NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF MARCH 31, 2019
(UNAUDITED)
NOTE 1 - ORGANIZATION,
DESCRIPTION OF BUSINESS, AND BASIS OF PRESENTATION
Exceed World, Inc., (the “Company”),
was incorporated under the laws of the State of Delaware on November 25, 2014.
On September 26, 2018, e-Learning Laboratory
Co., Ltd. (“e-Learning”), a direct wholly owned subsidiary of Force International Holdings Limited, which was incorporated
in Hong Kong with limited liability (“Force Holdings”), entered into a share purchase agreement with Force Internationale
Limited (“Force Internationale”), the holding company of Force Holdings, in which e-Learning agreed to sell and Force
Internationale agreed to purchase 74.5% equity interest of the Company at a consideration of US$26,000.
On September 26, 2018, the same date, Force
Internationale entered into a share purchase agreement with the Company, in which Force Internationale agreed to sell and the Company
agreed to purchase 100% equity interest of Force Holdings. In consideration of the agreement, the Company issued 12,700,000 common
stock at US$1 each to Force Internationale. The results of these transactions are that Force Internationale is a 84.4% owner of
the Company and the Company is a 100% owner of Force Holdings (the “Reorganization”).
On December 6, 2018, the Company entered into
a share contribution agreement (the “Agreement”) with Force Internationale, a 84.4% owner of the Company. Under this
Agreement, the Company transferred 100% of the equity interest of School TV Co., Ltd. ("School TV"), to Force Internationale
without consideration. This Agreement was approved by the boards of directors of the Company, Force Internationale and School TV.
Upon the completion of the disposal, School TV was deconsolidated from the Group's consolidated financial statements.
As of March 31, 2019, we operate through our
wholly owned subsidiaries, which are engaged in provision of the educational services through an internet platform called “Force
Club”.
The Company has elected September 30th as its
fiscal year end.
The accompanying unaudited consolidated financial statements of Exceed World, Inc. have been prepared in accordance with the
rules and regulations of the Securities and Exchange Commission, or the SEC, including the instructions to Form 10-Q and Regulation
S-X. In the opinion of the management of the Company, all adjustments, which are of a normal recurring nature, necessary for
a fair statement of the results for the six months ended March 31, 2019, have been made. Results for the interim periods presented
are not necessarily indicative of the results that might be expected for the entire fiscal year. When used in these notes,
the terms "Company", "we", "us" or "our" mean the Company. Certain information and note disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles in the United States of America has been omitted
from these statements pursuant to such accounting principles and, accordingly, they do not include all the information and
notes necessary for comprehensive financial statements and should be read in conjunction with our consolidated financial statements
for the year ended September 30, 2018, included in our Form 10-K.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries (the “Group”). Inter-company accounts and transactions have
been eliminated.
|
Name of Subsidiary
|
State or Other Jurisdiction of Incorporation or Organization
|
|
Force International Holdings Limited
|
Hong Kong
|
|
e-Learning Laboratory Co., Ltd.
|
Japan
|
|
e-Communications Co., Ltd. (“e-Communications”)
|
Japan
|
USE OF ESTIMATES
The presentation of financial statements and
related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities as the date of the financial statements
and the reported amounts of revenue and expenses reported in those financial statements. Certain significant accounting policies
that contain subjective management estimates and assumptions include those related to going concern, allowance for doubtful accounts,
valuation allowance on deferred income tax, write-down in value of inventory and sales allowance. Operating results in the future
could vary from the amounts derived from management's estimates and assumptions.
RELATED PARTY TRANSACTION
A related party is generally defined as (i)
any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management,
(iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone
who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related
party transaction when there is a transfer of resources or obligations between related parties. The Company conducts business with
its related parties in the ordinary course of business.
Transactions involving related parties cannot
be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free market dealings may not
exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were
consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
CASH
EQUIVALENTS
The Company considers all highly liquid investments with maturities
of three months or less at the date of purchase are classified as cash equivalents.
ACCOUNTS RECEIVABLE AND ALLOWANCE
Accounts receivable are recognized and carried
at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection
of the full amount is no longer probable. Bad debts are written off against the allowance when identified.
MARKETABLE SECURITIES
Investments in marketable securities with readily
determinable fair values and all investments in equity securities are reported at their fair values as quoted by market exchanges
in the consolidated balance sheets. Unrealized and realized gains and losses are included in the change in fair value of marketable
securities.
