UMEW 10-K & 10-Q changes, risk factors and insider trading
UMeWorld Inc. · OTC · Services-Prepackaged Software · CIK 1114936 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Risks Related to Our Drug Business”
New heading “Risks Related to Our Digital Media Business”
New heading “We have a short operating history in a new and unproven market, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.”
New heading “We operate in a highly competitive market and we may not be able to compete successfully against our competitors.”
New heading “The online video industry in China and user acceptance of our online video content may not grow as quickly as expected, which may adversely affect our revenues and business prospects.”
New heading “We operate in a rapidly evolving industry. If we fail to keep up with the technological developments and users’ changing requirements, our business, results of operations and prospects may be materially and adversely affected.”
New heading “If we fail to continue to anticipate user preferences and provide products and services to attract and retain users, we may not be able to generate sufficient user traffic to remain competitive.”
New heading “The success of our business depends on our ability to maintain and enhance our brand.”
New heading “Disruption or failure of our systems could impair our users’ online video experience and adversely affect our reputation.”
New heading “Undetected programming errors could adversely affect user experience and the market acceptance of our video programs, which may materially and adversely affect our business and results of operations.”
New heading “We may be exposed to intellectual property infringement and other claims, including claims based on content posted on our website, which could be time-consuming and costly to defend and may result in substantial damage awards and/or court orders that may prevent us from continuing to provide certain of our existing services.”
New heading “Regulation and censorship of information disseminated over the Internet in China may adversely affect our business and subject us to liability for information displayed on or linked to our websites.”
New heading “Other Risks Related to Our Business”
Largest changes
“Regulation and censorship of information disseminated over the Internet in China may adversely affect our business and subject us to liability for information displayed on or linked to our websites.”see in full comparison
“The online video industry in China and user acceptance of our online video content may not grow as quickly as expected, which may adversely affect our revenues and business prospects.”see in full comparison
“We may be exposed to intellectual property infringement and other claims, including claims based on content posted on our website, which could be time-consuming and costly to defend and may result in substantial damage awards and/or court orders that may prevent us from continuing to provide certain of our existing services.”see in full comparison
“We face significant competition, primarily from those companies that operate online video websites in China, which our management estimates to currently number over one hundred. A large number of independent online video sites, such as Youku.com and Tudou.com, compete against us. …”see in full comparison
“We operate in a rapidly evolving industry. If we fail to keep up with the technological developments and users’ changing requirements, our business, results of operations and prospects may be materially and adversely affected.”see in full comparison
“Undetected programming errors could adversely affect user experience and the market acceptance of our video programs, which may materially and adversely affect our business and results of operations.”see in full comparison
Full comparison: every changed paragraph (56)
Risks Related to Our Drug Business
We have incurred annual operating losses since our inception. As a result, at September 30, 2011 we had an accumulated deficit of approximately $ 19,045,635. Our revenues for the years ended September 30, 2011 and September 30, 2010 were
$183,503 and $326,345 respectively. Our revenues have not been sufficient to sustain our operations. Revenues for 2011 consisted of royalty revenues and consulting revenues and in 2010 revenues consisted of royalty revenues and consulting
revenues. In order to achieve profitability our revenue streams will have to increase and there is no assurance that revenues can increase to such a level. We may never be profitable.
The pharmaceutical business is highly competitive and is affected by new technologies, governmental regulations, health care legislation, availability of financing, litigation and other factors. Many of our competitors have longer operating histories and greater financial, research and development, marketing and other resources than we do. We are subject to competition from numerous other entities that currently operate or intend to operate in the industry. These include companies that are engaged in the development of colloidal drug delivery technologies and products as well as other manufacturers that may decide to undertake in-house development of these products. Many of the major pharmaceutical companies also have internal drug delivery programs that may compete directly with our business. Many of our competitors have more extensive experience than we have in conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products. Many competitors also have competing products that have already received regulatory approval or are in late-stage development, and may have collaborative arrangements in our target markets with leading companies and research institutions. Our competitors may develop or commercialize more effective, safer or more affordable products, or obtain more effective patent protection, than we are able to develop, commercialize or obtain. As a result, our competitors may commercialize products more rapidly or effectively than we do, which would adversely affect our competitive position, the likelihood that our products will achieve market acceptance, and our ability to generate meaningful revenues from our products.
Many of our competitors have more extensive experience than we have in conducting preclinical studies and clinical trials, obtaining regulatory approvals, and manufacturing and marketing pharmaceutical products. Many competitors also have competing
products that have already received regulatory approval or are in late-stage development, and may have collaborative arrangements in our target markets with leading companies and research institutions.
Our competitors may develop or commercialize more effective, safer or more affordable products, or obtain more effective patent protection, than we are able to develop, commercialize or obtain. As a result, our competitors may commercialize products
more rapidly or effectively than we do, which would adversely affect our competitive position, the likelihood that our products will achieve market acceptance, and our ability to generate meaningful revenues from our products.
In order to apply for a new medicine certificate, a pharmaceutical company must conduct a series of pre-clinical research including research on the synthesis technology, extraction methods, physical and chemical nature and purity, pharmaceutical forms, selection of prescriptions, manufacturing technologies, examination methods, quality indicators, stability, pharmacology, toxicology and animal pharmacokinetics of pharmaceuticals. This pre-clinical research should be conducted in compliance with the relevant technological guidelines issued by the SFDA. In particular, the safety evaluation research must be conducted in compliance with the Good Laboratory Practice. After completion of pre-clinical studies and obtaining the relevant approval from the SFDA, clinical trials are conducted in compliance with the Good Clinical Practice. Clinical trials to be conducted range from Phase I to IV, although under certain circumstances, only Phase II and III or only Phase III clinical trials are required.
After completion of pre-clinical studies and obtaining the relevant approval from the SFDA, clinical trials are conducted in compliance with the Good Clinical Practice. Clinical trials to be conducted range from Phase I to IV, although under certain
circumstances, only Phase II and III or only Phase III clinical trials are required.
Phase I — preliminary trial of clinical pharmacology and human safety evaluation studies. The primary objective is to observe the pharmacokinetics and the tolerance level of the human body to the new medicine as a basis for ascertaining the
appropriate methods of dosage.
Phase II — preliminary exploration on the therapeutic efficacy. The purpose is to assess preliminarily the efficacy and safety of pharmaceutical products on patients within the target indication of the pharmaceutical products and to provide
the basis for the design research and dosage tests for Phase III. The design and methodology of research in this phase generally adopts double-blind and random methods with limited sample sizes.
Phase III — confirm the therapeutic efficacy. The objective is to further verify the efficacy and safety of pharmaceutical products on patients within the target indication of the pharmaceutical products, to evaluate the benefits and risks and
finally to provide sufficient experimental proven evidence to support the registration application of the pharmaceutical products. In general, the trial should adopt double-blind, random methods with sufficient sample sizes.
Phase IV — stage of application with research conducted by the applicants themselves after the launch of a new pharmaceutical. The objective is to observe the efficacy and adverse reaction of pharmaceutical products under extensive use, to
perform an evaluation of the benefits and risks of the application among ordinary or special group of patients, and to ascertain and improve the appropriate dosage volume for application.
