10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2019

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

For the transition period from ___________ to ___________

Commission file number 333-173681

Merion, Inc.

(Name of small business issuer in its charter)

Nevada	5122	45-2898504
(State or Other Jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
Incorporation or Organization)	Classification Code Number)	Identification No.)

100 N. Barranca St. #1000 West Covina, CA	91791
(Address of principal executive offices)	(Zip Code)

100 N. Barranca St. #1000

West Covina, CA 91791

(626) 331-7570

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

None.

(Former name, former address and former fiscal year, 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 x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).  Yes x No ¨

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

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	x	Smaller reporting company	x
(Do not check if a smaller reporting company)		Emerging growth company	¨

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

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	N/A	N/A

As of September 6, 2019, there were 177,264,208 issued and outstanding shares of the registrant’s common stock.

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
Item 2.	Management’s Discussion and Analysis or Plan of Operation	20
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	26
Item 4.	Controls and Procedures	26
PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 6.	Exhibits	28

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

MERION, INC.

CONDENSED BALANCE SHEETS

	June 30			December 31,
	2019			2018
	(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash	$	767		$	295,521
Accounts receivable, net		49,414			673
Inventories		161,974			50,339
Prepaid expenses		18,598			69,631
TOTAL CURRENT ASSETS		230,753			416,164
PROPERTY AND EQUIPMENT, net		357,331			390,692
RIGHT-OF-USE ASSET		579,024			-
DEPOSITS		15,410			-
TOTAL ASSETS	$	1,182,518		$	806,856
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses	$	1,395,017		$	1,173,546
Deferred revenue		7,436			1,522,280
Accrued bonus		28			679,800
Lease liabilities - current		96,211			-
Due to shareholder, interest bearing		471,603			471,603
Due to shareholder, non-interest bearing		588,863			2,508,051
Advances from related parties, interest bearing		-			30,000
Advances from related parties, non-interest bearing		-			518,839
Due to employee		-			95,000
Due to third parties, interest bearing		-			109,030
Due to third parties, non-interest bearing		-			101,666
TOTAL CURRENT LIABILITIES		2,559,158			7,209,815
NON-CURRENT LIABILITIES:
Lease liabilities - non-current		476,545			-
Due to shareholder, non-interest bearing		2,000,000			-
Advances from related parties, interest bearing		30,000			-
Advances from related parties, non-interest bearing		518,839			-
Due to employee		95,000			-
Due to third parties, interest bearing		20,000			-
Due to third parties, non-interest bearing		50,000			-
TOTAL NON-CURRENT LIABILITIES		3,190,384			-
TOTAL LIABILITIES		5,749,542			7,209,815
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, $0.001 par value, 200,000,000 shares authorized,
177,264,208 and 174,792,364 shares issued and outstanding,
as of June 30, 2019 and December 31, 2018, respectively		177,264			174,792
Stock subscription receivable		(1,110,695	)		(1,200,000	)
Additional paid-in capital		19,054,535			17,573,900
Deferred stock compensation		(1,029,793	)		(738,185	)
Deficit		(21,658,335	)		(22,213,466	)
TOTAL SHAREHOLDERS' DEFICIT		(4,567,024	)		(6,402,959	)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	1,182,518		$	806,856

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

3

MERION, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(UNAUDITED)
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2019			2018			2019			2018
SALES
Direct Sales	$	1,359,018		$	130,946		$	1,472,347		$	160,129
OEM and Packaging		118,631			15,963			153,679			51,488
TOTAL SALES		1,477,649			146,909			1,626,026			211,617
COST OF SALES
Direct Sales		32,570			22,027			44,552			36,791
OEM and Packaging		41,607			3,615			69,986			16,029
Idle Capacity		-			75,342			-			133,109
TOTAL COST OF SALES		74,177			100,984			114,538			185,929
GROSS PROFIT		1,403,472			45,925			1,511,488			25,688
OPERATING EXPENSES
Selling expenses		15,552			25,915			39,470			257,816
General and administrative expenses		352,239			312,363			742,660			675,231
Stock compensation expense		-			44,000			-			524,000
Amortization of deferred stock compensation cost		253,650			-			428,392			-
Total operating expenses		621,441			382,278			1,210,522			1,457,047
INCOME (LOSS) FROM OPERATIONS		782,031			(336,353	)		300,966			(1,431,359	)
OTHER INCOME (EXPENSE), net
Other income (expense)		11,346			28,764			44,187			102,083
Finance expenses		(16,122	)		(18,221	)		(31,448	)		(36,298	)
Gain on debt settlement		-			-			241,426			-
Total other (expense) income, net		(4,776	)		10,543			254,165			65,785
INCOME (LOSS) BEFORE INCOME TAXES		777,255			(325,810	)		555,131			(1,365,574	)
PROVISION FOR INCOME TAXES		-			-			-			-
NET INCOME (LOSS)	$	777,255		$	(325,810	)	$	555,131		$	(1,365,574	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Basic		177,251,571			171,610,812			176,158,993			170,631,039
Diluted		178,291,586			171,610,812			177,451,005			170,631,039
INCOME (LOSS) PER SHARE
Basic	$	0.00		$	(0.00	)	$	0.00		$	(0.01	)
Diluted	$	0.00		$	(0.00	)	$	0.00		$	(0.01	)

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

4

MERION, INC.

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT

	For the Six Months Ended June 30, 2018
	Common Stock						Stock			Additional			Deferred
							Subscription			Paid-in			Stock
	Shares			Amount			Receivable			Capital			Compensation			Deficit			Total
BALANCE, January 1, 2018		169,161,896		$	169,162		$	(123,455	)	$	11,870,808		$	-		$	(19,066,648	)	$	(7,150,133	)
Net loss		-			-			-			-			-			(1,039,764	)		(1,039,764	)
Issuance of common stock for cash		759,563			760			(57,709	)		682,838			-			-			625,889
Issuance of common stock for purchase of machinery and intangible assets		1,000,000			1,000			-			319,000			-			-			320,000
Cancellation of stock subscription		(111,110	)		(111	)		100,000			(99,889	)		-			-			-
Collection of stock subscription		-			-			23,455			-			-			-			23,455
Transfer of common stock from major shareholder for services		-			-			-			480,000			-			-			480,000
BALANCE, March 31, 2018 (Unaudited)		170,810,349		$	170,811		$	(57,709	)	$	13,252,757		$	-		$	(20,106,412	)		(6,740,553	)
Net loss		-			-			-			-			-			(325,810	)		(325,810	)
Issuance of common stock for cash		715,011			714			-			642,786			-			-			643,500
Issuance of common stock for financing related services		46,668			47			-			(47	)		-			-			-
Issuance of common stock for debt settlement		400,000			400			-			359,600			-			-			360,000
Issuance of common stock for consulting services		200,000			200			-			43,800			-			-			44,000
Collection of stock subscription		-			-			57,709			-			-			-			57,709
BALANCE, June 30, 2018 (Unaudited)		172,172,028		$	172,172		$	-		$	14,298,896		$	-		$	(20,432,222	)	$	(5,961,154	)
	For the Six Months Ended June 30, 2019
							Stock			Additional			Deferred
	Common Stock						Subscription			Paid-in			Stock
	Shares			Amount			Receivable			Capital			Compensation			Deficit			Total
BALANCE, January 1, 2019		174,792,364		$	174,792		$	(1,200,000	)	$	17,573,900		$	(738,185	)	$	(22,213,466	)	$	(6,402,959	)
Net loss		-			-			-			-			-			(222,124	)		(222,124	)
Issuance of common stock for consulting services		1,150,000			1,150			-			1,078,850			(1,080,000	)		-			-
Amortization of deferred stock compensation		-			-			-			-			174,742			-			174,742
Issuance of common stock for debt settlement		1,271,844			1,272			-			761,835			-			-			763,107
Collection of stock subscription		-			-			62,500			-			-			-			62,500
BALANCE, March 31, 2019 (Unaudited)		177,214,208			177,214			(1,137,500	)		19,414,585			(1,643,443	)		(22,435,590	)		(5,624,734	)
Net income		-			-			-			-			-			777,255			777,255
Issuance of common stock for consulting services		50,000			50			-			(50	)		-			-			-
Cancellation of common stock for consulting services		-			-			-			(360,000	)		360,000			-			-
Amortization of deferred stock compensation		-			-			-			-			253,650			-			253,650
Collection of stock subscription		-			-			26,805			-			-			-			26,805
BALANCE, June 30, 2019 (Unaudited)		177,264,208		$	177,264		$	(1,110,695	)	$	19,054,535		$	(1,029,793	)	$	(21,658,335	)	$	(4,567,024	)

 

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

5

MERION, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

	For the Six Months Ended June 30,
	2019			2018
Cash Flows from Operating Activities:
Net income (loss)	$	555,131		$	(1,365,574	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		33,361			81,056
Stock compensation expense		-			524,000
Gain on debt settlement		(241,426	)		-
Amortization of deferred stock compensation		428,392			-
Amortization of right-of-use asset		46,382			-
Bad debt expense		11,134			23,418
Changes in operating assets and liabilities
Accounts receivable		(59,875	)		4,028
Inventories		(111,635	)		17,304
Prepaid expenses		51,033			(13,399	)
Deposits and other assets		(15,410	)		-
Accounts payable and accrued expenses		329,334			(78,167	)
Deferred revenue		(1,418,976	)		(127,903	)
Lease liabilities		(52,650	)		-
Net Cash Used in Operating Activities		(445,205	)		(935,237	)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock and stock subscription		89,305			1,350,553
Advances from shareholder, non-interest bearing		142,860			62,316
Repayment of shareholder loan, non-interest bearing		(62,048	)		(211,025	)
Repayment of advances from third parties, non-interest bearing		(19,666	)		(239,318	)
Principal payments of debt		-			(6,468	)
Net Cash Provided by Financing Activities		150,451			956,058
Net Change in Cash		(294,754	)		20,821
Cash, beginning of period		295,521			5,038
Cash, end of period	$	767		$	25,859
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	-		$	31,566
Cash paid for income tax	$	-		$	-
	.
Non-cash transactions of investing and financing activities
Purchase of machinery and intangible assets	$	-		$	1,000,000
Stock issued for purchase of machinery and intangible assets	$	-		$	320,000
Stock issued for debt settlement	$	763,107		$	360,000
Stock issued on deferred stock compensation	$	720,000		$	-
Initial recognition of right-of-use assets and lease liabilities	$	618,226		$	-

 

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

6

MERION, INC.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

Note 1 – Organization

Merion, Inc. (the “Company”), a Nevada corporation, was formed on February 4, 2011. Its predecessor, E-World USA Holding, Inc., was a California company incorporated in 2007 (“E-World CA”). In April 2011, E-World CA entered into a merger agreement with its wholly-owned subsidiary, E-World USA Holding, Inc., a Nevada corporation (“E-World NV”) that was the survivor of the merger and became the Company. Under the Merger Agreement, the Company issued 90,000,000 shares of its common stock on a one for one basis for each share of E-World CA’s common stock issued and outstanding at the date of the merger. In addition, the Company issued Type A Warrants and Type B Warrants in exchange for comparable warrants issued and outstanding of E-World CA at the date of the merger. On June 27, 2017, the Company filed an amendment to its Articles of Incorporation with the Secretary of State for the State of Nevada to change its name from E-World NV to Merion, Inc.

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

On January 1, 2018, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation, (the “Seller”), pursuant to which the Seller agreed to sell to the Company substantially all of the assets associated with the manufacture of dietary supplements (the “Asset Sale”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 1,000,000 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. The Company has evaluated this transaction to determine whether it is considered to be an asset purchase or business purchase and concluded such transaction was an asset purchase in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) section 805-10-55.

The Seller was one of our major suppliers during the years ended December 31, 2017 and 2016. These assets meet all industry nutritional and dietary supplement manufacturing standards, including U.S. Food and Drug Administration and Good Manufacturing Practice compliance and Current Good Manufacturing Practice regulations. In addition to manufacturing the nutritional supplements that it sells, the Company also began production of hard capsules, tablets, solid beverage (sachet packaging), teabags, powder, granules, dietary supplements for export, softgel capsules and health food from these assets for any potential new customers who need these products, similar to our Original Equipment Manufacturer (“OEM”) business. In May 2018, the Company began manufacturing certain of the nutritional supplements that it sells.

Note 2 – Going Concern

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

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

Note 3 – Summary of Significant Accounting Policies

Basis of Presentation

These unaudited condensed financial statements have been presented by the Company in accordance with the accounting principles generally accepted in the United States of America. 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 Company’s annual report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 28, 2019.

7

Use of Estimates

The preparation of financial statements in conformity with the generally accepted accounting principles in the United States of America 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 financial statements include the useful lives of property and equipment, the collectability of receivables and impairment on long-live assets. Actual results could differ from those estimates.

Cash and cash equivalents

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

Accounts Receivable

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

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

	June 30, 2019			December 31, 2018
Accounts receivable	$	60,548		$	673
Allowance for doubtful accounts		(11,134	)		-
Accounts receivable, net	$	49,414		$	673

Movement of allowance for doubtful accounts is as follows:

	Six months ended June 30, 2019		Year ended December 31, 2018
Beginning balance	$	-	$	43,276
Provision for doubtful accounts		11,134		46,836
Less: write-offs		-		(90,112	)
Ending balance	$	11,134	$	-

Inventories

Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value. Inventory consists of nutritional, beauty products and raw materials in our manufacturing facility. 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.

8

Property and Equipment, net

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

Machinery	10 years
Computer and software	3 to 5 years
Furniture and fixtures	5 to 10 years
Vehicles	5 to 7 years
Leasehold improvements	over the lesser of the remaining lease term or the expected life of the improvement

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

Right-of-use Asset and Lease Liabilities

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” The new standard requires lessees to recognize lease assets (“right of use”) and lease obligations (“lease liabilities”) for leases previously classified as operating leases under generally accepted accounting principles on the balance sheet for leases with terms in excess of 12 months. The standard is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years.

Impairment of Long-Lived Assets

Long-lived assets, including property, 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 flow approach or, when available and appropriate, to comparable market values.

Deferred Revenue

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

Accrued Bonus

Accrued bonus represents amounts earned by the Company’s affiliate members (the “Affiliated Members”) for successful product sales. These bonuses are in the form of rebate credits that can be used to order the Company’s products, or the Affiliate Members can request a rebate in cash.

Fair Value of Financial Instruments

The Financial Accounting Standard Board (“FASB”) accounting standards codification (“ASC”), FASB ASC 825 Financial Instruments, requires that the Company discloses estimated fair values of financial instruments.

As defined in ASC 820 Fair Value Measurement, 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 utilizes 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. 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).

9

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

Level 1 –	Quoted prices that are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 –	Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 –	Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon adoption of this new guidance, as the Company’s revenue was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations.

The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are recognized at a point in time, based on when control of goods and services transfers to a customer.

The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies each performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition.

The Company continues to derive its revenues from sales contracts with its customers with revenues being recognized upon delivery of products. Persuasive evidence of an arrangement is demonstrated via sales contracts and invoices; and the sales price to the customer is fixed upon acceptance of the sales contract. Sales rebates or discounts are recognized as a reduction of revenue. The Company recognizes revenue when control of the goods is transferred upon shipment to the customer by the Company and collectability of payment is reasonably assured. These revenues are recognized at a point in time after all performance obligations are satisfied.

10

The Company also recognizes revenue on shipping and handling fees charged to the Company’s customers. Shipping and handling fee revenue is recognized when products have been delivered at a point in time. Shipping and handling fee revenues totaled $23,615 and $703 for the three months ended June 30, 2019 and 2018, respectively, and totaled $26,424 and $3,163 for the six months ended June 30, 2019 and 2018, respectively.

Product returns are allowed for unopened products purchased under regular sales terms within 60 days. Allowances for product returns are provided at the time the sale is recorded using historic return rates for each country and the relevant return pattern. Historically the Company has a return rate of nearly zero. Hence, the allowance as of June 30, 2019 and December 31, 2018 is estimated at $0.

