The accompanying notes are an integral part of these consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017, 2016 AND 2015
(All amounts in US Dollars)
NOTE 1. NATURE OF BUSINESS AND GOING CONCERN
UMeWorld Limited (the “Company”) was originally incorporated as AlphaRx Inc. (“AlphaRx”) under the laws of the State of Delaware on August 8, 1997. The Company was re-domiciled to British Virgin Islands (BVI) and continued as a BVI registered company on January 7, 2013. On March 8, 2013, AlphaRx changed its name to UMeWorld Limited. AlphaRx Inc. was a pharmaceutical company specializing in the formulation of therapeutic products using proprietary drug delivery technologies. On November 4, 2011, the Company ceased all operations on its drug development business and adopted a new corporate development strategy that changed the business operation of the Company to digital media and digital education. The Company does not own any material assets or conduct limited operations.
UMeLook Holdings Limited (“UMeLook BVI”) and UMeLook Limited (“UMeLook HK”), the Company’s 100% owned subsidiaries, were incorporated in the BVI and Hong Kong on February 14, 2012 and February 23, 2012 respectively.
UMeLook HK holds all of the outstanding equity interest in UMeLook (Guangzhou) Technology Co., Ltd., a company established on October 29, 2012 in the People’s Republic of China (“PRC”) as a wholly foreign owned enterprise (“WFOE”). Other than the equity interest in WFOE, UMeLook HK does not own any material assets or liabilities except for notes payable as disclosed below. Guangzhou XinYiXun Technology Co., Ltd (“XinYiXun”) was incorporated on July 9, 2012 as a domestic Chinese corporation. XinYiXun was owned by Mr. Yilun Liang (“YL”) (10%) and Guangzhou Zhongda No. 3 Venture Investment Co., Ltd. (“Zhongda No. 3”) (90%). XinYiXun operates UMFun.com, an online learning and assessment platform used by teachers, students and parents in China’s K-12 education system.
The Company does not conduct any substantive operations of its own, rather, it conducts its primary business operations through WFOE, which in turn, conducts its business through XinYiXun. Effective control over XinYiXun was transferred to the Company through the series of contractual arrangements without transferring legal ownership in XinYiXun (“reorganization”). As a result of these contractual arrangements, the Company maintained the ability to approve decisions made by XinYiXun and was entitled to substantially all of the economic benefits of XinYiXun.
Under the laws and regulations of the PRC, foreign persons and foreign companies are restricted from investing directly in certain businesses within the PRC. Online education businesses are subject to these restrictions on foreign investment. In order to comply with these laws and regulations, on March 29, 2013, XinYiXun and its shareholders, YL and Zhongda No. 3, entered into an Exclusive Management Service Agreement and Proxy Agreement with WFOE, which provides that WFOE will be entitled to the full guarantee for the performance of such contracts, agreements or transactions entered into by XinYiXun. WFOE is also entitled to receive the residual return of XinYiXun. As a result of the agreement, WFOE will absorb 100% of the expected losses and gains of XinYiXun.
WFOE also entered into a pledge of equity agreement with XinYiXun’s shareholders, YL and Zhongda No.3, who pledged all of their equity interests in XinYiXun to WFOE. The provincial Administration for Industry and Commerce approved and registered such pledge of equity by which WFOE owns the right of pledge legally.
In addition, WFOE entered into an option agreement to acquire its shareholder’s equity interest in the entities at such times as it may wish to do so.
The followings are brief descriptions of contracts entered between WFOE, XinYiXun and its shareholders:
(1) Exclusive Management Service Agreement. Pursuant to the Exclusive Management Services Agreement, WFOE have the exclusive right to provide comprehensive technical and business support services to XinYiXun. Such services include conducting market research, offering strategic business advice and providing information technology services, advice on mergers and acquisitions, human resources management services, intellectual property licensing services, support for teaching activities and other services that the parties may mutually agree. Without the prior consent WFOE, XinYiXun may not accept such services from any third party. In addition, XinYiXun is entitled to pay a service fee to the WFOE, the amount of which is equal to its total revenue less any necessary costs, taxes and expenses.
(2) Proxy Agreement. In order to ensure that WFOE are able to make all of the decisions concerning XinYiXun, WFOE have entered into a proxy agreement with the shareholders of XinYiXun. Pursuant to the proxy agreement, each of its shareholders has irrevocably appointed WFOE as such shareholder’s attorney-in-fact to act for all matters pertaining to such shareholder’s shares in XinYiXun and to exercise all of their rights as shareholders, including but not limited to attending and voting at shareholders’ meetings. As such, WFOE have the sole rights to designate and appoint directors and senior management members of XinYiXun.
(3) Equity pledge agreement. In order to secure the performance of XinYiXun and its shareholders under the contractual arrangements, each shareholder of XinYiXun has undertaken to pledge all of their shares in XinYiXun to WFOE. If XinYiXun or any of its shareholders breaches or defaults under any of the contractual arrangements, WFOE have the right to require the transfer of the pledged equity interests in XinYiXun to WFOE or its designee, to the extent permitted by laws, or require a sale of the pledged equity interest and have priority in any proceeds from the auction or sale of such pledged interests.
(4) Exclusive Technology Consultation and Services Agreement. Pursuant to the Exclusive Technology and Services Agreement, we have the exclusive right to provide technical services to XinYiXun. In exchange, XinYiXun pays a service fee to WFOE that is based on the financial performance of XinYiXun. WFOE will exclusively own any intellectual property arising from the performance of this agreement.
(5) Call option agreement. In order to ensure that we are able to acquire all of the equity interests in XinYiXun at our discretion, we have entered into a call option agreement with the shareholders of XinYiXun. The option is exercisable by WFOE at any time, provided that doing so is not prohibited by law. The exercise price under the option will be determined based on the evaluation made by the assets evaluation body designated by WFOE. During the terms of the call option agreement, the shareholders will not grant a similar right or transfer any of the equity interests in XinYiXun to any party other than us or our designee, nor will such shareholder pledge, create or permit any security interest or similar encumbrance to be created on any of the equity interests.
Upon executing the above agreements, XinYiXun is considered a Variable Interest Entity (“VIE”) and WFOE is the primary beneficiary. Accordingly, XinYiXun is consolidated into WFOE under the guidance of FASB Accounting Standards Codification (“ASC”) 810, Consolidation.
Except for the disclosed above, there are no arrangements that could require the Company to provide financial support to XinYiXun, including events or circumstances that could expose the Company to a loss. As stated in the disclosure of various agreements between the Company and XinYiXun, the Company has rights to acquire any portion of the equity interests of XinYiXun. Also, the Company may allocate its available funds to XinYiXun for business purposes. There are no fixed terms of such arrangements.
Although the structure the Company has adopted is consistent with longstanding industry practice, and is commonly adopted by comparable companies in China, the PRC government may not agree that these arrangements comply with PRC licensing, registration or other regulatory requirements, with existing policies or with requirements or policies that may be adopted in the future. There are uncertainties regarding the interpretation and application of PRC laws and regulations including those that govern the Company’s contractual arrangements, which could limit the Company’s ability to enforce these contractual arrangements. If the Company or any of its variable interest entities are found to be in violation of any existing or future PRC laws, rules or regulations, or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion to take action in dealing with such violations or failures, including levying fines, revoking business and other licenses of the Company’s variable interest entities, requiring the Company to discontinue or restrict its operations, restricting its right to collect revenue, requiring the Company to restructure its operations or taking other regulatory or enforcement actions against the Company. In addition, it is unclear what impact the PRC government actions would have on the Company and on its ability to consolidate the financial results of its variable interest entities in the consolidated financial statements, if the PRC government authorities were to find the Company’s legal structure and contractual arrangements to be in violation of PRC laws, rules and regulations. If the imposition of any of these government actions causes the Company to lose its right to direct the activities of XinYiXun, the Company would no longer be able to consolidate XinYiXun.