In October 2007, our Phase 2 Canadian trials evaluating Indaflex for Osteoarthritis of the knee failed to meet all of their primary endpoints. However, additional analyses demonstrated that patients with moderate to severe pain demonstrated improvements in pain outcomes compared to placebo- and vehicle-treated patients. While these improvements involved only a small subset of patients, the data were robust, showing clinically meaningful improvements. Based on the guidance from Chinese regulatory consultants, we expect to initiate a pivotal human trial for Indaflex in China in mid-2011. The trial will be known as PAIN 3. There can be no assurance the results of the PAIN 3 trial will demonstrate the product candidate is sufficiently safe and effective to obtain Chinese approval for marketing. We will incur significant additional expenses and will not know for at least one to two years whether the drug is safe and effective such that it could be approved for marketing. Clinical development is a long, expensive and uncertain process and is subject to delays. The positive or encouraging results of prior clinical trial are not necessarily indicative of the results we will obtain in later clinical trials. Accordingly, our PAIN 3 trial may not demonstrate that Indaflex is effective for Osteoarthritis. In addition, data obtained from pivotal clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.
We will incur significant additional expenses and will not know for at least one to two years whether the drug is safe and effective such that it could be approved for marketing. Clinical development is a long, expensive and uncertain process and is
subject to delays. The positive or encouraging results of prior clinical trial are not necessarily indicative of the results we will obtain in later clinical trials. Accordingly, our PAIN 3 trial may not demonstrate that Indaflex is effective for
Osteoarthritis. In addition, data obtained from pivotal clinical trials are susceptible to varying interpretations, which could delay, limit or prevent regulatory approval.
We filed applications for U.S. patents relating to proprietary drug delivery technologies and formulations that we have invented in the course of our research. To date, three U.S. patents have been issued and other applications are pending. We have also made patent application filings in selected foreign countries. We face the risk that any of our pending applications will not issue as patents. In addition, our patents may be found to be invalid or unenforceable. Our business is also subject to the risk that our issued patents will not provide us with significant competitive advantages if, for example, a competitor were to independently develop or obtain similar or superior technologies. To the extent we are unable to protect our patents and patent applications, our investment in those technologies may not yield the benefits that we expect. We also rely on trade secrets to protect our inventions. Our policy is to include confidentiality and non-disclosure obligations in all research contracts, joint development agreements and consulting relationships that provide access to our trade secrets and other know-how. However, parties with confidentiality obligations could breach their agreements causing us harm. If a confidentiality or non-disclosure obligation were to be breached, we may not have the financial resources necessary for a legal challenge. If licensees, consultants or other third parties use technological information independently developed by them or by others in the development of our products, disputes may arise from the use of this information and as to the ownership rights to products developed using this information. These disputes may not be resolved in our favour. We are not aware of infringing on any third party’s patents, nor are we aware of any third party infringing on any of our patents or patent applications.
Risks Related to Our Digital Media Business
We have a short operating history in a new and unproven market, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
We entered the online video business in August 2012 when we acquired UMeLook Holdings Limited. However, UMeLook only have a short operating history in this new and unproven market that may not develop as expected, if at all. This short operating history makes it difficult to effectively assess our future prospects. You should consider our business and prospects in light of the risks and difficulties we encounter in this rapidly evolving market.
We operate in a highly competitive market and we may not be able to compete successfully against our competitors.
We face significant competition, primarily from those companies that operate online video websites in China, which our management estimates to currently number over one hundred. A large number of independent online video sites, such as Youku.com and Tudou.com, compete against us. In addition, Chinese Internet portals, including Sina.com, Sohu.com and Baidu.com, and some of China’s major TV networks, such as China Central Television, or CCTV, Phoenix Satellite TV and Hunan Satellite TV, which have longer operating histories and more experience in attracting and retaining users and managing customers than we do, have launched their own video businesses. We also face competition from Internet video streaming platforms based on the P2P technology, such as PPS and PPTV. We compete with these companies for users and advertisers. Our competitors may compete with us in a variety of ways, including by conducting brand promotions and other marketing activities and making acquisitions. In addition, certain online video websites may continue to derive their revenues from providing content that infringes third-party copyright and may not monitor their websites for any such infringing content. As a result, we may be placed at a disadvantage to some of these websites that do not incur similar costs as we do with respect to content monitoring. Some of our competitors have a longer operating history and significantly greater financial resources than we do, and in turn may be able to attract and retain more users and advertisers. If any of our competitors achieves greater market acceptance than we do or is able to offer more attractive online video content, our user traffic may decrease and our market share may decrease, which may result in a loss of advertisers and have a material and adverse effect on our business, financial condition and results of operations.
In addition, Internet streaming of content represents only one of many existing and potential new technologies for viewing video. Many users maintain simultaneous relationships with multiple video providers and can easily shift from one provider to another. For example, users may subscribe to cable, buy a DVD, and download a movie from Apple iTunes or other sources, or some combination thereof. New competitors may be able to launch new businesses at a relatively low cost.
We also face competition from other types of advertising media, such as newspapers, magazines, yellow pages, billboards and other forms of outdoor media, television and radio. Most large companies in China allocate, and will likely continue to allocate, most of their marketing budgets to traditional advertising media and only a small portion of their budgets to online marketing and other forms of advertising media. If these companies do not devote a larger portion of their marketing budgets to online marketing services provided by our online video business, or if our existing customers reduce the amount they spend on online marketing, our results of operations and future growth prospects could be adversely affected.
The online video industry in China and user acceptance of our online video content may not grow as quickly as expected, which may adversely affect our revenues and business prospects.
Our business prospects depend on the continuing development of the online video industry in China. As an emerging industry, China’s online video industry has experienced substantial growth in recent years in terms of both users and content. We cannot assure you, however, that the online video industry will continue to grow as rapidly as it has in the past. With the development of technology, new forms of media may emerge and render online video websites less attractive to users. Growth of the online video industry is affected by numerous factors, such as users’ general online video experience, technological innovations, development of Internet and Internet-based services, regulatory changes, especially regulations affecting copyrights, and the macroeconomic environment. If the online video industry in China does not grow as quickly as expected or if we fail to benefit from such growth by successfully implementing our business strategies, our user traffic may decrease and our business and prospects may be adversely affected.
We operate in a rapidly evolving industry. If we fail to keep up with the technological developments and users’ changing requirements, our business, results of operations and prospects may be materially and adversely affected.
The online video industry is rapidly evolving and subject to continuous technological changes and changes in industry standards. Our success will depend on our ability to keep up with the changes in technology and user behavior resulting from the technological developments. For example, the development of broadband enabled the enjoyment of high definition videos online. In addition, the number of people accessing the Internet via devices other than personal computers, including mobile phones and other hand-held devices, has increased in recent years. With the introduction of 3G mobile services by all three mobile carriers in China in 2009, we expect this trend to continue. If we do not adapt our products and services to such changes in an effective and timely manner, we may suffer from a decreased user traffic, which may result in a reduced number of advertisers using our online advertising services. Furthermore, changes in technologies may require substantial capital expenditures in product development as well as in modification of products, services or infrastructure. Failure in keeping up with technological development may result in our products and services being less attractive, which in turn, may materially and adversely affect our business, results of operations and prospects.
If we fail to continue to anticipate user preferences and provide products and services to attract and retain users, we may not be able to generate sufficient user traffic to remain competitive.
Our success depends on our ability to generate sufficient user traffic through provision of attractive products and services. To attract and retain users and compete against our competitors, we must continue to offer high-quality content that provides our users with a satisfactory online video experience. To this end, we must continue to produce new in-house content and encourage more UGC, while balancing the value of each type of content to our advertising services. For example, with UGC, users can upload and share their own videos and spend a longer time on our website, and a “community-like” environment enhances users’ loyalty to our website and such network effect broadens advertisers’ reach of audience; and with our in-house productions, we tailor such content to users’ preferences based on our industry experience and combine these productions with targeted advertising services such as product placements, which benefits both the users and our advertisers.