INVENTORIES
Inventories, consisting of educational products
accounted for using the weighted average method, are valued at the lower of cost and market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at
cost less depreciation and impairment loss. Depreciation is calculated using the straight-line method or reducing balance method
at the following estimated useful life:
|
Building
|
Over the shorter of the lease terms or 10 years on straight-line method
|
|
Equipment
|
2 to 15 years on reducing balance method
|
|
Vehicle
|
3 years on reducing balance method
|
Assets held under capital lease obligation
are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty
that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their
useful lives.
INTANGIBLE ASSETS
The Company amortizes its intangible assets
with definite useful lives over their estimated useful lives and periodically evaluated for recoverability, and those evaluations
take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.
The intangible assets with definite useful
life are amortized using the straight-line basis over the following estimated useful life:
|
Software
|
5 years
|
|
Membership
|
15 years – 30 years
|
IMPAIRMENT OF LONG-LIVED ASSETS
The carrying
value of property, plant and equipment and intangible assets subject to amortization is evaluated whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be measured by the
amount by which the carrying value of the asset exceeds the fair value of the asset. Management has determined there were no events
or changes in circumstances that required an impairment during the six months ended March 31, 2019 and March 31, 2018.
FOREIGN CURRENCY TRANSLATION
The Company maintains its books and records
in its local currencies, Japanese YEN (“JPY”) and Hong Kong Dollars (“HK$”), which are the functional currencies
as being the primary currencies of the economic environment in which their operations are conducted. Transactions denominated in
currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the
dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated
into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences
are recorded in the consolidated statements of operations and comprehensive income.
The reporting currency of the Company is the
United States Dollars (“US$”) and the accompanying consolidated financial statements have been expressed in US$. In
accordance with ASC Topic 830-30,
Translation of Financial Statement
, assets and liabilities of the Group whose functional
currency is not US$ are translated into US$, using the exchange rate on the balance sheet date. Revenues and expenses are translated
at average rates prevailing during the period. The gains and losses resulting from translation of financial statements are recorded
as a separate component of accumulated other comprehensive income within the consolidated statements of shareholders’ equity.
Translation of amounts from the local currency
of the Group into US$1 has been made at the following exchange rates:
|
|
March 31, 2019
|
|
March 31, 2018
|
|
Current JPY: US$1 exchange rate
|
110.84
|
|
106.26
|
|
Average JPY: US$1 exchange rate
|
111.84
|
|
110.62
|
|
|
|
|
|
|
Current HK$: US$1 exchange rate
|
7.85
|
|
7.85
|
|
Average HK$: US$1 exchange rate
|
7.83
|
|
7.82
|
COMPREHENSIVE INCOME OR LOSS
ASC Topic 220, “Comprehensive Income”,
establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive
income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income,
as presented in the accompanying consolidated statements of shareholders’ equity consists of changes in unrealized gains
and losses on foreign currency translation.
REVENUE RECOGNITION
The Company
recognizes revenue by applying the following steps in accordance with Accounting Standards Codification (“ASC”) Topic
606 - Revenue from contracts with Customers: (1) identify the contract with a customer; (2) identify the performance obligations
in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the
contract; and (5) recognize revenue when each performance obligation is satisfied. When payments are received in advance of recognizing
revenue, the Company includes the amount in deferred income on the consolidated balance sheets. Membership income of e-Learning
educational services was recognized when the membership services are rendered.
ADVERTISING
Advertising costs are expensed as incurred
and included in selling and distributions expenses. Advertising expense was $638,920 and $666,014 for the six months ended March
31, 2019 and 2018, respectively.
BASIC EARNINGS PER SHARE
The Company computes basic and diluted earnings
per share in accordance with ASC Topic 260,
Earnings per Share
. Basic earnings per share is computed by dividing net
income by the weighted average number of common stock outstanding during the reporting period. Diluted earnings per share reflects
the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards
vest resulting in the issuance of common stock that could share in the earnings of the Company.
The Company does not have any potentially dilutive
instruments as of March 31, 2019 and September 30, 2018 and, thus, anti-dilution issues are not applicable.
INCOME TAXES
The provision for income taxes includes income
taxes currently payable and those deferred as a result of temporary differences between the financial statements and the income
tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted income tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
of a change in income tax rates on deferred income tax assets and liabilities is recognized in income or loss in the period that
includes the enactment date. A valuation allowance is provided to reduce deferred tax assets to the amount of future tax benefit
when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Projected future taxable
income and ongoing tax planning strategies are considered and evaluated when assessing the need for a valuation allowance. Any
increase or decrease in a valuation allowance could have a material adverse or beneficial impact on the Group’s income tax
provision and net income or loss in the period the determination is made.
