UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
The Quarterly Period Ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission
File Number
(Exact name of registrant issuer as specified in its charter)
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s
phone number, including area code: +
Securities registered pursuant to Section 12(b) of the Act: None
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding at January 14, 2022 | |
| Common Stock, $0.0001 par value |
LEADER CAPITAL HOLDINGS CORP.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2021
TABLE OF CONTENTS
| i |
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT
This quarterly report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions, future performance, anticipated expenses, or projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include the following:
| ● | the availability and adequacy of our cash flow to meet our requirements; | |
| ● | economic, competitive, demographic, business and other conditions in our local and regional markets; | |
| ● | general economic conditions and events and the impact they may have on us and our clients, including but not limited to the impact of COVID-19; | |
| ● | changes or developments in laws, regulations or taxes in our industry; | |
| ● | there are uncertainties regarding the interpretation and enforcement of PRC laws, rules, and regulations; | |
| ● | competition in our industry; | |
| ● | the loss of or failure to obtain any license or permit necessary or desirable in the operation of our business; | |
| ● | proceedings brought by the SEC against China-based accounting firms could result in our inability to file future financial statements in compliance with the requirements of the Exchange Act.; | |
| ● | changes in our business strategy, capital improvements or development plans; | |
| ● | the availability of additional capital to support capital improvements and development; and | |
| ● | other risks identified in our other filings with the Securities and Exchange Commission (the “SEC”). |
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, or joint ventures we may make or collaborations or strategic partnerships we may enter into.
You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Unless otherwise stated or the context otherwise requires, the terms “Leader Capital Holdings Corp.,” “we,” “us,” “our” and the “Company” refer collectively to Leader Capital Holdings Corp. and, where appropriate, its subsidiaries.
| ii |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES
INDEX TO UNAUDITED FINANCIAL STATEMENTS
| 1 |
LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. dollars except for share data)
| As of | ||||||||
| November 30, 2021 | August 31, 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepayments, deposits and other receivables | ||||||||
| Inventory | ||||||||
| Due from a shareholder | - | |||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Plant and equipment, net | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Prepayments, deposits and other receivables | ||||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accrued expenses and other payables | $ | $ | ||||||
| Contract liabilities | ||||||||
| Operating lease liability, current | ||||||||
| Bonds payable | ||||||||
| Convertible notes payable to related parties | ||||||||
| Due to shareholders | ||||||||
| Due to a director | ||||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Operating lease liability, non-current | ||||||||
| Deferred tax liabilities | ||||||||
| Convertible notes payable to related parties | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 14) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $ par value; shares authorized; issued and outstanding | - | - | ||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding as of November 30, 2021 and August 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive income | ( | ) | ( | ) | ||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY | $ | ( | ) | $ | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
| 2 |
LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(In U.S. dollars except for share data)
| For the three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| REVENUE | $ | $ | ||||||
| OPERATING EXPENSES | ||||||||
| Research and development expenses | ( | ) | ( | ) | ||||
| Sales and marketing expenses | ( | ) | ( | ) | ||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| Interest expense | ( | ) | ( | ) | ||||
| Loss on change in fair value of convertible notes | ( | ) | ( | ) | ||||
| OTHER INCOME | ||||||||
| Exchange difference, net | - | |||||||
| Other income – from related parties | - | |||||||
| Other income – from non-related parties | ||||||||
| LOSS BEFORE INCOME TAX | ( | ) | ( | ) | ||||
| Income tax benefit | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| OTHER COMPREHENSIVE LOSS | ||||||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||
| TOTAL COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | ||
| Net loss per share - Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares of common stock outstanding - Basic and diluted | ||||||||
See accompanying notes to the condensed consolidated financial statements.
| 3 |
LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Unaudited)
(In U.S. dollars except for share data)
| FOR THE THREE MONTHS ENDED NOVEMBER 30, 2021 | ||||||||||||||||||||||||
| COMMON STOCK | ADDITIONAL | ACCUMULATED OTHER | TOTAL STOCKHOLDERS’ | |||||||||||||||||||||
Number of shares | Amount | PAID
IN CAPITAL | COMPREHENSIVE INCOME | ACCUMULATED DEFICITS | EQUITY | |||||||||||||||||||
| Balance as of September 1, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Shares issued in private placement | - | - | ||||||||||||||||||||||
| Share based compensation | - | - | - | - | ||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance as of November 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||||||||
| FOR THE THREE MONTHS ENDED NOVEMBER 30, 2020 | ||||||||||||||||||||||||
| COMMON STOCK | ADDITIONAL | ACCUMULATED OTHER | TOTAL | |||||||||||||||||||||
| Number of shares | Amount | PAID
IN CAPITAL | COMPREHENSIVE INCOME | ACCUMULATED DEFICITS | STOCKHOLDERS’ EQUITY | |||||||||||||||||||
| Balance as of September 1, 2020 | $ | $ | $ | $ | ( | ) | $ | | ||||||||||||||||
| Shares to be issued in private placement | - | - | - | |||||||||||||||||||||
| Cancellation of restricted shares | ( | ) | ( | ) | - | - | - | |||||||||||||||||
| Share compensation | - | - | - | - | ||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance as of November 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
| 4 |
LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In U.S. dollars)
| For the three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Loss on change in fair value of convertible notes | ||||||||
| Share based compensation | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Depreciation and amortization | ||||||||
| Exchange difference, net | ( | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | - | |||||||
| Prepayments, deposits and other receivables | ||||||||
| Inventory | ( | ) | ( | ) | ||||
| Amount due from a director | - | |||||||
| Deferred tax liabilities | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accrued expenses and other payables | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of plant and equipment | ( | ) | ( | ) | ||||
| Acquisition of intangible assets | - | ( | ) | |||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from shares issued in private placement | ||||||||
| Proceeds from convertible notes issuance | - | |||||||
| Advance to a shareholder | ( | ) | - | |||||
| Advance / Repayment from shareholders | ||||||||
| Repayment to a director | ( | ) | - | |||||
| Advance from a director | - | |||||||
| Net cash provided by financing activities | ||||||||
| Effects of exchange rate changes on cash and cash equivalents | ||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of period | ||||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL CASH FLOWS INFORMATION | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
| 5 |
LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For the three months ended November 30, 2021 and 2020
(In U.S. dollars except for share data)
1. ORGANIZATION AND BUSINESS BACKGROUND
Leader Capital Holdings Corp. (“LCHD” or the “Company”) was incorporated on March 22, 2017 under the laws of the State of Nevada.
The Company, through its subsidiaries, mainly operates and services a mobile application investment platform.
| Company Name | Place/Date of Incorporation | Principal Activities | ||
| 1.
|
||||
| 2.
|
On
August 17, 2020, LCHD, through JFB Internet Service Limited (“JFB”), acquired all of the issued and outstanding capital stock
(the “Acquisition”) of Nice Products Inc. (“NPI”), pursuant to the terms and conditions of that certain Stock
Purchase Agreement, dated as of August 17, 2020, among the Company, JFB, NPI, the selling shareholders of NPI identified therein (each
a “Seller,” and, collectively, the “Sellers”) and the representative of the Sellers identified therein. As a
result of the Acquisition, the Company now owns indirectly
The
aggregate purchase price for the Acquisition was $
After the completion of the acquisition, NPI became an indirect wholly owned subsidiary of the Company.
NPI was incorporated in the British Virgin Islands on December 17, 2018.