Name
|
|
Date of Incorporation
|
|
Place of Incorporation
|
|
Percentage of Interest
|
|
Principal Activities
|
UMeLook Holdings Limited
|
|
February 14, 2012
|
|
British Virgin Islands
|
|
100%
|
|
Holding company
|
UMeZone Holdings Limited
|
|
August 27, 2012
|
|
British Virgin Islands
|
|
100%
|
|
Dormant
|
AlphaRx International Holdings
|
|
August 24, 2004
|
|
British Virgin Islands
|
|
80%
|
|
Dormant
|
AlphaRx Canada Limited
|
|
September 25, 1997
|
|
Canada
|
|
100%
|
|
Dormant
|
AlphaRx Life Science Limited
|
|
July 21, 2004
|
|
Hong Kong
|
|
80%
|
|
Dormant
|
UMeLook Limited
|
|
February 23, 2012
|
|
Hong Kong
|
|
100%
|
|
Holding company of WFOE
|
UMeZone Adaptive Learning Technology Limited
|
|
September 7, 2012
|
|
Hong Kong
|
|
100%
|
|
Dormant
|
UMeLook (Guangzhou) Information Technology Co. Ltd. (WFOE)
|
|
October 29, 2012
|
|
China
|
|
100%
|
|
Holding company
|
YouYiXue (Guangzhou) Information Technology Co. Ltd.
|
|
April 23, 2013
|
|
China
|
|
100%
|
|
Dormant
|
Guangzhou XinYiXun Network Technology Co. Ltd.
|
|
July 9, 2012
|
|
China
|
|
Contractual arrangements
|
|
Online education
|
As of September 30, 2017 and 2016, the carrying amount and classification of the assets and liabilities in the Company’s balance sheets that relate to the Company’s VIE is as follows
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
1,619
|
|
|
$
|
30,444
|
|
Prepayment and other assets
|
|
|
18,366
|
|
|
|
31,041
|
|
Property and equipment, net
|
|
|
4,877
|
|
|
|
10,791
|
|
Total assets of VIE
|
|
$
|
24,862
|
|
|
$
|
72,276
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued liabilities and other payable
|
|
$
|
84,418
|
|
|
$
|
26,967
|
|
Due to VIE holding companies
|
|
|
18,224
|
|
|
|
20,991
|
|
Due to related parties
|
|
|
2,758,988
|
|
|
|
2,296,534
|
|
Total liabilities of VIE
|
|
$
|
2,861,630
|
|
|
$
|
2,344,492
|
|
Going concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary in the event that the Company is unable to continue as a going concern. The Company demonstrates adverse conditions that raise substantial doubt about the Company's ability to continue as a going concern for one year following the issuance of these financial statements. These adverse conditions are working capital deficiency, recurring operating losses, accumulated stockholders’ deficit, and continued reliance on external funding sources. In order to mitigate the going concern issues, the Company is constantly pursuing new business arrangements and striving to achieve profitability, and seeking capital funding on an ongoing basis via the issuance of promissory notes and private placements. There is no assurance that management's plan will be successful.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principals of Consolidation
The accompanying audited financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of the Company and XinYiXun, which is a variable interest entity with the Company as the primary beneficiary. In accordance with U.S. GAAP regarding “Consolidation of Variable Interest Entities (VIE)”, the Company identifies entities for which control is achieved through means other than through voting rights, and determines when and which business enterprise, if any, should consolidate the VIE. The Company evaluated its participating interest in XinYiXun and concluded it is the primary beneficiary of XinYiXun, a VIE. The Company consolidated XinYiXun and all significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates in amounts than may be material to the consolidated financial statements. Management believes that these estimates and assumptions used are reasonable. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become known. Estimates were used in determining the amounts of accrued liabilities, useful lives of property and equipment, stock based compensation, and valuation allowances.
Financial Instruments
a) Fair Value
Fair value estimates of financial instruments are made at a specific point in time, based on relevant information about financial markets and specific financial instruments. As these estimates are subjective in nature, involving uncertainties and matters of judgment, they cannot be determined with complete accuracy. Changes in assumptions can significantly affect estimated fair values. The carrying values of cash and cash equivalents, accounts receivable, prepayment, accounts payable, accrued liabilities, due to related parties and other current payables approximate their fair values because of the short-term nature of these instruments.
b) Interest rate, currency and credit risk
The Company is not subject to significant credit and interest risks arising from these financial instruments. The Company may be subject to significant currency risk as some of the external promissory notes are denominated in Canadian dollars or Hong Kong dollars.
Foreign Currency Translation
The Company maintains the books and records of AlphaRx Canada Ltd. in Canadian dollars, and the books and records of Alpha Life Sciences Ltd. and AlphaRx International Holdings Ltd. in Hong Kong dollars, their respective functional currencies. The records of these companies are converted to US dollars, the reporting currency. The translation method used is the current rate method. Under the current rate method all assets and liabilities are translated at the current rate, stockholders’ equity accounts are translated at historical rates and revenues and expenses are translated at average rates for the year. Cumulative net translation adjustments related to equity accounts are included as a separate component of stockholders’ deficit.
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
|
September 30, 2015
|
|
Year-end CAD: USD exchange rate
|
|
|
0.8022
|
|
|
|
0.7610
|
|
|
|
0.7458
|
|
Average Yearly CAD: USD exchange rate
|
|
|
0.7610
|
|
|
|
0.7545
|
|
|
|
0.8145
|
|
Year-end RMB: USD exchange rate
|
|
|
0.1503
|
|
|
|
0.1499
|
|
|
|
0.1574
|
|
Average Yearly RMB: USD exchange rate
|
|
|
0.1468
|
|
|
|
0.1531
|
|
|
|
0.1625
|
|
Year-end HKD: USD exchange rate
|
|
|
0.1280
|
|
|
|
0.1290
|
|
|
|
0.1290
|
|
Average Yearly HKD: USD exchange rate
|
|
|
0.1285
|
|
|
|
0.1289
|
|
|
|
0.1290
|
|
Earnings or Loss Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus Common stock equivalents (if dilutive) related to stock options and warrants for each year.
The following table presents securities that could potentially dilute basic loss per share in the future. For all periods presented, the potentially dilutive securities were not included in the computation of diluted loss per share because these securities would have been antidilutive for the years ended September 30:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Stock options
|
|
|
14,750,000
|
|
|
|
14,750,000
|
|
|
|
14,750,000
|
|
Common stock warrants
|
|
|
4,551,945
|
|
|
|
3,410,280
|
|
|
|
1,674,655
|
|
Total
|
|
|
19,301,945
|
|
|
|
18,160,280
|
|
|
|
16,424,655
|
|
Cash
Cash includes cash on hand, and amounts on deposit with banks. As of September 30, 2017 and 2016, the Company had cash in the amount of $8,466 and $46,302, respectively.
Accounts Receivable
The Company segregates trade receivables resulting from revenues generated from non-trade or other receivables. An allowance for bad debts is estimated for each type of receivable on a periodic basis based on experience with the respective parties.
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statement or tax returns. Deferred income taxes are provided using the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary differences between the tax and financial statement bases of assets and liabilities. Effects of changes in enacted tax laws on deferred tax assets and liabilities are reflected as adjustments to tax expense in the period of enactment. Deferred tax assets may be reduced, if deemed necessary based on a judgmental assessment of available evidence, by a valuation allowance for the amount of any tax benefits which are more likely, based on current circumstances, not expected to be realized.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided on the straight-line basis over the estimated useful lives of property and equipment. The principal useful lives and residual value are as follows:
Furniture and Fixtures
|
|
5 - 7 years
|
|
Machinery and Equipment
|
|
3 - 7 years
|
|
Leasehold Improvement
|
|
6 years
|
|
The Company capitalizes expenditures that materially increase assets’ lives and expenses ordinary repairs and maintenance to operations as incurred. When assets are sold or disposed or otherwise fully depreciated, the cost and related accumulated depreciation is removed from the accounts and any gain or loss is included in the statement of income and retained earnings.
