and tend to decline or grow more slowly during economic downturns, including downturns in any of our major markets.

The global economy is currently undergoing a period of volatility, and the future economic environment, while improving, continues to remain uncertain. This has led, and could further lead, to reduced consumer spending, and which may include spending on nutritional and beauty products and other discretionary items, such as our products. In addition, reduced consumer spending may force us and our competitors to lower prices. These conditions may adversely affect our revenues and profits.

Discontinued operations

On October 20, 2014, we entered into a Share Purchase Agreement for the purchase of the outstanding shares Prime Nutrisource Inc., Nugale Pharmaceutical Inc., and Prime Nutrisource Inc. (New Jersey), and together as “Prime”. Total purchase price included:

On April 21, 2015, we terminated our purchase of the Prime Corporations, and entered into a Termination and Release Agreement with each of the Prime Corporations, the former owners of the Prime Corporations, Guo Yin Xie, Jian Long, Hong Shu Zhu, 2434689 Ontario Inc., 2434691 Ontario Inc., and 2434694 Ontario Inc., and the Company’s subsidiary E-World Canada Holding, Inc.. The parties agreed that the Termination Agreement would be deemed effective as of October 20, 2014. Upon termination of the agreement:

In accordance with ASU No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.

Results of Operations

Comparison of the three months ended March 31, 2015 and 2014

Total sales decreased by $3,683,023 or 94% from approximately $3,933,827 in 2014 to $250,804 in 2015. The decrease of sales was mainly due to termination of our prior sales model which involved sales of our product through another website by means of a network of Direct Sales Associates, or “DSA’s” in June 2014. Since June 2014, we have mainly sold our products over the Internet directly to end-user customers. As a result, the change in sales approach has materially decreased sales of the Company.

The cost of sales decreased by $146,615 or 39% from $376,941 in 2014 to $230,326 in 2015. The decrease was mainly due to the decreases in sales as we ceased utilizing our prior sales model in June 2014 which involved sales of our product through another website by means of DSA’s.

Gross profit percentage is generally higher with the sales of our own products and with the DSA model than selling our products over the Internet directly to end-user customers. As a result, from ceasing to utilize our prior sales model which involved sales of our product through another website by means of the DSA model in June 2014, our gross margin decreased from approximately $3,556,886 or 90% in 2014 to $20,478 or 8% in 2015.

Selling expenses decreased from $153,796 in 2014 to $124,801 in 2015. The decrease of $28,995 or 19% was mainly due to a decrease in marketing development expenses incurred for promotion of our DSA sales network.

General and administrative expenses increased by $453,891 from $482,145 in 2014 to $936,036 in 2015. General and administrative expenses increased significantly due to the acquisition of Prime, primarily for professional fees incurred for attorneys, consulting and auditing expenses.

Finance expense totaled $887,110 in 2015 mainly due to the short term debt issued to acquire Prime as compared to $1,603 in 2014. The note was non-interest bearing and therefore was discounted. Amortization of the discount totaled $886,317.

Net income (loss) from continuing operations decreased by $4,843,073 from $2,907,086 net income in 2014 to $1,935,987 net loss in 2015 mainly due to the increase of general administrative expenses and financial expenses and decreased in sales as mentioned above.

Net loss from discontinued operations totaled $102,288 in 2015 due to the acquisition of Prime on October 20, 2014, which we terminated on April 21, 2015.

Liquidity and Capital Resources

As of March 31, 2015, we had a cash balance of $296,299 and $317,346 at December 31, 2014. Our cash balance at March 31, 2015 and December 31, 2014 was significantly impacted by the inability to access approximately $3,643,000 in cash held in bank accounts in the People’s Republic of China.

For the three months ended March 31, 2015, cash used in operating activities amounted to approximately $0.2 million as compared to approximately $52,000 used in operating activities in the same period ended 2014. Cash used in operating activities was mainly due to approximately $1.9 million of net loss from the Company and the decrease of approximately $0.1 million of deferred revenue, offset by net cash provided by operating activities from discontinued operations of approximately $0.9 million, the decrease of inventory of approximately $0.1 million as we are anticipating a weaker sales for the remainder of 2015 and net of approximately $0.9 million of non-cash operating activities.

For the three months ended March 31, 2015, cash used in investing activities amounted to approximately $66,000. Cash used in investing was mainly due to Prime purchasing equipment for its operations.

For the three months ended March 31, 2015, financing activities provided approximately $1.0 million as compared to the same period in 2014 when we used approximately $22,000 to repay related parties and shareholder advances. Cash received in the three months ended March 31, 2005 for the amount of $1.1 million was from our principal shareholder and Chief Executive Officer.

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

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

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) at March 31, 2015 based on the evaluation of these controls and procedures required by paragraph (b) of Rule 13a-15 or Rule 15d-15 under the Exchange Act. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer/Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer/Chief Financial Officer concluded that, at March 31, 2015, our disclosure controls and procedures are not effective.

Changes in Internal Control over Financial Reporting

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

PART II — OTHER INFORMATION

We are not a party to any material legal proceedings nor are we aware of any circumstance that may reasonably lead any third party to initiate material legal proceedings against us, except with respect to the matter described below.

Notwithstanding the foregoing, on May 26, 2015, the Board of Directors concluded that a material charge for impairment to one of its assets is required under generally accepted accounting principles. The impaired assets are approximately $3,643,000 in cash that is the property of the Company held in bank accounts in the People’s Republic of China, which for administrative reasons in China, were held in the name of Ding Hua Wang, President and Chief Executive Officer of the Company, that have been frozen by authorities in the Chinese legal system (the “Frozen Accounts”) in a case involving alleged illegal activities in China by one or more persons claiming to be officers in the Company in China. The Chinese legal authorities asserted that these activities gave them the right to freeze property of the Company in China, (i.e., the Frozen Accounts), notwithstanding the fact that Company itself was not named in the case. Although the Company believes that the funds in the Frozen Accounts were improperly frozen and is hopeful that ultimately the funds in the Frozen Accounts will be made available to the Company, the Company realizes that under the current factual situation, there is a material uncertainty as to both if and when the Frozen Accounts will in fact be recovered by the Company, and accordingly, the Board of Directors recognized an impairment of this amount in the financial statements filed in this Report. A copy of the Chinese complaint filed in the case is filed as an exhibit to this Form 10-K.

On February 6, 2016, our President and Chief Executive Officer of the Company has filed a complaint to the Commission for discipline inspection of the Central Committee of the Communist Party of China and is in the process of trying to recover the Frozen Accounts. No assurance can be provided that the complaint will be successful or that the frozen funds will ever be released to Mr. Wang or the Company.

(a) Unregistered Sales of Equity Securities.

None.

(b) Use of Proceeds.

The Registrant did not sell any unregistered securities during the three months ended March 31, 2015.

None.

Not applicable.

Not applicable.

(a) Exhibits.

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

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

SIGNATURE

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

E-World USA Holding, Inc.

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

EXHIBIT INDEX

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

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