ALTB Alpine Auto Brokers Inc (PK)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.

Company Overview and Plan of Operation

We were incorporated as Alpine Auto Brokers, Inc. on May 12, 2011, in the State of Nevada for the purpose of locating and purchasing used vehicles at auctions, from private individuals, from other dealers and selling these vehicles specifically to consumers in Salt Lake City, Utah. On January 1, 2014 we acquired 100 percent of the membership interests of Alpine Auto Brokers, LLC, a Utah Limited Liability Company formed on December 10, 2010. Alpine Auto Brokers, LLC commenced operations of selling vehicles in approximately March 2011. We then operated through a wholly-owned subsidiary, Alpine Auto Brokers, LLC. Our dealership and executive offices were located at 749 South State Street, Salt Lake City, Utah 84111. Our offices are now located at 11/F Johnson Industrial Mansion, 340 Kwun Tong Road, Kowloon, Hong Kong. On June 6, 2016, as a result of a private transaction, the control block of voting stock of this company, represented by 3,000,000 shares of common stock (the “Shares”), were transferred from Jason Wilkinson to Tsz Ting Ip, and a change of control of Balincan International Inc. (the “Company”) occurred. Upon the change of control of the Company, the then existing director and officer resigned immediately. Accordingly, Jason Wilkinson, serving as the sole director and as the only officer, ceased to be the Company’s President and Principal Accounting Officer. At the effective date of the transfer, Tsz Ting Ip assumed the role of director and President, Chief Financial Officer, Secretary, and Treasurer of the Company. On July 13, 2016 the Company changed its name from Alpine Auto Brokers, Inc. to Balincan International Inc.

We were focused on selling older model vehicles with a price range of $3,000 to $50,000. Most of the vehicles we sell are priced under $25,000. The majority of our prior customers had good credit and get their financing from local banks and credit unions. On June 1, 2016, the Company discontinued these operations by disposing of its only subsidiary, Alpine Auto Brokers LLC, which had been the only business unit of the Company.

The Company is currently negotiating with Matthew Pau, a minority shareholder and non-affiliate of the Company, to purchase all of the issued and outstanding equity of BKG International Limited (Formerly known as Getabed Company Limited) (“BKGI”). 

BKGI was incorporated in Hong Kong on May 16, 2013, by Matthew Pau and four business partners, for the development of a new hostel business in Hong Kong. However, as it failed to obtain a valid hostel license, it ceased business in January 2015. The company had been dormant for about a year. The company changed its name to BKG International Limited on February 29, 2016 and Matthew Pau became the sole owner on July 28, 2016.

Through its Hong Kong incorporated wholly owned subsidiary, Max Treasure Holdings Limited, BKGI has set up a retail shop selling skincare and cosmetic products in Hong Kong with the intention of building it up to be a chain of shops targeted at the local consumers as well as visitors from Mainland China. The shop is positioned in the middle to upper end of the market with products sourced from uprising brands from countries including the US, Korea, Japan and Switzerland.

BKGI has also established a wholly owned subsidiary in China for the development of an online business initially targeted at the female and family markets, selling imported consumer goods including milk powder, organic honey and meat to satisfy the fast growing demands for safe and healthy food. To assure authenticity of products, goods will be delivered to buyers direct from abroad or bonded warehouse in China. In the near future, BKGI’s online business will be extended to cater for the professional skincare markets. Sales channels will include the company’s own website as well as its own shop on WeChat. Promotion and marketing will be primarily through social media. Currently, it has engaged a sales agent to sell and promote its products through her account on WeChat.

Market Analysis

According to Export.gov, value of Hong Kong’s market for cosmetics, toiletries, and skincare products was approximately US$2.1 billion in 2015. Although it is expected to shrink slightly in 2016 and 2017, it is still a sizeable market with fast growing sub-segments. Following the rise in popularity of Korean popstars and idols in Hong Kong in recent years, imports of cosmetic, personal care and skincare products from Korea have been experiencing double-digit growth over the past few years. In 2015, the increase was 73% resulting in Korea being Hong Kong’s second largest source of imports after France.