Based on the feedback on our website design and our statistics regarding users’ watching behavior, we keep developing new website features that appeal to users, such as designing more user-friendly content searching tools, creating additional interactive social functions or offering better website compatibility with new Internet-enabled devices. We need to continuously anticipate user preferences and industry changes and respond to such changes in a timely and effective manner. If we fail to cater to the needs and preferences of our users and, as a result, fail to deliver satisfactory user experience, we may suffer from reduced user traffic and our business and results of operations may be materially and adversely affected.
The success of our business depends on our ability to maintain and enhance our brand.
We believe that maintaining and enhancing our UMeLook brand is of significant importance to the success of our business. Since the online video market is highly competitive, a well-recognized brand is critical to increasing our user base and, in turn, enhancing our attractiveness to advertisers. We believe that the importance of brand recognition will increase as the number of Internet users in China grows. In order to attract and retain Internet users and advertisers, we may need to substantially increase our expenditures for creating and maintaining brand loyalty. Our success in promoting and enhancing our brand, as well as our ability to remain competitive, will also depend on our success in offering high-quality content, features and functionality. If we fail to promote our brand successfully or if visitors to our website or advertisers do not perceive our content and services to be of high quality, we may not be able to continue growing our business and attracting users and advertisers.
Disruption or failure of our systems could impair our users’ online video experience and adversely affect our reputation.
Our ability to provide users with a high-quality online video experience depends on the continuous and reliable operation of our systems. We cannot assure you that we will be able to procure sufficient bandwidth in a timely manner or on acceptable terms or at all. Failure to do so may significantly impair user experience on our website and decrease the overall effectiveness of our website to both users and advertisers. Disruptions, failures, unscheduled service interruptions or a decrease in connection speeds could hurt user experience and our reputation, causing our users and advertisers to switch to our competitors’ websites. Our systems and video content delivery network, or CDN, are vulnerable to damage or interruption as a result of fires, floods, earthquakes, power losses, telecommunications failures, undetected errors in software, computer viruses, hacking and other attempts to harm our systems.. Since we host our servers at third-party Internet data centers, any natural disaster or unexpected closure of Internet data centers operated by third-party providers may result in lengthy service interruptions. If we experience frequent or persistent service disruptions, whether caused by failures of our own systems or those of third-party service providers, our users’ experience may be negatively affected, which in turn, may have a material and adverse effect on our reputation. We cannot assure you that we will be successful in minimizing the frequency or duration of service interruptions
Undetected programming errors could adversely affect user experience and the market acceptance of our video programs, which may materially and adversely affect our business and results of operations.
The video programs on our website may contain programming errors that may only become apparent after their release. We receive user feedback in connection with programming errors affecting their user experience from time to time, and such errors may also come to our attention during our monitoring process. We generally have been able to resolve such programming errors in a timely manner. However, we cannot assure you that we will be able to detect and resolve all these programming errors effectively. Undetected audio or video programming errors or defects may adversely affect user experience and cause our advertisers to reduce their use of our services, any of which could materially and adversely affect our business and results of operations.
We may be exposed to intellectual property infringement and other claims, including claims based on content posted on our website, which could be time-consuming and costly to defend and may result in substantial damage awards and/or court orders that may prevent us from continuing to provide certain of our existing services.
Our success depends, in large part, on our ability to operate our business without infringing third-party rights, including third-party intellectual property rights. Internet companies, technology and media industries own, and are seeking to obtain, a large number of patents, copyrights, trademarks and trade secrets, and they are frequently involved in litigation based on allegations of infringement or other violations of intellectual property rights or other related legal rights. There may be patents issued or pending that are held by others that cover significant aspects of our technologies, products, business methods or services. We may be subject to claims for defamation, negligence, infringement of third-party copyright and other rights, such as privacy and image rights, or other claims based on the nature or content of videos or our users on our websites. Such claims, with or without merit, may cause us to incur significant costs and liabilities and could materially and adversely affect our business, and also result in diversion of the attention of our management and our financial resources and negative publicity on our brand and reputation. In addition, third parties may make claims against us for losses incurred in reliance on the information on our websites. We do not carry any liability insurance covering such risks. Due to the significant number of videos uploaded by users, we may not be able to identify all content that may infringe on third-party rights. Thus, our failure to identify unauthorized videos posted on our website may subject us to, and may continue to subject us to, claims of infringement on third-party intellectual property rights or other rights.
Regulation and censorship of information disseminated over the Internet in China may adversely affect our business and subject us to liability for information displayed on or linked to our websites.
The PRC government has adopted regulations governing Internet access and the distribution of news and other information over the Internet. Under these regulations, Internet content providers and Internet publishers are prohibited from posting or displaying over the Internet content that, among other things, violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Furthermore, Internet content providers are also prohibited from displaying content that may be deemed by relevant government authorities as “socially destabilizing” or leaking “state secrets” of the PRC. Failure to comply with such requirements has resulted in the closure of certain websites.
Although we attempt to monitor the content in our websites, we are not able to control or restrict the content of other Internet content providers linked to or accessible through our websites, or content generated or placed on our websites by our users. To the extent that PRC regulatory authorities find any content displayed on our websites objectionable, they may require us to limit or eliminate the dissemination of such information on our websites. If third-party websites linked to or accessible through our website operate unlawful activities such as online gambling on their websites, PRC regulatory authorities may require us to report such unlawful activities to relevant authorities and to remove the links to such websites, or they may suspend or shut down the operation of such websites. PRC regulatory authorities may also temporarily block access to certain websites for a period of time for reasons beyond our control. Any of these actions may reduce our user traffic and adversely affect our business.
Other Risks Related to Our Business
We have incurred annual operating losses since our inception. As a result, at September 30, 2012 we had an accumulated gain of approximately $ 19,604,325. Our revenues for the years ended September 30, 2012 and September 30, 2011 were $411,129 and $183,503 respectively. Our revenues have not been sufficient to sustain our operations. Revenues for 2012 consisted of royalty revenues, gain from disposal of fixed assets, forgo of salary from Chief Executive Officer, legal settlement, and interest income, and in 2011 revenues consisted of royalty revenues and consulting revenues. In order to achieve profitability our revenue streams will have to increase and there is no assurance that revenues can increase to such a level. We may never be profitable. Our ability to achieve profitability is affected by various factors, including:
Many of these factors are beyond our control. We may continue to incur net losses in the future due to our continued investments in content, bandwidth and technology. If we cannot successfully offset our increased costs with an increase in net revenues, our gross margin, financial condition and results of operations could be materially and adversely affected. We may also continue to incur net losses in the future due to changes in the macroeconomic and regulatory environment, competitive dynamics and our inability to respond to these changes in a timely and effective manner.
Section 404 of the Sarbanes-Oxley Act of 2002 requires companies to conduct a comprehensive evaluation of their disclosure controls & procedures and internal control over financial reporting. At the end of each fiscal year, we must perform an evaluation of our disclosure controls & procedures and internal control over financial reporting, include in our annual report the results of the evaluation, and have our external auditors publicly attest to such evaluation. If material weaknesses were found in our disclosure controls & procedures and internal controls in the future, if we fail to complete future evaluations on time, or if our external auditors cannot attest to our future evaluations, we could fail to meet our regulatory reporting requirements and be subject to regulatory scrutiny and a loss of public confidence in our disclosure and internal controls, which could have an adverse effect on our stock price. In connection with management’s assessment of the Company’s disclosure controls & procedures and internal control over financial reporting, we identified the following material weakness in our disclosure controls & procedures and internal control over financial reporting as of September 30, 2012:
In connection with management’s assessment of the Company’s
disclosure controls & procedures and internal control over financial
reporting, we identified the following material weakness in our disclosure
controls & procedures and internal control over financial reporting as of
September 30, 2011:
The majority of our expenses and some of our debt are in
Canadian dollars, while our revenues are primarily U.S. dollars. We also incur
expenses in Hong Kong dollarsdollar and Chinese Yuan related to our Far East subsidiaries. The
fluctuation of the Canadian dollar anddollar, Hong Kong dollar and Chinese Yuan vis a vis the U.S.
dollar could materially impact our operating results and financial position.