NPI, through its subsidiaries, mainly engages in the development of ecological-systems applications, integration of big data and promotion of OTT applications.
| Company Name | Place/Date of Incorporation | Principal Activities | ||
| 1.
|
||||
| 2.
|
LCHD and its subsidiaries (including NPI and its subsidiaries) are hereinafter referred to as the “Company”.
| 6 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These unaudited condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (which are of a normal recurring nature) and disclosures necessary for a fair presentation of these unaudited condensed consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”), and include the accounts of the Company and its subsidiaries. However, they do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with U.S. GAAP. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Intercompany accounts and transactions have been eliminated in consolidation.
The Company has adopted August 31 as its fiscal year end. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s annual report on amended Form 10-K for the year ended August 31, 2021.
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As
of November 30, 2021, the Company has suffered recurring losses from operations, and records an accumulated deficit and a working capital
deficit of $
The Company expects to finance its operations primarily through cash flows from operations, loans from existing directors and shareholders and placements of capital stock for additional funding. In the event that the Company requires additional funding to finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, a shareholder has indicated the intent and ability to provide additional financing. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stock holders, in the case of equity financing.
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of financial markets. It has also disrupted the normal operations of many businesses, including the Company’s businesses. This outbreak could decrease spending, adversely affect demand for the Company’s services and harm its business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on its business or results of operations at this time.
These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should the Company be unable to continue as going concern.
| 7 |
Use of Estimates
The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for the Company’s business, and adversely impact its results of operations. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Its estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its unaudited condensed consolidated financial statements.
Business combination
The Company accounts for its business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805 “Business Combinations.” The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total costs of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statements of comprehensive income. During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of comprehensive income.
When there is a change in ownership interests that result in a loss of control of a subsidiary, the Company deconsolidates the subsidiary from the date control is lost. Any retained non-controlling investment in the former subsidiary is measured at fair value and is included in the calculation of the gain or loss upon deconsolidation of the subsidiary.
Goodwill and impairment of goodwill
Goodwill represents the excess of the purchase price and related costs over the fair value of the net identified tangible and intangible assets and liabilities assumed and is not amortized. The total amount of goodwill is deductible for tax purposes.
In accordance with ASC Topic 350, “Intangibles-Goodwill and Other,” goodwill is not amortized but is tested for impairment, annually or more frequently when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its fair value.
| 8 |
The Company estimates fair value of the applicable reporting unit or units using a discounted cash flow methodology. This methodology represents a level 3 fair value measurement as defined under ASC 820, Fair Value Measurements and Disclosures, since the inputs are not readily observable in the marketplace. The goodwill impairment testing process involves the use of significant assumptions, estimates and judgments, including projected sales, gross margins, selling, general and administrative expenses, and capital expenditures, and the selection of an appropriate discount rate, all of which are subject to inherent uncertainties and subjectivity. When the Company performs goodwill impairment testing, its assumptions are based on annual business plans and other forecasted results, which it believes represent those of a market participant. The Company selects a discount rate, which is used to reflect market-based estimates of the risks associated with the projected cash flows based on the best information available as of the date of the impairment assessment. Based on the annual impairment analysis, there is no impairment on the goodwill recorded in the Company’s financial statements.
Given the current macro-economic environment and the uncertainties regarding its potential impact on the Company’s business, there can be no assurance that its estimates and assumptions used in its impairment tests will prove to be accurate predictions of the future. If the Company’s assumptions regarding forecasted cash flows are not achieved, it is possible that an impairment review may be triggered and goodwill may be impaired.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.
Software Development Costs
The Company expenses software development costs, including costs to develop software products or the software component of products to be marketed to external users, before technological feasibility is reached. Technological feasibility is typically reached shortly before the release of such products and, as a result, development costs that meet the criteria for capitalization were not material for the periods presented.
The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended.
No development costs were expensed as general and administrative expenses for the three months ended November 30, 2021 and 2020.
Revenue Recognition
The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
| 9 |
The Company recognizes revenue following the five-step model prescribed under ASU 2014-09:
Step 1: Identify the contract
Step 2: Identify the performance obligations
Step 3: Determine the transaction price
Step 4: Allocate the transaction price
Step 5: Recognize revenue
Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Provision of investment platform services
The Company signed an agreement with a third party whereby the Company authorized the third party to use the Company’s JFB platform and related applications for a period until December 31, 2020. Income from provision of investment platform services with the use of the Company’s mobile applications is recognized when the service is performed.
From September, 2020, the Company generated additional revenue from a new, more comprehensive mobile application, which refer to as the FinMaster mobile application (the “FinMaster App” and together with the JFB platform, the “Apps”), with similar functions as the JFB platform. Income from providing investment platform services with the use of a mobile application is recognized when the service is performed.
The Company offers a self-managed points program, which can be used in the FinMaster App to redeem merchandise or services. The Company determines the value of each point based on estimated incremental cost. Customers and advocates have a variety of ways to obtain the points. The major accounting policy for its points program is described as follows:
The Company concludes the bonus points offered linked to the purchase transaction of the points is a material right and accordingly a separate performance obligation according to ASC 606, and should be taken into consideration when allocating the transaction price of the point sales. The Company also estimates the probability of points redemption when performing the allocation. The amount allocated to the bonus points as separate performance obligation is recorded as contract liability (deferred revenue) and revenue should be recognized when future goods or services are transferred. The Company will continue to monitor when and if forfeiture rate data becomes available and will apply and update the estimated forfeiture rate at each reporting period.
Since historical information is limited for the Company to determine any potential points forfeitures and most merchandise can be redeemed without requiring a significant amount of points compared with the amount of points provided to users, the Company has used an estimated forfeiture rate of zero.
Provision of software development service and maintenance service
The Company entered into several agreements with third party customers to assist the customers in the development of their mobile communications software and mobile e-commerce software. Income from provision of software development service and maintenance service are recognized when the service is performed.
Revenue by major product line
| For the three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| Provision of investment platform services | $ | $ | ||||||
| Provision of software development service and maintenance service | ||||||||
| $ | $ | |||||||
| 10 |
Revenue by Recognition Over Time vs Point in Time
| For the three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| Revenue by recognition over time | $ | $ | ||||||
| Revenue by recognition at a point in time | ||||||||
| $ | $ | |||||||
Remaining
performance obligations represent contracted revenues that had not yet been recognized, and include deferred revenues; invoices that
have been issued to customers but were uncollected and have not been recognized as revenues; and amounts that will be invoiced and recognized
as revenues in future periods. As of November 30, 2021, the Company’s remaining performance obligations were $
The Company had not occurred any costs to obtain contracts.
The Company does not have amounts of contract assets since revenue is recognized as control of goods or services is transferred. The contract liabilities consist of advance payments from customers. The contract liabilities are reported in a net position on a customer-by-customer basis at the end of each reporting period. All contract liabilities are expected to be recognized as revenue within one year and are included in other payables and accrued liabilities in the consolidated balance sheet.
Contract balances
The Company’s contract liabilities consist of receipts in advance for software development and FinMaster App. Below is the summary presenting the movement of the Company’s contract liabilities for the three months ended November 30, 2021 and 2020:
| Receipt in advance | 2021 | 2020 | ||||||
| Balance as of September 1 | $ | $ | ||||||
| Advances received from customers related to unsatisfied performance obligations | ||||||||
| Revenue recognized from beginning contract liability balance | ( | ) | ( | ) | ||||
| Exchange difference | ( | ) | ||||||
| Balance as of November 30 | $ | $ | ||||||
Practical Expedients and Exemption
The Company has not incurred any costs to obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Research and development expenses
Research and development (“RD”) expenses are primary comprised of charges for RD and consulting work performed by third parties; salaries and benefits for those employees engaged in research, design and development activities; costs related to design tools; and allocated costs.
