LCHD 10-K
Leader Capital Holdings Corp. (LCHD)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the fiscal year ended
or
For the transition period from_________ to __________
Commission
file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices, including zip code)
+
Registrant’s telephone number, including area code
Securities Registered Pursuant to Section 12(b) of the Act: None
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered | ||
| N/A | N/A | N/A |
Securities registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.0001 par value per share
(Title of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
The
aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of February 28,
2021, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately
$
As of December 10, 2021, there were shares of common stock, par value $0.0001, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
LEADER CAPITAL HOLDINGS CORP.
TABLE OF CONTENTS
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT
This annual report on Form 10-K (this “Form 10-K”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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-K. In particular, these include statements relating to future actions, future performance, anticipated expenses, or projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include the following:
| ● | the availability and adequacy of our cash flow to meet our requirements; | |
| ● | economic, competitive, demographic, business, and other conditions in our local and regional markets; | |
| ● | general economic conditions and events and the impact they may have on us and our clients, including but not limited to the impact of COVID-19; | |
| ● | changes or developments in laws, regulations or taxes in our industry; | |
| ● | there are uncertainties regarding the interpretation and enforcement of PRC laws, rules, and regulations; | |
| ● | competition in our industry; | |
| ● | the loss of or failure to obtain any license or permit necessary or desirable in the operation of our business; | |
| ● | proceedings brought by the SEC against China-based accounting firms could result in our inability to file future financial statements in compliance with the requirements of the Exchange Act.; | |
| ● | changes in our business strategy, capital improvements or development plans; | |
| ● | the availability of additional capital to support capital improvements and development; and | |
| ● | other risks identified in this report and in our other filings with the Securities and Exchange Commission (the “SEC”). |
We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, or joint ventures we may make or collaborations or strategic partnerships we may enter into.
You should read this Form 10-K and the documents that we have filed as exhibits to this Form 10-K 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.
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PART I
Item 1. Business.
Business Overview
Leader Capital Holdings Corp. is an early stage technology company that conducts its operations through its wholly owned subsidiaries, Leader Financial Group Limited, a Seychelles corporation incorporated on March 6, 2017 (“LFGL”), and JFB Internet Service Limited, a Hong Kong corporation incorporated on July 6, 2017 (“JFB”).
Through LFGL, we act as the service provider for a mobile application investment platform that is owned by JFB. The platform connects investors with financial service providers in an effort to sharpen operational efficiency and seeks to address customer demands for more innovative services. It is a ready-made application created to meet the needs of financial service providers, especially trust companies and insurance companies. The platform is customizable and each financial institution can adjust the platform to better suit their client’s needs.
The Company had an agreement with a third party whereby we authorized the third party to use our investment platform and related applications until December 31, 2020 for a fee. The Company was in discussion with the third party and both parties decided to terminate the agreement at maturity.
The Company has developed a new, more comprehensive mobile application, the FinMaster App. The FinMaster App intends to offer one-stop solution for multi-facet financial services. Key services include real-time Taiwan stock market quotes, financial industry information and news, social media activities, on-line live broadcast, A.I. stock selection and other features. With more than 350,000 downloads of the FinMaster App, the Company continues to collect data as well as user feedback to enhance current APP features and fine tune R&D plans to optimize customer experience.
The key features of the FinMaster App are: | ||
| ● | Real-time Taiwan stock market quotes; delayed Hong Kong and U.S., stock market quotes; and financial market news feed | |
| ● | AI Stock Selection Tools: Day Trading Analysis, Portfolio Health Check, Institutional Trading Tactics, AI Smart Screening Tools | |
| ● | Instant news feed and quotes of pre-defined stocks under Watchlist | |
| ● | Live Streaming sessions from the industry expert analysts | |
| ● | Discussion Forums for users and experts’ direct communication | |
| ● | In-App Messaging: chats, audio, and video calls between members | |
| ● | Token System and Point Reward Redemption Corner | |
Other key features are under development, such as: | ||
| ● | Online securities account-opening and online trading | |
| ● | On-line Leader FinTech Academy programs | |
| ● | AI Futures Selection and Screening Tools | |
| ● | AI Options Selection and Screening Tools | |
| ● | In-App Messaging: chats, audio, and video calls | |
Acquisition of Nice Products Inc.
On August 17, 2020, the Company, through its wholly-owned subsidiary JFB Internet Service Limited, a company incorporated and existing under the laws of Hong Kong (the “Buyer”), acquired all of the issued and outstanding capital stock (the “Acquisition”) of Nice Products Inc., a company organized under the laws of the British Virgin Islands and the Company’s software ODM developer of the FinMaster App (“NPI”), pursuant to the terms and conditions of that certain Stock Purchase Agreement, dated as of August 17, 2020 (the “Purchase Agreement”), among the Company, the Buyer, NPI, the selling shareholders of NPI identified therein (each a “Seller,” and, collectively, the “Sellers”) and the representative of the Sellers identified therein (the “Sellers’ Representative”). The aggregate purchase price for the acquisition was $4,850,000, less certain discounts, expenses and reductions for outstanding NPI debt owed to the Company and/or its affiliates. The net purchase price for the acquisition was $3,506,042, payable in 8,415,111 shares of the Company’s common stock to the Sellers in accordance with their respective pro rata percentage.
Upon the consummation of the acquisition, among other things, the Sellers: (a) resigned from their positions as directors and/or officers of NPI, (b) released NPI from any claims and (c) entered into employment agreements with the Buyer. Jun-Yuan Chen, a Seller and the Sellers’ Representative under the Purchase Agreement, was already an employee of the Buyer prior to the acquisition, and therefore, did not enter into an employment agreement with the Buyer at the closing of the acquisition.
In accordance with the terms of the Purchase Agreement, for a period of 5 years from the Closing Date, the Sellers agreed to not compete with NPI’s business in the following territories: (a) Greater China (including Hong Kong, Macau and Taiwan) and (b) any other country or other territory in which NPI or the Buyer has provided services, offered or promoted services or otherwise conducted business at any time in the past 2 years. During the same 5 year period, the Sellers are also subject to customary non-solicitation and non-disparagement obligations.
In addition, the Sellers agreed to indemnify the Company, the Buyer, and each of their affiliates (including, after the closing, NPI), subject to certain limitations, for any Losses (as defined in the Purchase Agreement) arising out of breaches by the Sellers of their respective covenants and certain other matters specified in the Purchase Agreement. Subject to certain exclusions, such right to indemnification will be available only after the aggregate amount of indemnifiable Losses exceeds $1,000.
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As a result of the acquisition, the Company now owns, indirectly through the Buyer, 100% of NPI. NPI, through its wholly-owned subsidiaries, LOC Weibo Co., Ltd. (“LOC”) and Beijing DataComm Cloud Media Technology Co., Ltd. (“BJDC”), companies organized under the laws of the Republic of China (“ROC” or “Taiwan”) and the laws of the People’s Republic of China (“PRC” or “China”), respectively, engages primarily in the development of ecological-system applications, integration of big data and promotion of OTT applications. As a result of the acquisition, our FinMaster App was launched to the market in a timely and efficient manner and clients on this open platform are served more effectively and satisfactorily. Based on the successful development of our FinMaster App, LOC and BJDC jointly accumulated in-depth knowledge of FinTech App development, including the marketing expertise built up and the perfect allocation of the Company’s resources. We believe LCHD, through LOC and BJDC will further conclude more customized App contracts to help the clients to incubate the avant-garde Apps to expand their businesses efficiently and effectively.
Competition
Our market is competitive, and we expect competition in our 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 our product to large companies in the process industries that have internally developed their own proprietary software solutions.
Today in Taiwan’s stock information App market, the competition is very keen. It is estimated that Mitake App by Mitake Information Corporation and Yahoo Kimo Stock Market by Yahoo Finance, both have more than one million downloads; other Apps like ANUE App by ANUE.COM and Inc, Mr. Investment by Yuanta Financial Holding, both have more than half a million downloads. The Company keeps fine-tuning the marketing strategy and reaping the synergy by partnership with more diversified marketing channels to bring in more downloads.
However, most of our competitors only provide direct services to a single company, and users can only choose that company’s App. The FinMaster App has integrated various functions such as real time stock streaming, financial news, discussion forum, and voice and video call in one application, which is different from most of its competitors. We believe that these integrated functions provide us with an advantage over our competition.
Marketing
The FinMaster App is marketed mainly through word of mouth. Currently, we also employ Facebook, Google and YouTube as our main marketing tools. During the past fiscal years 2020 and 2021, we also broadcasted commercials on various television stations in Taiwan to promote the FinMaster App. We also rely on our clients and business contacts, such as insurance brokerage houses, real estate agent firms, social network groups, and securities firms to encourage their clients to download the FinMaster App.
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Intellectual Property
The protection of our technology and intellectual property is an important component of our success. We rely on intellectual property laws, including trade secrets, copyright, patent and trademark laws in the U.S. and abroad. We have not patented our proprietary technology in order to keep our technology architecture, trade secrets, and engineering roadmap private. We may in the future file patent applications; however, such applications may not result in the issuance of any patents, and any issued patents may not actually provide adequate defensive protection or competitive advantages to us. Our ability to continually develop new intellectual property and deliver new functionality quickly serves to protect us against our competitors.
Employees
As of December 8, 2021, the Company had 63 employees.
Corporate Information
We were incorporated in the State of Nevada on March 22, 2017. Our principal executive office is located at Room 2708-09, Metropolis Tower, 10 Metropolis Drive, Hung Hom, Hong Kong.
Government Regulation and Approvals
The Company offers its clients a mobile application that allows their customers to review their asset portfolio(s) and communicate their investment decisions with our clients in real-time. Neither of our Apps are a trading platform, broker dealer or exchange, and therefore we do not expect to be subject to regulatory oversight by the SEC, Financial Industry Regulatory Authority (“FINRA”) or other financial regulatory agencies. We are not aware of any governmental regulations or approvals required for the marketing or use of the Apps or the services provided.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of section 404(b) of the Sarbanes-Oxley Act, and exemptions from the requirements of Sections 14A(a) and (b) of the Exchange Act to hold a nonbinding advisory vote of stockholders on executive compensation and any golden parachute payments not previously approved.
The Company has elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates
We will remain an “emerging growth company” until the earliest of (1) August 31, 2024, (2) the last day of the fiscal year in which we have total gross revenue of at least $1.07 billion, (3) the last day of our fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act (which would occur if the market value of our equity securities that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter), or (4) the date on which we have issued more than $1 billion in nonconvertible debt during the preceding three-year period.
To the extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Exchange Act, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; (2) scaled executive compensation disclosures; and (3) the requirement to provide only two years of audited financial statements, instead of three years.
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Item 1A. Risk Factors.
Risks Related to Our Business
COVID-19 Pandemic Update
Our business continues to be impacted by the COVID-19 pandemic. Significant COVID-19 related restrictions, including those in response to the outbreak of the Delta variant in the second and third quarters and the Omicron variant in the fourth quarter of calendar year 2021, have continued and in some instances, have been significantly tightened, in markets in which we operate, especially (which has been affected more severely in the second and third quarter of 2021 than before). Border controls and travel restrictions, such as those imposed in Taiwan, Hong Kong, and the continuing uncertainty over the extent and timing of the re-opening of the border between Hong Kong and mainland China, have had and may continue to have an adverse effect on our operations. The impact of the pandemic and the measures taken by the relevant governments to contain the disease on the global economy, the economies of the markets in which we operate, and the movement of people have adversely affected, and we expect will continue to adversely affect, the roll out of our business plans and results of operations throughout the fiscal year of 2021 and into fiscal year 2022.
The Chinese government may intervene in or influence our operations at any time, which could result in a material change in our operations and significantly and adversely impact the value of our common stock.
The PRC government exerts substantial influence, discretion, oversight and control over the manner in which companies incorporated under the laws and regulations of the PRC must conduct their business activities, including activities relating to overseas offerings of securities and/or foreign investments in such companies. We are a Nevada corporation with subsidiaries located in Taiwan, Hong Kong, and mainland China; however, we cannot guarantee that the PRC government will not seek to intervene or influence any of our operations at any time. If we were to become subject to such direct influence, intervention, discretion, oversight or control, including those over overseas offerings of securities (including and/or foreign investments, it may result in a material adverse change in our operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of our common stock to significantly decline or be worthless, which would materially affect the interests of investors.
Changes in the political and economic policies of the Chinese government or in relations between China and the United States may materially and adversely affect our business, financial condition, results of operations and the market price of our common stock.
Due to our operations in China, our business, results of operations, financial condition and prospects may be influenced to a significant degree by economic, political, legal and social conditions in China or changes in government relations between China and the United States or other governments. There is significant uncertainty about the future relationship between the United States and China with respect to trade policies, treaties, government regulations and tariffs. China’s economy differs from the economies of developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. The Chinese government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments or changes in tax regulations that are currently applicable to us. In addition, in the past the Chinese government implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in China, which may adversely affect our business and results of operations. In July 2021, the Chinese government provided new guidance on China-based companies raising capital outside of China, including through arrangements called variable interest entities (“VIEs”). In light of such developments, the SEC has imposed enhanced disclosure requirements on China-based companies seeking to register securities with the SEC. Although we do not have a VIE structure, due to our operations in China, any future Chinese, U.S. or other rules and regulations that place restrictions on capital raising or other activities by companies with operations in China could adversely affect our business and results of operations. If the business environment in China deteriorates from the perspective of domestic or international investment, or if relations between China and the United States or other governments deteriorate, the Chinese government may intervene with our operations and our business in China and United States, as well as the market price of our common stock, may also be adversely affected.
Compliance with China’s new Data Security Law, Cybersecurity Review Measures (revised draft for public consultation), Personal Information Protection Law, regulations and guidelines relating to the multi-level protection scheme and any other future laws and regulations may entail significant expenses and could materially affect our business.
China has implemented new rules relating to data protection, and the new Data Security Law took effect in September 2021. The Data Security Law provides that the data processing activities must be conducted based on “data classification and hierarchical protection system” for the purpose of data protection and prohibits entities in China from transferring data stored in China to foreign law enforcement agencies or judicial authorities without prior approval by the Chinese government.
Additionally, China’s Cyber Security Law requires companies to take certain organizational, technical and administrative measures and other necessary measures to ensure the security of their networks and data stored on their networks. Specifically, the Cyber Security Law provides that China adopt a multi-level protection scheme (MLPS), under which network operators are required to perform obligations of security protection to ensure that the network is free from interference, disruption or unauthorized access, and prevent network data from being disclosed, stolen or tampered. Under the MLPS, entities operating information systems must have a thorough assessment of the risks and the conditions of their information and network systems to determine the level to which the entity’s information and network systems belong-from the lowest Level 1 to the highest Level 5 pursuant to a series of national standards on the grading and implementation of the classified protection of cyber security. The grading result will determine the set of security protection obligations that entities must comply with. Entities classified as Level 2 or above should report the grade to the relevant government authority for examination and approval.
Recently, the Cyberspace Administration of China has taken action against several Chinese Internet companies in connection with their initial public offerings on U.S. securities exchanges, for alleged national security risks and improper collection and use of the personal information of Chinese data subjects. According to the official announcement, the action was initiated based on the National Security Law, the Cyber Security Law and the Measures on Cybersecurity Review, which are aimed at “preventing national data security risks, maintaining national security and safeguarding public interests.” On July 10, 2021, the Cyberspace Administration of China published a revised draft of the Cybersecurity Review Measures, expanding the cybersecurity review to data processing operators in possession of personal information of over 1 million users if the operators intend to list their securities in a foreign country.
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It is unclear at the present time how widespread the cybersecurity review requirement and the enforcement action will be and what effect they will have on the FinTech sector generally and the Company in particular. China’s regulators may impose penalties for non-compliance ranging from fines or suspension of operations, and this could lead to us delisting from the U.S. stock market.
