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
UMEWORLD LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 2018, 2017 AND 2016
(All amounts in US Dollars)
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(845,441
|
)
|
|
$
|
(1,308,277
|
)
|
|
$
|
(1,182,741
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
4,846
|
|
|
|
7,025
|
|
|
|
6,822
|
|
Stock issued for service
|
|
|
14,680
|
|
|
|
-
|
|
|
|
90,000
|
|
Amortization of debt discount
|
|
|
421,169
|
|
|
|
186,280
|
|
|
|
72,138
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit
|
|
|
(14,321
|
)
|
|
|
8,750
|
|
|
|
605
|
|
Prepayment
|
|
|
17,019
|
|
|
|
9,129
|
|
|
|
3,370
|
|
Accounts payable
|
|
|
31,001
|
|
|
|
69,901
|
|
|
|
68,305
|
|
Accrued liabilities and other payables
|
|
|
132,932
|
|
|
|
399,902
|
|
|
|
176,618
|
|
Due to related parties
|
|
|
-
|
|
|
|
120,000
|
|
|
|
121,829
|
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
$
|
(238,115
|
)
|
|
$
|
(507,290
|
)
|
|
$
|
(643,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
150,010
|
|
|
|
50,400
|
|
|
|
-
|
|
Proceeds from note payables
|
|
|
288,976
|
|
|
|
149,707
|
|
|
|
235,730
|
|
Proceeds from note payables - Related Parties
|
|
|
35,000
|
|
|
|
101,126
|
|
|
|
155,428
|
|
Repayments to related parties
|
|
|
(40,825
|
)
|
|
|
(227,867
|
)
|
|
|
(40,855
|
)
|
Proceeds from related parties
|
|
|
-
|
|
|
|
407,984
|
|
|
|
-
|
|
Dissolution of subsidiaries
|
|
|
(185,822
|
)
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
$
|
247,339
|
|
|
$
|
481,350
|
|
|
$
|
350,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(11,264
|
)
|
|
|
(11,896
|
)
|
|
|
(12,007
|
)
|
NET DECREASE IN CASH
|
|
|
(2,040
|
)
|
|
|
(37,836
|
)
|
|
|
(304,758
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
8,466
|
|
|
|
46,302
|
|
|
|
351,060
|
|
Cash and cash equivalents at end of year
|
|
$
|
6,426
|
|
|
$
|
8,466
|
|
|
$
|
46,302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING TRANSACTIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses paid by related parties
|
|
$
|
18,626
|
|
|
$
|
30,571
|
|
|
$
|
25,816
|
|
Services provided by related parties
|
|
$
|
66,000
|
|
|
|
-
|
|
|
|
-
|
|
Discount due to debt issued with warrants
|
|
$
|
159,237
|
|
|
$
|
138,631
|
|
|
$
|
233,125
|
|
Issuance of stock for loans and salary
|
|
$
|
4,109,355
|
|
|
|
-
|
|
|
|
-
|
|
Forgiveness of liability
|
|
$
|
382,080
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTARY DISCLOSURE:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of these consolidated financial statements
UMEWORLD LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2018, 2017 AND 2016
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 does not own any material assets and conducts limited operations.
The Company, its subsidiaries, its consolidated subsidiaries and variable interest entity (“VIE”) are collectively referred to as the (“Group”).
As of September 30, 2018, details of the Company’s subsidiaries and VIE are as follows:
Name
|
|
Date of Incorporation
|
|
Place of Incorporation
|
|
Percentage of Interest
|
|
Principal Activities
|
|
Nature of company
|
UMeLook Holdings Limited
|
|
February 14, 2012
|
|
British Virgin Islands
|
|
100%
|
|
Holding company
|
|
Subsidiary
|
UMeZone Holdings Limited
|
|
August 27, 2012
|
|
British Virgin Islands
|
|
100%
|
|
Dormant
|
|
Subsidiary
|
AlphaRx International Holdings
|
|
August 24, 2004
|
|
British Virgin Islands
|
|
0%
|
|
Dissolved on Oct 1 2017
|
|
Subsidiary
|
AlphaRx Canada Limited
|
|
September 25, 1997
|
|
Canada
|
|
100%
|
|
Dormant
|
|
Subsidiary
|
AlphaRx Life Science Limited
|
|
July 21, 2004
|
|
Hong Kong
|
|
0%
|
|
Dissolved on Oct 1 2017
|
|
Subsidiary
|
UMeLook Limited
|
|
February 23, 2012
|
|
Hong Kong
|
|
100%
|
|
Holding company of WFOE
|
|
Subsidiary
|
UMeZone Adaptive Learning Technology Limited
|
|
September 7, 2012
|
|
Hong Kong
|
|
100%
|
|
Dormant
|
|
Subsidiary
|
UMeLook (Guangzhou) Information Technology Co. Ltd. (WFOE)
|
|
October 29, 2012
|
|
China
|
|
100%
|
|
Holding company
|
|
Subsidiary
|
YouYiXue (Guangzhou) Information Technology Co. Ltd.