For
the three months ended November 30, 2021 and 2020, the total RD expenses were $
| 11 |
Sales and marketing expenses
Sales
and marketing expenses consist primarily of marketing and promotional expenses, salaries and other compensation-related expenses to sales
and marketing personnel. Advertising expenses consist primarily of costs for the promotion of corporate image and product marketing.
The Company expenses all advertising costs as incurred and classifies these costs under sales and marketing expenses. For the three months
ended November 30, 2021 and 2020, advertising costs totaled $
From September 2019, customers or users of the FinMaster App can obtain points through any other ways such as account registration referral to the FinMaster App, frequent sign-ins to the application and sharing articles from the application to users’ own social media, etc. The Company believes these points are to encourage user engagement and generate market awareness. As a result, the Company accounts for such points as sales and marketing expenses with a corresponding liability recorded under other current liabilities of its unaudited condensed consolidated balance sheets upon the points offering. The Company estimates liabilities under the customer loyalty program based on cost of the merchandise that can be redeemed, and its estimate of probability of redemption. At the time of redemption, the Company records a reduction of inventory and other current liabilities.
Since historical information is limited for the Company to determine any potential points forfeiture and most merchandise can be redeemed without requiring a significant amount of points compared with the amount of points provided to users, the Company has used an estimated forfeiture rate of zero.
For
the three months ended November 30, 2021 and 2020, redeemable point liability charged as sales and marketing expenses were $
As
of November 30, 2021 and August 31, 2021, liabilities recorded related to unredeemed points were $
General and administrative expenses
General and administrative expenses consist primarily of salaries, bonuses and benefits for employees involved in general corporate functions, depreciation and amortization of fixed assets, legal and other professional services fees, rental and other general corporate related expenses.
Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is calculated on the average basis and includes all costs to acquire and other costs to bring the inventories to their present location and condition. The Company records inventory write-downs for excess or obsolete inventories based upon assumptions on current and future demand forecasts. If the inventory on hand is in excess of future demand forecast, the excess amounts are written off. The Company also reviews inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires the determination of the estimated selling price of the vehicles less the estimated cost to convert inventory on hand into a finished product. Once inventory is written-down, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Inventory as of November 30, 2021 and August 31, 2021 represents merchandise inventory which can be redeemed by deducting membership rewards points of customer loyalty program.
| 12 |
Leases
The
Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on
the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the
rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing rate
based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use
(“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and
lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized
based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the
lease term. The Company elected the package of practical expedients permitted under the transition guidance to combine the lease and
non-lease components as a single lease component for operating leases associated with the Company’s office space lease, and to
keep leases with an initial term of
The operating lease is included in operating lease right-of-use assets, operating lease liabilities-current and operating lease liabilities-non-current on the Company’s consolidated balance sheets.
Plant and Equipment
Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:
| Expected useful life | ||||
| Furniture and fixture | ||||
| Office equipment | ||||
| Leasehold improvement | ||||
Intangible assets
The Company recorded intangible assets with definite lives, including investment platform and technical know-hows. Intangible assets are recorded at cost less accumulated amortization with no residual value. Amortization of intangible assets is computed using the straight-line method over their estimated useful lives.
The estimated useful lives of the Company’s intangible assets are listed below:
| Investment platform | |
| Technical know-hows | |
| Trademarks |
Impairment of Long-Lived Assets (including amortizable intangible assets)
The
Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that
the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If the assets are
considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets.
| 13 |
Income taxes
Income taxes are determined in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements
uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the
financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
The Company conducts business in the PRC, Taiwan and Hong Kong and is subject to tax in these jurisdictions. As a result of its business activities, the Company will file tax returns that are subject to examination by the respective tax authorities.
The Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income/(loss) per share is computed by dividing the net income/(loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted income per share is computed similar to basic income/(loss) per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock equivalents had been issued and if the additional shares of common stock were dilutive. The following table presents a reconciliation of basic and diluted net loss per share:
| For the three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares of common stock outstanding - Basic and diluted* | ||||||||
| Net loss per share - Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| * |
As of November 30, 2021 and August 31, 2021, the Company’s convertible notes payable were excluded from the diluted loss per share calculation as they were anti-dilutive.
Stock-based compensation
Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 (“ASC 718”), which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the vesting period or immediately if fully vested and non-forfeitable. The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.
Additionally, ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur.
| 14 |
On September 1, 2019, the Company adopted ASU No. 2018-07, “Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”), which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. Before the adoption of this guidance, the equity-classified share-based awards held by non-employees were subject to re-measurement through each vesting date. Upon the adoption of this guidance, the Company no longer re-measures equity-classified share-based awards granted to consultants or non-employees at each reporting date through the vesting date and the accounting for these share-based awards to consultants or non-employees and employees was substantially aligned.
Cancellation of a share-based payment by the entity results in accelerated recognition of any unrecognised cost. Cancellation by the counterparty does not change recognition of the compensation cost. The termination of an employee that resulted in the forfeiture of share-based awards is not considered to be a cancellation of the awards.
Foreign Currencies Translation
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 transactions. 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 statements of operations.
The reporting currency of the Company is United States Dollars (“US$”). The Company’s subsidiary in Seychelles, the PRC, Taiwan and Hong Kong maintains its books and record in United States Dollars (“US$”), Renminbi (“RMB”), New Taiwanese Dollars (“NT$”) and Hong Kong Dollars (“HK$”) respectively, which are the primary currencies of the economic environment in which the entities operate (the functional currencies).
In general, for consolidation purposes, the assets and liabilities of the Company’s subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of the financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of retained earnings.
Translation of amounts from foreign currencies into US$ has been made at the following exchange rates for the respective periods:
| As of November 30, 2021 | As of August 31, 2021 | |||||||
| Period-end HK$ : US$ 1 exchange rate | ||||||||
| Period-end NT$ : US$ 1 exchange rate | ||||||||
| Period-end RMB : US$ 1 exchange rate | ||||||||
| For the three months ended, | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| Period average HK$ : US$ 1 exchange rate | ||||||||
| Period average NT$ : US$ 1 exchange rate | ||||||||
| Period average RMB : US$ 1 exchange rate | ||||||||
Related Parties
Parties, which can be a corporation or an individual, are considered to be related if the Company has the ability to, directly or indirectly, control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.
| 15 |
Convertible instruments
The Company accounts for hybrid contracts that feature conversion options in accordance with U.S. GAAP. ASC 815 “Derivatives and Hedging Activities,” (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.
Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.
The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC 470-20 “Debt with Conversion and Other Options” (“ASC 470-20”). Under ASC 470-20 the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815. Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract are allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.
Fair Value of Financial Instruments:
The carrying value of the Company’s financial instruments: cash and cash equivalents, deposits, accounts payable and accrued liabilities, balances due with directors and shareholders, convertible notes payable and bonds payable, approximate at their fair values because of the short-term nature of these financial instruments or the rate of interest of these instruments approximate the market rate of interest.
