Leader Capital Holdings Corp 10-Q/A for FY2020 Q2
Leader Capital Holdings Corp. (LCHD)
About this 10-Q/A
Leader Capital Holdings Corp filed this 10-Q/A on July 19, 2021, covering the quarter ended February 29, 2020 (FY2020 Q2).
Headline figures
Quarter ended February 29, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1666
- Net loss
- $1.24M
- compared with a net loss of $145.78K a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No.1)
(Mark One)
| [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For The Quarterly Period Ended February 29, 2020
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 333-221548
LEADER CAPITAL HOLDINGS CORP.
(Exact name of registrant issuer as specified in its charter)
| Nevada | 37- 1853394 | |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) | |
Room 2708-09, Metropolis Tower, 10 Metropolis Drive, Hung Hom, Hong Kong |
||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s phone number, including area code: +852-3487-6378
Securities registered pursuant to Section 12(b) of the Act:
| 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.
YES [X] 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).
YES [X] 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 [ ] | ||
| Non-accelerated Filer [X] | Smaller reporting company [X] | ||
| Emerging growth company [X] |
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 [ ] No [X]
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 April 1, 2020 | |||
| Common Stock, $0.0001 par value | 113,684,073 | |||
EXPLANATORY NOTE
This quarterly report on Form 10-Q is being filed as Amendment No. 1 to our Quarterly Report on Form 10-Q which was originally filed on April 14, 2020 with the Securities and Exchange Commission. We are (i) amending and restating our financial statements to correct errors in the accounting treatment of unvested shares issued to our directors, employees and consultants in fiscal 2020; and (ii) correcting the front cover page to mark the YES box that we have filed all required reports in the preceding 12 months
Except as specifically referenced herein, this Amendment No. 1 to the Quarterly Report on Form 10-Q does not reflect any event occurring subsequent to April 14, 2020, the filing date of the original report.
LEADER CAPITAL HOLDINGS CORP.
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2020
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. 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; | |
| ● | changes or developments in laws, regulations or taxes in our industry; | |
| ● | actions taken or omitted to be taken by third parties including our suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities; | |
| ● | competition in our industry; | |
| ● | the loss of or failure to obtain any license or permit necessary or desirable in the operation of our business; | |
| ● | 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. |
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
LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES
INDEX TO UNAUDITED FINANCIAL STATEMENTS
LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| As of | ||||||||
| February 29, 2020 | August 31, 2019 | |||||||
| (Unaudited and as restated) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 231,793 | $ | 447,562 | ||||
| Prepayments, deposits and other receivables | 101,003 | 55,792 | ||||||
| Notes receivable | 1,637,810 | 724,858 | ||||||
| Total current assets | 1,970,606 | 1,228,212 | ||||||
| Non-current assets | ||||||||
| Plant and equipment, net | 7,992 | 12,279 | ||||||
| Notes receivable, non-current | - | 100,000 | ||||||
| Total non-current assets | 7,992 | 112,279 | ||||||
| TOTAL ASSETS | $ | 1,978,598 | $ | 1,340,491 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Other payables and accrued liabilities | $ | 72,679 | $ | 43,650 | ||||
| Due to a director | 1,107,977 | 262,159 | ||||||
| Total current liabilities | 1,180,656 | 305,809 | ||||||
| Non-current liabilities | ||||||||
| Bonds payable | 600,000 | 600,000 | ||||||
| Convertible notes payable to related parties | 130,000 | - | ||||||
| Total non-current liabilities | 730,000 | 600,000 | ||||||
| TOTAL LIABILITIES | $ | 1,910,656 | $ | 905,809 | ||||
| COMMITMENTS AND CONTINGENCIES (Note 12) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $0.0001 par value; 200,000,000 shares authorized; None issued and outstanding | - | - | ||||||
| Common stock, $ 0.0001 par value; 600,000,000 shares authorized; 113,684,073 and 105,184,073 shares issued and outstanding as of February 29, 2020 and August 31, 2019 | 11,369 | 10,519 | ||||||
| Additional paid-in capital | 4,013,059 | 1,888,909 | ||||||
| Accumulated other comprehensive income | - | - | ||||||
| Accumulated deficits | (3,956,486 | ) | (1,464,746 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | $ | 67,942 | $ | 434,682 | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,978,598 | $ | 1,340,491 | ||||
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 six months ended | For the three months ended | |||||||||||||||
February 29, 2020 | February 28, 2019 | February 29, 2020 | February 28, 2019 | |||||||||||||
| REVENUE | $ | 3,333 | $ | - | $ | 1,666 | $ | - | ||||||||
| COST OF REVENUE | - | - | - | - | ||||||||||||
| GROSS PROFIT | 3,333 | - | 1,666 | - | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative | (2,484,998 | ) | (568,630 | ) | (1,246,851 | ) | (157,836 | ) | ||||||||
| LOSS FROM OPERATIONS | (2,481,665 | ) | (568,630 | ) | (1,245,185 | ) | (157,836 | ) | ||||||||
| Interest expense | (30,107 | ) | - | (15,148 | ) | - | ||||||||||
| (2,511,772 | ) | (568,630 | ) | (1,260,333 | ) | (157,836 | ) | |||||||||
| OTHER INCOME | ||||||||||||||||
| Other income – from related parties | - | 22,707 | - | 11,353 | ||||||||||||
| Other income – from non-related parties | 50,282 | 830 | 28,473 | 703 | ||||||||||||
| 50,282 | 23,537 | 28,473 | 12,056 | |||||||||||||
| LOSS BEFORE INCOME TAX | (2,461,490 | ) | (545,093 | ) | (1,231,860 | ) | (145,780 | ) | ||||||||
| Income tax expense | (30,250 | ) | - | (10,250 | ) | - | ||||||||||
| NET LOSS | (2,491,740 | ) | (545,093 | ) | (1,242,110 | ) | (145,780 | ) | ||||||||
| Other comprehensive loss | ||||||||||||||||
| Foreign currency translation loss | - | 1 | - | 1 | ||||||||||||
| COMPREHENSIVE LOSS | (2,491,740 | ) | (545,092 | ) | (1,242,110 | ) | (145,779 | ) | ||||||||
| Net loss per share - Basic and diluted | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | # | |||||
| Weighted average number of shares of common stock outstanding - Basic and diluted | 113,684,073 | 104,665,770 | 113,684,073 | 104,665,770 | ||||||||||||
# Less than $(0.01) per share
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 FEBRUARY 29, 2020 | ||||||||||||||||||||||||
| COMMON STOCK | ADDITIONAL | ACCUMULATED OTHER | TOTAL | |||||||||||||||||||||
| Number
of shares | Amount | PAID
IN CAPITAL | COMPREHENSIVE INCOME | ACCUMULATED DEFICITS | STOCKHOLDERS’ EQUITY | |||||||||||||||||||
| (As restated) | (As restated) | |||||||||||||||||||||||
| Balance as of December 1, 2019 | 105,184,073 | $ | 10,519 | $ | 2,951,409 | - | $ | (2,714,376 | ) | $ | 247,552 | |||||||||||||
| Issuance of shares | 8,500,000 | 850 | (850 | ) | - | - | - | |||||||||||||||||
| Share based compensation | - | - | 1,062,500 | - | - | 1,062,500 | ||||||||||||||||||
| Net loss | - | - | - | - | (1,242,110 | ) | (1,242,110 | ) | ||||||||||||||||
| Balance as of February 29, 2020 | 113,684,073 | $ | 11,369 | $ | 4,013,059 | $ | - | $ | (3,956,486 | ) | $ | 67,942 | ||||||||||||