|
|
April 23, 2013
|
|
China
|
|
100%
|
|
Dormant
|
|
Subsidiary
|
Guangzhou XinYiXun Network Technology Co. Ltd.
|
|
July 9, 2012
|
|
China
|
|
Contractual arrangements
|
|
Online education
|
|
VIE
|
UMeLook Holdings Limited (“UMeLook BVI”) and UMeLook Limited (“UMeLook HK”), the Company’s 100% owned subsidiaries, were incorporated in the BVI and Hong Kong on February 14, 2012 and February 23, 2012 respectively.
UMeLook HK holds all of the outstanding equity interest in UMeLook (Guangzhou) Technology Co., Ltd., a company established on October 29, 2012 in the People’s Republic of China (“PRC”) as a wholly foreign owned enterprise (“WFOE”). Other than the equity interest in WFOE, UMeLook HK does not own any material assets or liabilities except for notes payable as disclosed below. Guangzhou XinYiXun Technology Co., Ltd (“XinYiXun”) was incorporated on July 9, 2012 as a domestic Chinese corporation. XinYiXun was owned by Mr. Yilun Liang (“YL”) (10%) and Guangzhou Zhongda No. 3 Venture Investment Co., Ltd. (“Zhongda No. 3”) (90%). XinYiXun operates UMFun.com, an online learning and assessment platform used by teachers, students and parents in China’s K-12 education system.
The Company does not conduct any substantive operations of its own, rather, it conducts its primary business operations through WFOE, which in turn, conducts its business through XinYiXun. Effective control over XinYiXun was transferred to the Company through the series of contractual arrangements without transferring legal ownership in XinYiXun (“reorganization”). As a result of these contractual arrangements, the Company maintained the ability to approve decisions made by XinYiXun and was entitled to substantially all of the economic benefits of XinYiXun.
Under the laws and regulations of the PRC, foreign persons and foreign companies are restricted from investing directly in certain businesses within the PRC. Online education businesses are subject to these restrictions on foreign investment. In order to comply with these laws and regulations, on March 29, 2013, XinYiXun and its shareholders, YL and Zhongda No. 3, entered into an Exclusive Management Service Agreement and Proxy Agreement with WFOE, which provides that WFOE will be entitled to the full guarantee for the performance of such contracts, agreements or transactions entered into by XinYiXun. WFOE is also entitled to receive the residual return of XinYiXun. As a result of the agreement, WFOE will absorb 100% of the expected losses and gains of XinYiXun.
WFOE also entered into a pledge of equity agreement with XinYiXun’s shareholders, YL and Zhongda No.3, who pledged all of their equity interests in XinYiXun to WFOE. 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.
As of September 30, 2018 and 2017, the carrying amount and classification of the assets and liabilities in the Company’s balance sheets that relate to the Company’s VIE is as follows:
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
366
|
|
|
$
|
1,619
|
|
Prepayment and other assets
|
|
|
15,909
|
|
|
|
18,366
|
|
Property and equipment, net
|
|
|
114
|
|
|
|
4,877
|
|
Total assets of VIE
|
|
$
|
16,389
|
|
|
$
|
24,862
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Accrued liabilities and other payable
|
|
$
|
359,289
|
|
|
$
|
84,418
|
|
Due to VIE holding companies
|
|
|
18,774
|
|
|
|
18,224
|
|
Due to related parties
|
|
|
2,231,345
|
|
|
|
2,758,988
|
|
Total liabilities of VIE
|
|
$
|
2,609,408
|
|
|
$
|
2,861,630
|
|
Going concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments relating to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary in the event that the Company is unable to continue as a going concern. The Company demonstrates adverse conditions that raise substantial doubt about the Company's ability to continue as a going concern for one year following the issuance of these 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 VIE. 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. The Company consolidated XinYiXun and all significant intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates in amounts than may be material to the consolidated financial statements. Management believes that these estimates and assumptions used are reasonable. These estimates are reviewed periodically and as adjustments become necessary, they are reported in earnings in the period in which they become known. Estimates were used in determining the amounts of accrued liabilities, useful lives of property and equipment, stock based compensation, and valuation allowances.