Also, on August 20, 2021, the Standing Committee of China’s National People’s Congress (“NPC”) passed the Personal Information Protection Law (“PIPL”), which became effective on November 1, 2021. The Personal Information Protection Law provides a comprehensive set of data privacy and protection requirements that apply to the processing of personal information and expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in China, and the processing of personal information of persons in China outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in China. The Personal Information Protection Law also provides that critical information infrastructure operators and personal information processing entities who process personal information meeting a volume threshold to be set by Chinese cyberspace regulators are also required to store in China personal information generated or collected in China, and to pass a security assessment administered by Chinese cyberspace regulators for any export of such personal information. Lastly, the Personal Information Protection Law contains proposals for significant fines for serious violations of up to RMB 50 million or 5% of annual revenues from the prior year and may also be ordered to suspend any related activity by competent authorities. We do not maintain, nor do we intend to maintain in the future, personally identifiable information of users in China.
Interpretation, application and enforcement of these laws, rules and regulations evolve from time to time and their scope may continually change, through new legislation, amendments to existing legislation or changes in enforcement. Compliance with the Cyber Security Law and the Data Security Law could significantly increase the cost to us of providing our service offerings, require significant changes to our operations or even prevent us from providing certain service offerings in jurisdictions in which we currently operate or in which we may operate in the future. Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection and information security, it is possible that our practices, offerings or platform could fail to meet all of the requirements imposed on us by the Cyber Security Law, the Data Security Law and/or related implementing regulations. Any failure on our part to comply with such law or regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in unauthorized access, use or release of personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing counterparties from contracting with us or result in investigations, fines, suspension or other penalties by Chinese government authorities and private claims or litigation, any of which could materially adversely affect our business, financial condition and results of operations. Even if our practices are not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and adversely affect our business, financial condition and results of operations. Moreover, the legal uncertainty created by the Data Security Law and the recent Chinese government actions could materially adversely affect our ability, on favorable terms, to raise capital; including engaging in follow-on offerings of our securities in the U.S. market.
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 August 31, 2021, we had a total accumulated deficit of $23,001,067. 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 App, 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 and commercialization of the Apps and our business may fail.
Because the version of the FinMaster App we plan to sell is not yet fully developed, our business requires capital investments. Our cash on hand, which at August 31, 2021 was $787,154, will not be sufficient to meet all of our future needs. Furthermore, our target customers may be slow to adopt the App. We anticipate that we will require substantial additional funds in excess of our current financial resources to complete the development of the App and to market it. Until the App generate 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.
As the Company has working capital deficiency and accumulated deficit, there is substantial doubt about our ability to continue as a going concern.
Our consolidated financial statements included in this report include an explanatory paragraph that indicates that they were prepared assuming that we would continue as a going concern. As discussed in Note 2 to the consolidated financial statements included with this report, we had suffered recurring losses from operations, and recorded an accumulated deficit and a working capital deficit of $23,001,067 and $1,521,119 respectively as of August 31, 2021. These conditions raise substantial doubt about our ability to continue as a going concern. These conditions raise substantial doubt about our ability to continue as a going concern. The ability to continue as a going concern is dependent upon our profit generating operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. There can be no assurance that we will be successful in our plans described above or in attracting equity or alternative financing on acceptable terms, or if at all. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
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We have identified material weaknesses in our internal control over financial reporting. If we fail to remediate the material weaknesses or maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our shares may be adversely affected.
To implement Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC adopted rules requiring public companies to include a report of management on the company’s internal control over financial reporting in their annual reports on Form 10-K. Under current law, we are subject to the requirement that we maintain internal controls and that management perform periodic evaluation of the effectiveness of the internal controls, assuming our filing status remains as a smaller reporting company. A report of our management is included under Item 9A of this Annual Report on Form 10-K. Our management has identified the following material weaknesses in our internal control over financial reporting:
| (1) | We do not have an audit committee – While we are not obligated to have an audit committee, it is management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial reporting. Currently, our Chief Executive Officer and directors act in the capacity of the audit committee, and do not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities. | |
| (2) | We do not have adequate written policies and procedures – Due to lack of adequate written policies and procedures for accounting and financial reporting, we did not establish a formal process to close our books monthly and account for all transactions in a timely manner. | |
| (3) | We did not implement appropriate information technology controls – As of August 31, 2021, we retained copies of all financial data and material agreements; however, there is no formal procedure or evidence of normal backup of our data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors and we do not have sufficient control policies that prevent inappropriate and unauthorized use of the system across all layers of systems. | |
| (4) | We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements. |
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. We have taken measures and plan to continue to take measures to remedy this material weakness. However, the implementation of these measures may not fully address the material weakness in our internal control over financial reporting. Our failure to address any control deficiency could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. Moreover, effective internal control over financial reporting is important to prevent fraud. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our shares, may be materially and adversely affected.
Market acceptance of the FinMaster App is difficult to predict. If the App does not achieve market acceptance, our business could fail.
We are continuing to develop the App. If we are unable to effectively develop and demonstrate the App 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.
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Further, we cannot predict the rate of adoption or acceptance of the Apps by potential customers and their clients. While we may be able to effectively demonstrate the usefulness of the App, this does not guarantee that financial service providers, insurers, brokerage houses and their clients will accept them, nor can we control the rate at which such acceptance may be achieved. If the App is not widely adopted and downloaded by users who are willing to pay for some of the functions available for their purchase, we may not be able to generate enough revenue and profits 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 App.
Our goal is to create a platform that is easily used by the general public. 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 App for use in potential commercial applications, particularly after incurring significant expenditures, our business may fail.
We face substantial political risks associated with doing business in Taiwan, particularly due to domestic political events and the tense relationship between the Republic of China (“ROC”) and the People’s Republic of China, which could adversely affect our financial condition and results of operations.
Our principal executive offices and substantially all of our assets are located in Hong Kong, Beijing, and Taiwan, and substantially all of our revenues are derived from our operations in Taiwan. Accordingly, our business, financial condition and results of operations and the market price of shares of our common stock may be affected by changes in ROC governmental policies, taxation, inflation or interest rates and by social instability and diplomatic and social developments in or affecting Taiwan which are outside of our control. Taiwan has a unique international political status. The PRC government asserts sovereignty over mainland China and Taiwan and does not recognize the legitimacy of the government of the ROC. The PRC government has indicated that it may use military force to gain control over Taiwan if Taiwan declares independence or if Taiwan refuses to accept the PRC’s stated “One China” policy. In addition, on March 14, 2005, the National People’s Congress of the PRC passed what is widely referred to as the “anti-secession” law, a law authorizing the PRC military to respond to efforts by Taiwan to seek formal independence. An increase in tensions between the ROC and the PRC and the possibility of instability and uncertainty could adversely affect the prices of our shares. It is unclear what effects any of the events described above may have on relations with the PRC. Relations between Taiwan and the PRC and other factors affecting Taiwan’s political environment could affect our business.
We may not be able to obtain or renew all licenses, approvals or permits necessary for our current and future operations.
Our current and future operations in Taiwan and other regions require a number of regulatory licenses, approvals and permits. We cannot assure you that we will be able to obtain licenses, approvals or permits necessary for our operations in these regions, or that upon the expiration of our existing licenses, approvals or permits, we will be able to successfully renew them.
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 must adapt to changes in software technologies.
In order to stay competitive, we 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. In order to remain competitive in the market, we need to continuously develop and introduce new functions and designs for our Apps.
We are uncertain of our profit margins and whether such profit margins, if achieved, will be able to sustain our business, because the Apps have not yet been fully developed.
We have not yet fully developed the Apps or the pricing that will be associated with them. 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 Apps. Accordingly, we cannot predict whether or when we will achieve profitability, and if achieved, the amount of such profit margins.
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.
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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 Apps to large companies in the process industries that have internally developed their own proprietary software solutions.
Our success is dependent on the performance of Yi-Hsiu Lin, our Chief Executive Officer, and the cooperation, performance and retention of our key employees.
Our business and operations are substantially dependent on the performance of Yi-Hsiu Lin, our Chief Executive Officer. We do not maintain “key person” life insurance on him. The loss of Mr. Lin or other key employees could seriously harm our business. We cannot assure that employees will not leave and subsequently compete against us. To mitigate such risk, we plan to require key employees to sign non-disclosure agreements when they join the Company.
We are also dependent on our ability to retain and motivate high quality personnel. Competition for such personnel is intense, and we may not be able to attract, assimilate or retain other highly qualified managerial, sales and technical personnel in the future. The inability to attract and retain the necessary managerial, sales and technical personnel could cause our business, operating results or financial condition to suffer.
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:
| ● | 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; |
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| ● | 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.
We may not be able to successfully integrate the business and operations of entities that we have acquired or may acquire in the future into our ongoing business operations, which may result in our inability to fully realize the intended benefits of these acquisitions, or may disrupt our current operations, which could have a material adverse effect on our business, financial position and/or results of operations.
We continue to integrate the operations of NPI and this process involves complex operational, technological and personnel-related challenges, which are time-consuming and expensive and may disrupt our ongoing business operations. Furthermore, integration involves a number of risks, including, but not limited to:
| ● | difficulties or complications in combining the companies’ operations; | |
| ● | differences in controls, procedures and policies, regulatory standards and business cultures among the combined companies; | |
| ● | the diversion of management’s attention from our ongoing core business operations; | |
| ● | increased exposure to certain governmental regulations and compliance requirements; | |
| ● | the potential loss of key personnel; | |
| ● | the potential loss of key customers or suppliers who choose not to do business with the combined business; | |
| ● | difficulties or delays in consolidating NPI’s technology platforms, including implementing systems designed to maintain effective disclosure controls and procedures and internal control over financial reporting for the combined company and enable the Company to continue to comply with U.S. GAAP and applicable U.S. securities laws and regulations; | |
| ● | unanticipated costs and other assumed contingent liabilities; | |
| ● | difficulty comparing financial reports due to differing financial and/or internal reporting systems; |
| ● | making any necessary modifications to internal financial control standards to comply with the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder; and/or | |
| ● | possible tax costs or inefficiencies associated with integrating the operations of the combined company. |
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These factors could cause us to not fully realize the anticipated financial and/or strategic benefits of the acquisition, which could have a material adverse effect on our business, financial condition and/or results of operations.
Even if we are able to successfully operate the acquired business, we may not be able to realize the revenue and other synergies and growth that we anticipated from this acquisition in the time frame that we currently expect, and the costs of achieving these benefits may be higher than what we currently expect, because of a number of risks, including, but not limited to, the possibility that the acquisition may not further our business strategy as we expected.
As a result of these risks, the acquisition and integration may not contribute to our earnings as expected, we may not achieve expected revenue synergies or our return on invested capital targets when expected, or at all, and we may not achieve the other anticipated strategic and financial benefits of the acquisition of NPI.
The risks arising with respect to the historic business and operations of NPI may be different from what we anticipate, which could significantly increase the costs and decrease the benefits of the acquisition and materially and adversely affect our operations going forward.
Although we performed financial, legal, technological and business due diligence with respect to our acquisition of NPI, we may not have appreciated, understood or fully anticipated the extent of the risks associated with the acquisition. We have secured indemnification for certain matters in connection with the acquisition in order to mitigate the consequences of breaches of representations, warranties and covenants under the definitive acquisition agreement and the risks associated with historic operations, including those with respect to compliance with laws, accuracy of financial statements, financial reporting controls and procedures, tax matters and undisclosed liabilities, and certain matters known to us. We believe that the indemnification provisions of the definitive acquisition agreement will limit the economic consequences of the issues we have identified in our due diligence to acceptable levels. Notwithstanding our exercise of due diligence and risk mitigation strategies, the risks of the acquisition and the costs associated with these risks may be greater than we anticipate. We may not be able to contain or control the costs associated with unanticipated risks or liabilities, which could materially and adversely affect our business, liquidity, capital resources or results of operations.
Any impairment charge may have a material adverse effect on our operating results.
Under U.S. GAAP, we are required to evaluate our investments and long-term non-financial assets, such as property, plant and equipment, intellectual properties, intangible assets, goodwill, right-of-use assets and long-term purchase agreements, for impairment whenever triggering events or changes in circumstances indicate that the asset may be impaired and carrying value may not be recoverable. If certain criteria are met, we are required to recognize an impairment charge.
The determination of an impairment charge at any given time is based significantly on our expected results of operations over a number of years subsequent to that time. As a result, an impairment charge is more likely to occur during a period when our operating results are otherwise already depressed. The valuation of long-term non-financial assets is subjective and requires us to make significant estimates about our future performance and cash flows, as well as other assumptions. These estimates can be affected by numerous factors, including changes in economic, industry or market conditions, changes in business operations, changes in competition or potential changes in our stock price and market capitalization. Changes in these estimates and assumptions, or changes in actual performance compared with estimates of our future performance, may affect the fair value of long-term non-financial assets, which may result in an impairment charge. See “Note 2 – Summary of Significant Accounting Policies - Goodwill and impairment of goodwill” in our financial statements for a discussion of how we assess if an impairment charge is required and, if so, how the amount is determined.
The determination of an impairment charge at any given time is mainly based on the projected results of operations over several years subsequent to that time. Consequently, an impairment charge is more likely to occur during a period when our operating results are otherwise already depressed.
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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
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 Apps 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 stockholders 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 reporting 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.
We are currently 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 stockholders.
Our Chief Executive Officer and director, Mr. Yi-Hsiu Lin, beneficially owns 34.60% of our common stock. Accordingly, Mr. Lin possesses significant influence over the Company on matters submitted to the stockholders 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 stockholders. Mr. Lin’s interests may differ from the interests of our other stockholders and could therefore result in corporate decisions that are averse to other stockholders.
The audit reports included in this annual report have been prepared by auditors whose work was not inspected fully by the Public Company Accounting Oversight Board (“PCAOB”) and, as such, the Company could be delisted if it is unable to timely meet the PCAOB inspection requirements established by the Holding Foreign Companies Accountable Act.
As a public company with securities quoted on the OTCQB, we will be required to have our financial statements audited by an independent registered public accounting firm registered with the PCAOB. A requirement of being registered with the PCAOB is that if requested by the SEC or PCAOB, such accounting firm is required to make its audits and related audit work papers be subject to regular inspections to assess its compliance with the applicable professional standards. Since our auditor is located in Hong Kong and China, a jurisdiction where the PCAOB has been unable to conduct inspections without the approval of the Chinese authorities due to various state secrecy laws and the revised Securities Law, the PCAOB currently does not have free access to inspect the work of our auditor. This lack of the PCAOB inspections in China prevents the PCAOB from fully evaluating audits and quality control procedures of our auditor. As a result, we and investors in our ordinary shares are deprived of the benefits of such PCAOB inspections, which could cause investors in our stock to lose confidence in our audit procedures and the quality of our financial statements.
On December 18, 2020, the Holding Foreign Companies Accountable Act, or HFCAA, was enacted. In essence, the act requires the SEC to prohibit securities of any foreign companies from being listed on U.S. securities exchanges or traded “over-the-counter” if a company retains a foreign accounting firm that cannot be inspected by the PCAOB for three consecutive years, beginning in 2021. Our independent registered public accounting firm is located in and organized under the laws of Hong Kong and China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, and therefore our auditors are not currently inspected by the PCAOB.
On March 24, 2021, the SEC adopted interim final amendments, which will become effective 30 days after publication in the Federal Register, relating to the implementation of certain disclosure and documentation requirements of the HFCAA. The interim final amendments will apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB has determined it is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction. Before any registrant will be required to comply with the interim final amendments, the SEC must implement a process for identifying such registrants. As of the date of this Amendment, the SEC is seeking public comment on this identification process. Consistent with the HFCAA, the amendments will require any identified registrant to submit documentation to the SEC establishing that the registrant is not owned or controlled by a government entity in that jurisdiction, and will also require, among other things, disclosure in the registrant’s annual report regarding the audit arrangements of, and government influence on, such registrant.
On June 22, 2021, the U.S. Senate passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two.
The SEC may propose additional rules or guidance that could impact us if our auditor is not subject to PCAOB inspection. For example, on August 6, 2020, the President’s Working Group on Financial Markets, or the PWG, issued the Report on Protecting United States Investors from Significant Risks from Chinese Companies to the then President of the United States. This report recommended that the SEC implement five recommendations to address companies from jurisdictions that do not provide the PCAOB with sufficient access to fulfil its statutory mandate. Some of the concepts of these recommendations were implemented with the enactment of the HFCAA. However, some of the recommendations were more stringent than the HFCAA. For example, if a company was not subject to PCAOB inspection, the report recommended that the transition period before a company would be delisted would end on January 1, 2022.
