UNITEDSTATES

SECURITIESAND EXCHANGE COMMISSION

Washington,D.C. 20549

 

FORM 10-QSB

 

(Mark One)

**QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d)
OF THESECURITIES EXCHANGE ACT OF 1934

 **
For thequarterly period ended **AUGUST 31, 2006**

 

OR

 

**TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THESECURITIES EXCHANGE ACT OF 1934

 **
For thetransition period from to 

 

CommissionFile Number: 333-61801

 
**JURAK CORPORATION WORLD WIDE, INC.
(Exact name of registrant as specified in its charter)

 

MINNESOTA88-0407679

(State or other jurisdiction of (Federal Employer
incorporation or organization) Identification No.)

 

1181Grier Drive, Suite C, Las Vegas, NV 89119-3746
**(Address of principal executive offices) (Zip Code)****

 

(702)914-9688
**Registrant's telephone number, including area code

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant was requiredto file such reports), and (2) has been subject to such filing requirements forthe past 90 days. YES [x]  NO [  ]

 

Indicate by acheck mark whether the registrant is a large accelerated filer, an acceleratedfiler or a non-accelerated filer (as defined by Rule 12b-2 of the Exchange Act).

LargeAccelerated Filer [  ]           Accelerated Filer [  ]           Non-accelerated filer [  ]

 

Indicate bycheck mark whether the registrant is a shell company (as defined in Rule 12b-2of the Exchange Act. YES [  ]           NO [X]

 

APPLICABLEONLY TO CORPORATE ISSUERS:

 

Indicate thenumber of shares outstanding of each of the issuer's classes of common stock, asof the latest practicable date.

 

                                                                                                            Name of Exchange

Class                        On Which Registered                        Outstanding at October 6, 2006
                                                            Common Stock, no par value                                                                        100,631,791

 

JURAKCORPORATION WORLD WIDE, INC.

INDEX

 

                                                                                                                                                                                       Page No.
Part I. Financial Information

Item 1. Financial Statements

        Condensed Balance Sheets                                                                                                                                            3

        Condensed Statements of Operations                                                                                                                             4

        Condensed Statements of Cash Flows                                                                                                                            5

        Selected Notes to CondensedFinancial Statements                                                                                                        6

Item 2. Management's Discussion andAnalysis of

       Financial Condition and Results of Operations                                                                                                                8

Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                                                      12

Item 4. Controls and Procedures                                                                                                                                          12

Part II. Other Information                                                                                                                                                     13

 

SIGNATURES 

CERTIFICATIONS 

 

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

NOTE 1 - CONDENSED FINANCIAL STATEMENTS

The condensed balance sheets as of August 31, 2006 and 2005 and the relatedcondensed statements of operations for the three months ended August 31, 2006and 2005 and the condensed statements of cash flows for the three-month periodsthen ended have been prepared by the Company without audit. In the opinion ofmanagement, all adjustments (which include only normal recurring adjustments)necessary to present fairly the financial position, results of operations, andcash flows at August 31, 2006 and 2005 and for the three months then ended havebeen made. 

Certain information and footnote disclosures normally included in financialstatements prepared in accordance with generally accepted accounting principlesin the United States of America have been condensed or omitted. It is suggestedthese condensed financial statements be read in conjunction with the financialstatements and notes thereto included in the Company's May 31, 2006 auditedfinancial statements and form 10-KSB. The results of operations for the periodended August 31, 2006 are not necessarily indicative of the operating resultsfor the entire year.

The presentation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets, liabilities, anddisclosure of contingent assets and liabilities at the balance sheet date, andthe reported amounts of revenues and expenses during the reporting period. Theestimates and assumptions used in the accompanying condensed financialstatements are based upon management's evaluation of the relevant facts andcircumstances as of the time of the financial statements. Actual results coulddiffer from those estimates.

Reclassifications 

Certain prior year amounts reported on the Company's condensed balance sheethave been reclassified to conform to 2006 presentation. Such reclassificationshad no impact on total consolidated assets, net income or stockholders' equity.

