UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

 

or

 

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

 

For the transition period from _______ to _________

 

Commission file number 333-217412

 

JAKROO INC.

(Exact name of registrant as specified in its charter)

 

Nevada   81-1565811
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

5906 Stoneridge Mall Road

Pleasanton, CA 94588

(Address of principal executive offices, including zip code)

 

(800)485-7067

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 (1) has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the 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] 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]

 

As of May 14, 2018, the registrant had 31,288,650 shares of common stock outstanding.

 

 

 

     
 

 

JAKROO INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018

TABLE OF CONTENT

 

    PAGE
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements:  1
     
  Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 (unaudited)  1
     
  Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended March 31, 2018 and 2017 (unaudited)   2
     
  Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited) 3
     
  Notes to Consolidated Financial Statements (unaudited)   4
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 9
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk  16
     
Item 4. Controls and Procedures   16
     
PART II. OTHER INFORMATION   16
     
Item 1. Legal Proceedings   16
     
Item 1A. Risk Factors   16
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  17
     
Item 3. Defaults Upon Senior Securities   17
     
Item 4. Mine Safety Disclosures   17
     
Item 5. Other Information   17
     
Item 6. Exhibits   17
     
Signatures  18

 

     
 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

Jakroo Inc. and Subsidiaries

Consolidated Balance Sheets <Unaudited>

 

 

   

March 31, 2018

    December 31, 2017  
ASSETS            
Current assets:            
Cash and cash equivalents   $ 2,447,379     $ 2,350,930  
Accounts receivable     78,373       53,026  
Inventories     1,323,268       1,549,996  
Prepaid expenses and other current assets     351,823       452,715  
Total current assets     4,200,843       4,406,667  
Property and equipment, net     2,867,703       2,854,802  
TOTAL ASSETS   $ 7,068,546     $ 7,261,469  
LIABILITIES AND STOCKHOLDERS’ EQUITY                
Current liabilities:                
Accounts payable   $ 379,540     $ 245,396  
Advance from customers     281,533       653,305  
Mortgage payable – current portion     70,591       69,898  
Other current liabilities     158,685       296,723  
Total current liabilities     890,349       1,265,322  
Mortgage payable     1,872,862       1,891,019  
Total liabilities     2,763,211       3,156,341  
                 
Stockholders’ equity:                
Jakroo Inc. Stockholders’ equity                
Preferred stock, $0.001 par value, 10,000,000 shares authorized; None issued and outstanding     -       -  
Common stock, $0.001 par value, 100,000,000 shares authorized, 31,288,650 and 31,288,650 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively     31,289       31,289  
Additional paid in capital     721,158       693,352  
Statutory reserve     136,652       136,652  
Retained earnings     3,028,322       3,023,173  
Accumulated other comprehensive loss     (11,504 )     (126,596 )
Total Jakroo Inc. Stockholders’ equity     3,905,917       3,757,870  
Non-controlling interests     399,418       347,258  
Total Stockholders’ Equity     4,305,335       4,105,128  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 7,068,546     $ 7,261,469  

 

The accompanying Notes are an integral part of these consolidated financial statements

 

  1  
 

 

Jakroo Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) <Unaudited>

 

 

   

Three Months Ended

March 31,

 
    2018     2017  
             
Revenues   $ 2,662,197     $ 2,102,976  
Cost of revenues     1,273,441       1,023,171  
Gross profit     1,388,756       1,079,805  
Selling, general and administrative expense     1,353,595       1,160,034  
Income (loss) from operations     35,161       (80,229 )
Interest (expense) income     (18,977 )     1,212  
Income (loss) before income taxes     16,184       (79,017 )
Income tax provision (benefit)     5,949       (2,739 )
NET INCOME (LOSS)     10,235       (76,278 )
Less: Income (loss) attributable to non-controlling interest     5,086       (3,459 )
NET INCOME (LOSS) ATTRIBUTABLE TO JAKROO INC.     5,149       (72,819 )
                 
OTHER COMPREHENSIVE INCOME (LOSS):                
Foreign currency translation adjustment     127,879       32,557  
COMPREHENSIVE INCOME (LOSS)     138,114       (43,721 )
                 
Less: Comprehensive income (loss) attributable to non-controlling interest     17,873       (203 )
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO JAKROO INC.   $ 120,241     $ (43,518 )
                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING – BASIC     31,288,650       30,787,659  
EARNING (LOSS) PER SHARE – BASIC   $ 0.00     $ 0.00  
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING – DILUTED     32,499,210       30,787,659  
EARNING (LOSS) PER SHARE – DILUTED   $ 0.00     $ 0.00  

 

The accompanying Notes are an integral part of these consolidated financial statements.