It is unclear when the SEC will complete its rulemaking, when such rules will become effective and what, if any, of the PWG recommendations will be adopted. The enactment of the HFCAA and the implications of any additional rulemaking efforts to increase U.S. regulatory access to audit information in China could cause investor uncertainty for affected SEC registrants, including us, and the market price of our stock could be materially adversely affected. Additionally, whether the PCAOB will be able to conduct inspections of our auditors in the next three years, or at all, is subject to substantial uncertainty and depends on a number of factors out of our control. If we are unable to meet the PCAOB inspection requirement in time, our stock will not be permitted for trading “over-the counter” either. Such a delisting would substantially impair your ability to sell or purchase our stock when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our stock. Also, such a delisting would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition and prospects.
Proceedings instituted by the SEC against five PRC-based accounting firms could result in financial statements being determined to be not in compliance with the requirements of the Securities Exchange Act of 1934.
The SEC previously instituted proceedings against mainland Chinese affiliates of the “big four” accounting firms, including the affiliate of our auditor, for failing to produce audit work papers under Section 106 of the Sarbanes-Oxley Act because of restrictions under PRC law. Each of the “big four” accounting firms in mainland China agreed to a censure and to pay a fine to the SEC to settle the dispute and stay the proceedings for four years, until the proceedings were deemed dismissed with prejudice on February 6, 2019. It remains unclear whether the SEC will commence a new administrative proceeding against the four mainland China-based accounting firms. Any such new proceedings or similar action against our audit firm for failure to provide access to audit work papers could result in the imposition of penalties, such as suspension of our auditor’s ability to practice before the SEC. If our independent registered public accounting firm, or its affiliate, was denied, even temporarily, the ability to practice before the SEC, and it was determined that our financial statements or audit reports were not in compliance with the requirements of the U.S. Exchange Act, we could be at risk of delisting or become subject to other penalties that would adversely affect our ability to remain listed on the U.S. stock exchanges.
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In recent years, U.S. regulators have continued to express their concerns about challenges in their oversight of financial statement audits of United States on access to audit information, the United States enacted the Holding Foreign Companies Accountable Act, or the HFCA Act, in December 2020. The HFCA Act includes requirements for the SEC to identify issuers whose audit reports are prepared by auditors that the PCAOB is unable to inspect or investigate completely because of a restriction imposed by a non-U.S. authority in the auditor’s local jurisdiction. The HFCA Act also requires public companies on this SEC list to certify that they are not owned or controlled by a foreign government and make certain additional disclosures in their SEC filings. In addition, if the auditor of a U.S. listed company’s financial statements is not subject to PCAOB inspections for three consecutive “non-inspection” years after the law becomes effective, the SEC is required to prohibit the securities of such issuer from being traded on a U.S. national securities exchange, such as the NYSE, or in U.S. over-the-counter markets. On March 24, 2021, the SEC announced that it had adopted interim final amendments to implement the foregoing certification and disclosure requirements and that it was seeking public comment on the issuer identification process as well as the submission and disclosure requirements. On May 13, 2021, the PCAOB issued proposed PCAOB Rule 6100 Board Determinations under the Holding Foreign Companies Accountable Act for public comment. The proposed rule provides a framework for making determinations as to whether PCAOB is unable to inspect an audit firm in a foreign jurisdiction, including the timing, factors, bases, publication and revocation or modification of such determinations, and such determinations will be made on a jurisdiction-wide basis in a consistent manner applicable to all firms headquartered in the jurisdiction. Accordingly, our securities may be prohibited from trading on the U.S. stock exchanges if our auditor is not inspected by the PCAOB for three consecutive years, and this ultimately could result in our ordinary shares being delisted.
Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if enacted, would amend the HFCA Act and require the SEC to prohibit an issuer’s securities from trading on any U.S. stock exchanges if its auditor is not subject to PCAOB inspections for two consecutive years instead of three. On September 22, 2021, the PCAOB adopted a final rule implementing the HFCAA, which became effective on November 4, 2021 and provided a framework for the PCAOB to use when determining, as contemplated under the HFCAA, whether the Board is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. On December 2, 2021, the SEC adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. The rules apply to registrants the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that the PCAOB is unable to inspect or investigate (Commission-Identified Issuers). The final amendments require Commission-Identified Issuers to submit documentation to the SEC establishing that, if true, it is not owned or controlled by a governmental entity in the public accounting firm’s foreign jurisdiction. The SEC will identify Commission-Identified Issuers for fiscal years beginning after Dec. 18, 2020. A Commission-Identified Issuer will be required to comply with the submission and disclosure requirements in the annual report for each year in which it was identified. If a registrant is identified as a Commission-Identified Issuer based on its annual report for the fiscal year ended Dec. 31, 2021, the registrant will be required to comply with the submission or disclosure requirements in its annual report filing covering the fiscal year ended Dec. 31, 2022.
While we understand that there has been dialogue among the China Securities Regulatory Commission (the “CSRC”), the SEC and the PCAOB regarding the inspection of PCAOB-registered accounting firms in China, there can be no assurance that we will be able to comply with requirements imposed by U.S. regulators. If we are unable to meet the PCAOB inspection requirement in time, we could be subject to additional submission and disclosure requirements, delisted from the OTCQB and our common stock will not be permitted for trading “over-the-counter” at all. If our securities are unable to be listed on another securities exchange by then, such a delisting would substantially impair investors’ ability to sell or purchase our common stock when investor wish to do so, and the ongoing risk and uncertainty associated with delisting would have a negative impact on the price of our common stock. Also, such a delisting would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition and prospects.
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. As discussed at Item 9 of this registration statement, 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.
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Item 1B. Unresolved Staff Comments
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Item 2. Properties
Our principal executive office is located at Room 2708-09, Metropolis Tower, 10 Metropolis Drive, Hung Hom, Hong Kong. We have an agreement for use of office space at this location under a lease expiring on July 31, 2022. We do not own any real property. We believe that our current facilities are adequate for our present needs and suitable additional facilities will be available as needed on commercially reasonable terms.
Item 3. Legal Proceedings
There are presently no pending legal proceedings to which the Company, LFGL, JFB or any of its property is subject, or any material proceedings to which any director, officer or affiliate of the Company, any owner of record or beneficially of more than five percent of any class of voting securities is a party or has a material interest adverse to the Company, and no such proceedings are known to the Company to be threatened or contemplated against it.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Since November 6, 2020, our common stock has been quoted on the OTCQB Venture Market maintained by the OTC Markets under the symbol “LCHD.” The OTCQB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities. The OTCQB securities are traded by a community of market makers that enter quotes and trade reports. This market is limited in comparison to the national stock exchanges and any prices quoted may not be a reliable indication of the value of our common stock. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Holders of Record
As of December 10, 2021, there were 137 stockholders of record of our common stock, not including an indeterminate number of stockholders whose shares are held by brokers in street name.
Dividend Policy
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 subsequent to completion of a business combination. 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.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Form 10-K.
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Certain statements in this Form 10-K constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.
Overview
Leader Capital Holdings Corp. is an early stage technology company that conducts its operations through its wholly owned subsidiaries, Leader Financial Group Limited and JFB Internet Service Limited.
Through LFGL, we act as the service provider for a mobile application investment platform that is owned by JFB. The platform connects investors with financial service providers in an effort to sharpen operational efficiency and seeks to address customer demands for more innovative services. It is a ready-made application created to meet the needs of financial service providers, especially trust companies and insurance companies. The platform is customizable and each financial institution can adjust the platform to better suit their client’s needs.
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, with similar functions as the JFB platform, to offer to our clients for a fee.
The Company is currently developing a new, more comprehensive FinMaster mobile application (“FinMaster App”), to offer to our clients for a fee. This FinMaster App intends to offer one-stop shopping for multi financial services. Key services include real-time Taiwan stock market quotes, financial industry information and news, social media activities, on-line live broadcast, A.I. stock selection and other features. On August 17, 2020, the Company, through its wholly-owned subsidiary JFB Internet Service Limited, a company incorporated and existing under the laws of Hong Kong (the “Buyer”), acquired all of the issued and outstanding capital stock (the “Acquisition”) of Nice Products Inc., a company organized under the laws of the British Virgin Islands and the Company’s software ODM developer of the FinMaster App (“NPI”), pursuant to the terms and conditions of that certain Stock Purchase Agreement, dated as of August 17, 2020, among the Company, the Buyer, NPI, the selling stockholders of NPI identified therein (each a “Seller,” and, collectively, the “Sellers”) and the representative of the Sellers identified therein. The aggregate purchase price for the acquisition was $4,850,000, less certain discounts, expenses and reductions for outstanding NPI debt owed to the Company and/or its affiliates. The net purchase price for the acquisition was $3,506,042, payable in 8,415,111 shares of the Company’s common stock to the Sellers in accordance with their respective pro rata percentage.
As a result of the acquisition, the Company now owns, indirectly through the Buyer, 100% of NPI. NPI, through its wholly-owned subsidiaries, LOC Weibo Co., Ltd. and Beijing DataComm Cloud Media Technology Co., Ltd., companies organized under the laws of the Republic of China and the laws of the People’s Republic of China, respectively, engages primarily in the development of ecological-system applications, integration of big data and promotion of OTT applications. As a result of the acquisition, we believe the FinMaster App can be launched to the market in a timely and efficient manner and clients on this open platform could be served more effectively and satisfactorily.
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We have incurred significant operating losses. As of August 31, 2021 and 2020, our accumulated deficits were $23,001,067 and $11,307,575, respectively. We generated revenue of $95,166 and $6,667 for the fiscal years ended August 31, 2021 and 2020, respectively. Our net losses were principally attributed to general and administrative expenses.
Going concern
The accompanying 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 and a working capital deficit of $23,001,067 and $1,521,119 respectively as of August 31, 2021. 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.
We expect to finance our operations primarily through cash flow from operations, loans from existing directors and stockholders and placements of capital stock for additional funding. In the event that we require additional funding to finance the growth of our current and expected future operations as well as to achieve our strategic objectives, a shareholder has indicated the intent and ability to provide additional financing. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, if needed, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for our business, and adversely impact our results of operations. We expect uncertainties around our key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Its estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Results of Operations
Comparison of years ended August 31, 2021 and 2020
| Year ended August 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | $ | 95,166 | $ | 6,667 | ||||
| Research and development expenses | (602,118 | ) | - | |||||
| Sales and marketing expenses | (203,646 | ) | - | |||||
| General and administrative expenses | (9,702,342 | ) | (9,736,502 | ) | ||||
| Impairment loss of intangible assets | (88,415 | ) | - | |||||
| Impairment loss of goodwill | (1,226,419 | ) | - | |||||
| Loss from operations | (11,727,774 | ) | (9,729,835 | ) | ||||
| Interest expenses | (102,196 | ) | (63,256 | ) | ||||
| Loss on change in fair value of convertible notes | (47,092 | ) | (199,000 | ) | ||||
| Other income | 145,432 | 149,262 | ||||||
| Loss before income tax | (11,731,630 | ) | (9,842,829 | ) | ||||
| Income tax benefit | 38,138 | - | ||||||
| Net loss | $ | (11,693,492 | ) | $ | (9,842,829 | ) | ||
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Revenue
We signed an agreement with a third party whereby we authorized the third party to use our investment platform and related applications, from January 1, 2018 to December 31, 2020, for an upfront service fee. An additional fee is charged upon the third party’s sale of products on our mobile application. From September 2020, we generated additional revenue from a new, more comprehensive mobile application, which we refer to as the FinMaster App, with similar functions as the JFB platform. We also provided software maintenance services.
We generated revenue of $95,166 and $6,667 for the fiscal years ended August 31, 2021 and 2020, respectively. During the year ended August 31, 2021, we, through the newly acquired subsidiary, NPI, earned revenue of $92,944, compared to nil for the year ended August 31, 2020. We look forward to strengthening our APP development through media, marketing and advertisement to raise the income.
Research and Development Expenses
Research and development expenses for the year ended August 31, 2021 amounted to $602,118 which primarily represented the charges for R&D and consulting work performed by third parties and salaries and benefits for those employees engaged in research, design and development activities after our acquisition of NPI in August 2020. We did not incur any R&D expenses for the year ended August 31, 2020.
Sales and Marketing Expenses
Sales and marketing expenses were $203,646 and $nil for the year ended August 31, 2021 and 2020, respectively. It consists of the advertising costs amounted to $168,535 and the redeemable point liability charges of $35,111 after our acquisition of NPI in August 2020.
General and Administrative Expenses
General and administrative expenses for the year ended August 31, 2021 amounted to $9,702,342 as compared to $9,736,502 for the year ended August 31, 2020, an increase of $64,402. Our general and administrative expenses consist primarily of computer and networking, payroll expenses, rental expenses, and stock compensation. We expensed $450,797, $1,187,477, $336,040 and $6,563,235 in these expenses, respectively, for the year ended August 31, 2021. We recognized $1,003,920, $104,953, $140,999 and $8,062,500, respectively, in these expenses in fiscal year 2020.
The increase of payroll expenses and rental expenses was mainly because we acquired NPI in August 2020 which incurred payroll expenses and rental expenses of $1,095,304 for the year ended August 31, 2021. The decrease of computer and networking expenses was due to we incurred $1,000,000 to develop a mobile application for the year ended August 31, 2020. Besides, we incurred less stock compensation mainly due to the reduced amount of equity-based awards issued to our employees and service providers.
Impairment loss of intangible assets
During the course of our strategic review of our operations, the financial performance of NPI’s technical know-hows fall below our original expectations, we assessed the recoverability of the carrying value of certain intangible assets which resulted in impairment losses of $88,415 and $nil, respectively for the years ended August 31, 2021 and 2020.
Impairment loss of goodwill
Our impairment loss of goodwill was $1,226,419 and $nil, respectively for the years ended August 31, 2021 and 2020. The impairment loss of goodwill was primarily attributable to the impairment related to NPI as the financial performance of the reporting unit of FinTech App development continued to fall below our original expectations.
Loss on Change in Fair Value of Convertible Notes
Our loss on change in fair value of convertible notes decreased from $199,000 in 2020 to $47,092 in 2021 due to fluctuation in the fair value of our convertible notes, which we issued in 2020 and 2021. We elected to measure the convertible notes in their entirety at fair value with changes in fair value recognized as non-operating income or loss at each balance sheet date.
Other Income
Other income for the year ended August 31, 2021 amounted to $145,432 as compared to $149,262 in the prior year, representing a reduction of $3,830. The drop was due primarily to the decrease in interest income on notes receivable from $139,430 during the year ended August 31, 2020 to $nil during the year ended August 31, 2021, offset by the increase of exchange difference, net from $nil for the year ended August 31, 2020 to $141,902 for the year ended August 31, 2021.
Net Loss
As a result of the foregoing, our net loss was $11,693,492 for the year ended August 31, 2021, as compared to $9,842,829 for the year ended August 31, 2020. The net loss was mainly derived from general and administrative expenses.
Liquidity and Capital Resources
We had $787,154 in cash and cash equivalents as of August 31, 2021.
Net cash used in operating activities for the year ended August 31, 2021 was $3,620,605, as compared to $956,849 for the year ended August 31, 2020. The net cash used in operating activities for the years ended August 31, 2021 and 2020 were mainly due to our net loss (excluding share-based compensation, depreciation and amortization, loss on change in fair value of convertible notes and impairment losses) of $3,336,631 for the year ended August 31, 2021, as compared to $1,443,400 for the year ended August 31, 2020.
Net cash used in investing activities for the years ended August 31, 2021 and 2020 were $74,551 and $2,057,014, respectively. The net cash used in investing activities for the year ended August 31, 2021 was mainly related to acquisition of plant and equipment of $71,068. The net cash used in investing activities for the year ended August 31, 2020 were for the issuance of notes receivable of $2,291,760 and partially offset by the notes repayment of $50,000 and acquisition of NPI, net of cash on hand amounted to $185,117.