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”. The Company maintains the books and records of AlphaRx Canada Ltd. in Canadian dollars, and the books and records of Alpha Life Sciences Ltd. and AlphaRx International Holdings Ltd. in Hong Kong dollars, their respective functional currencies. The records of these companies are converted to US dollars, the reporting currency. The translation method used is the current rate method. Under the current rate method all assets and liabilities are translated at the current rate, stockholders’ equity accounts are translated at historical rates and revenues and expenses are translated at average rates for the year. Cumulative net translation adjustments are included as a separate component of stockholders’ deficit.
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
September 30,
2016
|
|
Year-end CAD: USD exchange rate
|
|
|
0.7755
|
|
|
|
0.8022
|
|
|
|
0.7610
|
|
Annual average CAD: USD exchange rate
|
|
|
0.7795
|
|
|
|
0.7610
|
|
|
|
0.7545
|
|
Year-end RMB: USD exchange rate
|
|
|
0.1456
|
|
|
|
0.1503
|
|
|
|
0.1499
|
|
Annual average RMB: USD exchange rate
|
|
|
0.1530
|
|
|
|
0.1468
|
|
|
|
0.1531
|
|
Year-end HKD: USD exchange rate
|
|
|
0.1278
|
|
|
|
0.1280
|
|
|
|
0.1290
|
|
Annual average HKD: USD exchange rate
|
|
|
0.1277
|
|
|
|
0.1285
|
|
|
|
0.1289
|
|
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:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Stock options
|
|
|
11,300,000
|
|
|
|
14,750,000
|
|
|
|
14,750,000
|
|
Common stock warrants
|
|
|
0
|
|
|
|
4,551,945
|
|
|
|
3,410,280
|
|
Total
|
|
|
11,300,000
|
|
|
|
19,301,945
|
|
|
|
18,160,280
|
|
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, 2018 and 2017, the Company had cash in the amount of $6,426 and $8,466, respectively.
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 as of September 30, 2018 and 2017.
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 has adopted the new standard as of October 1, 2017 using the full retrospective method which requires the Group 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.
The Company generates substantially all of its revenues through UMFun app. The Company’s revenue is reported net of discounts, value added tax and surcharges. During the year ended September 30, 2018, and 2017 the Company recognized revenue in the amount of $758 and $7,927 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
On October 1, 2017, the Company adopted Revenue from Contracts with Customers (“Topic 606”), applying the modified retrospective method to all contracts that were not completed as of October 1, 2017. Results for reporting periods beginning on October 1, 2017 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior periods.
Revenue is recognized when control of promised goods or services is transferred to the Company’s customers in an amount of consideration to which the Company expects to be entitled to in exchange for those goods or services. The Company follows the five steps approach for revenue recognition under Topic 606: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies a performance obligation.
The Company generates substantially all of its revenues through UMFun app, in which revenue is recognized over time. The Company’s revenue is reported net of discounts, value added tax and surcharges. During the years ended September 30, 2018, and 2017 the Company recognized revenue in the amount of $758 and $7,927 respectively.
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. Under the new guidance, lessees will be required to recognize all leases (with the exception of short-term leases) at the commencement date including a lease liability, which is a lessee's obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use (ROU) asset, which is an asset that represents the lessee's right to use, or control the use of, a specified asset for the lease term. Lessees may not apply a full retrospective transition approach. The Company adopted the new standard on October 1, 2017. The new standard did not have a material effect on the Company’s consolidated Financial statements as the Company does not have any leases that meet the requirements for recognition.
NOTE 3. PROPERTY AND EQUIPMENT
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
|
|
|
|
|
|
|
Furniture and Fixtures
|
|
$
|
5,646
|
|
|
$
|
5,826
|
|
Leasehold Improvement
|
|
|
-
|
|
|
|
13,215
|
|
Machinery and Equipment
|
|
|
12,499
|
|
|
|
12,897
|
|
|
|
|
18,145
|
|
|
|
31,938
|
|
Less: Accumulated depreciation
|
|
|
(18,031
|
)
|
|
|
(27,061
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
114
|
|
|
$
|
4,877
|
|
For the years ended September 30, 2018, 2017 and 2016 the Company recorded depreciation expense of $4,846, $7,025 and $6,822 respectively.