 

  2  
 

 

Jakroo Inc. and Subsidiaries

Consolidated Statements of Cash Flows <Unaudited>

 

 

   

Three Months Ended

March 31, 2018

   

Three Months Ended

March 31, 2017

 
Cash Flows From Operating Activities:                
Net income (loss)   $ 10,235     $ (76,278 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities                
Depreciation     38,593       32,412  
Share based compensation     27,806       26,556  
Deferred taxes     1,489       (31,650 )
Changes in operating assets and liabilities:                
Accounts receivable     (24,712 )     (147,765 )
Inventories     282,376       206,025  
Prepaid expenses and other current assets     111,034       146,056  
Accounts payable     123,634       20,486  
Advance from customers     (384,158 )     (279,965 )
Other current liabilities     (143,736 )     (76,560 )
Net cash provided by (used in) operating activities     42,561       (180,683 )
Cash Flows from Investing Activities:                
Acquisition of property and equipment     (7,935 )     (2,565,780 )
Net cash used in investing activities     (7,935 )     (2,565,780 )
Cash Flows from Financing Activities:                
Payment to related parties     -       (19,193 )
Proceeds from mortgage loan     -       2,040,000  
Repayment of mortgage loan     (17,464 )     (17,000 )
Proceeds from issuance of common stock     -       44,936  
Net cash provided by (used in) financing activities     (17,464 )     2,048,743  
Effect of exchange rate changes on cash and cash equivalents     79,287       32,438  
Net increase (decrease) in cash and cash equivalents     96,449       (665,282 )
Cash and cash equivalents, beginning of period     2,350,930       2,777,957  
CASH AND CASH EQUIVALENTS, END OF PERIOD   $ 2,447,379     $ 2,112,675  
Supplemental disclosure of cash flow information:                
Cash paid during the periods for :                
Income taxes   $ 46,881     $ 85,335  
Interest   $ 19,360     $ -  

Non-cash investing and financing activities

       
Non-controlling interest contribution of intangible assets   $ 34,287       -  

 

The accompanying Notes are an integral part of these consolidated financial statement.

 

  3  
 

 

Jakroo Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

(unaudited)

 

1. DESCRIPTION OF BUSINESS

 

Jakroo Inc. and its subsidiaries (the “Company”), which are controlled through a series of variable interest agreements, design, manufacture and sell customized technical endurance apparel for the cycling, triathlon, running and Nordic skiing markets.

 

As used herein, the term “Common Stock” means the Company’s common stock, par value $0.001 per share.

 

In February 2018, the Company and an individual investor founded Designlab.ai Corp., a California corporation (“Designlab”), which is primarily focused on research and development of automation processes in designing and manufacturing customized technical endurance apparel by using current artificial intelligence technologies. The Company owns 70% of Designlab’s common stock by investing $80,000 while the individual investor owns 30% of Designlab’s common stock by contributing technical know-how in artificial intelligence.

 

2. Basis of Presentation

 

Basis of Presentation and Consolidation

 

The unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to the Securities and Exchange Commission’s rules and regulations. In the opinion of management, the unaudited consolidated financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position of the Company as of March 31, 2018 and the results of operations and cash flows of the Company for the periods ended March 31, 2018 and 2017. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited. The results for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for any subsequent periods or for the entire year. The balance sheet on December 31, 2017 has been derived from the audited financial statements at that date. These unaudited financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2017 as included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the U.S. Securities and Exchange Commission (“SEC”) on April 2, 2018.

 

The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the accounts of the Company, its subsidiaries and entities controlled through VIE agreements. All intercompany balances and transactions have been eliminated in consolidation.

 

Certain amounts have been reclassified to conform to current year presentation.

 

Recently Issued Accounting Standards

 

From time to time, new accounting pronouncements are issues by the Financial Accounting Standards Board or other standard bodies that may have an impact on the Company’s accounting and reporting. The Company believes that any recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

 

  4  
 

 

3. Inventories

 

Inventories consisted of the following:

 

    March 31, 2018     December 31, 2017  
Raw materials   $ 888,097     $ 903,421  
Finished goods     435,171       646,575  
Total inventories   $ 1,323,268     $ 1,549,996  

 

4. Mortgage payable

 

The Company entered into a mortgage loan from a bank in the principle amount of $2,040,000 on January 9, 2017, of which $51,000 is interest free and the balance of $1,989,000 bears an annual interest rate of 3.96%. The loan has a ten year term with monthly installments of $12,274 including interest. The final payment of approximately $1,224,000 including interest will be made on January 15, 2027. The mortgage loan is collateralized by land and building the Company purchased in January 2017 in the United States.

 

Principal payments on mortgage payable are due as follows:

 

Year ending December 31:      
2018   $ 52,377  
2019     72,697  
2020     75,466  
2021     78,757  
2022     81,978  
Thereafter     1,582,178  
    $ 1,943,453  

 

5. Stock Option Plan

 

On January 5, 2017, the Company’s Board of Directors adopted a stock option plan. This plan was intended to retain and provide incentives for employees, officers and directors, and to align stockholder and employee interests. The participants of the plan include the Company’s employees who were previously determined by the Board of Directors. On January 5, 2017, the Company signed stock option agreements with certain participants and granted options to purchase a total of 3,492,000 shares of Common Stock to the participants. The vesting period of the stock options was four years starting from the grant date. The exercise price is $0.17 per share. The options will expire ten years from the grant date, subject to earlier termination as set forth in the option plan and the option agreement. On August 16, 2017, the Company granted stock options to two independent directors to purchase an aggregate of 480,000 shares of common stock at a price of $0.25 per share, which vested immediately. The options will be exercisable for a period of five years commencing six months from the date of grant on a cashless exercise basis.