Net cash provided by financing activities for the year ended August 31, 2021 was $4,063,386, as compared to $2,998,388 for the year ended August 31, 2020. For the year ended August 31, 2021, net cash provided by financing activities was mainly from the issuance of shares in private placement of $3,636,980 and convertible notes issuance of $800,000. The net cash provided by financing activities for the year ended August 31, 2020 was mainly attributed to the proceeds from the shares issued in private placement of $1,570,014, convertible notes issuance of $230,000 and advance from a director of $1,396,576.
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Critical Accounting Estimates
We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management. The discussion of our critical accounting policies contained in Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies,” is incorporated herein by reference. We believe that the following critical accounting policies affect the most significant estimates and management judgments used in preparing our consolidated financial statements.
Goodwill and impairment of goodwill
Goodwill represents the excess of the purchase price and related costs over the fair value of the net identified tangible and intangible assets and liabilities assumed and is not amortized. The total amount of goodwill is deductible for tax purposes.
In accordance with ASC Topic 350, “Intangibles-Goodwill and Other,” goodwill is not amortized but is tested for impairment, annually or more frequently when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its fair value.
We estimate fair value of the applicable reporting unit or units using a discounted cash flow methodology. This methodology represents a level 3 fair value measurement as defined under ASC 820, Fair Value Measurements and Disclosures, since the inputs are not readily observable in the marketplace. The goodwill impairment testing process involves the use of significant assumptions, estimates and judgments, including projected sales, gross margins, selling, general and administrative expenses, and capital expenditures, and the selection of an appropriate discount rate, all of which are subject to inherent uncertainties and subjectivity. When we perform goodwill impairment testing, its assumptions are based on annual business plans and other forecasted results, which it believes represent those of a market participant. We select a discount rate, which is used to reflect market-based estimates of the risks associated with the projected cash flows based on the best information available as of the date of the impairment assessment. Based on the annual impairment analysis, there is impairment of $1,226,419 on the goodwill recorded in our financial statements. The impairment loss of goodwill was primarily attributable to the impairment related to NPI as the financial performance of the reporting unit of FinTech App development continued to fall below our original expectations.
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Given the current macro-economic environment and the uncertainties regarding its potential impact on our business, there can be no assurance that its estimates and assumptions used in its impairment tests will prove to be accurate predictions of the future. If the Company’s assumptions regarding forecasted cash flows are not achieved, it is possible that an impairment review may be triggered and goodwill may be impaired.
Revenue recognition
We adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
We recognized revenues following the five-step model prescribed under ASU No. 2014-09:
| Step 1: Identify the contract | |
| Step 2: Identify the performance obligations | |
| Step 3: Determine the transaction price | |
| Step 4: Allocate the transaction price | |
| Step 5: Recognize revenue |
Revenues are recognized when control of the promised goods or services is transferred to our customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Provision of investment platform services
We signed an agreement with a third party whereby the Company authorizes the third party to use our investment platform and related applications for a period until December 31, 2020. Income from provision of investment platform services with the use of our mobile applications is recognized when the service is performed.
From September, 2020, we generated additional revenue from a new, more comprehensive mobile application, which refer to as the FinMaster mobile application (the “FinMaster App” and together with the JFB platform, the “Apps”), with similar functions as the JFB platform. Income from providing investment platform services with the use of a mobile application is recognized when the service is performed.
We offer a self-managed points program, which can be used in the FinMaster App to redeem merchandise or services. We determine the value of each point based on estimated incremental cost. Customers and advocates have a variety of ways to obtain the points. The major accounting policy for its points program is described as follows:
We conclude the bonus points offered linked to the purchase transaction of the points is a material right and accordingly a separate performance obligation according to ASC 606, and should be taken into consideration when allocating the transaction price of the point sales. We also estimate the probability of points redemption when performing the allocation. The amount allocated to the bonus points as separate performance obligation is recorded as contract liability (deferred revenue) and revenue should be recognized when future goods or services are transferred. We will continue to monitor when and if forfeiture rate data becomes available and will apply and update the estimated forfeiture rate at each reporting period.
Since historical information is limited for us to determine any potential points forfeitures and most merchandise can be redeemed without requiring a significant amount of points compared with the amount of points provided to users, we have used an estimated forfeiture rate of zero.
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Provision of software development service and maintenance service
We entered into several agreements with third party customers to assist the customers in the development of their mobile communications software and mobile e-commerce software. Income from provision of software development service and maintenance service are recognized when the service is performed.
Impairment of long-lived assets (including amortizable intangible assets)
We review 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 undiscounted future 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. Impairment of $88,415 and $nil has been recorded by us for the years ended August 31, 2021 and 2020, respectively. The impairment loss of intangible assets was primarily attributable to the financial performance of NPI’s technical know-hows fall below our original expectations and they assessed the recoverability of the carrying value of certain intangible assets which resulted in impairment losses.
Recent Accounting Pronouncements
For further information on recently issued accounting pronouncements, see Note 2—Summary of Significant Accounting Policies in the accompanying notes to consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
As of August 31, 2021, we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
Fiscal Year
Our fiscal year ends on August 31.
Item 7A. 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 the information required by this Item.
Item 8. Financial Statements and Supplementary Data.
Please see the financial statements beginning on page F-1 located in this Form 10-K and incorporated herein by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
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Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer (principal executive officer) and Treasurer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of August 31, 2021. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our principal executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.
Management conducted its evaluation of disclosure controls and procedures under the supervision of our Chief Executive Officer (principal executive officer) and Treasurer (principal financial officer). Based upon, and as of the date of this evaluation, our Chief Executive Officer (principal executive officer) and Treasurer (principal financial officer) concluded that our disclosure controls and procedures were not effective as of August 31, 2021 due to the material weaknesses in our internal control over financial reporting, which are described below.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer (principal executive officer) and Treasurer (principal financial officer), and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP, and includes those policies and procedures that:
| (1) | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; | |
| (2) | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and | |
| (3) | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of August 31, 2021. In making this assessment, management used the framework set forth in the report entitled Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company’s internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. Based on our assessment, as a result of the material weaknesses described below, our Chief Executive Officer and principal financial officer determined that, as of August 31, 2021, our internal control over financial reporting was not effective because of the following material weaknesses in our internal control over financial reporting has been identified.
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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 our annual financial statements will not be prevented or detected in a timely basis.
Management identified the following material weaknesses during its assessment of internal controls over financial reporting as of August 31, 2021.
| 1. | We do not have an audit committee – While we are not obligated to have an audit committee, it is management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial reporting. Currently, our Chief Executive Officer and directors act in the capacity of the audit committee, and do not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities. | |
| 2. | We do not have adequate written policies and procedures – Due to lack of adequate written policies and procedures for accounting and financial reporting, we did not establish a formal process to close our books monthly and account for all transactions in a timely manner. | |
| 3. | We did not implement appropriate information technology controls – As at August 31, 2021, we retained copies of all financial data and material agreements; however, there is no formal procedure or evidence of normal backup of our data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors and we do not have sufficient control policies that prevent inappropriate and unauthorized use of the system across all layers of systems. | |
| 4. | We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements. |
Notwithstanding these material weaknesses, however, management has concluded that the consolidated financial statements included in this Annual Report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with U.S. GAAP.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
| 1. | Create a position to segregate duties consistent with control objectives and increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. | |
| 2. | Prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity and debt transactions, in a timely manner. | |
| 3. | Add staff members to our management team to make sure that information required to be disclosed in our reports filed and submitted under the Exchange Act is recorded, processed, summarized and reported as and when required and the staff members will have segregated responsibilities with regard to these responsibilities. | |
| 4. | Plan to hire professional consultant to review and assist the company to design and implement proper information technology controls and policies on the company’s operations. |
We anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2022.
Changes in Internal Controls over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this Form 10-K, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting:
This Form 10-K does not include an attestation report of the Company’s registered independent public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered independent public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Form 10-K.
Item 9B. Other Information.
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth the names and ages of all of our current directors and executive officer(s), who are appointed by, and serve at the pleasure of, the Company’s board of directors.
| Name | Age | Position | ||
| Yi-Hsiu Lin | 53 | Chief Executive Officer, President, Secretary, Treasurer, Director | ||
| Shui Fung Cheng | 59 | Director |
Yi-Hsiu Lin
Mr. Lin has served as our Chief Executive Officer, President, Secretary, Treasurer and a member of our board of directors since our inception. Mr. Lin has also served as a director of First Leader Capital Ltd., JFB Internet Service LTD. and Leader Financial Asset Management Limited since 2017, 2016 and 2015, respectively. Since 2014, Mr. Lin has served as a director for Aquarius Protection Fund SPC, where he is primarily responsible for administrative management and operation planning. From 2010 to the present, Mr. Lin has served as the Chief Executive Officer and a director Leader Financial Asset Management Limited, an investment advisory and management service. Mr. Lin graduated from Overseas Chinese University in Taiwan with a Bachelor’s Degree in Accounting in 2004. Mr. Lin’s extensive experience in the financial industry provides him with the qualifications and skills to serve as a director of our Company.
Shui Fung Cheng
Mr. Cheng has served as a member of our board of directors since August of 2017. Mr. Cheng has also served as a director of Leader Financial Asset Management since 2015. From 2013 to 2018, he served as a director for HF Group, a company that provides professional services for investment, skilled migration to the European Union and oversea real estate investment. Mr. Cheng was responsible for the development of business strategies, investment decisions and he oversaw all operational activities. Mr. Cheng’s extensive experience in management and business development provide him with the qualifications and skills to serve as a director of our Company.
None of our directors is related to any other director or any officer. None of our directors has been involved in a legal proceeding that requires disclosure pursuant to Item 401(f) of Regulation S-K promulgated under the Exchange Act.
Corporate Governance
The Company promotes accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with the SEC and in other public communications made by the Company; and strives to be compliant with applicable governmental laws, rules and regulations. The Company has not formally adopted a written code of business conduct and ethics that governs the Company’s employees, officers and directors as the Company is not required to do so.
In lieu of an audit committee, the Company’s board of directors is responsible for reviewing and making recommendations concerning the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of the Company’s financial statements and other services provided by the Company’s independent public accountants. The board of directors and Chief Executive Officer of the Company review the Company’s internal accounting controls, practices and policies. Consequently, we do not have a board member that qualifies as an “audit committee financial expert” as defined in Item 407(d)(5) of Regulation S-K.
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Committees of the Board
Our Company currently does not have nominating, compensation, or audit committees or committees performing similar functions nor does our Company have a written nominating, compensation or audit committee charter. Our directors believe that it is not necessary to have such committees, at this time, because the directors can adequately perform the functions of such committees.
Involvement in Certain Legal Proceedings
There have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control person of the Company during the past ten years.
Independence of Directors
We are not required to have independent members of our board of directors, and do not anticipate having independent directors until such time as we are required to do so.
Code of Ethics
We have not adopted a formal code of ethics. The board of directors evaluated the business of the Company and the number of employees and determined that since the business is operated by a small number of persons, general rules of fiduciary duty and federal and state criminal, business conduct and securities laws are adequate ethical guidelines. In the event our operations, employees and/or directors expand in the future, we may take actions to adopt a formal code of ethics.
Shareholder Proposals
Our Company does not have any defined policy or procedural requirements for stockholders to submit recommendations or nominations for directors. The board of directors believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. Our Company does not currently have any specific or minimum criteria for the election of nominees to the board of directors and we do not have any specific process or procedure for evaluating such nominees. The board of directors will assess all candidates, whether submitted by management or stockholders, and make recommendations for election or appointment.
A shareholder who wishes to communicate with our board of directors may do so by directing a written request addressed to our Chief Executive Officer at the address appearing on the first page of this Form 10-K.
Delinquent Section 16(a) Reports
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, the Company’s directors, officers and persons who beneficially own 10% or more of the common stock are required to file reports specifying their initial ownership of common stock and subsequent changes in that ownership to the SEC. These reports are required to be filed within specified time periods established by the SEC. Based solely on our review of reports filed with the SEC, we believe that no director, officer, or 10% shareholder failed to timely file in fiscal year ended August 31, 2021 any report required by Section 16(a), other than the following transactions:
| (i) | filing by First Leader Capital Ltd. and related entities and persons, including Yi-Hsiu Lin, the Company’s Chief Executive Officer and a member of the Company’s board of directors, with respect to one transaction dated June 30, 2020 pertaining to the cancellation of 5,500,000 shares of common stock pursuant to the terms of a stock forfeiture letter. Such late Form 4 was filed on December 14, 2020; and | |
| (ii) | filing by Mr. Cheng Shui Fung, a member of the Company’s board of directors, with respect to two transactions dated February 25, 2021 pertaining to sale of the Company’s common stock. Such late Form 4 was filed on March 2, 2021. |
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Item 11. Executive Compensation
The following table sets forth the cash and other compensation paid by the Company to its named executive officer and directors during the years ended August 31, 2021 and 2020.
| Name and Position | Year ($) | Salary ($) | Bonus ($) | Stock Awards(1) ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||
| Yi-Hsiu Lin Chief Executive Officer, President, Secretary, Treasurer and director | 2021 | None | (2) | None | 1,000,000 | None | 34,208 | (3) | 1,034,208 | |||||||||||||||||
| 2020 | None | None | 1,250,000 | None | 30,867 | 1,280,867 | ||||||||||||||||||||
| Shui Fung Cheng Director | 2021 | None | (4) | None | 600,000 | None | 28,229 | (3) | 628,229 | |||||||||||||||||
| 2020 | None | None | 750,000 | None | 2,171 | 752,171 | ||||||||||||||||||||
| (1) | The amounts in the “Stock Awards” column do not reflect compensation actually received by our executive officers. Rather, these amounts represent the aggregate grant date fair value of all service based RSUs and the target value of the performance based RSUs granted during each fiscal year computed in accordance with FASB ASC Topic 718, Compensation – Stock Compensation. | |
| (2) | In lieu of Mr. Lin’s $50,000 annual salary, the Company elected to compensate Mr. Lin with 2,500,000 shares of restricted common stock pursuant to the terms of his employment agreement. | |
| (3) | Amount reflects a monthly allowance payable to the individual. | |
| (4) | In lieu of Mr. Cheng’s $30,000 annual compensation, the Company elected to compensate Mr. Cheng with 1,500,000 shares restricted common stock pursuant to the terms of his director offer letter. |
Employment Agreement(s)
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. In place of Base Compensation, the Company, at its option, may pay Mr. Lin 2,500,000 shares of restricted stock, which would vest as of September 16, 2019. In addition, Mr. Lin may be entitled to bonus compensation of up to three (3) times Base Compensation based on his achievement of appropriate performance criteria to be determined by the board of directors or a committee thereof. The agreement will terminate upon death and total or permanent disability. It may also be terminated for “cause,” as defined in the agreement, upon three days’ notice if the triggering incident has not been cured in a reasonable time, but no less than 14 days. Additionally, during his employment and for a period of two years following the termination of his employment, Mr. Lin agreed not to: (a) directly solicit, encourage, or take any other action which is intended to induce any other employee of the Company to terminate his or her employment with the Company; or (b) directly interfere in any manner with the contractual or employment relationship between the Company and any such employee of the Company. Similarly, during his employment and for a period of two years following the termination of his employment, Mr. Lin agreed not to directly or indirectly, whether for his own account or for the account of any other individual or entity, solicit the business or patronage of any customers of the Company with respect to products and/or services directly related to a “competitive business activity,” as defined in the agreement. The agreement also contains a standard confidentiality clause.
On September 1, 2021, the Company renewed the employment agreement with Yi-Hsiu Lin for additional two years. Pursuant to the agreement, Mr. Lin will be compensated at an annual rate of $120,000 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 March 1, 2022 and March 1, 2023. In addition, Mr. Lin may be entitled to bonus compensation of up to three times the Base Compensation based on his achievement of appropriate performance criteria to be determined by the board of directors or a committee thereof.
Director Compensation
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 member of our board of directors for a one year term. For his service as a director, Mr. Cheng will receive annual compensation in the form of $30,000 in cash or 1,500,000 shares of restricted common stock. The offer letter contains a customary termination provision and standard confidentiality clauses; and will be automatically renewed unless the director resigned or a new offer letter is entered into.