NOTE 2 - INVENTORIES

Inventories summarized below are priced at the lower of first-in, first-outcost or market:

NOTE 3 -ADVANCE TO OFFICER/STOCKHOLDER

During the quarter ended August 31, 2006, the Company made a short-term,non-interest-bearing loan to an officer/stockholder in the amount of $41,942.

NOTE 4 -OTHER ASSET-LICENSE

During the quarter ended August 31, 2006 the Company expended $15,054 forlicensing fees associated with a letter of intent to acquire the worldwideexclusive marketing rights to the world's most powerful, natural immune boosterdiscovered to date, as stated by the scientific research team that developed theproduct. These rights are being acquired from a leading life science companywith a successful history of producing unique, patented products that aredistributed on a global scale. As of the October 20, 2006 the date of thisfiling for the quarter ended August 31, 2006, the agreement has not been closed.

NOTE 5 -STOCKHOLDERS' DEFICIT

During the quarter ended August 31, 2006 the Company sold 10,000,000 sharesof common stock at $0.02 per share for a total of $200,000. The accumulateddeficit as of August 31, 2006 was $4,915,521 and 4,635,264 as of May 31, 2006.

NOTE 6 - CONTINGENCIES

In the ordinary course of business, the Company is exposed to legal actionsand threatened claims and incurs costs to defend against such legal actions andclaims. Company management is not aware of any such outstanding, pending orthreaten action, claim or other circumstance that would materially affect theCompany's financial position or results of operations.

NOTE 7 - INCOME TAXES

Deferred taxes are provided on a liability method whereby deferred tax assetsare recognized for deductible temporarydifferences andoperating loss and tax credit carryforwards and deferred tax liabilities arerecognized for taxable temporary differences. Temporary differences are thedifferences between the reported amounts of assets and liabilities and their taxbasis. Deferred tax assets are reduced by a valuation allowance when, in theopinion of management, it is more likely than not that some portion or all ofthe deferred tax assets will not be realized. Deferred tax assets andliabilities are adjusted for the effects of changes in tax laws and rates on thedate of the enactment. The Company has recorded a full valuation allowance forall deferred tax assets.

NOTE 8 - RELATED PARTY TRANSACTIONS
**Intellectual Property License Agreement**
On approximately January 1, 1999, we entered into anintellectual property license agreement (the "License Agreement") with JurakHoldings Limited ("JHL"), a corporation organized under the laws of the Provinceof Alberta and an affiliate of our Chief Executive Officer and one of ourdirectors. Pursuant to the terms and provisions of the License Agreement, we arerequired to pay the greater of $500,000 for fiscal year 2003 and each calendaryear thereafter, during the first ten years of the License Agreement (the"Minimum Royalty Fee"), or eight percent of the net sales price of all licensedproducts sold under the License Agreement (the "Continuing Royalty Fee"). Afterfiscal 2013, we are required to make payments in the amount of the ContinuingRoyalty Fee.

For the three months ended August 31, 2006 and 2005, theminimum royalty fee for the amount of $125,000 was expensed. The accruedpayments due and owing to JHL under the License Agreement for the MinimumRoyalty Fee and the Continuing Royalty Fee was $337,475 and $250,000 at August31, 2006 and May 31, 2006, respectively.

NOTE 9 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board ("FASB")issued FASB Interpretation No. 48, "Accounting for Uncertainty in IncomeTaxes"-an Interpretation of FASB Statement No. 109". (FIN No. 48"), whichclarifies the accounting for uncertainty in income taxes by prescribing theminimum recognition threshold a tax position is required to meet before beingrecognized in the financial statements. Additionally, FIN 48 provides guidanceon derecognition, classification, interest, penalties, accounting in interimperiods and disclosure related to uncertain income tax positions. FIN No. 48 iseffective for fiscal years beginning after December 15, 2006. The Company iscurrently evaluating the impact of adopting FIN No. 48, but does not anticipatethat it will have a material effect on its financial position, results ofoperations or cash flows.