RECENT
ACCOUNTING PRONOUNCEMENTS
In February
2016, the FASB issued ASU 2016-02, Leases (Topic 842). This new guidance will require that a lessee recognize assets and liabilities
on the balance sheet for all leases with a lease term of more than twelve months, with the result being the recognition of a right
of use asset and a lease liability. The new lease accounting requirements are effective for fiscal years beginning after December
15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact
of the new guidance on its consolidated financial statements.
In August
2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). This new guidance removes and modifies disclosure requirements
on fair value statements. This update is effective for fiscal years beginning after December 15, 2019 and interim periods within
those fiscal year. The Company is currently evaluating the impact, if any, on its disclosures in the Notes to Consolidated Financial
Statements.
NOTE 3 - FAIR VALUE MEASUREMENT
The Company’s valuation techniques used to measure the fair
value of marketable equity securities are derived from quoted prices in active markets for identical assets or liabilities.
NOTE 4 - INCOME TAXES
The Group conducts its major businesses in
Japan and is subject to tax in this jurisdiction. As a result of its business activities, the Group files tax returns that are
subject to examination by the local tax authority.
National income tax in Japan is charged at
15% with taxable income up to JPY8,000,000 ($72,531) and 23.2% at March 31, 2019 and September 30, 2018, with taxable income over
JPY8,000,000. The Company’s subsidiaries, e-Learning and e-Communications (“Japanese Subsidiaries”), were incorporated
in Japan and are subject to Japanese national income tax and local corporate tax, business tax and corporate inhabitant taxes at
the applicable tax rates on the taxable income as reported in their Japanese statutory accounts in accordance with the relevant
enterprises income tax laws applicable to foreign enterprises.
For the six months ended March 31, 2019 and
March 31, 2018, income tax expense for Japanese Subsidiaries is $153,082 and $87,934, respectively.
Exceed World, Inc., which acts as a holding
company on a non-consolidated basis, does not plan to engage any business activities and current or future loss will be fully allowed.
For the six months ended March 31, 2019 and 2018, respectively, Exceed World, Inc., as a holding company registered in the state
of Delaware, has incurred net loss and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry
forward has been fully reserved.
United States
The Company is a Delaware corporation that
is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for taxable years beginning after December
31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax years. Recent U.S. federal tax legislation,
commonly referred to as the Tax Cuts and Jobs Act (the “2017 Act”), was signed into law on December 22, 2017. The 2017
Act significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate
income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business
deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of
previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S.
corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers
may elect to pay the one-time transition tax over eight years or in a single lump sum.
The 2017 Act also includes provisions for a
new tax on the Global Intangible Low-taxed Income (“GILTI”) effective for tax years of foreign corporations beginning
after December 31, 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of
controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal
to 50 percent to offset the income tax liability, subject to some limitations.
The Company’s management is still evaluating
the effect of the 2017 Act on the Company. Management may update its judgment of that effect based on its continuing evaluation
and on future regulations or guidance issued by the U.S. Department of the Treasury, and specific actions the Company may take
in the future.
To the extent that portions of the Company’s
U.S. taxable income, such as Subpart F income or GILTI, are determined to be from sources outside of the U.S., subject to certain
limitations, the Company may be able to claim foreign tax credits to offset its U.S. income tax liabilities. If dividends that
the Company receives from its subsidiaries are determined to be from sources outside of the U.S., subject to certain limitations,
the Company will generally not be required to pay U.S. corporate income tax on those dividends. Any liabilities for U.S. corporate
income tax will be accrued in the Company’s consolidated statements of operations and comprehensive income and estimated
tax payments will be made when required by U.S. law.
NOTE 5 - RELATED-PARTY TRANSACTIONS
On September 26, 2018, e-Learning, a direct
wholly owned subsidiary of Force Holdings, which was incorporated in Hong Kong with limited liability, entered into a share purchase
agreement with Force Internationale, the holding company of Force Holdings, in which e-Learning agreed to sell and Force Internationale
agreed to purchase 74.5% equity interest of the Company at a consideration of US$26,000.
On September 26, 2018, the same date, Force
Internationale entered into a share purchase agreement with the Company, in which Force Internationale agreed to sell and the Company
agreed to purchase 100% equity interest of Force Holdings at a consideration by issuance of 12,700,000 common stock at US$1 each
to Force Internationale.
On December 6, 2018, the Company entered into
the Agreement with Force Internationale, a 84.4% owner of the Company. Under the Agreement, the Company transferred 100% of the
equity interest of School TV to Force Internationale without consideration. This agreement was approved by the boards of directors
of each of the Company, Force Internationale and School TV. Upon the completion of the disposal, School TV was deconsolidated from
the Group’s consolidated financial statements.
