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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For The Quarterly Period Ended February 28, 2022

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission File Number 333-221548

 

LEADER CAPITAL HOLDINGS CORP.

(Exact name of registrant issuer as specified in its charter)

 

Nevada   37-1853394
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)

 

Room 2708-09, Metropolis Tower,

10 Metropolis Drive, Hung Hom, Hong Kong

   
(Address of principal executive offices)   (Zip Code)

 

Registrant’s phone number, including area code: +852-3487-6378

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of Each Class   Trading Symbol   Name of Each Exchange on Which Registered
N/A   N/A   N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

YES ☒ NO ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

YES ☒ NO ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐ Accelerated Filer ☐
Non-accelerated Filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding at April 4, 2022
Common Stock, $0.0001 par value   179,230,069

 

 

 

 

 

 

LEADER CAPITAL HOLDINGS CORP.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2022

 

TABLE OF CONTENTS

 

    Page
Special Note Regarding Forward-Looking Statements and Other Information Contained in this Report ii
     
PART I FINANCIAL INFORMATION  
     
Item 1. Financial Statements: 1
  Condensed Consolidated Balance Sheets as of February 28, 2022 (unaudited) and August 31, 2021 2
  Condensed Consolidated Statements of Operations and Comprehensive Loss for the Six and Three Months Ended February 28, 2022 and 2021 (unaudited) 3
  Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six and Three Months Ended February 28, 2022 and 2021 (unaudited) 4
  Condensed Consolidated Statements of Cash Flows for the Six months Ended February 28, 2022 and 2021 (unaudited) 5
  Notes to the Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations 32
Item 3. Quantitative And Qualitative Disclosures About Market Risk 36
Item 4. Controls And Procedures 37
     
PART II OTHER INFORMATION  
     
Item 1 Legal Proceedings 38
Item 1A Risk Factors 38
Item 2 Unregistered Sales Of Equity Securities And Use Of Proceeds 38
Item 3 Defaults Upon Senior Securities 39
Item 4 Mine Safety Disclosures 39
Item 5 Other Information 39
Item 6 Exhibits 39
Signatures 40

 

i
 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT

 

This quarterly report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions, future performance, anticipated expenses, or projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include the following:

 

  the availability and adequacy of our cash flow to meet our requirements;
     
  economic, competitive, demographic, business and other conditions in our local and regional markets;
     
  general economic conditions and events and the impact they may have on us and our clients, including but not limited to the impact of COVID-19;
     
  changes or developments in laws, regulations or taxes in our industry;
     
  there are uncertainties regarding the interpretation and enforcement of the People’s Republic of China (“PRC”) laws, rules, and regulations;
     
  competition in our industry;
     
  the loss of or failure to obtain any license or permit necessary or desirable in the operation of our business;
     
  proceedings brought by the SEC against China-based accounting firms could result in our inability to file future financial statements in compliance with the requirements of the Exchange Act.;
     
  changes in our business strategy, capital improvements or development plans;
     
  the availability of additional capital to support capital improvements and development; and
     
  other risks identified in our other filings with the Securities and Exchange Commission (the “SEC”).

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, or joint ventures we may make or collaborations or strategic partnerships we may enter into.

 

You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 

Unless otherwise stated or the context otherwise requires, the terms “Leader Capital Holdings Corp.,” “we,” “us,” “our” and the “Company” refer collectively to Leader Capital Holdings Corp. and, where appropriate, its subsidiaries.

 

ii
 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

INDEX TO UNAUDITED FINANCIAL STATEMENTS

 

  Page
   
Condensed Consolidated Balance Sheets 2
   
Condensed Consolidated Statements of Operations and Comprehensive Loss 3
   
Condensed Consolidated Statements of Changes in Stockholders’ Equity 4
   
Condensed Consolidated Statements of Cash Flows 5
   
Notes to Condensed Consolidated Financial Statements 6

 

1
 

 

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In U.S. dollars except for share data)

 

   February 28, 2022   August 31, 2021 
   As of 
   February 28, 2022   August 31, 2021 
   (Unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $157,571   $787,154 
Accounts receivable   2,527    1,567 
Prepayments, deposits and other receivables   250,642    231,715 
Inventory   11,186    1,128 
Total current assets   421,926    1,021,564 
           