 

 

Item 2. Management's Discussion and Analysis of Financial

Condition and Results of Operations

Overview

Jurak Corporation World Wide, Inc., a Minnesota corporation, currently tradeson the Over-the-Counter Bulletin Board under the symbol "JCWW". We are aproduct-focused company specializing in the herbal supplement industry andmarket. Our main product is the "Jurak Classic Whole Body Tonic", also known asJC Tonic, which is a herbal supplemental blend of thirty different ingredientscomprised primarily of medicinal herbs. The Jurak Classic Whole Body Tonic wasfirst developed in 1943 by Carl Jurak, the father of the founder of our company.The Jurak Classic Whole Body Tonic is marketed in a 42-ounce bottle; a 20-ouncebottle, and a 1-oz mono-dose packaged as 35 doses in a box; all which constituteapproximately 100% of the sales. 

We distribute our products through a network marketing system usingindependent distributors. Network marketing appeals to a wide cross-section ofpeople, particularly those seeking to supplement income, start a home-basedbusiness or pursue entrepreneurial opportunities other than conventionalfull-time employment. We consider our attractive compensation plan and cashbonus pools to be attractive components of our network marketing system. We alsobelieve that our network marketing system is ideally suited to market herbalsupplement products because sales of such products are strengthened by ongoingpersonal contact between our distributors and their customers. Distributors aregiven the opportunity through sponsored events and raining sessions to networkwith other distributors, develop selling skills and establish personal goals. Wesupplement monetary incentives with other forms of recognition in order tofurther motivate and foster an atmosphere of excitement through our distributornetwork. 

We have obtained trademark protection for the name "JC Tonic" within theUnited States and within Canada. We also own the web sites www.jurak.com,www.jctonic.com and www.tonicman.com. 

 

The following discussion and analysis of our results ofoperations and financial position should be read in conjunction with our auditedfinancial statements and the notes thereto, included in our 10-KSB filed for theyear ended May 31, 2006. Our financial statements are prepared in accordancewith U.S. GAAP. 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS 

The following discussion is intended to provide an analysisof our financial condition and should be read in conjunction with our auditedfinancial statements and the notes thereto.  The matters discussed in thissection that are not historical or current facts deal with potential futurecircumstances and developments.  Such forward-looking statements include,but are not limited to, the development plans for our growth, trends in theresults of our development, anticipated development plans, operating expensesand our anticipated capital requirements and capital resources.  Our actualresults could differ materially from the results discussed in theforward-looking statements.

The accompanying financial statements have been prepared in conformity withaccounting principles generally accepted in the United States of America, whichcontemplate continuation of the Company as a going concern. However, the Companyhas sustained substantial losses and its liabilities exceed its assets. TheCompany intends to generate positive cash flows from operations throughincreased sales utilizing the network of distributors in place, issuingadditional stock, and obtaining necessary capital through additional advancesfrom the Company's principal stockholder or through private placements.

To continue operations, the Company must raise additional capital. As statedin Note 5, the Company has sold additional stock in a private placement duringthe three months ended August 31,2006. 

This sale was a continuation of the private placement started in May 2006.However, there can be no assurance the Company will be able to obtain additionalcapital from private placements in the future. 

The Company has no committed sources or arrangements for additional financingat this time.
**Three months Ended August 31, 2006 Compared to Three monthsEnded August 31, 2005**
Total sales in the three months ended August 31, 2006 was$255,491 compared to $406,967 in the same period in 2005. Gross profit wasreduced to $203,586 for the three months ended August 31, 2006 compared to$323,788 for the same period in 2005, as further discussed below. The net lossduring the three months ended August 31, 2006 was ($280,257) compared to($368,444) in the same period in 2005.