 

The Company assessed the fair value of the total granted stock options on the grant date using a Black-Scholes Stock Option Pricing Model. Significant assumptions used in calculating fair value of options are as follows:

 

  Expected volatility 54.00% ~ 68.58%;
     
  Risk-free interest rate 0.83% ~ 1.24%;
     
  Expected term (year) 4 ~ 5;
     
  Exercise price $0.17 ~ $0.25.

 

  5  
 

 

The estimated fair value of the total granted stock options on the grant date was $507,649, among which $56,509 was recorded in the expense of year 2017 and $451,140 is being amortized over 48 months period. For the quarter ended March 31, 2018 and 2017, total amortization of stock-based compensation expense was $27,806 and $26,556, respectively.

 

A summary of the changes in stock options outstanding under the Company’s equity incentive plan is presented below:

 

    Shares    

Weighted Average Grant

Date Fair Value

   

Weighted

Average

Exercise Price

    Remaining Contractual Term  
Options outstanding at December 31, 2017     3,972,000     $ 507,649     $ 0.18       3  
Granted     -       -       -       -  
Exercised     -       -       -        -  
Cancelled     -       -       -       -  
Expired     -       -       -       -  
Options outstanding at March 31, 2018     3,972,000     $ 507,649     $ 0.18       3  

 

A summary of the status of non-vested options is as follows:

 

    Shares    

Weighted Average Exercise

Price

 
Non-vested at December 31, 2017     2,619,000     $ 0.17  
Granted     -       -  
Vested     (873,000 )     0.17  
Forfeited or exercised     -       -  
Non-vested at March 31, 2018     1,746,000     $ 0.17  

 

6. Provision for Income Taxes

 

The Company has operations in four tax jurisdictions - the United States, China, Canada and Austria.

 

The Company’s U.S. operations are subject to income tax according to U.S. tax law.

 

The U.S. Tax Cuts and Jobs Act (Tax Act) was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21% and creates new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and the base erosion tax, respectively. The Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8% on the remaining earnings. The Company’s deferred tax assets and liabilities were remeasured to reflect the reduction in the U.S. corporate income tax rate from 35% to 21%, resulting in a deferred tax expense of $13,487 for the three months ended March 31, 2018. This expense is attributable to the Company being in a net deferred tax asset position at the time of remeasurement. This amount can be seen on the rate reconciliation as an adjustment to deferred tax asset.

 

The Company’s Chinese operations are subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments. In addition, Rider Langfang is subject to 15% of income tax rate from 2017 to 2019.

 

  6  
 

 

The Company’s Canada operation is subject to a 26% profit tax based on its taxable net profit. The Company’s Austria subsidiary is subject to a 25% profit tax based on its taxable net profit.

 

The reconciliation of income tax expense (benefit) at the U.S. statutory rate of 21% and 35% in 2018 and 2017, to the Company’s effective tax rate is as follows:

 

   

Three Months Ended

March 31,

 
    2018     2017  
U.S. Federal statutory rate   $ 3,399     $ (27,656 )
U.S. State tax     (3,555 )     -  
Tax rate difference between U.S. and foreign operations     (7,769 )     (3,671 )
Change of valuation allowance     16,368       25,317  
Permanent difference     (15,981 )     3,271  
Rate change     13,487       -  
Effective tax rate   $ 5,949     $ (2,739 )

 

The provisions for income taxes are summarized as follows

 

   

Three Months Ended

March 31,

 
    2018     2017  
Current            
Federal   $ -     $ -  
State     -       -  
Other foreign countries     4,460       28,911  
      4,460       28,911  
                 
Deferred                
Federal     (8,443 )     (31,650 )
State     (3,555 )       -  
Other foreign countries     -       -  
Rate change     13,487       -  
      1,489       (31,650 )
Provision for income tax (benefit)   $ 5,949     $ (2,739 )

 

The Company had approximately $586,000 net operating loss carryforwards available in the U.S, China, and Austria to reduce future taxable income which will begin to expire from 2037 for U.S tax purposes and from 2022 for China income tax purpose. Of the total of net operating loss of $586,000, approximately $373,000 was incurred by our company in Austria since it started business in early 2016. The net operating loss of the Company’s Chinese subsidiary (the “WFOE”) could be carried forward for a period of not more than five years from the year of the initial loss pursuant to relevant PRC tax laws and regulations. The net operating loss from Austrian operations can be carried forward with no time limit from the year of the initial loss pursuant to relevant Austria tax laws and regulations. Management believes that, except for Rider Sportsfashion LLC, it is more likely than not that the deferred tax assets cannot be utilized in the future because there will not be significant future earnings from the entity which generated the net operating loss. Therefore, the Company recorded a valuation allowance on its deferred tax assets for all period presented except for the operating loss occurred by Rider Sportsfashion LLC in the year ended December 31, 2017 and three months ended March 31, 2018. Accordingly, the Company recorded a deferred tax asset of $40,747 as of March 31, 2018, and $42,235 as of December 31, 2017.