We may be unable to raise on acceptable terms, if at all, the
substantial capital resources necessary to conduct our operations. If we are
unable to raise the required capital, we may be forced to limit some or all of
our research and development programs and related operations, curtail
commercialization of our product candidates and, ultimately, cease operations.
Our future capital requirements will depend on many factors, including:
We may be unable to raise on acceptable terms, if at all, the substantial capital resources necessary to conduct our operations. If we are unable to raise the required capital, we may be forced to curtail business development activities and, ultimately, cease operations. At September 30, 2011,2012, we had a working capital deficiencyof of
approximately $1,286,815$19,025,583 as compared to a working capital deficiency of
$1,146,910 $1,286,815 as at September 30, 2010.2011. The independent auditors’auditors' report for the
year ended September 30, 20112012 includes an explanatory paragraph stating that our
recurring losses from operations and working capital levels raise substantial
doubt about our ability to continue as a going concern.
We believe that satisfying our long-term capital requirements
will require at least the successful commercialization of one of our
over-the-counter health care products or one of our prescription drug
candidates. Our products may never become commercially successful.
We filed applications for U.S. patents relating to proprietary drug delivery technologies and formulations that we have invented in the course of our research. To date, three U.S. patents have been issued and other applications are pending. We have
also made patent application filings in selected foreign countries. We face the risk that any of our pending applications will not issue as patents. In addition, our patents may be found to be invalid or unenforceable. Our business is also subject
to the risk that our issued patents will not provide us with significant competitive advantages if, for example, a competitor were to independently develop or obtain similar or superior technologies. To the extent we are unable to protect our
patents and patent applications, our investment in those technologies may not yield the benefits that we expect.
We also rely on trade secrets to protect our inventions. Our policy is to include confidentiality and non-disclosure obligations in all research contracts, joint development agreements and consulting relationships that provide access to our trade
secrets and other know-how. However, parties with confidentiality obligations could breach their agreements causing us harm. If a confidentiality or non-disclosure obligation were to be breached, we may not have the financial resources necessary for
a legal challenge. If licensees, consultants or other third parties use technological information independently developed by them or by others in the development of our products, disputes may arise from the use of this information and as to the
ownership rights to products developed using this information. These disputes may not be resolved in our favour.
We are not aware of infringing on any third party’s patents, nor are we aware of any third party infringing on any of our patents or patent applications.
Because of the specialized scientific nature of our business, we are highly dependent upon qualified scientific, technical, and managerial and marketing personnel. There is competition for qualified personnel in our business. Therefore, we may not be able to attract and retain the qualified personnel necessary for the development of our business. The loss of the services of existing personnel, as well as the failure to recruit additional key scientific, technical, and managerial personnel in a timely manner would harm our research and development programs and our business.
Our Common Stock is traded on the OTC Bulletin Board. As a result, the holders of our Common Stock may find it more difficult to obtain accurate quotations concerning the market value of the stock. Stockholders also may experience greater difficulties in attempting to sell the stock than if it was listed on a stock exchange or quoted on the Nasdaq National Market or the Nasdaq Small-Cap Market. Because AlphaRx Common Stock is not traded on a stock exchange or on Nasdaq, and the market price of the Common Stock is less than $5.00 per share, the Common Stock is classified as a "penny stock." Rule 15g-9 of the Securities Exchange Act of 1934 imposes additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as an "established customer" or an "accredited investor." This includes the requirement that a broker-dealer must make a determination that investments in penny stocks are suitable for the customer and must make special disclosures to the customer concerning the risks of penny stocks. Application of the penny stock rules to our Common Stock could adversely affect the market liquidity of the shares, which in turn may affect the ability of holders of our Common Stock to resell the stock. We have a significant number of options and warrants outstanding that could be exercised in the future. Subsequent resales of these and other shares could cause the Company’s stock price to decline. This could also make it more difficult to raise funds at acceptable levels, via future securities offerings.
We have a significant number of options and warrants outstanding that could be exercised in the future. Subsequent resales of these and other shares could cause the Company’s stock price to decline. This could also make it more difficult to
raise funds at acceptable levels, via future securities offerings.
The present officers and directors own approximately 5.98% of the outstanding shares of Common Stock, and are therefore no longer in a position to elect all of our Directors and otherwise control the Company. As of September 30, 2012, Vago International Limited controlled by Yee Chu beneficially owned approximately 62.90% of our outstanding capital stock. Chu therefore has significant influence over management and affairs and over all matters requiring stockholder approval, including the election of directors and significant corporate transactions, such as a merger or other sale of our company or our assets, for the foreseeable future. This concentrated control limits or severely restricts our stockholders’ ability to influence corporate matters and, as a result, we may take actions that our stockholders do not view as beneficial. As a result, the market price of our common stock could be adversely affected.
The present officers and directors own approximately 27.75% of the outstanding shares of Common Stock, and are therefore no longer in a position to elect all of our Directors and otherwise control the Company. Any single shareholder or the
management group as a whole can no longer control the Company. Stockholders have no cumulative voting rights. (See Security Ownership of Certain Beneficial Owners and Management)
Management's Discussion & Analysis (MD&A)
New heading “Drug Development Operation”
New heading “Digital Media Operation”
New heading “Mobile Platform”
New heading “UGC (User-Generated Content)”
New heading “In-house Developed Content”
Removed heading “Principal products”
Largest changes
“The online video industry in China is rapidly evolving and highly competitive. We believe the key competitive factors in the online video industry in China include brand recognition, demographic composition of users, robust technology platform, ability to acquire popular premium licensed content at a reasonable cost and create differentiated content in-house, ability to source creative UGC, ability to provide innovative advertising services to customers, relationships with advertising customers, advertising prices, as well as the range of services provided to advertising customers. …”see in full comparison
“Our objective is to establish our company as not only a leading foreign video content provider but also a leading foreign media company in China. We intend to apply for the “License for Audio-Visual Programs of Information Online Communication” with the State Administration. Upon approval we will be able to offer our viewers in-house produced coverage on significant international events such as the Japan earthquake, the passing of Steve Jobs, the Libya conflict and the UK royal wedding. …”see in full comparison
Full comparison: every changed paragraph (66)
AlphaRx Inc., formerly known as Logic Tech International Inc., was incorporated in Delaware on August 8, 1997 as an intellectual property holding company whose mission was to identify, acquire and develop new technologies or products and devise
commercial applications to be taken to market through licensing or joint venture partners. Logic Tech International Inc. was renamed AlphaRx Inc. on January 28, 2000 and our Common Stock commenced trading on the OTC Pink Sheets under the symbol
"AHRX" on July 25, 2000. On October 12, 2000 AlphaRx Inc. Common Stock ceased trading on the Pink Sheets and began trading on the Over The Counter Bulletin Board (“OTCBB”) under the same symbol. Subsequent to March 19, 2002 AlphaRx
Inc.’s symbol was changed to “ALRX” after a consolidation of its Common Stock on a 1 new for 5 old basis. All references to AlphaRx Inc. Common Stock have been retroactively restated.
On April 20, 2012, the Company effected a consolidation of its share capital on the ratio of one new share for five old shares and began trading on a split-adjusted basis on May 29, 2012. On July 23, 2012 AlphaRx Inc. Common Stock ceased trading on the OTCBB and began trading on the OTCQB Marketplace under the same symbol “ALRX” on account of its ineligibility for quotation on OTCBB due to quoting inactivity under SEC Rule 15c2-11. All references to AlphaRx Inc. Common Stock have been retroactively restated.