Sales and Gross Margins

Sales for three months ended August 31, 2006 decreased by 37%to $255,491 compared to $406,967 in the same period in 2005. The decrease insales was related to issues associated with the reliability of the Company'scomputer systems used to track and account for distributors' sales activity. Thesystem problems caused delays and inaccuracies in the accumulation of salesdata, which affected the timely calculation and payment of distributor bonuses.These problems caused a decline in sales activity. In May 2006, the Companyenhanced and improved the computer system, which improved the sales dataaccumulation process. In July 2006, the Company rolled out a replicated Companywebsite for each of its 9,900 distributors. The replicated websites allow eachdistributor to advertise to their specific customers, while providing theproduct and company information from the Company's new website. Management isconfident the improved computer system and the replicated websites will resultin an increase in sales volume and that the Company will regain the confidenceof the distributor network.

Gross profit in the three months ended August 31, 2006decreased to $203,586 compared to $323,788 in the same period in 2005 due to thedecline in sales. Gross profit as a percentage of revenue remained consistent at80% in the three months ended August 31, 2006 and 2005. 

 

 

Selling, general and administrative expenses

Total selling, general and administrative expenses for thethree months ended August 31, 2006 were $483,843 compared with $665,080 for thesame period in 2005. The decrease is primarily related to decreases in salesexpenses (9%), payroll and related benefits (15%) and consulting fees (78%). Inthe first quarter 2005, the Company incurred a consulting fee of $175,000, whichwas not applicable to the current year first quarter. With the decrease insales, the Company has been actively looking for ways to reduce overhead costs.The minimum royalty fee owed to Jurak Holdings Limited (related party) remainedconsistent for both periods at $125,000. 

Interest expense for the three months ended August 31, 2006was $0 compared with $27,152 for the same period in 2005. Interest costsprimarily relate to loans from a principal stockholder and related entities,which were outstanding during the prior 2005 quarter. The majority of theseloans were converted into common stock or paid off during the fiscal year endedMay 31, 2006. 

Liquidity and Capital Resources
Three Month Period Ended August 31, 2006 

We have historically had more expenses and cost of sales than revenue in eachyear of our operations. The accumulated deficit as of August 31, 2006 was$4,915,521 compared to 4,635,264 as of May 31, 2006. Generally, we have financedoperations to date through the proceeds of the private placement of equity anddebt securities and sales revenue. In connection with our business plan,management anticipates that there may be additional increases in workingexpenses and capital expenditures relating to operating expenses. We intend tofinance these expenses with further issuances of our securities and revenuesfrom operations. Therefore, we expect we may need to raise additional capitaland increase our revenues to meet long-term operating requirements.

At August 31, 2006, the Company had $154 of unrestricted cash compared to$44,073 of unrestricted cash at May 31, 2006. The Company had current assets of$123,046 and current liabilities of $703,006 at August 31, 2006 compared tocurrent assets of $110,841 and current liabilities of $604,586 at May 31, 2006.

Net cash used in operating activities was $183,238 in the three months endedAugust 31, 2006 compared to net cash used in operating activities of $51,581 inthe same period in 2005. The increase in cash used was due primarily to anincrease in inventory levels partially offset with a corresponding increase intrade payable levels in the first quarter of 2006 compared to 2005. In addition,consulting services of $165,000 were paid via stock in the first quarter of2005, which was not repeated in the net loss for the three months ended August31, 2006. 

Net cash used in investing activities was $17,372 in the first quarter in2006 compared to $0 in the same period in 2005. The Company expects to spendapproximately $20,000 on capital equipment additions during the fiscal yearending May 31, 2007 of which $2,237 was expended during the first quarter in2006. The Company also expended $15,054 for licensing fees associated with aletter of intent to acquire the worldwide exclusive marketing rights to theworld's most powerful, natural immune booster discovered to date, as stated bythe scientific research team that developed the product. These rights are beingacquired from a leading life science company with a successful history ofproducing unique, patented products that are distributed on a global scale. 

Net cash provided by financing activities was $156,691 in the first quarterin 2006 compared to net cash provided by financing activities in the same periodin 2005 of $52,477. Proceeds from the issuance of common stock were $200,000 inthe first quarter of 2006 compared to $69,950 in the same period of 2005. Theincrease in stock proceeds was partially offset by the $41,942 advance to anofficer/stockholder. 