On September 1, 2021, the Company issued a director offer letter to Shui Fung Cheng, pursuant to which Mr. Cheng agreed to serve as member of our board of directors for a one year term. For his service as a director, Mr. Cheng will receive annual compensation in the form of $80,000 in cash or 1,500,000 shares of restricted common stock. The offer letter contains a customary termination provision and standard confidentiality clauses; and will be automatically renewed unless the director resigned or a new offer letter is entered into.
As of the date of the filing of this Form 10-K, $1,662,437 has been paid to our directors by cash and stock compensation. In the future, the Company may decide to award the members of the board of directors cash or stock based consideration for their services to the Company, which awards, if granted shall be in the sole determination of the board of directors.
Executive Compensation Philosophy
Our board of directors determines the compensation given to our executive officers in their sole discretion. Our board of directors reserves the right to pay our executive or any future executives a salary, and/or issue them shares of common stock issued in consideration for services rendered and/or to award incentive bonuses that are linked to our performance, as well as to the individual executive officer’s performance. This package may also include long-term stock based compensation to certain executives, which is intended to align the performance of our executives with our long-term business strategies. Additionally, while our board of directors has not granted any performance base stock options to date, the board of directors reserves the right to grant such options in the future, if they in their sole determination believes such grants would be in the best interests of the Company.
| 30 |
Incentive Bonus
The board of directors may grant incentive bonuses to our executive officer and/or future executive officers in its sole discretion, if the board of directors believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and the amount of revenue we are able to generate each month, which revenue is a direct result of the actions and ability of such executives.
Long-term, Stock Based Compensation
In order to attract, retain and motivate executive talent necessary to support the Company’s long-term business strategy we may award our executive and any future executives with long-term, stock-based compensation in the future, at the sole discretion of our board of directors, which we do not currently have any immediate plans to award.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information as of December 10, 2021, regarding the beneficial ownership of our common stock by the following persons:
| ● | our Named Executive Officer; | |
| ● | each director; | |
| ● | our executive officer and director as a group; and | |
| ● | each person or entity who, to our knowledge, owns more than 5% of our common stock. |
Except as indicated in the footnotes to the following table, subject to applicable community property laws, each stockholder named in the table has sole voting and investment power. Unless otherwise indicated, the address for each stockholder listed is c/o Leader Capital Holdings Corp., Room 2708-09, Metropolis Tower, 10 Metropolis Drive, Hung Hom, Hong Kong. Shares of common stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of December 10, 2020, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the stockholder holding the options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other stockholder. The information provided in the following table is based on our records, information filed with the SEC, and information furnished by our stockholders.
As of December 10, 2021, the Company has 162,109,219 shares of common stock issued and outstanding, which number of issued and outstanding shares of common stock have been used throughout this Form 10-K.
| Name and Address of Beneficial Owner | Shares of Common Stock Beneficially Owned | Total Voting Percentage Beneficially Owned | ||||||
| Named Executive Officers and Directors | ||||||||
| Yi-Hsiu Lin | 56,137,778 | (1) | 34.6 | % | ||||
| Shui Fung Cheng | 7,439,225 | (2) | 4.5 | % | ||||
| All Directors and Officers as a Group (2 individuals) | 58,406,725 | (3) | 36.0 | % | ||||
| More than 5% Beneficial Owner | ||||||||
| Anzhao International Limited(4) | 10,000,000 | 6.1 | % | |||||
| First Leader Capital Ltd.(5) | 32,867,500 | 20.2 | % | |||||
(1) Consists of (i) 5,100,000 shares of common stock beneficially held by Mr. Lin, (ii) 32,867,500 shares of common stock beneficially held by First Leader Capital Ltd., over which Mr. Lin has sole voting and investment power as the sole owner of such entity, (iii) 3,000,000 shares of common stock beneficially held by CPN Investment Ltd., over which Mr. Lin has sole voting and investment power, (iv) 5,170,278 shares of common stock beneficially held by Leader Financial Asset Management Limited, a company incorporated in the Cayman Islands, over which Mr. Lin has shared voting and investment power over as a director of such entity, and (v) 10,000,000 shares of common stock beneficially held by Anzhao International Limited, over which Mr. Lin has voting and investment power given that he has the sole right to appoint the trustee of the Gratis Trust and the right to remove any such trustee with or without cause or for any reason, which trust has the right to appoint or remove the director of Anzhao International Limited.
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(2) Consists of (i) 2,268,947 shares of common stock beneficially held by Mr. Cheng and (ii) 5,170,278 shares of common stock beneficially held by Leader Financial Asset Management Limited, over which Mr. Cheng has shared voting and investment power as a director of such entity.
(3) Consists of (i) 5,100,000 shares of common stock beneficially held by Mr. Lin, (ii) 2,268,947 shares of common stock beneficially held by Mr. Cheng, (iii) 32,867,500 shares of common stock beneficially held by First Leader Capital Ltd., over which Mr. Lin has sole voting and investment power as the sole owner of such entity, (iv) 3,000,000 shares of common stock beneficially held by CPN Investment Ltd., over which Mr. Lin has sole voting and investment power, (v) 5,170,278 shares of common stock beneficially held by Leader Financial Asset Management Limited, a company incorporated in the Cayman Islands, over which Messrs. Lin and Cheng have shared voting and investment power over as directors of such entity, and (vi) 10,000,000 shares of common stock beneficially held by Anzhao International Limited, over which Mr. Lin has voting and investment power given that he has the sole right to appoint the trustee of the Gratis Trust and the right to remove any such trustee with or without cause or for any reason, which trust has the right to appoint or remove the director of Anzhao International Limited.
(4) Top Goal Management Ltd is the sole director of Anzhao International Limited and, therefore, has voting and investment power over the shares held by Anzhao International Limited. The authorized representatives of Top Goal Management Ltd (six individuals) have voting and investment power with respect to such shares. The sole stockholder of Anzhao International Limited is Unity Trust Limited, which holds the shares of Anzhao International Limited as trustee for the benefit of the Gratis Trust, which is an irrevocable trust. Mr. Lin is the appointor of the Gratis Trust and, as a result has the sole right to appoint the trustee of the Gratis Trust and the right to remove any such trustee with or without cause or for any reason. The mailing address of this beneficial holder is 4007 Central Plaza, 18 Harbour Road, Wan Chai, Hong Kong.
(5) Mr. Lin has sole voting and investment power over these shares of common stock as the sole owner of this entity. The mailing address of this beneficial holder is 9F-3, No.910, Sec.2, Taiwan Blvd., Xitun Dist., Taichung City 407, Taiwan (R.O.C).
Securities Authorized for Issuance under Equity Compensation Plans
As of August 31, 2021, the Company has not authorized any securities for issuance under an equity compensation plan.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Party Transactions
SEC regulations define the related person transactions that require disclosure to include any transaction, arrangement or relationship in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years in which we were or are to be a participant and in which a related person had or will have a direct or indirect material interest. A related person is: (i) an executive officer, director or director nominee, (ii) a beneficial owner of more than 5% of our common stock, (iii) an immediate family member of an executive officer, director or director nominee or beneficial owner of more than 5% of our common stock, or (iv) any entity that is owned or controlled by any of the foregoing persons or in which any of the foregoing persons has a substantial ownership interest or control.
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For the period from September 1, 2019, through the date of this report, described below are certain transactions or series of transactions between us and certain related persons.
On September 1, 2018 (before the acquisition of NPI), JFB appointed LOC to develop a mobile application in four stages for a total consideration of TWD20,000,000 ($651,466), payable in the form of common shares of the Company. As of August 31, 2019, the first and second stages of development for the basic functions of the mobile application have been completed, and the Company has issued a total of 908,678 of restricted common shares in aggregate at $0.50 per share for the work completed up to August 31, 2019. The Company has expensed $454,339 development costs for the first and second development stage in general and administrative expenses for the year ended August 31, 2019. In August 2020, the development of the mobile application has been completed, and the Company expensed $0.2 million development costs in general and administrative expenses for the year ended August 31, 2020. Further $0.6 million was incurred for additional functions developed and $0.2 million was incurred for the acquisition of the ownership of the intellectual property.
From April 2019, the Company entered into multiple loan agreements with LOC and BJDC. The loans are secured by personal guarantees of certain of its ultimate stockholders, bear interest at 8% per annum, and are due on various dates through August 2021. Interest of $nil and $137,626 was charged as expenses from these two companies for the years ended August 31, 2021 and 2020, respectively.
The Company sublet its commercial office in Taipei to Greenpro LF Limited under non-cancelable operating lease at a monthly rental of HK$22,000 ($2,821), adjusted to HK$22,900 ($2,936) from November 1, 2019, with a term of 31 months until October 31, 2020. Greenpro LF Limited was also obligated to pay the Company HK$230,000 ($29,487) for leasehold improvements. The sub-letting arrangement was terminated by agreement of the parties early on February 28, 2019. The Company received $1,838 and $nil in leasehold improvements income from Greenpro LF Limited for the years ended August 31, 2021 and 2020. Our Chief Executive Officer, Mr. Yi-Hsiu Lin, is a director of Greenpro LF Limited.
On September 1, 2020, LOC leased an office in Taichung, Taiwan from the Company’s shareholder. The lease was renewed on April 1, 2021 for additional one-year term. The monthly lease was for the amount of NTD 45,000 ($1,595), with a term of one year. During the year ended August 31, 2021, the Company recognized rental expenses of $19,135 that are included in general and administrative expenses.
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 August 18, 2020, two of the Noteholders submitted conversion notices to the Company converting all of the outstanding balances of their Notes into an aggregate of 325,000 shares of the Company’s common stock.
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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.
On March 18, 2020, the Company issued a convertible promissory note in the principal amount of $100,000, which accrues interest at the rate of 6% per annum, to a shareholder – Jui-Chin Chen. The note is due on March 18, 2022 and unsecured.
On August 17, 2020, the Company entered into amendments to the Notes and the convertible promissory note purchase agreements with each of the Noteholders, wherein, at the sole option of the applicable Noteholder, all or part of the unpaid outstanding principal of such Noteholder’s Note would be convertible into shares of restricted common stock of the Company at a conversion price equal to $0.40 per share. On August 18, 2020, two of the Noteholders submitted conversion notices to the Company converting all of the outstanding balances of their Notes into an aggregate of 325,000 shares of the Company’s common stock.
On November 2, 2020, the Company issued a convertible promissory note in the principal amount of $100,000, which accrues interest at the rate of 6% per annum, to a shareholder – Teh-Ling Chen. The note is due on November 2, 2022 and unsecured.
On November 25, 2020, the Company further issued convertible promissory notes in the total principal amount of $600,000, which accrues interest at the rate of 6% per annum, to shareholders –Chin-Ping Wang, Chin-Nan Wang and Chin-Chiang Wang. The note is due on November 25, 2022 and unsecured.
On January 15, 2021, the Company issued a convertible promissory note in the principal amount of $100,000, which accrues interest at the rate of 6% per annum, to a shareholder – Teh-Ling Chen. The note is due on January 15, 2023 and unsecured.
For each of the convertible 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.
Fair value of the convertible promissory notes of $990,000 and $104,000 as of August 31, 2021 and 2020 respectively are determined using the binomial model, one of the option pricing methods. The valuation involves complex and subjective judgment and the Company’s best estimates of the probability of occurrence of future events, such as fundamental changes, on the valuation date. Under the binomial valuation model, the Group uses a weighted risk-free and risk interest rate (the combination of the risk free rate plus the credit spread for the underlying Notes) weighted by the probability of conversion as internally solved out by binomial model in discounting its cash flows. The main inputs to this model include the underlying share price, the expected share volatility, the expected dividend yield, the risk free and risk interest rate.
During the years ended August 31, 2021 and 2020, interest of $44,908 and $3,997 were incurred on the Notes, respectively.
As of August 31, 2021, Mr. Lin has advanced an aggregate total of $1,098,374 to the Company for working capital purposes. The loan is unsecured, bears no interest and is payable upon demand.
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Review, Approval and Ratification of Related Party Transactions
Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described above, with our executive officer(s), director(s) and significant stockholders. We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional directors, so that such transactions will be subject to the review, approval or ratification of our board of directors, or an appropriate committee thereof. On a moving forward basis, our directors will continue to approve any related party transaction.
Director Independence
Our board of directors currently consists of two directors. None of our directors are “independent” as defined in Rule 5605(a)(2) of the Nasdaq listing rules. We may appoint an independent director or directors to our board of directors in the future, particularly to serve on appropriate committees should they be established.
Item 14. Principal Accounting Fees and Services.
Set forth below are approximate fees for services rendered by Centurion ZD CPA & Co., our independent registered public accounting firm, and by TAAD LLP for the fiscal year ended August 31, 2021 and 2020.
| 2021 | 2020 | |||||||
| Audit Fees | $ | 153,500 | $ | 72,900 | ||||
| Audit Related Fees | $ | 10,000 | $ | 85,000 | ||||
| Tax Fees | $ | 12,833 | $ | 3,000 | ||||
| All Other Fees | $ | - | $ | - | ||||
Audit Fees
The fees for the audit services billed and to be billed by Centurion ZD CPA & Co. for the year ended August 31, 2021 amounted to $153,500.
The fees for the audit services billed and to be billed by Centurion ZD CPA & Co. for the year ended August 31, 2020 amounted to $68,400. The fees for audit services billed by TAAD LLP for services for the year ended August 31, 2020 amounted to $4,500.
| 35 |
Audit-Related Fees
The fees for the audit-related services billed and to be billed by Centurion ZD CPA & Co. for the year ended August 31, 2021 and 2020 amounted to $10,000 and $85,000 respectively.
Tax Fees
There were no tax fees billed by Centurion ZD CPA & Co. for the years ended August 31, 2021 and 2020. Tax fees of $12,833 and $3,000 were billed by TAAD LLP in the fiscal year ended August 31, 2021 and 2020, respectively.
All Other Fees
There were no fees billed by Centurion ZD CPA & Co. for other products and services for the years ended August 31, 2021 and 2020.
Audit Committee’s Pre-Approval Process
The Company does not have a standing audit committee or a committee performing similar functions.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Financial Statements
We have filed the following documents as part of this Form 10-K:
1. Financial Statements:
2. Financial Statement Schedules
All schedules have been omitted because they are not required, not applicable, not present in amounts sufficient to require submission of the schedule, or the required information is otherwise included
(b) Exhibits
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* Filed herewith.
** Furnished herewith.
† Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.
Item 16. Form 10–K Summary.
None
| 37 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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. | ||
| Date: December 14, 2021 | By: | /s/ Yi-Hsiu Lin |
| Title: | Yi-Hsiu Lin Chief Executive Officer | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | Title | Date | |||
| By: | /s/ Yi-Hsiu Lin | Chief Executive Officer, President, Secretary, Treasurer, and Director | December 14, 2021 | ||
| Yi-Hsiu Lin | (Principal Executive Officer, Principal Financial Officer, and Principal Accounting Officer) | ||||
| By: | /s/ Shui Fung Cheng | Director | December 14, 2021 | ||
| Shui Fung Cheng | |||||
| 38 |
INDEX TO FINANCIAL STATEMENTS
FINANCIAL STATEMENTS AND EXHIBITS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Leader Capital Holdings Corp.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Leader Capital Holdings Corp. and its subsidiaries (the “Company”) as of August 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended August 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended August 31, 2021, in conformity with accounting principles generally accepted in the United States.