AlphaRx is a specialty pharmaceutical company dedicated to developing therapies to treat and manage pain. Prior to July,November, 2011, the business of the Company was focused on reformulating FDA approved and marketed drugs using its proprietary
site-specific nano drug delivery technology. From 2000 until June 2011, substantial efforts and resources were devoted to understanding our nano drug delivery technology and establishing a product development pipeline that incorporated this
technology with selected molecules. On July, 2011 the Board and management adopted a new business plan and believed that it believed would improve the Company’s performance. The new business plan narrowed down the Company’s focus to developing
and commercializing 2 existing product candidates Indaflex and ARX 8203 for the pain killermarket. marketOn segment.November 4, 2011 the Company adopted a new corporate development strategy that expanded the business operation of the Company to digital media with an intense focus on China. On August 30, 2012, the Company acquired all of the issued and outstanding shares of UMeLook Holdings Limited (“UMeLook”), a digital media startup with an intense focus on China. The acquisition of UMeLook was completed as a share exchange through the issuance of 70,000,000 common shares of AlphaRx Inc. to the shareholders of UMeLook at a deemed price of $0.30 per share in exchange for all of the issued and outstanding shares in the capital of UMeLook.
RecentBusiness DevelopmentsDevelopment
Drug Development Operation
Principal products
ARX-8203 is a prodrug of a well-known non-steroidal anti-inflammatory drug, designed to reduce the occurrence of side- effects associated with the parent drug. ARX-8203 is pH neutral and has significantly less GI toxicity than diclofenac in a 28
days GI animal study. ARX-8203 demonstrates excellent G.I. safety profile in acute GLP toxicity studies and can be administrated orally or via intravenous infusion or IV bolus injection.
OverARX-8203 is a prodrug of a well-known non-steroidal anti-inflammatory drug, designed to reduce the lastoccurrence 12of monthsside- weeffects haveassociated madewith significantthe progressparent drug. ARX-8203 is pH neutral and has significantly less GI toxicity than diclofenac in movinga ARX820328 towarddays clinicalGI application.animal Sufficientstudy. amountARX-8203 ofdemonstrates ARX8203excellent isG.I. beingsafety synthesizedprofile forin theacute plannedGLP clinicaltoxicity trial.studies and can be administrated orally or via intravenous infusion or IV bolus injection. The Company is planningseeking a development partner to conduct a POC (Proof of Concept)
human trial as soon as practicable,practicable. anticipating that the POC human trials will enroll 90 patients in 3 arms (ARX8203 vs. comparator), whereby the primary endpoint will be safety (cumulative incidence of gastric ulcers) as assessed by endoscopy.
With an estimated 15 million Americans taking prescription NSAIDs for arthritis, and an estimated 68 million prescriptions a year being written for these products, according to the FDA, the market for NSAIDs is strong. Prolonged use of NSAID’s
has been associated with a high incidence of gastro-intestinal ulcers. There will be a robust market for new drugs without the serious G.I. side-effects which prolonged use of current NSAID’s risk.
AlphaRx owns all the regulatory licenses for Indaflex and ARX-8203. Our primary strategy is to establish collaborative relationships with pharmaceutical companies to develop our products. The products will be jointly developed, with the collaborative partner having primary responsibility to clinically test, manufacture, market and sell the product, and we retain ownership of our products.
Digital Media Operation
On August 30, 2012, the Company acquired all of the issued and outstanding shares of UMeLook Holdings Limited (“UMeLook”), a digital media startup with an intense focus on China. UMeLook is an early stage online video company focuses on providing unique foreign video content to Chinese viewers. Our mission is to become the primary source of foreign video content for the Chinese population across any Internet-enabled device. Our video content is delivered to viewers in China and USA via a sophisticated CDN comprised of over 11,400 servers which provide fast streaming and upload speed. CDN technology utilizes additional data storage to maintain copies of popular content at the “edge” of the Internet, which enables end-users to more quickly access that content. Our CDN facilitates faster responses to users’ requests for content, avoids buffering and associated delays caused by low bandwidth and user congestion, and is therefore critical to the success of our online video business in China where bandwidth is still limited.
Our online video business focuses on UGC and we seek to be a strategically focused company with focuses on providing unique foreign video content and personalized users’ experience. We provide a comprehensive selection of unique and differentiated UGC and in-house developed content on our websites. Our broad selection of online video content includes informational, fashion & life, music videos, education, travel, sports, technology, games, auto & creative and sub-channels such as news, beauty & health and etc. We provide an online platform that allows users to share comments on videos, ensuring that our users enjoy a highly engaging and interactive experience on our websites. We believe a volume of high-quality and differentiated content available on our website will allow us to establish a valuable user base in China, consisting primarily of young urban educated users between the ages of 18 and 44, a particularly attractive demographic to advertisers.
We intend to derive substantially all of our revenues from online advertising services primarily using performance advertising. Our advertising solutions intend to present advertisers with a complete range of advertisement creation, matching, placement and presentation. Our online advertising services will include in-video, display, sponsorship and other forms. Due to PRC legal restrictions on foreign ownership and investment in value-added telecommunications services and advertising businesses in China, we intend to operate our business primarily through our consolidated affiliated entities in China. We will not hold equity interests in our consolidated affiliated entities. However, through a series of contractual arrangements with these consolidated affiliated entities and their respective shareholders, we will effectively control, and will be able to derive substantially all of the economic benefits from, these consolidated affiliated entities.
Our Video Platform
Our Website
Users can access our website for short-form videos, including hot news and reports, first-hand information and entertainment videos, which can be in-house produced or provided by users or our content partners. Our website has a series of user-friendly functions such as search tools and recommendations. We also help users navigate our database and find videos of interest by creating popularity ranking indices and interest-based video channels. We provide social features, such as community web pages and video sharing and commenting tools. Users may create a playlist based on their preferences so that the requested video will be broadcast continuously. Registered visitors may upload video clips easily to our website and comment on each video clip to share their opinions. We believe all these features help provide an enhanced user experience and reinforce user loyalty. In addition, users can download and install our proprietary application on their tablets or 3G mobile phones, which allows users to use one-step mobile application to shoot and upload video clips.
Mobile Platform
Users can use their 3G mobile phones to watch a large number of videos on Umelook.com. We are also developing applications for a variety of major 3G mobile phones.
Our Content
UGC (User-Generated Content)
Our website allows Internet users to easily upload, watch and share UGC video clips. Our editorial team is responsible for communicating with users on the types of UGC we believe are popular and well demanded. In order to encourage more users to upload UGC to our website, we intend to purchase the licensing rights to some popular UGC, and will share advertising revenues with individual users whose number of uploads exceed certain threshold. We intend to establish a revenues sharing program to target three types of users: contracted users, certified original content providers and general uploading users. We will reward each type of users in accordance with different revenues sharing criteria. For example, we may pay contracted users certain fees based on the popularity of their videos and also a percentage of revenues based on the total video views as quarterly bonus. The quarterly bonus for a contracted user may range from US$150 to US$1,000 if its videos are viewed on our website for more than one million times.
In-house Developed Content
Our objective is to establish our company as not only a leading foreign video content provider but also a leading foreign media company in China. We intend to apply for the “License for Audio-Visual Programs of Information Online Communication” with the State Administration. Upon approval we will be able to offer our viewers in-house produced coverage on significant international events such as the Japan earthquake, the passing of Steve Jobs, the Libya conflict and the UK royal wedding. We may also provide in-house produced online talk shows, celebrity interviews and reality shows to our viewers. We will determine the types of content to be produced generally based on our assessment of users’ preferences and information gathered by us from analyzing user data collected through our video platform. We will cooperate with third parties engaged in in-house production, taking advantage of talents of local production teams and their relatively low production costs. We believe the success of in-house developed programs will further differentiate us from our competitors.