Related Parties
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
Revenue Recognition
The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
During the year ended September 30, 2017, the Company recognized revenue primarily related to tutoring service in the amount of $7,927. There is no revenue generated during the year ended September 30, 2016.
Stock-Based Compensation
The Company recognizes compensation cost for third party and employee services rendered in exchange for an equity instrument award based on the fair value of the award on the date of grant. The Company uses the Black-Sholes option-pricing model in determining the fair value of options and warrants. In determining the expected volatility, the Company bases this assumption on the historical volatilities of the Company’s common stock over the expected life of the stock acquisition rights.
Advertising
Advertising is expensed as incurred and is included in selling, general and administrative expenses. The Company incurred $20,063, $33,796, and $0 for the years ended September 30, 2017, 2016 and 2015, respectively.
Recent Issued Accounting Pronouncement
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (ASC 606)”. Under the new standard, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. The new standard will be effective for us beginning January 1, 2018, with early adoption permitted. The Company elected to adopt the new standard effective January 1, 2018. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). The Company elected adopting the standard using the modified retrospective method. The Company has identified its revenue streams and assessed each for the impacts. The Company had no material impact in the timing or amount of revenue recognized under the new standard.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Under the new guidance, lessees will be required to recognize all leases (with the exception of short-term leases) at the commencement date including a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use (ROU) asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessees may not apply a full retrospective transition approach. The standard will be effective for us beginning January 1, 2019, with early adoption permitted. We plan to adopt the standard effective January 1, 2019. The Company is in the process of evaluating the impact of the standard on its consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, "Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting," which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in ASC 718. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The new guidance is effective prospectively for us for the year ending March 31, 2019, and interim reporting periods during the year ending March 31, 2019. Early adoption is permitted. We are evaluating the effects, if any, of the adoption of this guidance on our financial position, results of operations and cash flows.
NOTE
3
. PROPERTY AND EQUIPMENT
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Furniture and Fixtures
|
|
$
|
5,826
|
|
|
$
|
6,101
|
|
Leasehold Improvement
|
|
|
13,215
|
|
|
|
13,186
|
|
Machinery and Equipment
|
|
|
12,897
|
|
|
|
16,306
|
|
COST
|
|
|
31,938
|
|
|
|
35,593
|
|
Less: Accumulated depreciation/amortization
|
|
|
|
|
|
|
|
|
Furniture and Fixtures
|
|
|
5,133
|
|
|
|
4,169
|
|
Leasehold Improvement
|
|
|
9,408
|
|
|
|
7,189
|
|
Machinery and Equipment
|
|
|
12,520
|
|
|
|
12,360
|
|
|
|
|
27,061
|
|
|
|
23,718
|
|
NET
|
|
$
|
4,877
|
|
|
$
|
11,875
|
|
For the years ended September 30, 2017, 2016 and 2015 the Company recorded depreciation of $7,025, $6,822 and $7,174 respectively.
NOTE
4
. ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND OTHER PAYABLES
Accounts payable, accrued liabilities and other payables are comprised of the following:
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Accounts Payable
|
|
$
|
256,242
|
|
|
$
|
186,341
|
|
Accrued Liabilities and Other Payables
|
|
|
298,700
|
|
|
|
136,250
|
|
TOTAL
|
|
$
|
554,942
|
|
|
$
|
322,591
|
|
The accounts payable balance consists of amount payable to individual and service providers for their professional services provided.
The balance at September 30, 2017 includes $181,543, accounting for 70% of the Company’s total accounts payable, being payable to an individual for her professional services, $29,600, accounting for 12% of the Company’s total accounts payable, to service provider A for technical services, and $45,000, accounting for 18% of the Company’s total accounts payable, to service provider B for his professional services.
The balance at September 30, 2016 includes $111,307, accounting for 60% of the Company’s total accounts payable, being payable to an individual for her professional services, $29,600, accounting for 16% of the Company’s total accounts payable, to service provider A for technical services, and $45,000, accounting for 24% of the Company’s total accounts payable, to service provider B for his professional services.
Items included in the balances are payroll accrual, amount advanced from employees, credit card liabilities, and accrued expenses for services received. As of September 30, 2017, the balance includes advances from individuals of $65,941, and payroll liabilities of $78,793. As of September 30, 2016, the balance includes advances from individuals of $0, and payroll liabilities of $26,967.
NOTE
5
. NOTES PAYABLE
During the years ended September 30, 2017, 2016, and 2015, the Company issued $312,828, $391,158 and $250,833 of promissory notes respectively. The notes are unsecured and all notes will be expire on December 31, 2018. Among all the notes issued during the years ended September 30, 2017, 2016, and 2015, $294,928, $235,730, and $147,207 of promissory notes were issued with detachable warrants. According to ASC 470-20, the proceeds from the issuance of debt with detachable stock warrants were allocated between the debt and warrants based on their relative fair market values. Debt discount would be amortized to interest expense over the term of the notes. The Company recognized debt discount of $138,631, $233,125 and $164,497 respectively and amortized $186,280, $72,138, and $15,903 respectively in the years ended September 30, 2017, 2016, and 2015.
Notes Payable Issued with Warrants
During the year ended September 30, 2015, the Company issued promissory note in the aggregated amount of $182,976. The notes will expire on December 31, 2018 with a 12% interest rate per annum. The Company issued 914,880 shares of warrants with the debt at a strike price of $0.25-$0.30/share. The relative fair value of the warrants of $113,704 was recognized as debt discount, which was amortized over the term of the notes. The Company recognized interest expense of $12,983 associated with the amortization of debt discount for the year ended September 30, 2015. As of September 30, 2015, the notes payable balance was $91,677, including accrued interest of $9,421, and $100,722 unamortized debt discount.
During the year ended September 30, 2016, the Company issued promissory note in the aggregated amount of $235,730. The notes will expire on December 31, 2018 with a 12% interest rate per annum. The Company issued 1,178,650 shares of warrants with the debt at a strike price of $0.30/share. The relative fair value of the warrants of $138,757 was recognized as debt discount, which was amortized over the term of the notes. The Company recognized interest expense of $46,920 associated with the amortization of debt discount for the year ended September 30, 2016. As of September 30, 2016, the notes payable balance was $266,183, including accrued interest of $40,035, and $192,558 unamortized debt discount.
During the year ended September 30, 2017, the Company issued promissory note in the aggregated amount of $147,207. The notes will expire on December 31, 2018 with a 12% interest rate per annum. The Company issued 736,030 shares of warrants with the debt at a strike price of $0.30/share. The relative fair value of the warrants of $82,518 was recognized as debt discount, which is being amortized over the term of the notes. The Company recognized interest expense of $116,615 associated with the amortization of debt discount for the year ended September 30, 2017. As of September 30, 2017, the notes payable balance was $317,825, including accrued interest of $93,349, and $158,461 unamortized debt discount.
Notes Payable Issued with Warrants – Related Party
During the year ended September 30, 2015, the Company issued promissory note in the aggregated amount of $60,000 to John David Milroy, a board member of the Company. The notes will expire on December 31, 2018 with a 12% interest rate per annum. The Company issued 300,000 shares of warrants with the debt at a strike price of $0.25 -$0.30/share. The relative fair value of the warrants of $32,330 was recognized as a debt discount, which was amortized over the term of the notes. The Company recognized interest expense of $2,552 associated with the amortization of debt discount for the year ended September 30, 2015.
During the year ended September 30, 2015, the Company issued promissory note in the aggregated amount of $50,000 to Ford Moore, a board member of the Company. The notes will expire on December 31, 2018 with a 12% interest rate per annum. The Company issued 250,000 shares of warrants with the debt at a strike price of $0.25 -$0.30/share. The relative fair value of the warrants of $17,353 was recognized as a debt discount, which was amortized over the term of the notes. The Company recognized interest expense of $317 associated with the amortization of debt discount for the year ended September 30, 2015.