NOTE 4. ACCOUNTS PAYABLE, ACCRUED LIABILITIES AND OTHER PAYABLES
Accounts payable, accrued liabilities and other payables are comprised of the following:
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
Accounts Payable
|
|
$
|
22,100
|
|
|
$
|
256,242
|
|
Accrued Liabilities and Other Payables
|
|
|
187,920
|
|
|
|
298,700
|
|
TOTAL
|
|
$
|
210,020
|
|
|
$
|
554,942
|
|
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 accrued payroll, advances from employees, and accrued expenses for services received. As of September 30, 2018, the balance mainly consisted of advances from individuals of $153,329 and accrued payroll of $19,591. As of September 30, 2017, the balance mainly consisted of advances from individuals of $65,941 and accrued payroll of $78,793.
NOTE 5. DUE TO RELATED PARTIES
The amounts represented temporary advances to the Company by the related parties of the Company, which were unsecured, interest-free and had no fixed terms of repayments.
NOTE 6. NOTES PAYABLE
Per ASC 470-50-40 Debt Modifications and Extinguishment: Derecognition, a difference between the reacquisition price of debt and the net carrying amount of the extinguished debt shall be recognized currently in income of the period of extinguishment as losses or gains and identified as a separate item. Gains or losses shall not be amortized to future periods. Moreover, extinguishment transactions between related entities may be in essence capital transactions. In an early extinguishment of debt through exchange for common or preferred stock, the reacquisition price of the extinguished debt shall be determined by the value of the common or preferred stock issued or the value of the debt - whichever is more clearly evident.
For the Company's situation, since the stock are traded on the OTC market with limited volume, the share price does not represent the fair value, and as such, the reacquisition price is more reflective of the carrying value of debt. Hence, as the reacquisition price is equal to the carry amount of debt, no gain/loss was recognized.
During the years ended September 30, 2018, 2017, and 2016, the Company issued $344,568, $312,828 and $391,158 of promissory notes respectively. Among all the notes issued during the years ended September 30, 2018, 2017, and 2016, $344,568, $294,928, and $235,730 of promissory notes were issued with detachable warrants. According to ASC 470-20, the proceeds from the issuance of debt with detachable stock warrants were allocated between the debt and warrants based on their relative fair market values. Debt discount would be amortized to interest expense over the term of the notes. The Company recognized debt discount of $159,237, $138,631 and $233,125 respectively and amortized $421,169, $186,280, and $72,138 respectively for the years ended September 30, 2018, 2017, and 2016.
On September 30, 2018, the Company entered into various debt conversion agreements with 9 debt holders. Pursuant to the terms of the debt conversion agreements, the Company issued an aggregate of 13,697,852 shares of common stock in exchange for the cancellation of promissory notes in the amount of $4,109,355 issued to the debt holders. The debt holders agreed that the notes balance, interests owing, and the detachable warrants were all extinguished after the conversion.
The table below shows the total outstanding balance of note payable and total accrued interest as of September 30, 2018 and 2017.
|
|
September 30,
2018
|
|
|
September 30,
2017
|
|
Notes Payable
|
|
$
|
-
|
|
|
$
|
1,209,445
|
|
Accrued Interest
|
|
|
-
|
|
|
|
712,546
|
|
Subtotal
|
|
|
-
|
|
|
|
1,921,991
|
|
|
|
|
|
|
|
|
|
|
Notes Payable – Related Parties
|
|
|
-
|
|
|
|
325,860
|
|
Accrued Interests – Related Parties
|
|
|
-
|
|
|
|
108,862
|
|
Subtotal
|
|
|
-
|
|
|
|
434,722
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
2,356,713
|
|
NOTE 7. NON-CONTROLLING INTEREST
On June 22, 2006, AlphaRx International Holdings Ltd. (“AIH”), previously a wholly-owned subsidiary of the Company issued 1,500 shares of its common stock to New Super Limited (“NSL”), an independent Hong Kong based corporation, at a price of approximately HK$6,667 per share or HK$10,000,000 (US$1,288,826) in cash. As a result, AIH’s issued and outstanding shares were increased to 10,000 shares and the Company’s interest in AIH was reduced to 85%. With the consolidation of only 85% of AIH, a non-controlling interest was established, representing amounts owing to the minority shareholder. The capital infusion into AIH is accounted for as additional paid in capital on the consolidated financial statements of the Company. On May 18, 2010, AlphaRx International Holdings Ltd. (“AIH”) issued 625 shares of its common stock to New Super Limited (“NSL”) at a price of approximately HK$2,166 per share, or HK$1,353,750 (USD$173,292) in cash, representing a further 5% non-controlling interest and increasing the total of the non-controlling interest to 20% after the infusion.