Non-current assets          
Plant and equipment, net   76,081    69,760 
Intangible assets   587,238    630,809 
Goodwill   1,747,945    1,747,945 
Operating lease right-of-use assets, net   324,928    352,354 
Prepayments, deposits and other receivables   25,923    102,339 
Total non-current assets   2,762,115    2,903,207 
           
TOTAL ASSETS  $3,184,041   $3,924,771 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities          
Accrued expenses and other payables  $610,558   $374,269 
Contract liabilities   2,853    16,225 
Operating lease liability, current   238,267    292,024 
Bonds payable   600,000    600,000 
Convertible notes payable to related parties   

518,000

    108,000 
Loan from a shareholder   158,000    - 
Due to shareholders   202,663    53,791 
Due to a director   978,636    1,098,374 
Total current liabilities   

3,308,977

    2,542,683 
           
Non-current liabilities          
Operating lease liability, non-current   86,661    60,331 
Deferred tax liabilities   116,538    125,502 
Convertible notes payable to related parties   -    882,000 
Total non-current liabilities   203,199    1,067,833 
           
TOTAL LIABILITIES  $

3,512,176

   $3,610,516 
           
COMMITMENTS AND CONTINGENCIES (Note 14)   -    - 
           
STOCKHOLDERS’ EQUITY          
Preferred stock, $0.0001 par value; 200,000,000 shares authorized; None issued and outstanding   -    - 
Common stock, $0.0001 par value; 600,000,000 shares authorized; 167,959,219 and 157,949,219 shares issued and outstanding as of February 28, 2022 and August 31, 2021, respectively   16,796    15,795 
Additional paid-in capital   

27,312,453

    23,470,641 
Accumulated other comprehensive income   (160,031)   (171,114)
Accumulated deficits   (27,497,353)   (23,001,067)
           
TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY  $(328,135)  $314,255 
           
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY   $3,184,041   $3,924,771 

 

See accompanying notes to the condensed consolidated financial statements.

 

2
 

 

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In U.S. dollars except for share data)

 

   February 28, 2022   February 28, 2021   February 28, 2022   February 28, 2021 
   For the six months ended   For the three months ended 
   February 28, 2022   February 28, 2021   February 28, 2022   February 28, 2021 
                 
REVENUE  $22,436   $55,252   $7,631   $32,389 
                     
OPERATING EXPENSES                    
Research and development expenses   (261,179)   (304,565)   (114,896)   (157,594)
Sales and marketing expenses   (247,536)   (170,730)   (33,764)   (61,028)
General and administrative expenses   (2,781,422)   (5,477,927)   (1,110,932)   (2,524,760)
                     
LOSS FROM OPERATIONS   (3,267,701)   (5,897,970)   (1,251,961)   (2,710,993)
                     
Interest expense   (50,596)   (32,403)   (22,196)   (16,957)
                     
(Loss) Gain on change in fair value of convertible notes   

(1,181,330

)   (330,288)   

(1,076,830

)   150,755 
                     
OTHER (EXPENSE) INCOME                     
Exchange difference, net   (6,054)   -    (30,974)   - 
Other income – from related parties   -    1,823    -    - 
Other income – from non-related parties   531    21,202    80    1,733 
Non-operating income (expense)   (5,523)   23,025    (30,894)   1,733 
                     
LOSS BEFORE INCOME TAX   (4,505,250)   (6,237,636)   (2,381,881)   (2,575,462)
                     
Income tax benefit   8,964    10,229    4,482    5,115 
                     
NET LOSS  $(4,496,286)  $(6,227,407)  $(2,377,399)  $(2,570,347)
                     
OTHER COMPREHENSIVE LOSS                    
Foreign currency translation adjustment   11,083    35,584    35,460    35,791 
                     
TOTAL COMPREHENSIVE LOSS  $(4,485,203)  $(6,191,823)  $(2,377,399)  $(2,534,556)
                     
Net loss per share - Basic and diluted  $(0.03)  $(0.05)  $(0.02)  $(0.02)
                     
Weighted average number of shares of common stock outstanding - Basic and diluted   

165,431,246

    139,224,402    

170,033,710

    141,553,018 

 

See accompanying notes to the condensed consolidated financial statements.