During the year ended September 30, 2015, the Company issued promissory note in the aggregated amount of $1,952 to Michael Lee, CEO and board member of the Company. The notes will expire on December 31, 2018 with a 12% interest rate per annum. The Company issued 9,775 shares of warrants with the debt at a strike price of $0.30/share. The relative fair value of the warrants of $1,109 was recognized as a debt discount, which was amortized over the term of the notes. The Company recognized interest expense of $51 associated with the amortization of debt discount for the year ended September 30, 2015.
During the year ended September 30, 2016, the Company issued promissory note in the aggregated amount of $10,000 to John David Milroy, a board member of the Company. The notes will expire on December 31, 2018 with a 12% interest rate per annum. The Company issued 50,000 shares of warrants with the debt at a strike price of $0.28/share. The relative fair value of the warrants of $6,074 was recognized as a debt discount, which was amortized over the term of the notes. The Company recognized interest expense of $10,456 associated with the amortization of debt discount for the year ended September 30, 2016. As of September 30, 2016, the balance of notes payable to John David Milroy is $55,748, including accrued interest of $11,143 and unamortized debt discount of $25,395.
During the year ended September 30, 2016, the Company issued promissory note in the aggregated amount of $30,000 to Ford Moore, a board member of the Company. The notes will expire on December 31, 2018 with a 12% interest rate per annum. The Company issued 150,000 shares of warrants with the debt at a strike price of $0.28/share. The relative fair value of the warrants of $18,498 was recognized as a debt discount, which was amortized over the term of the notes. The Company recognized interest expense of $9,320 associated with the amortization of debt discount for the year ended September 30, 2016. As of September 30, 2016, the balance of notes payable to Ford Moore is $88,966, including accrued interest of $15,180 and unamortized debt discount of $26,214.
During the year ended September 30, 2016, the Company issued promissory note in the aggregated amount of $111,395 to Michael Lee, CEO and board member of the Company. The notes will expire on December 31, 2018 with a 12% interest rate per annum. The Company issued 556,975 shares of warrants with the debt at a strike price of $028-$0.30/share. The relative fair value of the warrants of $69,796 was recognized as a debt discount, which was amortized over the term of the notes. The Company recognized interest expense of $5,441 associated with the amortization of debt discount for the year ended September 30, 2016. As of September 30, 2016, the balance of notes payable is $126,848, including accrued interest of $35,946 and unamortized debt discount of $65,413.
During the year ended September 30, 2017, the Company did not issue any promissory note to John David Milroy, a board member of the Company. The Company recognized interest expense of $11,276 associated with the amortization of debt discount for the year ended September 30, 2017. As of September 30, 2017, the balance of notes payable to John David Milroy is $75,425, including accrued interest of $19,543 and unamortized debt discount of $14,119.
During the year ended September 30, 2017, the Company did not issue any promissory note to Ford Moore, a board member of the Company. The Company recognized interest expense of $11,640 associated with the amortization of debt discount for the year ended September 30, 2017. As of September 30, 2017, the balance of notes payable to Ford Moore is $112,606, including accrued interest of $27,180 and unamortized debt discount of $14,574.
During the year ended September 30, 2017, the Company issued promissory note in the aggregated amount of $101,126 to Michael Lee, CEO and board member of the Company. The notes will expire on December 31, 2018 with a 12% interest rate per annum. The Company issued 505,635 shares of warrants with the debt at a strike price of $0.30/share. The relative fair value of the warrants of $56,114 was recognized as a debt discount, which was amortized over the term of the notes. The Company recognized interest expense of $46,749 associated with the amortization of debt discount for the year ended September 30, 2017. As of September 30, 2017, the balance of notes payable to Michael Lee is $246,690, including accrued interest of $62,138 and unamortized debt discount of $74,778.
Notes Payable
During the year ended September 30, 2015, the Company issued promissory note in the aggregated amount of $17,900. The notes will expire on December 31, 2018 with a 12% interest rate per annum. No repayment was made as of September 30, 2017. As of September 30, 2015, the notes payable balance was $19,075, including accrued interest of $1,175.
During the year ended September 30, 2016, the Company did not issue any promissory notes without attach with warrants. As of September 30, 2016, the notes payable balance was $21,114, including accrued interest of $3,214.
During the year ended September 30, 2017, the Company issued promissory note in the amount of $2,500. The notes will expire on December 31, 2018 with a 12% interest rate per annum. As of September 30, 2017, the notes payable balance was $26,204, including accrued interest of $5,804.
Notes Payable – Related Party
During the year ended September 30, 2016, the Company issued promissory note in the aggregated amount of $4,033 (CAD 5,300) to Michael Lee, CEO and board member of the Company. The notes will expire on December 31, 2018 with a 12% interest rate per annum. No repayment was made as of September 30, 2017. As of September 30, 2016, the balance of notes payable was $4,211, including accrued interest of $485. As of September 30, 2017, the balance of notes payable was $4,948, including accrued interest of $1,222.
The table below shows the total outstanding balance of note payable and total accrued interest on September 30, 2017 and 2016.
|
|
September 30, 2017
|
|
|
September 30, 2016
|
|
Notes Payable
|
|
$
|
1,209,445
|
|
|
$
|
978,702
|
|
Accrued Interest
|
|
|
712,546
|
|
|
|
552,257
|
|
Subtotal
|
|
|
1,921,991
|
|
|
|
1,530,959
|
|
|
|
|
|
|
|
|
|
|
Notes Payable – Related Parties
|
|
|
325,860
|
|
|
|
209,292
|
|
Accrued Interests – Related Parties
|
|
|
108,862
|
|
|
|
62,270
|
|
Subtotal
|
|
|
434,721
|
|
|
|
271,562
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,356,713
|
|
|
$
|
1,802,521
|
|
NOTE
6
. NON-CONTROLLING INTEREST
On June 22, 2006, AlphaRx International Holdings Ltd. (“AIH”), previously a wholly-owned subsidiary of the Company issued 1,500 shares of its common stock to New Super Limited (“NSL”), an independent Hong Kong based corporation, at a price of approximately HK$6,667 per share or HK$10 million in cash (US$1,288,826). As a result, AIH’s issued and outstanding shares were increased to 10,000 and the Company’s interest in AIH was reduced to 85%. With the consolidation of only 85% of AIH, a non-controlling interest was established, representing amounts owing to the minority shareholder. The capital infusion into AIH is accounted for as additional paid in capital on the consolidated financial statements of the Company.
On May 18, 2010, AlphaRx International Holdings Ltd. (“AIH”) issued 625 shares of its common stock to New Super Limited (“NSL”) at a price of approximately $HK 2,166 per share, or $HK1,353,750 in cash (USD$173,292), representing a further 5% non-controlling interest and increasing the total of the non-controlling interest to 20% after the infusion.
NOTE
7
. COMMITMENTS AND CONTINGENCIES
The Company has several office leases for subsidiaries in China. Pursuant to the lease, lease payment shall be made as follows:
Leases
|
|
Period
|
|
Annual Lease amount
|
Office Lease A
|
|
June 2013 to June 2016
|
|
RMB 342,000 ($52,372)
|
Office Lease B
|
|
June 2016 to July 2017
|
|
RMB 416,275 ($61,104)
|
Office Lease C
|
|
December 2013 to December 2014
|
|
RMB 109,200 (17,742)
|
Office Lease D
|
|
February 2017 to February 2018
|
|
RMB 54,000 ($7,926)
|
Office Lease E
|
|
January 2017 to January 2018
|
|
RMB 54,000 ($7,926)
|
Office Lease F
|
|
January 2017 to June 2017
|
|
RMB 48,000 ($7,046)
|
Office Lease G
|
|
December 2016 to December 2017
|
|
RMB 48,000 ($7,046)
|
For the years ended September 30, 2017, 2016 and 2015, rent expense related to the office leases amounted $76,488, $52,058, and $ 59,879, respectively.
On March 31, 2015, the Company entered into a vehicle lease in Toronto, Canada. Pursuant to the vehicle lease, the monthly payment of $603 is due on the 3
rd
day of each month. The term of the lease is for 39 months and expires on July 1, 2018.