PLAN OF OPERATION: As of the date of this Quarterly Report, we have generatedrevenue from operations and continue to rely upon internally generated funds andadvances, funds from the sale of shares of stock and loans from our shareholdersand private investors to finance our operations and growth. Managementanticipates a possible increase in operating expenses and capital expendituresrelating to its business operations. We may finance further expenditures withfuture issuances of our restricted common stock. We believe that potential salesrevenues and any private placements of equity capital and debt financing, ifsuccessful, may be adequate to fund our operations over the next year. We mayencounter business endeavors that require significant cash commitments orunanticipated problems or expenses that could result in a requirement foradditional cash before that time. If we raise additional funds through theissuance of equity or convertible debt securities other than to currentshareholders, the percentage ownership of our current shareholders would bereduced, and such securities might have rights, preferences or privileges seniorto our common stock. Additional financing may not be available upon acceptableterms, or at all. If adequate funds are not available or are not available onacceptable terms, we may not be able to take advantage of potential marketingopportunities for its products, which could significantly and materiallyrestrict our business operations. As of the date of this Quarterly Report,management believes that an estimated $2,000,000 to $5,000,000 is required overthe next two years for payment of expenses associated with our ongoing businessoperations. Management believes that we can satisfy our cash requirements forapproximately the next twelve months based on sales revenues, proceeds receivedfrom private placement offerings, and our ability to obtain advances or equityprivate placements from certain investors and other parties, as necessary. As ofthe date of this Quarterly Report, there is substantial doubt regarding ourability to continue as a going concern as we have not generated sufficient cashflow to fund our business operations and material commitments. We must raiseadditional capital. We have not generated sufficient cash flow in the past tofund our operations and activities. Historically, we have relied upon internallygenerated funds, funds from the sale of shares of stock and loans from ourshareholders and private investors to finance our operations and growth. Ourfuture success and viability are entirely dependent upon our current managementto generate revenues from our business operations and raise additional capitalthrough further private offerings of our stock or loans from private investors.Management is optimistic that we will be successful in our capital raisingefforts. There can be no assurance, however, that we will be able to generatesufficient revenues or raise additional capital. Our failure to successfullygenerate sufficient revenues and/or raise additional capital will have amaterial and adverse affect upon our shareholders and us. We may be forced tofurther reduce operating expenditures and/or cease operations altogether.

 

 

 

 

Critical Accounting Policies

Our critical accounting policies, including the assumptions and judgementsunderlying them, are discussed in our fiscal 2006 Form 10-KSB in Note 1 Summaryof Significant Accounting Policies included in our Consolidated FinancialStatements. There were no significant changes to our critical accountingpolicies during the three months ended August 31, 2006. These policies have beenconsistently applied in all material respects and disclose such matters asallowance for doubtful accounts, sales returns, inventory valuation, warrantyexpense, income taxes, revenue recognition and asset and goodwill impairmentrecognition. On an ongoing basis, we evaluate our estimates based on historicalexperience and on various other assumptions that are believed to be reasonableunder the circumstances, the result of which form the basis for makingjudgements about the carrying value of assets and liabilities that are notreadily apparent from other sources. Results may differ from these estimates dueto actual outcomes being different from those on which we based our assumptions.Management on an ongoing basis reviews these estimates and judgements.

Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB")issued FASB Interpretation No. 48, "Accounting for Uncertainty in IncomeTaxes"-an Interpretation of FASB Statement No. 109". (FIN No. 48"), whichclarifies the accounting for uncertainty in income taxes by prescribing theminimum recognition threshold a tax position is required to meet before beingrecognized in the financial statements. Additionally, FIN 48 provides guidanceon derecognition, classification, interest, penalties, accounting in interimperiods and disclosure related to uncertain income tax positions. FIN No. 48 iseffective for fiscal years beginning after December 15, 2006. The Company iscurrently evaluating the impact of adopting FIN No. 48, but does not anticipatethat it will have a material effect on its financial position, results ofoperations or cash flows.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

The Company has no freestanding or embedded derivatives. All contracts thatcontain provisions meeting the definition of a derivative also meet therequirements of, and have been designated as normal purchases or sales. TheCompany's policy is to not use freestanding derivatives and to not enter intocontracts with terms that cannot be designated as normal purchases or sales.