 

3
 

 

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In U.S. dollars except for share data)

 

  

Number of

shares

   Amount   PAID IN
CAPITAL
   COMPREHENSIVE INCOME   ACCUMULATED DEFICITS   EQUITY
(DEFICIT)
 
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2022
   COMMON STOCK   ADDITIONAL  

ACCUMULATED
OTHER

      

TOTAL
STOCKHOLDERS’

 
  

Number of
shares

   Amount   PAID IN
CAPITAL
   COMPREHENSIVE INCOME   ACCUMULATED DEFICITS  

EQUITY

(DEFICIT)

 
                         
Balance as of September 1, 2021   157,949,219   $15,795   $23,470,641   $(171,114)  $(23,001,067)  $314,255 
Shares issued in private placement   9,010,000    901    1,149,099    -    -    1,150,000 
Shares issued to service providers   1,000,000    100    (100)   -    -    - 
Shares to be issued on conversion of convertible notes   

1,600,000

    -    

1,632,000

    -    -    

1,632,000

 
Share based compensation   -    -    1,060,813    -    -    1,060,813 
Foreign currency translation adjustment   -    -    -    11,083    -    11,083 
Net loss   -    -    -    -    (4,496,286)   (4,496,286)
Balance as of February 28, 2022   169,559,219   $16,796   $27,312,453   $(160,031)  $(27,497,353)  $(328,135)

 

FOR THE SIX MONTHS ENDED FEBRUARY 28, 2021
   COMMON STOCK   ADDITIONAL  

ACCUMULATED

OTHER

       TOTAL 
   Number of
shares
   Amount   PAID IN
CAPITAL
   COMPREHENSIVE
INCOME
   ACCUMULATED DEFICITS   STOCKHOLDERS’
EQUITY
 
                         
Balance as of September 1, 2020   135,474,219   $13,548   $13,272,673   $-   $(11,307,575)  $1,978,646 
Shares issued in private placement   1,420,000    142    417,858    -    -    418,000 
Shares issued to service providers   3,500,000    350    (350)   -    -    - 
Shares issued to employees   9,000,000    900    (900)   -    -    - 
Cancellation of restricted shares   (10,500,000)   (1,050)   1,050    -    -    - 
Share based compensation   -    -    3,834,592    -    -    3,834,592 
Foreign currency translation adjustment   -    -    -    35,584    -    35,584 
Net loss   -    -    -    -    (6,227,407)   (6,227,407)
Balance as of February 28, 2021   138,894,219   $13,890   $17,524,923   $35,584   $(17,534,982)  $39,415 

 

FOR THE THREE MONTHS ENDED FEBRUARY 28, 2022
   COMMON STOCK   ADDITIONAL  

ACCUMULATED

OTHER

       TOTAL  
  

Number of
shares

   Amount   PAID IN
CAPITAL
   COMPREHENSIVE INCOME   ACCUMULATED DEFICITS   STOCKHOLDERS’ DEFICIT 
                         
Balance as of December 1, 2021   162,109,219   $16,211   $24,970,454   $(195,491)  $(25,119,954)  $(328,780)
Shares issued in private placement   4,850,000    485    484,515    -    -    485,000 
Shares issued to service providers   1,000,000    100    (100)   -    -    - 
Shares to be issued on conversion of convertible notes   

1,600,000

    -    

1,632,000

    -    -    

1,632,000

 
Share based compensation   -    -    225,584    -    -    225,584 
Foreign currency translation adjustment   -    -    -    35,460    -    35,460 
Net loss   -    -    -    -    (2,377,399)   (2,377,399)
Balance as of February 28, 2022   169,559,219   $16,796   $27,312,453   $(160,031)  $(27,497,353)  $(328,135)

 

FOR THE THREE MONTHS ENDED FEBRUARY 28, 2021
   COMMON STOCK   ADDITIONAL  

ACCUMULATED

OTHER

       TOTAL 
   Number of
shares
   Amount   PAID IN
CAPITAL
   COMPREHENSIVE
INCOME
   ACCUMULATED DEFICITS   STOCKHOLDERS’
EQUITY
 
                         
Balance as of December 1, 2020   129,974,219   $12,998   $15,630,483   $(207)  $(14,964,635)  $678,639 
Shares to be issued in private placement   1,420,000    142    219,858    -    -    220,000 
Shares issued to service providers   3,500,000    350    (350)   -    -    - 
Shares issued to employees   9,000,000    900    (900)   -    -    - 
Cancellation of restricted shares   (5,000,000)   (500)   500    -    -    - 
Share compensation   -    -    1,675,332    -    -    1,675,332 
Foreign currency translation adjustment   -    -    -    35,791    -    35,791
Net loss   -    -    -    -    (2,570,347)   (2,570,347)
Balance as of February 28, 2021   138,894,219   $13,890   $17,524,923   $35,584   $(17,534,982)  $39,415 

 

See accompanying notes to the condensed consolidated financial statements.