In addition to the Company’s 60-day return policy, the Company, at its discretion, may accept a customer’s application for a buy-back of products previously sold within one year at 90% of the original product’s cost 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 had been recorded as of June 30, 2019 and December 31, 2018.

The majority of the Company’s product sales are generated from China. Product sales generated from other countries or within the United States are immaterial to our financial statements. Currently, all of the Company’s OEM and packaging sales are generated from the United States. While all products are priced in U.S. currency, the Company accepts payments in both U.S. dollars and Hong Kong dollars.

Shipping and Handling Expenses

Shipping and handling costs incurred by the Company are included in selling expenses and totaled $9,261and $11,072 for the three months ended June 30, 2019 and 2018, respectively, and totaled $19,963 and $15,898 for the six months ended June 30, 2019 and 2018, respectively.

Research and Development (“R&D”) Expenses

Research and development expenses include salaries and other compensation-related expenses paid to the Company’s research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the general and administrative expenses and totaled $0 and $34 for the three months ended June 30, 2019 and 2018, respectively, and totaled $904 and $382 for the six months ended June 30, 2019 and 2018, respectively.

Income Taxes

The Company utilizes ASC 740 Income Taxes, 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. Deferred taxes are also recognized for net operating losses that can be carried forward. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Basic and Diluted Earnings (Loss) Per Share

Generally accepted accounting principles 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 is computed by dividing net income (loss) available to common stockholders by the weighted average of common shares outstanding during the period. Diluted earnings 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. These common stock equivalents are not included when the Company has a loss because they would be anti-dilutive.

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The following table presents basis net (loss) income per share for the periods indicated:

	Three months ended June 30, 2019		Three months ended June 30, 2018			Six months ended June 30, 2019		Six months ended June 30, 2018
Basic earnings per share calculation:
Net income (loss)		777,255		(325,810	)		555,131		(1,365,574	)
Weighted average of common stock outstanding		177,251,571		171,610,812			176,158,993		170,631,039
Basic net (loss) income per share		0.00		(0.00	)		0.00		(0.01	)

The following table presents basis net (loss) income per share for the periods indicated:

	Three months ended June 30, 2019		Three months ended June 30, 2018			Six months ended June 30, 2019		Six months ended June 30, 2018
Basic earnings per share calculation:
Net income (loss)		777,255		(325,810	)		555,131		(1,365,574	)
Weighted average of common stock outstanding		178,291,586		171,610,812			177,451,005		170,631,039
Basic net (loss) income per share		0.00		(0.00	)		0.00		(0.01	)

2,300,000 shares of restricted common stock with weighted average effect of 1,040,015 and 1,292,012 diluted shares are included in the diluted EPS calculation for the three and six months ended June 30, 2019, respectively. There were no other potential dilutive securities outstanding for the three and six months ended June 30, 2019 and 2018.

Concentration of Credit Risk

-    Financial instruments

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation (FDIC) insured limits for the banks located in the United States, or may exceed Hong Kong Deposit Protection Board (HKDPB) insured limits for the banks located in Hong Kong. The Company had approximately less than $1,000 and $104,000 uninsured balances as June 30, 2019 and December 31, 2018, respectively.

-    Major Customers and Suppliers

For the three months ended June 30, 2019, no customer accounted for more than 10% of the Company’s sales and for the three months ended June 30, 2018, one customer accounted for approximately 71% of the Company’s sales.

For the six months ended June 30, 2019, no customer accounted for more than 10% of the Company’s sales and for the six months ended June 30, 2018, two customers accounted for approximately 60% (49% and 11%) of the Company’s sales.

As of June 30, 2019, three customers accounted for 100% (74%, 13% and 13%) of the Company’s accounts receivables. As of December 31, 2018, one customer accounted for 100% of the Company’s accounts receivables.

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For the three months ended June 30, 2019, two suppliers accounted for approximately 81% (64% and 17%) of the Company’s product purchases and for the three months ended June 30, 2018, three suppliers accounted for approximately 57% (35%, 11% and 11%) of the Company’s product purchases.

For the six months ended June 30, 2019, four suppliers accounted for approximately 69% (23%, 19%, 17% and 10%) of the Company’s product purchases and for the six months ended June 30, 2018, two suppliers accounted for approximately 40% (30% and 10%) of the Company’s product purchases.

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 June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2018-07. ASU 2018-07 simplifies the accounting for share-based payments made to nonemployees so the accounting for such payments is substantially the same as those made to employees. Under this ASU, share based awards to nonemployees will be measured at fair value on the grant date of the awards, entities will need to assess the probability of satisfying performance conditions if any are present, and awards will continue to be classified according to Accounting Standards Codification (“ASC”) 718 upon vesting which eliminates the need to reassess classification upon vesting, consistent with awards granted to employees. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this ASU did not have any material effect on the Company’s unaudited condensed consolidated financial statements.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.

Reclassifications

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

Note 4 – Inventories

Inventories consist of the following:

	June 30, 2019		December 31, 2018
	(Unaudited)
Raw materials	$	90,667	$	31,957
Work-in-progress		10,768		2,775
Finished goods		60,539		15,607
Inventories	$	161,974	$	50,339

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Note 5 – Property and Equipment

Property and equipment consist of the following:

	June 30, 2019			December 31, 2018
	(Unaudited)
Computer equipment and software	$	114,953		$	114,953
Furniture and fixtures		26,686			26,686
Automobiles		179,677			179,677
Leasehold improvements		40,053			40,053
Machinery		420,000			420,000
Total		781,369			781,369
Less: accumulated depreciation and amortization		(424,038	)		(390,677	)
Property and equipment, net	$	357,331		$	390,692

Depreciation expense totaled $16,150 and $17,727 for the three months ended June 30, 2019 and 2018, respectively.

Depreciation expense totaled $33,361 and $36,056 for the six months ended June 30, 2019 and 2018, respectively.

Note 6 – Debt

Due to third parties, interest bearing

The Company has borrowed money from third parties to fund operations. These third parties consist of the Chief Executive and Financial Officer’s friends and the spouse of a former board member of the Company. These advances have an annual interest rate of 6%, are unsecured, and are due on demand. As of June 30, 2019 and December 31, 2018, the Company owed $20,000 and $109,030 to these third parties, respectively. In March 2019, the Company settled $89,030 of the debt owed to some of these third parties and converted the debt into the Company’s common stock (See Note 10 - Equity).

Interest expense for the three months ended June 30, 2019 and 2018 for the above loans amounted to $299 and $1,631, respectively.

Interest expense for the six months ended June 30, 2019 and 2018 for the above loans amounted to $1,722 and $3,244, respectively.

In March 2019, the repayment terms related to the remaining balance of $20,000 were changed by the third party creditor from due on demand to due on March 20, 2024.

Due to third parties, non-interest bearing

The Company has borrowed money from third parties to fund operations. These third parties consist of the Chief Executive and Financial Officer’s friends and a former board member of the Company. These advances do not bear interest, are unsecured, and are due on demand. As of June 30, 2019 and December 31, 2018, the Company owed $50,000 and $101,666 to these third parties, respectively. In March 2019, the Company settled $32,000 of the debt owed to a third party and converted the debt into the Company’s common stock (See Note 10 - Equity). The Company also repaid $19,666 to a third party during the six months ended June 30, 2019.

In March 2019, the repayment terms related to the remaining balance of $50,000 was changed by the third party creditor from due on demand to due on March 20, 2024.

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Note 7 – Related Party Transactions

Due to shareholder, interest bearing

In January 2016, Mr. Dinghua Wang, a major shareholder, director, Chief Executive and Financial Officer of the Company, pledged certain of his personal assets and obtained a personal loan from which he provided funds for the operations of the Company. In consideration for the funds the Company received, the Company agreed to pay the interest on this loan on Mr. Wang’s behalf. This loan has an annual borrowing rate of 9.99%. As of June 30, 2019 and December 31, 2018, the balance due to Mr. Wang, interest bearing, amounted to $471,603. The full balance of $471,603 was to be repaid on February 1, 2019 and was extended to May 1, 2019. This loan has been converted to be due on demand.

Interest expense for each of the three month periods ended June 30, 2019 and 2018 for the above loan amounted to $12,487.

Interest expense for each of the six month periods ended June 30, 2019 and 2018 for the above loan amounted to $24,975.

Due to shareholder, non-interest bearing

From time to time, Mr. Dinghua Wang, a major shareholder, director, Chief Executive and Financial Officer of the Company, advances monies to the Company and the Company repays such advances. Such business transactions are recorded as due to or from Mr. Wang at the time of the transaction. During the six months ended June 30, 2019 and 2018, advances totaled $142,860 and $62,316, respectively, and payments to Mr. Wang totaled $62,048 and $211,025, respectively. As of June 30, 2019 and December 31, 2018, the balance due to Mr. Wang, non-interest bearing, amounted to $2,588,863 and $2,508,051, respectively. This balance is unsecured and is due on demand.

In March 2019, the repayment terms related to $2,000,000 of the total balance was changed by Mr. Wang from due on demand to due on March 20, 2024.

Due to employee

The Company has borrowed money from Vickie Ho, Executive Vice President of the Company, to fund operations. These advances do not bear interest, are unsecured and are due on demand. As of June 30, 2019 and December 31, 2018, the Company owed $95,000 to such employee.

In March 2019, the repayment terms related to the balance of $95,000 was changed by the employee from due on demand to due on March 20, 2024.

Advances from related parties, interest bearing

The Company has borrowed $30,000 from a related party to fund operations since July 2016. This related party is the son of the Company’s Chief Executive and Financial Officer. These advances have an annual interest rate of 10%, are unsecured and are due on demand. As of June 30, 2019 and December 31, 2018, the Company owed $30,000 to this related party.

Interest expense for the three months ended June 30, 2019 and 2018 for the above loans amounted to $748.

Interest expense for the six months ended June 30, 2019 and 2018 for the above loans amounted to $1,488.

In March 2019, the repayment terms were changed by the related party from due on demand to due on March 20, 2024.

Advances from related parties, non-interest bearing

The Company has borrowed money from certain related parties to fund operations. The related parties consist of the Chief Executive and Financial Officer’s immediate family members and relatives. These advances do not bear interest, are unsecured and are due on demand. As of June 30, 2019 and December 31, 2018, the Company owed $518,839 to these related parties.

In March 2019, the repayment terms for the $518,839 was changed by these related parties from due on demand to due on March 20, 2024.

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Note 8 – Income Taxes

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended June 30, 2019 and 2018:

	Three months ended June 30, 2019			Three months ended June 30, 2018			Six months ended June 30, 2019			Six months ended June 30, 2018
Federal statutory rate		21.0	%		21.0	%		21.0	%		21.0	%
State statutory rate		7.0	%		7.0	%		7.0	%		7.0	%
Valuation allowance		(37.7	)%		(15.0	)%		(51.0	)%		(17.1	)%
Permanent difference *		9.7	%		(13.0	)%		23.0	%		(10.9	)%
Effective tax rate		0.0	%		0.0	%		0.0	%		0.0	%

*Represents 50% of meal and entertainment expenses and stock compensation expenses that are not deductible.

The Company uses the asset and 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. Deferred taxes are also recognized for net operating loss carry forwards which can be utilized to offset taxable income in the future. The cumulative net operating loss carryforwards that may be applied against future taxable income is approximately $6,805,000 for Federal and state income taxes as of June 30, 2019. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $7,817,000 for Federal and state as of December 31, 2018, and will expire in the years 2031 to 2038. As deferred tax assets may not be fully realizable due to potential recurring losses, management has provided 100% valuation allowance for the deferred tax assets.

The components of the deferred tax assets is as follows:

	June 30, 2019			December 31, 2018
	(Unaudited)
Allowance for doubtful accounts	$	3,116		$	-
Amortization of intangible assets		204,000			211,556
Net operating losses		1,697,071			1,975,889
Deferred tax assets		1,904,187			2,187,445
Valuation allowance		(1,904,187	)		(2,187,445	)
Deferred tax assets, net	$	-		$	-

Changes in the value allowance for deferred tax assets decreased by $283,258 from $2,187,445 at December 31, 2018 to $1,904,187 at June 30, 2019. During the six months ended June 30, 2019, the Company utilized $278,818 deferred tax assets from prior period.

As of June 30, 2019, federal tax returns filed for 2016 and 2017 remain subject to examination by the taxing authorities. As of June 30, 2019, California tax returns filed for 2015, 2016 and 2017 remain subject to examination by the taxing authorities.

Note 9 – Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that does not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. The Company adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. There is no impact from the adoption of ASC 842, as of January 1, 2019 as the Company did not have any existing leases with a lease term in excess of twelve months on January 1, 2019.

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In January 2019, the Company entered a new office lease agreement with a 5-year lease term starting in March 2019 and terminating in February 2024. Upon adoption of ASU 2016-02, the Company recognized lease labilities of approximately $618,000, with corresponding right-of-use (“ROU”) asset in the same amount based on the present value of the future minimum rental payments of the new lease, using an effective interest rate of 4.78%, which is determined using an incremental borrowing rate. The remaining lease term of the lease is 4.67 years.

The Company also leases a factory space on a month-to-month basis, which it classifies as an operating lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For the three months ended June 30, 2019 and 2018, lease expenses amounted to $45,287 and $22,318, respectively, of which, $10,500 and $0 are short-term lease expenses, respectively.

For the six months ended June 30, 2019 and 2018, lease expenses amounted to $67,382 and $41,974, respectively, of which, $21,000 and $0 are short-term lease expenses, respectively.

The five-year maturity of the Company’s lease obligations is presented below:

Twelve months ended June 30,	Operating lease amount
2020	$	121,806
2021		136,740
2022		140,844
2023		145,064
2024		98,624
Total lease payments		643,078
Less: interest		(70,322	)
Present value of lease liabilities	$	572,756

Note 10 – Equity

Share Distribution Plans

1) On July 15, 2017, the Board approved Mr. Dinghua Wang, the Chairman and CEO of the Company, to distribute up to thirty million of his own shares to certain persons outside of the United States who have previously worked with the Company as an incentive for these individuals to assist the Company to develop its international market. Accordingly, special legends regarding restrictions on resale of the securities and no-hedging transactions would need to be included on the securities.

As of the date of this report, Mr. Wang had distributed 1,500,000 shares pursuant to this plan. All of these 1,500,000 shares were distributed on February 14, 2018 pursuant to Regulation S under the Securities Act of 1933. The Company determined that these shares distributed by Mr. Wang were related to the Company’s operations in accordance to ASC 220-10-S99-4. The fair value of these shares were valued at $480,000 and recorded as stock-based compensation expenses in the Company’s six months ended June 30, 2018 consolidated statements of operations.

2) On July 28, 2017, the Company’s Board of Directors approved Mr. Dinghua Wang, the Chairman and CEO of the Company, to distribute up to 5 million of his own shares to the people who, directly or indirectly, loaned funds or referred customers to the Company or purchased products from the Company as the Company faces financial difficulty. To the extent that these share distributions are being made to anyone outside of the U.S., those distributions will be made under Regulation S and must contain appropriate Regulation S subscription agreements and legends. If anyone within U.S. is to receive those shares, the Company will consult with the Company counsel to comply with U.S. securities laws.

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As of the date of this report, Mr. Wang had distributed 4,181,592 shares pursuant to this plan. All of these 4,181,592 shares were distributed on February 14, 2018. The Company determined that these 4,181,592 shares distributed by Mr. Wang were at his own discretion and the recipients of the shares did not expect such distribution at the time when they, directly or indirectly, loaned funds or referred customers to the Company or purchased products from the Company as the Company faces financial difficulty.

3) On June 30, 2017, the Company’s Board of Directors approved the grant of up to twenty million shares (from authorized but unissued shares of the Company’s common stock) to persons outside the U.S. who sell Company products based on their sales performance in the future. The Company must determine that this type of incentive compensation is legal and appropriate for each country in which it is utilized. For ease of administration, this plan has been, and will continue to be solely for persons outside of the United States pursuant to Regulation S under the Securities Act of 1933. No shares have been issued during the six months ended June 30, 2019 and 2018.