As of March 31, 2019 and September 30, 2018,
the Company had $739,610 and $596,059, respectively, owed to Tomoo Yoshida, Chief Executive Officer, Chief Financial Officer and
the shareholder of the Company. The advance is unsecured, due on demand and bears no interest.
As of March 31, 2019 and September 30, 2018,
the Company had $47,337 and $47,710, respectively, owed to Keiichi Koga, who is the shareholder of the Company and the director
of the Company’s certain subsidiaries. The advance is unsecured, due on demand and bears no interest.
As of March 31, 2019 and September 30, 2018,
the Company had $300,476 and $291,015, respectively, owed to Force Internationale which is our holding company and Tomoo Yoshida,
our CEO, is also the director of Force Internationale. The advance is unsecured, due on demand and bears no interest.
As of March 31, 2019, the Company had $132,537 owed to School TV.
Tomoo Yoshida, our CEO, is also the CEO of School TV. The advance is unsecured, due on demand and bears no interest.
As of March 31, 2019, the Company had a long-term
loan JPY25,000,000 ($225,550) to School TV. Tomoo Yoshida, our CEO, is also the CEO of School TV. The loan is unsecured, mature
on May 24, 2023 with an interest rate 1% per annum. As of March 31, 2019, the interest receivable was $1,925.
NOTE 6 – SHORT-TERM LOAN RECEIVABLE
On September 14, 2018, the Company entered
into a loan agreement to lend JPY45,000,000 ($405,991) to an independent third party, Star Gate Investment Holdings Limited. The
loan is unsecured, matures on March 31, 2019 with an interest of JPY 400,000 ($3,577) per quarter. The loan is repaid on April
24, 2019 without charged of overdue interest.
As of March 31, 2019, the Company had short-term
loan JPY10,000,000 ($90,220) to School TV. Tomoo Yoshida, our CEO, is also the CEO of School TV. The loan is unsecured, matures
on January 15, 2020 with an interest rate 1% per annum.
NOTE
7 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the
following:
|
|
March 31, 2019
|
September 30, 2018
|
|
|
US$
|
US$
|
|
Buildings
|
115,395
|
54,984
|
|
Equipment
|
811,654
|
741,083
|
|
Vehicles
|
118,025
|
119,296
|
|
|
1,045,074
|
915,363
|
|
|
|
|
|
Accumulated depreciation and amortization
|
(597,417)
|
(569,650)
|
|
|
447,657
|
345,713
|
|
|
|
|
|
Net effect of exchange rate
|
9,396
|
(1,722)
|
|
|
|
|
|
Total net book value
|
457,053
|
343,991
|
Depreciation and amortization of property,
plant and equipment were $ 35,540 and $45,057 for the six months ended March 31, 2019 and 2018, respectively.
NOTE
8 – INTANGIBLE ASSETS
Intangible assets consist of the following:
|
|
March 31, 2019
|
September 30, 2018
|
|
|
US$
|
US$
|
|
Software
|
5,111,144
|
5,121,311
|
|
Franchise right
|
-
|
667,378
|
|
Membership
|
440,432
|
450,285
|
|
|
5,551,576
|
6,238,974
|
|
|
|
|
|
Accumulated depreciation and amortization
|
(3,367,707)
|
(2,978,171)
|
|
|
2,183,869
|
3,260,803
|
|
|
|
|
|
Net effect of exchange rate
|
64,410
|
(32,148)
|
|
|
|
|
|
Total net book value
|
2,248,279
|
3,228,655
|
The aggregate amortization expenses related
to the intangible assets was $483,875 and $505,962 for the six months ended March 31, 2019 and 2018, respectively.
NOTE 9 - SHAREHOLDERS’ EQUITY
On September
26, 2018, the Company issued 12,700,000 common stock at US$1 each to Force Internationale for the acquisition of 100% equity interests
of Force Holdings.