 

4
 

 

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In U.S. dollars)

 

   February 28, 2022   February 28, 2021 
   For the six months ended 
   February 28, 2022   February 28, 2021 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(4,496,286)  $(6,227,407)
Adjustments to reconcile net loss to net cash used in operating activities:          
Loss on change in fair value of convertible notes   1,181,330   330,288 
Share based compensation   1,060,813    3,834,592 
Amortization of operating lease right-of-use assets   169,682    152,989 
Depreciation and amortization   66,080    70,713 
Exchange difference, net   6,054    - 
Changes in operating assets and liabilities:          
Accounts receivable   (991)   - 
Prepayments, deposits and other receivables   55,623    51,006 
Inventory   (10,164)   (1,774)
Amount due from a director   -    189,474 
Deferred tax liabilities   (8,964)   (10,227)
Operating lease liabilities   (169,682)   (147,911)
Accrued expenses and other payables   205,975    47,070 
           
Net cash used in operating activities   (1,940,530)   (1,711,187)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchase of plant and equipment   (27,787)   (58,609)
Acquisition of intangible assets   (1,437)   (1,023)
           
Net cash used in investing activities   (29,224)   (59,632)
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from shares issued in private placement   1,150,000    418,000 
Proceeds from convertible notes issuance   -    800,000 
Loan from a shareholder   158,000    - 
Advance from shareholders   151,853    175,770 
Repayment to a director   (119,207)   - 
Advance from a director   -    55,937 
           
Net cash provided by financing activities   1,340,646    1,449,707 
           
Effects of exchange rate changes on cash and cash equivalents   (475)   53,037 
           
Net decrease in cash and cash equivalents   (629,583)   (268,075)
Cash and cash equivalents, beginning of period   787,154    432,087 
           
CASH AND CASH EQUIVALENTS, END OF PERIOD  $157,571   $164,012 
           
SUPPLEMENTAL CASH FLOWS INFORMATION          
Cash paid for income taxes  $-   $- 
Cash paid for interest  $42,000   $36,666 

 

See accompanying notes to the condensed consolidated financial statements.

 

5
 

 

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

For the six and three months ended February 28, 2022 and 2021

(In U.S. dollars except for share data)

 

1. ORGANIZATION AND BUSINESS BACKGROUND

 

Leader Capital Holdings Corp. (“LCHD” or the “Company”) was incorporated on March 22, 2017 under the laws of the State of Nevada.

 

The Company, through its subsidiaries, mainly operates and services a mobile application investment platform.

 

Company Name   Place/Date of Incorporation   Principal Activities
         
1. Leader Financial Group Limited (“LFGL”)   Seychelles / March 6, 2017   Investment Holding
         
2. JFB Internet Service Limited (“JFB”)   Hong Kong / July 6, 2017   Provides an Investment Platform

 

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 August 17, 2020, among the Company, JFB, NPI, the selling shareholders of NPI identified therein (each a “Seller,” and, collectively, the “Sellers”) and the representative of the Sellers identified therein. As a result of the Acquisition, the Company now owns indirectly 100% of NPI, LOC Weibo Co., Ltd. and Beijing DataComm Cloud Media Technology Co., Ltd.

 

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, resulting in a net purchase price of $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.

 

After the completion of the acquisition, NPI became an indirect wholly owned subsidiary of the Company.

 

NPI was incorporated in the British Virgin Islands on December 17, 2018.

 

NPI, through its subsidiaries, mainly engages in the development of ecological-systems applications, integration of big data and promotion of Over-the-Top (“OTT”) applications.

 

Company Name   Place/Date of Incorporation   Principal Activities
         
1. LOC Weibo Co., Ltd. (“LOC”)   Republic of China/September 29, 2017   Development of ecological-systems applications, integration of big data and promotion of OTT applications
         
2. Beijing DataComm Cloud Media Technology Co., Ltd. (“BJDC”)   People’s Republic of China /April 16, 2013   Development of ecological-systems applications, integration of big data and promotion of OTT applications

 

LCHD and its subsidiaries (including NPI and its subsidiaries) are hereinafter referred to as the “Company”.