Total future minimum rental payments required are as follows:
Years Ended September 30, 2017
|
|
Amount
|
|
2018
|
|
$
|
13,234
|
|
2019
|
|
|
-
|
|
2020
|
|
|
-
|
|
2021
|
|
|
-
|
|
2022
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total
|
|
$
|
13,234
|
|
NOTE
8
. COMMON STOCK
The Company is authorized to issue up to 250,000,000 shares of Common Stock with a stated par value of $0.0001 per share. As of September 30, 2017, 2016 and 2015 there were 89,504,000, 89,336,000 and 89,036,000 shares of common stock issued and outstanding respectively.
On July 6, 2017, the Company issued 168,000 shares of common stock at a price of $0.3 per share to Yongbiao Ding, CFO of the Company, for cash. On July 8, 2017, the Company received net proceeds of $50,400.
On April 1, 2016, the Company entered into a consulting agreement with LP Funding, LLC DBA LPF Communications, pursuant to which the Company issued 300,000 of restricted shares valued at $90,000 in exchange for investor relationship service provided by LP Funding, LLC DBA LPF Communications. All the amount was expensed in 2016.
NOTE 9. INCOME TAXES
BVI
UMeWorld Limited, UMeLook BVI, UMeZone Holdings Limited and AlphaRx International Holdings were incorporated in the BVI and, under the current laws of the BVI, are not subject to income taxes.
Canada
AlphaRx Canada Limited was incorporated in Canada and is subject to income tax rate of 34%.
HK
AlphaRx Life Science Limited, UMeLook HK and UMeZone Adaptive Learning Technology Limited were incorporated in Hong Kong and are subject to Hong Kong profits tax at a tax rate of 16.5%. No provision for Hong Kong profits tax has been made as these company had no taxable income during the reporting periods.
PRC
The Company’s subsidiary, UMeLook (Guangzhou) Information Technology Co. Ltd. and YouYiXue (Guangzhou) Information Technology Co. Ltd., and VIE, XinYiXun, registered in the PRC are subject to PRC Enterprise Income Tax (“EIT”) of 25% on the taxable income in accordance with the relevant PRC income tax laws.
The tax effect of material temporary differences representing deferred tax assets is estimated as follows:
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
351,500
|
|
|
$
|
538,644
|
|
|
$
|
753,850
|
|
Hong Kong
|
|
|
39,714
|
|
|
|
46,636
|
|
|
|
44,389
|
|
PRC
|
|
|
668,168
|
|
|
|
526,643
|
|
|
|
407,771
|
|
Sub-total
|
|
|
1,059,032
|
|
|
|
1,111,923
|
|
|
|
1,206,010
|
|
Less Valuation allowance
|
|
|
(1,059,032
|
)
|
|
|
(1,111,923
|
)
|
|
|
(1,206,010
|
)
|
Net deferred tax assets
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The valuation allowance as of September 30, 2017, 2016 and 2015 totaled $1,059,032, $1,111,923 and $1,206,010 respectively which consisted primarily of established reserves for deferred tax assets on non-capital operating loss carry forwards for our entities in United States and our foreign entities. The tax rates being used to determine deferred tax assets are estimated at 34% for North America, 25% for mainland China, and 16.5% for Hong Kong. The consolidated effective tax (benefit) rate as a percentage of income (loss) before income taxes is as follows.
|
|
Year Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
PRC enterprise income tax rate
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
Effect of income tax difference under different tax jurisdictions
|
|
|
-10.77
|
%
|
|
|
-10.57
|
%
|
|
|
-13.00
|
%
|
Effect of valuation allowance on deferred income tax assets
|
|
|
6.74
|
%
|
|
|
0.63
|
%
|
|
|
-10.38
|
%
|
Effect of expense not deductible for tax purpose
|
|
|
-20.97
|
%
|
|
|
-15.06
|
%
|
|
|
-1.64
|
%
|
Effective tax rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
-0.02
|
%
|
ASC 740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Company’s tax positions and considered that no provision for uncertainty in income taxes was necessary as of September 30, 2017 and 2016.
NOTE 10. STOCK OPTION PLANS
No options were granted during the years ended September 30, 2017, 2016 and 2015 while there were 14,750,000 options outstanding to purchase shares of common stock as of September 30, 2017, 2016 and 2015.
Below is a table summarizing the options issued and outstanding as of September 30, 2017, 2016 and 2015 (“Price” reflects the weighted average exercise price per share).
|
|
Year ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
Number Outstanding
|
|
|
Weighted-Average Exercise Price
|
|
|
Number Outstanding
|
|
|
Weighted-Average Exercise Price
|
|
|
Number Outstanding
|
|
|
Weighted-Average Exercise Price
|
|
Beginning at October 1
|
|
|
14,750,000
|
|
|
$
|
0.16
|
|
|
|
14,750,000
|
|
|
$
|
0.16
|
|
|
|
14,750,000
|
|
|
$
|
0.16
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Outstanding at September 30
|
|
|
14,750,000
|
|
|
$
|
0.16
|
|
|
|
14,750,000
|
|
|
$
|
0.16
|
|
|
|
14,750,000
|
|
|
$
|
0.16
|
|
Exercisable at September 30
|
|
|
14,750,000
|
|
|
$
|
0.16
|
|
|
|
14,750,000
|
|
|
$
|
0.16
|
|
|
|
14,750,000
|
|
|
$
|
0.16
|
|
The following table summarize the shares of the Company's common stock issuable upon exercise of options outstanding at September 30, 2017, 2016 and 2015.
|
|
Stock Options Outstanding/ Exercisable
|
|
|
|
Range of Exercise Price
|
|
Number at September 30, 2017
|
|
|
Weighted-Average Remaining Contractual Life (Years)
|
|
September 30, 2017
|
|
$
|
0.15-$0.20
|
|
|
14,750,000
|
|
|
|
8.99
|
|
September 30, 2016
|
|
$
|
0.15-$0.20
|
|
|
14,750,000
|
|
|
|
7.99
|
|
September 30, 2015
|
|
$
|
0.15-$0.20
|
|
|
14,750,000
|
|
|
|
6.99
|
|
As of September 30, 2017, 2016 and 2015, the intrinsic values of both outstanding options and exercisable options were $637,500, $2,850,000 and $4,915,000 respectively. There were no options exercised during the years ended September 30, 2017, 2016, and 2015; and no stock based compensation is recognized from stock options during the years ended September 30, 2017, 2016, and 2015.
NOTE 11. WARRANTS
For detachable warrants issued with notes payable during the years ended September 30, 2017, 2016 and 2015, the Company determined the estimated value of the warrants using Black-Scholes pricing model with the following assumptions. The warrants were fully vested upon issuance, stock price at valuation of $0.20-$0.40, expected term of 2-3 years, exercise price of $0.25- $0.30, risk free interest rate of 0.52-1.56 percent, a dividend yield of 0 percent and volatility of 118-465 percent. According to ASC 470-20, the proceeds from the issuance of debt with detachable stock warrants were allocated between the debt and warrants based on their relative fair market values. The relative fair value of warrants as of September 20, 2017, 2016, and 2015 were $138,631, $233,125, and $164,497 respectively.
During the year ended September 30, 2015, the Company issued promissory notes in aggregate of $294,929. 1,474,655 shares of warrants were issued with the notes with exercise price of $0.25 to $0.30 per share and a term of 2-3 years. The relative fair value of the warrants of $164,497 was recognized as a debt discount which is being amortized basis over the term of the note.
During the year ended September 30, 2016, the Company issued promissory notes in aggregate of $387,125. 1,935,625 shares of warrants were issued with the notes with exercise price of $0.28 to $0.30 per share and a term of 3 years. The relative fair value of the warrants of $233,125 was recognized as a debt discount which is being amortized basis over the term of the note.