Hong Kong is also a major launch pad for marketing cosmetics and skincare products in the mainland Chinese market. Hong Kong serves as a showcase for the millions of Chinese tourists (59.3 million in 2015) that annually visit Hong Kong, often with shopping for personal, family or even re-sale use as a primary or sole travel objective. For local retailers and distributors of cosmetics, toiletry and skincare products, increased sales in the next few years are expected to continue to come largely from mainland tourists. While China has reduced import duties on cosmetics and skincare products, thereby reducing the retail price differential between Hong Kong and China, mainland visitors to Hong Kong are still attracted to products in Hong Kong over China. According to industry sources, the perceived authenticity and reliability of the products in Hong Kong often outweighs price as a buying factor. Apart from import tariffs that the Chinese government imposes on cosmetics, there are also VAT and product registration costs which do not exist in Hong Kong, meaning that equivalent products may actually cost less on the Hong Kong side of the border.

There are no import duties on cosmetics, toiletry and skincare products in Hong Kong and registration is not required for cosmetic products. The market is, however, very competitive, with the top ten brands accounting for about 70 percent of the market. Demand from tourists’ accounts for about 35% of Hong Kong’s total retail sales of cosmetics, skincare and toiletry products. According to the Hong Kong Tourism Board, about 80% of the mainland tourists who visited Hong Kong regarded cosmetic and skincare products as among their top three shopping purchases.

According to Euromonitor International’s estimates, retail sales in China’s skincare and cosmetic products market will grow at an average annual rate of 12.8% from 2016-2019, which is much higher than the global average of 6.0%, and will reach Rmb287 billion in 2019. In 2014, China had more than 5,000 cross-border e-commerce companies and over 200,000 companies engaged in cross-border e-commerce through different platforms. Cited by the Hong Kong Trade Development Council, China’s Ministry of Commerce estimated that cross-border e-commerce would reach Rmb6.5 trillion in 2016, representing an annual growth rate of over 30%. Hence we believe that there exists great potential in selling skincare and cosmetic products through cross-border e-commerce in China.

Competition and Distribution

The beauty industry is highly competitive and at times changes rapidly due to consumer preferences and industry trends. Our retail shop will face competition for consumer recognition and from popular chain stores that have achieved significant brand name recognition and consumer loyalty. These prominent incumbents include Mannings, Watsons, Joyce Beauty and online shops such as hktvmall.com and hereweseoul.com, each of which have launched and are promoting a variety of skincare and makeup brands. These companies have significantly greater resources than we do and enjoy a longer history in Hong Kong. These competitors typically devote substantial resources to promoting their brands through traditional forms of advertising such as print media and television commercials. Because of such mass marketing methods, these competitors’ products can achieve higher visibility and recognition than ours.

In order to succeed, we must continue to take market shares from our competitors across our retail channels. We compete with chain stores by strategically locating our shop in prime commercial area. We will launch mainly Swiss and Korean natural skincare products with high popularity among our young target customers. Owing to the highly competitive nature of the skincare market in Hong Kong, competitive and discount pricing will be offered to attract customers and boost sales turnover in our initiate stage of operation. We will keep signing up different suppliers in order to introduce more brands and products into our shop so as to increase the variety of products which can then attract re-visited customers.

E-commerce is an extremely competitive industry in China. Our competitors, including jd.com, tmall.com, amazon.com, vip.com and many other corporate and individual operators from small to the medium scaled, provide a large variety of products online both imported and locally made. Among all these competitors, there is a lack of professional skincare products platform where competition is thus less sever. As demand for professional skincare products in China is very high, we will gradually extend our online shop to sell professional skincare products to freelance beauticians and salons. We believe that entering into this specific segment of the beauty market at the present moment will enable us to gain a significant market share. In order to compete, our online shop will be operating on a zero inventory base which eliminates carrying costs and obsolete inventory costs. Under such fierce competition, our strategy is to increase the number of online visitors while maintaining fixed costs at a very low level. That means we will maintain a small operating team in China and use external logistic service providers for the delivery of goods.