Consideration of the Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, and records an accumulated deficit as of August 31, 2021, and currently has net working capital deficit. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
| /s/ Centurion ZD CPA & Co. | |
| Centurion ZD CPA & Co. | |
| We have served as the Company’s auditor since 2019. | |
| Hong Kong, China | |
| December 14, 2021 |
| F-2 |
LEADER CAPITAL HOLDINGS CORP
CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 31, 2021 AND 2020
(In U.S. dollars except share and per share data)
| As of August 31, | ||||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | - | |||||||
| Prepayments, deposits and other receivables | ||||||||
| Inventory | - | |||||||
| Due from a director | - | |||||||
| Due from a related company | - | |||||||
| Loan to a shareholder | - | |||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Plant and equipment, net | ||||||||
| Intangible assets | ||||||||
| Goodwill | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Prepayments, deposits and other receivables | - | |||||||
| Total non-current assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accrued expenses and other payables | $ | $ | ||||||
| Contract liabilities | ||||||||
| Operating lease liability, current | ||||||||
| Loan from a shareholder | - | |||||||
| Due to shareholders | ||||||||
| Due to a director | ||||||||
| Bonds payable | - | |||||||
| Convertible notes payable to related parties | - | |||||||
| Total current liabilities | ||||||||
| Non-current liabilities | ||||||||
| Operating lease liability, non-current | ||||||||
| Deferred tax liabilities | ||||||||
| Bonds payable | - | |||||||
| Convertible notes payable to related parties | ||||||||
| Total non-current liabilities | ||||||||
| TOTAL LIABILITIES | $ | $ | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 14) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $par value; shares authorized; issued and outstanding | - | - | ||||||
| Common stock, $par value; shares authorized; and shares issued and outstanding as of August 31, 2021 and 2020, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | - | |||||
| Accumulated deficits | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | $ | $ | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
| F-3 |
LEADER CAPITAL HOLDINGS CORP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
FOR THE YEARS ENDED AUGUST 31, 2021 AND 2020
(In U.S. dollars except share and per share data)
| Year ended August 31, | ||||||||
| 2021 | 2020 | |||||||
| REVENUE | $ | $ | ||||||
| OPERATING EXPENSES | ||||||||
| Research and development expenses | ( | ) | - | |||||
| Sales and marketing expenses | ( | ) | - | |||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Impairment loss of intangible assets | ( | ) | - | |||||
| Impairment loss of goodwill | ( | ) | - | |||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| Interest expenses | ( | ) | ( | ) | ||||
| Loss on change in fair value of convertible notes | ( | ) | ( | ) | ||||
| OTHER INCOME | ||||||||
| Other income – from related parties | ||||||||
| Other income – from non-related parties | ||||||||
| Foreign exchange gain, net | - | |||||||
| LOSS BEFORE INCOME TAX | ( | ) | ( | ) | ||||
| Income tax benefit | - | |||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| OTHER COMPREHENSIVE LOSS | ||||||||
| Foreign currency translation adjustment | ( | ) | - | |||||
| TOTAL COMPREHENSIVE LOSS | $ | ( | ) | $ | ( | ) | ||
| Net loss per share - Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares of common stock outstanding - Basic and diluted | ||||||||
See accompanying notes to the consolidated financial statements.
| F-4 |
LEADER CAPITAL HOLDINGS CORP
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED AUGUST 31, 2021 AND 2020
(In U.S. dollars except for share data)
| COMMON STOCK | ADDITIONAL | OTHER | TOTAL | |||||||||||||||||||||
| Number of shares | Amount | PAID IN CAPITAL | COMPREHENSIVE LOSS | ACCUMULATED DEFICITS | STOCKHOLDERS’ EQUITY | |||||||||||||||||||
| Balance as of September 1, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Shares issued to service providers | ( | ) | - | - | - | |||||||||||||||||||
| Shares issued to board of directors | ( | ) | - | - | - | |||||||||||||||||||
| Shares issued to employees | ( | ) | - | - | - | |||||||||||||||||||
| Shares issued for the acquisition of NPI | - | - | ||||||||||||||||||||||
| Shares issued to note holders | - | - | ||||||||||||||||||||||
| Shares issued in private placement | - | - | ||||||||||||||||||||||
| Share based compensation | - | - | - | - | ||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance as of August 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Shares issued to service providers | ( | ) | - | - | - | |||||||||||||||||||
| Shares issued to employees | ( | ) | - | - | - | |||||||||||||||||||
| Shares issued in private placement | - | - | ||||||||||||||||||||||
| Cancellation of restricted shares issued | ( | ) | ( | ) | - | - | - | |||||||||||||||||
| Share based compensation | - | - | - | - | ||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| Balance as of August 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
See accompanying notes to consolidated financial statements.
| F-5 |
LEADER CAPITAL HOLDINGS CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
| For the year ended August 31, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Share-based compensation expenses | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Impairment loss on intangible assets and goodwill | - | |||||||
| Loss on change in fair value of convertible notes | ||||||||
| Exchange difference, net | ( | ) | - | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | - | |||||
| Prepayments, deposits and other receivables | ( | ) | ( | ) | ||||
| Inventory | ( | ) | - | |||||
| Accounts payable | - | |||||||
| Amount due from a director | ( | ) | ||||||
| Deferred tax liabilities | ( | ) | - | |||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accrued expenses and other payables | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of plant and equipment | ( | ) | ( | ) | ||||
| Issuance of notes receivable | - | ( | ) | |||||
| Repayment of notes receivable | - | |||||||
| Acquisition of NPI, net of cash on hand | - | |||||||
| Acquisition of intangible assets | ( | ) | - | |||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from shares issued in private placement | ||||||||
| Proceeds from convertible notes issuance | ||||||||
| Advance from a director | ||||||||
| Repayment to a director | ( | ) | ( | ) | ||||
| (Repayment to) Loan from a shareholder | ( | ) | ||||||
| Advance to shareholders | ( | ) | - | |||||
| Net cash provided by financing activities | ||||||||
| Effects of exchange rate changes on cash and cash equivalents | ( | ) | - | |||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents, beginning of year | ||||||||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Common stock issued for acquisition of NPI | - | |||||||
| Common stock issued to note holders | - | |||||||
| SUPPLEMENTAL CASH FLOWS INFORMATION | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
See accompanying notes to the consolidated financial statements.
| F-6 |
LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the YEARS ended August 31, 2021 and 2020
(In U.S. dollars)
1. ORGANIZATION AND BUSINESS BACKGROUND
Leader Capital Holdings Corp. (“LCHD” or the “Company”) was incorporated on March 22, 2017 under the laws of the State of Nevada.
The Company mainly engages in the provision of investment platform services with the use of a mobile application through the following subsidiaries:
| Company name | Place/date of incorporation | Principal activities | ||
| 1.
|
||||
| 2.
|
On
August 17, 2020, LCHD, through JFB, acquired all of the issued and outstanding capital stock (the “Acquisition”) of Nice
Products Inc. (“NPI”), pursuant to the terms and conditions of that certain Stock Purchase Agreement, dated as of the Closing
Date, among the Company, JFB, NPI, the selling shareholders of NPI identified therein (each a “Seller,” and, collectively,
the “Sellers”) and the representative of the Sellers identified therein. As a result of the Acquisition, the Company now
owns indirectly
The
aggregate purchase price for the Acquisition was $
After the completion of the acquisition, NPI became a wholly owned subsidiary of the Company.
NPI was incorporated in the British Virgin Islands on December 17, 2018.
NPI, through its subsidiaries, mainly engages in the development of ecological-systems applications, integration of big data and promotion of OTT applications.
| Company name | Place/date of incorporation | Principal activities | ||
| 1.
|
||||
| 2.
|
LCHD and its subsidiaries (including NPI and its subsidiaries) are hereinafter referred to as the “Company”.
| F-7 |
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and include the financial statements of LCHD and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The Company has adopted August 31 as its fiscal year end.
Going concern
The accompanying 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 records an accumulated deficit and a working capital deficit of $
The Company expects to finance its operations primarily through cash flows from operations, loans from existing directors and shareholders and placements of capital stock for additional funding. In the event that the Company requires additional funding to finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, a shareholder has indicated the intent and ability to provide additional financing. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stock holders, in the case of equity financing.
In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of financial markets. It has also disrupted the normal operations of many businesses, including the Company’s businesses. This outbreak could decrease spending, adversely affect demand for the Company’s services and harm its business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on its business or results of operations at this time.
These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Use of estimates
The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for the Company’s business, and adversely impact its results of operations. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Its estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
| F-8 |
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 consolidated financial statements.
Business combination
The Company accounts for its business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805 “Business Combinations.” The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total costs of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statements of comprehensive income. During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of comprehensive income.
When there is a change in ownership interests that result in a loss of control of a subsidiary, the Company deconsolidates the subsidiary from the date control is lost. Any retained non-controlling investment in the former subsidiary is measured at fair value and is included in the calculation of the gain or loss upon deconsolidation of the subsidiary.
Goodwill and impairment of goodwill
Goodwill represents the excess of the purchase price and related costs over the fair value of the net identified tangible and intangible assets and liabilities assumed and is not amortized. The total amount of goodwill is deductible for tax purposes.
In accordance with ASC Topic 350, “Intangibles-Goodwill and Other,” goodwill is not amortized but is tested for impairment, annually or more frequently when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its fair value.
The
Company estimates fair value of the applicable reporting unit or units using a discounted cash flow methodology. This methodology represents
a level 3 fair value measurement as defined under ASC 820, Fair Value Measurements and Disclosures, since the inputs are
not readily observable in the marketplace. The goodwill impairment testing process involves the use of significant assumptions,
estimates and judgments, including projected sales, gross margins, selling, general and administrative expenses, and capital expenditures,
and the selection of an appropriate discount rate, all of which are subject to inherent uncertainties and subjectivity. When the Company
performs goodwill impairment testing, its assumptions are based on annual business plans and other forecasted results, which it believes
represent those of a market participant. The Company selects a discount rate, which is used to reflect market-based estimates of the
risks associated with the projected cash flows based on the best information available as of the date of the impairment assessment. Based
on the annual impairment analysis, there is impairment of $
Given the current macro-economic environment and the uncertainties regarding its potential impact on the Company’s business, there can be no assurance that its estimates and assumptions used in its impairment tests will prove to be accurate predictions of the future. If the Company’s assumptions regarding forecasted cash flows are not achieved, it is possible that an impairment review may be triggered and goodwill may be impaired.
| F-9 |
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 (before the acquisition of NPI (Note 1)), JFB appointed LOC to develop a mobile application in four stages for a total
consideration of TWD
Revenue recognition
The Company adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
The Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09:
| Step 1: Identify the contract | |
| Step 2: Identify the performance obligations | |
| Step 3: Determine the transaction price | |
| Step 4: Allocate the transaction price | |
| Step 5: Recognize revenue |
Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.
Provision of investment platform services
The Company signed an agreement with a third party whereby the Company authorizes the third party to use the Company’s investment platform and related applications for a period until December 31, 2020. Income from provision of investment platform services with the use of the Company’s mobile applications is recognized when the service is performed.
| F-10 |
From September, 2020, the Company generated additional revenue from a new, more comprehensive mobile application, which refer to as the FinMaster mobile application (the “FinMaster App” and together with the JFB platform, the “Apps”), with similar functions as the JFB platform. Income from providing investment platform services with the use of a mobile application is recognized when the service is performed.
The Company offers a self-managed points program, which can be used in the FinMaster App to redeem merchandise or services. The Company determines the value of each point based on estimated incremental cost. Customers and advocates have a variety of ways to obtain the points. The major accounting policy for its points program is described as follows:
The Company concludes the bonus points offered linked to the purchase transaction of the points is a material right and accordingly a separate performance obligation according to ASC 606, and should be taken into consideration when allocating the transaction price of the point sales. The Company also estimates the probability of points redemption when performing the allocation. The amount allocated to the bonus points as separate performance obligation is recorded as contract liability (deferred revenue) and revenue should be recognized when future goods or services are transferred. The Company will continue to monitor when and if forfeiture rate data becomes available and will apply and update the estimated forfeiture rate at each reporting period.
Since historical information is limited for the Company to determine any potential points forfeitures and most merchandise can be redeemed without requiring a significant amount of points compared with the amount of points provided to users, the Company has used an estimated forfeiture rate of zero.
Provision of software development service and maintenance service
The Company entered into several agreements with third party customers to assist the customers in the development of their mobile communications software and mobile e-commerce software. Income from provision of software development service and maintenance service are recognized when the service is performed.
Revenue by major product line
| Year ended August 31, | ||||||||
| 2021 | 2020 | |||||||
| Provision of investment platform services | $ | $ | ||||||
| Provision of software development service and maintenance service | ||||||||
| $ | $ | |||||||
Revenue by recognition over time vs point in time
| Year ended August 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenue by recognition over time | $ | $ | ||||||
| Revenue by recognition at a point in time | ||||||||
| $ | $ | |||||||
Remaining
performance obligations represent contracted revenues that had not yet been recognized, and include deferred revenues; invoices that
have been issued to customers but were uncollected and have not been recognized as revenues; and amounts that will be invoiced and recognized
as revenues in future periods. As of August 31, 2021, the Company’s remaining performance obligations were $
The Company had not occurred any costs to obtain contracts.
The Company does not have amounts of contract assets since revenue is recognized as control of goods or services is transferred. The contract liabilities consist of advance payments from customers. The contract liabilities are reported in a net position on a customer-by-customer basis at the end of each reporting period. All contract liabilities are expected to be recognized as revenue within one year and are included in other payables and accrued liabilities in the consolidated balance sheet.
Contract balances
The Company’s contract liabilities consist of receipts in advance for software development and FinMaster App. Below is the summary presenting the movement of the Company’s contract liabilities for the year ended August 31, 2021:
| Receipt in advance | August 31, 2021 | August 31, 2020 | ||||||
| Balance as of September 1 | $ | $ | ||||||
| Advances received from customers related to unsatisfied performance obligations | ||||||||
| Revenue recognized from beginning contract liability balance | ( | ) | - | |||||
| Exchange difference | ||||||||
| Balance as of August 31 | $ | $ | ||||||
Practical expedients and exemption
The Company had not occurred any costs to obtain contracts, and do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.
Research and development expenses
Research and development (“R&D”) expenses are primary comprised of charges for R&D and consulting work performed by third parties; salaries and benefits for those employees engaged in research, design and development activities; costs related to design tools; and allocated costs.
For
the year ended August 31, 2021 and 2020, the total R&D expenses were $
Sales and marketing expenses
Sales
and marketing expenses consist primarily of marketing and promotional expenses, salaries and other compensation-related expenses to sales
and marketing personnel. Advertising expenses consist primarily of costs for the promotion of corporate image and product marketing.
The Company expenses all advertising costs as incurred and classifies these costs under sales and marketing expenses. For the years ended
August 31, 2021 and 2020, advertising costs totaled $
| F-11 |
From September, 2019, customers or users of the Company’s mobile application can obtain points through ways such as frequent sign-ins to the Company’s mobile application, sharing articles from the application to users’ own social media. The Company believes these points are to encourage user engagement and generate market awareness. As a result, the Company accounts for such points as selling and marketing expenses with a corresponding liability recorded under other current liabilities of its consolidated balance sheets upon the points offering. The Company estimates liabilities under the customer loyalty program based on cost of the merchandise that can be redeemed, and its estimate of probability of redemption. At the time of redemption, the Company records a reduction of inventory and other current liabilities.
Since historical information is limited for the Company to determine any potential points forfeiture and most merchandise can be redeemed without requiring a significant amount of points compared with the amount of points provided to users, the Company has used an estimated forfeiture rate of zero.
For
the year ended August 31, 2021 and 2020, redeemable point liability charged as selling and marketing expenses were $
As
of August 31, 2021 and 2020, liabilities recorded related to unredeemed points were $
General and administrative expenses
General and administrative expenses consist primarily of salaries, bonuses and benefits for employees involved in general corporate functions, depreciation and amortization of fixed assets, legal and other professional services fees, rental and other general corporate related expenses.
Inventory
Inventories are stated at the lower of cost or net realizable value. Cost is calculated on the average basis and includes all costs to acquire and other costs to bring the inventories to their present location and condition. The Company records inventory write-downs for excess or obsolete inventories based upon assumptions on current and future demand forecasts. If the inventory on hand is in excess of future demand forecast, the excess amounts are written off. The Company also reviews inventory to determine whether its carrying value exceeds the net amount realizable upon the ultimate sale of the inventory. This requires the determination of the estimated selling price of the vehicles less the estimated cost to convert inventory on hand into a finished product. Once inventory is written-down, a new, lower-cost basis for that inventory is established and subsequent changes in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Inventory as of August 31, 2021 represents merchandise inventory which can be redeemed by deducting membership rewards points of customer loyalty program.