During the year ended September 30, 2017, the Company issued promissory notes in aggregate of $248,333. 1,241,665 shares of warrants were issued with notes with exercise price $0.30 per share and a term of 3 years. The relative fair value of the warrants of $138,631 was recognized as a debt discount which is being amortized over the term of the note.
Below is a table summarizing the warrants issued and outstanding as of September 30, 2017, 2016 and 2015:
|
|
Number Outstanding
|
|
|
Average Exercise Price
|
|
Outstanding at September 30, 2014
|
|
|
3,940,150
|
|
|
$
|
0.09
|
|
Granted
|
|
|
1,474,655
|
|
|
$
|
0.26
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
3,740,150
|
|
|
$
|
0.09
|
|
Outstanding at September 30, 2015
|
|
|
1,674,655
|
|
|
$
|
0.26
|
|
Granted
|
|
|
1,935,625
|
|
|
$
|
0.30
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
200,000
|
|
|
$
|
0.25
|
|
Outstanding at September 30, 2016
|
|
|
3,410,280
|
|
|
$
|
0.28
|
|
Granted
|
|
|
1,241,665
|
|
|
$
|
0.30
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
100,000
|
|
|
$
|
0.25
|
|
Outstanding at September 30, 2017
|
|
|
4,551,945
|
|
|
$
|
0.29
|
|
As of September 30, 2017, 2016 and 2015, the intrinsic values of the outstanding warrants were $0, $228,058 and $381,428 respectively. There were no warrants exercised during the years ended September 30, 2017, 2016 and 2015.
NOTE 12. RELATED PARTY TRANSACTIONS
The Company sourced some of its funding from Michael Lee, CEO and director, Ford Moore and Dave Milroy, directors, by issuing promissory notes.
During the years ended September 30, 2017, 2016, and 2015, the Company issued promissory notes in the amount of $101,126, $115,421, and $1,952 respectively to Michael Lee. On September 30, 2017, 2016, and 2015, the notes payable balances for Michael Lee were $246,690, $126,848, and $68,431 respectively, including accrued interests of $62,138, $35,946, and $29,273 and unamortized debt discount in the amount of $74,778, $65,413, and $1,058 as of September 30, 2017, 2016, and 2015. Among all the loans borrowed from Mr. Lee, as of September 30, 2017, $214,414 of loans were attached with 1,072,385 shares of warrants, which was subject to debt discount amortization through December 31, 2018.
During the years ended September 30, 2017, 2016, and 2015, the Company issued promissory notes in the amount of $0, $30,000, and $50,000 respectively to Ford Moore. On September 30, 2017, 2016, and 2015, the notes payable balances for Michael Lee were $112,606, $88,966, and $57,444 respectively, including accrued interests of $27,180, $15,180, and $4,480 and unamortized debt discount in the amount of $14,574, $26,214, and $17,036 as of September 30, 2017, 2016, and 2015. Among all the loans borrowed from Ford Moore, as of September 30, 2017, $100,000 of loans were attached with 500,000 shares of warrants, which was subject to debt discount amortization through December 31, 2018.
During the years ended September 30, 2017, 2016, and 2015, the Company issued promissory notes in the amount of $0, $10,000, and $60,000 respectively to John David Milroy. On September 30, 2017, 2016, and 2015, the notes payable balances for Michael Lee were $75,425, $55,748, and $33,439 respectively, including accrued interests of $19,543, $11,143, and $3,217 and unamortized debt discount in the amount of $14,119, $25,395, and $29,778 as of September 30, 2017, 2016, and 2015. Among all the loans borrowed from John David Milroy, as of September 30, 2017, $70,000 of loans were attached with 350,000 shares of warrants, which was subject to debt.
During the year ended September 30, 2015, Michael Lee provided management services to the Company with the amount of $120,000, paid $27,543 expenses on behalf of the Company, and received $56,689 repayment from the Company. Together with the balance due to him carried over from prior years, the total balance due to him as of September 30, 2015 is $320,239.
During the year ended September 30, 2016, Michael Lee provided management services to the Company with the amount of $120,000, paid $25,816 expenses on behalf of the Company, and received $40,855 repayment from the Company. Together with the balance due to him carried over from prior years, the total balance due to him as of September 30, 2016 is $425,181.
During the year ended September 30, 2017, Michael Lee provided management services to the Company with the amount of $120,000, paid $30,571 expenses on behalf of the Company, advanced $22,565 to the Company, and received $63,816 repayment from the Company. Together with the balance due to him carried over from prior years, the total balance due to him as of September 30, 2017 is $534,529.
For the year ended September 30, 2017, Dong Liang, a director, advanced the Company $385,419 and received repayment of $164,051. The Company had $221,368 due to him at September 30, 2017.
Vago International Limited, over 10% shareholder of the Company, had paid for the expenses on behalf of the Company previously, and the Company had $19,806 due to them as of September 30, 2017 and 2016.
On March 5, 2013, the Company’s VIE, XinYiXun, entered into a system development agreement with Zhongda No. 3, a related party owning 90% equity interest in the Company’s VIE and also the beneficial owner owning 6.14% of the Company’s common stock. Pursuant to the agreement, the Company provided system development service for Zhongda No.3 in exchange for compensation of RMB3,508,000. On March 28, 2013, Zhongda No.3 made a prepayment of RMB2,508,000. However, the Company did not develop the system as required by Zhongda No. 3, which haven’t accepted the system and will not accept the system in the future either. The Company will return the prepayment to Zhongda No. 3 in the future and recognized the amount received as payable to Zhongda No.3The balance due to Zhongda No.3 was $378,721 and $377,875 as of September 30, 2017 and 2016.
NOTE 13. RESTATEMENTS
Subsequent to the issuance of the Company’s 2016 consolidated financial statements, the Company’s management determined that corrections were required to the previously reported financial statements to correct some accounting treatments, and to reclassify some related party transactions. As a result, the consolidated balance sheet as of September 30, 2016, the consolidated statements of operations and comprehensive loss for the years ended September 30, 2016 and 2015, the consolidated statements of cash flows for the years ended September 30, 2016 and 2015, and the consolidated statements of changes in stockholders’ deficit for the years ended September 30, 2016 and 2015 have been restated from the amounts previously reported.