On October 1, 2017, the Company dissolved its subsidiary, AlphaRx International Holdings Limited, with a gain of $223,953 recorded on dissolution of subsidiaries on the consolidated statements of operations for this transaction.
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Company has several office leases for subsidiaries in China. Pursuant to the lease, lease payment shall be made as follows:
Leases
|
|
Period
|
|
Annual Lease amount
|
Office Lease A
|
|
June 2013 to June 2016
|
|
RMB 342,000 ($52,372)
|
Office Lease B
|
|
June 2016 to July 2017
|
|
RMB 416,275 ($61,104)
|
Office Lease C
|
|
December 2013 to December 2014
|
|
RMB 109,200 (17,742)
|
Office Lease D
|
|
February 2017 to February 2018
|
|
RMB 54,000 ($7,926)
|
Office Lease E
|
|
January 2017 to January 2018
|
|
RMB 54,000 ($7,926)
|
Office Lease F
|
|
January 2017 to June 2017
|
|
RMB 48,000 ($7,046)
|
Office Lease G
|
|
December 2016 to December 2017
|
|
RMB 48,000 ($7,046)
|
The Company discontinued all leases on September 30, 2017. For the years ended September 30, 2018, 2017 and 2016, rent expense related to the office leases amounted $0, $76,488, and $52,058 respectively.
NOTE 9. 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.
During the year ended September 30, 2018, the Company issued a total of 1,200,000 shares at a price of $0.12 to $ 0.13 per share to four investors of which 600,000 shares were issued to Winfield, Yongbiao Ding, the Chief Financial Officer (“CFO”) of the Company for net proceeds of $72,000.
On January 10, 2018, the Company issued 122,337 shares at a price of $0.12 per share to a consultant for consulting service fee of $14,680.
On September 30, 2018, the Company issued a total of 13,697,852 shares at a price of $0.30 per share for debt conversion of which:
(i)
|
2,869,764 shares were issued to Michael Lee, the Chief Executive Officer (“CEO”) of the Company in exchange for the cancellation of $860,929 in debt owed by the Company;
|
|
|
(ii)
|
534,578 shares were issued to Ford Moore, a director of the Company, in exchange for the cancellation of $160,373 in debt owed by the Company;
|
|
|
(iii)
|
380,130 shares were issued to David Milroy, a director of the Company, in exchange for the cancellation of $114,039 in debt owed by the Company;
|
|
|
(iv)
|
113,723 shares were issued to Ruby Hui, a shareholder of the Company, in exchange for the cancellation of $34,117 in debt owed by the Company;
|
|
|
(v)
|
66,992 shares were issued to an arm’s length investor in exchange for the cancellation of $20,098 in debt owed by the Company;
|
|
|
(vi)
|
1,560,823 shares were issued to an employee in exchange for the cancellation of $468,247 in debt owed by the Company;
|
|
|
(vii)
|
66,020 shares were issued to Vago International Limited, over 10% shareholder of the Company, in exchange for the cancellation of $19,806 in debt owed by the Company;
|
|
|
(viii)
|
715,113 shares were issued to an affiliate of the Company in exchange for the cancellation of $214,534 in debt owed by the Company;
|
|
|
(ix)
|
7,390,709 shares were issued to an investor of the Company in exchange for the cancellation of $2,217,212 in debt owed by the Company.
|
On July 6, 2017, the Company issued 168,000 shares at a price of $0.3 per share to Winfield, Yongbiao Ding, the CFO of the Company, for net proceeds of $50,400.
On April 1, 2016, the Company entered into a consulting agreement with LP Funding, LLC DBA LPF Communications, pursuant to which the Company issued 300,000 of restricted shares valued at $90,000 in exchange for investor relationship service provided by LP Funding, LLC DBA LPF Communications. All the amount was expensed in 2016.
As of September 30, 2018 and 2017, there were 104,524,189 and 89,504,000 shares issued and outstanding respectively.
NOTE 10. INCOME TAXES
BVI
UMeWorld Limited, UMeLook BVI, UMeZone Holdings Limited and AlphaRx International Holdings were incorporated in the BVI and, under the current laws of the BVI, are not subject to income taxes.
Canada
AlphaRx Canada Limited was incorporated in Canada and is subject to income tax rate of 38%.
Hong Kong
AlphaRx Life Science Limited, 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, 2018, 2017, and 2016.
PRC
The Company’s subsidiaries, UMeLook (Guangzhou) Information Technology Co. Ltd. and YouYiXue (Guangzhou) Information Technology Co. Ltd., and VIE, XinYiXun, registered in the PRC are subject to PRC Enterprise Income Tax (“EIT”) of 25% on the taxable income in accordance with the relevant PRC income tax laws. No provision for PRC income tax has been made as these companies had no taxable income during the years ended September 30, 2018, 2017, and 2016.