| FOR THE THREE MONTHS ENDED FEBRUARY 28, 2019 | ||||||||||||||||||||||||
| COMMON STOCK | ADDITIONAL | ACCUMULATED OTHER | TOTAL | |||||||||||||||||||||
| Number
of shares | Amount | PAID IN CAPITAL | COMPREHENSIVE INCOME | ACCUMULATED DEFICITS | STOCKHOLDERS’ EQUITY | |||||||||||||||||||
| Balance as of December 1, 2018 | 104,665,770 | $ | 10,467 | $ | 1,629,809 | - | $ | (961,965 | ) | $ | 678,311 | |||||||||||||
| Foreign currency translation loss | - | - | - | (1 | ) | - | (1 | ) | ||||||||||||||||
| Net loss | - | - | - | - | (145,779 | ) | (145,779 | ) | ||||||||||||||||
| Balance as of February 28, 2019 | 104,665,770 | $ | 10,467 | $ | 1,629,809 | $ | (1 | ) | $ | (1,107,744 | ) | $ | 532,531 | |||||||||||
| FOR THE SIX MONTHS ENDED FEBRUARY 29, 2020 | ||||||||||||||||||||||||
| ACCUMULATED | ||||||||||||||||||||||||
| COMMON STOCK | ADDITIONAL | OTHER | TOTAL | |||||||||||||||||||||
| Number
of shares | Amount | PAID
IN CAPITAL | COMPREHENSIVE INCOME | ACCUMULATED DEFICITS | STOCKHOLDERS’ EQUITY | |||||||||||||||||||
| (As restated) | (As restated) | |||||||||||||||||||||||
| Balance as of September 1, 2019 | 105,184,073 | $ | 10,519 | $ | 1,888,909 | - | $ | (1,464,746 | ) | $ | 434,682 | |||||||||||||
| Issuance of shares | 8,500,000 | 850 | (850 | ) | - | - | - | |||||||||||||||||
| Share based compensation | - | - | 2,125,000 | - | - | 2,125,000 | ||||||||||||||||||
| Net loss | - | - | - | - | (2,491,740 | ) | (2,491,740 | ) | ||||||||||||||||
| Balance as of February 29, 2020 | 113,684,073 | $ | 11,369 | $ | 4,013,059 | - | $ | (3,956,486 | ) | $ | 67,942 | |||||||||||||
| FOR THE SIX MONTHS ENDED FEBRUARY 28, 2019 | ||||||||||||||||||||||||
| ACCUMULATED | ||||||||||||||||||||||||
| COMMON STOCK | ADDITIONAL | OTHER | TOTAL | |||||||||||||||||||||
| Number
of shares | Amount | PAID
IN CAPITAL | COMPREHENSIVE INCOME | ACCUMULATED DEFICITS | STOCKHOLDERS’ EQUITY | |||||||||||||||||||
| Balance as of September 1, 2018 | 104,275,395 | $ | 10,428 | $ | 1,434,661 | - | $ | (562,652 | ) | $ | 882,437 | |||||||||||||
| Shares issued for development costs | 390,375 | 39 | 195,148 | - | - | 195,187 | ||||||||||||||||||
| Foreign currency translation loss | - | - | - | (1 | ) | - | (1 | ) | ||||||||||||||||
| Net loss | - | - | - | - | (545,092 | ) | (545,092 | ) | ||||||||||||||||
| Balance as of February 28, 2019 | 104,665,770 | $ | 10,467 | $ | 1,629,809 | (1 | ) | $ | (1,107,744 | ) | $ | 532,531 | ||||||||||||
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 six months ended | ||||||||
February 29, 2020 | February 28, 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (2,491,740 | ) | $ | (545,092 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Shares issued for mobile application development cost | - | 195,187 | ||||||
| Share based compensation | 2,125,000 | - | ||||||
| Impairment loss | - | 102,564 | ||||||
| Depreciation | 4,658 | 4,235 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepayments, deposits and other receivables | (45,211 | ) | 26,153 | |||||
| Accounts payable and accrued liabilities | 29,029 | (12,671 | ) | |||||
| Net cash used in operating activities | (378,264 | ) | (229,624 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Issuance of notes receivable | (812,952 | ) | (50,000 | ) | ||||
| Non-marketable equity investments | - | (102,564 | ) | |||||
| Purchase of plant and equipment | (371 | ) | - | |||||
| Net cash used in investing activities | (813,323 | ) | (152,564 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Repayment from related parties | - | 878 | ||||||
| Proceeds from convertible notes issuance | 130,000 | - | ||||||
| Advance from a director | 845,818 | 487 | ||||||
| Net cash provided by financing activities | 975,818 | 1,365 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | - | (1 | ) | |||||
| Net decrease in cash and cash equivalents | (215,769 | ) | (380,824 | ) | ||||
| Cash and cash equivalents, beginning of period | 447,562 | 839,323 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 231,793 | $ | 458,499 | ||||
| SUPPLEMENTAL CASH FLOWS INFORMATION | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest paid | $ | 30,000 | $ | - | ||||
See accompanying notes to the condensed consolidated financial statements.
| 5 |
LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO condensed consolidated FINANCIAL STATEMENTS
(UNaudited)
(In U.S. dollars except for share data)
1. ORGANIZATION AND BUSINESS BACKGROUND
Leader Capital Holdings Corp. 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. Leader Financial Group Limited | Seychelles / March 6, 2017 | Investment Holding | ||
| 2. JFB Internet Service Limited | Hong Kong / July 6, 2017 | Provides an Investment Platform |
Leader Capital Holdings Corp. and its subsidiaries are hereinafter referred to as the “Company”.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These interim condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim 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 Form 10-K for the year ended August 31, 2019, which was filed with the SEC on November 29, 2019.
Going Concern
The accompanying interim 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.
The Company has suffered recurring losses from operations, and recorded an accumulated deficit of $3,956,486 as of February 29, 2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due.
The Company expects to finance its operations primarily through loans from existing directors and stockholders, sales of capital stock and cash flow from operations. In the event that the Company requires additional funding to finance the Company’s current and expected future operations, as well as to achieve its strategic objectives, a stockholder 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. Any such additional financing may contain undue restrictions on the Company’s operations and/or cause substantial dilution to its stockholders.
| 6 |
These interim 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.
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. 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 condensed consolidated financial statements.
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.
On September 1, 2018, the Company engaged LOC Weibo Co., Ltd (“LOC”), an unrelated company incorporated in Taiwan, to develop a mobile application in four stages for total consideration of TWD20,000,000 ($651,466), payable in the form of shares of the Company’s restricted common stock. The first and second stages of development for the basic functions of the mobile application have been completed, and the Company has issued an aggregate total of 908,678 shares of restricted common stock at a price per share of $0.50 for the work completed up to February 29, 2020.
Of the shares of restricted common stock that have been issued to LOC, nil and 390,375 shares of restricted common stock were issued during the six months ended February 29, 2020 and February 28, 2019, respectively, for the work completed during each period. The Company expensed $0 and $195,187 in development costs as general and administrative expenses for the six months ended February 29, 2020 and February 28, 2019, respectively; and $0 for the three months ended February 29, 2020 and February 28, 2019. As of February 29, 2020, the development of the mobile application is still in progress and the Company has not capitalized any of the development costs.
| 7 |
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. Revenue is recognized as performance obligations are satisfied.