The Company also follows the guidance of the ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), with respect to financial assets and liabilities that are measured at fair value. ASC 820 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
| 16 |
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis:
| Carrying Value at | |||||||||||||||
| August 31, 2021 | Fair Value Measurement at August 31, 2021 | ||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||
| Convertible notes measured at fair value | $ | $ | $ | $ | |||||||||||
| Carrying Value at | |||||||||||||||
| November 30, 2021 | Fair Value Measurement at November 30, 2021 | ||||||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||||||
| Convertible notes measured at fair value | $ | $ | $ | $ | |||||||||||
A summary of changes in financial liabilities for the three months ended November 30, 2021 and 2020 was as follows:
| 2021 | 2020 | |||||||
| Balance at September 1 | $ | $ | ||||||
| Issuance of convertible notes | ||||||||
| Fair value loss on issuance of convertible notes | ||||||||
| Interest paid | ( |
) | ||||||
| Interest expenses on convertible notes | ||||||||
| Change in fair value of convertible notes | ||||||||
| Balance at November 30 | $ | $ | ||||||
| 17 |
Fair value of the convertible notes is determined using the binomial model using the following assumptions at inception and on subsequent valuation dates:
| Convertible notes holders | Jui-Chin Chen | Teh-Ling Chen | Chin-Ping Wang Chin-Nan Wang Chin-Chiang Wang | Teh-Ling Chen | ||||||||||||
| Appraisal Date (Inception Date) | ||||||||||||||||
| Risk-free Rate | % | % | % | % | ||||||||||||
| Applicable Closing Stock Price | $ | $ | $ | $ | ||||||||||||
| Conversion Price | $ | (i) | $ | $ | $ | |||||||||||
| $ | (ii) | |||||||||||||||
| Volatility | % | % | % | % | ||||||||||||
| Dividend Yield | % | % | % | % | ||||||||||||
| Credit Spread | % | % | % | % | ||||||||||||
| Liquidity Risk Premium | % | % | % | % | ||||||||||||
| Appraisal Date | ||||||||||||||||
| Risk-free Rate | % | % | % | % | ||||||||||||
| Applicable Closing Stock Price | $ | $ | $ | $ | ||||||||||||
| Conversion Price | $ | $ | $ | $ | ||||||||||||
| Volatility | % | % | % | % | ||||||||||||
| Dividend Yield | % | % | % | % | ||||||||||||
| Credit Spread | % | % | % | % | ||||||||||||
| Liquidity Risk Premium | % | % | % | % | ||||||||||||
| Appraisal Date | ||||||||||||||||
| Risk-free Rate | % | % | % | % | ||||||||||||
| Applicable Closing Stock Price | $ | $ | $ | $ | ||||||||||||
| Conversion Price | $ | $ | $ | $ | ||||||||||||
| Volatility | % | % | % | % | ||||||||||||
| Dividend Yield | % | % | % | % | ||||||||||||
| Credit Spread | % | % | % | % | ||||||||||||
| Liquidity Risk Premium | % | % | % | % | ||||||||||||
| (i) |
| (ii) |
| 18 |
Segment reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
Management determined that the Company’s operations constitute a single reportable segment in accordance with ASC 280. The Company operates exclusively in one business and industry segment: the provision of investment platform services through mobile application.
Recent Accounting Pronouncements
Recently Adopted Accounting Standards
In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions and enhances and simplifies various aspects of the income tax accounting guidance in ASC 740. The Company adopted ASU 2019-12 on September 1, 2021. The adoption of ASU 2019-12 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt proceeds, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year. The Company adopted ASU 2020-06 effective September 1, 2021. The adoption of ASU 2020-06 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.
Recently issued accounting pronouncements not yet adopted
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 is to be adopted on a modified retrospective basis. As a smaller reporting company, ASU 2016-13 will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statement presentations and disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 of the two-step goodwill impairment test, under which a goodwill impairment loss was measured by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017-04 requires only a one-step quantitative impairment test, whereby a goodwill impairment loss is measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit). Adoption of the ASUs is on a modified retrospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact that the adoption of ASU 2017-04 will have on its consolidated financial statement presentation or disclosures.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected to have any impact on the Company’s consolidated financial statement presentation or disclosures.
| 19 |
The Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
3. ACQUISITION OF SUBSIDIARIES
On August 17, 2020, the Company, through its wholly-owned subsidiary JFB Internet Service Limited (“JFB”), acquired all of the issued and outstanding capital stock (the “Acquisition”) of NPI, pursuant to the terms and conditions of that certain Stock Purchase Agreement, dated as of August 17, 2020, among the Company, JFB, NPI, the selling shareholders of NPI identified therein (each a “Seller,” and, collectively, the “Sellers”) and the representative of the Sellers identified therein.
The
aggregate purchase price for the Acquisition was $
After the completion of the Acquisition, NPI became an indirect wholly owned subsidiary of the Company.
The Company completed the valuations necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed, resulting from which the amount of goodwill was determined and recognized as of the respective acquisition date. The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing date, August 31, 2020.
| Cash and cash equivalents | $ | |||
| Prepayments, deposits and other receivables | ||||
| Due from a shareholder | ||||
| Right-of-use operating lease assets | ||||
| Plant and equipment, net | ||||
| Intangible assets- Technical know-hows | ||||
| Goodwill | ||||
| Other payables and accrued liabilities | ( | ) | ||
| Contract liabilities | ( | ) | ||
| Due to shareholders | ( | ) | ||
| Operating lease liability | ( | ) | ||
| Tax payable | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Net purchase price | $ | |||
| Less: Outstanding NPI debt owed to the Company | ||||
| Accounts receivable | ||||
| Notes payable | ( | ) | ||
| $ |
| 20 |
The
transaction resulted in a purchase price allocation of $
The movement of the goodwill for the three months ended November 30, 2021 and 2020 are as follows
| 2021 | 2020 | |||||||
| Balance as of September 1 and November 30 | $ | $ | ||||||
The
Company performed goodwill impairment test at the reporting unit level on an annual basis and between annual tests when an event occurs
or circumstances change indicating the asset might be impaired.
4. PLANT AND EQUIPMENT, NET
Plant and equipment as of November 30, 2021 and August 31, 2021 are summarized below:
| As of November 30, 2021 | As of August 31, 2021 | |||||||
| Furniture and fixtures | $ | $ | ||||||
| Office equipment | ||||||||
| Leasehold improvement | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Plant and Equipment, net | $ | $ | ||||||
Depreciation
expenses, classified as operating expenses, were $
5. INTANGIBLE ASSETS, NET
Intangible assets costs as of November 30, 2021 and August 31, 2021 are summarized below:
| As of November 30, 2021 | As of August 31, 2021 | |||||||
| Investment platform | $ | $ | ||||||
| Technical know-hows | ||||||||
| Trademarks | ||||||||
| Total | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Impairment | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
| 21 |
Amortization
expense for intangible assets was $
During
the course of the Company’s strategic review of its operations, the Company assessed the recoverability of the carrying value of
the Company’s intangible assets. The impairment charge, if any, represented the excess of carrying amounts of the Company’s
intangible assets over their fair value, using the expected future discounted cash flows.
