The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 2022, 2021 AND 2020
NOTE 1. NATURE OF BUSINESS AND GOING CONCERN
UMeWorld Limited (the “Company”), the holding company for a group of companies, 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 of 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 did not own any material assets and conducted its operations in China through its variable interest entity (VIE), Guangzhou XinYiXun.
UMeLook Limited (“UMeLook HK”), the Company’s 100% owned subsidiaries, was incorporated in Hong Kong on February 23, 2012.
UMeLook HK held 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 did 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 operated UMFun.com, an online learning and assessment platform used by teachers, students and parents in China’s K-12 education system.
Prior to January 2022, the Company conducted its primary business operations through WFOE, which in turn, conducted 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. 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 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 as 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.
On May 8, 2021, XinYiXun incorporated a wholly owned subsidiary named Guangzhou YouManFen Education Technology Co., Ltd. (“YMF”) in China. The principal activity of YMF was the provision of private tutoring. Subsequently on December 31, 2021, YMF changed its name to Guangzhou YouManFen Information Technology Co., Ltd.
On December 31, 2021, WFOE, XinYiXun, YL, and Zhongda No. 3 mutually agreed to terminate the series of contractual arrangements, which consisted of the Exclusive Management Service Agreement, the Proxy Agreement, the Equity Pledge Agreement, the Exclusive Technology Consultation and Services Agreement, and the Call Option Agreement, due to the education policy changes in the PRC. As a result, the digital media and digital education business of the Company was dissolved.
On September 30, 2022, the Company entered into two sale and purchase agreements with an individual to dispose UMeLook HK and UMeZone Adaptive Learning Technology Limited (“UMeZone”) for a consideration of $0.13 (equivalent to HK$1) each.
As of September 30, 2022 and 2021, the carrying amount and classification of the assets and liabilities in the Company’s balance sheets that relate to the VIEs are as follows:
| | As of September 30, | |
| | 2022 | | | 2021 | |
Assets | | | | | | |
Cash | | $ | 0 | | | $ | 2,961 | |
Prepayment and other assets | | | 0 | | | | 29,143 | |
Property and equipment, net | | | 0 | | | | 19,240 | |
Total assets of VIEs | | $ | 0 | | | $ | 51,344 | |
Liabilities | | | | | | | | |
Accrued liabilities and other payable | | $ | 0 | | | $ | 447,869 | |
Due to VIE holding companies | | | 0 | | | | 19,316 | |
Due to related parties | | | 0 | | | | 2,232,617 | |
Total liabilities of VIEs | | $ | 0 | | | $ | 2,699,802 | |
On January 28, 2022, Dagola Inc. (“Dagola”) was incorporated in the state of Wyoming with the authorized common shares of 10,000 shares, par value of $0.001 per share. Dagola is a wholly-owned subsidiary of the Company and principally engaged in the business of cooking oil distribution.
As of September 30, 2022, details of the remaining subsidiary of the Company are as follows:
Name | | Date of Incorporation | | Place of Incorporation | | Percentage of Interest | | Principal Activities | | Nature of company |
Dagola Inc. | | January 28, 2022 | | U.S. | | 100% | | Cooking oil distribution | | Subsidiary |
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.
The Company has suffered from a net loss of $147,686 for the year ended September 30, 2022. Also, at September 30, 2022, the Company has incurred an accumulated deficits of $31,140,663. 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 consolidated 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
The consolidated financial statements of the Group have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Basis of Consolidation
The consolidated financial statements include the financial statements of the Company, its subsidiaries and its VIEs. All inter-company transactions and balances have been eliminated upon consolidation.
Consolidation of Variable Interest Entities
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. On May 8, 2021, XinYiXun incorporated a wholly owned subsidiary named Guangzhou YouManFen Education Technology Co., Ltd. (“YMF”) in China. The principal activity of YMF is the provision of private tutoring. Subsequently in December 2021, YMF changed its name to Guangzhou YouManFen Information Technology Co., Ltd. The Company consolidated XinYiXun, YMF, 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.
Foreign Currency Translation
Transactions denominated in other than the functional currencies are re-measured into the functional currency of the entity at the exchange rates prevailing on the transaction dates. Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are translated into the functional currency at the prevailing rates of exchange at the balance date. The resulting exchange differences are reported in the statements of operations and comprehensive loss.