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
Revenue is 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.
Currently, the Company has an agreement with a third party whereby the Company authorized the third party to use the Company’s investment platform and related applications from January 1, 2018 to December 31, 2020. Income from providing investment platform services with the use of a mobile application is recognized when the service is performed.
Revenue by Recognition Over Time vs Point in Time
| For the six months ended | For the three months ended | |||||||||||||||
| February 29, 2020 | February 28, 2019 | February 29, 2020 | February 28, 2019 | |||||||||||||
| Revenue by recognition over time | $ | 3,333 | $ | - | $ | 1,666 | $ | - | ||||||||
| Revenue by recognition at a point in time | - | - | - | - | ||||||||||||
| $ | 3,333 | $ | - | $ | 1,666 | $ | - | |||||||||
Other Income – Related Party
Revenue from the subletting of leasehold land and buildings is recognized on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the leased assets. The Company leased its commercial office in Taipei from April 1, 2018 to February 28, 2019 under a non-cancelable operating lease with a term of 31 months to a related party, Greenpro LF Limited, which is owned by Mr. Yi-Hsiu Lin, the Company’s Chief Executive Officer and a member of its board of directors (“Mr. Lin”), and Mr. Chong Kuang Lee.
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.
| 8 |
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 fixtures | 3 | |||
| Office equipment | 3 | |||
| Leasehold improvement | 3 | |||
Impairment of Long-Lived 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. No impairment has been recorded by the Company for the six months ended February 29, 2020 and February 28, 2019.
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. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
The Company recorded a liability for an uncertain income tax position, tax penalties and any imputed interest thereon of $30,250 and $0 at February 29, 2020 and August 31, 2019, respectively, included in accrued payables and accrued liabilities due to the potential of incurring a tax penalty for late filing of its tax returns with the Internal Revenue Service and, if recognized, such penalty will affect the Company’s effective tax rate.
The Company conducts business in Hong Kong and is subject to tax in the jurisdiction of Hong Kong. As a result of its business activities, the Company will file tax returns that are subject to examination by the Hong Kong tax authority.
Net Income/(Loss) Per Share
The Company calculates net income/(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:
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| Six Months Ended | Three Months Ended | |||||||||||||||
| February 29, 2020 | February 28, 2019 | February 29, 2020 | February 28, 2019 | |||||||||||||
| Net Loss | $ | (2,491,740 | ) | $ | (545,093 | ) | $ | (1,242,110 | ) | $ | (145,780 | ) | ||||
| Weighted average number of shares of common stock outstanding - Basic and diluted | 113,684,073 | 104,665,770 | 113,684,073 | 104,665,770 | ||||||||||||
| Net loss per share - Basic and diluted | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | # | |||||
# Less than $(0.01) per share
As of February 29, 2020, 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.
In June 2018, the FASB issued 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. ASU 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC Topic 606, Revenue from Contracts with Customers. The Company adopted ASU 2018-07 on September 1, 2019 and there was no cumulative effect of adoption.
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 subsidiaries in Seychelles and Hong Kong maintain their books and records in US$ and Hong Kong Dollars (“HK$”), respectively. HK$ is the functional currency and the primary currency of the economic environment in which the Company operates.
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.
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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.
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 re-measured 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.
Given the Company’s shares are thinly traded, the conversion features of the convertible promissory notes issued in February 2020 did not qualify as embedded derivative instruments and were not bifurcated from the host convertible notes payable. Accordingly, these instruments have not been classified as derivative liabilities in the accompanying consolidated balance sheet.
Fair Value of Financial Instruments:
The carrying value of the Company’s financial instruments, such as cash and cash equivalents, deposits, notes receivable, accounts payable and accrued liabilities, balances due to a director, bonds payable and notes 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. |
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The Company did not have any liabilities carried at fair value measured on a recurring basis as of February 29, 2020 and August 31, 2019.
Leasing
Under ASC Topic 842, “Leases “, the Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date, based on the present value of the remaining lease payments, and discounted using the discount rate for the lease at the commencement date. The ROU assets represent the Company’s right to control the use of an identified asset for the lease term and the 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. The ROU assets also include any lease payments made prior to the commencement of the lease and is recorded net of any lease incentives received. 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 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.
The Company’s only lease meets the definition of a short-term lease because the initial lease term is 12 months or less. Consequently, the Company does not recognize the ROU asset and the lease liability arising from this lease.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” and issued certain transitional guidance and subsequent amendments between January 2018 and March 2019 within ASU No. 2018-01, ASU No. 2018-10, ASU No. 2018-11, ASU No. 2018-20 and ASU No. 2019-01 (collectively, including ASU No. 2016-02, “ASC 842”), which amends ASC Topic 840, the existing accounting standards for lease accounting. ASC 842 generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted ASC 842 on September 1, 2019 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. The adoption of ASC 842 did not have a material impact on net assets and the consolidated statement of comprehensive income.
In June 2018, the FASB issued ASU 2018-07, which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. The new standard became effective for the Company on September 1, 2019. The adoption of ASU 2018-07 did not have a material impact on the Company’s condensed consolidated financial statements.
Reclassification
Certain prior year amounts have been reclassified to conform to the current year presentation. The reclassifications have no effect on the accompanying consolidated financial statements.
3. PLANT AND EQUIPMENT, NET
Plant and equipment as of February 29, 2020 and August 31, 2019 are summarized below:
| As of February 29, 2020 | As of August 31, 2019 | |||||||
| Furniture and fixtures | $ | 3,912 | $ | 3,912 | ||||
| Office equipment | 8,049 | 7,678 | ||||||
| Leasehold improvement | 16,178 | 16,178 | ||||||
| Total | 28,139 | 27,768 | ||||||
| Less: Accumulated depreciation | (20,147 | ) | (15,489 | ) | ||||
| Plant and Equipment, net | $ | 7,992 | $ | 12,279 | ||||
Depreciation expenses, classified as operating expenses, were $4,658 and $4,235 for the six months ended February 29, 2020 and February 28, 2019, respectively; and $2,344 and $2,144 for the three months ended February 29, 2020 and February 28, 2019, respectively.