Our Users
We are targeting our unique foreign content to young urban educated users, between ages 18 and 44, which is a particularly attractive demographic to advertisers.
Online viewers in China also represent a more affluent and better-educated segment of the population in China. We intend to track and maintain extensive user data, including viewing history and information voluntarily provided by registered users. We intend to use sophisticated statistical tools to analyze user data, to better understand users’ viewing preference and habits. This will greatly facilitate our efforts in providing service to our advertising customers.
Advertising Services and Customers
We intend to derive substantially all of our revenues from online advertising services primarily using performance advertising. By using the Application Advertisement, or AA, system, our advertising solutions intend to provide advertisers with attractive opportunities to combine the visual impact and engagement of traditional television-like multimedia advertisements with interactivity and precise targeting capabilities of the Internet.
Marketing and Brand Promotion
We intend to build our brand with modest marketing expenditures. We will grow primarily through word-of mouth. We focus on continuously improving the quality of our products and services as we believe satisfied users and customers are more likely to recommend our products and services to others. We have initiated various marketing activities to further promote our brand awareness among existing and potential users and customers, which include:
• Online Advertising. We engage in online advertising on other websites with user bases similar to our own or likely to watch online videos.
• Promotional Events. We organize and run a number of online promotional events which we believe help create brand awareness by associating the UMeLook brand with well-known and respected organizations and events in China.
Intellectual Property
We rely primarily on intellectual property laws and our contractual arrangements with our employees, clients, business partners and others to protect our intellectual property rights. We require our employees to enter into agreements requiring them to keep confidential all information relating to our customers, methods, business and trade secrets during and after their employment with us. Our employees are required to acknowledge and recognize that all inventions, trade secrets, works of authorship, developments and other processes, whether or not patentable or copyrightable, made by them during their employment are our property. They also sign agreements to substantiate our sole and exclusive right to those works and to transfer any ownership that they may claim in those works to us. We have registered our domain names, including ku6.com, juchang.com and juchang.cn.
Competition
The online video industry in China is rapidly evolving and highly competitive. We believe the key competitive factors in the online video industry in China include brand recognition, demographic composition of users, robust technology platform, ability to acquire popular premium licensed content at a reasonable cost and create differentiated content in-house, ability to source creative UGC, ability to provide innovative advertising services to customers, relationships with advertising customers, advertising prices, as well as the range of services provided to advertising customers. We face competition from other major online video companies. Among the independent or “pure-play” online video sites, our major competitors in China include Youku.com and Tudou.com. Several large Chinese Internet companies, such as SINA Corporation, Baidu, Inc., Sohu.com Inc., Tencent Holdings Limited, NetEase.com, Inc. and/or their affiliates, have launched online video websites. In addition, some of China’s TV networks, such as CCTV, Phoenix Satellite TV and Hunan Satellite TV, have launched their own video broadcasting websites. We also face competition from Internet video streaming platforms based on the P2P technology, such as PPS and PPTV. Certain international online video sites, such as YouTube and Hulu, have large content portfolios and high brand recognition, particularly among users outside China. Currently, YouTube is not accessible by viewers in China. If China lifts the restrictions, YouTube may become our major competitor in China.
We also compete with traditional advertising media, such as television, radio, newspapers and magazines, and major out-of-home media, such as billboards, for advertisers’ advertising budgets. Large enterprises currently spend a relatively small percentage of their advertising budgets on online advertising as compared to the percentage they spend on traditional advertising media, but we expect the percentage spent on online advertising to increase in the future.
Seasonality
We experience seasonality in our online advertising business. Historically, in the China market, the fourth calendar quarter represents the best season for the general advertising market. This is followed by the third and second calendar quarters. The first calendar quarter is usually the worst season in China due to the Chinese New Year holidays.
We intend to perform the regulatory filings with FDA and AlphaRx owns all the regulatory licenses for Indaflex and ARX-8203. However, we may manufacture these two products under subcontract arrangements with external manufacturers that carry the
appropriate regulatory licenses and have appropriate capabilities. The Company intends to distribute these drugs via subcontracts with distributor companies or in partnership arrangements. The Company plans to market these drugs either on its own or
in conjunction with marketing partners. The Company also plans to actively pursue co-development, as well as other licensing agreements with other Pharmaceutical companies. Such agreements may entail up-front payments, milestone payments, royalties,
and/or cost sharing, profit sharing and many other instruments that may bring early revenues to the Company. Such licensing and/or co-development agreements may shape the manufacturing and development options that the company may pursue.
We estimate that we will need approximately an additional $5M to $10M over the next 18 months for further development of our drugdigital pipeline.media business. These additional funds, if raised, will enablebe us to perform IND enabling Toxicology Package Studies
and additional efficacy studies necessary to prepare the full dataset requiredused for filinggeneral Investigationalworking Newcapital, Drug Application (“IND”) with the US FDA on our drug candidatesmarketing and tobrand conduct clinical trials thereafter.promotion.
The Company has limited experience with pharmaceuticaldigital drugmedia business development. Thus, our budget estimates are not based on experience, but rather based on advice given by our associates and consultants. As such these budget estimates may not be accurate.
In addition, the actual work to be performed is not known at this time, other than a broad outline, as is normal with any scientific work. As further work is performed, additional work may become necessary or change in plans or workload may occur.
Such changes may have an adverse impact on our estimated budget. Such changes may also have an adverse impact on our projected timeline of drug development.
The Company does not maintain separate accounting line items
for each project in development. The Company maintains aggregate expense records
for all research and development conducted. Because at this time all of the
Company’s projects share a common core material, the Company allocates expenses
across all projects at each period-end for purposes of providing accounting
basis for each project. Project costs are allocated based upon labor hours
performed for each project.
The Company has signed several cooperative research and
development agreements with different agencies and institutions.
The Company does not maintain separate accounting line items for each project in development. The Company maintains aggregate expense records for all research and development conducted. Because at this time all of the Company’s projects share a common core material, the Company allocates expenses across all projects at each period-end for purposes of providing accounting basis for each project. Project costs are allocated based upon labor hours performed for each project. The Company expects to enter into additionalcooperative cooperative
agreements with other governmental and non-governmental, academic, or
commercial, agencies, institutions, and companies. There can be no assurance
that a final agreement may be achieved and that the Company will execute any of
these agreements. However, should any of these agreements materialize, the
Company will implement a system to track these costs by project and account for
these projects as customer-sponsored activities and show these project costs
separately.
Revenues totaled $183,503$166,803 for the year ended September 30, 2011
2012 as compared to $326,345$183,503 generated for the year ended September 30, 2010,2011, a
decrease of $142,842$16,700 or about 43.77% .9.1%. Royalties from Indaflex sales in Mexico
decreased increased to
$158,166 $166,803 from $242,309$158,166 generated for the same period a year ago based on aan decreasedincrease in the minimum royalty payment compared to previous year. We also generated $25,337$10,637 in consulting revenues related to product research on behalfselling of one
ofR our& customersD during the year ended September 30, 2011 as compared to $84,036 generatedEquipment for the year ended September 30, 2010, a decrease of $58,699 or about 69.85% .2012. We anticipate generating both royalty revenues and consulting revenues
in the new fiscal year.
General and administrative expenses were $374,676$404,791 for the year ended September 30, 20112012 as compared to $795,416$374,676 incurred for the same period a year ago, aan decreaseincrease of $420,740$30,115 or about 52.90% .8%.