NOTE
10 - RESTATEMENT OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Subsequent to the filing of the Form 10Q
on May 15, 2019, the Company had identified accounting issues relating to (i) commission expense which resulted in overstated
other comprehensive income of $20,027 and understated other comprehensive income of $42,824 for the three and six months ended
March 31, 2019, respectively, and overstated accounts payable balances of $1,671,358 and $1,714,182 as of September 30, 2018 and
March 31, 2019, respectively, understated accumulated earnings of $1,719,934 and $1,719,934 as of September 30, 2018 and March
31, 2019, respectively, and understated accumulated other comprehensive loss of $48,576 and overstated accumulated other comprehensive
income of $5,752 as of September 30, 2018 and March 31, 2019, respectively, and (ii) professional fee which resulted in overstated
administrative expenses of $15,586 and $112,431 for the three and six months ended March 31, 2019, respectively, and understated
due to director of $213,515 and $400,479 as of September 30, 2018 and March 31, 2019, respectively, understated other accounts
payable of $289,411 and overstated other accounts payable of $9,984 as of September 30, 2018 and March 31, 2019, respectively,
overstated accumulated earnings of $502,926 and $390,495 as of September 30, 2018 and March 31, 2019, respectively.
As a result, the Company restated its previously
issued consolidated financial statements, included in its Amendment to the Company's 2018 Annual Report on Form 10-K/A, filed
on January 14, 2019, and the previously issued condensed consolidated financial statements included in its Amendment to the Company's
Quarterly Reports on Form 10-Q/A for the three months ended December 31, 2018, filed on February 13, 2019 and the six months ended
March 31, 2019, filed on May 15, 2019.
The 2019 Quarterly Report on Form 10-Q
filed with the Securities and Exchange Commission on May 15, 2019 (the “Original Filing”) and this Amendment to its
Quarterly Report on Form 10-Q/A (the “2018 Amended Quarterly Report on Form 10-Q/A”) include the restated Condensed
Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended March 31, 2019 and restated
Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2019 and the restated Condensed Consolidated
Balance Sheet as of March 31, 2019 and September 30, 2018.
The
following discloses each line item that is affected by the restatement of the Company's consolidated financial statements as of
March 31, 2019 and September 30, 2018
and for the three and six months ended
March
31, 2019
.
Consolidated Statements of Operations and Comprehensive
Income (Loss):
In
the following table, the “As Originally Filed” column corresponds to Form 10-Q for the six months ended
March
31, 2019
filed by the Company on
May 15, 2019
.
|
|
|
|
As
Originally Filed
|
|
Effect
of Restatement
|
|
Effect
of Restatement
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
13,800,681
|
$
|
-
|
$
|
-
|
$
|
13,800,681
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
7,070,360
|
|
-
|
|
-
|
|
7,070,360
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
6,730,321
|
|
-
|
|
-
|
|
6,730,321
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
Selling and
distributions expenses
|
|
638,920
|
|
-
|
|
-
|
|
638,920
|
|
|
Administrative
expenses
|
|
6,324,815
|
|
-
|
|
(112,431)
|
|
6,212,384
|
|
Total
operating expenses
|
|
6,963,735
|
|
-
|
|
(112,431)
|
|
6,851,304
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
(233,414)
|
|
-
|
|
112,431
|
|
(120,983)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
77,438
|
|
-
|
|
-
|
|
77,438
|
|
|
|
|
|
|
-
|
|
-
|
|
-
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
57,344
|
|
-
|
|
-
|
|
57,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of marketable securities
|
|
111,039
|
|
-
|
|
-
|
|
111,039
|
|
|
Total other
expenses
|
|
168,383
|
|
-
|
|
-
|
|
168,383
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before tax
|
|
(324,359)
|
|
-
|
|
112,431
|
|
(211,928)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
153,082
|
|
-
|
|
-
|
|
153,082
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
$
|
(477,441)
|
$
|
-
|
$
|
112,431
|
$
|
(365,010)
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
434,042
|
|
42,824
|
|
-
|
|
476,866
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE INCOME
|
$
|
(43,399)
|
$
|
42,824
|
$
|
112,431
|
$
|
111,856
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS PER COMMON SHARE
|
$
|
(0.01)
|
$
|
-
|
$
|
-
|
$
|
(0.01)
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
32,700,000
|
|
-
|
|
-
|
|
32,700,000
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations and Comprehensive
Income (Loss):
In
the following table, the “As Originally Filed” column corresponds to Form 10-Q for the three months ended
March
31, 2019
filed by the Company on
May 15, 2019
.