Leases
The
Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on
the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the
rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing rate
based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use
(“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and
lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized
based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the
lease term. The Company elected the package of practical expedients permitted under the transition guidance to combine the lease and
non-lease components as a single lease component for operating leases associated with the Company’s office space lease, and to
keep leases with an initial term of
The operating lease is included in operating lease right-of-use assets, operating lease liabilities-current and operating lease liabilities-non-current on the Company’s consolidated balance sheets.
Accounts receivable
Accounts receivable are stated at the original amount less an allowance for doubtful receivables, if any, based on a review of all outstanding amounts at period end. An allowance is also made when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. The Company analyzes the aging of the customer accounts, coverage of credit insurance, customer concentrations, customer credit-worthiness, historical and current economic trends and changes in its customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts.
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 | ||||
| Office equipment | ||||
| Leasehold improvements | ||||
| F-12 |
Intangible assets
The Company recorded intangible assets with definite lives, including investment platform and technical know-hows. Intangible assets are recorded at cost less accumulated amortization with no residual value. Amortization of intangible assets is computed using the straight-line method over their estimated useful lives.
The estimated useful lives of the Company’s intangible assets are listed below:
| Investment platform | ||||
| Technical know-hows | ||||
| Trademarks |
Impairment of long-lived assets (including amortizable intangible assets)
The
Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to the undiscounted future 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. Impairment of $
Income taxes
Income taxes are determined using an asset and liability method in accordance with the provisions of ASC Topic 740, “Income Taxes” (“ASC Topic 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements
uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the
financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
The Company conducts businesses in the PRC, Taiwan and Hong Kong. The Company is subject to tax in these jurisdictions. As a result of its business activities, the Company will file tax returns that are subject to examination by the respective tax authorities.
| F-13 |
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:
| Year ended August 31, | ||||||||
| 2021 | 2020 | |||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares of common stock outstanding - Basic and diluted (Note) | ||||||||
| Net loss per share - Basic and diluted | $ | ( | ) | $ | ( | ) | ||
Note: Including vested shares granted as stock compensation but not yet issued for the year ended August 31, 2021; and including shares to be canceled, shares as stock compensation and shares to be issued to investors for the year ended August 31, 2020 (note 13).
As of August 31, 2021 and 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.
On September 1, 2019, the Company adopted ASU No. 2018-07, “Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). Before the adoption of this guidance, the equity-classified share-based awards held by non-employees were subject to re-measurement through each vesting date. Upon the adoption of this guidance, the Company no longer re-measures equity-classified share-based awards granted to consultants or non-employees at each reporting date through the vesting date and the accounting for these share-based awards to consultants or non-employees and employees was substantially aligned.
Cancellation of a share-based payment by the entity results in accelerated recognition of any unrecognized cost. Cancellation by the counterparty does not change recognition of the compensation cost. The termination of an employee that resulted in the forfeiture of share-based awards is not considered to be a cancellation of the awards.
Foreign currencies translation
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.
The reporting currency of the Company is United States Dollars (“US$”), which is also the Company’s functional currency. The Company’s subsidiary in Seychelles, the PRC, Taiwan and Hong Kong maintains its books and record in United States Dollars (“US$”), Renminbi (“RMB”), New Taiwanese Dollars (“NT$”) and Hong Kong Dollars (“HK$”) respectively, which are the primary currencies of the economic environment in which the entities operate (the functional currencies).
In general, for consolidation purposes, assets and liabilities of its subsidiary whose functional currency is not the US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement,” using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income as a component of shareholders’ equity.
| F-14 |
Translation of amounts from foreign currencies into US$ has been made at the following exchange rates for the respective periods:
| As of and for the year ended August 31, 2021 | As of and for the year ended August 31, 2020 | |||||||
| Year-end / average HK$ : US$ 1 exchange rate | ||||||||
| Year-end NT$ : US$ 1 exchange rate | ||||||||
| Year-average NT$ : US$ 1 exchange rate | ||||||||
| Year-end RMB : US$ 1 exchange rate | ||||||||
| Year-average RMB : US$ 1 exchange rate | ||||||||
Related parties
Parties, which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly, to 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.
Fair value of financial instruments
The carrying value of the Company’s financial instruments: cash and cash equivalents, deposits, accounts payable and accrued liabilities, balances due with directors and shareholders, convertible notes payable and bonds payable approximate at their fair values because of the short-term nature of these financial instruments or the rate of interest of these instruments approximate the market rate of interest.
The Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”), with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 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;
| F-15 |
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.
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis:
| Carrying Value at | Fair Value Measurement at | |||||||||||||||
August 31, 2020 | August 31, 2020 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Convertible notes measured at fair value | $ | $ | $ | $ | ||||||||||||
| Carrying Value at | Fair Value Measurement at | |||||||||||||||
| August 31, 2021 | August 31, 2021 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||||||
| Convertible notes measured at fair value | $ | $ | $ | $ | ||||||||||||
A summary of changes in financial liabilities for the year ended August 31, 2021 was as follows:
| Balance at September 1, 2019 | $ | |||||||
| Issuance of convertible notes | ||||||||
| Interest expenses on convertible notes | ||||||||
| Interest waived on conversion of convertible notes | ( | ) | ||||||
| Change in fair value of convertible notes | ||||||||
| Conversion of convertible notes | ( | ) | ||||||
| Balance at September 1, 2020 | $ | |||||||
| Issuance of convertible notes | ||||||||
| Interest paid | ( | ) | ||||||
| Interest expenses on convertible notes | ||||||||
| Change in fair value of convertible notes | ||||||||
| Balance at August 31, 2021 | $ |
Fair value of the convertible notes is determined using the binomial model using the following assumptions at inception and on subsequent valuation dates:
| Convertible notes holders | Teh-Ling Chen | Li-Ching Yang | Jui-Chin Chen | Teh-Ling Chen | Chin-Ping Wang Chin-Nan Wang Chin-Chiang Wang | Teh-Ling Chen | ||||||||||||||||||
| Appraisal Date (Inception Date) | ||||||||||||||||||||||||
| Risk-free Rate | % | % | % | % | % | % | ||||||||||||||||||
| Applicable Closing Stock Price | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Conversion Price | $ | (i) | $ | (i) | $ | (i) | $ | $ | $ | |||||||||||||||
| $ | (ii) | $ | (ii) | $ | (ii) | |||||||||||||||||||
| Volatility | % | % | % | % | % | % | ||||||||||||||||||
| Dividend Yield | % | % | % | % | % | % | ||||||||||||||||||
| Credit Spread | % | % | % | % | % | % | ||||||||||||||||||
| Liquidity Risk Premium | % | % | % | % | % | % | ||||||||||||||||||
| Appraisal Date | ||||||||||||||||||||||||
| Risk-free Rate | N/A | N/A | % | N/A | N/A | N/A | ||||||||||||||||||
| Applicable Closing Stock Price | N/A | N/A | $ | N/A | N/A | N/A | ||||||||||||||||||
| Conversion Price | N/A | N/A | $ | N/A | N/A | N/A | ||||||||||||||||||
| Volatility | N/A | N/A | % | N/A | N/A | N/A | ||||||||||||||||||
| Dividend Yield | N/A | N/A | % | N/A | N/A | N/A | ||||||||||||||||||
| Credit Spread | N/A | N/A | % | N/A | N/A | N/A | ||||||||||||||||||
| Liquidity Risk Premium | N/A | N/A | % | N/A | N/A | N/A | ||||||||||||||||||
| Appraisal Date | ||||||||||||||||||||||||
| Risk-free Rate | N/A | N/A | % | % | % | % | ||||||||||||||||||
| Applicable Closing Stock Price | N/A | N/A | $ | $ | $ | $ | ||||||||||||||||||
| Conversion Price | N/A | N/A | $ | $ | $ | $ | ||||||||||||||||||
| Volatility | N/A | N/A | % | % | % | % | ||||||||||||||||||
| Dividend Yield | N/A | N/A | % | % | % | % | ||||||||||||||||||
| Credit Spread | N/A | N/A | % | % | % | % | ||||||||||||||||||
| Liquidity Risk Premium | N/A | N/A | % | % | % | % | ||||||||||||||||||
| (i) |
| (ii) | USD |
Segment reporting
ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.
| F-16 |
Management determined that the Company’s operations constitute a single reportable segment in accordance with ASC 280. The Company operates exclusively in one business and industry segment: the provision of investment platform services through mobile application.
Recent accounting pronouncements
Recently Adopted Accounting Standards
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements for Level 1, Level 2 and Level 3 instruments in the fair value hierarchy. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. The Company applied the new standard beginning September 1, 2020.
Accounting Pronouncements Issued But Not Yet Adopted
In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022, with early adoption permitted. The Company is currently evaluating the impact of adopting this standard on its unaudited condensed consolidated financial statements.
In May 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this ASU address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. ASU 2019-05 is effective for “smaller reporting companies” for fiscal year beginning after December 15, 2022. The Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
In December 2019, the FASB issued ASU 2019-12: Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The Company is evaluating the effect of adopting this new accounting guidance but does not expect adoption will have a material impact on the Company’s consolidated financial statements and related disclosures.
| F-17 |
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company continues to evaluate the impact of the guidance and may apply the elections as applicable as changes in the market occur.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.
For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected to have any impact on the Company’s consolidated financial statement presentation or disclosures.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have material impact on the consolidated financial position, statements of operations and cash flows.
3. ACQUISITION OF SUBSIDIARIES
On August 17, 2020, the Company acquired all of the issued and outstanding capital stock (the “Acquisition”) of NPI, pursuant to the terms and conditions of that certain Stock Purchase Agreement, dated as of the Closing Date, among the Company, NPI, the selling shareholders of NPI identified therein (each a “Seller,” and, collectively, the “Sellers”) and the representative of the Sellers identified therein.
The
aggregate purchase price for the Acquisition was $
After the completion of the Acquisition, NPI became a wholly owned subsidiary of the Company.
The Company completed the valuations necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed, resulting from which the amount of goodwill was determined and recognized as of the respective acquisition date. The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing date, August 31, 2020.
| Cash and cash equivalents | $ | |||
| Prepayments, deposits and other receivables | ||||
| Due from a shareholder | ||||
| Right-of-use operating lease assets | ||||
| Plant and equipment, net | ||||
| Intangible assets- Technical know-hows | ||||
| Goodwill | ||||
| Other payables and accrued liabilities | ( | ) | ||
| Contract liabilities | ( | ) | ||
| Due to shareholders | ( | ) | ||
| Operating lease liability | ( | ) | ||
| Tax payable | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Net purchase price | $ | |||
| Less: Outstanding NPI debt owed to the Company | ||||
| Accounts receivable | ||||
| Notes payable | ( | ) | ||
| $ |
| F-18 |
The
transaction resulted in a purchase price allocation of $
The movement of the goodwill for the years ended August 31, 2021 and 2020 are as follows:
| Balance as of September 1, 2019 | $ | |||
| Acquisition of NPI | ||||
| Balance as of August 31, 2020 | $ | |||
| Impairment of goodwill in relation to NPI | ( | ) | ||
| Balance as of August 31, 2021 | $ |
The Company performed goodwill impairment test at the reporting unit level on an annual basis and between annual tests when an event occurs or circumstances change indicating the asset might be impaired. As of August 31, 2021, the Company performed testing on reporting unit of the Fintech App development.
The Company first assessed qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. For those reporting units where it is determined that it is more likely than not that their fair values are less than the units’ carrying amounts, the Company will perform the first step of a two-step quantitative goodwill impairment test. After performing the assessment, if the carrying amounts of the reporting units are higher than their fair values, the Company will perform the second step of the two-step quantitative goodwill impairment test.
In 2021, the Company performed qualitative assessments for FinTech App development reporting unit. Based on the requirements of ASC 350-20-35-3C through ASC 350-20-35-3G, the Company evaluated all relevant factors, weighed all factors in their totality. As the financial performance of FinTech App development reporting unit was below original expectations, fair value of this reporting unit was indicated to be lower than its carrying value. For this reporting unit, where it was determined that it was more likely than not that its fair value was less than the units’ carrying amount after performing the qualitative assessment, as a result, the Company performed the two-step quantitative goodwill impairment test for these two reporting units.
For the two-step goodwill impairment test, the Company estimated the fair value with either income approach or asset approach for specific reporting unit components. With the income approach, the Company estimates the fair value of the reporting units using discounted cash flows. Forecasts of future cash flows are based on the best estimate of future net sales and operating expenses, based primarily on expected expansion, pricing, market share, and general economic conditions. Certain estimates of discounted cash flows involve businesses with limited financial history and developing revenue models. Changes in these forecasts could significantly change the amount of impairment recorded, if any. Asset based approach is used in evaluating the fair value of some specific components which is deemed as the most prudent approach due to the unpredictability of future cash flows.
The result of step
one impairment test for the FinTech App development reporting unit failed, with its determined fair value lower than the book value.
The Company performed step two impairment test, applying the income approach, resulting an impairment loss of goodwill of $
4. PLANT AND EQUIPMENT, NET
Plant and equipment as of August 31, 2021 and 2020 are summarized below:
| As of August 31, | ||||||||
| 2021 | 2020 | |||||||
| Furniture and fixtures | $ | $ | ||||||
| Office equipment | ||||||||
| Leasehold improvements | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Plant and equipment, net | $ | $ | ||||||
Depreciation
expense, classified as operating expenses, was $
5. INTANGIBLE ASSETS, NET
Intangible assets, net, as of August 31, 2021 and 2020 consisted of the following:
| As of August 31, | ||||||||
| 2021 | 2020 | |||||||
| Investment platform (a) | $ | $ | ||||||
| Technical know-hows (Note 3) | ||||||||
| Trademarks | - | |||||||
| Total | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Impairment | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization
expense for intangible assets was $
During
the course of the Company’s strategic review of its operations, the Company assessed the recoverability of the carrying value of
the Company’s intangible assets. The impairment charge, if any, represented the excess of carrying amounts of the Company’s
intangible assets over their fair value, using the expected future discounted cash flows. Impairment loss of $
As of August 31, 2021, amortization expenses related to intangible assets for future periods are estimated to be as follows:
| 12 months ending August 31, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 and thereafter | ||||
| Total | $ | |||
| F-19 |
6. RELATED PARTY TRANSACTIONS
| Year ended August 31, | ||||||||
| 2021 | 2020 | |||||||
| Professional fee - Greenpro Financial Consulting Limited (a) | $ | $ | ||||||
| Computer and networking - LOC (note 2) | ||||||||
| Rental expense (b) | ||||||||
| Other income: | ||||||||
| Other income from Greenpro LF Limited(c) | ||||||||
| Note interest income from LOC (d) | ||||||||
| Note interest income from BJDC (d) | ||||||||
| (a) | The
directors of Greenpro Financial Consulting Limited (Mr. Lee Chong Kuang and Mr. Loke Che Chan) are also the directors of the investment
managers of Greenpro Asia Strategic SPC, a |
| Greenpro
Financial Consulting Limited provides services to the Company and the Company incurred professional fees $and $ | |
| (b) | On
September 1, 2020, LOC leased an office in Taichung, Taiwan from the Company’s shareholder. The lease was renewed on April
1, 2021 for additional one-year term. The monthly lease was for the amount of NTD |
| (c) | |
| (d) | From
April 2019, the Company entered into multiple loan agreements with LOC and loaned LOC a total
amount of $
From
May 2019, the Company entered into multiple short-term loan agreements with BJDC and loaned this company a total amount of $
Interest
totaled $ |
| F-20 |
7. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
| As of August 31, | ||||||||
| 2021 | 2020 | |||||||
| Rental and management fee deposits | $ | $ | ||||||
| Other prepaid expenses | ||||||||
| Staff advances | - | |||||||
| Other taxes recoverable | ||||||||
| Less: non-current portion | ||||||||
| Rental and management fee deposits | - | |||||||
| Other prepaid expenses | - | |||||||
| Prepayments, deposits and other receivables, non-current | - | |||||||
| Prepayments, deposits and other receivables, current | $ | $ | ||||||
8. ACCRUED EXPENSES AND OTHER PAYABLES
| As of August 31, | ||||||||
| 2021 | 2020 | |||||||
| Accrued interests (Notes 9, 10 and 11) | $ | $ | ||||||
| Accrued expenses | ||||||||
| Unearned income | - | |||||||
| Other taxes payable | - | |||||||
| Other payable | ||||||||
| $ | $ | |||||||
The
Company signed an agreement with a third party whereby the Company authorizes the third party to use the Company’s investment platform
and related applications for a period until December 31, 2020, for an upfront 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 $and $
| As of August 31, | As of August 31, | |||||||
| 2021 | 2020 | |||||||
| Loan to Cheng Hung-Pin (a shareholder) | $ | $ | ||||||
| Due from a director: | ||||||||
| Cheng Shui-Fung | $ | $ | ||||||
| Due from a related company: | ||||||||
| Greenpro LF Limited | $ | $ | ||||||
| Due to a director: | ||||||||
| Lin Yi-Hsiu | $ | $ | ||||||
| Loan from Hsu Kuo-Hsun (a shareholder) | $ | $ | ||||||
| Due to shareholders: | ||||||||
| Tu Yu-Cheng | $ | $ | ||||||
| Cheng Hung-Pin | ||||||||
| Huang Mei-Ying | ||||||||
| Lo Shih-Chu | ||||||||
| Chen Jun-Yuan | ||||||||
| $ | $ | |||||||
| F-21 |
On
March 10, 2020, LOC entered into a loan agreement with Cheng Hung-Pin and loaned him $(NT$).