Private placements

During the six months ended June 30, 2018, the Company entered into a series of Securities Purchase Agreements with various unrelated third party purchasers, pursuant to which the Company sold to these purchasers in private placements an aggregate of 1,474,574 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $1,327,098. The sales were completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.

As of June 30, 2019 and December 31, 2018, $1,110,695 and $1,200,000, respectively, were unpaid and recognized as stock subscription receivable in the accompanying statements of changes in shareholders’ deficit. During the six months ended June 30, 2019, the Company received $89,305 of the stock subscription receivable.

Purchase of assets

On January 1, 2018, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation, a Nevada corporation (the “Seller”), pursuant to which the Company purchased the assets associated with the Seller’s manufacture of dietary supplements (the “Asset Sale”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 1,000,000 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. No other assets were included with this purchase and the Company assumed the Seller’s obligations under a lease of real property used in the Seller’s business.

The issuance of the Purchase Shares was completed pursuant to the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The payment of the cash portion of the Purchase Price was to occur in two distributions: (i) the first, in the amount of $600,000, was to occur within six months of the date of the Purchase Agreement, and (ii) the second, in the amount of $400,000, was to occur within twelve months of the date of the Purchase Agreement. The second distribution may be reduced by any indemnification claims against the Seller under the terms of the Agreement. The distribution of the Purchase Shares was completed in March 2018. The payment date for the $1,000,000 cash portion of the Purchase Price was extended to December 31, 2019.

Settlement of debt

On March 19, 2019, the Company entered into two Debt Repayment Agreements with two creditors of the Company (the “Creditors”), pursuant to which the Company agreed to repay $135,851 owed to the Creditors in the form of 295,480 shares of Company’s common stock at an average debt conversion rate of $0.46 per share (the “Debt Repayment”). The Debt Repayment was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended. The closing price of the Company’s common stock on March 19, 2019 was $0.60 per share, which resulted in a loss on settlement of debt of $41,437.

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On March 30, 2019, the Company entered into Debt Repayment Agreements with four creditors of the Company (the “Creditors”), pursuant to which the Company agreed to repay $868,682 owed to the Creditors in the form of 976,364 shares of Company’s common stock at an average debt conversion rate of $0.89 per share (the “Debt Repayment”). The Debt Repayment was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended. The closing price of the Company’s common stock on March 30, 2019 was $0.60 per share, which resulted in a gain on settlement of debt of $282,863.

Common stock issued for consulting services

On August 30, 2018, the Company entered into two advisory agreements with two advisors (the “Financial Advisors”), pursuant to which the Company engaged the Financial Advisors to provide certain financial advisory services for a service period of six months. As compensation for the services, the Company agreed to issue the Financial Advisors an aggregate of 67,916 shares of its common stock, par value $0.001. These shares are valued at $20,375, determined using the closing price of the Company’s common stock on August 30, 2018 of $0.30 per share. For the three and six months ended June 30, 2019, amortization of deferred stock compensation of these shares amounted to $0, and $6,792, respectively.

On January 23, 2019, the Company entered into a consulting agreement with Redfield Management Service limited for business, finance and investor relations services. The consultant is due a monthly consulting fee of $7,000 and 50,000 shares, to be paid every three months. The term of the agreement is one year. The service agreement was terminated at the end of April and the Company issued a total of 200,000 shares of its common stock during the six months ended June 30, 2019. For the three and six months ended June 30, 2019, amortization of deferred stock compensation of these shares amounted to $40,000 and $120,000, respectively.

On March 13, 2019, the Company entered into a consulting agreement with Global Merchants Union (“GMU”), a company incorporated in California, pursuant to which GMU will provide business and financial operation and planning consultation services to the Company for consideration of $7,500 per month and a one-time stock payment of 1,000,000 shares of common stock of the Company (the “Share Payment”). Shares subject to the Share Payment will be issued to GMU within 30 days after the agreement is signed. The term of the agreement was for one year but was terminated in May, 2019. For the three and six months ended June 30, 2019, amortization of deferred compensation of these shares amounted to $150,000 and $175,000, respectively. Deferred stock compensation of $425,000 has been recognized as a reduction of shareholders’ deficit as the services had not been performed as of June 30, 2019.

Issuance of restricted common stock

On July 13, 2018, the Board of Directors of the Company approved the grant of 2,300,000 restricted stock units (the “RSUs”) to three employees of the Company, pursuant to the Merion, Inc. 2018 Omnibus Equity Plan. Thirty percent of the RSUs will vest on July 13, 2019, thirty percent of the RSUs will vest on July 13, 2020, and the remaining forty percent of the RSUs will vest on July 13, 2021, in each case provided that the employee remains employed, in good standing, by the Company. These shares are valued at $851,000, determined using the closing price of the Company’s common stock on July 13, 2018 of $0.37 per share, and will be amortized ratably over the term of the vesting periods of three years on a straight line basis. The Company accounts for the restricted common stock as equity-settled awards in accordance with ASC 718. For the three and six months ended June 30, 2019, amortization of deferred stock compensation of these shares amounted to $63,650 and $126,601, respectively. Deferred stock compensation of $604,792 and $731,394 has been recognized as a reduction of shareholders’ deficit as the services have not been performed as of June 30, 2019 and December 31, 2018, respectively.

The following table summarizes unvested restricted common stock activity for the six months ended June 30, 2019 and for the year ended December 31, 2018:

	Number of shares		Weighted average grant-date fair value per share
Outstanding as of December 31, 2017		-	$	-
Granted		2,300,000		0.37
Vested		-		-
Forfeited		-		-
Outstanding as of December 31, 2018		2,300,000	$	0.37
Granted		-		-
Vested		-		-
Forfeited		-		-
Outstanding as of June 30, 2019		2,300,000	$	0.37

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

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes, and other financial information included in this Form 10-Q and our financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Form 10-K”).

Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking. Words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “potential,” “believes,” “seeks,” “hopes,” “estimates,” “should,” “may,” “will,” “with a view to” and variations of these words or similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national, and local general economic and market conditions; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; change in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; the risk of foreign currency exchange rates; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission. For more information, see our discussion of risk factors located at Part I, Item 1A of our 2018 Form 10-K.

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.

Overview

Our Company is a provider of health and nutritional supplements and personal care products. Currently, we are mainly selling our products over the Internet directly to end-user customers through our websites, www.dailynu.com and www.merionus.com, and to wholesale distributors through phone and electronic communication. Our major customers of our nutritional and beauty products are located in the Asian market, predominantly in the People’s Republic of China. Our major customers of our OEM and packaging products are located in the United States.

Since June 2014, we have sold our products primarily over the Internet directly to end-user customers and by phone/email orders directly to our wholesale distributors. Certain miscellaneous sales are made directly to customers who walk into the Company offices and customers who call the Company directly for products. We are now focusing on selling health and nutritional supplements and personal care products directly on the Internet through our websites, www.dailynu.com and www.merionus.com. As of the date of filing of this report, we market thirteen individual nutritional supplement products, three and five of which were introduced in 2018 and 2019 respectively, and one beauty product, which was also introduced in 2018, on our websites. We are no longer selling similar products of third parties on our websites.

In January 2018, we entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation, a Nevada corporation (the “Seller”), pursuant to which the Seller agreed to sell to the Company substantially all of the assets associated with the Seller’s manufacture of dietary supplements (the “Asset Sale”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 1,000,000 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. The Seller was one of our major suppliers during the year ended December 31, 2017. Upon purchasing these assets from the Seller, we started to manufacture some of the nutritional supplements that we sell. These assets meet all industry nutritional and dietary supplement manufacturing standards, including U.S. Food and Drug Administration and Good Manufacturing Practice compliance and Current Good Manufacturing Practice regulations. In addition to manufacturing the nutritional supplements that we sell, we produce hard capsules, tablets, solid beverages (sachet packaging), teabags, powder, granules, dietary supplements, softgel capsules and health foods from these assets for any potential new customers who need such products. These are the products that were added to our existing products, similar to our OEM and packaging businesses.

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In January 2018, we introduced a new beauty product, Noir Naturel, a gentle formula for grey coverage from the first application into hair care.

In September 2018, we introduced three different types of natural aphrodisiac supplements, Viwooba (1-3) for men that may support kidney health, improve immunity, enhance physical fitness, eliminate fatigue, improve sexual desire and enhance body energy, strength and sexual ability.

In March 2019, we introduced 1) Lady-S, a female dietary supplement that may assist with weight loss, 2) Gold King, a nutritional supplement that may provide antioxidant support and liver health, 3) New Power, a nutritional supplement that may support heart health, and 4) Taibao, a nutritional supplement that may enhance physical performance and energy metabolism.

In May 2019, we introduced M-Power, a nutritional supplement that may provide anti-aging support.

Principal Factors Affecting Our Financial Performance

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

Barriers to entry are minimal in the nutritional supplement and skin care businesses, 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 increased access to that technology, is 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 in Asia. There can be no assurance that we will maintain or increase our competitive position or that we will continue to provide only American-made merchandise.

Our products are sensitive to business and personal discretionary spending levels, and demand tends 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, which may include spending on nutritional and beauty products and other discretionary items. Also, the increase of trade tensions between US and China might have negative impacts on our business.  In addition, reduced consumer spending may force us and our competitors to lower prices. These conditions may adversely affect our revenues and results of operations.

Results of Operations

Comparison of the three months ended June 30, 2019 and 2018

	For the three months ended June 30,
										Percentage
	2019			2018			Change			Change
Total sales	$	1,477,649		$	146,909		$	1,330,740			905.8	%
Total cost of sales		74,177			100,984			(26,807	)	(26.5		%)
Gross profit		1,403,472			45,925			1,357,547			2,956.0	%
Operating expenses
Selling		15,552			25,915			(10,363	)	(40.0		%)
General and administrative		352,239			312,363			39,876			12.8	%
Stock compensation expense		-			44,000			(44,000	)	(100.0		%)
Amortization of deferred stock compensation		253,650			-			253,650			100.0	%
Total operating expenses		621,441			382,278			239,163			62.6	%
Income (loss) from operations		782,031			(336,353	)		1,118,384			332.5	%
Other income (expenses), net		(4,776	)		10,543			(15,319	)	(145.3		%)
Net income (loss)	$	777,255		$	(325,810	)	$	1,103,065			338.6	%

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Total sales increased by approximately $1.3 million, or 905.8%, from approximately $147,000 in the three months ended June 30, 2018 to approximately $1.5 million in the three months ended June 30, 2019. The increase of sales was mainly due to the shipping of our backlog of 544 orders of Auxia and 2,917 orders of Cell Power products from members who had previously paid for their purchases. The increase is also attributable to the introduction of our new products: 123 orders of Viwooba (1-3), which we introduced in September 2018, 734 orders of Lady-S, 47 orders of Gold King, 36 orders of Heart Power, and 42 orders of Taibao, which we introduced in March 2019. These products were not available during the three months ended June 30, 2018. The increase in sales is also attributable to the increase of 1,324 orders of Noir Naturel sales as we had more products available for sale during the three months ended June 30, 2019 as compared to the same period in 2018 when we first introduced the product (in March 2018).

The cost of sales decreased by approximately $27,000, or 26.5%, from approximately $101,000 in the three months ended June 30, 2018 to approximately $74,000 in the three months ended June 30, 2019. The major reason for the decrease was the decease of our idle capacity cost of approximately $75,000 incurred in our Nevada factory during the three months ended June 30, 2018, where we were operating at full capacity in the same period in 2019, and approximately $14,000 of our overhead costs incurred in our Nevada factory were being allocated to our finished goods and work-in-progress inventories. Furthermore, we wrote down $810,000 of intangible assets due to impairment at December 31, 2018, for which we were no longer incurring amortization expense of $22,500 per quarter or $90,000 per year in our manufacturing costs in 2019.

Our overall gross margin percentage increased from approximately 31.3% in the three months ended June 30, 2018 to a gross profit of approximately 95.0% in the three months ended June 30, 2019, mainly due to the sales of our high profit margin products of Auxia and Cell Power and the reduction of the idle capacity cost incurred in the three months ended June 30, 2018 as described above.

Our product sales gross margin percentage increased from approximately 83.2% in the three months ended June 30, 2018 to approximately 97.6% in the three months ended June 30, 2019. For the three months ended June 30, 2019, the majority of our product sales were attributable to our Auxia, Cell Power, Viwooba (1-3), Lady-S, Gold King, New Power, and Taibao products, which were all manufactured by us. The major reasons for the increase of sales gross margin percentage were that we were no longer incurring any amortization of the intangible assets that we wrote off in 2018. As a result, our product sales gross margin percentage increased accordingly during the three months ended June 30, 2019 as compared to the same period in 2018.

Our OEM and packaging sales gross margin percentage decreased from approximately 77.4% in the three months ended June 30, 2018 to approximately 64.9% in the three months ended June 30, 2019. For the three months ended June 30, 2019, we incurred more manufacturing overhead cost for our OEM and packaging sales as we incurred increased labor hours allocated to such production due to certain specified production procedures which required additional labor hours as compared to the same period in June 30, 2018. As a result, our OEM and packaging sales gross margin percentage decreased by 12.5% during the three months ended June 30, 2019 as compared to the same period in 2018.

Selling expenses decreased from approximately $26,000 in the three months ended June 30, 2018 to approximately $16,000 in the three months ended June 30, 2019. The decrease of approximately $10,000, or 40.0%, was mainly due to the decrease of approximately $5,000 of marketing expenses and the decrease of approximately $5,000 of shipping expenses.

General and administrative (“G&A”) expenses increased by approximately $40,000 from approximately $312,000 in the three months ended June 30, 2018 to approximately $352,000 in the three months ended June 30, 2019. The increase was mainly attributable to the increase of approximately $22,000 of rental expenses, the increase of approximately $11,000 of professional fees, such as attorney fees, auditor fees and consulting fees, the increase of approximately $16,000 of payroll expenses, offset by the decrease of approximately $9,000 of other miscellaneous G&A expenses, such as travel and lab test expenses.

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Stock compensation expenses decreased by $44,000 during the three months ended June 30, 2019 compared to the same period in 2018 because we incurred $44,000 in stock compensation expense as we issued 200,000 shares to a consultant for research and strategic planning consulting services during the three months ended June 30, 2018. We did not incur such stock compensation expense for the three months ended June 30, 2019.

Amortization of deferred stock compensation increased by approximately $254,000 in the three months ended June 30, 2019 as compared to 2018, of which, approximately $64,000 related to the amortization of the value of 2,300,000 shares of restricted shares of common stock to three employees, which all have a vesting period of three years. In addition, in January and March 2019, we issued 1,150,000 shares of our common stock with an additional 450,000 shares of our common stock to be issued in each of the next three quarters of 2019 valued at $1,080,000 to two advisors to provide certain financial advisory services, and amortized such cost, approximately $190,000. These two service contracts were terminated in April and May of 2019 due to non-performance. We did not incur any amortization of deferred stock compensation during the same period in 2018.

Other expenses increased by approximately $15,000 from approximately $11,000 of other income in the three months ended June 30, 2018 to approximately $5,000 of other expenses in the three months ended June 30, 2019, mainly due to approximately $18,000 of fees charged to our shareholders in assisting them to obtain electronic stock certificates and $11,000 other miscellaneous income during the three months ended June 30, 2018. We did not enter into such transactions during the same period in 2019. During the three months ended June 30, 2019, we generated approximately $11,000 from sales of our sample products.

Net income increased by approximately $1.1 million from approximately $0.3 million of net loss in the three months ended June 30, 2018 to approximately $0.8 million of net income in the three months ended June 30, 2019, mainly due to the reasons discussed above.

