The following unaudited interim financial statements of Umatrin Holding Limited (referred to herein as the “Company,” “we,” “us” or “our”) are included in this quarterly report on Form 10-Q:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(UNAUDITED)
1. ORGANIZATION
Umatrin Holding Limited (formerly known as Golden Opportunities Corporation) (“UMHL”) was incorporated in the state of Delaware on February 2, 2005. UMHL was originally incorporated in order to locate and negotiate with a targeted business entity for the combination of that target company with the Company.
On January 6, 2016, UMHL acquired 80% of the equity interests of UMatrin Worldwide SDN. BHD. ("Umatrin") in exchange for the issuance of a total of 100,000,000 shares of its common stock to the two holders of Umatrin, Dato' Sri Eu Hin Chai and Dato' Liew Kok Hong. Immediately following the Share Exchange, the business of Umatrin became the business of UMHL.
UMatrin Worldwide SDN BHD, formerly known as OLC Worldwide SDN. BHD., was incorporated in Malaysia on July 22, 1993. The principal activities of Umatrin is direct selling and trading on beauty and personal care products, and investment holding.
UMHL entered into a share exchange agreement with Umatrin whereas the acquisition was accounted under US GAAP as a business combination under common control with UMHL being the acquirer as both entities were owned by the same controlling shareholders. Prior to the business combination, Dato' Sri Eu Hin Chai, through Umatrin Group Ltd., held 76% of the outstanding shares of common stock of the Company. Dato' Sri Eu Hin Chai and Dato' Liew Kok Hong beneficially owned 61.25% and 38.75% of Umatrin immediately prior to the closing. Accordingly, historical cost will be the basis for transfer of assets and liabilities in the business combination in accordance with ASC 805-50-30-5.
Umatrin Holding Limited and its subsidiary UMatrin Worldwide SDN. BHD. shall be referred as the “Company”.
The organization structure as follows:
Umatrin Holding Ltd.
(USA)
|
|
|
80%
|
|
UMatrin Worldwide SDN BHD
(Malaysia)
|
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles in the United States ("US GAAP").
The accompanying consolidated financial statements include the accounts of the Company and its subsidiary. Significant inter-company transactions have been eliminated in consolidation.
In accordance with ASC 805-50-45-5, for transactions between entities under common control, financial statements and financial information presented for prior periods have been be retroactively adjusted to furnish comparative information. The accompanying consolidated financial statements are presented retrospectively as though the share exchange agreement between the UMHL and Umatrin occurred at the beginning of the first period presented.
Interim Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) applicable to interim financial information and the requirements of Form 10-Q and Rule 803 of Regulation SX of the Securities and Exchange Commission. Accordingly, they may not include all of the information and disclosure required by accounting principles generally accepted in the United States of America for complete financial statements. Interim results are not necessarily indicative of results for a full year. In the opinion of management, all adjustments considered necessary for a fair presentation of the financial position and the results of operations and cash flows for the interim periods have been included. These interim financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2016, as potentially not all disclosures required by generally accepted accounting principles for annual financial statements are presented. The interim financial statements follow the same accounting policies and methods of computations as the audited financial statements for the year ended December 31, 2016.
Use of estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Reclassification
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported net income or losses.
The Company had previously reported Term loan payable-current portion and Term loan payable-long term as $39,791 and $454,559. The Company discovered that it had overstated the current portion by $21,879 and understated the long-term portion by $21,879. The revised amounts for Term loan payable-current portion and Term loan payable-long term are $17,912 and $476,438, respectively. The Company intends to file an amended annual report on Form 10-K/A to rectify this error.
Functional and presentation currency
The functional currency of Umatrin is the currency of the primary economic environment in which the Company operates which is Malaysia Ringgit (“MYR”).
Transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing on the date of the transaction. At the end of each reporting period, monetary items denominated in foreign currencies are translated at the rates prevailing at the end of the reporting periods. Exchange differences arising on the settlement of monetary items and on translation of monetary items at period-end are included in income statement of the period.
For the purpose of presenting these financial statements, the Company’s assets and liabilities are expressed in US$ at the exchange rate on the balance sheet date, stockholder’s equity accounts are translated at historical rates, and income and expense items are translated at the weighted average exchange rate during the period. The resulting translation adjustments are reported under accumulated other comprehensive income in the stockholder’s equity section of the balance sheets.