In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “ Translation of Financial Statement”. 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 are included as a separate component of stockholders’ deficit.
| | September 30, 2022 | | | September 30, 2021 | | | September 30, 2020 | |
Year-end CAD: USD exchange rate | | | 0.7279 | | | | 0.7884 | | | | 0.7483 | |
Annual average CAD: USD exchange rate | | | 0.7830 | | | | 0.7786 | | | | 0.7435 | |
Year-end RMB: USD exchange rate | | | 0.1406 | | | | 0.1551 | | | | 0.1470 | |
Annual average RMB: USD exchange rate | | | 0.1527 | | | | 0.1557 | | | | 0.1427 | |
Year-end HKD: USD exchange rate | | | 0.1274 | | | | 0.1284 | | | | 0.1290 | |
Annual average HKD: USD exchange rate | | | 0.1279 | | | | 0.1288 | | | | 0.1286 | |
Comprehensive income
ASC Topic 220, “Comprehensive Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented in the accompanying consolidated statements of changes in stockholders’ equity, consists of changes in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
Earnings or Loss Per Share
The Company calculates net loss per share in accordance with ASC Topic 260, “Earnings 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:
| | 2022 | | | 2021 | | | 2020 | |
Stock options | | | 10,300,000 | | | | 10,300,000 | | | | 10,300,000 | |
Common stock warrants | | | - | | | | - | | | | - | |
Total | | | 10,300,000 | | | | 10,300,000 | | | | 10,300,000 | |
Cash
Cash and cash equivalents primarily consist of cash and deposits with financial institutions which are unrestricted as to withdrawal and use. Cash equivalents consist of highly liquid investments that are readily convertible to cash generally with original maturities of three months or less when purchased.
As of September 30, 2022 and 2021, the Company had cash in the amount of $2,443 and $7,820 respectively.
Inventory
The Company’s inventory is stated at the lower of cost or net realizable value, net of reserves and allowances, with cost determined using the average cost method, with average cost approximating current cost. Inventory cost consists of the direct cost of merchandise including freight. The carrying value of the inventory is affected by shrinkage, damages and obsolescence.
Income Taxes
The Company adopted the ASC 740 Income tax provisions of paragraph 740-10-25-13, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements. The Company accounts for income taxes using the asset and liability method whereby it calculates deferred tax assets or liabilities for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net operating loss carry forwards and credits by applying enacted tax rates applicable to the years in which those temporary differences are expected to be reversed or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities. The components of the deferred tax assets and liabilities are individually classified as non-current amounts.
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
The Company management review the carrying values of long-lived assets whenever events and circumstances, such as a significant decline in the asset’s market value, obsolescence or physical damage affecting the asset, significant adverse changes in the assets use, deterioration in the expected level of the assets performance, cash flows for maintaining the asset are higher than forecast, indicate that the net book value of an asset may not be recovered through expected future cash flows from its use and eventual disposition. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value.
There was no impairment charge recognized for long-lived assets for the years ended September 30, 2022, 2021, and 2020.
Property and equipment are stated at cost less accumulated depreciations and impairment. 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.
Impairment of long-lived assets
In accordance with the provisions of ASC Topic 360, “Impairment or Disposal of Long-Lived Assets”, all long-lived assets such as plant and equipment, as well as intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is evaluated by a comparison of the carrying amount of an asset to its estimated future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the fair value of the assets. There has been no impairment charge for the years presented.
Related Parties
The Company follows ASC 850, Related Party Disclosures, for the identification of related parties and disclosure of related party transactions.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“Topic 606”). This standard replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. The Company adopted the new standard as of October 1, 2017 using the full retrospective method which requires the company to present its financial statements for all periods as if Topic 606 had been applied to all prior periods.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
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. The Company’s revenue is reported net of discount, value added tax and related surcharges.
Revenue is comprised of sales of goods and represents the amount of consideration the Company is entitled to upon the transfer of goods. Revenue was recorded on a gross basis, net of surcharges and value added tax (“VAT”) of gross sales. Pursuant to FASB ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), the Company recorded revenue on a gross basis because the Company is the primary obligor of the sales arrangements has latitude in establishing prices, has discretion in suppliers’ selection and assumes credit risks on receivables on gross sales from customers.
The Company’s revenue is reported net of discounts, value added tax and surcharges. During the years ended September 30, 2022, 2021, and 2020 the Company recognized revenue in the amount of $93, $2,832, and $4 respectively.
Stock-Based Compensation
The Company applies ASC 718, Compensation-Stock Compensation, in connection with its share-based compensation. In accordance with ASC 718, all grants of share options and restricted share units are recognized in the consolidated financial statements based on their grant date fair values.