Comparison of the six months ended June 30, 2019 and 2018 

	For the six months ended June 30,
									Percentage
	2019		2018			Change			Change
Total sales	$	1,626,026	$	211,617		$	1,414,409			668.4	%
Total cost of sales		114,538		185,929			(71,391	)	(38.4		%)
Gross profit		1,511,488		25,688			1,485,800			5,784.0	%
Operating expenses
Selling		39,470		257,816			(218,346	)	(84.7		%)
General and administrative		742,660		675,231			67,429			10.0	%
Stock compensation expense		-		524,000			(524,000	)	(100.0		%)
Amortization of deferred stock compensation		428,392		-			428,392			100.0	%
Total operating expenses		1,210,522		1,457,047			(246,525	)	(16.9		%)
Income (loss) from operations		300,966		(1,431,359	)		1,732,325			121.0	%
Other income, net		254,165		65,785			188,380			286.4	%
Net income (loss)	$	555,131	$	(1,365,574	)	$	1,920,705			140.7	%

Total sales increased by approximately $1.4 million or 668.4%, from approximately $212,000 in the six months ended June 30, 2018 to approximately $1.6 million in the six months ended June 30, 2019. The increase of sales was mainly due to the shipping of our backlog of 1,329 orders of Auxia and 3,124 orders of Cell Power products from our members which they have previously paid for their purchases. The increase is also attributable to the introduction of our new products, 157 orders of Viwooba (1-3), which we introduced in September 2018, and 833 orders of Lady-S, 100 orders of Gold King, 78 orders of Heart Power, and 59 orders of Taibao, which we newly introduced in March 2019. These products were not available during the six months ended June 30, 2018. The increase of sales is also attributable to the increase of Noir Naturel sales as we had more products available for sales during the six months ended June 30, 2019 as compared to the same period in 2018 when we first introduced the product. The increase was partially offset by the decrease of sales of 1,195 orders of our Longevity product made during the six months ended June 30, 2018, as we did not generate any sales during the six months ended June 30, 2019.

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The cost of sales decreased by approximately $71,000, or 38.4%, from approximately $186,000 in the six months ended June 30, 2018 to approximately $115,000 in the six months ended June 30, 2019. The major reason was the decease of our idle capacity cost of approximately $133,000 incurred in the our Nevada factory during the six months ended June 30, 2018, where we were operating at full capacity in the same period in 2019, and approximately $14,000 of our overhead costs incurred in our Nevada factory was allocated to our finished goods and work-in-progress. The decrease is also attributable to the decrease of our cost of sales of our Longevity products, which normally has a higher unit cost as compared to our other products. Furthermore, we wrote down $810,000 of intangible assets due to impairment at December 31, 2018, for which we were no longer incurring amortization of $22,500 per quarter or $90,000 per year in our manufacturing cost in 2019.

Our overall gross margin percentage increased from approximately of 12.1% in the six months ended June 30, 2018 to approximately 93.0% in the six months ended June 30, 2019, mainly due to the reduction of the idle capacity cost incurred in the six months ended June 30, 2018 as described above.

Our product sales gross margin percentage increased from approximately 77.0% in the six months ended June 30, 2018 to approximately 97.0% in the six months ended June 30, 2019. For the six months ended June 30, 2019, the majority of our product sales were attributable to our Auxia, Cell Power, Viwooba (1-3), Lady-S, Gold King, New Power, and Taibao products, which were all manufactured by us and have a higher profit margin compared to our Longevity product, which comprised the majority of our product sales in the six months ended June 30, 2018. As a result, our product sales gross margin percentage increased accordingly during the six months ended June 30, 2019 as compared to the same period in 2018.

Our OEM and packaging sales gross margin percentage decreased from approximately 68.9% in the six months ended June 30, 2018 to approximately 54.5% in the six months ended June 30, 2019. For the six months ended June 30, 2019, we incurred more manufacturing overhead cost for our OEM and packaging sales as we incurred increased labor hours allocated to such production due to certain specified production procedures which required additional labor hours as compared to the same period in June 30, 2018. As a result, our OEM and packaging sales gross margin percentage decreased by 14.4% during the six months ended June 30, 2019 as compared to the same period in 2018.

Selling expenses decreased from approximately $258,000 in the six months ended June 30, 2018 to approximately $40,000 in the six months ended June 30, 2019. The decrease of approximately $218,000, or 84.7%, was mainly due to the decrease of approximately $198,000 of marketing expenses as we held a conference in Hong Kong to promote our products costing $131,000 during the six months ended June 30, 2018 and we did not hold any conference during the same period in 2019. In addition, we gave out approximately $54,000 worth of promotional products during the six months ended June 30, 2018 and we did not give out any promotional products in the same period in 2019.

General and administrative (“G&A”) expenses increased by approximately $67,000 from approximately $675,000 in the six months ended June 30, 2018 to approximately $742,000 in the six months ended June 30, 2019. The increase was mainly attributable to the increase of approximately $33,000 of payroll related expenses, the increase of approximately $31,000 of rental expenses, the increase of approximately $13,000 of insurance expenses, the increase of approximately $8,000 of printing expenses, and the increase of approximately $12,000 of our Nevada factory general G&A expenses, such as office and travel expenses, offset by the decrease of approximately $12,000 of bad debt expenses, the decrease of approximately $4,000 of computer expenses, the decrease of approximately $4,000 of custom inspection fees, and the decrease of approximately $10,000 of other miscellaneous G&A expenses, such as office and travel expenses.

Stock compensation expenses decreased by $524,000 during the six months ended June 30, 2019 compared to the same period in 2018 because Mr. Wang, our CEO and CFO, distributed 1,500,000 shares of his own stock to certain persons outside of the United States who had previously worked with the Company as an incentive for these individuals to assist the Company in developing its international market during the 2018 period. The Company determined that these 1,500,000 shares distributed by Mr. Wang were related to the Company’s operations in accordance to ASC 225-10-S99-4. As a result, we incurred $480,000 stock compensation expense for the six months ended June 30, 2018. In addition, we incurred $44,000 stock compensation expense as we issued 200,000 shares to a consultant for research and strategic planning consulting services during the six months ended June 30, 2018. We did not incur such stock compensation expenses for the six months ended June 30, 2019.

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Amortization of deferred stock compensation increased by approximately $428,000 in the six months ended June 30, 2019 as compared to 2018, of which $126,000 related to the amortization of the value of 2,300,000 shares of restricted shares of common stock to three employees, which all have a vesting period of three years. In addition, we also issued 67,916 shares of our common stock valued at $20,375 during the year ended December 31, 2018 to two financial advisors to provide certain financial advisory services for a period of six months and amortized such cost of approximately $7,000. In January and March 2019, we issued 1,150,000 shares of our common stock with additional 450,000 shares of our common stock to be issued in each of the next three quarters of 2019 valued at $1,080,000 to two advisors to provide certain financial advisory services and amortized such cost of approximately $295,000. These two service contracts were terminated in April and May of 2019 due to non-performance. We did not incur any amortization of deferred stock compensation during the same period in 2018.

Other income increased by approximately $188,000 from approximately $66,000 of other expense in the six months ended June 30, 2018 to approximately $254,000 of other income in the six months ended June 30, 2019, mainly due to approximately $241,000 of gain on debt settlement which we issued stock with a fair value approximately $763,000 in exchange for the settlement of debt of approximately $1.0 million during the six months ended June 30, 2019. In addition, during the six months ended June 30, 2019, we generated approximately $11,000 from sales of our sample products. We did not enter into such transactions during the same period in 2018. During the six months ended June 30, 2018, we had approximately $102,000 of fees charged to our shareholders in assisting them to obtain electronic stock certificates.

Net income increased by approximately $1.9 million from approximately $1.4 million of net loss in the six months ended June 30, 2018 to approximately $0.5 million of net income in the six months ended June 30, 2019 mainly due to the reasons discussed above.

Liquidity and Capital Resources

As of June 30, 2019, we had a cash balance of approximately $1,000, compared to a cash balance of approximately $296,000 at December 31, 2018.

In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations. Other than operating expenses and an outstanding commitment of $1.0 million in relation to the purchase of assets associated with the manufacture of dietary supplements, the Company does not have significant cash commitments. Cash requirements include cash needed for purchase of inventory, payroll, payroll taxes, rent, and other operating expenses. However, in response to the reduced liquidity factors described above, the Company has continued to find ways to reduce its operating expenses. In addition, should our Company need additional capital, our principal shareholder and Chief Executive and Financial Officer may lend additional money to the Company from time to time to the extent he is in a position and willing to do so. No assurance can be provided that he will continue to lend funds to the Company in the future. As of September 6, 2019, we have a cash balance of approximately $9,000.

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

For the six months ended June 30, 2019, cash used in operating activities amounted to approximately $445,000 as compared to approximately $935,000 used in operating activities in the same period in 2018. Cash used in operating activities for the six months ended June 30, 2019 mainly included non-cash transactions of approximately $241,000 from gain on debt settlement, the increase of accounts receivable of approximately $60,000 as we have incurred some credit sales from our packing and OEM business, the increase of inventory of approximately $111,000 as we had started production in full capacity during the six months ended June 30, 2019 and stocked up our inventory at June 30, 2019, the decrease of deferred revenue of approximately $1.4 million from shipping our backlog orders of Auxia and Cell Power products for which our members had previously paid , and the decrease of lease liability of approximately $53,000 as we paid off our lease obligations that were undertaken in March 2019. This amount was partially offset by approximately $555,000 of net income, the non-cash expense of approximately $428,000 in stock based compensation, approximately $33,000 of depreciation and amortization expenses, approximately $46,000 in amortization of a lease right-of-use asset, the decrease of prepaid expenses of approximately $51,000, and the increase of accounts payable and accrued expenses of approximately $329,000, as we were behind on our payment schedule.

25

For the six months ended June 30, 2019, financing activities provided approximately $150,000 as compared to approximately $956,000 during the six months ended June 30, 2018. Net cash received in the six months ended June 30, 2019 includes approximately $89,000 from the collection of our stock subscription receivable and approximately $143,000 from a loan from our principal shareholder and Chief Executive and Financial Officer. These amounts were partially offset by our repayment of principal amounts on various loans of approximately $82,000, of which approximately $62,000 was repaid to our principal shareholder and Chief Executive and Financial Officer, and approximately $20,000 was paid to the unaffiliated third parties.

Item 3. Quantitative and Qualitative Disclosures 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 June 30, 2019 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 June 30, 2019, our disclosure controls and procedures are not effective due to the following material weakness that we have identified:

1. Lack of Accounting and Finance Expertise – Our current accounting staff is relatively small, and we do not have the required infrastructure of meeting the higher demands of being a U.S. public company. This material weakness also relates to a lack of personnel with expertise in preparing financial statements in accordance with U.S. GAAP.

We have taken certain actions to remediate the material weakness related to our lack of U.S. GAAP experience. We have engaged an outside CPA with U.S. GAAP knowledge and SEC reporting experience to supplement our current internal accounting personnel and assist us in the preparation of our financial statements to ensure that our financial statements are prepared in accordance with U.S. GAAP.

The Company’s operations are relatively small and uncomplicated, and as our operations grow and become more complex, we intend to hire additional personnel in financial reporting and other areas. However, there can be no assurance of when, if ever, we will be able to remediate the identified material weaknesses.

Changes in Internal Controls over Financial Reporting

Except as disclosed above, there have been no changes in the Company’s internal controls over financial reporting that occurred during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings 

From time to time, we may be subject to legal proceedings and claims in the ordinary course of business. We are not currently a party to any material legal proceedings, and to our knowledge none is threatened. There can be no assurance that future legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our financial position, results of operations or cash flows.

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

None.

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Item 6. Exhibits. 

(a) Exhibits.

The following exhibits are filed herewith and this list is intended to constitute the exhibit index.

Exhibit No.	Document Description
31.1	CERTIFICATION of CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002.
32.1*	CERTIFICATION of CEO/CFO PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 101	Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Cash Flows, and (iv) the Notes to the Financial Statements.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

_______________

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

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SIGNATURE

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

Merion, Inc.

Title	Name	Date	Signature
President, CEO and CFO	Ding Hua Wang	September 9, 2019	/s/ Ding Hua Wang

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

SIGNATURE	NAME	TITLE	DATE
/s/ Ding Hua Wang	Ding Hua Wang	President, Chief Executive Officer,	September 9, 2019
		Principal Financial and Principal Accounting Officer, Director

29

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Ding Hua Wang, certify that:

1. I have reviewed this report on Form 10-Q of Merion, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting

Dated: September 9, 2019	By:	/s/ Ding Hua Wang
		Ding Hua Wang
		Chief Executive Officer/Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned hereby certifies that the Quarterly Report on Form 10-Q for the period ended June 30, 2019 of Merion, Inc. (the “Company”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: September 9, 2019	By:	/s/ Ding Hua Wang
		Ding Hua Wang
		Chief Executive Officer/Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Merion, Inc. and will be retained by Merion, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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Income Taxes (Details 1) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Income Taxes (Details 1)
Allowance for doubtful accounts	$ 3,116	$ 0
Amortization of intangible assets	204,000	211,556
Net operating loss	1,697,071	1,975,889
Deferred tax assets	1,904,187	2,187,445
Valuation allowance	(1,904,187)	(2,187,445)
Deferred tax assets, net

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Property and Equipment (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Property and Equipment (Details Narrative)
Depreciation expense	$ 16,150	$ 17,727	$ 33,361	$ 36,056

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CONDENSED BALANCE SHEETS - USD ($)	Jun. 30, 2019	Dec. 31, 2018
CURRENT ASSETS:
Cash	$ 767	$ 295,521
Accounts receivable, net	49,414	673
Inventories	161,974	50,339
Prepaid expenses	18,598	69,631
TOTAL CURRENT ASSETS	230,753	416,164
PROPERTY AND EQUIPMENT, net	357,331	390,692
RIGHT-OF-USE ASSET	579,024
DEPOSITS	15,410
TOTAL ASSETS	1,182,518	806,856
CURRENT LIABILITIES:
Accounts payable and accrued expenses	1,395,017	1,173,546
Deferred revenue	7,436	1,522,280
Accrued bonus	28	679,800
Lease liabilities - current	96,211
Due to shareholder, interest bearing	471,603	471,603
Due to shareholder, non-interest bearing	588,863	2,508,051
Advances from related parties, interest bearing		30,000
Advances from related parties, non-interest bearing		518,839
Due to employee	0	95,000
Due to third parties, interest bearing		109,030
Due to third parties, non-interest bearing		101,666
TOTAL CURRENT LIABILITIES	2,559,158	7,209,815
NON-CURRENT LIABILITIES:
Lease liabilities - non-current	476,545
Due to shareholder, non-interest bearing	2,000,000
Advances from related parties, interest bearing	30,000
Advances from related parties, non-interest bearing	518,839
Due to employee	95,000
Due to third parties, interest bearing	20,000
Due to third parties, non-interest bearing	50,000
TOTAL NON-CURRENT LIABILITIES	3,190,384
TOTAL LIABILITIES	5,749,542	7,209,815
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Common stock, $0.001 par value, 200,000,000 shares authorized, 177,264,208 and 174,792,364 shares issued and outstanding, as of June 30, 2019 and December 31, 2018, respectively	177,264	174,792
Stock subscription receivable	(1,110,695)	(1,200,000)
Additional paid-in capital	19,054,535	17,573,900
Deferred stock compensation	(1,029,793)	(738,185)
Deficit	(21,658,335)	(22,213,466)
TOTAL SHAREHOLDERS' DEFICIT	(4,567,024)	(6,402,959)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$ 1,182,518	$ 806,856