The vast majority of our transactions are denominated in U.S. dollars; assuch, fluctuations in foreign currency exchange rates have historically not beenmaterial to the Company. 

Based on the Company's operations, in the opinion of management, no materialfuture losses or exposure exist relative to market risk.

Item 4. Controls and Procedures 

Evaluation of Disclosure Controls and Procedures

An evaluation made at the end of the period covered by this report wasperformed under the supervision and with the participation of the Company'spresident, chief executive officer ("CEO") and the chief financial officer(CFO") of the effectiveness of the design and operation of the Company'sdisclosure controls and procedures to insure that the Company records,processes, summarizes and reports in a timely and effective manner theinformation required to be disclosed in reports filed with or submitted to theSecurities and Exchange Commission. Based on that evaluation, the Company'smanagement, including the CEO and CFO, concluded that the Company's disclosurecontrols and procedures were effective in timely bringing to their attentionmaterial information related to the Company required to be included in theCompany's periodic Securities and Exchange Commission filings. Since the date ofthis evaluation, there have been no significant changes in the Company'sinternal controls or in other factors that could significantly affect thosecontrols.

However, due to the limited number of Company employees engaged in theauthorization, recording, processing and reporting of transactions, there isinherently a lack of segregation of duties. The company periodically assessesthe cost versus benefit of adding the resources that would remedy or mitigatethis situation, and currently does not consider the benefits to outweigh thecosts of adding additional staff in light of the limited number of transactionsrelated to the Company's operations.

 

Changes in Internal Controls Over Financial Reporting

There have been no significant changes in internal control over financialreporting that occurred during the fiscal period covered by this report thathave materially affected or are reasonably likely to materially affect theCompany's internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

In addition to the risk factors from those disclosed in the Company's fiscal2006 Annual Report on Form 10-KSB, the following risk factor should beconsidered when reviewing other information set forth in this report andpreviously filed reports.

Our management, including our Chairman and Director, does not expect, thatdisclosure controls and procedures will prevent all possible error or fraud. Acontrol system, no matter how well conceived and operated, can provide onlyreasonable, not absolute assurance that the objectives of the control system aremet. Further, the design of a control system must reflect the fact that thereare resource constraints, and the benefits of controls must be consideredrelative to their costs. Because of inherent limitations in all control systems,no evaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within our company have been detected. Theseinherent limitations, include, the realities that judgments in decision-makingcan be faulty, and that breakdowns can occur because of simple error or mistake.Additionally, controls can be circumvented by the individual acts of persons, bycollusion or two or more persons, or by management override of the control. Thedesign of any system of controls is also based in part upon certain assumptionsabout the likelihood of future events, and there can be no assurance that anydesign will succeed in achieving its stated goals under all potential futureconditions; over time, controls may become inadequate because of changes inconditions, or the degree of compliance with the policies and procedures maydeteriorate. Because of the inherent limitations in a cost-effective controlsystem, misstatements due to error or fraud may occur and may not be detected.

Item 2 Changes in Securities

During the three month period ended August 31, 2006 the Company sold10,000,000 shares of common stock for $200,000.

Item 3-5 (not applicable)

Item 6 Exhibits and Reports on Form 8-K.
**The following exhibits are included herein:

31.1 Certification of Chief Executive Officer        pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14        and 15d-14 of the Exchange Act).

31.2 Certification of Chief Financial Officer        pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14        and 15d-14 of the Exchange Act).

32. Certifications pursuant Section 906 of the        Sarbanes-Oxley Act of 2002 (18 U.S.C. Sect. 1350).

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereto duly authorized.

Jurak Corporation World Wide, Inc.

By /s/ Anthony Jurak 
Anthony Jurak

Date: October 17, 2006 Chairman of the Board, Director********