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4. RELATED PARTY TRANSACTIONS
| Six Months Ended | Three Months Ended | |||||||||||||||
| February 29, 2020 | February 28, 2019 | February 29, 2020 | February 28, 2019 | |||||||||||||
| Professional fee - Greenpro Financial Consulting Limited (a) | $ | 15,253 | $ | 8,800 | $ | 1,753 | $ | 8,800 | ||||||||
| Other Income: | ||||||||||||||||
| Rental income from Greenpro LF Limited (b) | - | 22,707 | - | 11,351 | ||||||||||||
| (a) | The Company incurred professional fees of $15,253 and $8,800 for services provided by Greenpro Financial Consulting Limited for the six months ended February 29, 2020 and February 28, 2019, respectively; and $1,753 and $8,800 for the three months ended February 29, 2020 and February 28, 2019, respectively. The fees are due for payment to Greenpro Financial Consulting Limited upon receipt of an invoice. |
| The directors of Greenpro Financial Consulting Limited (Mr. Chong Kuang Lee and Mr. Che Chan Loke) are the directors of the investment managers of Greenpro Asia Strategic SPC. As of February 29, 2020, Greenpro Asia Strategic SPC is the holder of approximately 4.40% of the Company’s issued and outstanding common stock. | |
| (b) | The Company sublet its commercial office in Taipei to Greenpro LF Limited under a non-cancelable operating lease at a monthly rate of HK$22,000 ($2,821) until October 31, 2019, with a term of 31 months. Beginning November 1, 2019, the monthly rate would have adjusted to HK$22,900 ($2,936); however, the subletting arrangement was early terminated on February 28, 2019. Mr. Lin is a director of Greenpro LF Limited. |
| Greenpro LF Limited was also obligated to pay the Company HK$230,000 ($29,487) for leasehold improvements. The Company received $0 and $22,707 in rental income from Greenpro LF Limited for the six months ended February 29, 2020 and February 28, 2019, respectively; and $0 and $11,351 for the three months ended February 29, 2020 and February 28, 2019, respectively. The rental income is recorded under other income. | |
| (c) | The Company contemplated an investment of HK$800,000 ($102,564) in Leader Financial Asset Management Limited, a Hong Kong corporation, which was accounted for under the cost method of accounting. The Company’s directors, Mr. Lin and Mr. Shui Fung Cheng, are directors of Leader Financial Asset Management Limited. |
| The Company performed an impairment test on the investment and expected that it would not generate revenues in the near future. The impairment loss was $102,564 and $0 for the six months and three months ended February 28, 2019 respectively. The Company did not proceed with the investment and HK$800,000 ($102,564) was reflected as being refunded to the Company during the year ended August 31, 2019. |
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5. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
As
of | As
of | |||||||
| Rental and management fee deposits | $ | 34,272 | $ | 44,076 | ||||
| Other prepaid expenses | 5,135 | 135 | ||||||
| Interest receivables (Note 6) | 61,596 | 11,581 | ||||||
| $ | 101,003 | $ | 55,792 | |||||
6. NOTES RECEIVABLE
On February 13, 2019, the Company entered into a loan agreement with a third party, Kurrency Technology Holding Limited. (“Kurrency”) and loaned Kurrency a total of $50,000. The loan was unsecured and bears interest at a rate of 8% per annum. Kurrency agreed to repay the loan principal in five equal installments commencing on December 15, 2019. As of February 29, 2020 and August 31, 2019, the outstanding balance on the note was $30,500 and $50,000, respectively. Interest of $3,984 and $2,181 was accrued as of February 29, 2020 and August 31, 2019, respectively.
In April 2019, the Company entered into multiple loan agreements with LOC (Notes 2 and 11 and loaned LOC a total amount of $1,103,207 and $582,521 as of February 29, 2020 and August 31, 2019, respectively. The loans are secured by the personal guarantees of some of LOC’s stockholders, bear interest at a rate of 8% per annum, and are due on various dates from April 12, 2020 through November 6, 2020. Interest of $38,642 and $6,564 was accrued as of February 29, 2020 and August 31, 2019, respectively.
In May 2019, the Company entered into multiple short-term loan agreements with another unrelated company in Beijing, China, and loaned this company a total amount of $504,103 and $192,337 as of February 29, 2020 and August 31, 2019, respectively. The loans are secured by the personal guarantees of some of that company’s stockholders, bear interest at a rate of 8% per annum, and are due on various dates from May 14, 2020 through November 6, 2020. Interest of $18,970 and $2,836 was accrued as of February 29, 2020 and August 31, 2019, respectively.
The Company made the loans to LOC and the company in Beijing as part of the Company’s plans to expand its business in software technology.
7. OTHER PAYABLES AND ACCRUED LIABILITIES
| As of February 29, 2020 | As
of | |||||||
| Accrued expenses | $ | 55,719 | $ | 23,088 | ||||
| Unearned income | 5,556 | 8,889 | ||||||
| Other payables | 11,404 | 11,673 | ||||||
| $ | 72,679 | $ | 43,650 | |||||
The Company signed an agreement with a third party whereby it authorized the third party to use its investment platform and related applications, for a period until December 31, 2020, for an upfront service fee. An additional fee is charged upon the third party’s sale of products on the Company’s mobile application. Unearned income on this contract was $5,556 and $8,889 as of February 29, 2020 and August 31, 2019, respectively.
8. DUE TO A DIRECTOR
The outstanding amounts of $1,107,977 and $262,159 as of February 29, 2020 and August 31, 2019, respectively, represent an advance from Mr. Lin. It is unsecured and interest-free with no fixed payment term.
9. 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 $600,000. The bond will mature three years from August 14, 2019. Interest on the bond accrues at rate of 10% per annum and is payable on a semi-annual basis. The Company may exercise its right to repay this bond at any time on or before two years from the maturity date by wiring 100% of all outstanding principal and accrued interest to the purchaser.
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10. CONVERTIBLE NOTES PAYABLE TO RELATED PARTIES
Convertible notes payable consist of the following:
| As of February 29, 2020 | As
of | |||||||
| Convertible note payable to a shareholder, unsecured, 6% interest, due February 24, 2022 | $ | 110,000 | $ | - | ||||
| Convertible note payable to a shareholder, unsecured, 6% interest, due February 27, 2022 | 20,000 | - | ||||||
| Total notes payable | $ | 130,000 | $ | - | ||||
| Less: current portion | - | - | ||||||
| Convertible notes payable, net – Long-term | $ | 130,000 | $ | - | ||||
On February 24, 2020, the Company issued a convertible promissory note in the principal amount of $110,000, which accrues interest at the rate of 6% per annum, to a shareholder – Teh-Ling Chen. The note is due on February 24, 2022 and unsecured.
On February 27, 2020, the Company issued a convertible promissory note in the principal amount of $20,000, which accrues interest at the rate of 6% per annum, to a shareholder – Li-Ching Yang. The note is due on February 27, 2022 and unsecured.
For each of the promissory notes, the Company is entitled to a one-year extension. The outstanding principal amounts of the notes are convertible at any time at the option of the holders into common stock at a conversion price of either $1 per share if converted within one year or $1.5 per share if converted after one year. Each of the lenders may convert part of the principal outstanding in increments of $10,000 or multiples of $10,000 at any time. Accrued interest, if any, will be forfeited on any principal amount being converted.
11. COMMON STOCK
On September 1, 2018, the Company engaged LOC to develop a mobile application in four stages for total consideration of TWD20,000,000 ($651,466), payable in the form of shares of the Company’s restricted common stock. As of February 29, 2020, the first and second stages of development for the basic functions of the mobile application have been completed.
During the six months ended February 29, 2020 and February 28, 2019, the Company issued nil and 390,375 shares of restricted common stock, respectively and nil for the three months ended February 29, 2020 and February 28, 2019, respectively, for the work completed during the respective periods. The Company has issued an aggregate total of 908,678 shares of restricted common stock at a price per share of $0.50 for the work completed up to February 29, 2020 (Note 2).
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 two-year term. Pursuant to the agreement, Mr. Lin will be compensated at an annual rate of $50,000 per year (the “Base Compensation”), prorated for any partial year, payable in cash or with 2,500,000 shares of restricted common stock, which would vest as of September 16, 2019. In addition, Mr. Lin may be entitled to bonus compensation of up to three times Base Compensation based on his achievement of appropriate performance criteria to be determined by the board of directors or a committee thereof. Mr. Lin’s salary was paid in shares of common stock, which were issued on December 11,2019. The fair value of the shares of restricted common stock was $1,250,000, which was calculated based on a price per share of $0.50 and amortized over the service term. During the six months ended February 29, 2020 and February 28, 2019, the Company amortized $625,000 and $0, respectively and amortized $312,500 and $0 for the three months ended February 29, 2020 and February 28, 2019, respectively, as remuneration.