|
|
|
|
As
Originally Filed
|
|
Effect
of Restatement
|
|
Effect
of Restatement
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
5,908,517
|
$
|
-
|
$
|
-
|
$
|
5,908,517
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of revenues
|
|
2,814,543
|
|
-
|
|
-
|
|
2,814,543
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
3,093,974
|
|
-
|
|
-
|
|
3,093,974
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
EXPENSE
|
|
|
|
|
|
|
|
|
|
|
Selling and
distributions expenses
|
|
424,407
|
|
-
|
|
-
|
|
424,407
|
|
|
Administrative
expenses
|
|
2,838,959
|
|
-
|
|
(15,586)
|
|
2,823,373
|
|
Total
operating expenses
|
|
3,263,366
|
|
-
|
|
(15,586)
|
|
3,247,780
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
(169,392)
|
|
-
|
|
15,586
|
|
(153,806)
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
51,180
|
|
-
|
|
-
|
|
51,180
|
|
|
Change in fair value of marketable
securities
|
|
181,677
|
|
-
|
|
-
|
|
181,677
|
|
|
|
232,857
|
|
-
|
|
-
|
|
232,857
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
656
|
|
-
|
|
-
|
|
656
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss before tax
|
|
62,809
|
|
-
|
|
15,586
|
|
78,395
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
86,583
|
|
-
|
|
-
|
|
86,583
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
$
|
(23,774)
|
$
|
-
|
$
|
15,586
|
$
|
(8,188)
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
(181,951)
|
|
(20,027)
|
|
-
|
|
(201,978)
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE INCOME
|
$
|
(205,725)
|
$
|
(20,027)
|
$
|
15,586
|
$
|
(210,166)
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS PER COMMON SHARE
|
$
|
(0.00)
|
$
|
-
|
$
|
-
|
$
|
(0.00)
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED
|
|
|
|
|
|
|
|
|
|
|
32,700,000
|
|
-
|
|
-
|
|
32,700,000
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets:
In
the following table, the “As Originally Filed” column corresponds to Form 10-Q for the six months ended
March
31, 2019
filed by the Company on
May 15, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally Filed
|
|
Effect
of Restatement
|
|
Effect
of Restatement
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
19,638,735
|
$
|
-
|
$
|
-
|
$
|
19,638,735
|
|
|
|
|
Marketable securities
|
|
595,626
|
|
-
|
|
-
|
|
595,626
|
|
|
|
|
Short-term
loan receivable
|
|
496,211
|
|
-
|
|
-
|
|
496,211
|
|
|
|
|
Income tax recoverable
|
|
250,567
|
|
-
|
|
-
|
|
250,567
|
|
|
|
|
Prepaid
expenses
|
|
730,531
|
|
-
|
|
-
|
|
730,531
|
|
|
|
|
Inventories, net
|
|
720,462
|
|
-
|
|
-
|
|
720,462
|
|
|
|
|
Other
current assets
|
|
340,483
|
|
-
|
|
-
|
|
340,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT ASSETS
|
|
22,772,615
|
|
-
|
|
-
|
|
22,772,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant
and equipment, net
|
$
|
457,053
|
$
|
-
|
$
|
-
|
$
|
457,053
|
|
|
|
|
Other
intangible assets, net
|
|
2,248,279
|
|
-
|
|
-
|
|
2,248,279
|
|
|
|
|
Long-term prepaid
expenses
|
|
58,285
|
|
-
|
|
-
|
|
58,285
|
|
|
|
|
Long-term
loan receivable from related party
|
|
227,475
|
|
-
|
|
-
|
|
227,475
|
|
|
|
|
Deferred tax assets
|
|
294,515
|
|
-
|
|
-
|
|
294,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
NON-CURRENT ASSETS
|
|
3,285,607
|
|
-
|
|
-
|
|
3,285,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
$
|
26,058,222
|
$
|
-
|
$
|
-
|
$
|
26,058,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable,
trade
|
$
|
2,749,495
|
$
|
(1,714,182)
|
$
|
-
|
$
|
1,035,313
|
|
|
|
|
Income tax payable
|
|
153,961
|
|
-
|
|
-
|
|
153,961
|
|
|
|
|
Deposit receipt
|
|
103,236
|
|
-
|
|
-
|
|
103,236
|
|
|
|
|
Deferred income
|
|
4,987,741
|
|
-
|
|
-
|
|
4,987,741
|
|
|
|
|
Capital lease
obligations-current portion
|
|
9,566
|
|
-
|
|
-
|
|
9,566
|
|
|
|
|
Due to related
parties
|
|
480,350
|
|
-
|
|
-
|
|
480,350
|
|
|
|
|
Due to directors
|
|
339,131
|
|
-
|
|
400,479
|
|
739,610
|
|
|
|
|
Other accounts
payable
|
|
1,414,619
|
|
-
|
|
(9,984)
|
|
1,404,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
10,238,099
|
|
(1,714,182)
|
|
390,495
|
|
8,914,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
lease obligations-long term portion
|
|
42,857
|
|
-
|
|
-
|
|
42,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
10,280,956
|
|
(1,714,182)
|
|
390,495
|
|
8,957,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
($0.0001 par value, 20,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
|
|
|
none issued and
outstanding as of March 31, 2019)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
Common stock ($0.0001