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CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Cash Flows from Operating Activities
Net income (loss)	$ 555,131	$ (1,365,574)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	33,361	81,056
Stock compensation expense		524,000
Gain on debt settlement	(241,426)
Amortization of deferred stock compensation	428,392
Amortization of right-of-use asset	46,382
Bad debt expense	11,134	23,418
Changes in operating assets and liabilities
Accounts receivable	(59,875)	4,028
Inventories	(111,635)	17,304
Prepaid expenses	51,033	(13,399)
Deposits and other assets	(15,410)
Accounts payable and accrued expenses	329,334	(78,167)
Deferred revenue	(1,418,976)	(127,903)
Lease liabilities	(52,650)
Net Cash Used in Operating Activities	(445,205)	(935,237)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock and stock subscription	89,305	1,350,553
Advances from shareholder, non-interest bearing	142,860	62,316
Repayment of shareholder loan, non-interest bearing	(62,048)
Repayment of advances from third parties, non-interest bearing	(19,666)	(211,025)
Principal payments of debt		(6,468)
Net Cash Provided by Financing Activities	150,451	956,058
Net Change in Cash	(294,754)	20,821
Cash, beginning of period	295,521	5,038
Cash, end of period	767	25,859
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest		31,566
Cash paid for income tax
Non-cash transactions of investing and financing activities
Purchase of machinery and intangible assets		1,000,000
Stock issued for purchase of machinery and intangible assets		320,000
Stock issued for debt settlement	763,107	360,000
Stock issued on deferred stock compensation	720,000
Initial recognition of right-of-use assets and lease liabilities	$ 618,226

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2019

Summary of Significant Accounting Policies (Tables)

Accounts receivable balance and allowance for doubtful accounts

	June 30, 2019			December 31, 2018
Accounts receivable	$	60,548		$	673
Allowance for doubtful accounts		(11,134	)		-
Accounts receivable, net	$	49,414		$	673

Movement of allowance for doubtful accounts

	Six months ended June 30, 2019		Year ended December 31, 2018
Beginning balance	$	-	$	43,276
Provision for doubtful accounts		11,134		46,836
Less: write-offs		-		(90,112	)
Ending balance	$	11,134	$	-

Property and Equipment useful lives

Machinery	10 years
Computer and software	3 to 5 years
Furniture and fixtures	5 to 10 years
Vehicles	5 to 7 years
Leasehold improvements	over the lesser of the remaining lease term or the expected life of the improvement

Schedule of basis net (loss) income per share

The following table presents basis net (loss) income per share for the periods indicated:

	Three months ended June 30, 2019		Three months ended June 30, 2018			Six months ended June 30, 2019		Six months ended June 30, 2018
Basic earnings per share calculation:
Net income (loss)		777,255		(325,810	)		555,131		(1,365,574	)
Weighted average of common stock outstanding		177,251,571		171,610,812			176,158,993		170,631,039
Basic net (loss) income per share		0.00		(0.00	)		0.00		(0.01	)

The following table presents basis net (loss) income per share for the periods indicated:

	Three months ended June 30, 2019		Three months ended June 30, 2018			Six months ended June 30, 2019		Six months ended June 30, 2018
Basic earnings per share calculation:
Net income (loss)		777,255		(325,810	)		555,131		(1,365,574	)
Weighted average of common stock outstanding		178,291,586		171,610,812			177,451,005		170,631,039
Basic net (loss) income per share		0.00		(0.00	)		0.00		(0.01	)

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Inventories

6 Months Ended

Jun. 30, 2019

[Inventories]

Note 4. Inventories

Inventories consist of the following:

	June 30, 2019		December 31, 2018
	(Unaudited)
Raw materials	$	90,667	$	31,957
Work-in-progress		10,768		2,775
Finished goods		60,539		15,607
Inventories	$	161,974	$	50,339

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Income Taxes

6 Months Ended

Jun. 30, 2019

Income Taxes

Note 8. Income Taxes

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended June 30, 2019 and 2018:

	Three months ended June 30, 2019			Three months ended June 30, 2018			Six months ended June 30, 2019			Six months ended June 30, 2018
Federal statutory rate		21.0	%		21.0	%		21.0	%		21.0	%
State statutory rate		7.0	%		7.0	%		7.0	%		7.0	%
Valuation allowance		(37.7	)%		(15.0	)%		(51.0	)%		(17.1	)%
Permanent difference *		9.7	%		(13.0	)%		23.0	%		(10.9	)%
Effective tax rate		0.0	%		0.0	%		0.0	%		0.0	%

*Represents 50% of meal and entertainment expenses and stock compensation expenses that are not deductible.

The Company uses the asset and 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. Deferred taxes are also recognized for net operating loss carry forwards which can be utilized to offset taxable income in the future. The cumulative net operating loss carryforwards that may be applied against future taxable income is approximately $6,805,000 for Federal and state income taxes as of June 30, 2019. The cumulative net operating loss carryforward that may be applied against future taxable income is approximately $7,817,000 for Federal and state as of December 31, 2018, and will expire in the years 2031 to 2038. As deferred tax assets may not be fully realizable due to potential recurring losses, management has provided 100% valuation allowance for the deferred tax assets.

The components of the deferred tax assets is as follows:

	June 30, 2019			December 31, 2018
	(Unaudited)
Allowance for doubtful accounts	$	3,116		$	-
Amortization of intangible assets		204,000			211,556
Net operating losses		1,697,071			1,975,889
Deferred tax assets		1,904,187			2,187,445
Valuation allowance		(1,904,187	)		(2,187,445	)
Deferred tax assets, net	$	-		$	-

Changes in the value allowance for deferred tax assets decreased by $283,258 from $2,187,445 at December 31, 2018 to $1,904,187 at June 30, 2019. During the six months ended June 30, 2019, the Company utilized $278,818 deferred tax assets from prior period.

As of June 30, 2019, federal tax returns filed for 2016 and 2017 remain subject to examination by the taxing authorities. As of June 30, 2019, California tax returns filed for 2015, 2016 and 2017 remain subject to examination by the taxing authorities.

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Leases (Tables)

6 Months Ended

Jun. 30, 2019

Leases (Tables)

Summary of lease obligations

Twelve months ended June 30,	Operating lease amount
2020	$	121,806
2021		136,740
2022		140,844
2023		145,064
2024		98,624
Total lease payments		643,078
Less: interest		(70,322	)
Present value of lease liabilities	$	572,756

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Summary of Significant Accounting Policies (Details 1) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Summary of Significant Accounting Policies (Details 1)
Beginning balance		$ 43,276	$ 43,276
Provision for doubtful accounts	11,134	$ 23,418	46,836
Less: write-offs			(90,112)
Ending balance	$ 11,134

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Equity (Tables)

6 Months Ended

Jun. 30, 2019

Equity (Tables)

Summary of unvested restricted common stock activity

	Number of shares		Weighted average grant-date fair value per share
Outstanding as of December 31, 2017		-	$	-
Granted		2,300,000		0.37
Vested		-		-
Forfeited		-		-
Outstanding as of December 31, 2018		2,300,000	$	0.37
Granted		-		-
Vested		-		-
Forfeited		-		-
Outstanding as of June 30, 2019		2,300,000	$	0.37

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Summary of Significant Accounting Policies (Details 2)	6 Months Ended
	Jun. 30, 2019
Computer and software [Member] | Minimum [Member]
Estimated useful lives	3 years
Computer and software [Member] | Maximum [Member]
Estimated useful lives	5 years
Furniture and fixtures [Member] | Minimum [Member]
Estimated useful lives	5 years
Furniture and fixtures [Member] | Maximum [Member]
Estimated useful lives	10 years
Vehicles [Member] | Minimum [Member]
Estimated useful lives	5 years
Vehicles [Member] | Maximum [Member]
Estimated useful lives	7 years
Machinery [Member]
Estimated useful lives	10 years
Leasehold improvement [Member]
Estimated useful lives for leasehold improvement	over the lesser of the remaining lease term or the expected life of the improvement

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Equity (Details Narrative) - USD ($)						1 Months Ended			3 Months Ended			6 Months Ended
	Jul. 13, 2021	Jul. 13, 2020	Jul. 13, 2019	Mar. 13, 2019	Jul. 13, 2018	Mar. 30, 2019	Jan. 23, 2019	Aug. 30, 2018	Jun. 30, 2019	Mar. 31, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Mar. 19, 2019	Dec. 31, 2018	Feb. 14, 2018	Jul. 28, 2017
Shares reserved for future issuance																1,500,000
Stock subscription receivable															$ 1,200,000
Stock subscription received
Issuance of common stock for debt settlement, Amount										$ 763,107	$ 360,000
Loss on debt extinguishment												$ 241,426
Common stock, shares issued									177,264,208			177,264,208			174,792,364
Amortization of deferred stock compensation									$ 253,650	$ 174,742
Common stock, par value									$ 0.001			$ 0.001			$ 0.001
Stock compensation expense											$ 44,000		524,000
Chairman and CEO [Member]
Shares reserved for future issuance																	5,000,000
Mr. Wang [Member]
Stock compensation expense												480,000
Financial Advisor [Member]
Common stock issued on consulting services, value								$ 20,375
Common stock shares issuable under agreement								67,916
Common stock shares issuable under agreement, par value								$ 0.001
Closing price of common stock								$ 0.30
Stock compensation expense									0			6,792
Asset Purchase Agreement [Member] | SUSS Technology Corporation [Member] | Transaction One [Member]
Purchase of assets consideration payable									600,000			600,000
Asset Purchase Agreement [Member] | SUSS Technology Corporation [Member] | Transaction Two [Member]
Purchase of assets consideration payable									400,000			$ 400,000
Asset Purchase Agreement [Member] | SUSS Technology Corporation [Member] | On January 1, 2018 [Member]
Business acquisition consideration transferred or transferrable, shares issuable												1,000,000
Business acquisition consideration transferred or transferrable shares issuable, value												$ 320,000
Payment extension, description												The payment date for the $1,000,000 cash portion of the Purchase Price was extended to December 31, 2019.
Business acquisition, consideration payable in cash									$ 1,000,000			$ 1,000,000
Debt Repayment Agreement [Member] | Creditors [Member]
Issuance of common stock for debt settlement, Shares						295,480
Issuance of common stock for debt settlement, Amount						$ 135,851
Loss on debt extinguishment						$ 41,437
Debt conversion price														$ 0.46
Purchase price per share														$ 0.60
Debt Repayment Agreement [Member] | Four Creditors [Member]
Issuance of common stock for debt settlement, Shares						976,364
Issuance of common stock for debt settlement, Amount						$ 868,682
Loss on debt extinguishment						$ 282,863
Debt conversion price						$ 0.89
Purchase price per share						$ 0.60
Omnibus Equity Plan [Member] | Restricted Stock [Member]
Purchase price per share					$ 0.37
Reduction of shareholders? deficit												604,792	$ 731,394
Common stock, shares sold, value					851,000
Common stock, shares issued					2,300,000
Amortization of deferred stock compensation									$ 63,650			126,601
Vesting percent	40.00%	30.00%	30.00%
Consulting Agreement [Member] | Global Merchants Union [Member]
Common stock, shares issued				1,000,000
Amortization of deferred stock compensation									150,000			175,000
Stock compensation expense												425,000
Monthly consulting fee				$ 7,500
Term of agreement				The term of the agreement was for one year but was terminated in May, 2019.
Consulting Agreement [Member] | Redfield Management Service limited [Member]
Amortization of deferred stock compensation									$ 40,000			$ 120,000
Monthly consulting fee							$ 7,000
Term of agreement							The term of the agreement is one year.
Common stock issued on consulting services, shares							50,000
Service agreement description							The service agreement was terminated at the end of April and the Company issued a total of 200,000 shares of its common stock during the six months ended June 30, 2019.
Securities Purchase Agreement [Member] | Private Placement [Member]
Purchase price per share									$ 0.90			$ 0.90
Common stock, shares sold, value													1,474,574
Aggregate offering price													$ 1,327,098
Common stock, par value									$ 0.001			$ 0.001
Plan Two [Member] | Mr. Wang [Member]
Shares reserved for future issuance																4,181,592
Plan One [Member] | Mr. Wang [Member]
Shares reserved for future issuance																1,500,000
Plan [Member] | Mr. Wang [Member]
Shares reserved for future issuance																4,181,592

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Income Taxes (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Taxes (Details)
Federal statutory rate	21.00%	21.00%	21.00%	21.00%
State statutory rate	7.00%	7.00%	7.00%	7.00%
Valuation allowance	(37.70%)	(15.00%)	(51.00%)	(17.10%)
Permanent difference	9.70%	(13.00%)	23.00%	(10.90%)
Effective tax rate	0.00%	0.00%	0.00%	0.00%

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Property and Equipment (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Property and equipment, gross	$ 781,369	$ 781,369
Less: accumulated depreciation and amortization	(424,038)	(390,677)
Property and equipment, net	357,331	390,692
Machinery [Member]
Property and equipment, gross	420,000	420,000
Leasehold improvement [Member]
Property and equipment, gross	40,053	40,053
Furniture and fixtures [Member]
Property and equipment, gross	26,686	26,686
Automobiles [Member]
Property and equipment, gross	179,677	179,677
Computer equipment and software [Member]
Property and equipment, gross	$ 114,953	$ 114,953

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Property and Equipment

6 Months Ended

Jun. 30, 2019

Property and Equipment

Note 5. Property and Equipment

Property and equipment consist of the following:

	June 30, 2019			December 31, 2018
	(Unaudited)
Computer equipment and software	$	114,953		$	114,953
Furniture and fixtures		26,686			26,686
Automobiles		179,677			179,677
Leasehold improvements		40,053			40,053
Machinery		420,000			420,000
Total		781,369			781,369
Less: accumulated depreciation and amortization		(424,038	)		(390,677	)
Property and equipment, net	$	357,331		$	390,692

Depreciation expense totaled $16,150 and $17,727 for the three months ended June 30, 2019 and 2018, respectively.

Depreciation expense totaled $33,361 and $36,056 for the six months ended June 30, 2019 and 2018, respectively.

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Leases

6 Months Ended

Jun. 30, 2019

Leases

Note 9. Leases

Effective January 1, 2019, the Company adopted ASU 2016-02, “Leases” (Topic 842), and elected the practical expedients that does not require us to reassess: (1) whether any expired or existing contracts are, or contain, leases, (2) lease classification for any expired or existing leases and (3) initial direct costs for any expired or existing leases. The Company adopted the practical expedient that allows lessees to treat the lease and non-lease components of a lease as a single lease component. There is no impact from the adoption of ASC 842, as of January 1, 2019 as the Company did not have any existing leases with a lease term in excess of twelve months on January 1, 2019.

In January 2019, the Company entered a new office lease agreement with a 5-year lease term starting in March 2019 and terminating in February 2024. Upon adoption of ASU 2016-02, the Company recognized lease labilities of approximately $618,000, with corresponding right-of-use (“ROU”) asset in the same amount based on the present value of the future minimum rental payments of the new lease, using an effective interest rate of 4.78%, which is determined using an incremental borrowing rate. The remaining lease term of the lease is 4.67 years.

The Company also leases a factory space on a month-to-month basis, which it classifies as an operating lease. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For the three months ended June 30, 2019 and 2018, lease expenses amounted to $45,287 and $22,318, respectively, of which, $10,500 and $0 are short-term lease expenses, respectively.

For the six months ended June 30, 2019 and 2018, lease expenses amounted to $67,382 and $41,974, respectively, of which, $21,000 and $0 are short-term lease expenses, respectively.

The five-year maturity of the Company’s lease obligations is presented below:

Twelve months ended June 30,	Operating lease amount
2020	$	121,806
2021		136,740
2022		140,844
2023		145,064
2024		98,624
Total lease payments		643,078
Less: interest		(70,322	)
Present value of lease liabilities	$	572,756

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CONDENSED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
SHAREHOLDERS' DEFICIT
Common stock, par value	$ 0.001	$ 0.001
Common stock, authorized	200,000,000	200,000,000
Common stock, issued	177,264,208	174,792,364
Common stock, outstanding	177,264,208	174,792,364

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Organization

6 Months Ended

Jun. 30, 2019

Organization

Note 1. Organization

Merion, Inc. (the “Company”), a Nevada corporation, was formed on February 4, 2011. Its predecessor, E-World USA Holding, Inc., was a California company incorporated in 2007 (“E-World CA”). In April 2011, E-World CA entered into a merger agreement with its wholly-owned subsidiary, E-World USA Holding, Inc., a Nevada corporation (“E-World NV”) that was the survivor of the merger and became the Company. Under the Merger Agreement, the Company issued 90,000,000 shares of its common stock on a one for one basis for each share of E-World CA’s common stock issued and outstanding at the date of the merger. In addition, the Company issued Type A Warrants and Type B Warrants in exchange for comparable warrants issued and outstanding of E-World CA at the date of the merger. On June 27, 2017, the Company filed an amendment to its Articles of Incorporation with the Secretary of State for the State of Nevada to change its name from E-World NV to Merion, Inc.

