ITEM 1. BUSINESS.
General
Zhong Sen International Tea Company (“we” or the “Company”) was incorporated on January 30, 2008, in the State of Florida. The Company has the principal business objective of providing sales and marketing consulting services to small to medium sized Chinese tea producing companies who wish to export and distribute high quality Chinese tea products worldwide. The Company commenced business activities in August 2008, when it entered into a related party Sales and Marketing Agreement with Yunnan Zhongsen Group, Ltd (YZG) , a related party company located in Kunming, China, to provide sales and marketing consulting services for YZG’s tea and tea related business lines.
Supply Agreements
In August 2008, we entered into a related party agreement with Yunnan Zhongsen Group, Ltd., or YZG, a Chinese company located in Kunming, Yunnan Province, People’s Republic of China, which caused us to become YZG’s exclusive sales and marketing agent worldwide. We receive a commission of 20% of global sales, payable each month based on our and YZG’s sales figures. On August 29, 2008, the effective date of the transaction, we issued 831,667 shares to approximately 4,200 shareholders in exchange for the sales and marketing agreement. Additionally, our former sole director and officer named a new board of directors, and hired new executive officers, and resigned his positions at the company. Due to operational and cash flow issues with YZG, a related party and our sole customer, management has determined that future collections under our marketing agreement are doubtful and stopped recording sales in the fourth quarter of 2010 related to this agreement.
Sales Marketing
All sales are generated by external sales and marketing representatives, including those at our related party main supplier, YZG. The product is positioned as a high-end luxury product. The 3,000 year history of this limited production, highly prized product will be essential in positioning the product and in differentiating this product from the current American and European viewpoint of commercially produced tea, as well as setting it apart from much of the tea products offered throughout Asia. The history, culture and ritual surrounding the production of the tea leaf and the ritual of the service and presentation of this luxury item will be exploited and are critical to the positioning of the product.
Our company suggests both direct sales and indirect sales through channel marketing to our client as the methods of getting the product to the worldwide consumer. Direct sales can occur in person, via the phone, the Internet or by mail. Indirect, or channel sales typically refers to sales through a reseller. A reseller can order from us directly, or from a wholesale distributor. In any case, our compensation is directly affected by our client’s sales volume.
We suggest to our client, YZG that they can minimize channel conflicts by employing one or more of the following strategies:
▪ Segmentation of the product line;
▪ Establishment of limited or exclusive territories;
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▪ Design price differentiation from direct sales and channels sales providing a cost incentive for the consumer to purchase from the reseller;
▪ Establishment of rotating promotions for resellers; and/or
▪ Design a tiered system that would establish reseller levels rewarding higher volume resellers with improved margins.
Based on our recommendations, they will establish and manage their channel marketing program worldwide by establishing a competitive reseller program, recruiting resellers, preparing proper reseller collateral, creating reseller kits, managing the reseller database using Partner Relationship Management (PRM) software, ensuring proper merchandising, ensuring adequate stocking levels, providing reseller education and managing seeding programs. The channel program allows this company to produce a large volume of sales utilizing its existing human resources as, we will have the ability to manage resellers and thereby multiply our resources. Direct sales can be managed mostly by technology through applications available through the Internet, such as, on-line stores with credit card processing portals to accumulate sales orders from direct sales. The proper implementation of these programs effectively eliminates the need for the hiring of additional staff for a significant period of time by the use of technology and the multiplication of resources by contracting with distributors or other resellers.
Revenue Model
Our revenue model contemplates a single form of revenue, but from multiple sources. We anticipate earning our revenue based on the success of our sales and marketing efforts provided to the tea producer. We will earn a percentage of sales directly related to our efforts. Since we will be processing the sales for our client, we will have a direct and firsthand knowledge of the effectiveness of our efforts.
Employees
As of July 2012, the Company has three (3) part-time employees. Our president and chairman of the Board of Directors, our chief executive officer and chief operation officer, and our chief financial officer and principal accounting officer, all have agreed to allocate a portion of their time to the activities of the Company. The employees anticipate that our business plan can be implemented by their devoting no more than 50 hours per year, respectively, to the business affairs of the Company and, consequently, conflicts of interest may arise with respect to the limited time commitment by such officers.
ITEM 1A. RISK FACTORS.
Not applicable because we are a smaller reporting company.
ITEM 2. PROPERTIES.
We have no properties and at this time have no agreements to acquire any properties. We currently use the offices of management at no cost to us. Management has agreed to continue this arrangement until further notice.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
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ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
No Public Market for Common Stock
There is no trading market for our common stock at present and there has been no trading market to date. There is no assurance that a trading market will ever develop or, if such a market does develop, that it will continue.
Holders
There are 2,234 holders of our common stock.
Dividends
Since inception we have not paid any dividends on our common stock. We currently do not anticipate paying any cash dividends in the foreseeable future on our common stock, when issued pursuant to this offering. Although we intend to retain our earnings, if any, to finance the exploration and growth of our business, our Board of Directors will have the discretion to declare and pay dividends in the future.
Payment of dividends in the future will depend upon our earnings, capital requirements, and other factors, which our Board of Directors may deem relevant.
Penny Stock
The Securities and Exchange Commission has adopted Rule 15g-9 which establishes the definition of a "penny stock," for purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (i) that a broker or dealer approve a person's account for transactions in penny stocks and (ii) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must (i) obtain financial information and investment experience and objectives of the person; and (ii) make a reasonable determination that the transactions in penny stocks are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by the Commission relating to the penny stock market, which, in highlight form, (i) sets forth the basis on which the broker or dealer made the suitability determination and (ii) that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading, and about commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
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Recent Sales of Unregistered Securities
None.
Securities Authorized for Issuance Under Equity Compensation Plans
ITEM 6. SELECTED FINANCIAL DATA.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-K. The following discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to future events or our future performance. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this prospectus. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
PLAN OF OPERATIONS
Our plan of operations for the next twelve months is focused on the following primary objectives.
1.
Find additional customers to purchase tea products from our contracted supplier, Yunnan Zhongsen Group, Ltd. and;
2.
Raising capital through private debt or equity offerings.
Subject to the requisite financing, we believe that we can complete the following objectives within the time period specified:
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Results of Operations for the Year Ended May 31, 2012 As Compared to the Year Ended May 31, 2011
The following table presents the statement of operations for the year ended May 31, 2012 as compared to the year ended May 31, 2011. The discussion following the table is based on these results.
For The Years Ended
May 31,
2012
2011
REVENUE
$
-
105,402
Total operating expenses
11,526,947
353,329
NET LOSS
(11,527,868)
(247,927
)