As of November 30, 2021, amortization expenses related to intangible assets for future periods are estimated to be as follows:
| 12 months ending November 30, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 and thereafter | ||||
| Total | $ | |||
6. RELATED PARTY TRANSACTIONS
| For the three months ended | ||||||||
November 30, 2021 | November 30, 2020 | |||||||
| Other Income: | ||||||||
| Miscellaneous income from Greenpro LF Limited (a) | $ | $ | ||||||
| (a) |
7. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
As of November 30, 2021 | As of August 31, 2021 | |||||||
| Rental and management fee deposits | $ | |||||||
| Other prepaid expenses | ||||||||
| Other taxes recoverable | ||||||||
| $ | ||||||||
| Less: non-current portion | ||||||||
| Rental and management fee deposits | ||||||||
| Other prepaid expenses | ||||||||
| Prepayments, deposits and other receivables, non-current | ||||||||
| Prepayments, deposits and other receivables, current | $ | |||||||
| 22 |
8. ACCRUED EXPENSES AND OTHER PAYABLES
As of November 30, 2021 | As of August 31, 2021 | |||||||
| Accrued interests (Note 10) | $ | |||||||
| Accrued payroll | ||||||||
| Other accrued expenses | ||||||||
| Other payables | ||||||||
| $ | ||||||||
| As of November 30, 2021 | As of August 31, 2021 | |||||||
| Due from a shareholder: | ||||||||
| Hsu Kuo-Hsun | $ | $ | ||||||
| Due to a director: | ||||||||
| Lin Yi-Hsiu | $ | ( | ) | $ | ( | ) | ||
| Due to shareholders: | ||||||||
| Tu Yu-Cheng | $ | ( | ) | $ | ( | ) | ||
| Cheng Hung-Pin | ( | ) | ( | ) | ||||
| Huang Mei-Ying | ( | ) | ( | ) | ||||
| Lo Shih-Chu | ( | ) | ( | ) | ||||
| Chen Jun-Yuan | ( | ) | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | |||
Amounts due from a shareholder are unsecured, interest-free and repayable within one year. The Loan was fully repaid on January 14, 2022.
Amounts due to shareholders and a director are unsecured, interest-free with no fixed payment term.
| 23 |
10. BONDS PAYABLE
The
Company entered into a Bond Purchase Agreement with an individual third party on August 14, 2019, pursuant to which the Company issued
and sold to the purchaser a bond at an aggregate purchase price of $
11. CONVERTIBLE NOTES PAYABLE TO RELATED PARTIES
The
Company entered into a series of Convertible Promissory Note Purchase Agreements (the “Agreements”) with certain investors
between February 2020 and January, 2021. Pursuant to the Agreements, the Company issued certain Convertible Promissory Notes (the “Notes”)
to the investors in a total principal amount of $
| Principal amount | Issue date | Maturity date | Interest rate | |||||||||
| Teh-Ling Chen | $ | % | ||||||||||
| Li-Ching Yang | % | |||||||||||
| Jui-Chin Chen | % | |||||||||||
| Teh-Ling Chen | % | |||||||||||
| Chin-Ping Wang | % | |||||||||||
| Chin-Nan Wang | % | |||||||||||
| Chin-Chiang Wang | % | |||||||||||
| Teh-Ling Chen | % | |||||||||||
| $ | ||||||||||||
On
February 24, 2020, the Company issued a convertible promissory note in the principal amount of $
On
February 27, 2020, the Company issued a convertible promissory note in the principal amount of $
On
March 18, 2020, the Company issued a convertible promissory note in the principal amount of $
On
August 17, 2020, the Company entered into amendments to the Notes and the convertible promissory note purchase agreements with each of
the Noteholders, wherein, at the sole option of the applicable Noteholder, all or part of the unpaid outstanding principal of such Noteholder’s
Note would be convertible into shares of restricted common stock of the Company at a conversion price equal to $
On
November 2, 2020, the Company issued a convertible promissory note in the principal amount of $
| 24 |
On
November 25, 2020, the Company further issued convertible promissory notes in the total principal amount of $
On
January 15, 2021, the Company issued a convertible promissory note in the principal amount of $
The conversion feature is dual indexed to the Company’s stock, and is considered an embedded derivative which needs to be bifurcated from the host instrument in accordance with ASC 815.
ASC 815-15-25 provides that if an entity has a hybrid financial instrument that would require bifurcation of embedded derivatives under ASC 815, the entity may irrevocably elect to initially and subsequently measure a hybrid financial instrument in its entirety at fair value with changes in fair value recognized in earnings. The fair value election can be made instrument by instrument and shall be supported by concurrent documentation or a preexisting documented policy for automatic election.
The Company elected to measure the Notes in their entirety at fair value with changes in fair value recognized as non-operating income or loss at each balance sheet date in accordance with ASC 815-15-25.
Fair
value of the convertible promissory notes of $
During
the three months ended November 30, 2021 and 2020, interest of $
12. INCOME TAXES
For the period ended November 30, 2021 and 2020, the local (United States) and foreign components of loss before income tax were comprised of the following:
| Three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| Tax jurisdictions from: | ||||||||
| - Local | $ | ( | ) | $ | ( | ) | ||
| - Foreign, representing | ||||||||
| Seychelles | ||||||||
| British Virgin Islands | ( | ) | ( | ) | ||||
| Taiwan | ( | ) | ( | ) | ||||
| PRC | ( | ) | ( | ) | ||||
| Hong Kong | ( | ) | ( | ) | ||||
| Loss before income tax | $ | ( | ) | $ | ( | ) | ||
| 25 |
The components of the benefit for income taxes expenses are:
| Three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| Current | $ | $ | ||||||
| Deferred | ( | ) | ( | ) | ||||
| Total income tax benefit | $ | ( | ) | $ | ( | ) | ||
The benefit for income taxes consisted of the following:
| Three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Statutory income tax rate | % | % | ||||||
| Income tax credit computed at statutory income rate | ( | ) | ( | ) | ||||
| Reconciling items: | ||||||||
| Non-deductible expenses | ||||||||
| Share-based payments | ||||||||
| Tax effect of tax exempt entity | ||||||||
| Rate differential in different tax jurisdictions | ||||||||
| Valuation allowance on deferred tax assets | ||||||||
| Income tax benefit | $ | ( | ) | $ | ( | ) | ||
United States of America
The
Company is registered in the State of Nevada and is subject to the tax laws of the United States of America. As of November 30, 2021,
the operations in the United States of America incurred $
Seychelles
Under the current laws of the Seychelles, LFG is registered as an international business company which governs by the International Business Companies Act of Seychelles and there is no income tax charged in Seychelles.
British Virgin Islands
NPI is tax exempted in the British Virgin Islands where it was incorporated.