Exchange rate used for the translation as follows:
|
|
Period End
|
|
|
Average
|
|
US$ to MYR
|
|
Rate
|
|
|
Rate
|
|
March 31, 2017
|
|
|
4.4176
|
|
|
|
4.4447
|
|
December 31, 2016
|
|
|
4.4824
|
|
|
|
4.1489
|
|
March 31, 2016
|
|
|
3.9399
|
|
|
|
4.1906
|
|
Fair value of financial instruments
The Company’s balance sheet includes financial instruments, including cash, term loan, accounts payable, accrued expenses, amounts due to related party and convertible notes payable to a related party. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.
Accounting Standards Codification (“ASC”) 820,
Fair Value Measurements and Disclosures
, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy 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.
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2017. The respective carrying value of certain amounts on the balance sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
Related parties
The Company adopted ASC 850,
Related Party Disclosures
, for the identification of related parties and disclosure of related party transactions.
Risks and Uncertainties
The Company’s operations are subject to significant risks and uncertainties including financial, operational and regulatory risks, including the potential risk of business failure.
Commitments and contingencies
The Company adopted ASC 450-20,
Loss Contingencies
, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Cash and cash equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
The cash and cash equivalents for the periods ended March 31, 2017 and December 31, 2016 were $42,040 and $133,269 respectively.
Trade Receivables
Trade receivables are carried at anticipated realizable value. Bad debts are written off in the period in which they are identified. An estimate is made for doubtful debts based on a review of all outstanding amounts at the balance sheet date.
Bad debt expenses were $nil and $nil for the three months ended March 31, 2017 and 2016, respectively.
At March 31, 2017 and December 31, 2016, the Company did not have any outstanding trade receivables.
Inventories
Inventories, which are primarily comprised of finished goods for sale, are stated at the lower of cost or net realizable value, using the first-in first-out (FIFO) method. The Company evaluates the need for reserves associated with obsolete, slow-moving and non-salable inventory by reviewing net realizable values on a periodic basis. Only defects products could be return to our suppliers.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and impairment losses, if any.
Depreciation is calculated under the straight-line method to write off the cost of the assets over their estimated useful lives.
Computer and software
|
5 years
|
Furniture and fittings
|
10 years
|
Office equipment
|
10 years
|
Renovation and improvements
|
10 years
|
Building
|
40 years
|
Land
|
95 years
|
An item of equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising from de-recognition of asset is recognized in profit or loss.
Expenditures for repairs and maintenance, which do not improve or extend the expected useful lives of the assets, are expensed as incurred while major replacements and improvements are capitalized.
Impairment of Long-lived Assets
In accordance with ASC Topic 360, the Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company recorded no impairment charge for the three months ended March 31, 2017 and 2016.
Revenue Recognition
The Company generally recognizes product sales revenue when the significant risks and rewards of ownership have been transferred pursuant to Malaysia law, including such factors as when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, sales and value-added tax laws have been complied with, and collectability is reasonably assured.
The Company’s revenue recognition policy for both retail customers and authorized dealer customers is the same. Sales are considered final when possession of the product is passed to the customer. There is no policy for dealers to return any unsold products unless it the product was defective; accordingly, the Company does not accrue for expected returns.
Commission
The Company expenses commission costs as incurred and includes it in selling expenses. The Company expenses commission costs as incurred and includes it in selling expenses. The Company grants commission to dealers and promoters to promote and sell the products. Amount of commission is based upon agreed value between the Company and the dealers and promoters as there is no fix basis for such amount.
Advertising
The Company expenses advertising costs as incurred and includes it in selling expenses. The Company recorded $3,579 and $0 for advertising and promotions expenses during the three months ended March 31, 2017 and 2016, respectively.
Income taxes and valuation allowance
The Company follows ASC 740,
Income Taxes
. The Company records deferred tax assets and liabilities for future income tax consequences that are attributable to differences between financial statement carrying amounts of assets and liabilities and their income tax bases. The measurement of deferred tax assets and liabilities is based on enacted tax rates that are expected to apply to taxable income in the year when settlement or recovery of those temporary differences is expected to occur. The Company recognizes the effect on deferred tax assets and liabilities of any change in income tax rates in the period that includes the enactment date. The Company record a valuation allowance to reduce deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized.