 

6
 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

These unaudited condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (which are of a normal recurring nature) and disclosures necessary for a fair presentation of these unaudited condensed consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”), and include the accounts of the Company and its subsidiaries. However, they do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with U.S. GAAP. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Intercompany accounts and transactions have been eliminated in consolidation.

 

The Company has adopted August 31 as its fiscal year end. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s annual report on amended Form 10-K for the year ended August 31, 2021.

 

Going Concern

 

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

 

As of February 28, 2022, the Company has suffered recurring losses from operations, and records an accumulated deficit and a working capital deficit of $27,497,353 and $2,887,051, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due.

 

The Company expects to finance its operations primarily through cash flows from operations, loans from existing directors and shareholders and placements of capital stock for additional funding. In the event that the Company requires additional funding to finance the growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, a shareholder has indicated the intent and ability to provide additional financing. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stock holders, in the case of equity financing.

 

In March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively impacted the global economy, workforces, customers, and created significant volatility and disruption of financial markets. It has also disrupted the normal operations of many businesses, including the Company’s businesses. This outbreak could decrease spending, adversely affect demand for the Company’s services and harm its business and results of operations. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on its business or results of operations at this time.

 

These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should the Company be unable to continue as going concern.

 

7
 

 

Use of Estimates

 

The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for the Company’s business, and adversely impact its results of operations. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Its estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.

 

Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its unaudited condensed consolidated financial statements.

 

Business combination

 

The Company accounts for its business combinations using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805 “Business Combinations.” The cost of an acquisition is measured as the aggregate of the acquisition date fair values of the assets transferred and liabilities incurred by the Company to the sellers and equity instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent of any non-controlling interests. The excess of (i) the total costs of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated statements of comprehensive income. During the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the consolidated statements of comprehensive income.

 

When there is a change in ownership interests that result in a loss of control of a subsidiary, the Company deconsolidates the subsidiary from the date control is lost. Any retained non-controlling investment in the former subsidiary is measured at fair value and is included in the calculation of the gain or loss upon deconsolidation of the subsidiary.

 

Goodwill and impairment of Goodwill

 

Goodwill represents the excess of the purchase price and related costs over the fair value of the net identified tangible and intangible assets and liabilities assumed and is not amortized (“Goodwill”). The total amount of Goodwill is deductible for tax purposes.

 

In accordance with ASC Topic 350, “Intangibles-Goodwill and Other,” Goodwill is not amortized but is tested for impairment, annually or more frequently when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its fair value.

 

8
 

 

The Company estimates fair value of the applicable reporting unit or units using a discounted cash flow methodology. This methodology represents a level 3 fair value measurement as defined under ASC 820, Fair Value Measurements and Disclosures, since the inputs are not readily observable in the marketplace. The goodwill impairment testing process involves the use of significant assumptions, estimates and judgments, including projected sales, gross margins, selling, general and administrative expenses, and capital expenditures, and the selection of an appropriate discount rate, all of which are subject to inherent uncertainties and subjectivity. When the Company performs goodwill impairment testing, its assumptions are based on annual business plans and other forecasted results, which it believes represent those of a market participant. The Company selects a discount rate, which is used to reflect market-based estimates of the risks associated with the projected cash flows based on the best information available as of the date of the impairment assessment. Based on the annual impairment analysis, there is no impairment on the goodwill recorded in the Company’s financial statements.

 

Given the current macro-economic environment and the uncertainties regarding its potential impact on the Company’s business, there can be no assurance that its estimates and assumptions used in its impairment tests will prove to be accurate predictions of the future. If the Company’s assumptions regarding forecasted cash flows are not achieved, it is possible that an impairment review may be triggered and goodwill may be impaired.

 

Cash and Cash Equivalents

 

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.

 

Software Development Costs

 

The Company expenses software development costs, including costs to develop software products or the software component of products to be marketed to external users, before technological feasibility is reached. Technological feasibility is typically reached shortly before the release of such products and, as a result, development costs that meet the criteria for capitalization were not material for the periods presented.

 

The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended.

 

No development costs were expensed as general and administrative expenses for the six and three months ended February 28, 2022 and 2021.

 

Revenue Recognition

 

The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

 

9
 

 

The Company recognizes revenue following the five-step model prescribed under ASU 2014-09:

 

Step 1: Identify the contract

Step 2: Identify the performance obligations

Step 3: Determine the transaction price

Step 4: Allocate the transaction price

Step 5: Recognize revenue

 

Revenues are recognized when control of the promised goods or services is transferred to the Company’s customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

 

Provision of investment platform services

 

The Company signed an agreement with a third party whereby the Company authorized the third party to use the Company’s JFB platform and related applications for a period until December 31, 2020. Income from provision of investment platform services with the use of the Company’s mobile applications is recognized when the service is performed.