The tax effect of material temporary differences representing deferred tax assets is estimated as follows:
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
135,390
|
|
|
$
|
351,500
|
|
|
$
|
538,644
|
|
Hong Kong
|
|
|
23,638
|
|
|
|
39,714
|
|
|
|
46,636
|
|
PRC
|
|
|
362,828
|
|
|
|
668,168
|
|
|
|
526,643
|
|
Sub-total
|
|
|
521,856
|
|
|
|
1,059,382
|
|
|
|
1,111,923
|
|
Less: Valuation allowance
|
|
|
(521,856
|
)
|
|
|
(1,059,382
|
)
|
|
|
(1,111,923
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The valuation allowance as of September 30, 2018 and 2017 totaled $521,856 and $1,059,032, 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. The consolidated effective tax (benefit) rate as a percentage of income (loss) before income taxes is as follows.
|
|
Years Ended September 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
PRC enterprise income tax rate
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
|
|
25.00
|
%
|
Effect of income tax difference under different tax jurisdictions
|
|
|
-13.44
|
%
|
|
|
-10.77
|
%
|
|
|
-10.57
|
%
|
Effect of valuation allowance on deferred income tax assets
|
|
|
-1.55
|
%
|
|
|
6.74
|
%
|
|
|
0.63
|
%
|
Effect of expense not deductible for tax purpose
|
|
|
-10.01
|
%
|
|
|
-20.97
|
%
|
|
|
-15.06
|
%
|
Effective tax rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
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, 2018 and 2017.
NOTE 11. 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, 2018, 2017 and 2016:
|
|
Number Outstanding
|
|
|
Exercise Price Per Share
|
|
|
Weighted-Average Exercise Price
|
|
Outstanding as of September 30, 2016
|
|
|
14,750,000
|
|
|
$
|
0.15 – 0.20
|
|
|
$
|
0.16
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options forfeited/cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of September 30, 2017
|
|
|
14,750,000
|
|
|
$
|
0.15 – 0.20
|
|
|
$
|
0.16
|
|
Granted
|
|
|
300,000
|
|
|
|
0.20
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options forfeited/cancelled
|
|
|
(3,750,000
|
)
|
|
|
0.20
|
|
|
|
-
|
|
Outstanding as of September 30, 2018
|
|
|
11,300,000
|
|
|
$
|
0.15 – 0.20
|
|
|
$
|
0.16
|
|
The following table summarizes the ordinary shares of the Company issuable upon exercise of options outstanding as of September 30, 2018, 2017 and 2016.
|
|
Share Options Outstanding/ Exercisable
|
|
|
|
Range of
Exercise Price
|
|
Number Outstanding
|
|
|
Weighted-Average Remaining Contractual Life (Years)
|
|
September 30, 2018
|
|
$0.15-$0.20
|
|
|
11,300,000
|
|
|
|
5.22
|
|
September 30, 2017
|
|
$0.15-$0.20
|
|
|
14,750,000
|
|
|
|
8.99
|
|
September 30, 2016
|
|
$0.15-$0.20
|
|
|
14,750,000
|
|
|
|
7.99
|
|
As of September 30, 2018 and 2017, the intrinsic values of both outstanding options and exercisable options were $122,800 and $637,500, respectively. There were no options exercised during the years ended September 30, 2018, 2017, and 2016; and no stock based compensation is recognized from stock options during the years ended September 30, 2018, 2017, and 2016.
NOTE 12. WARRANTS
For detachable warrants issued with notes payable during the years ended September 30, 2018, 2017 and 2016, the Company determined the estimated value of the warrants using Black-Scholes pricing model with the following assumptions. The warrants were fully vested upon issuance, stock price at valuation of $0.20-$0.40, expected term of 2-3 years, exercise price of $0.25- $0.30, risk free interest rate of 0.52-1.56 percent, a dividend yield of 0 percent and volatility of 118-465 percent. According to ASC 470-20, the proceeds from the issuance of debt with detachable stock warrants were allocated between the debt and warrants based on their relative fair market values. The relative fair value of warrants as of September 30, 2018 and 2017 were $159,237 and $138,631, respectively.
During the year ended September 30, 2016, the Company issued promissory notes in aggregate of $387,125. 1,935,625 warrants were issued with the notes with exercise price of $0.28 to $0.30 per share and a term of 3 years. The relative fair value of the warrants of $233,125 was recognized as a debt discount which is being amortized over the term of the note.