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

On January 1, 2018, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation, (the “Seller”), pursuant to which the Seller agreed to sell to the Company substantially all of the assets associated with the manufacture of dietary supplements (the “Asset Sale”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 1,000,000 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. The Company has evaluated this transaction to determine whether it is considered to be an asset purchase or business purchase and concluded such transaction was an asset purchase in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) section 805-10-55.

The Seller was one of our major suppliers during the years ended December 31, 2017 and 2016. These assets meet all industry nutritional and dietary supplement manufacturing standards, including U.S. Food and Drug Administration and Good Manufacturing Practice compliance and Current Good Manufacturing Practice regulations. In addition to manufacturing the nutritional supplements that it sells, the Company also began production of hard capsules, tablets, solid beverage (sachet packaging), teabags, powder, granules, dietary supplements for export, softgel capsules and health food from these assets for any potential new customers who need these products, similar to our Original Equipment Manufacturer (“OEM”) business. In May 2018, the Company began manufacturing certain of the nutritional supplements that it sells.

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Inventories (Tables)

6 Months Ended

Jun. 30, 2019

Inventories (Tables)

Inventories

	June 30, 2019		December 31, 2018
	(Unaudited)
Raw materials	$	90,667	$	31,957
Work-in-progress		10,768		2,775
Finished goods		60,539		15,607
Inventories	$	161,974	$	50,339

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Summary of Significant Accounting Policies (Details 4) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Basic earnings per share calculation:
Net income (loss)	$ 777,255	$ (325,810)	$ 555,131	$ (1,365,574)
Weighted average of common stock outstanding	178,291,586	171,610,812	177,451,005	170,631,039
Basic net (loss) income per share	$ 0.00	$ (0.00)	$ 0.00	$ (0.01)

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2019

Income Taxes (Tables)

Reconciliation of statutory tax rate

	Three months ended June 30, 2019			Three months ended June 30, 2018			Six months ended June 30, 2019			Six months ended June 30, 2018
Federal statutory rate		21.0	%		21.0	%		21.0	%		21.0	%
State statutory rate		7.0	%		7.0	%		7.0	%		7.0	%
Valuation allowance		(37.7	)%		(15.0	)%		(51.0	)%		(17.1	)%
Permanent difference *		9.7	%		(13.0	)%		23.0	%		(10.9	)%
Effective tax rate		0.0	%		0.0	%		0.0	%		0.0	%

Deferred tax assets

	June 30, 2019			December 31, 2018
	(Unaudited)
Allowance for doubtful accounts	$	3,116		$	-
Amortization of intangible assets		204,000			211,556
Net operating losses		1,697,071			1,975,889
Deferred tax assets		1,904,187			2,187,445
Valuation allowance		(1,904,187	)		(2,187,445	)
Deferred tax assets, net	$	-		$	-

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Summary of Significant Accounting Policies (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Summary of Significant Accounting Policies (Details)
Accounts receivable	$ 60,548	$ 673
Allowance for doubtful accounts	(11,134)
Accounts receivable, net	$ 49,414	$ 673

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Leases (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Leases (Details)
Leases term	5 years
Lease labilities	$ 618,000		$ 618,000
Effective interest rate	4.78%		4.78%
Remaining lease term			4 years 8 months 2 days
Lease expenses	$ 45,287	$ 22,318	$ 67,382	$ 41,974
Short-term lease expenses	$ 10,500	$ 0	$ 21,000	$ 0

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Related Party Transactions

6 Months Ended

Jun. 30, 2019

Related Party Transactions

Note 7. Related Party Transactions

Due to shareholder, interest bearing

In January 2016, Mr. Dinghua Wang, a major shareholder, director, Chief Executive and Financial Officer of the Company, pledged certain of his personal assets and obtained a personal loan from which he provided funds for the operations of the Company. In consideration for the funds the Company received, the Company agreed to pay the interest on this loan on Mr. Wang’s behalf. This loan has an annual borrowing rate of 9.99%. As of June 30, 2019 and December 31, 2018, the balance due to Mr. Wang, interest bearing, amounted to $471,603. The full balance of $471,603 was to be repaid on February 1, 2019 and was extended to May 1, 2019. This loan has been converted to be due on demand.

Interest expense for each of the three month periods ended June 30, 2019 and 2018 for the above loan amounted to $12,487.

Interest expense for each of the six month periods ended June 30, 2019 and 2018 for the above loan amounted to $24,975.

Due to shareholder, non-interest bearing

From time to time, Mr. Dinghua Wang, a major shareholder, director, Chief Executive and Financial Officer of the Company, advances monies to the Company and the Company repays such advances. Such business transactions are recorded as due to or from Mr. Wang at the time of the transaction. During the six months ended June 30, 2019 and 2018, advances totaled $142,860 and $62,316, respectively, and payments to Mr. Wang totaled $62,048 and $211,025, respectively. As of June 30, 2019 and December 31, 2018, the balance due to Mr. Wang, non-interest bearing, amounted to $2,588,863 and $2,508,051, respectively. This balance is unsecured and is due on demand.

In March 2019, the repayment terms related to $2,000,000 of the total balance was changed by Mr. Wang from due on demand to due on March 20, 2024.

Due to employee

The Company has borrowed money from Vickie Ho, Executive Vice President of the Company, to fund operations. These advances do not bear interest, are unsecured and are due on demand. As of June 30, 2019 and December 31, 2018, the Company owed $95,000 to such employee.

In March 2019, the repayment terms related to the balance of $95,000 was changed by the employee from due on demand to due on March 20, 2024.

Advances from related parties, interest bearing

The Company has borrowed $30,000 from a related party to fund operations since July 2016. This related party is the son of the Company’s Chief Executive and Financial Officer. These advances have an annual interest rate of 10%, are unsecured and are due on demand. As of June 30, 2019 and December 31, 2018, the Company owed $30,000 to this related party.

Interest expense for the three months ended June 30, 2019 and 2018 for the above loans amounted to $748.

Interest expense for the six months ended June 30, 2019 and 2018 for the above loans amounted to $1,488.

In March 2019, the repayment terms were changed by the related party from due on demand to due on March 20, 2024.

Advances from related parties, non-interest bearing

The Company has borrowed money from certain related parties to fund operations. The related parties consist of the Chief Executive and Financial Officer’s immediate family members and relatives. These advances do not bear interest, are unsecured and are due on demand. As of June 30, 2019 and December 31, 2018, the Company owed $518,839 to these related parties.

In March 2019, the repayment terms for the $518,839 was changed by these related parties from due on demand to due on March 20, 2024.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2019

Summary of Significant Accounting Policies

Note 3. Summary of Significant Accounting Policies

Basis of Presentation

These unaudited condensed financial statements have been presented by the Company in accordance with the accounting principles generally accepted in the United States of America. 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 Company’s annual report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 28, 2019.

Use of Estimates

The preparation of financial statements in conformity with the generally accepted accounting principles in the United States of America 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 financial statements include the useful lives of property and equipment, the collectability of receivables and impairment on long-live assets. Actual results could differ from those estimates.

Cash and cash equivalents

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

Accounts Receivable

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

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

	June 30, 2019			December 31, 2018
Accounts receivable	$	60,548		$	673
Allowance for doubtful accounts		(11,134	)		-
Accounts receivable, net	$	49,414		$	673

Movement of allowance for doubtful accounts is as follows:

	Six months ended June 30, 2019		Year ended December 31, 2018
Beginning balance	$	-	$	43,276
Provision for doubtful accounts		11,134		46,836
Less: write-offs		-		(90,112	)
Ending balance	$	11,134	$	-

Inventories

Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value. Inventory consists of nutritional, beauty products and raw materials in our manufacturing facility. 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, net

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

Machinery	10 years
Computer and software	3 to 5 years
Furniture and fixtures	5 to 10 years
Vehicles	5 to 7 years
Leasehold improvements	over the lesser of the remaining lease term or the expected life of the improvement

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

Right-of-use Asset and Lease Liabilities

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” The new standard requires lessees to recognize lease assets (“right of use”) and lease obligations (“lease liabilities”) for leases previously classified as operating leases under generally accepted accounting principles on the balance sheet for leases with terms in excess of 12 months. The standard is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years.

Impairment of Long-Lived Assets

Long-lived assets, including property, 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 flow approach or, when available and appropriate, to comparable market values.

Deferred Revenue

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

Accrued Bonus

Accrued bonus represents amounts earned by the Company’s affiliate members (the “Affiliated Members”) for successful product sales. These bonuses are in the form of rebate credits that can be used to order the Company’s products, or the Affiliate Members can request a rebate in cash.

Fair Value of Financial Instruments

The Financial Accounting Standard Board (“FASB”) accounting standards codification (“ASC”), FASB ASC 825 Financial Instruments, requires that the Company discloses estimated fair values of financial instruments.

As defined in ASC 820 Fair Value Measurement, 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 utilizes 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. 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:

Level 1 –	Quoted prices that are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 –	Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 –	Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon adoption of this new guidance, as the Company’s revenue was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations.

The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are recognized at a point in time, based on when control of goods and services transfers to a customer.

The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies each performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition.

The Company continues to derive its revenues from sales contracts with its customers with revenues being recognized upon delivery of products. Persuasive evidence of an arrangement is demonstrated via sales contracts and invoices; and the sales price to the customer is fixed upon acceptance of the sales contract. Sales rebates or discounts are recognized as a reduction of revenue. The Company recognizes revenue when control of the goods is transferred upon shipment to the customer by the Company and collectability of payment is reasonably assured. These revenues are recognized at a point in time after all performance obligations are satisfied.

The Company also recognizes revenue on shipping and handling fees charged to the Company’s customers. Shipping and handling fee revenue is recognized when products have been delivered at a point in time. Shipping and handling fee revenues totaled $23,615 and $703 for the three months ended June 30, 2019 and 2018, respectively, and totaled $26,424 and $3,163 for the six months ended June 30, 2019 and 2018, respectively.

Product returns are allowed for unopened products purchased under regular sales terms within 60 days. Allowances for product returns are provided at the time the sale is recorded using historic return rates for each country and the relevant return pattern. Historically the Company has a return rate of nearly zero. Hence, the allowance as of June 30, 2019 and December 31, 2018 is estimated at $0.

In addition to the Company’s 60-day return policy, the Company, at its discretion, may accept a customer’s application for a buy-back of products previously sold within one year at 90% of the original product’s cost 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 had been recorded as of June 30, 2019 and December 31, 2018.

The majority of the Company’s product sales are generated from China. Product sales generated from other countries or within the United States are immaterial to our financial statements. Currently, all of the Company’s OEM and packaging sales are generated from the United States. While all products are priced in U.S. currency, the Company accepts payments in both U.S. dollars and Hong Kong dollars.

Shipping and Handling Expenses

Shipping and handling costs incurred by the Company are included in selling expenses and totaled $9,261and $11,072 for the three months ended June 30, 2019 and 2018, respectively, and totaled $19,963 and $15,898 for the six months ended June 30, 2019 and 2018, respectively.

Research and Development (“R&D”) Expenses

Research and development expenses include salaries and other compensation-related expenses paid to the Company’s research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the general and administrative expenses and totaled $0 and $34 for the three months ended June 30, 2019 and 2018, respectively, and totaled $904 and $382 for the six months ended June 30, 2019 and 2018, respectively.

Income Taxes

The Company utilizes ASC 740 Income Taxes, 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. Deferred taxes are also recognized for net operating losses that can be carried forward. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Basic and Diluted Earnings (Loss) Per Share

Generally accepted accounting principles 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 is computed by dividing net income (loss) available to common stockholders by the weighted average of common shares outstanding during the period. Diluted earnings 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. These common stock equivalents are not included when the Company has a loss because they would be anti-dilutive.

The following table presents basis net (loss) income per share for the periods indicated:

	Three months ended June 30, 2019		Three months ended June 30, 2018			Six months ended June 30, 2019		Six months ended June 30, 2018
Basic earnings per share calculation:
Net income (loss)		777,255		(325,810	)		555,131		(1,365,574	)
Weighted average of common stock outstanding		177,251,571		171,610,812			176,158,993		170,631,039
Basic net (loss) income per share		0.00		(0.00	)		0.00		(0.01	)

The following table presents basis net (loss) income per share for the periods indicated:

	Three months ended June 30, 2019		Three months ended June 30, 2018			Six months ended June 30, 2019		Six months ended June 30, 2018
Basic earnings per share calculation:
Net income (loss)		777,255		(325,810	)		555,131		(1,365,574	)
Weighted average of common stock outstanding		178,291,586		171,610,812			177,451,005		170,631,039
Basic net (loss) income per share		0.00		(0.00	)		0.00		(0.01	)

2,300,000 shares of restricted common stock with weighted average effect of 1,040,015 and 1,292,012 diluted shares are included in the diluted EPS calculation for the three and six months ended June 30, 2019, respectively. There were no other potential dilutive securities outstanding for the three and six months ended June 30, 2019 and 2018.

Concentration of Credit Risk

-    Financial instruments

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation (FDIC) insured limits for the banks located in the United States, or may exceed Hong Kong Deposit Protection Board (HKDPB) insured limits for the banks located in Hong Kong. The Company had approximately less than $1,000 and $104,000 uninsured balances as June 30, 2019 and December 31, 2018, respectively.

-    Major Customers and Suppliers

For the three months ended June 30, 2019, no customer accounted for more than 10% of the Company’s sales and for the three months ended June 30, 2018, one customer accounted for approximately 71% of the Company’s sales.

For the six months ended June 30, 2019, no customer accounted for more than 10% of the Company’s sales and for the six months ended June 30, 2018, two customers accounted for approximately 60% (49% and 11%) of the Company’s sales.

As of June 30, 2019, three customers accounted for 100% (74%, 13% and 13%) of the Company’s accounts receivables. As of December 31, 2018, one customer accounted for 100% of the Company’s accounts receivables.

For the three months ended June 30, 2019, two suppliers accounted for approximately 81% (64% and 17%) of the Company’s product purchases and for the three months ended June 30, 2018, three suppliers accounted for approximately 57% (35%, 11% and 11%) of the Company’s product purchases.

For the six months ended June 30, 2019, four suppliers accounted for approximately 69% (23%, 19%, 17% and 10%) of the Company’s product purchases and for the six months ended June 30, 2018, two suppliers accounted for approximately 40% (30% and 10%) of the Company’s product purchases.

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 June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2018-07. ASU 2018-07 simplifies the accounting for share-based payments made to nonemployees so the accounting for such payments is substantially the same as those made to employees. Under this ASU, share based awards to nonemployees will be measured at fair value on the grant date of the awards, entities will need to assess the probability of satisfying performance conditions if any are present, and awards will continue to be classified according to Accounting Standards Codification (“ASC”) 718 upon vesting which eliminates the need to reassess classification upon vesting, consistent with awards granted to employees. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this ASU did not have any material effect on the Company’s unaudited condensed consolidated financial statements.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.

Reclassifications

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

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Summary of Significant Accounting Policies (Policies)

Basis of Presentation

These unaudited condensed financial statements have been presented by the Company in accordance with the accounting principles generally accepted in the United States of America. 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 Company’s annual report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 28, 2019.

Use of Estimates

The preparation of financial statements in conformity with the generally accepted accounting principles in the United States of America 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 financial statements include the useful lives of property and equipment, the collectability of receivables and impairment on long-live assets. Actual results could differ from those estimates.