The following table illustrates the impact of the correction to the previously issued consolidated financial statements:
|
|
As of September 30, 2016
|
|
Consolidated Balance Sheet
|
|
As previously reported
|
|
|
Adjustments
|
|
|
|
|
As restated
|
|
Cash and Cash Equivalents
|
|
|
46,301
|
|
|
|
1
|
|
|
{a}
|
|
|
46,302
|
|
Accounts receivable and other current assets
|
|
|
|
|
|
|
9,014
|
|
|
{a}
|
|
|
9,014
|
|
Accounts Receivable
|
|
|
265
|
|
|
|
(265
|
)
|
|
{a}
|
|
|
|
|
Deposit
|
|
|
8,749
|
|
|
|
(8,749
|
)
|
|
{a}
|
|
|
|
|
TOTAL CURRENT ASSETS
|
|
|
82,787
|
|
|
|
1
|
|
|
{j}
|
|
|
82,788
|
|
Property and equipment, net
|
|
|
5,879
|
|
|
|
5,996
|
|
|
{b}
|
|
|
11,875
|
|
Deferred Charges
|
|
|
348,913
|
|
|
|
(348,913
|
)
|
|
{b}
|
|
|
-
|
|
TOTAL NON-CURRENT ASSETS
|
|
|
354,792
|
|
|
|
(342,917
|
)
|
|
{j}
|
|
|
11,875
|
|
TOTAL ASSETS
|
|
|
437,579
|
|
|
|
(342,916
|
)
|
|
{j}
|
|
|
94,663
|
|
Accounts payable
|
|
|
769,405
|
|
|
|
(583,064
|
)
|
|
{c}
|
|
|
186,341
|
|
Due to related parties
|
|
|
|
|
|
|
822,862
|
|
|
{c}
|
|
|
822,862
|
|
Accrued liabilities and other payables
|
|
|
|
|
|
|
136,250
|
|
|
{c}
|
|
|
136,250
|
|
Unearned Revenue
|
|
|
376,046
|
|
|
|
(376,046
|
)
|
|
{c}
|
|
|
|
|
TOTAL CURRENT LIABILITIES
|
|
|
1,145,451
|
|
|
|
2
|
|
|
{j}
|
|
|
1,145,453
|
|
Notes payable
|
|
|
2,112,101
|
|
|
|
(581,142
|
)
|
|
{d}
|
|
|
1,530,959
|
|
Notes payable – related parties
|
|
|
|
|
|
|
271,562
|
|
|
{d}
|
|
|
271,562
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
2,112,101
|
|
|
|
(309,580
|
)
|
|
{j}
|
|
|
1,802,521
|
|
TOTAL LIABILITIES
|
|
|
3,257,552
|
|
|
|
(309,578
|
)
|
|
{j}
|
|
|
2,947,974
|
|
Additional paid-in capital
|
|
|
25,870,095
|
|
|
|
(655,051
|
)
|
|
{d}
|
|
|
25,215,044
|
|
Accumulated deficit
|
|
|
(28,916,005
|
)
|
|
|
466,359
|
|
|
{e}
|
|
|
(28,449,646
|
)
|
Accumulated other comprehensive income
|
|
|
(1,888
|
)
|
|
|
155,354
|
|
|
{e}
|
|
|
153,466
|
|
Total UMeWorld Limited’s stockholders’ deficit
|
|
|
(3,038,864
|
)
|
|
|
(33,338
|
)
|
|
{j}
|
|
|
(3,072,202
|
)
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
|
(2,819,973
|
)
|
|
|
(33,338
|
)
|
|
{j}
|
|
|
(2,853,311
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
437,579
|
|
|
|
(342,916
|
)
|
|
{j}
|
|
|
94,663
|
|
|
|
Year Ended September 30, 2016
|
|
|
Year Ended September 30, 2015
|
|
Consolidated statements of operations and comprehensive loss
|
|
As previously reported
|
|
|
Adjustments
|
|
|
|
|
As restated
|
|
|
As previously reported
|
|
|
Adjustments
|
|
|
|
|
As restated
|
|
General and Administrative Expenses
|
|
|
1,034,608
|
|
|
|
(70,543
|
)
|
|
{b}
|
|
|
964,065
|
|
|
|
765,691
|
|
|
|
93,284
|
|
|
{b}
|
|
|
858,975
|
|
Stock-based compensation
|
|
|
566,760
|
|
|
|
(566,760
|
)
|
|
{d}
|
|
|
|
|
|
|
485,912
|
|
|
|
(485,912
|
)
|
|
{d}
|
|
|
|
|
Depreciation
|
|
|
4,577
|
|
|
|
(4,577
|
)
|
|
{b}
|
|
|
|
|
|
|
4,793
|
|
|
|
(4,793
|
)
|
|
{b}
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(1,605,945
|
)
|
|
|
641,880
|
|
|
{j}
|
|
|
(964,065
|
)
|
|
|
(1,256,396
|
)
|
|
|
397,421
|
|
|
{j}
|
|
|
(858,975
|
)
|
Interest expense
|
|
|
(146,605
|
)
|
|
|
(72,138
|
)
|
|
{d}
|
|
|
(218,743
|
)
|
|
|
(119,102
|
)
|
|
|
(15,903
|
)
|
|
{d}
|
|
|
(135,005
|
)
|
LOSS BEFORE INCOME TAXES
|
|
|
(1,752,483
|
)
|
|
|
569,742
|
|
|
{j}
|
|
|
(1,182,741
|
)
|
|
|
(1,355,125
|
)
|
|
|
381,518
|
|
|
{j}
|
|
|
(973,607
|
)
|
Net Loss
|
|
|
(1,752,483
|
)
|
|
|
569,742
|
|
|
{j}
|
|
|
(1,182,741
|
)
|
|
|
(1,355,125
|
)
|
|
|
381,518
|
|
|
{j}
|
|
|
(973,607
|
)
|
Net gain/(loss) attributable to UMeWorld Limited’s stockholders
|
|
|
(1,768,095
|
)
|
|
|
569,742
|
|
|
{j}
|
|
|
(1,198,353
|
)
|
|
|
(1,370,750
|
)
|
|
|
381,518
|
|
|
{j}
|
|
|
(989,232
|
)
|
Net gain/(loss)
|
|
|
(1,768,095
|
)
|
|
|
569,742
|
|
|
{j}
|
|
|
(1,198,353
|
)
|
|
|
(1,370,750
|
)
|
|
|
381,518
|
|
|
{j}
|
|
|
(989,232
|
)
|
Translation Adjustment
|
|
|
(752
|
)
|
|
|
(3,259
|
)
|
|
{a}
|
|
|
(4,011
|
)
|
|
|
2,118
|
|
|
|
158,613
|
|
|
{a}
|
|
|
160,731
|
|
Comprehensive gain/(loss)
|
|
|
(1,768,847
|
)
|
|
|
566,483
|
|
|
{j}
|
|
|
(1,202,364
|
)
|
|
|
(1,368,632
|
)
|
|
|
540,131
|
|
|
{j}
|
|
|
(828,501
|
)
|
Comprehensive gain/(loss) attributable to UMeWorld Limited’s stockholders
|
|
|
(1,768,697
|
)
|
|
|
566,483
|
|
|
{j}
|
|
|
(1,202,214
|
)
|
|
|
(1,369,056
|
)
|
|
|
540,131
|
|
|
{j}
|
|
|
(828,925
|
)
|
Let loss per share, basic and diluted
|
|
|
(0.02
|
)
|
|
|
|
|
|
{j}
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
{j}
|
|
|
(0.01
|
)
|
Weighted average number of common shares outstanding
|
|
|
89,261,000
|
|
|
|
(75,820
|
)
|
|
{f}
|
|
|
89,185,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2016
|
|
|
Year Ended September 30, 2015
|
|
Consolidated statements of cash flows
|
|
As previously reported
|
|
|
Adjustments
|
|
|
|
|
As restated
|
|
|
As previously reported
|
|
|
Adjustments
|
|
|
|
|
As restated
|
|
Net loss
|
|
|
(1,752,483
|
)
|
|
|
569,742
|
|
|
{e}
|
|
|
(1,182,741
|
)
|
|
|
(1,355,125
|
)
|
|
|
381,518
|
|
|
{e}
|
|
|
(973,607
|
)
|
Non-cash item: Noncontrolling interest
|
|
|
15,462
|
|
|
|
(15,462
|
)
|
|
{g}
|
|
|
|
|
|
|
16,049
|
|
|
|
(16,049
|
)
|
|
{g}
|
|
|
|
|
Depreciation expense
|
|
|
4,577
|
|
|
|
2,245
|
|
|
{b}
|
|
|
6,822
|
|
|
|
4,793
|
|
|
|
2,381
|
|
|
{b}
|
|
|
7,174
|
|
Stock-based compensation
|
|
|
656,760
|
|
|
|
(656,760
|
)
|
|
{d}
|
|
|
|
|
|
|
485,912
|
|
|
|
(485,912
|
)
|
|
{d}
|
|
|
|
|
Stock issued for service
|
|
|
|
|
|
|
90,000
|
|
|
{h}
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of debt discount
|
|
|
|
|
|
|
72,138
|
|
|
{d}
|
|
|
72,138
|
|
|
|
|
|
|
|
15,903
|
|
|
{d}
|
|
|
15,903
|
|
Accounts receivable and other current assets
|
|
|
|
|
|
|
605
|
|
|
{a}
|
|
|
605
|
|
|
|
|
|
|
|
2,125
|
|
|
{a}
|
|
|
2,125
|
|
Accounts payable
|
|
|
|
|
|
|
68,305
|
|
|
{c}
|
|
|
68,305
|
|
|
|
|
|
|
|
(25,363
|
)
|
|
{c}
|
|
|
(25,363
|
)
|
Accrued liabilities and other payables
|
|
|
|
|
|
|
176,618
|
|
|
{c}
|
|
|
176,618
|
|
|
|
|
|
|
|
117,905
|
|
|
{c}
|
|
|
117,905