A tax benefit from an uncertain tax position may be recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that the relevant taxing authority that has full knowledge of all relevant information will examine each uncertain tax position. Although the Company believes the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.
Comprehensive Income (Loss)
The Company follows the provisions of the Financial Accounting Standards Board (the “FASB”) ASC 220
Reporting Comprehensive Income
, and establishes standards for the reporting and display of comprehensive income, its components and accumulated balances in a full set of general purpose financial statements. The Company’s comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments.
Segment Information
The Company adopted ASC-280,
Disclosures about Segments of an Enterprise and Related Information
, which requires certain financial and supplementary information to be disclosed on an annual and interim basis for each reportable segment of an enterprise. The Company believes that it operates in one business segment (marketing and sales) and in one geographical segment Malaysia, because all of the Company’s current operations are conducted in Malaysia.
Recent Accounting Pronouncements
In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which revises the accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new guidance requires the fair value measurement of investments in equity securities and other ownership interests in an entity, including investments in partnerships, unincorporated joint ventures and limited liability companies (collectively, equity securities) that do not result in consolidation and are not accounted for under the equity method. Entities will need to measure these investments and recognize changes in fair value in net income. Entities will no longer be able to recognize unrealized holding gains and losses on equity securities they classify under current guidance as available for sale in other comprehensive income (OCI). They also will no longer be able to use the cost method of accounting for equity securities that do not have readily determinable fair values. Instead, for these types of equity investments that do not otherwise qualify for the net asset value practical expedient, entities will be permitted to elect a practicability exception and measure the investment at cost less impairment plus or minus observable price changes (in orderly transactions). The ASU also establishes an incremental recognition and disclosure requirement related to the presentation of fair value changes of financial liabilities for which the fair value option (FVO) has been elected. Under this guidance, an entity would be required to separately present in OCI the portion of the total fair value change attributable to instrument-specific credit risk as opposed to reflecting the entire amount in earnings. For derivative liabilities for which the FVO has been elected, however, any changes in fair value attributable to instrument-specific credit risk would continue to be presented in net income, which is consistent with current guidance. The standard is effective beginning January 1, 2018 via a cumulative-effect adjustment to beginning retained earnings, except for guidance relative to equity securities without readily determinable fair values which is applied prospectively. The Company is currently assessing this ASU’s impact on the consolidated results of operations and financial condition.
In February 2016, the FASB issued ASU No. 2016-02, Leases, replacing existing lease accounting guidance. The new standard introduces a lessee model that would require entities to recognize assets and liabilities for most leases, but recognize expenses on their income statements in a manner similar to current accounting. The ASU does not make fundamental changes to existing lessor accounting. However, it modifies what qualifies as a sales-type and direct financing lease and related accounting and aligns a number of the underlying principles with those of the new revenue standard, ASU No. 2014-09, such as evaluating how collectability should be considered and determining when profit can be recognized. The guidance eliminates existing real estate-specific provisions and requires expanded qualitative and quantitative disclosures. The standard requires modified retrospective transition by which it is applied at the beginning of the earliest comparative period presented in the year of adoption. The ASU is effective January 1, 2019. The Company is currently assessing this ASU’s impact on the consolidated results of operations and financial condition.
In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting, which eliminates the existing requirement to apply the equity method of accounting retrospectively (revising prior periods as if the equity method had always been applied) when an entity obtains significant influence over a previously held investment. The new guidance would require the investor to apply the equity method prospectively from the date the investment qualifies for the equity method. The investor would add the carrying value of the existing investment to the cost of any additional investment to determine the initial cost basis of the equity method investment. This ASU is effective January 1, 2017 on a prospective basis, with early adoption permitted. The Company would apply this guidance to investments that transition to the equity method after the adoption date.
In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”. The amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations by amending certain existing illustrative examples and adding additional illustrative examples to assist in the application of the guidance. The effective date and transition of these amendments is the same as the effective date and transition of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. Public entities should apply the amendments in ASU 2014-09 for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein. The Company is currently in the process of evaluating the impact of the adoption on its financial statements.
In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The Company is currently in the process of evaluating the impact of the adoption on its financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Classification of Certain Cash Receipts and Cash Payments, which is intended to reduce diversity in practice in how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. The ASU also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. The ASU is effective January 1, 2018, with early adoption permitted. The standard requires application using a retrospective transition method. The Company does not expect this ASU to have a material impact on the consolidated results of operations and financial condition.