The loan is unsecured, bears interest at a rate of
On
July 20, 2020, the Company obtained a loan of RMB
Amounts due from (to) shareholders, directors and a related company are unsecured, interest-free with no fixed payment term.
10. BONDS PAYABLE
The
Company had 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 principal amount and an aggregate purchase price of $
11. CONVERTIBLE NOTES PAYABLE TO RELATED PARTIES
The
Company entered into a series of Convertible Promissory Note Purchase Agreements (the “Agreements”) with certain investors
between February 2020 and January, 2021. Pursuant to the Agreements, the Company issued certain Convertible Promissory Notes (the “Notes”)
to the investors in a total principal amount of $
| Investor | Principal amount | Issue date | Maturity date | Interest rate | ||||||||
| Teh-Ling Chen | $ | % | ||||||||||
| Li-Ching Yang | % | |||||||||||
| Jui-Chin Chen | % | |||||||||||
| Teh-Ling Chen | % | |||||||||||
| Chin-Ping Wang | % | |||||||||||
| Chin-Nan Wang | % | |||||||||||
| Chin-Chiang Wang | % | |||||||||||
| Teh-Ling Chen | % | |||||||||||
| $ | ||||||||||||
On
February 24, 2020, the Company issued a convertible promissory note in the principal amount of $
On
February 27, 2020, the Company issued a convertible promissory note in the principal amount of $
On
March 18, 2020, the Company issued a convertible promissory note in the principal amount of $
On
August 17, 2020, the Company entered into amendments to the Notes and the convertible promissory note purchase agreements with each of
the Noteholders, wherein, at the sole option of the applicable Noteholder, all or part of the unpaid outstanding principal of such Noteholder’s
Note would be convertible into shares of restricted common stock of the Company at a conversion price equal to $
| F-22 |
On
November 2, 2020, the Company issued a convertible promissory note in the principal amount of $
On
November 25, 2020, the Company further issued convertible promissory notes in the total principal amount of $
On
January 15, 2021, the Company issued a convertible promissory note in the principal amount of $
The conversion feature is dual indexed to the Company’s stock, and is considered an embedded derivative which needs to be bifurcated from the host instrument in accordance with ASC 815.
ASC 815-15-25 provides that if an entity has a hybrid financial instrument that would require bifurcation of embedded derivatives under ASC 815, the entity may irrevocably elect to initially and subsequently measure a hybrid financial instrument in its entirety at fair value with changes in fair value recognized in earnings. The fair value election can be made instrument by instrument and shall be supported by concurrent documentation or a preexisting documented policy for automatic election.
The Company elected to measure the Notes in their entirety at fair value with changes in fair value recognized as non-operating income or loss at each balance sheet date in accordance with ASC 815-15-25.
Fair
value of the convertible promissory notes of $
During the years ended August 31, 2021 and 2020, interest of $
12. INCOME TAXES
For the years ended August 31, 2021 and 2020, the local (United States) and foreign components of loss before income tax were comprised of the following:
| Year ended August 31, | ||||||||
| 2021 | 2020 | |||||||
| Tax jurisdictions from: | ||||||||
| - Local | $ | ( | ) | $ | ( | ) | ||
| - Foreign, representing | ||||||||
| Seychelles | ( | ) | ( | ) | ||||
| British Virgin Islands | ( | ) | ||||||
| Taiwan | ( | ) | ||||||
| PRC | ( | ) | ||||||
| Hong Kong | ( | ) | ( | ) | ||||
| Loss before income tax | $ | ( | ) | $ | ( | ) | ||
| F-23 |
The components of the provision for income taxes benefits are:
| Year ended August 31, | ||||||||
| 2021 | 2020 | |||||||
| Current | $ | $ | ||||||
| Deferred | ( | ) | ||||||
| Total income tax benefits | $ | ( | ) | $ | ||||
The provision for income taxes consisted of the following:
| Year ended August 31, | ||||||||
| 2021 | 2020 | |||||||
| Loss before income taxes | $ | ( | ) | $ | ( | ) | ||
| Statutory income tax rate | % | % | ||||||
| Income tax credit computed at statutory income rate | ( | ) | ( | ) | ||||
| Reconciling items: | ||||||||
| Non-deductible expenses | ||||||||
| Share-based payments | ||||||||
| Tax effect of tax exempt entity | ||||||||
| Rate differential in different tax jurisdictions | ||||||||
| Valuation allowance on deferred tax assets | ||||||||
| Income tax benefits | $ | ( | ) | $ | ||||
United States of America
The
Company is registered in the State of Nevada and is subject to the tax laws of the United States of America. As of August 31, 2021, the
operations in the United States of America incurred $
Seychelles
Under the current laws of the Seychelles, LFG is registered as an international business company which governs by the International Business Companies Act of Seychelles and there is no income tax charged in Seychelles.
British Virgin Islands
NPI is tax exempted in the British Virgin Islands where it was incorporated.
Taiwan
LOC
is subject to corporate income tax (“CIT”) in Taiwan. With effect from January 1, 2018, the CIT rate in Taiwan is
PRC
BJDC
is subject to corporate income tax (“CIT”) at
| F-24 |
Hong Kong
JFB
is subject to Hong Kong Profits Tax, which is charged at the statutory income rate of
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of August 31, 2021 and 2020 are presented below:
| As of August 31, | ||||||||
| 2021 | 2020 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carryforwards | ||||||||
| – United States of America | $ | ( | ) | $ | ( | ) | ||
| – Taiwan | ( | ) | ( | ) | ||||
| – PRC | ( | ) | ( | ) | ||||
| – Hong Kong | ( | ) | ( | ) | ||||
| Less: valuation allowance | ||||||||
| $ | $ | |||||||
| Deferred tax liabilities: | ||||||||
| Intangible assets- Technical know-hows | $ | $ | ||||||
13. COMMON STOCK
On
September 1, 2019, the Company entered into an employment agreement with Yi-Hsiu Lin to serve as the Chief Executive Officer of the Company
for a -year
term. Pursuant to the agreement, Mr. Lin will be compensated at an annual rate of $
On
September 1, 2019, the Company issued a director offer letter to Shui Fung Cheng, pursuant to which Mr. Cheng agreed to serve as a director
of the Company for a -year
term. For his service as a director, Mr. Cheng will receive an annual compensation, prorated for any partial year, in the form of $
On
September 1, 2019, the Company entered into a consulting agreement with a consultant to provide business development services to the
Company for a -year
term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $
| F-25 |
On
September 1, 2019, the Company entered into a consulting agreement with a consultant to provide business advisory services to the Company
for a -year
term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $
On June 30, 2020, the Company entered into a stock forfeiture letter (the “Stock Forfeiture Letter”) with First Leader Capital Ltd., a significant stockholder of the Company and an entity solely owned and controlled by Yi-Hsiu Lin, the Company’s Chief Executive Officer and a member of the Company’s board of directors. Pursuant to the Stock Forfeiture Letter, on June 30, 2020, First Leader Capital Ltd. forfeited and surrendered shares (the “Surrendered Shares”) of the Company’s common stock, par value $per share (the “Common Stock”), and the Surrendered Shares were automatically cancelled and retired (the “Stock Cancellation”). First Leader Capital Ltd. agreed to forfeit and cancel the Surrendered Shares in exchange for the benefit from reducing the Company’s outstanding Common Stock to be more in line with what management deems to be market expectations based on the Company’s current valuation. shares were canceled on September 21, 2020.
On
March 1, 2020, the Company entered into a consulting agreement with a consultant to provide business advisory services to the Company
for a -year
term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $
On
June 30, 2020, As
of August 31, 2020, and shares of common stock of the Company
have been issued to the employee and service provider respectively. The fair value of the shares of restricted common stock to them was
$
From
May to August 2020, the Company entered into securities purchase agreement with several accredited investors whereby the investors purchased
a total of shares of the Company’s common stock at
$per share. The Company received aggregate gross
proceeds of $
The Company issued shares of common stock for the acquisition of NPI in August 2020 (Note 1).
On
July 27, 2020, the Company issued an offer letter to a staff, pursuant to which the staff agreed to serve as an executive
assistant of the Company. For the service as an executive assistant, the staff received a monthly compensation in the form
of NT$($)
for the first three months (probationary period) and thereafter NT$($)
in cash. In addition, The staff would have been granted shares of restricted common stock upon completion
of the first year of service and shares of restricted common stock if the staff
met the criteria established by the Company. The fair value of the shares of restricted common stock was $
On
August 1, 2020, the Company entered into an agreement with a company for provision of consulting services by its employee to the Company
for a -year
term. Pursuant to the agreement, the Company agreed to pay the provider an annual compensation of $
On
August 3, 2020, the Company issued an offer letter to a staff, pursuant to which the staff agreed to serve as an executive
assistant of the Company. For the service as an executive assistant, the staff received a monthly compensation in the form
of NT$($)
in cash.
On
November 1, 2020, the Company entered into consulting agreements with two consultants to assist in monitoring and improving FinMaster
APP for a -year
term. Pursuant to the agreement, the Company agreed to pay the consultants in the form of shares of restricted common stock, which vested
on November 1, 2020, prorated for any partial year. The fair value of the shares of restricted common stock was $
On February 8, 2021, the Company and First Leader Capital Ltd. mutually agreed to forfeit and surrender further shares (the “Surrendered Shares”) of the Company’s common stock, par value $per share (the “Common Stock”), and the Surrendered Shares were automatically cancelled and retired. First Leader Capital Ltd. agreed to forfeit and cancel the Surrendered Shares in exchange for the benefit from reducing the Company’s outstanding Common Stock to be more in line with what management deems to be market expectations based on the Company’s current valuation.
On May 17, 2021, the Company and First Leader Capital Ltd. mutually agreed to forfeit and surrender further shares (the “Surrendered Shares”) of the Company’s common stock, par value $per share (the “Common Stock”), and the Surrendered Shares were automatically cancelled and retired. First Leader Capital Ltd. agreed to forfeit and cancel the Surrendered Shares in exchange for the benefit from reducing the Company’s outstanding Common Stock to be more in line with what management deems to be market expectations based on the Company’s current valuation.
From
May 2020 to August 2021, the Company entered into securities purchase agreements with several accredited investors whereby the investors
purchased a total of shares of the Company’s common stock at
an average price of $per share. The Company received aggregate gross
proceeds of $
As of August 31, 2021, unrecognized share-based compensation expense was $.
As of August 31, 2021, shares were granted to employees and vested but not yet issued.
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14. COMMITMENTS AND CONTINGENCIES
During
the year ended August 31, 2021, the Company entered into agreements with independent third parties to lease office and staff quarter
premises in Taiwan, Shenzhen, Beijing and Hong Kong on a monthly basis, for the operations of the Company. Rental expense for the year
ended August 31, 2021 and 2020 was $
The following table lists the future minimal payments to be paid by the Company under a non-cancellable operating lease for office space in Taiwan with an initial term of one-year as of August 31, 2021:
| Year ending August 31, | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Present value of lease liabilities | $ | |||
As
of August 31, 2021, the Company had future minimum lease payments for non-cancelable short-term operating leases of $
The components of lease costs, lease term and discount rate with respect of leases with an initial term of at least 12 months are as follows:
| For the year ended August 31, | ||||||||
| 2021 | 2020 | |||||||
| Operating lease cost – classified as general and administrative expenses | $ | $ | ||||||
| Weighted Average Remaining Lease Term – Operating leases | ||||||||
| Weighted Average Discounting Rate – Operating leases | % | % | ||||||
The following is a schedule, by years, of maturities of lease liabilities as of August 31, 2021:
Operating leases | ||||
| 2022 | $ | |||
| 2023 | ||||
| 2024 | - | |||
| 2025 | - | |||
| 2026 | - | |||
| Thereafter | - | |||
| Total undiscounted cash flows | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
Contingencies
The
Labor Contract Law of the People’s Republic of China requires employers to assure the liability of the severance payments if employees
are terminated due to restructuring, termination as a result of a mutual agreement or termination as a result of the expiration of a
fixed-term labor contract. The Company has estimated its possible severance payments of approximately $
In
Taiwan, an employer can terminate an employment contract with notice (or with pay in lieu of notice) and with severance pay only due
to stoppage of business or a transfer of ownership, business losses or curtailment of business operations, suspension of operations due
to a force majeure event, or alteration of the business nature, forcing a reduction in the number of employees, and those employees cannot
be reassigned to other suitable positions, or the employee is incapable of performing the tasks assigned. The Company has estimated its
possible severance payments of approximately $
15. SUBSEQUENT EVENTS
On
September 1, 2021, the Company renewed the employment agreement with Yi-Hsiu Lin for additional two years. Pursuant to the agreement,
Mr. Lin will be compensated at an annual rate of $
On
September 1, 2021, the Company issued a director offer letter to Shui Fung Cheng, pursuant to which Mr. Cheng agreed to serve as a director
of the Company for a -year term. For his service as a director, Mr. Cheng will receive an annual compensation, prorated for any partial
year, in the form of $
On
September 3, 2021, the Company entered into a securities purchase agreement with an individual accredited investor whereby the investor
purchased shares of the Company’s common stock at a price of $ per share. The Company received gross proceeds of $
On
September 28, 2021, the Company entered into a securities purchase agreement with an accredited investor whereby the investor purchased
shares of the Company’s common stock at a price of $ per share. The Company received gross proceeds of $
On October 5, 2021, the Company received the second tranches gross proceeds of $ from the individual accredited investor who entered into a securities purchase agreement with the Company on August 20, 2021 whereby the investor may purchase up to shares of Common Stock at a price of $ per share in three tranches: up to shares purchasable on or before August 31, 2021, in the first tranche, and up to shares purchasable in each of the second and third tranches on or before October 29, 2021, and December 31, 2021, respectively, to purchase shares of the Company’s common stock. Pursuant to the terms of the securities purchase agreement, the investor will have piggyback registration rights with respect to the shares. The shares were issued on October 7, 2021.
On
October 27, 2021, the Company entered into a securities purchase agreement with an individual accredited investor whereby the investor
purchased shares of the Company’s common stock at an average price of $ per share. The Company received aggregate gross
proceeds of $
On
October 28, 2021, the Company entered into a securities purchase agreement with an individual accredited investor whereby the investor
purchased shares of the Company’s common stock at a price of $ per share. The Company received gross proceeds of $
On December 9, 2021, the Company received the third tranches gross proceeds of $ from the individual accredited investor who entered into a securities purchase agreement with the Company on August 20, 2021 whereby the investor may purchase up to shares of Common Stock at a price of $ per share in three tranches: up to shares purchasable on or before August 31, 2021, in the first tranche, and up to shares purchasable in each of the second and third tranches on or before October 29, 2021, and December 31, 2021, respectively, to purchase shares of the Company’s common stock. Pursuant to the terms of the securities purchase agreement, the investor will have piggyback registration rights with respect to the shares. The shares are not yet issued.
| F-27 |