|
|
Due to related parties
|
|
|
|
|
|
|
121,829
|
|
|
{c}
|
|
|
121,829
|
|
|
|
|
|
|
|
120,000
|
|
|
{c}
|
|
|
120,000
|
|
Decrease/(increase) in Deferred charges
|
|
|
74,467
|
|
|
|
(74,467
|
)
|
|
{b}
|
|
|
|
|
|
|
72,786
|
|
|
|
(72,786
|
)
|
|
{b}
|
|
|
|
|
Decrease/(increase) in Accounts receivables
|
|
|
(3
|
)
|
|
|
3
|
|
|
{a}
|
|
|
|
|
|
|
178
|
|
|
|
(178
|
)
|
|
{a}
|
|
|
|
|
Decrease/(increase) in loans receivables
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,016
|
|
|
|
(1,016
|
)
|
|
{a}
|
|
|
|
|
(Decrease)/increase in Accounts payable and accrued liabilities
|
|
|
171,176
|
|
|
|
(171,176
|
)
|
|
{c}
|
|
|
|
|
|
|
107,796
|
|
|
|
(107,796
|
)
|
|
{c}
|
|
|
|
|
(Decrease)/increase in Accrued interest and Notes payable
|
|
|
57,834
|
|
|
|
(57,834
|
)
|
|
{d}
|
|
|
|
|
|
|
48,290
|
|
|
|
(48,290
|
)
|
|
{d}
|
|
|
|
|
Decrease/(increase) in Deposit
|
|
|
608
|
|
|
|
(608
|
)
|
|
{a}
|
|
|
|
|
|
|
929
|
|
|
|
(929
|
)
|
|
{a}
|
|
|
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
|
(768,232
|
)
|
|
|
125,178
|
|
|
{j}
|
|
|
(643,054
|
)
|
|
|
(646,790
|
)
|
|
|
(118,488
|
)
|
|
{j}
|
|
|
(765,278
|
)
|
Proceeds from notes payable
|
|
|
|
|
|
|
235,730
|
|
|
{d}
|
|
|
235,730
|
|
|
|
|
|
|
|
200,876
|
|
|
{d}
|
|
|
200,876
|
|
Proceeds from notes payable – related parties
|
|
|
|
|
|
|
155,428
|
|
|
{d}
|
|
|
155,428
|
|
|
|
|
|
|
|
111,952
|
|
|
{d}
|
|
|
111,952
|
|
Repayments to related parties
|
|
|
|
|
|
|
(40,855
|
)
|
|
{d}
|
|
|
(40,855
|
)
|
|
|
|
|
|
|
(56,689
|
)
|
|
{d}
|
|
|
(56,689
|
)
|
Issuance (repayment) of notes payable, net
|
|
|
391,158
|
|
|
|
(391,158
|
)
|
|
{d}
|
|
|
|
|
|
|
276,349
|
|
|
|
(276,349
|
)
|
|
{d}
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
391,158
|
|
|
|
(40,855
|
)
|
|
{j}
|
|
|
350,303
|
|
|
|
276,349
|
|
|
|
(20,210
|
)
|
|
{j}
|
|
|
256,139
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
72,317
|
|
|
|
(84,324
|
)
|
|
{k}
|
|
|
(12,007
|
)
|
|
|
(123,278
|
)
|
|
|
138,701
|
|
|
{k}
|
|
|
15,423
|
|
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(304,757
|
)
|
|
|
(1
|
)
|
|
{a}
|
|
|
(304,758
|
)
|
|
|
(494,026
|
)
|
|
|
3
|
|
|
{a}
|
|
|
(494,023
|
)
|
CASH and cash equivalents, beginning of year
|
|
|
351,058
|
|
|
|
2
|
|
|
{a}
|
|
|
351,060
|
|
|
|
845,084
|
|
|
|
(1
|
)
|
|
{a}
|
|
|
845,083
|
|
CASH and cash equivalents, end of year
|
|
|
46,301
|
|
|
|
1
|
|
|
{a}
|
|
|
46,302
|
|
|
|
351,058
|
|
|
|
2
|
|
|
{a}
|
|
|
351,060
|
|
Interest paid
|
|
|
154,730
|
|
|
|
(154,730
|
)
|
|
{i}
|
|
|
|
|
|
|
48,029
|
|
|
|
(48,029
|
)
|
|
{i}
|
|
|
|
|
|
|
Year Ended September 30, 2016
|
|
|
Year Ended September 30, 2015
|
|
Consolidated statements of changes in stockholders’ deficit
|
|
As previously reported
|
|
|
Adjustments
|
|
|
|
|
As restated
|
|
|
As previously reported
|
|
|
Adjustments
|
|
|
|
|
As restated
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
Warrants issued
|
|
|
566,760
|
|
|
|
(333,635
|
)
|
|
{d}
|
|
|
233,125
|
|
|
|
485,912
|
|
|
|
(321,415
|
)
|
|
{d}
|
|
|
164,497
|
|
Foreign currency translation – Accumulated other comprehensive loss
|
|
|
(602
|
)
|
|
|
(3,259
|
)
|
|
{k}
|
|
|
(3,861
|
)
|
|
|
1,694
|
|
|
|
158,613
|
|
|
{k}
|
|
|
160,307
|
|
Net Loss for the year
|
|
|
(1,768,095
|
)
|
|
|
569,742
|
|
|
{e}
|
|
|
(1,198,353
|
)
|
|
|
(1,370,750
|
)
|
|
|
381,518
|
|
|
{e}
|
|
|
(989,232
|
)
|
{a} To correct other miscellaneous errors.
{b} To expense and impair the capitalized website costs, and to record office renovation expenses as leasehold improvement in property and equipment. The Company also reclassified depreciation expense in general and administrative expenses.
{c} To reclassify unearned revenue into due to related parties, and to separately present accounts payable, accrued liabilities and other payables, and due to related parties. Statements of cash flows were adjusted accordingly.
{d} The Company issued promissory notes with common stock warrants and initially expensed the fair value of the warrants as stock based compensation. It is adjusted to allocate the proceeds from the issuance between the debt and warrants based on their relative fair market values. The related fair value of the warrants was recognized as debt discount and amortized to interest expense over the term of the notes. The Company also reclassified the amount payable to related parties into notes payable - related parties.
{e} To adjust for the effect of expensing capitalized website costs in {b} and amortization of debt discounts discussed in {d}.
{f} The correct the error in date of stock issued for service used to calculate weighted average number of common shares outstanding at September 30, 2016.
{g} To delete the separate disclosure of non-controlling interest as the amount of non-controlling interest is included in the net loss at the beginning of cash flows.
{h} To separately present stock issued for service from stock based compensation in the cash flows.
{i} The company did not pay any interests in years ended September 30, 2016 and 2015. The interests were accrued in notes payable and notes payable – related parties.
{j} To reflect the impact of the above adjustments to the total balances.
{k} The adjustment was due to fluctuation in exchange rates when transferring from functional currencies to reporting currency.
NOTE 14. SUBSEQUENT EVENTS
On January 10, 2018, the Company issued 122,337 restricted shares at $0.10 per shares to certain employees in lieu of their salaries. On February 9, 2018, the Company issued 600,000 restricted shares to the CFO, Mr. Yongbiao (Winfield) Ding at $0.12 per share pursuant to a private placement agreement.
On December 5, 2017, the Company entered into a settlement agreement with Zhongda No. 3, pursuant to which Zhongda No. 3 will not call for the return of the prepayment of RMB2,508,000 and will not pay for the remaining RMB1,000,000 to the Company. The forgiveness of the liability in the amount of RMB2,508,000 was considered contributions to capital and recorded as additional paid in capital in 2018.