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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 one-year term. For his service as a director, Mr. Cheng will receive an annual compensation, prorated for any partial year, in the form of $30,000 in cash or 1,500,000 shares of restricted common stock. The offer letter provided that compensation, either in cash or shares of restricted common stock, shall be paid or granted immediately on September 1, 2019. The fair value of the shares of restricted common stock was $750,000, which was calculated based on a price per share of $0.50 and amortized over the service term. During the six months ended February 29, 2020 and February 28, 2019, the Company amortized $375,000 and $0, respectively and amortized $187,500 and $0 for the three months ended February 29, 2020 and February 28, 2019, respectively, as remuneration.
On September 1, 2019, the Company entered into a consulting agreement with a consultant to provide business development services to the Company for a one-year term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $40,000 in the form of 2,000,000 shares of restricted common stock, which vested on September 15, 2019, prorated for any partial year. The fair value of the shares of restricted common stock was $1,000,000, which was calculated based on a price per share of $0.50 and amortized over the service term. During the six months ended February 29, 2020 and February 28, 2019, the Company amortized $500,000 and $0, respectively and amortized $250,000 and $0 for the three months ended February 29, 2020 and February 28, 2019, respectively, as consulting expenses under this agreement.
On September 1, 2019, the Company entered into a consulting agreement with a consultant to provide business advisory services to the Company for a one-year term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $50,000 in the form of 2,500,000 shares of restricted common stock, which vested on September 15, 2019, prorated for any partial year. The fair value of the shares of restricted common stock was $1,250,000, which was calculated based on a price per share of $0.50 and amortized over the service term. During the six months ended February 29, 2020 and February 28, 2019, the Company amortized $625,000 and $0, respectively and amortized $312,500 and $0 for the three months ended February 29, 2020 and February 28, 2019, respectively, as consulting expenses under this agreement.
12. COMMITMENTS AND CONTINGENCIES
During the period ended February 29, 2020, the Company entered into an agreement with an independent third party to lease office premise in Hong Kong on a monthly basis for the operations of the Company. The rental expense for the six months ended February 29, 2020 and February 28, 2019 were $63,565 and $57,899, respectively and $28,913 and $22,811 for the three months ended February 29, 2020 and February 28, 2019, respectively.
The following table lists the future minimal payments to be paid by the Company under a non-cancellable operating lease for office space in Hong Kong with an initial term of one-year as of February 29, 2020:
| Year ending February 29, | ||||
| 2021 | $ | 5,111 | ||
| 2022 | - | |||
| 2023 | - | |||
| 2024 | - | |||
13. RESTATEMENTS
During the preparation of the Quarterly Report on Form 10-Q for the period ended May 31, 2021, the Company has discovered errors in the accounting treatment of unvested shares issued to the Company’s directors, employees and consultants in fiscal 2020 under FASB ASC Topic 718, Compensation – Stock Compensation, which resulted in misstatements in its previously issued condensed consolidated financial statements for the period ended February 29, 2020. The Company is amending and restating its 2020 financial statements to decrease prepayments, deposits and other receivables and additional paid-in-capital by $2,125,000 as of February 29, 2020.
The condensed consolidated financial statements for the period ended February 29, 2020 have been restated to reflect the correction of the misstatements. As a result, the Company has restated its condensed consolidated financial statements in accordance with ASC 250, Accounting Changes and Error Corrections (the “restated consolidated financial statements”).
The impact of these restatements on the condensed consolidated financial statements as previously reported is summarized below:
February 29, 2020 (as previously reported) | February 29, 2020 (as restated) | |||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| Prepayments, deposits and other receivables | $ | 2,226,003 | $ | 101,003 | ||||
| Total current assets | 4,095,606 | 1,970,606 | ||||||
| Total assets | 4,103,598 | 1,978,598 | ||||||
| Additional paid-up capital | 6,138,059 | 4,013,059 | ||||||
| Total stockholders’ equity | 2,192,942 | 67,942 | ||||||
| Total liabilities and stockholders’ equity | 4,103,598 | 1,978,598 | ||||||
For the three months ended February 29, 2020 (as previously reported) | For the three months ended February
29, 2020 | |||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY – Additional paid-in capital | ||||||||
| Share based compensation | - | 1,062,500 | ||||||
| Additional paid-in capital, balance as of February 29, 2020 | 6,138,059 | 4,013,059 | ||||||
For the six months ended February 29, 2020 (as previously reported) | For the six months ended February
29, 2020 | |||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY – Additional paid-in capital | ||||||||
| Share based compensation and issuance of shares for compensation plan | 4,249,150 | 2,124,150 | ||||||
| Additional paid-in capital, balance as of February 29, 2020 | 6,138,059 | 4,013,059 | ||||||
14. SUBSEQUENT EVENTS
Since the beginning of January 2020 and through the date of this report, the entire global economy has been substantially impacted by the coronavirus pandemic which began in China and has spread to most other parts of the world. The range of possible impacts on the Company’s business from the coronavirus pandemic could include, but would not necessarily be limited to, one or more of the following factors:
| - | A negative impact due to a contraction in the demand for the Company’s services | |
| - | A negative impact due to a contraction in the capital markets required to support the Company’s new business strategy | |
| - | A negative impact on the availability of key personnel necessary to conduct the Company’s business activities | |
| - | A negative impact on the business and operations of third-party service providers who perform critical services for the Company |
From March to April 2020, the Company entered into various short-term loan agreements with LOC and a company in Beijing, whereby the Company provided additional loans of $221,420 and $104,000 respectively. The loans are secured by the personal guarantees of some of the stockholders, bear interest at a rate of 8% per annum, and are due on various dates through April 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, 2019 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 its client’s needs.
Use of the JFB platform is currently free; however, we have an agreement with a third party whereby we have authorized the third party to use our investment platform and related applications until December 31, 2020 for a fee. In the future, the Company intends to generate additional revenue by developing a new, more comprehensive mobile application, which we refer to as the FinMaster mobile application, with similar functions as the JFB platform, to offer to our clients for a fee.
Going Concern
The accompanying 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.
We have suffered recurring losses from operations, and recorded an accumulated deficit of $3,956,486 as of February 29, 2020. 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 its obligations and repay our liabilities arising from normal business operations when they become due.
The Company expects to finance its operations primarily through loans from existing directors and stockholders, sales of capital stock and cash flow from operations. In the event that the Company requires additional funding to finance the Company’s current and expected future operations, as well as to achieve its strategic objectives, a stockholder 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. Any such additional financing may contain undue restrictions on the Company’s operations and/or cause substantial dilution to its stockholders.
The condensed consolidated financial statements included in this report 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.