In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory, which modifies existing guidance and is intended to reduce diversity in practice with respect to the accounting for the income tax consequences of intra-entity transfers of assets. The ASU indicates that the current exception to income tax accounting that requires companies to defer the income tax effects of certain intercompany transactions would apply only to intercompany inventory transactions. That is, the exception would no longer apply to intercompany sales and transfers of other assets (e.g., intangible assets). Under the existing exception, income tax expense associated with intra-entity profits in an intercompany sale or transfer of assets is eliminated from earnings. Instead, that cost is deferred and recorded on the balance sheet (e.g., as a prepaid asset) until the assets leave the consolidated group. Similarly, the entity is prohibited from recognizing deferred tax assets for the increases in tax bases due to the intercompany sale or transfer. The ASU is effective January 1, 2018, with early adoption permitted as of January 1, 2017. The standard requires modified retrospective transition with a cumulative catch-up adjustment to opening retained earnings in the period of adoption. Upon adoption, a company would write off any income tax effects that had been deferred from past intercompany transactions involving non-inventory assets to opening retained earnings. In addition, an entity would record deferred tax assets with an offset to opening retained earnings for amounts that entity had previously not recognized under existing guidance but would recognize under the new guidance.
In October 2016, the FASB issued ASU No. 2016-17, Interests Held through Related Parties That Are under Common Control, which modifies existing guidance with respect to how a decision maker that holds an indirect interest in a variable interest entity (VIE) through a common control party determines whether it is the primary beneficiary of the VIE as part of the analysis of whether the VIE would need to be consolidated. Under the ASU, a decision maker would need to consider only its proportionate indirect interest in the VIE held through a common control party. Previous guidance had required the decision maker to treat the common control party’s interest in the VIE as if the decision maker held the interest itself. As a result of the ASU, in certain cases, previous consolidation conclusions may change. The standard is effective January 1, 2017 with retrospective application to January 1, 2016. The Company does not have significant involvement with entities subject to consolidation considerations impacted by VIE model factors. As a result, the Company does not expect this ASU to have a material impact on the Company’s consolidated results of operations and financial condition.
In November 2016, the FASB issued ASU No. 2016-18, Restricted Cash, which clarifies guidance on the classification and presentation of restricted cash in the statement of cash flows. Under the ASU, changes in restricted cash and restricted cash equivalents would be included along with those of cash and cash equivalents in the statement of cash flows. As a result, entities would no longer present transfers between cash/equivalents and restricted cash/equivalents in the statement of cash flows. In addition, a reconciliation between the balance sheet and the statement of cash flows would be disclosed when the balance sheet includes more than one line item for cash/equivalents and restricted cash/equivalents. The ASU is effective January 1, 2018, with early adoption permitted. Entities are required to apply the standard’s provisions on a retrospective basis. The Company does not expect this ASU to have a material impact on the Company’s consolidated results of operations and financial condition.
In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business, which narrows the existing definition of a business and provides a framework for evaluating whether a transaction should be accounted for as an acquisition (or disposal) of assets or a business. The ASU requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities (collectively, the set) is not a business. To be considered a business, the set would need to include an input and a substantive process that together significantly contribute to the ability to create outputs. The standard also narrows the definition of outputs. The definition of a business affects areas of accounting such as acquisitions, disposals and goodwill. Under the new guidance, fewer acquired sets are expected to be considered businesses. The ASU is effective January 1, 2018 on a prospective basis with early adoption permitted. The Company would apply this guidance to applicable transactions after the adoption date.
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. Under the new standard, goodwill impairment would be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying value of goodwill. This ASU eliminates existing guidance that requires an entity to determine goodwill impairment by calculating the implied fair value of goodwill by hypothetically assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. For 3M, this ASU is effective prospectively to impairment tests beginning January 1, 2020, with early adoption permitted. 3M would apply this guidance to applicable impairment tests after the adoption date.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes ASC 840, Leases. This ASU is based on the principle that entities should recognize assets and liabilities arising from leases. The ASU does not significantly change the lessees’ recognition, measurement and presentation of expenses and cash flows from the previous accounting standard. Leases are classified as finance or operating. The ASU’s primary change is the requirement for entities to recognize a lease liability for payments and a right of use asset representing the right to use the leased asset during the term on operating lease arrangements. Lessees are permitted to make an accounting policy election to not recognize the asset and liability for leases with a term of twelve months or less. Lessors’ accounting under the ASC is largely unchanged from the previous accounting standard. In addition, the ASU expands the disclosure requirements of lease arrangements. Lessees and lessors will use a modified retrospective transition approach, which includes a number of practical expedients. The effective date will be the first quarter of fiscal year 2020 with early adoption permitted. Management continues to assess the overall impact the adoption of ASU 2016-02 will have on the Company’s financial statements.