Taiwan
LOC
is subject to corporate income tax (“CIT”) in Taiwan. With effect from January 1, 2018, the CIT rate in Taiwan is
| 26 |
PRC
BJDC
is subject to corporate income tax (“CIT”) at
Hong Kong
JFB
is subject to Hong Kong Profits Tax, which is charged at the statutory income rate of
| November 30, 2021 | August 31, 2021 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | ||||||||
| – United States of America | $ | ( | ) | $ | ( | ) | ||
| – Taiwan | ( | ) | ( | ) | ||||
| – PRC | ( | ) | ( | ) | ||||
| – Hong Kong | ( | ) | ( | ) | ||||
| Less: valuation allowance | ||||||||
| $ | $ | |||||||
| Deferred tax liabilities: | ||||||||
| Intangible assets – Technical know-hows | $ | $ | ||||||
13. COMMON STOCK
On
September 1, 2019, the Company entered into an employment agreement with Yi-Hsiu Lin to serve as the Chief Executive Officer of the
Company for a -year
term. Pursuant to the agreement, Mr. Lin will be compensated at an annual rate of $
On
September 1, 2019, the Company issued a director offer letter to Shui Fung Cheng, pursuant to which Mr. Cheng agreed to serve as a director
of the Company for a -year term. For his service as a director, Mr. Cheng will receive an annual compensation, prorated for any partial
year, in the form of $
| 27 |
On June 30, 2020, the Company entered into a stock forfeiture letter (the “Stock Forfeiture Letter”) with First Leader Capital Ltd., a significant stockholder of the Company and an entity solely owned and controlled by Yi-Hsiu Lin, the Company’s Chief Executive Officer and a member of the Company’s board of directors. Pursuant to the Stock Forfeiture Letter, on June 30, 2020, First Leader Capital Ltd. forfeited and surrendered shares (the “Surrendered Shares”) of the Company’s common stock, par value $ per share (the “Common Stock”), and the Surrendered Shares were automatically cancelled and retired (the “Stock Cancellation”). First Leader Capital Ltd. agreed to forfeit and cancel the Surrendered Shares in exchange for the benefit from reducing the Company’s outstanding Common Stock to be more in line with what management deems to be market expectations based on the Company’s current valuation. shares were canceled on September 21, 2020.
On
March 1, 2020, the Company entered into a consulting agreement with a consultant to provide business advisory services to the Company
for a -year
term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $
On
June 30, 2020, As of August 31, 2020, common shares of the Company have been issued to the employee. The fair value of
the shares of restricted common stock to him was $
The Company issued shares of common stock for the acquisition of NPI in August 2020 (Note 1).
| 28 |
On
July 27, 2020, the Company issued an offer letter to a staff, pursuant to which the staff agreed to serve as an executive assistant of
the Company. For the service as an executive assistant, the staff received a monthly compensation in the form of NT$ ($) for
the first three months (probationary period) and thereafter NT$ ($) in cash. In addition, the staff would have been granted
shares of restricted common stock upon completion of the first year of service and shares of restricted common stock if
the staff met the criteria established by the Company. The fair value of the shares of restricted common stock was $
On
August 1, 2020, the Company entered into an agreement with a company for provision of consulting services by its employee to the Company
for a -year term. Pursuant to the agreement, the Company agreed to pay the provider an annual compensation of $
On
August 3, 2020, the Company issued an offer letter to a staff, pursuant to which the staff agreed to serve as an executive assistant
of the Company. For the service as an executive assistant, the staff received a monthly compensation in the form of NT$($)
in cash. In addition, the staff would have been granted shares of restricted common stock upon completion
of the first year of service and shares of restricted common stock if she met
the criteria established by the Company. The fair value of the shares of restricted common stock was $
On
November 1, 2020, the Company entered into consulting agreements with two consultants to assist in monitoring and improving FinMaster
APP for a -year term. Pursuant to the agreement, the Company agreed to pay the consultants in the form of shares of restricted
common stock, which vested on November 1, 2020, prorated for any partial year. The fair value of the shares of restricted common stock
was $
On February 8, 2021, the Company and First Leader Capital Ltd. mutually agreed to forfeit and surrender further shares (the “Surrendered Shares”) of the Company’s common stock, par value $ per share (the “Common Stock”), and the Surrendered Shares were automatically cancelled and retired. First Leader Capital Ltd. agreed to forfeit and cancel the Surrendered Shares in exchange for the benefit from reducing the Company’s outstanding Common Stock to be more in line with what management deems to be market expectations based on the Company’s current valuation.
On May 17, 2021, the Company and First Leader Capital Ltd. mutually agreed to forfeit and surrender further shares (the “Surrendered Shares”) of the Company’s common stock, par value $ per share (the “Common Stock”), and the Surrendered Shares were automatically cancelled and retired. First Leader Capital Ltd. agreed to forfeit and cancel the Surrendered Shares in exchange for the benefit from reducing the Company’s outstanding Common Stock to be more in line with what management deems to be market expectations based on the Company’s current valuation.
On
September 1, 2021, the Company issued an offer letter to Hsu Kuo-Hsun, pursuant to which Mr. Hsu agreed to serve as chairman of LOC for
years. For his service provided, Mr. Hsu will receive a monthly remuneration of NT$
On
September 1, 2021, the Company issued a Senior Vice President (“SVP”) offer letter to Chiao Chien, pursuant to which Mr.
Chiao agreed to serve as SVP of user experience of the Company for years. For his service provided, Mr. Chiao
will receive a monthly remuneration of RMB
From
May 2020 to August 2021, the Company entered into securities purchase agreements with several accredited investors whereby the investors
purchased a total of shares of the Company’s common stock
at an average price of $ per share. The Company received aggregate gross proceeds of $
During
September and October 2021, the Company entered into securities purchase agreements with several accredited investors whereby the investors
purchased a total of shares of the Company’s common stock at an average price of $ per share. The Company received
aggregate gross proceeds of $
As of November 30, 2021, unrecognized share-based compensation expense was $.
As of November 30, 2021, shares were granted to employees and vested but not yet issued.
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14. COMMITMENTS AND CONTINGENCIES
During
the period ended November 30, 2021, the Company entered into agreements with independent third parties to lease office and staff quarter
premises in Taiwan, Shenzhen, Beijing and Hong Kong on a monthly basis for the operations of the Company. The rental expense for the
three months ended November 30, 2021 and 2020 were $
The following table lists the future minimal payments to be paid by the Company under a non-cancellable operating lease for office space in Taiwan with an initial term of one-year as of November 30, 2021:
| Year ending November 30, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
The components of lease costs, lease term and discount rate with respect of leases with an initial term of at least 12 months are as follows:
| For the three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| Operating lease cost – classified as general and administrative expenses | $ | $ | ||||||
| Weighted Average Remaining Lease Term – Operating leases | ||||||||
| Weighted Average Discounting Rate – Operating leases | % | % | ||||||
The following is a schedule, by years, of maturities of lease liabilities as of November 30, 2021:
| Operating leases | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | - | |||
| 2025 | - | |||
| 2026 | - | |||
| Thereafter | - | |||
| Total undiscounted cash flows | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
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Contingencies
The
Labor Contract Law of the People’s Republic of China requires employers to assure the liability of the severance payments if employees
are terminated due to restructuring, termination as a result of a mutual agreement or termination as a result of the expiration of a
fixed-term labor contract. The Company has estimated its possible severance payments of approximately $
In
Taiwan, an employer can terminate an employment contract with notice (or with pay in lieu of notice) and with severance pay only due
to stoppage of business or a transfer of ownership, business losses or curtailment of business operations, suspension of operations due
to a force majeure event, or alteration of the business nature, forcing a reduction in the number of employees, and those employees cannot
be reassigned to other suitable positions, or the employee is incapable of performing the tasks assigned. The Company has estimated its
possible severance payments of approximately $
15. SUBSEQUENT EVENTS
On December 9, 2021, the Company received the third tranches gross proceeds of $ from the individual accredited investor who entered into a securities purchase agreement with the Company on August 20, 2021 whereby the investor may purchase up to shares of Common Stock at a price of $ per share in three tranches: up to shares purchasable on or before August 31, 2021, in the first tranche, and up to shares purchasable in each of the second and third tranches on or before October 29, 2021, and December 31, 2021, respectively, to purchase shares of the Company’s common stock. Pursuant to the terms of the securities purchase agreement, the investor will have piggyback registration rights with respect to the shares. The shares were issued on December 15, 2021.