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Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods indicated:
| For the six months ended | ||||||||
| February 29, 2020 | February 28, 2019 | |||||||
| Net cash used in operating activities | $ | (378,264 | ) | $ | (229,624 | ) | ||
| Net cash used in investing activities | (813,323 | ) | (152,564 | ) | ||||
| Net cash provided by financing activities | 975,818 | 1,365 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | - | (1 | ) | |||||
| Cash and cash equivalents, beginning of period | 447,562 | 839,323 | ||||||
| Cash and cash equivalents, end of period | $ | 231,793 | $ | 458,499 | ||||
Cash Used in Operating Activities
Net cash used in operating activities for the six months ended February 29, 2020 and February 28, 2019 was $378,264 and $229,624, 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 six months ended February 29, 2020 and February 28, 2019 was $813,323 and $152,564, respectively. The net cash used in investing activities for the six months ended February 29, 2020 was mainly related to the issuance of notes receivable of $812,952. The cash used in investing activities for the six months ended February 28, 2019 resulted from an investment of $102,564 (HK$800,000) in the equity interest of Leader Financial Asset Management Limited and issuance of notes receivable of $50,000.
Cash Provided by Financing Activities
Net cash provided by financing activities for the six months ended February 29, 2020 and February 28, 2019 was $975,818 and $1,365, respectively. The cash provided by financing activities for the six months ended February 29, 2020 was related to advance from a director of $845,818 and proceeds from convertible notes issuance of $130,000. The cash provided by financing activities for the six months ended February 28, 2019 was related to repayment from related parties and advance from a director.
Results of Operations
Comparison for the six months ended February 29, 2020 and February 28, 2019
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.
Through this agreement, we generated revenue of $3,333 and $0 for the six months ended February 29, 2020 and February 28, 2019, respectively.
General and Administrative Expenses
General and administrative expenses were $2,484,998 and $568,630 for the six months ended February 29, 2020 and February 28, 2019, respectively, an increase of $1,916,368 or 337%. Our general and administrative expenses consist primarily of software development costs, payroll expenses, rental expenses, marketing fees, consultancy fees and legal and professional fees. During the six months ended February 29, 2020, we entered into an employment agreement with our Chief Executive Officer, an agreement with a director and two consulting agreements pursuant to which we issued shares of our stock as compensation. As a result, we recognized share-based compensation to directors and consultants of $2,125,000 and $0 for the six months ended February 29, 2020 and February 28, 2019, respectively. We started to incur software development expenses in fiscal year 2019. We have expensed $0 and $195,187 development costs in general and administrative expenses for the six months ended February 29, 2020 and February 28, 2019, respectively. In the six months ended February 28, 2019, the Company recorded an impairment loss of $102,564 on its investments in Leader Financial Asset Management Limited, a company incorporated in Hong Kong. No such impairment loss was incurred in the same period of 2020.
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Interest Expense
Interest expense was $30,107 and $0 for the six months ended February 29, 2020 and February 28, 2019, respectively. The increase was due to the issuance of bonds payable and notes payable.
Other Income
Other income for the six months ended February 29, 2020 amounted to $50,282 as compared to $23,537 in the prior year, representing an increase of $26,745. The increase was due primarily to the increase in interest income of $49,835 primarily on notes receivable we issued, partially offset by a drop of $17,000 in rental income from a subletting arrangement with a related company during the period from April 1, 2018 to February 28, 2019.
Net Loss
Our net loss was $2,491,740 and $545,093 for the six months ended February 29, 2020 and February 28, 2019, respectively, an increase of $1,946,647 or 357%. The net loss was mainly derived from our general and administrative expenses.
Comparison for the three months ended February 29, 2020 and February 28, 2019
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.
Through this agreement, we generated revenue of $1,666 and $0 for the three months ended February 29, 2020 and February 28, 2019, respectively.
General and Administrative Expenses
General and administrative expenses were $1,246,851 and $157,836 for the three months ended February 29, 2020 and February 28, 2019, respectively, an increase of $1,089,015 or 690%. Our general and administrative expenses consist primarily of share-based compensation, payroll expenses, consultancy fees and legal and professional fees. As noted above, we entered into an employment agreement with our Chief Executive Officer, an agreement with a director and two consulting agreements during the quarter ended November 30, 2019, pursuant to which we issued shares of our common stock as compensation. As a result, we recognized share-based compensation to directors and consultants of $1,062,500 and $0 for the three months ended February 29, 2020 and February 28, 2019, respectively.
Interest expense
Interest expense was $15,148 and $0 for the three months ended February 29, 2020 and February 28, 2019, respectively. The increase was due to the issuance of bonds payable and notes payable.
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Other Income
Other income for the three months ended February 29, 2020 amounted to $28,473 as compared to $12,056 in the same period in the prior year, representing an increase of $16,417. The increase was due primarily to the increase in interest income of $28,040 primarily on notes receivable we issued, partially offset by a drop of $11,353 in rental income from a subletting arrangement with a related company during the period from April 1, 2018 to February 28, 2019.
Net Loss
Our net loss was $1,242,110 and $145,780 for the three months ended February 29, 2020 and February 28, 2019, respectively, an increase of $1,096,330 or 752%. The net loss was mainly derived from the increase in our general and administrative expenses.
Off-Balance Sheet Arrangements
As of February 29, 2020, 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.
Contractual Obligations
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
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.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
In connection with the preparation of this Form 10-Q for the quarter ended February 29, 2020, our management, including our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer), carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of February 29, 2020. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of February 29, 2020, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of February 29, 2020, our disclosure controls and procedures were not effective: (i) a lack of an audit committee; (ii) a lack of adequate written policies and procedures for accounting and financial reporting (iii) insufficient appropriate information technology controls, and (iv) a lack of 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
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ending February 29, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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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.
Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business
We are a company with a limited operating history and our future profitability is uncertain. We anticipate future losses and negative cash flows and we may never be profitable.
We are a company with a limited operating history and limited revenues to date. We have incurred losses since our inception and expect to experience operating losses and negative cash flows for the foreseeable future. As of February 29, 2020, we had a total accumulated deficit of approximately $3,956,486. We anticipate our losses will continue to increase from current levels because we expect to incur additional costs and expenses related to the development of the FinMaster mobile application, marketing and other promotional activities, the addition of personnel, if necessary, and our continued efforts to form relationships with financial service providers and insurers. We may never generate significant revenue and we may never be profitable.
If we do not receive additional financing when and as needed in the future, we may not be able to continue the development of the JFB platform or to commercialize it and our business may fail.
Because the version of the JFB platform we plan to sell is not yet fully developed, our business requires capital investments. Our cash on hand, which at February 29, 2020 was approximately $231,793, will not be sufficient to meet all of our future needs. Furthermore, our target customers may be slow to adopt the JFB platform. We anticipate that we will require substantial additional funds in excess of our current financial resources to complete the development of the JFB platform and to market it. Until the JFB platform generates revenues sufficient to support our operations, we plan to obtain the necessary working capital for operations through the sale of our securities or loans from related parties, but we may not be able to obtain financing in amounts sufficient to fund our business plan. If we cannot obtain additional funding when and as needed, our business might fail.
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Market acceptance of the JFB platform is difficult to predict. If the JFB platform does not achieve market acceptance, our business could fail.
We are continuing to develop the JFB platform. If we are unable to effectively develop and demonstrate the JFB platform in a timely fashion, gain recognition with financial service providers, insurers and their clients, and develop a critical level of successful sales, we may not be able to successfully earn sales revenue and our results of operations and financial condition would then suffer.
Further, we cannot predict the rate of adoption or acceptance of the JFB platform by potential customers and their clients. While we may be able to effectively demonstrate the usefulness of the JFB platform, this does not guarantee that financial service providers, insurers and their clients will accept it, nor can we control the rate at which such acceptance may be achieved. If the JFB platform is not widely adopted by financial service providers, insurers and their clients, we may not earn enough by selling or licensing the technology to support our operations, recover our development costs or become profitable and our business could fail.