par value, 500,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
|
|
|
|
32,700,000 shares
issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
as of March 31,
2019)
|
|
3,270
|
|
-
|
|
-
|
|
3,270
|
|
|
|
|
Additional paid-in
capital
|
|
261,516
|
|
-
|
|
-
|
|
261,516
|
|
|
|
|
Accumulated earnings
|
|
15,201,850
|
|
1,719,934
|
|
(390,495)
|
|
16,531,289
|
|
|
|
|
Accumulated other
comprehensive income (loss)
|
|
310,630
|
|
(5,752)
|
|
-
|
|
304,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
SHAREHOLDERS' EQUITY
|
|
15,777,266
|
|
1,714,182
|
|
(390,495)
|
|
17,100,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
26,058,222
|
$
|
-
|
$
|
-
|
$
|
26,058,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheets:
In
the following table, the “As Originally Filed” column corresponds to Form 10-Q for the year ended
September
30, 2018
filed by the Company on
May 15, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
Originally Filed
|
|
Effect
of Restatement
|
|
Effect
of Restatement
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
22,737,755
|
$
|
-
|
$
|
-
|
$
|
22,737,755
|
|
|
|
|
|
|
Marketable securities
|
|
830,331
|
|
-
|
|
-
|
|
830,331
|
|
|
|
|
|
|
Accounts
receivable, trade, net
|
|
1,032
|
|
-
|
|
-
|
|
1,032
|
|
|
|
|
|
|
Short-term loan
receivable
|
|
395,848
|
|
-
|
|
-
|
|
395,848
|
|
|
|
|
|
|
Income
tax recoverable
|
|
425,303
|
|
-
|
|
-
|
|
425,303
|
|
|
|
|
|
|
Prepaid expenses
|
|
295,510
|
|
-
|
|
-
|
|
295,510
|
|
|
|
|
|
|
Inventories,
net
|
|
380,925
|
|
-
|
|
-
|
|
380,925
|
|
|
|
|
|
|
Other current
assets
|
|
255,030
|
|
-
|
|
-
|
|
255,030
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT ASSETS
|
|
25,321,734
|
|
-
|
|
-
|
|
25,321,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
$
|
343,991
|
$
|
-
|
$
|
-
|
$
|
343,991
|
|
|
|
|
|
|
Other intangible
assets, net
|
|
3,228,655
|
|
-
|
|
-
|
|
3,228,655
|
|
|
|
|
|
|
Long-term
prepaid expenses
|
|
58,341
|
|
-
|
|
-
|
|
58,341
|
|
|
|
|
|
|
Deferred tax assets
|
|
287,157
|
|
-
|
|
-
|
|
287,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT
ASSETS
|
|
3,918,144
|
|
-
|
|
-
|
|
3,918,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
$
|
29,239,878
|
$
|
-
|
$
|
-
|
$
|
29,239,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable,
trade
|
$
|
6,243,562
|
$
|
(1,671,358)
|
$
|
-
|
$
|
4,572,204
|
|
|
|
|
|
|
Accrued
expenses
|
|
65,811
|
|
-
|
|
-
|
|
65,811
|
|
|
|
|
|
|
Deposit receipt
|
|
100,657
|
|
-
|
|
-
|
|
100,657
|
|
|
|
|
|
|
Deferred
income
|
|
4,460,652
|
|
-
|
|
-
|
|
4,460,652
|
|
|
|
|
|
|
Capital lease
obligations-current portion
|
|
9,327
|
|
-
|
|
-
|
|
9,327
|
|
|
|
|
|
|
Due
to related parties
|
|
338,725
|
|
-
|
|
-
|
|
338,725
|
|
|
|
|
|
|
Due to director
|
|
382,544
|
|
-
|
|
213,515
|
|
596,059
|
|
|
|
|
|
|
Other
accounts payable
|
|
1,452,228
|
|
-
|
|
289,411
|
|
1,741,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
13,053,506
|
|
(1,671,358)
|
|
502,926
|
|
11,885,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
note payable
|
|
483,814
|
|
-
|
|
-
|
|
483,814
|
|
|
|
|
Capital
lease obligations-long term portion
|
|
41,786
|
|
-
|
|
-
|
|
41,786
|
|
|
|
|
Long-term
deferred income
|
|
2,183
|
|
-
|
|
-
|
|
2,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
13,581,289
|
|
(1,671,358)
|
|
502,926
|
|
12,412,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
($0.0001 par value, 20,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
none issued and
outstanding as of September 30, 2018)
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
Common
stock ($0.0001 par value, 500,000,000 shares authorized,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,700,000
shares issued and outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
as
of September 30, 2018)
|
|
3,270
|
|
-
|
|
-
|
|
3,270
|
|
|
|
|
|
|
Additional paid-in
capital
|
|
99,440
|
|
-
|
|
-
|
|
99,440
|
|
|
|
|
|
|
Accumulated
earnings
|
|
15,679,291
|
|
1,719,934
|
|
(502,926)
|
|
16,896,299
|
|
|
|
|
|
|
Accumulated other
comprehensive income (loss)
|
|
(123,412)
|
|
(48,576)
|
|
-
|
|
(171,988)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
SHAREHOLDERS' EQUITY
|
|
15,658,589
|
|
1,671,358
|
|
(502,926)
|
|
16,827,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
29,239,878
|
$
|
-
|
$
|
-
|
$
|
29,239,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows
In
the following table, the “As Originally Filed” column corresponds to Form 10-Q for the six months ended
March
31, 2019
filed by the Company on
May 15, 2019
.