On December 28 and 30, 2021, the Company received the second tranches gross proceeds of $ from the individual accredited investor who entered into a securities purchase agreement with the Company on August 5, 2021 whereby the investor may purchase up to shares of Common Stock at a price of $ per share in two tranches: up to shares purchasable on or before August 13, 2021, in the first tranche, and up to shares purchasable in the second tranches on or before December 31, 2021. Pursuant to the terms of the securities purchase agreement, the investor will have piggyback registration rights with respect to the shares. The shares were issued on December 30, 2021.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes appearing elsewhere in this Form 10-Q and our audited financial statements and related notes for the year ended August 31, 2021 included in our most recent annual report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors.
Company Overview
Leader Capital Holdings Corp. is an early stage technology company that conducts its operations through its wholly owned subsidiaries, Leader Financial Group Limited, a Seychelles corporation incorporated on March 6, 2017 (“LFGL”), and JFB Internet Service Limited, a Hong Kong corporation incorporated on July 6, 2017 (“JFB”).
Through LFGL, we act as the service provider for a mobile application investment platform that is owned by JFB. The platform connects investors with financial service providers in an effort to sharpen operational efficiency and seeks to address customer demands for more innovative services. It is a ready-made application created to meet the needs of financial service providers, especially trust companies and insurance companies. The platform is customizable and each financial institution can adjust the platform to better suit their client’s needs.
We had an agreement with a third party whereby we authorized the third party to use our investment platform and related applications until December 31, 2020 for a fee. We were in discussion with the third party and both parties decided to terminate the agreement at maturity.
We developed a new, more comprehensive mobile application, the FinMaster App. The FinMaster App intends to offer one-stop solution for multi-facet financial services. Key services include real-time Taiwan stock market quotes, financial industry information and news, social media activities, on-line live broadcast, A.I. stock selection and other features. With more than 370,000 downloads of the FinMaster App, we continue to collect data as well as user feedback to enhance current APP features and fine tune RD plans to optimize customer experience.
On August 17, 2020, the Company, through its wholly-owned subsidiary JFB, acquired all of the issued and outstanding capital stock (the “Acquisition”) of Nice Products Inc., a company organized under the laws of the British Virgin Islands and the Company’s software ODM developer of the FinMaster APP (“NPI”), pursuant to the terms and conditions of that certain Stock Purchase Agreement, dated as of August 17, 2020, among the Company, JFB, NPI, the selling shareholders of NPI identified therein (each a “Seller,” and, collectively, the “Sellers”) and the representative of the Sellers identified therein. The aggregate purchase price for the acquisition was $4,850,000, less certain discounts, expenses and reductions for outstanding NPI debt owed to the Company and/or its affiliates. The net purchase price for the acquisition was $3,506,042, payable in 8,415,111 shares of the Company’s common stock to the Sellers in accordance with their respective pro rata percentage.
As a result of the acquisition, the Company now owns, indirectly through JFB, 100% of NPI. NPI, through its wholly-owned subsidiaries, LOC Weibo Co., Ltd. and Beijing DataComm Cloud Media Technology Co., Ltd., companies organized under the laws of the Republic of China and the laws of the People’s Republic of China, respectively, engages primarily in the development of ecological-system applications, integration of big data and promotion of OTT applications. As a result of the acquisition, our FinMaster App was launched to the market in a timely and efficient manner and clients on this open platform are served more effectively and satisfactorily. Based on the successful development of our FinMaster App, LOC and BJDC jointly accumulated in-depth knowledge of FinTech App development, including the marketing expertise built up and the perfect allocation of the Company’s resources. We believe LCHD, through LOC and BJDC will further conclude more customized App contracts to help the clients to incubate the avant-garde Apps to expand their businesses efficiently and effectively.
| 32 |
We have incurred significant operating losses. As of November 30, 2021 and August 31, 2021, our accumulated deficits were $25,119,954 and $23,001,067, respectively. We generated revenue of $14,805 and $22,863 for the three months ended November 30, 2021 and 2020, respectively. Our net losses were principally attributed to general and administrative expenses.
Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
As of November 30, 2021, we have suffered recurring losses from operations, and recorded an accumulated deficit and a working capital deficit of $25,119,954 and $2,873,919, respectively. These conditions raise substantial doubt about our ability to continue as a going concern. The ability to continue as a going concern is dependent upon our profit generating operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due.
We expect to finance our operations primarily through cash flows from operations, loans from existing directors and shareholders and placements of capital stock for additional funding. In the event that we require additional funding to finance the growth of our current and expected future operations as well as to achieve our strategic objectives, a shareholder has indicated the intent and ability to provide additional financing. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stock holders, in the case of equity financing.
Our business continues to be impacted by the COVID-19 pandemic. Significant COVID-19 related restrictions, including those in response to the outbreak of the Delta variant in the second and third quarters and the Omicron variant in the fourth quarter of calendar year 2021, have continued and in some instances, have been significantly tightened, in markets in which we operate. Taiwan’s Central Epidemic Command Center (“CECC”) confirms that the outbreak of the latest wave of COVID-19 cases stemming from Taoyuan International Airport in the first half of January 2022 already generated more than 124 domestic infection cases and reported more than 804 imported cases. More Taiwanese are flying back to Taiwan recently due to Chinese New Year started from February 1, 2022, which triggered another wave of the outbreak in Taoyuan City, where Taoyuan International Airport located. These new local cases in Taoyuan City include local bank branch-related 17 cases and restaurant-related 23 cases, where the bank abovementioned held a year-end dinner, but cases are still developing. CECC urgently re-activated the online booking system for the COVID-19 booster shots on Jan 18, 2022.
Border controls and travel restrictions, such as those imposed in Taiwan, Hong Kong, and mainland China, have had and may continue to have an adverse effect on our operations. The impact of the pandemic and the measures taken by the relevant governments to contain the disease on the global economy, the economies of the markets in which we operate, and the movement of people have adversely affected, and we expect will continue to adversely affect, the roll out of our business plans and results of operations throughout the fiscal year of 2022. If any of our employees is suspected of having infected COVID-19, we may under certain circumstances be required to quarantine such employees and the affected areas of our premises, thus we have to temporarily suspend part of or all of our operations. Furthermore, government actions to contain the outbreak may restrict the level of economic activities in affected regions, including Taiwan, and affect the willingness and ability of our employees and customers to travel, which may also adversely affect our business and prospects. As a result, we cannot assure you that any future outbreak of contagious diseases would not have a material adverse effect on our financial condition and results of operations.
These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as going concern.
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods indicated:
| For the three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| Net cash used in operating activities | $ | (1,092,170 | ) | $ | (766,843 | ) | ||
| Net cash used in investing activities | (22,005 | ) | (59,632 | ) | ||||
| Net cash provided by financing activities | 641,740 | 932,561 | ||||||
| Cash and cash equivalents and restricted cash, beginning of period | 787,154 | 432,087 | ||||||
| Effects of exchange rate changes on cash and cash equivalents and restricted cash | 1,175 | 12,332 | ||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 315,894 | $ | 550,505 | ||||
| 33 |
Cash Used in Operating Activities
Net cash used in operating activities for the three months ended November 30, 2021 and 2020 was $1,092,170 and $766,843, respectively. The cash used in operating activities was mainly for payment of general and administrative expenses.