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.
Commitments and Contingencies
The Company follows the ASC 450-20, Commitments to report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.
Fair Value of Financial Instruments
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:
Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| |
Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| |
Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, approximate their fair values because of the short maturity of these instruments.
Recent Issued Accounting Pronouncement
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its CFS.
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements to (i) consider whether the contract will be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year. The Company adopted ASU 2020-06 effective July 1, 2021. The adoption of ASU 2020-06 did not have any impact on the Company’s CFS presentation or disclosures.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected to have any impact on the Company’s CFS presentation or disclosures.
The Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
NOTE 3. PROPERTY AND EQUIPMENT
For the years ended September 30, 2022, 2021 and 2020 the Company recorded depreciation expense of $0, $1,436 and $0 respectively.
NOTE 4. ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND OTHER PAYABLES
Accounts payable, accrued liabilities and other payables are comprised of the following:
| | September 30, 2022 | | | September 30, 2021 | |
Accounts Payable | | $ | 22,181 | | | $ | 23,365 | |
Accrued Liabilities and Other Payables | | | 150,302 | | | | 211,649 | |
TOTAL | | $ | 172,483 | | | $ | 235,014 | |
The accounts payable comprises amounts owing to individuals for professional and technical services provided to the Company.
Items included in the accrued liabilities and other payables are advances from non-related parties and accrued expenses for services received. As of September 30, 2022, the balance mainly consisted of advances from individuals. As of September 30, 2021, the balance mainly consisted of advances from individuals of $171,532 and accrued payroll of $2,481.
NOTE 5. DUE TO RELATED PARTIES
The amounts represented temporary advances from the directors and a shareholder of the Company, which were unsecured, interest-free and had no fixed terms of repayments.
NOTE 6. COMMITMENTS AND CONTINGENCIES
As of September 30, 2022 and 2021, the Company has no material commitments and contingencies.
NOTE 7. ORDINARY SHARES
The Company is authorized to issue up to 250,000,000 ordinary shares with a stated par value of $0.0001 per share.
On November 22, 2019, the Company issued 300,000 restricted shares to Winfield, Yongbiao Ding, the CFO of the Company, at $0.10 per share pursuant to a private placement agreement.
On December 19, 2019, the Company issued 102,642 restricted shares to an arm’s length investor at $0.10 per share pursuant to a private placement agreement.
On April 13, 2020, the Company issued 1,000,000 restricted shares to Ford Moore, a director of the Company at $0.05 per share pursuant to a private placement agreement.
On August 27, 2020 and September 16, 2020, the Company issued a total of 1,078,445 restricted shares to Ruby Hui, over 5% shareholder of the Company at $0.05 per share pursuant to three private placement agreements.
On October 28, 2020, the Company issued a total of 800,000 restricted shares to Ruby Hui, over 5% shareholder of the Company at $0.05 per share pursuant to a private placement agreement.
On February 23, 2021, the Company issued 100,000 shares at a price of $0.12 per share to Winfield, Yongbiao Ding, the CFO of the Company for net proceeds of $12,000
On March 29, 2021, the Company issued 400,000 restricted shares to an arm’s length investor at $0.12 per share pursuant to a private placement agreement.
On March 30, 2021, the Company issued 100,000 restricted shares to an arm’s length investor at $0.12 per share pursuant to a private placement agreement.
On April 9, 2021, the Company issued 644,995 restricted shares to an arm’s length investor at $0.12 per share pursuant to a private placement agreement.
On April 12, 2021, the Company issued a total of 395,000 restricted shares to two arm’s length investors at $0.12 per share pursuant to a private placement agreement.
On April 30, 2021, the Company issued 100,000 restricted shares to an arm’s length investor at $0.12 per share pursuant to a private placement agreement.
As of September 30, 2022 and 2021, there were 109,545,271 shares issued and outstanding.
NOTE 8. INCOME TAXES
BVI
UMeWorld Limited was incorporated in the BVI and, under the current laws of the BVI, are not subject to income taxes.
Hong Kong
UMeLook HK, and UMeZone Adaptive Learning Technology Limited were incorporated and subject to the Hong Kong Profits Tax at the income tax rates ranging from 8.25% to 16.5% on the assessable income arising in Hong Kong during its tax year. No provision for Hong Kong Profits tax has been made as these companies had no taxable income during the years ended September 30, 2022, 2021 and 2020.
On September 30, 2022, the Company has disposed these two Hong Kong companies to an independent third party.