During the year ended September 30, 2017, the Company issued promissory notes in aggregate of $248,333. 1,241,665 warrants were issued with notes with exercise price $0.30 per share and a term of 3 years. The relative fair value of the warrants of $138,631 was recognized as a debt discount which is being amortized over the term of the note.
During the year ended September 30, 2018, the Company issued promissory notes in aggregate of $344,568. 1,722,840 warrants were issued with notes with exercise price $0.30 per share and a term of 3 years. The relative fair value of the warrants of $159,237 was recognized as a debt discount which is being amortized over the term of the note.
Below is a table summarizing the warrants issued and outstanding as of September 30, 2018 and 2017:-
|
|
Number Outstanding
|
|
|
Average Exercise Price
|
|
Outstanding as of September 30, 2016
|
|
|
3,410,280
|
|
|
$
|
0.28
|
|
Granted
|
|
|
1,241,665
|
|
|
$
|
0.30
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
(100,000
|
)
|
|
$
|
(0.25
|
)
|
Outstanding as of September 30, 2017
|
|
|
4,551,945
|
|
|
$
|
0.29
|
|
Granted
|
|
|
1,722,840
|
|
|
$
|
0.25
|
|
Exercised
|
|
|
-
|
|
|
$
|
-
|
|
Expired
|
|
|
(1,374,655
|
)
|
|
$
|
(0.26
|
)
|
Cancelled
|
|
|
(4,900,130
|
)
|
|
$
|
(0.28
|
)
|
Outstanding as of September 30, 2018
|
|
|
-
|
|
|
$
|
-
|
|
As of September 30, 2018 and 2017, the intrinsic values of the outstanding warrants were $0 and $0 respectively. There were no warrants exercised during the years ended September 30, 2018, 2017 and 2016.
NOTE 13. RELATED PARTY TRANSACTIONS
The Company sourced some of its funding from Michael Lee, CEO and director, Ford Moore and Dave Milroy, directors, by issuing promissory notes.
During the years ended September 30, 2018, 2017, and 2016, the Company issued promissory notes in the amount of $0, $101,126, and $115,421 respectively to Michael Lee. As of September 30, 2018 and 2017, the notes payable balances for Michael Lee were $0 and $246,690 respectively, including accrued interests of $0 and $62,138 and unamortized debt discount in the amount of $0 and $74,778, respectively. Among all the loans borrowed from Mr. Lee, as of September 30, 2018, $214,414 of loans were attached with 1,072,385 warrants, which were subject to debt discount amortization and fully amortized on September 30, 2018.
During the years ended September 30, 2018, 2017, and 2016, the Company issued promissory notes in the amount of $20,000, $0, and $30,000 respectively to Ford Moore. As of September 30, 2018 and 2017, the notes payable balances for Ford Moore were $0 and $112,606, respectively, including accrued interests of $0 and $27,180 and unamortized debt discount in the amount of $0 and $14,574, respectively. Among all the loans borrowed from Ford Moore, as of September 30, 2018, $120,000 of loans were attached with 600,000 warrants, which were subject to debt discount amortization, and fully amortized on September 30, 2018.
During the years ended September 30, 2018, 2017, and 2016, the Company issued promissory notes in the amount of $30,000, $0, and $10,000 respectively to David Milroy. As of September 30, 2018 and 2017, the notes payable balances for David Milroy were $0 and $75,425 respectively, including accrued interests of $0 and $19,543, and unamortized debt discount in the amount of $0 and $14,119, respectively. Among all the loans borrowed from David Milroy, as of September 30, 2018, $85,000 of loans were attached with 500,000 shares of warrants, subject to debt discount amortization, was fully amortized on September 30, 2018.
During the year ended September 30, 2016, Michael Lee provided management services to the Company with the amount of $120,000, paid $25,816 expenses on behalf of the Company, and received $40,855 repayment from the Company. Together with the balance due to him carried over from prior years, the total balance due to him as of September 30, 2016 is $425,181.
During the year ended September 30, 2017, Michael Lee provided management services to the Company with the amount of $120,000, paid $30,571 expenses on behalf of the Company, advanced $22,565 to the Company, and received $63,816 repayment from the Company. Together with the balance due to him carried over from prior years, the total balance due to him as of September 30, 2017 is $534,529.
During the year ended September 30, 2018, Michael Lee provided management services to the Company with the amount of $66,000, paid $18,744 expenses on behalf of the Company, advanced $291 to the Company, and received $50,701 repayment in cash and $860,929 in shares 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, 2018 is $60,000.