Stock based compensation was $26,540$6,558 for the year ended September 30, 20112012 as compared to $262,090$26,540 in 2010,2011, a decrease of $235,550$19,982 or about 89.87% .75.3%. There are no further amounts remaining to be amortized related to warrants or options as
at September 30, 2011.2012. We anticipate issuance of additional options and warrants in the future, which may result in stock based compensation expense and warrant amortization expense.
General and administrative salary and consulting fees totalledtotaled $192,000$66,000 for the year ended September 30, 20112012 as compared to $174,073$192,000 incurred for the same period a year ago, ana increasedecrease of $17,927$126,000 or about 10.30% .65.6%. Head count in the
general and administrative category with 21 full time and 1 part time staff.
We incurred $10,480$9,366 in investor relations expenses for the year ended September 30, 20112012 as compared to $6,777$10,480 incurred in the same period a year ago, ana increasedecrease of $3,703$1,114 or about 54.64% .10.6%.
We realized a foreign exchange gainloss of $30,440$69,455 for the year ended September 30, 20112012 as compared to a foreign exchange lossgain of $27,408$30,440 generated during the same period a year ago, ana increasedecrease of $57,848$99,895 between years.
We incurred travel expenses of $60,854$73,257 for the year ended September 30, 20112012 as compared to $67,037$60,854 incurred during the same period a year ago, aan decreaseincrease of $6,183$12,403 or about 9.20% .20.4%. Increased travel particularly to China because of the
expansion to china market.
Research and development expenses typically include costs for scientific personnel, supplies, equipment, outsourced clinical and other research activities, consultants, and other costs directly related to research and development of new and existing products.
We arehave been incurring research and development expenses in Canada via our wholly owned subsidiary AlphaRx Canada Ltd. and to a lesser degree in China.
Research and development staff costs and external consulting services totalledtotaled $9,902$0 for the year ended September 30, 20112012 as compared to $86,822,$9,902, a decrease of $76,920$9,902 or about 88.59% .100%. Salary reductions and reduced external consulting
services served to reduce this expense when compared to prior year.
Finally equipment leasing for research and development activities totalledtotaled $352$0 during the year ended September 30, 20112012 as compared to $2,194,$352 a reduction of $1,842$352 or about 83.96% .100%. All equipment leases have come to the end of their
lease term during the year ended September 30, 2010.term.
During 2009 we focused our research and development efforts on Vancomycin, Idebenone, Mebicar, and Iodoantipyrine. Activities primarily related to formulations, and analytical development and testing.
During 2008 we incurred research and development expenses related to completing animal testing with Zysolin™, as well as continued research and development with Vancomycin, Tobramycin, Gentamycin and Doxycycline.
We anticipate continuedlimited spending on research and development in the future. The degree and pace of expenditures will depend primarily on financial resources available to us.
Depreciation expense totalledtotaled $33,698$2,281 for the year ended September 30, 20112012 as compared to $39,503$33,698 incurred for the same period a year ago, a decrease of $5,805$31,417 or about 14.70% .93.23%.
We incurred $103,872$97,632 in net interest expense during 20112012 as a result of our borrowings and the issuance of promissory notes yielding interest ranging from 10% - 12% per annum. This compares to $92,062$103,872 incurred during 20102011 ana increasedecrease of
$11,810 $6,240 or about 12.83% .6%. We will continue to seek funding in the form of Promissory Notes, which will result in ongoing interest expense until more permanent equity or other forms of funding are sourced.
What changed in the latest 10-Q
Risk Factors
The Company depends on a specialized DAG oil supplier in China. DAG oil production requires technical capabilities and supplier qualification procedures, which limits available sources. A disruption in supply could delay production, increase costs, or reduce product availability.
A single supplier accounted for a substantial majority of the Company’s cost of sales for the quarter ended June 30, 2026. This supplier concentration increases exposure to supply interruption and pricing risk, which could adversely affect margins and operations.
A substantial portion of the Company’s quarterly revenue was derived from two distributors in China. The Company may not receive future orders from this distributor at similar volumes or pricing levels, and the loss of this distributor or a reduction in its purchases could materially adversely affect the Company’s revenues, cash flows, and results of operations.
The Company relies on third-party manufacturers, co-packers, and logistics providers. Service interruptions, capacity limits, or cost increases at these providers could disrupt fulfillment and increase operating costs.
Full comparison: every changed paragraph (2)
A single supplier accounted for a substantial majority of the Company’s cost of sales for the quarter ended MarchJune 31,30, 2026. This supplier concentration increases exposure to supply interruption and pricing risk, which could adversely affect margins and operations.
A substantial portion of the Company’s quarterly revenue was derived from atwo single distributordistributors in China. The Company may not receive future orders from this distributor at similar volumes or pricing levels, and the loss of this distributor or a reduction in its purchases could materially adversely affect the Company’s revenues, cash flows, and results of operations.
Management's Discussion & Analysis (MD&A)
Largest changes
“Going Concern. Management evaluates whether conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued and considers plans to mitigate those conditions.”see in full comparison
“Management believes the most significant estimates and judgments involve revenue recognition, inventory valuation and obsolescence reserves, realizability of deferred tax assets, and going concern assessment.”see in full comparison
“Inventory Valuation. Inventory is stated at the lower of cost or net realizable value. Management evaluates inventory for excess quantities and slow-moving items and records write-downs when necessary based on expected demand and market conditions.”see in full comparison
The preparation of the Company’s unaudited condensed consolidated financial statementssee in full comparisonareinpreparedconformity with U.S. GAAP requires management to make estimates and assumptions. Management has evaluated the accounting estimates used inaccordancepreparingwiththeseaccountingfinancialprinciplesstatementsgenerallyandacceptedhasindetermined that none involved a significant level of estimation uncertainty that had, or was reasonably likely to have, a material impact on theUnitedCompany’sStatesfinancial condition or results ofAmerica.operationsAforsummarytheofperiods presented. The Company’s significant accounting policiesisareincludeddescribed in Note 2 to the unaudited condensed consolidated financial statements included in this Quarterly Report.
“During the quarter, the Company engaged external advisors for corporate and strategic initiatives and incurred professional service fees, including advisory and consulting expenses. In addition, the Company incurred higher legal, accounting, and regulatory compliance costs, as well as increased personnel-related expenses. The prior-year quarter reflected limited operations and correspondingly lower overhead expenses.”see in full comparison
“The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures. Management bases its estimates on historical experience and other assumptions it believes to be reasonable under the circumstances. Actual results may differ from these estimates.”see in full comparison
Full comparison: every changed paragraph (29)
The Company’s products are sold primarily through online marketplace platforms and direct-to-consumer channels in the United States. During the three months ended MarchJune 31,30, 2026, the Company continued to expand its sales and distribution activities in the Asia-Pacific region through its subsidiaries in Hong Kong and the People’s Republic of China.
For the Three Months ended MarchJune 31,30, 2026 and 2025
Revenue for the three months ended MarchJune 31,30, 2026 was $351,187,$540,359, compared to $411$341 for the three months ended MarchJune 31,30, 2025. The increase was primarily attributable to sales generated through the Company’s PRC subsidiary, reflecting continued distributor channel activity following the Company’s initial market entry in late 2025.
Cost of revenues for the three months ended MarchJune 31,30, 2026 was $336,035,$497,542, compared to $2,135$1,743 for the three months ended MarchJune 31,30, 2025. The increase was primarily attributable to higher sales volume in the current quarter, driven by distributor channel activity in China, along with associated product costs, packaging, logistics, and fulfillment expenses.
Gross profit for the three months ended MarchJune 31,30, 2026 was $15,152,$42,817, compared to a gross loss of $1,724$1,402 in the prior-year quarter. Gross margin remained modest in the current quarter, reflecting product mix, distributor pricing associated with early-stage channel development, logistics and fulfillment costs, and the impact of operating at relatively low scale, which limits fixed cost absorption.