PRC
The Company’s subsidiaries, WFOE 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. No provision for PRC income tax has been made as these companies had no taxable income during the years ended September 30, 2022, 2021 and 2020.
In December 2021, the VIE contractual arrangements between WFOE, XinYiXun, and the shareholders of XinYiXun was terminated.
The tax effect of material temporary differences representing deferred tax assets is estimated as follows:
| | As of September 30, | |
| | 2022 | | | 2021 | | | 2020 | |
Deferred tax assets: | | | | | | | | | |
Canada | | $ | - | | | $ | - | | | $ | 288 | |
Hong Kong | | | - | | | | 518 | | | | 428 | |
PRC | | | - | | | | 7,374 | | | | 157 | |
Subtotal | | | - | | | | 7,892 | | | | 873 | |
Less: Valuation allowance | | | - | | | | (7,892 | ) | | | (873 | ) |
Net deferred tax assets | | $ | - | | | $ | - | | | $ | - | |
The valuation allowance as of September 30, 2022 and 2021 totaled $0 and $7,892, respectively which consisted primarily of established reserves for deferred tax assets arising from 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 38% for Canada, 25% for mainland China, and 16.5% for Hong Kong.
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, 2022 and 2021.
NOTE 9. SHARE OPTION PLANS
On July 1, 2013, the Company adopted a share option plan entitled “The 2013 Share Incentive Plan” (2013 Plan) under which the Company may grant options to purchase up to 17,000,000 ordinary shares. Under the terms of the 2013 Plan, the Board of Directors shall specify the exercise price and vesting period of each share option on the grant date.
On February 1, 2018, the Company granted 300,000 options to purchase its ordinary shares to Winfield, Yongbiao Ding, the CFO of the Company. The exercise prices of these options shall be $0.20 with an expiry date of May 29, 2024.
The following table summarizes the Company’s share option activity during the years ended September 30, 2022, 2021 and 2020:
| | Number Outstanding | | | Exercise Price Per Share | | | Weighted- Average Exercise Price | |
Outstanding as of September 30, 2020 | | | 10,300,000 | | | $ | 0.15 – 0.20 | | | $ | 0.15 | |
Granted | | | - | | | | 0.20 | | | | - | |
Exercised | | | - | | | | - | | | | - | |
Options forfeited/cancelled | | | - | | | | - | | | | - | |
Outstanding as of September 30, 2021 | | | 10,300,000 | | | $ | 0.15 – 0.20 | | | $ | 0.15 | |
Granted | | | - | | | | - | | | | - | |
Exercised | | | - | | | | - | | | | - | |
Options forfeited/cancelled | | | - | | | | - | | | | - | |
Outstanding as of September 30, 2022 | | | 10,300,000 | | | $ | 0.15 – 0.20 | | | $ | 0.15 | |
The following table summarizes the ordinary shares of the Company issuable upon exercise of options outstanding as of September 30, 2022, 2021 and 2020.
| | Share Options Outstanding/ Exercisable | |
| | Range of Exercise Price | | Number Outstanding | | | Weighted-Average Remaining Contractual Life (Years) | |
September 30, 2022 | $ | 0.15-$0.20 | | | 10,300,000 | | | | 1.66 | |
September 30, 2021 | $ | 0.15-$0.20 | | | 10,300,000 | | | | 2.66 | |
September 30, 2020 | $ | 0.15-$0.20 | | | 10,300,000 | | | | 3.66 | |
As of September 30, 2022 and 2021, the intrinsic values of both outstanding options and exercisable options were $3,089,999 and $1,134,029 respectively. There were no options exercised during the years ended September 30, 2022, 2021, and 2020; and no stock based compensation is recognized from stock options during the years ended September 30, 2022, 2021, and 2020.
NOTE 10. RELATED PARTY TRANSACTIONS
During the year ended September 30, 2020, Michael Lee provided management services to the Company with the amount of $30,000, paid $21,260 expenses on behalf of the Company, advanced $3,084 to the Company, and received $78,992 repayment in cash 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, 2020 is $110,358.
During the year ended September 30, 2021, Michael Lee provided management services to the Company with the amount of $30,000, paid $4,906 expenses on behalf of the Company, advanced $191,318 to the Company, and received $268 repayment in cash 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, 2021 is $415,347.
During the year ended September 30, 2022, Michael Lee provided management services to the Company with the amount of $30,000. Together with the balance due to him carried over from prior years, the total balance due to him as of September 30, 2022 is $98,971.