 

  7  
 

 

As of March 31, 2018 and December 31, 2017, the Company has no material unrecognized tax benefits which would favorably affect the effective income tax rate in future periods and does not believe that there will be any significant increases or decreases of unrecognized tax benefits within the next twelve months. No interest or penalties relating to income tax matters have been imposed on the Company during the quarters ended March 31, 2018 and 2017, and no provision for interest and penalties is deemed necessary as of March 31, 2018 and December 31, 2017.

 

7. Related Party Transactions and Balances

 

(1) Kustellar LLC, an entity co-owned by Mr. Weidong Du and Ms. Wei Tan, each a stockholder and director of the Company, provides accounting consulting service to the Company. The Company was billed by Kustellar LLC $nil for the three months ended March 31, 2018 and 2017, respectively; and paid $nil and $20,373 in the three months ended March 31, 2018 and 2017, respectively.

 

(2) The WFOE and an entity controlled by the Company through Variable Interest Entity (“VIE”) agreements leased office space from Ms. Wei Tan in China for approximately $3,000 per month. The lease expires on May 14, 2018. Rent expense incurred to Ms. Wei Tan was approximately $9,000 for the quarters ended March 31, 2018 and 2017, respectively.

 

(3) On June 5, 2015, the Company signed a loan agreement with an officer to advance $75,000 at an annual interest rate of 2.5% with payment of a minimum of $200 per month and due on May 31, 2017. The loan receivable was paid in full in April 2017 and the balance was zero of March 31, 2018 and December 31, 2017.

 

8. Segment Data and Related Information

 

The Company’s operating segments are based on how the Company’s Chief Operating Decision Maker (“CODM”) makes decisions about allocating resources and assessing performance. As such, the CODM receives discrete financial information for the Company’s principal business by geographic region based on the Company’s strategy to develop its own brand recognition. These geographic regions include North America, China and Europe. Each geographic segment operates exclusively in one industry: the development, marketing and distribution of branded performance apparel.

 

The revenues, income (loss) before income taxes, and total assets associated with the Company’s segments are summarized in the following tables. Revenues represent sales to external customers for each segment. In addition to revenues, income (loss) before income taxes is a primary financial measure used by the Company to evaluate the performance of each segment. Intercompany balances were eliminated.

 

    Three Months Ended March 31,  
    2018     2017  
Revenues                
North America   $ 1,598,064     $ 1,356,754  
China     977,307       671,446  
Europe     86,826       74,776  
Total revenues   $ 2,662,197     $ 2,102,976  

 

    Three Months Ended March 31,  
    2018     2017  
Income (loss) before income taxes                
North America   $ (69,785 )   $ (92,772 )
China     115,529       75,187  
Europe     (29,560 )     (61,432 )
Total Income (loss) before income taxes   $ 16,184     $ (79,017 )

 

    March 31, 2018     December 31, 2017  
         
Total Assets                
North America   $ 3,948,317     $ 3,958,690  
China     2,996,644       3,248,199  
Europe     123,585       54,580  
Total Assets   $ 7,068,546     $ 7,261,469  

 

9. Subsequent Events.

 

The Company has evaluated subsequent events that have occurred after the date of the balance sheet through the date of issuance of these consolidated financial statements and determined that no subsequent event requires recognition or disclosure to the consolidated financial statements.

 

  8  
 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

 

Certain statements in this section contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this report and not clearly historical in nature are forward-looking, and the words “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “intends,” “potential,” and similar expressions (as well as other words or expressions referencing future events, conditions or circumstances) generally are intended to identify forward-looking statements. Any statements in this report that are not historical facts are forward-looking statements. Actual results may differ materially from those projected or implied in any forward-looking statements. Such statements involve risks and uncertainties, including but not limited to those relating to product and customer demand, market acceptance of our products, the ability to create new products, the ability to achieve a sustainable profitable business, the effect of economic conditions, the ability to protect our intellectual property rights, competition from other providers and products, risks in product development, our ability to raise capital to fund continuing operations, and other factors discussed from time to time in our filings with the Securities and Exchange Commission. The Company undertakes no obligation to update or revise any forward-looking statement for events or circumstances after the date on which such statement is made except as required by law. Amounts in this section are in thousands, unless otherwise indicated.

 

Overview

 

We specialize in the design, manufacture and direct sale of customized technical endurance apparel for the cycling, triathlon, running and Nordic skiing markets across Asia, Europe and North America. Our made-to-order, just-in-time (“JIT”) process vertically integrates design, sales and distribution of sporting apparel products.

 

Our global sporting apparel business is currently comprised of three core business units: inline, which consists of products produced and sold as part of a collection (“Inline”), OEM contract manufacturing (“OEM”) and custom order (“Custom Order”). Our Inline, OEM and Custom Order businesses currently account for 11%, 28% and 61%, respectively, of our sales revenue for the three months ended March 31, 2018, comparing with 10%, 24%, and 66% for the three months ended March 31, 2017.

 

The two primary sales channels for our Inline and Custom Order businesses are direct sale and wholesale. Direct sale currently generates 69% of our worldwide sales revenues (71% for the three months ended March 31, 2017). Under the direct sale model, within North America and Europe, we sell our products directly to end users through our Jakroo e-commerce platform. The Jakroo platform allows customers to easily log onto our platform, complete their designs and place purchase orders. Wholesale currently represents 31% of our revenue for the three months ended March 31, 2018 (29% for the three months ended March 31, 2017). We act as both retailer and wholesaler of our products through our e-commerce platform. In China, we collaborate with large online retailers such as TMall and JD.com to sell our inline collections to the consumer. Sales through both channels are executed with payments made directly to us online prior to the shipment of products.