Cash Used in Investing Activities
Net cash used in investing activities for the three months ended November 30, 2021 and 2020 was $22,005 and $59,632, respectively. The net cash used in investing activities was related to the acquisition of plant and equipment and intangible assets.
Cash Provided by Financing Activities
Net cash provided by financing activities for the three months ended November 30, 2021 and 2020 was $641,740 and $932,561, respectively. The cash provided by financing activities were related to the issuance of shares and convertible notes, and advances from (to) shareholders and a director.
Results of Operations
Comparison for the three months ended November 30, 2021 and 2020
| For the three months ended | ||||||||
| November 30, 2021 | November 30, 2020 | |||||||
| Revenue | $ | 14,805 | $ | 22,863 | ||||
| Research and development expenses | (146,283 | ) | (146,971 | ) | ||||
| Sales and marketing expenses | (213,772 | ) | (109,702 | ) | ||||
| General and administrative expenses | (1,670,490 | ) | (2,953,167 | ) | ||||
| Loss from operations | (2,015,740 | ) | (3,186,977 | ) | ||||
| Interest expenses | (28,500 | ) | (15,446 | ) | ||||
| Loss on change in fair value of convertible notes | (104,500 | ) | (481,043 | ) | ||||
| Other income | 25,371 | 21,292 | ||||||
| Loss before income tax | (2,123,369 | ) | (3,662,174 | ) | ||||
| Income tax benefit | 4,482 | 5,114 | ||||||
| Net loss | $ | (2,118,887 | ) | $ | (3,657,060 | ) | ||
Revenue
We signed an agreement with a third party whereby we authorized the third party to use our investment platform and related applications, from January 1, 2018 to December 31, 2020, for an upfront service fee. An additional fee is charged upon the third party’s sale of products on our mobile application. From September 2020, we generated additional revenue from a new, more comprehensive mobile application, which we refer to as the FinMaster mobile application (the “FinMaster App” and together with the JFB platform, the “Apps”), with similar functions as the JFB platform. We also provided software maintenance services.
We generated revenue of $14,805 and $22,863 for the three months ended November 30, 2021 and 2020, respectively. During the three months ended November 30, 2021, we, through the newly acquired subsidiary, NPI, earned revenue of $14,805, compared to $21,196 for the three months ended November 30, 2020. Since some of the custom-made APP projects have been completed, the revenue decreased. We look forward to strengthening our APP development through media, marketing and advertisement to raise the income.
| 34 |
Research and Development Expenses
Research and development expenses for the three months ended November 30, 2021 and 2020 amounted to $146,283 and $146,971, respectively which primarily represented the charges for RD and consulting work performed by third parties and salaries and benefits for those employees engaged in research, design and development activities after our acquisition of NPI in August 2020.
Sales and Marketing Expenses
Sales and marketing expenses were $213,772 and $109,702 for the three months ended November 30, 2021 and 2020, respectively. It consists of the advertising costs and the redeemable point liability charges after our acquisition of NPI in August 2020. To promote the FinMaster APP downloads, LOC allocated the substantial funding to the marketing for the three months ended November 20, 2021, thus the sales and marketing expenses increased.
General and Administrative Expenses
General and administrative expenses were $1,670,490 and $2,953,167 for the three months ended November 30, 2021 and 2020, respectively. We recognized share-based compensation to directors, employees and consultants of $835,229 and $2,159,261 for the three months ended November 30, 2021 and 2020, respectively. Such share-based compensation decreased by $1.3 million from the three months ended November 30, 2020 to the same period in 2021.
Loss on change in fair value of convertible notes
We incurred a fair value loss of $104,500 and $481,043 on our convertible promissory notes for the three months ended November 30, 2021 and 2020, respectively. We elected to measure the convertible promissory notes in their entirety at fair value with changes in fair value recognized as non-operating income or loss at each balance sheet date.
Other Income
Other income for the three months ended November 30, 2021 amounted to $25,371 as compared to $21,292 in the same quarter of prior year. Other income mainly consists of the exchange difference, net.
Net Loss
Our net loss was $2,118,887 and $3,657,060 for the three months ended November 30, 2021 and 2020, respectively. The net loss was mainly derived from our general and administrative expenses.
Off-Balance Sheet Arrangements
As of November 30, 2021, we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.
| 35 |
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our principal executive officer and principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of November 30, 2021. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.
Management conducted its evaluation of disclosure controls and procedures under the supervision of our principal executive officer and principal financial and accounting officer. Based upon, and as of the date of this evaluation, our principal executive officer and principal financial and accounting officer have concluded that our disclosure controls and procedures were not effective as of November 30, 2021 due to the following material weaknesses in our internal control over financial reporting.
| 1. | We do not have an audit committee – While we are not obligated to have an audit committee, it is management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial reporting. Currently, our Chief Executive Officer and directors act in the capacity of the audit committee, and do not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities. |
| 2. | We do not have adequate written policies and procedures – Due to lack of adequate written policies and procedures for accounting and financial reporting, we did not establish a formal process to close our books monthly and account for all transactions in a timely manner. |
| 3. | We did not implement appropriate information technology controls – As at August 31, 2020, we retained copies of all financial data and material agreements; however, there is no formal procedure or evidence of normal backup of our data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors and we do not have sufficient control policies that prevent inappropriate and unauthorized use of the system across all layers of systems. |
| 4. | We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements. |
Our management does not believe that these material weaknesses had a material effect on our financial condition or results of operations or caused our unaudited condensed consolidated financial statements as of and for the period ended November 30, 2021 to contain a material misstatement.
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Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
| 1. | Create a position to segregate duties consistent with control objectives and increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. |
| 2. | Prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity and debt transactions, in a timely manner. |
| 3. | Add staff members to our management team to make sure that information required to be disclosed in our reports filed and submitted under the Exchange Act is recorded, processed, summarized and reported as and when required and the staff members will have segregated responsibilities with regard to these responsibilities. |
| 4. | Plan to hire professional consultant to review and assist the company to design and implement proper information technology controls and policies on the company’s operations. |
We anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2022.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ending November 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings as defined by Item 103 of Regulation S-K, to which we are a party or of which any of our property is the subject, other than ordinary routine litigation incidental to the Company’s business.
There are no proceedings in which any of the directors, officers or affiliates of the Company, or any registered or beneficial holder of more than 5% of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company.
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Other than set forth below, there were no sales of unregistered securities during the quarter ended November 30, 2021 that were not previously reported on a Current Report on Form 8-K.
During September and October 2021, the Company entered into securities purchase agreements with several accredited investors whereby the investors purchased a total of 4,160,000 shares of the Company’s common stock at an average price of $0.16 per share. The Company received aggregate gross proceeds of $665,000. Pursuant to the terms of the securities purchase agreements, the investors have piggyback registration rights with respect to the shares. The offer and sale of securities were made outside of the United States and the issuances were exempt from registration pursuant to Rule 901 under Regulation S of the Securities Act of 1933.
Pursuant to the terms of the securities purchase agreements, the investors have piggyback registration rights with respect to the shares. The shares were fully issued by November 30, 2021.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LEADER CAPITAL HOLDINGS CORP | ||
| (Name of Registrant) | ||
| Date: January 19, 2022 | ||
| By: | /s/ Yi-Hsiu Lin | |
Yi-Hsiu Lin Chief Executive Officer, President, Treasurer and Director (Principal Executive Officer and Principal Financial Officer) | ||
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