On November 22, 2019, the Company issued 300,000 restricted shares to Winfield, Yongbiao Ding, the CFO of the Company, at $0.10 per share pursuant to a private placement agreement.
On April 13, 2020, the Company issued 1,000,000 restricted shares to Ford Moore, a director of the Company at $0.05 per share pursuant to a private placement agreement.
On August 27, 2020 and September 16, 2020, the Company issued a total of 1,078,445 restricted shares to Ruby Hui, over 5% shareholder of the Company at $0.05 per share pursuant to two private placement agreements.
On October 28, 2020, the Company issued a total of 800,000 restricted shares to Ruby Hui, over 5% shareholder of the Company at $0.05 per share pursuant to a private placement agreement.
On February 23, 2021, the Company issued 100,000 shares at a price of $0.12 per share to Winfield, Yongbiao Ding, the CFO of the Company for net proceeds of $12,000.
Note 11. DISCONTINUED OPERATIONS
(a) UMeLook Limited and UMeZone Adaptive Learning Technology Limited
On September 30, 2022, the Company entered into two sale and purchase agreements with an individual to dispose UMeLook HK and UMeZone Adaptive Learning Technology Limited (“UMeZone”) for a consideration of $0.13 (equivalent to HK$1) each.
(b) UMeLook (Guangzhou) Technology Co., Ltd., Guangzhou XinYiXun Technology Co., Ltd., and Guangzhou Youmanfen Education Technology Co. Ltd.
On December 31, 2021, WFOE, XinYiXun, YL, and Zhongda No. 3 mutually agreed to terminate the series of contractual arrangements, which consisted of the Exclusive Management Service Agreement, the Proxy Agreement, the Equity Pledge Agreement, the Exclusive Technology Consultation and Services Agreement, and the Call Option Agreement, due to the education policy changes in the PRC. As a result, the digital media and digital education business of the Company was dissolved. In accordance with ASU No. 2014-08, Reporting of Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal is categorized as a discontinued operation if the disposal group is a component of an entity or group of components that meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale, and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.
Summary of financial information for the loss from discontinued operations, net of taxes in the statements of operations for the year ended September 30, 2022 are as follows:
Loss from discontinued operations, net of taxes: | | | |
Revenues | | $ | 2,910 | |
TOTAL REVENUES | | | 2,910 | |
Expenses: | | | | |
Cost of revenue | | | 8,473 | |
General and administrative expenses | | | 58,521 | |
TOTAL EXPENSES | | | 66,994 | |
Loss from discontinued operations before income tax expense | | | (64,084 | ) |
Income tax expense | | | - | |
Loss from discontinued operations, net of taxes | | $ | (64,084 | ) |
NOTE 12. CONCENTRATIONS OF RISK
(a) Exchange rate risk
The value of RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other changes in political and economic conditions and the foreign exchange policy adopted by the PRC government. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the RMB and the U.S. dollar in the future. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in greater fluctuation of the RMB against the U.S. dollar. The Company is a holding company and it relies on dividends paid by the Company’s operating subsidiaries in China for its cash needs. Any significant revaluation of the RMB may materially and adversely affect its liquidity and cash flows. To the extent that the Company needs to convert U.S. dollars into RMB for its operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount the Company would receive. Conversely, if the Company decides to convert RMB into U.S. dollars for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount the Company would receive.
As the Company has disposed off all its subsidiaries during the year, its exposure to foreign currency exchange risk has been reduced to low. This is because the Company no longer needs to engage in transactions denominated in RMB.
(b) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty raising liquid funds to meet commitments as they fall due. The Company continues to focus on increasing its revenue through the sale of consumer health care products on its online platform, and obtaining financing from its shareholders or directors.
(c) Accrued product liability
The Company records accruals for product liability when deemed probable and estimable based on facts and circumstances, and prior claims experience. Accruals for product credit are valued based upon the Company’s prior claims experience, including defective goods and goods lost in transit. We have experienced an insignificant amount of goods returned and claims from goods lost in transit in the past, so our product liability is insignificant; therefore, Management believes product liability accrual as at September 30, 2022, and 2021, is not required
NOTE 13. SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for events that occur after the balance sheet date but before consolidated financial statements are issued, the Company has evaluated all events or transactions that occurred after September 30, 2022, up to the date that the audited consolidated financial statements were available to be issued.
On January 17, 2023, the Company entered into a definitive agreement to acquire 100% interest in a profitable, nutritional supplements sales and marketing company based in Florida, USA. The transaction is subject to customary closing conditions and is expected to be completed by April 30, 2023.