Selling, general and administrative expenses were $120,631$135,712 for the three months ended MarchJune 31,30, 2026, compared towith $19,266$19,484 for the three months ended MarchJune 31,30, 2025. The increase was primarily attributable to higher professionalexecutive compensation; investment banking, financial advisory, legal, accounting, and advisorycompliance fees, increased executive compensation,expenses; and expanded corporate, compliance,travel and reportingbusiness costsdevelopment activities associated with theProject Company’sVerdant™, transition to a U.S. reporting issuer andreflecting the expansion of itsthe operatingCompany’s commercial operations and strategic development activities.
During the quarter, the Company engaged external advisors for corporate and strategic initiatives and incurred professional service fees, including advisory and consulting expenses. In addition, the Company incurred higher legal, accounting, and regulatory compliance costs, as well as increased personnel-related expenses. The prior-year quarter reflected limited operations and correspondingly lower overhead expenses.
Net loss for the three months ended MarchJune 31,30, 2026 was $105,450,$92,885, compared to a net loss of $20,958$20,885 for the three months ended MarchJune 31,30, 2025. While the Company generated meaningful revenue and positive gross profit in the current quarter, operating expenses increased as the Company invested in corporate infrastructure, professional services, and market expansion initiatives.
For the SixNine Months Ended MarchJune 31,30, 2026 and 2025
Revenue for the sixnine months ended MarchJune 31,30, 2026 was $498,642,$1,039,001, compared to $606$947 for the sixnine months ended MarchJune 31,30, 2025. The increase was primarily attributable to the Company’s expansion into the Asia-Pacific market in late 2025, including initial distributor sales in December 2025 and continued distributor channel activity during the three months ended MarchJune 31,30, 2026.
Cost of revenues for the sixnine months ended MarchJune 31,30, 2026 was $478,948,$976,490, compared to $4,718$6,461 for the sixnine months ended MarchJune 31,30, 2025. The increase was primarily attributable to higher sales volume associated with distributor channel activity in China, along with related product costs, packaging, logistics, and fulfillment expenses.
Gross profit for the sixnine months ended MarchJune 31,30, 2026 was $19,694,$62,511, compared to a gross loss of $4,112$5,514 for the sixnine months ended MarchJune 31,30, 2025..2025. Gross margin remained modest due to product mix, distributor pricing associated with early-stage market development, logistics and fulfillment costs, and the impact of operating at relatively low scale.
Selling, general and administrative expenses were $263,927$399,639 for the sixnine months ended MarchJune 31,30, 2026, compared to $31,588$51,072 for the sixnine months ended MarchJune 31,30, 2025. The increase was primarily attributable to higher professional and advisory fees, increased executive compensation, and expanded corporate, compliance, and reporting costs associated with the Company’s transition to a U.S. reporting issuer andreflected the expansion of itsthe operatingCompany’s commercial operations and strategic development activities.
For the sixnine months ended MarchJune 31,30, 2026, the Company engaged external advisors for corporate and strategic initiatives and incurred professional service fees, including advisoryinvestment andbanking, consultingfinancial expenses. In addition, the Company incurred higheradvisory, legal, accounting, consulting, and regulatory compliance costs,expenses. asThe wellCompany asalso incurred increased personnel-related expenses.expenses and travel and business development costs associated with Project Verdant™. The prior-year period reflected limited operations and correspondingly lower overhead expenses.
Net loss for the sixnine months ended MarchJune 31,30, 2026 was $244,177,$337,062, compared to a net loss of $35,668$56,553 for the sixnine months ended MarchJune 31,30, 2025. While the Company generated meaningful revenue and positive gross profit during the current period, operating expenses increased as the Company invested in corporate infrastructure, professional services, and market expansion initiatives.
As of MarchJune 31,30, 2026, the Company had a working capital deficiency of approximately $214,260$306,312 and has incurred recurring operating losses. The Company’s operations during the sixnine months ended MarchJune 31,30, 2026 were funded primarily through proceeds from the issuance of common stock to a non-affiliated investor. The Company has historically relied on related party funding to support operations.
Net cash used in operating activities was $219,109 for the sixnine months ended MarchJune 31,30, 2026 primarily reflected the net loss for the period, increases in inventory associated with initial distributor stocking and channel expansion, and payment of professional and advisory fees. These uses of cash were partially offset by increases in accounts payable, reflecting the timing of inventory purchases and vendor payments.
Net cash provided by financing activities was $150,000 for the sixnine months ended MarchJune 31,30, 2026 primarilyand consisted entirely of proceeds from the issuance of common stock to a non-affiliated investorinvestor. andThe advancesconversion fromof related parties used to support working capital and operating activities. These inflows were partially offset by repayments$203,646 of related-party advances duringinto thecommon period.stock was a non-cash financing activity and therefore was excluded from net cash provided by financing activities.
For the sixnine months ended MarchJune 31,30, 2025, net cash used in operating activities was 121,494 primarily reflected operating expenses and working capital changes, as the Company had minimal revenue and lower inventory purchases during that period. The increase in net cash used in operating activities induring the nine months ended June 30, 2026 compared towith the corresponding 2025 period was primarily attributable to higherincreased inventory purchasespurchases, growth in accounts receivable, and higher operating expenses associated with expanded commercial activity, as well as repayments of $6,280 to related parties during the period.activity.
For the nine months ended June 30, 2025, there was no net cash provided by or used in financing activities.
For the six months ended March 31, 2025, net cash provided by financing activities primarily consisted of advances from related parties used to fund operating expenses and working capital requirements.
The preparation of the Company’s unaudited condensed consolidated financial statements arein preparedconformity with U.S. GAAP requires management to make estimates and assumptions. Management has evaluated the accounting estimates used in accordancepreparing withthese accountingfinancial principlesstatements generallyand acceptedhas indetermined that none involved a significant level of estimation uncertainty that had, or was reasonably likely to have, a material impact on the UnitedCompany’s Statesfinancial condition or results of America.operations Afor summarythe ofperiods presented. The Company’s significant accounting policies isare includeddescribed in Note 2 to the unaudited condensed consolidated financial statements included in this Quarterly Report.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures. Management bases its estimates on historical experience and other assumptions it believes to be reasonable under the circumstances. Actual results may differ from these estimates.
Management believes the most significant estimates and judgments involve revenue recognition, inventory valuation and obsolescence reserves, realizability of deferred tax assets, and going concern assessment.
Revenue Recognition. Revenue is recognized when control of products transfers to customers. Judgments are required in determining the timing of transfer of control, variable consideration, and distributor and marketplace channel terms.
Inventory Valuation. Inventory is stated at the lower of cost or net realizable value. Management evaluates inventory for excess quantities and slow-moving items and records write-downs when necessary based on expected demand and market conditions.
Deferred Tax Assets. Deferred tax assets are reduced by a valuation allowance when management determines it is more likely than not that some or all of the deferred tax assets will not be realized.
Going Concern. Management evaluates whether conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued and considers plans to mitigate those conditions.
As of MarchJune 31,30, 2026, the Company did not have any off-balance sheet arrangements, as defined in Item 303 of Regulation S-K, that have or are reasonably likely to have a current or future material effect on the Company’s consolidated financial condition, results of operations, liquidity, capital expenditures, or capital resources.
UMEW insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 1 filing (1 insider, 1 trade date, 10,000 shares, about $9.0K). Net open-market shares: -10,000 (purchases minus sales); net value about -$9.0K.Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-07-06 | Ding Yongbiao |
Open-market sale | 10,000 | $0.90 | $9.0K |
Well-known investors holding UMEW (13F)
None of the 59 investors we track reported a position in their latest 13F.