 

In order to target customers in major markets, we have established sales offices in the United States, Canada, Austria, and China that provide localized sales, marketing and customer service support to our regional markets. As of the date of the report, we have approximately 182 employees worldwide.

 

The purchase of our new 6,300 square feet U.S. headquarters facility in Pleasanton, California in the first quarter of 2017 was the first step in further strengthening our sales, marketing and innovation teams. During the first three months ended March 31, 2018, our design team created 5,456 custom designs, compared to 4,302 custom designs during the same period in 2017, representing a 27% increase in customer design requests. We continue to invest in our 3D design workflows in order to gain greater efficiencies and to improve the end-user experience. Site visits across our .com, .ca and .eu domains rose 50% during the first quarter of 2018, compared to the same period last year. We attribute these results, in part, to our investments in athlete and high profile team sponsorships throughout 2017, and user experience improvements made to our websites beginning from the latter half of 2017 which we believe have helped elevate the credibility of the brand among our core audience.

 

  9  
 

 

During the first three months, ended March 31, 2018, our new customer acquisition increased 18% and our repeat purchase rate increased 48%. This resulted in an aggregate growth of 25% across our North American and European operating segments compared to the same period last year. Additionally, over the previous six months ending March 31, 2018, we achieved a NPS or net promoter score of 66, based on customer feedback, which represents increasingly strong customer loyalty according to current NPS calculation methodology. We attribute these positive indicators to the introduction of new product, improvements to our website UX and our ability to consistently maintain a delivery timeline of 2 weeks or less.

 

We currently lease a 64,000 square feet manufacturing facility at the border of Beijing and Hebei province in China. The facility has annual capacity to produce 500,000 jerseys and manufactures all of our products. We consider our centralized manufacturing facility both a competitive advantage and a key driver behind our ability to maintain exceptionally high levels of quality and industry leading short delivery times. During the first quarter of 2018, we processed approximately 12,000 micro-production lots with a total production quantity of 30,778 units. 99% of these products were produced and shipped in 14 days or less and 83% were produced and shipped in 7 days or less.

 

We believe there is an increasing recognition of the health benefits of an active lifestyle through cycling, triathlon and running. We believe this trend provides us with an expanding potential consumer base for our products. We also believe there continues to be an increasing number of individuals participating in cycling, triathlon and running activities, thus creating an increased demand for athletic apparel from leisure, pre-athlete and amateur participants. We plan to continue to grow our business over the long term through increased sales of our apparel via our made-to-order, JIT process, and our expansion in international markets.

 

Although we believe these trends will facilitate our growth, we also face potential challenges that could limit our ability to take advantage of these opportunities, including, among other things, the risk of general economic or market conditions that could affect consumer spending and the financial health of our retail customers. In addition, we may not be able to effectively manage our growth as our business becomes a larger and more complex global business. We may not consistently be able to anticipate consumer preferences or develop new and innovative products that meet changing consumer needs and preferences in a timely manner. Furthermore, our industry is very competitive, and competition pressures could cause us to reduce the prices of our products or otherwise affect our profitability.

 

General

 

Revenues are comprised of the sales of our technical endurance apparel products, which include OEM, inline collection and custom made to order, with the latter category assuming the highest percentage of sales of the three segments.

 

Cost of revenues consists primarily of fabrics, other raw materials, overhead, manufacturing costs, inbound raw material freight and outbound duty and freight costs required to make our products floor-ready to customer specifications.

 

We include outbound freight costs associated with shipping goods to customers as cost of goods sold.

 

Our selling, general and administrative expenses consist of costs related to marketing, selling, product innovation, supply chain and corporate services. Personnel costs are included in these categories based on each employee’s function. Personnel costs include salaries, benefits and incentives.

 

  10  
 

 

Results of Operations

 

Three Months Ended March 31, 2018 compared to Three Months Ended March 31, 2017

 

The following table sets forth key components of our results of operations for the periods indicated, both in dollars and as a percentage of net revenues:

 

   

Three Months Ended

March 31,

 
    2018     2017  
             
Revenues   $ 2,662,197     $ 2,102,976  
Cost of revenues     1,273,441       1,023,171  
Gross profit     1,388,756       1,079,805  
Selling, general and administrative expense     1,353,595       1,160,034  
Interest expense (income), net     18,977       (1,212)  
Income (loss) before income taxes     16,184       (79,017)  
Income tax expense (benefit)     5,949       (2,739)  
Net income (loss)   $ 10,235     $ (76,278)  

 

As a percentage of net revenues  

Three Months Ended

March 31,

 
    2018      2017  
             
Revenues     100.00 %     100.00 %
Cost of revenues     47.83       48.65  
Gross profit     52.17       51.35  
Selling, general and administrative expense     50.85       55.16  
Interest expense (income), net     0.71       (0.05)  
Income (loss) before income taxes     0.61       (3.76)  
Income tax expense (benefit)     0.22       (0.13)  
Net income (loss)     0.39 %     (3.63) %