Our efforts may never demonstrate the feasibility of the JFB platform.
Our goal is to create a platform that is easily used by financial service providers, insurers and their clients to manage investments. Technical problems may result in delays and cause us to incur additional expenses that would increase our losses. If we cannot complete, or if we experience significant delays in completing, development of the JFB platform for use in potential commercial applications, particularly after incurring significant expenditures, our business may fail.
We may fail to adequately protect our proprietary technology, which would allow our competitors to take advantage of our research and development efforts.
We rely upon trade secrets, proprietary know-how, and continuing technological innovation to develop new services and solutions and to remain competitive. If our competitors learn of our proprietary technology or processes, they may use this information to produce services and solutions that are equivalent or superior to our services and solutions, which could materially adversely affect our business, operations and financial position. Our employees and consultants may breach their obligations not to reveal our confidential information, and any remedies available to us may be insufficient to compensate our damages. Even in the absence of such breaches, our trade secrets and proprietary know-how may otherwise become known to our competitors, or be independently discovered by our competitors, which could adversely affect our competitive position.
We are subject to product development risks that could result in delays and additional costs, and we must adapt to changes in software technologies.
We depend on our third-party software developers to develop and enhance the software in the future. If our third-party developers experience unanticipated development delays or financial difficulties, we may need additional cost and time to find new developers. Additionally, in order to stay competitive, our third-party developer must anticipate and adapt to rapid technological changes affecting software development. Any inability to respond to technological advances and implement new technologies could render our products obsolete or less marketable. Further, the failure to pursue the development of new technology, platforms, or business models that obtain meaningful commercial success in a timely manner may negatively affect our business, resulting in increased production costs and more strenuous competition.
We are uncertain of our profit margins and whether such profit margins, if achieved, will be able to sustain our business, because the JFB platform has not yet been fully developed.
We have not yet fully developed the JFB platform or the pricing that will be associated with it. As a result, we cannot reliably predict our profit margins, if any. Our operating costs could increase significantly compared to those we currently anticipate due to unanticipated results from the development process or application of the platform. Further, we envision our pricing to be highly dependent on the benefits that our customers believe they will achieve using the JFB platform. Accordingly, we cannot predict whether or when we will achieve profitability, and if achieved, the amount of such profit margins.
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Many of our potential competitors have greater resources, and it may be difficult to compete against them.
The software application market is competitive, and we expect competition in this market to increase as existing competitors enhance and expand their product and service offerings and as new participants enter the market. Increased competition may result in price reductions, reduced profitability and loss of market share. We cannot ensure that we will be able to compete successfully against existing or future competitors. Some of our customers and companies with which we have strategic relationships may also become competitors.
Many of our current and potential competitors have greater financial, technical, marketing, service and other resources than we have. As a result, these companies may be able to offer lower prices, additional products or services, or other incentives that we cannot match or offer. These competitors may be in a stronger position to respond more quickly to new technologies and may be able to undertake more extensive marketing campaigns. We believe they may also pursue and adopt more aggressive pricing policies and make more attractive offers to potential customers, employees and strategic partners. In addition, competitors with greater financial resources may make strategic acquisitions to increase their ability to gain market share or improve the quality or marketability of their products. Furthermore, we face challenges in selling the JFB platform to large companies in the process industries that have internally developed their own proprietary software solutions.
The loss of the services of Yi-Hsiu Lin could adversely affect our ability to operate our business.
The loss of Yi-Hsiu Lin, our Chief Executive Officer, director and our majority shareholder, could severely and negatively impact our operations. We have no present intention to obtain key-man life insurance on Mr. Lin’s life.
Our principal executive offices are located in Hong Kong and our Company has non-U.S. resident officers and directors. As such, it may be difficult to pursue legal action against our Company or directors.
Due to the fact that our Company’s executive office is located in Hong Kong and our Company has non-U.S. resident officers and directors, the enforceability of civil liability provisions of U.S. federal securities laws against our officers and directors, and our assets located in foreign jurisdictions, will be limited and may not be possible.
Digital threats such as cyber-attacks, data protection breaches, computer viruses or malware may disrupt our mobile applications, harm our operating results and damage our reputation, and cyber-attacks or data protection breaches on our clients’ networks could result in liability for us, damage our reputation or otherwise harm our business.
The products and services we sell to clients, and our servers and data centers on which our data, and data of our clients and business partners may be stored, are vulnerable to cyber-attacks, data protection breaches, computer viruses, and similar disruptions from unauthorized tampering or human error. Any such event could compromise our networks or those of our clients, and the information stored on our networks or those of our clients could be accessed, publicly disclosed, lost or stolen, which could subject us to liability to our customers, business partners and others, and could have a material adverse effect on our business, operating results, and financial condition and may cause damage to our reputation. Efforts to limit the ability of malicious third parties to disrupt the operations of the Internet or undermine our own security efforts may be costly to implement and meet with resistance, and may not be successful. Breaches of network security in our clients’ networks, regardless of whether the breach is attributable to a vulnerability in our products or services, could result in liability for us, damage our reputation or otherwise harm our business.
Any failures or interruptions in our services or systems could damage our reputation and substantially harm our business and results of operations.
Our success depends in part on our ability to provide reliable remote services, technology integration and managed services to our clients. The operations of our mobile platforms are susceptible to damage or interruption from human error, fire, flood, power loss, telecommunications failure, terrorist attacks and similar events. We could also experience failures or interruptions of our systems and services, or other problems in connection with our operations, as a result of:
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| ● | damage to or failure of our computer software or hardware or our connections; | |
| ● | errors in the processing of data by our systems; | |
| ● | computer viruses or software defects; | |
| ● | physical or electronic break-ins, sabotage, intentional acts of vandalism and similar events; | |
| ● | increased capacity demands or changes in systems requirements of our customers; and | |
| ● | errors by employees or third-party service providers. |
Any interruptions in our systems or services could damage our reputation and substantially harm our business and results of operations.
The outbreak of the recent coronavirus (“COVID-19”), or an outbreak of another highly infectious or contagious disease, could adversely affect our business activities, financial condition and results of operations.
Our business is dependent upon the willingness and ability of individuals and business to conduct and monitor financial transactions. The spread of a highly infectious or contagious disease, such as COVID-19, could cause severe disruptions in the U.S. and world economy, which could in turn disrupt the business, activities, and operations of our clients, as well as our business and operations. Moreover, since the beginning of January 2020, the coronavirus outbreak has caused significant disruption in the financial markets both globally and in the United States. The spread of COVID-19, or an outbreak of another highly infectious or contagious disease, may result in a significant decrease in use of our mobile platforms. A spread of COVID-19, or an outbreak of another contagious disease, could also negatively impact the availability of key personnel necessary to conduct our business activities. Such a spread or outbreak could also negatively impact the business and operations of third-party service providers who perform critical services for us. If COVID-19, or another highly infectious or contagious disease, spreads or the response to contain COVID-19 is unsuccessful, we could experience a material adverse effect to our business, financial condition, and results of operations.
Because our officers and directors conduct outside business activities, the attention and efforts of our officers and directors are not solely focused upon Leader Capital Holdings Corp.
While our officers and directors intend to devote as much time as necessary to the success and development of the Company, Mr. Lin in particular has outside interests that require a portion of his time every week. Currently, Mr. Lin is prepared to dedicate 36 hours per week to our operations. Although we believe their time, resources, and effort to be allocated appropriately to allow for the Company’s future success, there can be no guarantee that their priorities will not shift in the future. In the event that their outside interests begin to take precedence over their positions in the Company, the Company may not experience the growth and success that is anticipated.