Cash and cash equivalents

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

Accounts Receivable

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

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

	June 30, 2019			December 31, 2018
Accounts receivable	$	60,548		$	673
Allowance for doubtful accounts		(11,134	)		-
Accounts receivable, net	$	49,414		$	673

Movement of allowance for doubtful accounts is as follows:

	Six months ended June 30, 2019		Year ended December 31, 2018
Beginning balance	$	-	$	43,276
Provision for doubtful accounts		11,134		46,836
Less: write-offs		-		(90,112	)
Ending balance	$	11,134	$	-

Inventories

Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or net realizable value. Inventory consists of nutritional, beauty products and raw materials in our manufacturing facility. 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, net

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

Machinery	10 years
Computer and software	3 to 5 years
Furniture and fixtures	5 to 10 years
Vehicles	5 to 7 years
Leasehold improvements	over the lesser of the remaining lease term or the expected life of the improvement

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

Right-of-use Asset and Lease Liabilities

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” The new standard requires lessees to recognize lease assets (“right of use”) and lease obligations (“lease liabilities”) for leases previously classified as operating leases under generally accepted accounting principles on the balance sheet for leases with terms in excess of 12 months. The standard is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years.

Impairment of Long-Lived Assets

Long-lived assets, including property, 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 flow approach or, when available and appropriate, to comparable market values.

Deferred Revenue

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

Accrued Bonus

Accrued bonus represents amounts earned by the Company’s affiliate members (the “Affiliated Members”) for successful product sales. These bonuses are in the form of rebate credits that can be used to order the Company’s products, or the Affiliate Members can request a rebate in cash.

Fair Value of Financial Instruments

The Financial Accounting Standard Board (“FASB”) accounting standards codification (“ASC”), FASB ASC 825 Financial Instruments, requires that the Company discloses estimated fair values of financial instruments.

As defined in ASC 820 Fair Value Measurement, 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 utilizes 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. 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:

Level 1 –	Quoted prices that are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 –	Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reporting date and includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Level 3 –	Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

Revenue Recognition

On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) using the modified retrospective method for contracts that were not completed as of January 1, 2018. This did not result in an adjustment to retained earnings upon adoption of this new guidance, as the Company’s revenue was recognized based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations.

The core principle underlying the revenue recognition ASU is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are recognized at a point in time, based on when control of goods and services transfers to a customer.

The ASU requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies each performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no differences in the pattern of revenue recognition.

The Company continues to derive its revenues from sales contracts with its customers with revenues being recognized upon delivery of products. Persuasive evidence of an arrangement is demonstrated via sales contracts and invoices; and the sales price to the customer is fixed upon acceptance of the sales contract. Sales rebates or discounts are recognized as a reduction of revenue. The Company recognizes revenue when control of the goods is transferred upon shipment to the customer by the Company and collectability of payment is reasonably assured. These revenues are recognized at a point in time after all performance obligations are satisfied.

The Company also recognizes revenue on shipping and handling fees charged to the Company’s customers. Shipping and handling fee revenue is recognized when products have been delivered at a point in time. Shipping and handling fee revenues totaled $23,615 and $703 for the three months ended June 30, 2019 and 2018, respectively, and totaled $26,424 and $3,163 for the six months ended June 30, 2019 and 2018, respectively.

Product returns are allowed for unopened products purchased under regular sales terms within 60 days. Allowances for product returns are provided at the time the sale is recorded using historic return rates for each country and the relevant return pattern. Historically the Company has a return rate of nearly zero. Hence, the allowance as of June 30, 2019 and December 31, 2018 is estimated at $0.

In addition to the Company’s 60-day return policy, the Company, at its discretion, may accept a customer’s application for a buy-back of products previously sold within one year at 90% of the original product’s cost 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 had been recorded as of June 30, 2019 and December 31, 2018.

The majority of the Company’s product sales are generated from China. Product sales generated from other countries or within the United States are immaterial to our financial statements. Currently, all of the Company’s OEM and packaging sales are generated from the United States. While all products are priced in U.S. currency, the Company accepts payments in both U.S. dollars and Hong Kong dollars.

Shipping and Handling Expenses

Shipping and handling costs incurred by the Company are included in selling expenses and totaled $9,261and $11,072 for the three months ended June 30, 2019 and 2018, respectively, and totaled $19,963 and $15,898 for the six months ended June 30, 2019 and 2018, respectively.

Research and Development ("R&D") Expenses

Research and development expenses include salaries and other compensation-related expenses paid to the Company’s research and product development personnel while they are working on R&D projects, as well as raw materials used for the R&D projects. R&D expenses incurred by the Company are included in the general and administrative expenses and totaled $0 and $34 for the three months ended June 30, 2019 and 2018, respectively, and totaled $904 and $382 for the six months ended June 30, 2019 and 2018, respectively.

Income Taxes

The Company utilizes ASC 740 Income Taxes, 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. Deferred taxes are also recognized for net operating losses that can be carried forward. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

Basic and Diluted Earnings (Loss) Per Share

Generally accepted accounting principles 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 is computed by dividing net income (loss) available to common stockholders by the weighted average of common shares outstanding during the period. Diluted earnings 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. These common stock equivalents are not included when the Company has a loss because they would be anti-dilutive.

The following table presents basis net (loss) income per share for the periods indicated:

	Three months ended June 30, 2019		Three months ended June 30, 2018			Six months ended June 30, 2019		Six months ended June 30, 2018
Basic earnings per share calculation:
Net income (loss)		777,255		(325,810	)		555,131		(1,365,574	)
Weighted average of common stock outstanding		177,251,571		171,610,812			176,158,993		170,631,039
Basic net (loss) income per share		0.00		(0.00	)		0.00		(0.01	)

The following table presents basis net (loss) income per share for the periods indicated:

	Three months ended June 30, 2019		Three months ended June 30, 2018			Six months ended June 30, 2019		Six months ended June 30, 2018
Basic earnings per share calculation:
Net income (loss)		777,255		(325,810	)		555,131		(1,365,574	)
Weighted average of common stock outstanding		178,291,586		171,610,812			177,451,005		170,631,039
Basic net (loss) income per share		0.00		(0.00	)		0.00		(0.01	)

2,300,000 shares of restricted common stock with weighted average effect of 1,040,015 and 1,292,012 diluted shares are included in the diluted EPS calculation for the three and six months ended June 30, 2019, respectively. There were no other potential dilutive securities outstanding for the three and six months ended June 30, 2019 and 2018.

Concentration of Credit Risk

-    Financial instruments

Financial instruments that potentially subject the Company to concentrations of credit risk are cash, accounts receivable and other receivables arising from its normal business activities. The Company maintains balances at financial institutions which, from time to time, may exceed Federal Deposit Insurance Corporation (FDIC) insured limits for the banks located in the United States, or may exceed Hong Kong Deposit Protection Board (HKDPB) insured limits for the banks located in Hong Kong. The Company had approximately less than $1,000 and $104,000 uninsured balances as June 30, 2019 and December 31, 2018, respectively.

-    Major Customers and Suppliers

For the three months ended June 30, 2019, no customer accounted for more than 10% of the Company’s sales and for the three months ended June 30, 2018, one customer accounted for approximately 71% of the Company’s sales.

For the six months ended June 30, 2019, no customer accounted for more than 10% of the Company’s sales and for the six months ended June 30, 2018, two customers accounted for approximately 60% (49% and 11%) of the Company’s sales.

As of June 30, 2019, three customers accounted for 100% (74%, 13% and 13%) of the Company’s accounts receivables. As of December 31, 2018, one customer accounted for 100% of the Company’s accounts receivables.

For the three months ended June 30, 2019, two suppliers accounted for approximately 81% (64% and 17%) of the Company’s product purchases and for the three months ended June 30, 2018, three suppliers accounted for approximately 57% (35%, 11% and 11%) of the Company’s product purchases.

For the six months ended June 30, 2019, four suppliers accounted for approximately 69% (23%, 19%, 17% and 10%) of the Company’s product purchases and for the six months ended June 30, 2018, two suppliers accounted for approximately 40% (30% and 10%) of the Company’s product purchases.

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 June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2018-07. ASU 2018-07 simplifies the accounting for share-based payments made to nonemployees so the accounting for such payments is substantially the same as those made to employees. Under this ASU, share based awards to nonemployees will be measured at fair value on the grant date of the awards, entities will need to assess the probability of satisfying performance conditions if any are present, and awards will continue to be classified according to Accounting Standards Codification (“ASC”) 718 upon vesting which eliminates the need to reassess classification upon vesting, consistent with awards granted to employees. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The adoption of this ASU did not have any material effect on the Company’s unaudited condensed consolidated financial statements.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.

Reclassifications

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

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2019	Sep. 06, 2019
Document And Entity Information
Entity Registrant Name	Merion, Inc.
Entity Central Index Key	0001517498
Document Type	10-Q
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Small Business	true
Entity Shell Company	false
Entity Emerging Growth Company	false
Entity Current Reporting Status	Yes
Document Period End Date	Jun. 30, 2019
Entity Filer Category	Non-accelerated Filer
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2019
Entity Common Stock Shares Outstanding		177,264,208

XML

CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT - USD ($)	Total	Common Stock Shares	Stock Subscription Receivable	Additional Paid-in Capital	Deferred Stock Compensation	Deficit
Beginning balance, Shares at Jan. 01, 2018		169,161,896
Beginning balance, Amount at Jan. 01, 2018	$ (7,150,133)	$ 169,162	$ (123,455)	$ 11,870,808		$ (19,066,648)
Net loss	(1,039,764)					(1,039,764)
Issuance of common stock for cash, Shares		759,563
Issuance of common stock for purchase of machinery and intangible assets, Shares		1,000,000
Cancellation of stock subscription, Shares		(111,110)
Collection of stock subscription	23,455		23,455
Transfer of common stock from major shareholder for services	480,000			480,000
Issuance of common stock for cash, Amount	625,889	760	(57,709)	682,838
Issuance of common stock for purchase of machinery and intangible assets, Amount	320,000	1,000		319,000
Cancellation of stock subscription, Amount		$ (111)	100,000	(99,889)
Beginning balance, Shares at Mar. 31, 2018		170,810,349
Beginning balance, Amount at Mar. 31, 2018	(6,740,553)	$ 170,811	(57,709)	13,252,757		(20,106,412)
Net loss	(325,810)					(325,810)
Issuance of common stock for cash, Shares		715,011
Collection of stock subscription	57,709		57,709
Issuance of common stock for financing related services, Shares		46,668
Issuance of common stock for debt settlement, Shares		400,000
Issuance of common stock for consulting services, Shares		200,000
Issuance of common stock for cash, Amount	643,500	$ 714		642,786
Issuance of common stock for financing related services, Amount		47		(47)
Issuance of common stock for debt settlement, Amount	360,000	400		359,600
Issuance of common stock for consulting services, Amount	44,000	$ 200		43,800
Beginning balance, Shares at Jun. 30, 2018		172,172,028
Beginning balance, Amount at Jun. 30, 2018	(5,961,154)	$ 172,172		14,298,896		(20,432,222)
Beginning balance, Amount at Dec. 31, 2018	(6,402,959)
Beginning balance, Shares at Jun. 30, 2019		177,264,208
Beginning balance, Amount at Jun. 30, 2019	(4,567,024)	$ 177,264	(1,110,695)	19,054,535	(1,029,793)	(21,658,335)
Beginning balance, Shares at Jan. 01, 2019		174,792,364
Beginning balance, Amount at Jan. 01, 2019	(6,402,959)	$ 174,792	(1,200,000)	17,573,900	(738,185)	(22,213,466)
Net loss	(222,124)					(222,124)
Collection of stock subscription	62,500		62,500
Issuance of common stock for debt settlement, Shares		1,271,844
Issuance of common stock for consulting services, Shares		1,150,000
Amortization of deferred stock compensation	174,742				174,742
Issuance of common stock for debt settlement, Amount	763,107	1,272		761,835
Issuance of common stock for consulting services, Amount		$ 1,150		1,078,850	(1,080,000)
Beginning balance, Shares at Mar. 31, 2019		177,214,208
Beginning balance, Amount at Mar. 31, 2019	(5,624,734)	$ 177,214	(1,137,500)	19,414,585	(1,643,443)	(22,435,590)
Net loss	777,255					777,255
Collection of stock subscription	26,805		26,805
Issuance of common stock for consulting services, Shares		50,000
Amortization of deferred stock compensation	253,650				253,650
Cancellation of common stock for consulting services, Shares
Issuance of common stock for consulting services, Amount		$ 50		(50)
Cancellation of common stock for consulting services, Amount				(360,000)	360,000
Beginning balance, Shares at Jun. 30, 2019		177,264,208
Beginning balance, Amount at Jun. 30, 2019	$ (4,567,024)	$ 177,264	$ (1,110,695)	$ 19,054,535	$ (1,029,793)	$ (21,658,335)

XML

Debt (Details Narrative) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	Mar. 31, 2019	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Due to third parties, interest bearing						$ 109,030
Repayment of advances from third parties, non-interest bearing		0	$ 0	(19,666)	$ (211,025)
Interest expense		299	$ 1,613	1,722	$ 3,244
Due to third parties, non-interest bearing						101,666
Third party borrowing non interest bearing [Member]
Debt settlement amount	$ 32,000
Loan extension description				In March 2019, the repayment terms related to the remaining balance of $50,000 was changed by the third party creditor from due on demand to due on March 20, 2024.
Third party borrowing interest bearing [Member]
Debt settlement amount	$ 89,030
Loan extension description				In March 2019, the repayment terms related to the remaining balance of $20,000 were changed by the third party creditor from due on demand to due on March 20, 2024.
Third party borrowing [Member]
Due to third parties, interest bearing		20,000		$ 20,000		109,030
Due to third parties, non-interest bearing		$ 50,000		$ 50,000		$ 101,666
Interest rate				6.00%

XML

Summary of Significant Accounting Policies (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Inventory shelf life			3 years
Customer accounted		71.00%	10.00%	60.00%
Diluted shares	1,040,015
Shipping and handling fee revenues	$ 23,615	$ 703	$ 26,424	$ 3,163
Product warranty description			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’s cost less commissions and shipping costs.
Product return allowance	0		$ 0		$ 0
Shipping and handling costs	9,261	11,072	19,963	15,898
Research and development expenses	0	$ 34	904	$ 382
Uninsured amount	$ 1,000		$ 1,000		$ 104,000
Product purchases	81.00%	57.00%	69.00%	40.00%
One Supplier [Member]
Product purchases	64.00%	35.00%	23.00%	30.00%
Two Supplier [Member]
Product purchases	17.00%	11.00%	19.00%	10.00%
Three Supplier [Member]
Product purchases		11.00%	17.00%
Four Supplier [Member]
Product purchases			10.00%
One Customer [Member]
Product sales		41.00%	74.00%
Three Customer [Member]
Product sales		72.00%	13.00%
Two Customers [Member]
Product sales		31.00%	13.00%

XML

Income Taxes (Details Narrative) - USD ($)	6 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Cumulative net operating loss carry-forward expiring	years 2031 to 2038
Deferred tax assets, valuation allowance percentage	100.00%	100.00%
Deferred tax assets	$ 1,904,187	$ 2,187,445
Deferred tax assets from prior period	278,818
Change in valuence allowance		283,258
Federal [Member]
Cumulative net operating loss carry-forward	$ 6,805,000	$ 7,817,000

XML

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
SALES
Direct Sales	$ 1,359,018	$ 130,946	$ 1,472,347	$ 160,129
OEM and Packaging	118,631	15,963	153,679	51,488
TOTAL SALES	1,477,649	146,909	1,626,026	211,617
COST OF SALES
Direct Sales	32,570	22,027	44,552	36,791
OEM and Packaging	41,607	3,615	69,986	16,029
Idle Capacity		75,342		133,109
TOTAL COST OF SALES	74,177	100,984	114,538	185,929
GROSS PROFIT	1,403,472	45,925	1,511,488	25,688
OPERATING EXPENSES
Selling expenses	15,552	25,915	39,470	257,816
General and administrative expenses	352,239	312,363	742,660	675,231
Stock compensation expense		44,000		524,000
Amortization of deferred stock compensation cost	253,650		428,392
Total operating expenses	621,441	382,278	1,210,522	1,457,047
INCOME (LOSS) FROM OPERATIONS	782,031	(336,353)	300,966	(1,431,359)
OTHER INCOME (EXPENSE), net
Other income (expense)	11,346	28,764	44,187	102,083
Finance expenses	(16,122)	(18,221)	(31,448)	(36,298)
Gain on debt settlement			241,426
Total other (expense) income, net	(4,776)	10,543	254,165	65,785
INCOME (LOSS) BEFORE INCOME TAXES	777,255	(325,810)	555,131	(1,365,574)
PROVISION FOR INCOME TAXES
NET INCOME (LOSS)	$ 777,255	$ (325,810)	$ 555,131	$ (1,365,574)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
Basic	177,251,571	171,610,812	176,158,993	170,631,039
Diluted	178,291,586	171,610,812	177,451,005	170,631,039
INCOME (LOSS) PER SHARE
Basic	$ 0.00	$ (0.00)	$ 0.00	$ (0.01)
Diluted	$ 0.00	$ (0.00)	$ 0.00	$ (0.01)

XML

Debt

6 Months Ended

Jun. 30, 2019

Debt

Note 6. Debt

Due to third parties, interest bearing

The Company has borrowed money from third parties to fund operations. These third parties consist of the Chief Executive and Financial Officer’s friends and the spouse of a former board member of the Company. These advances have an annual interest rate of 6%, are unsecured, and are due on demand. As of June 30, 2019 and December 31, 2018, the Company owed $20,000 and $109,030 to these third parties, respectively. In March 2019, the Company settled $89,030 of the debt owed to some of these third parties and converted the debt into the Company’s common stock (See Note 10 - Equity).