 

Revenues

 

Net revenues increased approximately $560,000, or 27%, to $2.66 million in the three months ended March 31, 2018 from $2.10 million in the same period in 2017. Net revenues by business units are summarized below:

 

   

Three Months Ended

March 31,

 
    2018     2017     $ Change     % Change  
OEM   $ 741,866     $ 503,107     $ 238,759       47.46 %
Inline     286,028       201,217       84,811       42.15 %
Custom Orders     1,634,303       1,398,652       235,651       16.85 %
Total Revenues   $ 2,662,197     $ 2,102,976     $ 559,221       26.59 %

 

  11  
 

 

While the increase in net sales was driven by increases across all business units, our Custom Order and OEM business units’ revenues increased approximately $236,000 or 17% and approximately $239,000 or 47% respectively. Combined, this represents 85% of the total revenue growth for the three months ended March 31, 2018. Inline revenue increased approximately $85,000, or 42%, to $286,000 for the three months ended March 31, 2018 from $201,000 during the same period in 2017. We attribute these results largely to our investments in customer acquisition and retention programs implemented, beginning from the fourth quarter of 2017.

 

Gross profit

 

Gross profit increased approximately $309,000, or 29%, to $1.39 million for the three months ended March 31, 2018 from $1.08 million for the same period in 2017. Gross profit as a percentage of net revenues, or gross margin, increased by 1% to 52% in the three months ended March 31, 2018 compared to 51% in the same period in 2017. The increase in gross margin percentage was primarily driven by a decline in cost of revenue by 1% to 48%, comparing to 49% during the same period in 2017.

 

Cost of Revenues

 

Cost of revenues for our products includes the expenses incurred from our purchase of raw materials, direct labor fees and manufacturing overhead.

 

For the three months ended March 31, 2018, our total cost of revenues amounted to $1.27 million, or 48% of total revenues, as compared to $1.02 million, or 49% of total revenues in the three months ended March 31, 2017. The decrease in cost of revenues as a percentage of total revenue was primarily driven by an increase of Custom Order sales which have a higher gross margin.

 

Selling, general and administrative expenses

 

Our selling, general and administrative expenses consist of costs related to marketing, selling, new product development and auditing and legal services. For the three months ended March 31, 2018, selling, general and administrative expenses increased $0.19 million to $1.35 million from $1.16 million for the same period in 2017. As a percentage of net revenues, selling, general and administrative expenses decreased to 50.9% in the three months ended March 31, 2018 from 55.2% for the same period in 2017. These changes were primarily attributable to the follows:

 

  We continue to invest in our sales offices in the U.S., Europe, Canada, and China to strengthen our customer service and increase brand awareness through advertising, promotion, and sponsorship in the respective markets.
  We continue to invest in product development and technology infrastructure. The costs associated with the development of new products was $21,000 for the three months ended March 31, 2018.
  We continue to invest in our employees, the most valuable assets of the company. In addition to the share based-compensation plan, we made a strategic hire to lead our Product R&D in the fourth quarter of 2017 and implemented a more competitive performance based compensation plan beginning January 1, 2018.
  In 2017, we relocated our US office to the newly purchase property. The related expenses, including interest, depreciation, property tax, and others were increased in the three months ended March 31, 2018 compared with the same period in 2017.
  Our net revenue increased approximately $560,000, or 27%, to $2.66 million in the three months ended March 31, 2018.

 

Provision for income taxes

 

Provision for income taxes increased approximately $9,000 to $6,000 income tax expense in the three months ended March 31, 2018 from $3,000 income tax credit during the same period in 2017. The increase is line with the increase of operating income in three months ended March 31, 2018 compared to the same period in 2017. Our effective tax rate was 36.76% for the three months ended March 31, 2018 as compared to 3.47% for the same period in 2017.

 

  12  
 

 

Other Comprehensive Income (loss)/Foreign Currency Translation Adjustment

 

Other comprehensive income (loss)/foreign currency translation adjustment changed approximately $95,000 to an income of $128,000 in three months ended March 31, 2018 from $33,000 in the same period of 2017. These changes were primarily attributable to the more decrease in the US Dollar to RMB exchange rate in the three months ended March 2018 as compared to the same period in 2017.

 

Segment Results of Operation

 

The revenues and income (loss) before income taxes associated with our segments are summarized in the following tables.

 

Three Months Ended March 31, 2018 compared to Three Months Ended March 31, 2017

 

Revenues by segment are summarized below:

 

    Three Months Ended March 31,  
    2018     2017     $ Change     % Change  
North America   $ 1,598,064     $ 1,356,754     $ 241,310       17.79%  
China     977,307       671,446       305,861       45.55%  
Europe     86,826       74,776       12,050       16.11%  
Total revenues   $ 2,662,197     $ 2,102,976     $ 559,221       26.59%  

 

Net revenues from our North America operating segment increased $0.24 million, or 17.8%, to $1.60 million in three months ended March 31, 2018 from $1.36 million during the same period in 2017. This is attributed to the increase of revenue from our Custom Order business. Net revenues in China increased approximately $306,000, or 45.6%, to $977,000 in three months ended March 31, 2018 from $671,000 during the same period of 2017. This increase was primarily due to an increase of revenue from our OEM and Inline business in China. Net revenue generated from the European market shows an increase of approximately $12,000 to $87,000 in the three months ended March 31, 2018 from $75,000 during the same period in 2017. We expect that revenue generated from sales in the European market will continue to rise in future.