Risks Related to Owning Our Securities
There is no public market for our securities. Our investors may not be able to sell their securities.
Our common stock was approved for quotation on the OTC Pink Marketplace quotation system maintained by the OTC Markets Group, Inc. under the symbol “LCHD” on June 27, 2019. A market for our common stock has not yet developed and we cannot assure you that a market will develop in the future. Our shareholders may not be able to sell their common stock
We have the right to issue shares of preferred stock. If we were to issue preferred stock, it is likely to have rights, preferences and privileges that may adversely affect our common stock or other securities.
We are authorized to issue 200,000,000 shares of “blank check” preferred stock, with such rights, preferences and privileges as may be determined from time-to-time by our board of directors. Our board of directors is empowered, without shareholder approval, to issue preferred stock in one or more series, and to fix for any series the dividend rights, dissolution or liquidation preferences, redemption prices, conversion rights, voting rights, and other rights, preferences and privileges for the preferred stock. No shares of preferred stock are presently issued and outstanding and we have no immediate plans to issue shares of preferred stock. The issuance of shares of preferred stock, depending on the rights, preferences and privileges attributable to the preferred stock, could adversely reduce the voting rights and powers of the common stock and the portion of our assets allocated for distribution to common stock holders in a liquidation event, and could also result in dilution in the book value per share of our common stock. The preferred stock could also be utilized, under certain circumstances, as a method for raising additional capital or discouraging, delaying or preventing a change in control of the Company, to the detriment of holders of our common stock. We cannot assure you that we will not, under certain circumstances, issue shares of our preferred stock.
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We may be required to raise additional financing by issuing new securities, which may have terms or rights superior to those of our shares of common stock, which could adversely affect the market price of our shares of common stock.
We will require additional financing to fund development and commercialization of the JFB platform and for working capital and other purposes. We may not be able to obtain financing on favorable terms, if at all. If we raise additional funds by issuing equity securities, the percentage ownership of our then-current shareholders will be reduced. Further, we may have to offer new investors in our equity securities rights that are superior to the holders of common stock, which could adversely affect the market price and the voting power of shares of our common stock. If we raise additional funds by issuing debt securities, the holders of the debt securities would similarly have rights senior to those of the holders of shares of common stock, and the terms of the debt securities could impose restrictions on operations and create a significant interest expense for us which could have a materially adverse effect on our business and results of operations.
We have not paid dividends on our common stock to date and do not intend to pay any dividends for the foreseeable future.
We have not paid any dividends on our common stock to date and do not intend to pay any dividends for the foreseeable future. The payment of dividends in the future will be made at the discretion of our board of directors, and will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition. We are under no contractual obligations or restrictions to declare or pay dividends on shares of our common stock. It is the present intention of our board of directors to retain all earnings, if any, for use in our business operations and, accordingly, our board does not anticipate declaring any dividends in the foreseeable future.
We will incur significant costs as a result of being a public company that reports to the SEC. Furthermore, the reporting requirements may place undue strain on our personnel, systems and resources.
As a public company required to report to the SEC, we expect to incur significant legal, accounting, investor relations, printing, board compensation, and other expenses that we did not incur as a private company.
Upon effectiveness of our Form 10 registration statement, we will be subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002 as well as rules subsequently implemented by the SEC that impose significant requirements on public companies, including requiring us to establish and maintain effective disclosure and financial controls and changes in corporate governance practices. In addition, there are significant corporate governance and executive compensation-related provisions in the Dodd-Frank Wall Street Reform and Protection Act that, as we grow, could increase our legal and financial compliance costs and make some activities more difficult, time-consuming or costly. These requirements may place undue strain on our personnel, systems and resources.
Our officers and directors lack experience in, and with, the reporting and disclosure obligations of publicly-traded companies.
Our officers and directors lack experience in, and with, the reporting and disclosure obligations of publicly-traded companies and with serving as an officer and/or director of a publicly-traded company. This lack of experience may impair our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures, which may result in material misstatements to our financial statements and an inability to provide accurate financial information to our stockholders. Consequently, our operations, future earnings and ultimate financial success could suffer irreparable harm due to the lack of experience of our officers and directors with publicly-traded companies and the reporting requirements in general.
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Our Chief Executive Officer is also our controlling shareholder. He may significantly influence matters to be voted on and his interests may differ from, or be adverse to, the interests of our other shareholders.
Our Chief Executive Officer, director and majority shareholder, Mr. Yi-Hsiu Lin, beneficially owns 67.6% of our common stock. Accordingly, Mr. Lin possesses significant influence over the Company on matters submitted to the shareholders for approval, including the election of directors, mergers, consolidations, the sale of all or substantially all our assets, and also the power to prevent or cause a change in control. This amount of control gives Mr. Lin a substantial ability to determine the future of our Company, and as such, he may elect to close the business, change the business plan or make any number of other major business decisions without the approval of shareholders. Mr. Lin’s interests may differ from the interests of our other shareholders and could therefore result in corporate decisions that are averse to other shareholders.
The trading in our shares will be regulated by the Rule 15G-9 of the Exchange Act which defines a “penny stock.”
Our common stock is a penny stock, as defined in Rule 15G-9 promulgated under the Exchange Act. The Exchange Act and the penny stock rules generally impose additional sales practice and disclosure requirements on broker-dealers who sell our securities to persons other than certain accredited investors or in transactions not recommended by the broker-dealer. For transactions covered by the penny stock rules, a broker dealer must make certain mandated disclosures in penny stock transactions, including the actual sale or purchase price and actual bid and offer quotations, the compensation to be received by the broker-dealer and certain associated persons, and must deliver certain disclosures required by the SEC. Consequently, the penny stock rules may make it difficult for you to resell any shares you may purchase.
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the penny stock rules promulgated by the SEC, which are discussed in the immediately preceding risk factor, FINRA rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the ability to buy and sell our stock and have an adverse effect on the market value for our shares.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
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* Filed herewith.
** Furnished herewith.
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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: July 19, 2021 | ||
| By: | /s/ Yi-Hsiu Lin | |
| Title: | Chief Executive Officer, President, Treasurer and Director (Principal Executive Officer and Principal Financial Officer) | |
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EXHIBIT 31.1
CERTIFICATION
I, YI-HSIU LIN, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of LEADER CAPITAL HOLDINGS CORP.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b. | Designed such internal control over financial reporting, or caused such internal control to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. | |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: July 19, 2021 | By: | /s/ Yi-Hsiu Lin |
| Yi-Hsiu Lin | ||
| Chief Executive Officer, President and Treasurer | ||
| (Principal Executive Officer, Principal Financial Officer |
EXHIBIT 32.1
CERTIFICATION
In connection with the quarterly report of LEADER CAPITAL HOLDINGS CORP. (the “Company”) on Form 10-Q/A for the period ended February 29, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Yi-Hsiu Lin, Chief Executive Officer and President (Principal Executive Officer) and Treasurer (Principal Financial Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company at the dates and for the periods indicated. |
| Date: July 19, 2021 | By: | /s/ Yi-Hsiu Lin |
| Yi-Hsiu Lin | ||
| Chief Executive Officer, President and Treasurer | ||
| (Principal Executive Officer and Principal Financial Officer) |