3. GOING CONCERN
As reflected in the accompanying financial statements, the Company had accumulated deficit of $2,558,479 as of March 31, 2017 which include a loss of $156,427 for the period ended March 31, 2017.
The Company ability to generate profit in the next 12 months is uncertain given that the market in which it operates is facing an economic slowdown. Management's plans include the raising of capital through the equity markets to fund future operations, seeking additional acquisitions, and generating profits through its business operations; however, there can be no assurances the Company will be successful in its efforts to secure additional equity financing and obtaining sufficient profit. These factors raise substantial doubt about the Company's ability to continue as a going concern. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
4
. LAND, PROPERTY &
EQUIPMENT
Land, property & equipment consist of the following:
|
|
March 31,
|
|
|
December
31,
|
|
|
|
2017
|
|
|
2016
|
|
Computer and software
|
|
$
|
19,998
|
|
|
$
|
19,708
|
|
Furniture and fittings
|
|
|
27,614
|
|
|
|
27,215
|
|
Office equipment
|
|
|
40,184
|
|
|
|
39,603
|
|
Renovations and improvements
|
|
|
317,044
|
|
|
|
302,238
|
|
Building
|
|
|
843,822
|
|
|
|
831,626
|
|
Land
|
|
|
207,038
|
|
|
|
204,046
|
|
Total
|
|
|
1,455,700
|
|
|
|
1,424,436
|
|
Less: accumulated depreciation
|
|
|
(126,852
|
)
|
|
|
(108,777
|
)
|
Net
|
|
$
|
1,328,848
|
|
|
$
|
1,315,659
|
|
The depreciation expense charged to general and administrative expenses were $18,957 and $13,410 for the three months ended March 31, 2017 and 2016, respectively.
5. RELATED PARTIES TRANSACTIONS
Due from related parties consists of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Purpose
|
|
Global Bizrewards Sdn. Bhd.
|
|
$
|
112,732
|
|
|
$
|
97,939
|
|
|
Advance
|
|
Fine Portal Sdn. Bhd.
|
|
|
18,789
|
|
|
|
14,055
|
|
|
Advance
|
|
Sportlight Academy Sdn. Bhd.
|
|
|
11,180
|
|
|
|
10,907
|
|
|
Advance
|
|
M1Elite Sdn. Bhd.
|
|
|
7,236
|
|
|
|
5,744
|
|
|
Advance
|
|
Total Due from
|
|
|
149,937
|
|
|
|
128,645
|
|
|
|
|
Due to related parties consists of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Purpose
|
|
Dato Sri Warren Eu Hin Chai
|
|
$
|
618,983
|
|
|
$
|
606,928
|
|
|
Capital Advance
|
|
Michael A. Zahorik
|
|
|
30,307
|
|
|
|
30,307
|
|
|
Capital Advance
|
|
SKH Media Sdn. Bhd.
|
|
|
18,446
|
|
|
|
18,179
|
|
|
Capital Advance,
inventory purchase
and rental
|
|
Total Due to
|
|
|
667,736
|
|
|
|
655,414
|
|
|
|
|
The related parties’ relationship to the Company as follows:
Name
|
|
Relationship
|
Michael A. Zahorik
|
|
Former director
|
Global Bizrewards Sdn. Bhd.
|
|
Related by common director, Dato' Sri Eu Hin Chai
|
Fine Portal Sdn. Bhd.
|
|
Related by common director, Dato' Liew Kok Hong
|
Sportlight Academy Sdn. Bhd.
|
|
Related by key employee; Lim Chee Pin
|
M1Elite Sdn. Bhd.
|
|
Related by common director, Dato' Sri Eu Hin Chai
|
SKH Media Sdn. Bhd.
|
|
Related by common director, Dato' Sri Eu Hin Chai
|
Dato Sri Warren Eu Hin Chai
|
|
Director & Shareholder of the Company
|
The amounts due from or due to related parties’ were unsecured, non-interest bearing, and due on demand.