 

Income (loss) before income taxes by segment is summarized below:

 

    Three Months Ended March 31,  
    2018     2017     $ Change     % Change  
North America   $ (69,785 )   $ (92,772 )   $ 22,987       24.78 %
China     115,529       75,187       40,342       53.66 %
Europe     (29,560 )     (61,432 )     31,872       51.88 %
Total Income (loss) before income taxes   $ 16,184     $ (79,017 )   $ 95,201       120.48 %

 

Our North America operating segment shows a decrease of operating loss of approximately $23,000, or 25%, for the three months ended March 31, 2018 from a $93,000 operating loss during the same period in 2017. The decrease of the operating loss is primarily driven by an increase of approximately $241,000 in revenue for this segment during three months ended March 31, 2018 compared to the same period in 2017.

 

Our China operating segment shows an increase of operating income of approximately $40,000, or 53.7%, to $116,000 for the three months ended March 31, 2018 from $75,000 in the same period in 2017. The increase of operating income is primarily driven by an increase of approximately $306,000 in revenue for this segment during three months ended March 31, 2018 compared to the same period in 2017.

 

  13  
 

 

Our Europe operating segment shows a decrease of operating loss of approximately $32,000, or 51.9%, for the three months ended March 31, 2018 from a $61,000 operating loss in the same period in 2017. The reduction in operating losses for the period was primarily due to the termination of our sponsorship agreement with a continental cycling team in Austria.

 

Liquidity and Capital Resources

 

Our cash requirements have principally been for working capital and capital expenditures. We fund our working capital, inventory and capital investments from cash flows from operating activities, cash and cash equivalents on hand. Our working capital requirements generally reflect the growth in our business. Our capital investments have included purchasing factory machinery, leasehold improvements for our offices and factory, land and building, and making investments and improvements in information technology systems.

 

We believe our cash, cash equivalents on hand and cash from operations are adequate to meet our liquidity needs and capital expenditure requirements for at least the next 12 months. Although we believe we have adequate sources of liquidity over the long term, an economic recession, a slow growth period, decrease in demand for our products, or the need for liquidity to engage in strategic opportunities could adversely affect our business and liquidity or increase our need for liquidity. If and when needed, no assurances can be given that funding will be available to us on acceptable terms, if at all. In addition, instability in or a tightening of the capital markets could adversely affect our ability to obtain additional capital to grow our business on terms acceptable to us or at all.

 

Cash Flows

 

The following table presents the major components of net cash flows used in and provided by operating, investing and financing activities for the periods presented:

 

Three Months Ended March 31, 2018 compared to Three Months Ended March 31, 2017

 

   

Three Months Ended

March 31,

 
    2018     2017  
             
Net cash provided by (used in):            
Operating activities   $ 42,561     $ (180,683)  
Investing activities     (7,935)       (2,565,780 )
Financing activities     (17,464)       2,048,743  
Effect of exchange rate changes on cash and cash equivalents     79,287       32,438  
Net increase (decrease) in cash and cash equivalents   $ 96,449     $ (665,282)  

 

Operating Activities

 

Operating activities consisted primarily of net income adjusted for certain non-cash items. Adjustments to net income for non-cash items included depreciation and amortization, share-based compensation, and deferred taxes. In addition, operating cash flows included the effect of changes in operating assets and liabilities, principally inventories, accounts receivable, income taxes payable, prepaid expenses and other assets, accounts payable, advance from customers, and accrued expenses.

 

Cash flows provided by operating activities increased approximately $223,000 to $43,000 for the three months ended March 31, 2018 from $181,000 of cash used by operating activities during the same period in 2017. The increase in cash from operating activities was due to increased net cash flows from operating assets and liabilities of $96,000, an increase in net income of $87,000, and increase resulting from adjustments to net income for non-cash items, which increased $40,000 in the three months ended March 31, 2018 compared to the same period in 2017.

 

  14  
 

 

Investing Activities

 

Cash used in investing activities decreased $2.6 million to $8,000 in the three months ended March 31, 2018 from $2.6 million in the same period in 2017, primarily due to lower capital expenditure. Total capital expenditure was $8,000 and $2.6 million in the three months ended March 31, 2018 and 2017, respectively. The Company purchased land and building for $2.6 million in the three months ended March 31, 2017.

 

Financing Activities

 

Financing activities during the three months ended March 31, 2017 consisted primarily of cash repayment to related parties of $19,193, a mortgage loan of $2 million for the purchase of land and building in the U.S. and repayment of the mortgage of $17,000. The Company also received cash of $44,936 from issuances of common stock in the three months ended March 31, 2017.

 

The Company’s repayment of its mortgage loan was $17,464 in the three months ended March 31, 2018, compared with $17,000 for the same period in 2017.