Sales, Marketing and Distribution Strategy

The main marketing channels for skincare products in Hong Kong will be through advertising in social media, such as Facebook, Instagram, Wechat and Weibo, and by launching promotional activities including interviews with celebrities and models. Sales of skincare products will be made through our physical store in prime shopping area.

In China, as sales will be made through our e-shop, cell phone APP and PC, marketing activities will be conducted mainly through Wechat, which is the country’s most widely used social networking APP. Discounts, free gifts coupons, etc will be granted to attract attention and buyers to the shop. Assuring customers of the authenticity of our products, direct shipments will be made direct from abroad or bonded warehouses in China to buyers through our suppliers using third party logistics companies.

As a new entrant to this e-commerce industry, we expect to incur significant amount of resources in advertising and promotion in order to gain consumers’ attention and build up a substantial online user base. As a result, we expect to operate with very low profit margins in the development stage.

Products and Delivery

The Company’s skincare and cosmetic products are products sourced from uprising brands in the US, Korea, Japan and Switzerland. The Company’s retail shop will sell skincare and cosmetic products in Hong Kong with the intention of building it up to be chain of shops targeted at the local consumers as well as Mainland Chinese visitors.

The Company’s online shop sells foreign consumer goods including milk powder, organic honey, health and beauty food, hair care products and baby care products to satisfy the fast growing demands for safe and healthy food of Chinese consumers. In order to assure authenticity of these products, goods are delivered to consumers direct from abroad or from bonded warehouse in China. Business will be conducted through the company’s own website as well as its own shop on WeChat.

Employees

We currently have two employees, Tsz Ting, Ip and Chung Lai Lok.

Initial Public Offering

Our Form S-1 Registration Statement went effective on September 21, 2015. It was an “all or nothing” offering for 350,000 pre-split shares of our common stock at $0.10 per pre-split share with a September 21, 2016 deadline to completely sell our offering. We sold our complete offering as of January 29, 2016.

Forward Stock-Split

Effective January 29, 2016 we forward split our issued and outstanding shares of common stock on a 3 for 1 basis. This increased the number of shares of our common stock issued and outstanding from 1,350,000 pre-split shares to 4,050,000 post-split shares.

Results of Operations for the nine months ended September 30, 2016 and 2015

During the nine months ended September 30, 2016, the Company had no continuing business after disposal of subsidiary. Gross revenues, cost of sales and operating expenses incurred before the disposal of subsidiary were classified to discontinued operation during the period. Our net loss from discontinued operations for the nine months ended September 30, 2016 was $81,211.

Retractively, gross revenues, cost of sales and operating expenses incurred during the nine months ended September 30, 2015 were classified to discontinued operation. As a result, our net loss from discontinued operations for the nine months ended September 30, 2015 was therefore $24,999.

The increase in loss from discontinued operations during the nine months ended September 30, 2016 is mainly due to the loss on disposal of subsidiary during the period for approximately $69,000.

Liquidity and Capital Resources

As of September 30, 2016, we had zero balances in current assets, cash, and inventory. As of September 30, 2016, we had current liabilities in the amount of $14,704, classified as other payable due to BKGI which had paid for the legal and administrative expenses on behalf of the Company.

Off Balance Sheet Arrangements

As of September 30, 2016, there were no off balance sheet arrangements.

Going Concern

We have experienced recurring losses from operations and we had an accumulated deficit of $196,156 as of September 30, 2016. To date, we have not been able to produce sufficient sales to become cash flow positive and be profitable on a consistent basis. The success of our business plan during the next 12 months and beyond will be contingent upon generating sufficient revenue to cover our costs of operations and/or upon obtaining additional financing. For these reasons, our auditor has raised substantial doubt about our ability to continue as a going concern.

Critical Accounting Policies

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We do not believe that any accounting policies currently fit this definition.

Recently Issued Accounting Pronouncements

Our management has considered all recent accounting pronouncements issued since the last audit of our financial statements. Our management believes that these recent pronouncements will not have a material effect on our financial statements.