The Company purchased its inventory from its suppliers SKH Media Sdn. Bhd. and Creative Iconic Sdn. Bhd. The amounts of inventory purchased from these suppliers were $nil and $89,082 for the three months ended March 31, 2017 and 2016, respectively.
The Company leased an office space from SKH Media Sdn. Bhd. The rent expenses were $6,750 and $7,159 for the three months ended March 31, 2017 and 2016, respectively.
The Company had recognized imputed interest expense on advances from Michael A. Zahorik, former director, in the amounts of $0 and $7,051 for the three months ended March 31, 2017 and 2016, respectively. These amounts were recognized as interest expense and a corresponding contribution to capital.
6.
CONVERTIBLE NOTE PAYABLE
On September 15, 2013, $164,994 of shareholder advances payable to the Company's sole officer and majority owner were re-structured into two notes in equal amounts of $82,497, each convertible into the Company's common stock at rates of $0.005 and $0.01 per share respectively. The notes are convertible on demand of the holder, bear no interest, have a maturity date of September 15, 2023.
The Company discounted the non-interest bearing note at 3.24% interest rate, in accordance with the Applicable Federal Rate. Based on the intrinsic value of the conversion feature, the Company determined that there was a beneficial conversion feature associated with two notes payable. As a result of the beneficial conversion feature exceeding the proceeds received from the promissory notes, management discounted the notes 100% as a debt discount and will amortize this discount over the 10-year lives of the notes on the interest rate method.
On March 29, 2015, two notes in equal amounts of $82,497 were converted by the new controlling shareholders on March 29, 2015 into 16,499,400 shares of common stock at $0.005 per share and 8,249,700 shares of common stock at $0.01 per share.
The interest expense amortized for the three months ended March 31, 2017 and 2016 were $0 and $7,051, respectively. The Company recognized total debt discount amortized of $7,447 as interest expenses from the day the notes were issued till the day the notes were converted.
7.
STOCKHOLDERS’ EQUITY
On February 20, 2015, the majority shareholders voted on and approved an increase of the number of authorized common shares from 100,000,000 to 500,000,000 and a decrease in par value from $0.001 to $0.00001. The majority shareholders also voted on and approved a designation of 10,000,000 preferred shares with no series and a par value of $0.00001. The financial statements presented have been retroactively restated to present the change in authorized and par value.
Equity –Common Stock
The Company has 167,756,742 shares of common stock issued and outstanding as of March 31, 2017.
As of March 31, 2017, the Company also received cash consideration of $122,993 for shares of common stock to be issued at $0.02 per share which has been classified as stock subscription payable.
On March 29, 2015, the Company issued 16,499,400 shares at $0.005 a share and totaling $82,497 and 8,249,700 shares at $0.01 a share and totaling $82,497 as conversions of two promissory notes payable for past advances and loans. (Refer to Note 7)
Equity – Additional Paid-In Capital
The Company recognized imputed interest expense on related party advances in the amounts of $2,168 for the year ended December 31, 2015 as corresponding contribution to capital.
Stock options
On July 30, 2011, the Company issued an option to purchase 8,000,000 common shares to an officer of the Company in consideration for services at $0.10 per share valued at nil on the date of grant as compensation.
The fair value of the option grant estimated on the date of grant uses the Black-Scholes option-pricing model with the following weighted-average assumptions:
|
|
July 30,
2011
|
|
Expected option life (year)
|
|
|
8
|
|
Expected volatility
|
|
|
58.62
|
%*
|
Expected dividends
|
|
|
0.00
|
%
|
Risk-free rate(s)
|
|
|
2.32
|
%
|
__________________
* As a thinly traded public entity, it is not practicable for the Company to estimate the expected volatility of its share price. The Company selected two (2) comparable companies to calculate the expected volatility. The Company calculated two (2) comparable companies' historical volatility over the expect life of the share options of eight (8) years and averaged the two (2) comparable companies' historical volatility as its expected volatility.