|
|
|
|
|
|
|
|
|
|
|
As
Originally Filed
|
|
Effect
of Restatement
|
|
Restated
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(477,441)
|
$
|
112,431
|
$
|
(365,010)
|
|
Adjustments
to reconcile net loss to net cash from (used in) operating activities:
|
|
|
|
|
|
|
|
Depreciation
of property, plant and equipment
|
|
35,540
|
|
-
|
|
35,540
|
|
Amortization
of intangible asset
|
|
483,875
|
|
-
|
|
483,875
|
|
Loss
on disposal of marketable securities
|
|
57,344
|
|
-
|
|
57,344
|
|
Change
in fair value of marketable securities
|
|
111,039
|
|
-
|
|
111,039
|
|
Changes
in operating assets and liabilities:
|
|
|
|
-
|
|
|
|
Accounts
receivable
|
|
1,059
|
|
-
|
|
1,059
|
|
Prepaid
expenses
|
|
(425,899)
|
|
-
|
|
(425,899)
|
|
Inventories
|
|
(330,118)
|
|
-
|
|
(330,118)
|
|
Long-term
loans receivable
|
|
(227,475)
|
|
-
|
|
(227,475)
|
|
Income
tax recoverable
|
|
339,594
|
|
-
|
|
339,594
|
|
Other
current assets
|
|
(208,306)
|
|
-
|
|
(208,306)
|
|
Accounts
payable
|
|
(3,648,670)
|
|
-
|
|
(3,648,670)
|
|
Accrued
expenses and other payables
|
|
13,370
|
|
(306,809)
|
|
(293,439)
|
|
Deferred
income
|
|
412,796
|
|
-
|
|
412,796
|
|
Net
cash used in operating activities
|
|
(3,863,292)
|
|
(194,378)
|
|
(4,057,670)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Proceed
from disposal of marketable securities
|
|
86,624
|
|
-
|
|
86,624
|
|
Purchase
of property, plant and equipment
|
|
(139,207)
|
|
-
|
|
(139,207)
|
|
Purchase
of intangible assets
|
|
(44,907)
|
|
-
|
|
(44,907)
|
|
Net
cash provided by investing activities
|
|
(97,490)
|
|
-
|
|
(97,490)
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Due
to director
|
|
101,321
|
|
181,493
|
|
282,814
|
|
Due
to related parties
|
|
132,945
|
|
-
|
|
132,945
|
|
Net
cash provided by financing activities
|
|
234,266
|
|
181,493
|
|
415,759
|
|
|
|
|
|
|
|
|
|
Net
effect of exchange rate changes on cash
|
|
627,496
|
|
12,885
|
|
640,381
|
|
|
|
|
|
|
|
|
|
Net
change in cash and cash Equivalents
|
$
|
(3,099,020)
|
$
|
-
|
$
|
(3,099,020)
|
|
Cash
and cash equivalents - beginning of period
|
|
22,737,755
|
|
-
|
|
22,737,755
|
|
Cash
and cash equivalents - end of period
|
$
|
19,638,735
|
$
|
-
|
$
|
19,638,735
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
Interest
paid
|
$
|
-
|
$
|
-
|
$
|
-
|
|
Income
taxes (paid) refund
|
$
|
(300,242)
|
$
|
-
|
$
|
(300,242)
|
|
|
|
|
|
|
|
|
-F5-
Table of Contents