On July 6, 2017, the Company issued 168,000 shares at a price of $0.30 per share to Winfield, Yongbiao Ding, the CFO of the Company for net proceeds of $50,400.
On January 30, 2018, the Company issued 600,000 shares at a price of $0.12 per share to Winfield, Yongbiao Ding, the CFO of the Company for net proceeds of $72,000.
On September 30, 2018, the Company issued 2,869,764 shares to Michael Lee, the CEO of the Company, in exchange for the cancellation of $860,929 in debt owed by the Company.
On September 30, 2018, the Company issued 534,578 shares to Ford Moore, a director of the Company, in exchange for the cancellation of $160,373 in debt owed by the Company.
On September 30, 2018, the Company issued 380,130 shares to David Milroy, a director of the Company, in exchange for the cancellation of $114,039 in debt owed by the Company.
On September 30, 2018, the Company issued 113,723 shares to Ruby Hui, over 5% shareholder of the Company in exchange for the cancellation of $34,117 in debt owed by the Company.
On September 30, 2018, the Company issued 66,020 shares to Vago International Limited, over 10% shareholder of the Company in exchange for the cancellation of $19,806 in debt owed by the Company.
On September 30, 2018, the Company issued 7,390,709 shares to First Scion Investments Limited, over 5% shareholder of the Company in exchange for the cancellation of $2,217,213 in debt owed by the Company.
On September 30, 2018, the Company issued 715,113 shares to Dong Liang, an affiliate of the Company in exchange for the cancellation of $214,514 in debt owed by the Company.
NOTE 14. DISSOLUTION OF SUBSIDIARIES
On October 1, 2017, the Company dissolved its subsidiary – AlphaRx International Holdings Limited.
AlphaRx International Holdings Limited ("AIH") was incorporated on August 24, 2004 in British Virgin Islands, which is a wholly-owned subsidiary of UMeWorld Limited.
On June 22, 2006, AIH, previously a wholly-owned subsidiary of the Company issued 1,500 shares of its common stock to New Super Limited (“NSL”), an independent Hong Kong based corporation, at a price of approximately HK$6,667 per share or HK$10,000,000 (equivalent to US$1,288,826) in cash. As a result, AIH’s issued and outstanding shares were increased to 10,000 shares and the Company’s interest in AIH was reduced to 85%. With the consolidation of only 85% of AIH, a non-controlling interest was established, representing amounts owing to the minority shareholder. The capital infusion into AIH is accounted for as additional paid in capital on the consolidated financial statements of the Company.
On May 18, 2010, AIH issued 625 shares of its common stock to New Super Limited (“NSL”) at a price of approximately HK$2,166 per share, or HK$1,353,750 (equivalent to US$173,292) in cash, representing a further 5% non-controlling interest and increasing the total of the non-controlling interest to 20% after the infusion.
AlphaRx Life Science Limited ("ALS") was incorporated on July 21, 2004 in Hong Kong, which is a wholly-owned subsidiary of AIH.
The Company decided to deconsolidate the above two subsidiaries as of October 1, 2017. Per ASC 205-20-45-1B, a disposal of a component of an entity or a group of components of an entity shall be reported in discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity's operations and financial result. In this case, the Company's situation did not meet the definition of discontinued operation. Instead, ASC 810-10-40 Derecognition: Deconsolidation of a subsidiary or Derecognition of a Group of Assets was applied. For the year ended September 30, 2018, the Company recognized a gain on dissolution of subsidiaries of $223,953.
An analysis of the carrying amount of the deconsolidated subsidiaries’ assets and liabilities is as follows:
|
|
As of October 1, 2017
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
Due to related parties
|
|
|
1,447,881
|
|
|
|
Debt forgiven by related parties
|
|
|
(1,447,881
|
)
|
|
|
|
|
|
Net asset
|
|
$
|
-
|
|
NOTE 15. SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of 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, 2018, up through the date the Company issued the audited consolidated financial statements. During the period, the Company has the material subsequent events, as follows:
On November 4, 2019, the Company entered into an acquisition agreement with Beijing Radish Green Vegetable Education Technology Co., Ltd. (“Proud Kids”) in an all-stock transaction. Under the terms of the agreement, Proud Kids’ shareholders will receive up to 37,500,000 shares of the common stock of the Company upon closing. The acquisition agreement, as amended, has expired on April 30, 2020.
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, September 16, 2020 and October 28, 2020, the Company issued a total of 1,878,445 restricted shares to Ruby Hui, over 5% shareholder of the Company at $0.05 per share pursuant to 3 private placement agreements.
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