The fair value of the stock options issued on July 31, 2011 using the Black-Scholes Option Pricing Model was $504,024 at the date of grant. On August 22, 2015, all the remaining unvested stock options became vested
For the three months ended March 31, 2017 and 2016, $nil and $nil respectively, was recognized as compensation expense for stock options issued.
Summary of Compensation Expense-Options
Date
|
|
Value on
Date of Grant
|
|
|
Expenses
Reported
|
|
|
Expense Projected
|
|
True-up Amount
|
|
|
Cumulative
Reported
Expense
|
|
|
Unrecognized Compensation
|
|
|
Weighted
Average Period
to Recognize
|
|
7/30/2011
|
|
|
504,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
504,024
|
|
|
|
7.0
|
|
1/31/2012
|
|
|
|
|
|
|
16,053
|
|
|
|
|
|
|
|
|
31,933
|
|
|
|
472,091
|
|
|
|
6.5
|
|
1/31/2013
|
|
|
|
|
|
|
61,132
|
|
|
|
|
|
(43
|
)
|
|
|
95,065
|
|
|
|
408,959
|
|
|
|
5.5
|
|
1/31/2014
|
|
|
|
|
|
|
62,891
|
|
|
|
|
|
43
|
|
|
|
157,957
|
|
|
|
346,067
|
|
|
|
4.5
|
|
1/31/2015
|
|
|
|
|
|
|
62,941
|
|
|
|
|
|
|
|
|
|
220,898
|
|
|
|
283,126
|
|
|
|
3.5
|
|
12/31/2015
|
|
|
|
|
|
|
283,126
|
|
|
|
|
|
|
|
|
|
504,024
|
|
|
|
-
|
|
|
|
-
|
|
8. COMMITMENTS, CONTINGENCIES, RISKS AND UNCERTAINTIES
Operating Lease Commitments
The Company entered into a property lease agreement for office space which started on December 1, 2014 and expired on October 31, 2015 for monthly payment of MYR10,000 (approximately $2,250). The lease was not renewed and the Company continues to rent the property on a month to month basis.
The rent expenses were $6,750 and $7,159 for the three months ended March 31, 2017 and 2016, respectively.
Concentration and Credit risk
Cash deposits with banks are held in financial institutions in Malaysia, which are federally insured with deposit protection up to MYR250,000 (approximately $56,592). Accordingly, the Company has a concentration of credit risk related to the uninsured part of bank deposits. The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk.
The Company had a concentration in demand for its products. A single customer accounted for 14.6% of the Company sales revenue during the three months ended March 31, 2017.
The Company depends on few supplier for its products. Accordingly, the Company has a concentration risk related to these suppliers. Failure to maintain existing relationships with the suppliers or to establish new relationships in the future could negatively affect the Company’s ability to obtain products sold to customers in a timely manner. If the Company is unable to obtain ample supply of products from existing suppliers or alternative sources of supply, the Company may be unable to satisfy the orders from its customers, which could materially and adversely affect revenues.
Contingent Liability
A former Director of the Company represents that the Company owes back compensation for services he believes he rendered to the Company and expenses he paid on behalf of the Company. The Company believes all balances owed to him have been settled in prior periods. The Company asserts that a claim has not be filed against the Company for potential damages; accordingly, the Company is unable to reasonably estimate a potential loss or liability in this matter including related legal costs. In the event that a claim is filed against the Company, the Company will provide further disclosure.
9. TERM LOAN
On December 23, 2014, MYR2,300,000 (approximately $657,507) term loan was granted to the Company for the purchase of a four-story office with a repayment period of 240 months.
The term loan was secured by the title deed for the said property and guaranteed by directors of the Company. The term loan is subject to an interest charges at 2.10% per annum below the Bank’s Base Lending Rate (“BLR”) with daily rests. The BLR is currently at 6.85% for March 31, 2017.
On July 27, 2015, the Company made a drawdown of MYR2,300,000 (approx. $609,554) on the term loan. The repayment started effectively on September 1, 2015 with a fixed installment of MYR14,863.14 (approx. $3,582) for 240 installments.
The outstanding balance of the term loan is $497,400, of which $18,380 is due within one operating period and classified as short term, and $479,020 is due after one operating period, and has classified as long term.
Interest expenses were $5,670 and $7,875 for the three months ended March 31, 2017 and 2016, respectively.
10. SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date the financial statements were issued. Based on our evaluation, no events have occurred which require adjustment or disclosure.