 

Off-Balance Sheet Arrangements

 

In connection with various contracts and agreements, we have agreed to indemnify counterparties against certain third party claims relating to the infringement of intellectual property rights and other items. Generally, such indemnification obligations do not apply in situations in which our counterparties are grossly negligent, engage in willful misconduct or act in bad faith. Based on our historical experience and the estimated probability of future loss, we have determined the fair value of such indemnifications is not material to our financial position or results of operations.

 

Recently Issued Accounting Standards

 

From time to time, new accounting pronouncements are issues by the Financial Accounting Standards Board or other standard bodies that may have an impact on the Company’s accounting and reporting. The Company believes that any recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

 

  15  
 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company, and therefore, we are not required to provide information required by this Item of Form 10-Q.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

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

 

In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed by our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2018. Based on that evaluation, these officers concluded that our disclosure controls and procedures were effective.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II-OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

On January 12, 2017, we filed a lawsuit against the Trademark Review and Adjudication Board of State Administration For Industry & Commerce of the People’s Republic of China (“the Defendant”) with the Beijing Intellectual Property Court, requesting revocation of the verdict (Shangping Zi [2016] .0000098608) made by the Defendant concerning the No. 11757369 “捷酷 JAKROO” trademark’s invalid declaration application. At the same time, we requested the Defendant should make the re-ruling of the invalid declaration application of “捷酷 JAKROO” trademark. On January 12, 2017, the Beijing Intellectual Property Court accepted the case. Up until now, we have not received notice of a hearing. Although the outcome of this case cannot be predicted with certainty, we do not believe that the ultimate resolution of these matters will have a material adverse effect on our financial position or on our results of operation. Other than the above, we are not presently a party to any pending lawsuits or claims.

 

Item1A. Risk Factors.

 

Factors that could cause our actual results to differ materially from those in this report are any of the risks described in the Annual Report on Form 10k for the year ended December 31, 2017. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.

 

As of the date of this Report, there have been no material changes to the risk factors disclosed in the Annual Report on Form 10k for the year ended December 31, 2017. except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.

 

  16  
 

 

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

 

In October 2017, the Company conducted the closing of a private placement transaction pursuant to subscription agreements (the “Subscription Agreements”) with three investors (the “Investors”), all of whom are non-U.S. persons (as defined in Regulation S (“Regulation S”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”)).

 

Pursuant to the Subscription Agreements, the Company has issued and sold to the Investors, and the Investors have purchased from the Company, an aggregate of 480,000 shares (the “Shares”) of common stock, par value $0.001 per share, of the Company, for a purchase price of $0.25 per share, for total cash proceeds of $120,000. The Shares were offered and sold in reliance upon Regulation S of the Securities Act and are exempt from the registration requirements of the Securities Act.

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures.

 

None

 

Item 5. Other Information.

 

None

 

Item 6. Exhibits.

 

No.   Description
10.1   Form of Subscription Agreement (incorporated by reference to Exhibit 10.19 to the Company’s Registration Statement on Form S-1 filed on April 21, 2017).
31.1   Certification of Principal Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of Principal Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*   Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Labels Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Furnished herewith

 

  17  
 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  JAKROO INC.
     
Date: May 15, 2018 By: /s/ Weidong (Wayne) Du
    Name: Weidong (Wayne) Du
    Title: Chief Executive Officer
     
Date: May 15, 2018 By: /s/ Wei Tan
    Name: Wei Tan
    Title: Chief Financial Officer

 

  18  
 

 

Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

 

Pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the

Securities Exchange Act of 1934

(Section 302 of the Sarbanes-Oxley Act of 2002)

 

I, Weidong (Wayne) Du, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Jakroo 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. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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) [omitted pursuant to the transition period exemption for newly public companies.]

 

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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and 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 functions):

 

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: May 15, 2018   /s/ Weidong (Wayne) Du
  Name: Weidong (Wayne) Du
  Title: Chief Executive Officer
    (Principal Executive Officer)

 

     
 

 

Exhibit 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

 

Pursuant to Rule 13a-14(a) and Rule 15d-14(e) under the

Securities Exchange Act of 1934

(Section 302 of the Sarbanes-Oxley Act of 2002)

 

I, Wei Tan, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Jakroo 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. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) 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) [omitted pursuant to the transition period exemption for newly public companies.]

 

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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer and 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 functions):

 

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: May 15, 2018   /s/ Wei Tan
  Name: Wei Tan
  Title: Chief Financial Officer
    (Principal Financial Officer)

 

 

     
 

 

Exhibit 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

 

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

 

In connection with the Quarterly Report on Form 10-Q of Jakroo Inc. (the “Company”) for the quarter ended March 31, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Weidong (Wayne) Du, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: May 15, 2018   /s/ Weidong (Wayne) Du
  Name: Weidong (Wayne) Du
  Title: Chief Executive Officer
    (Principal Executive Officer)

 

     
 

 

Exhibit 32.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

 

Pursuant to 18 U.S.C. 1350

(Section 906 of the Sarbanes-Oxley Act of 2002)

 

In connection with the Quarterly Report on Form 10-Q of Jakroo Inc. (the “Company”) for the quarter ended March 31, 2018, as filed with the Securities and Exchange Commission (the “Report”), I, Wei Tan, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: May 15, 2018   /s/ Wei Tan
  Name: Wei Tan
  Title: Chief Financial Officer
    (Principal Financial Officer)