Interest expense for the three months ended June 30, 2019 and 2018 for the above loans amounted to $299 and $1,631, respectively.

Interest expense for the six months ended June 30, 2019 and 2018 for the above loans amounted to $1,722 and $3,244, respectively.

In March 2019, the repayment terms related to the remaining balance of $20,000 were changed by the third party creditor from due on demand to due on March 20, 2024.

Due to third parties, non-interest bearing

The Company has borrowed money from third parties to fund operations. These third parties consist of the Chief Executive and Financial Officer’s friends and a former board member of the Company. These advances do not bear interest, are unsecured, and are due on demand. As of June 30, 2019 and December 31, 2018, the Company owed $50,000 and $101,666 to these third parties, respectively. In March 2019, the Company settled $32,000 of the debt owed to a third party and converted the debt into the Company’s common stock (See Note 10 - Equity). The Company also repaid $19,666 to a third party during the six months ended June 30, 2019.

In March 2019, the repayment terms related to the remaining balance of $50,000 was changed by the third party creditor from due on demand to due on March 20, 2024.

XML

Going Concern

6 Months Ended

Jun. 30, 2019

Going Concern

Note 2. Going Concern

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

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

XML

Equity

6 Months Ended

Jun. 30, 2019

Equity

Note 10. Equity

Share Distribution Plans

1) On July 15, 2017, the Board approved Mr. Dinghua Wang, the Chairman and CEO of the Company, to distribute up to thirty million of his own shares to certain persons outside of the United States who have previously worked with the Company as an incentive for these individuals to assist the Company to develop its international market. Accordingly, special legends regarding restrictions on resale of the securities and no-hedging transactions would need to be included on the securities.

As of the date of this report, Mr. Wang had distributed 1,500,000 shares pursuant to this plan. All of these 1,500,000 shares were distributed on February 14, 2018 pursuant to Regulation S under the Securities Act of 1933. The Company determined that these shares distributed by Mr. Wang were related to the Company’s operations in accordance to ASC 220-10-S99-4. The fair value of these shares were valued at $480,000 and recorded as stock-based compensation expenses in the Company’s six months ended June 30, 2018 consolidated statements of operations.

2) On July 28, 2017, the Company’s Board of Directors approved Mr. Dinghua Wang, the Chairman and CEO of the Company, to distribute up to 5 million of his own shares to the people who, directly or indirectly, loaned funds or referred customers to the Company or purchased products from the Company as the Company faces financial difficulty. To the extent that these share distributions are being made to anyone outside of the U.S., those distributions will be made under Regulation S and must contain appropriate Regulation S subscription agreements and legends. If anyone within U.S. is to receive those shares, the Company will consult with the Company counsel to comply with U.S. securities laws.

As of the date of this report, Mr. Wang had distributed 4,181,592 shares pursuant to this plan. All of these 4,181,592 shares were distributed on February 14, 2018. The Company determined that these 4,181,592 shares distributed by Mr. Wang were at his own discretion and the recipients of the shares did not expect such distribution at the time when they, directly or indirectly, loaned funds or referred customers to the Company or purchased products from the Company as the Company faces financial difficulty.

3) On June 30, 2017, the Company’s Board of Directors approved the grant of up to twenty million shares (from authorized but unissued shares of the Company’s common stock) to persons outside the U.S. who sell Company products based on their sales performance in the future. The Company must determine that this type of incentive compensation is legal and appropriate for each country in which it is utilized. For ease of administration, this plan has been, and will continue to be solely for persons outside of the United States pursuant to Regulation S under the Securities Act of 1933. No shares have been issued during the six months ended June 30, 2019 and 2018.

Private placements

During the six months ended June 30, 2018, the Company entered into a series of Securities Purchase Agreements with various unrelated third party purchasers, pursuant to which the Company sold to these purchasers in private placements an aggregate of 1,474,574 shares of the Company’s common stock, par value $0.001 per share, at a purchase price of $0.90 per share for an aggregate offering price of $1,327,098. The sales were completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended.

As of June 30, 2019 and December 31, 2018, $1,110,695 and $1,200,000, respectively, were unpaid and recognized as stock subscription receivable in the accompanying statements of changes in shareholders’ deficit. During the six months ended June 30, 2019, the Company received $89,305 of the stock subscription receivable.

Purchase of assets

On January 1, 2018, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with SUSS Technology Corporation, a Nevada corporation (the “Seller”), pursuant to which the Company purchased the assets associated with the Seller’s manufacture of dietary supplements (the “Asset Sale”) for an aggregate purchase price (the “Purchase Price”) of $1,000,000 and 1,000,000 shares of the Company’s common stock (the “Purchase Shares”) valued at $320,000. No other assets were included with this purchase and the Company assumed the Seller’s obligations under a lease of real property used in the Seller’s business.

The issuance of the Purchase Shares was completed pursuant to the exemption from registration provided by Regulation D promulgated under the Securities Act of 1933, as amended. The payment of the cash portion of the Purchase Price was to occur in two distributions: (i) the first, in the amount of $600,000, was to occur within six months of the date of the Purchase Agreement, and (ii) the second, in the amount of $400,000, was to occur within twelve months of the date of the Purchase Agreement. The second distribution may be reduced by any indemnification claims against the Seller under the terms of the Agreement. The distribution of the Purchase Shares was completed in March 2018. The payment date for the $1,000,000 cash portion of the Purchase Price was extended to December 31, 2019.

Settlement of debt

On March 19, 2019, the Company entered into two Debt Repayment Agreements with two creditors of the Company (the “Creditors”), pursuant to which the Company agreed to repay $135,851 owed to the Creditors in the form of 295,480 shares of Company’s common stock at an average debt conversion rate of $0.46 per share (the “Debt Repayment”). The Debt Repayment was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended. The closing price of the Company’s common stock on March 19, 2019 was $0.60 per share, which resulted in a loss on settlement of debt of $41,437.

On March 30, 2019, the Company entered into Debt Repayment Agreements with four creditors of the Company (the “Creditors”), pursuant to which the Company agreed to repay $868,682 owed to the Creditors in the form of 976,364 shares of Company’s common stock at an average debt conversion rate of $0.89 per share (the “Debt Repayment”). The Debt Repayment was completed pursuant to the exemption from registration provided by Regulation S promulgated under the Securities Act of 1933, as amended. The closing price of the Company’s common stock on March 30, 2019 was $0.60 per share, which resulted in a gain on settlement of debt of $282,863.

Common stock issued for consulting services

On August 30, 2018, the Company entered into two advisory agreements with two advisors (the “Financial Advisors”), pursuant to which the Company engaged the Financial Advisors to provide certain financial advisory services for a service period of six months. As compensation for the services, the Company agreed to issue the Financial Advisors an aggregate of 67,916 shares of its common stock, par value $0.001. These shares are valued at $20,375, determined using the closing price of the Company’s common stock on August 30, 2018 of $0.30 per share. For the three and six months ended June 30, 2019, amortization of deferred stock compensation of these shares amounted to $0, and $6,792, respectively.

On January 23, 2019, the Company entered into a consulting agreement with Redfield Management Service limited for business, finance and investor relations services. The consultant is due a monthly consulting fee of $7,000 and 50,000 shares, to be paid every three months. The term of the agreement is one year. The service agreement was terminated at the end of April and the Company issued a total of 200,000 shares of its common stock during the six months ended June 30, 2019. For the three and six months ended June 30, 2019, amortization of deferred stock compensation of these shares amounted to $40,000 and $120,000, respectively.

On March 13, 2019, the Company entered into a consulting agreement with Global Merchants Union (“GMU”), a company incorporated in California, pursuant to which GMU will provide business and financial operation and planning consultation services to the Company for consideration of $7,500 per month and a one-time stock payment of 1,000,000 shares of common stock of the Company (the “Share Payment”). Shares subject to the Share Payment will be issued to GMU within 30 days after the agreement is signed. The term of the agreement was for one year but was terminated in May, 2019. For the three and six months ended June 30, 2019, amortization of deferred compensation of these shares amounted to $150,000 and $175,000, respectively. Deferred stock compensation of $425,000 has been recognized as a reduction of shareholders’ deficit as the services had not been performed as of June 30, 2019.

Issuance of restricted common stock

On July 13, 2018, the Board of Directors of the Company approved the grant of 2,300,000 restricted stock units (the “RSUs”) to three employees of the Company, pursuant to the Merion, Inc. 2018 Omnibus Equity Plan. Thirty percent of the RSUs will vest on July 13, 2019, thirty percent of the RSUs will vest on July 13, 2020, and the remaining forty percent of the RSUs will vest on July 13, 2021, in each case provided that the employee remains employed, in good standing, by the Company. These shares are valued at $851,000, determined using the closing price of the Company’s common stock on July 13, 2018 of $0.37 per share, and will be amortized ratably over the term of the vesting periods of three years on a straight line basis. The Company accounts for the restricted common stock as equity-settled awards in accordance with ASC 718. For the three and six months ended June 30, 2019, amortization of deferred stock compensation of these shares amounted to $63,650 and $126,601, respectively. Deferred stock compensation of $604,792 and $731,394 has been recognized as a reduction of shareholders’ deficit as the services have not been performed as of June 30, 2019 and December 31, 2018, respectively.

The following table summarizes unvested restricted common stock activity for the six months ended June 30, 2019 and for the year ended December 31, 2018:

	Number of shares		Weighted average grant-date fair value per share
Outstanding as of December 31, 2017		-	$	-
Granted		2,300,000		0.37
Vested		-		-
Forfeited		-		-
Outstanding as of December 31, 2018		2,300,000	$	0.37
Granted		-		-
Vested		-		-
Forfeited		-		-
Outstanding as of June 30, 2019		2,300,000	$	0.37

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Leases (Details)	Jun. 30, 2019 USD ($)
Twelve months ended June 30,
2020	$ 121,806
2021	136,740
2022	140,844
2023	145,064
2024	98,624
Total lease payments	643,078
Less: interest	(70,322)
Present value of lease liabilities	$ 572,756

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Related Party Transactions (Details Narrative) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Mar. 31, 2019	Dec. 31, 2018	Jan. 31, 2016
Due to shareholder, interest bearing	$ 2,000,000		$ 2,000,000
Due to shareholder, non-interest bearing	588,863		588,863			2,508,051
Due to employee	95,000		95,000			$ 95,000
Repayment of related party debt	$ 0	$ 0	$ (19,666)	$ (211,025)
Loan extension description	In March 2019, the repayment terms were changed by the related party from due on demand to due on March 20, 2024.
Interest expense	$ 748	748
Interest rate	10.00%		10.00%			10.00%
Mr. Dinghua Wang [Member]
Due to shareholder, non-interest bearing	$ 2,588,863		$ 2,588,863			$ 2,508,051
Advances from shareholder, non-interest bearing	142,860	62,316
Repayment of shareholder loan, non-interest bearing	$ 62,048	211,025
Loan extension description	In March 2019, the repayment terms related to $2,000,000 of the total balance was changed by Mr. Wang from due on demand to due on March 20, 2024.
Chief Executive Officer [Member] | Due to shareholder, interest bearing [Member]
Due to shareholder, interest bearing	$ 471,603		471,603			$ 471,603
Loan extension description	The full balance of $471,603 was to be repaid on February 1, 2019 and was extended to May 1, 2019
Interest expense	$ 12,487	$ 12,487	24,975	24,975
Interest rate							9.99%
Son of CEO [Member] | Advances from Related Parties Interest Bearing [Member]
Interest expense			$ 1,488	$ 1,488
CEO's immediate family members [Member] | Advances from Related Parties Non-Interest Bearing [Member]
Due to shareholder, non-interest bearing					$ 518,839

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Inventories (Details) - USD ($)	Jun. 30, 2019	Dec. 31, 2018
Inventories (Details)
Raw materials	$ 90,667	$ 31,957
Work-in-progress	10,768	2,775
Finished goods	60,539	15,607
Inventories	$ 161,974	$ 50,339

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2019

Property and Equipment (Tables)

Property and Equipment

	June 30, 2019			December 31, 2018
	(Unaudited)
Computer equipment and software	$	114,953		$	114,953
Furniture and fixtures		26,686			26,686
Automobiles		179,677			179,677
Leasehold improvements		40,053			40,053
Machinery		420,000			420,000
Total		781,369			781,369
Less: accumulated depreciation and amortization		(424,038	)		(390,677	)
Property and equipment, net	$	357,331		$	390,692

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Organization (Details Narrative) - USD ($)	1 Months Ended	6 Months Ended
	Apr. 30, 2011	Jun. 30, 2019
State of incorporation
Date of incorporation		Feb. 04, 2011
Merger agreement [Member] | E-World USA Holdings, Inc. [Member]
Common stock issued at merger agreement	90,000,000
Common stock issued at merger agreement, description	one for one basis for each share of E-World CA’s common stock issued and outstanding at the date of the merger
Asset Purchase Agreement [Member] | SUSS Technology Corporation [Member] | On January 1, 2018 [Member]
Business acquisition, consideration payable in cash		$ 1,000,000
Business acquisition consideration transferred or transferrable, shares issuable		1,000,000
Business acquisition consideration transferred or transferrable shares issuable, value		$ 320,000

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Summary of Significant Accounting Policies (Details 3) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Basic earnings per share calculation:
Net income (loss)	$ 777,255	$ (325,810)	$ 555,131	$ (1,365,574)
Weighted average of common stock outstanding	177,251,571	171,610,812	176,158,993	170,631,039
Basic net (loss) income per share	$ 0.00	$ (0.00)	$ 0.00	$ (0.01)

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Equity (Details) - Restricted Stock [Member] - $ / shares	6 Months Ended	12 Months Ended
	Jun. 30, 2019	Dec. 31, 2018
Number of shares
Outstanding begninning	2,300,000
Granted		2,300,000
Vested
Forfeited
Outstanding ending	2,300,000	2,300,000
Weighted average grant-date fair value per share
Outstanding begninning	$ 0.37
Granted		0.37
Vested
Forfeited
Outstanding ending	$ 0.37	$ 0.37