 

From September, 2020, the Company generated additional revenue from a new, more comprehensive mobile application, which refer to as the FinMaster mobile application (the “FinMaster App” and together with the JFB platform, the “Apps”), with similar functions as the JFB platform. Income from providing investment platform services with the use of a mobile application is recognized when the service is performed.

 

The Company offers a self-managed points program, which can be used in the FinMaster App to redeem merchandise or services. The Company determines the value of each point based on estimated incremental cost. Customers and advocates have a variety of ways to obtain the points. The major accounting policy for its points program is described as follows:

 

The Company concludes the bonus points offered linked to the purchase transaction of the points is a material right and accordingly a separate performance obligation according to ASC 606, and should be taken into consideration when allocating the transaction price of the point sales. The Company also estimates the probability of points redemption when performing the allocation. The amount allocated to the bonus points as separate performance obligation is recorded as contract liability (deferred revenue) and revenue should be recognized when future goods or services are transferred. The Company will continue to monitor when and if forfeiture rate data becomes available and will apply and update the estimated forfeiture rate at each reporting period.

 

Since historical information is limited for the Company to determine any potential points forfeitures and most merchandise can be redeemed without requiring a significant amount of points compared with the amount of points provided to users, the Company has used an estimated forfeiture rate of zero.

 

Provision of software development service and maintenance service

 

The Company entered into several agreements with third party customers to assist the customers in the development of their mobile communications software and mobile e-commerce software. Income from provision of software development service and maintenance service are recognized when the service is performed.

 

The Company entered into a Customized App Development Agreement with a third-party learning educational service company, providing the online and offline learning opportunities across different subjects.. The Company plans to deliver an app and the follow-up maintenance service. As of February 28, 2022, the Company commenced the preparation work and will start to work towards the goal of commencing service in phases from the third quarter of current fiscal year. For the six and three months ended February 28, 2022, no revenue was generated from this customer.

 

Revenue by major product line

 

   February 28, 2022   February 28, 2021   February 28, 2022   February 28, 2021 
   For the six months ended   For the three months ended 
   February 28, 2022   February 28, 2021   February 28, 2022   February 28, 2021 
Provision of investment platform services  $4,799   $10,408   $1,557   $6,788 
Provision of software development service and maintenance service   17,637    44,844    6,074    25,601 
Revenue by major product line  $22,436   $55,252   $7,631   $32,389 

 

10
 

 

Revenue by Recognition Over Time vs Point in Time

 

   February 28, 2022   February 28, 2021   February 28, 2022   February 28, 2021 
   For the six months ended   For the three months ended 
   February 28, 2022   February 28, 2021   February 28, 2022   February 28, 2021 
Revenue by recognition over time  $22,436   $55,252   $7,631   $32,389 
Revenue by recognition at a point in time   -    -    -    - 
Revenue by recognition  $22,436   $55,252   $7,631   $32,389 

 

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 February 28, 2022, the Company’s remaining performance obligations were $2,853, which it expects to recognize as revenues over the next twelve months and the remainder thereafter.

 

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 six months ended February 28, 2022 and 2021:

 

Receipt in advance  2021   2020 
         
Balance as of September 1  $16,225   $2,896 
Advances received from customers related to unsatisfied performance obligations   2,677    9,760 
Revenue recognized from beginning contract liability balance   (15,948)   (2,990)
Exchange difference   (101)   296 
Balance as of February 28  $2,853   $9,962 

 

Practical Expedients and Exemption

 

The Company has not incurred any costs to obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

 

Research and development expenses

 

Research and development (“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 six months ended February 28, 2022 and 2021, the total R&D expenses were $261,179 and $304,565, respectively.

 

For the three months ended February 28, 2022 and 2021, the total R&D expenses were $114,896 and $157,594, respectively.

 

11
 

 

Sales and marketing expenses

 

Sales and marketing expenses consist primarily of marketing and promotional expenses, salaries and other compensation-related expenses to sales and marketing personnel. Advertising expenses consist primarily of costs for the promotion of corporate image and product marketing. The Company expenses all advertising costs as incurred and classifies these costs under sales and marketing expenses. For the six months ended February 28, 2022 and 2021, advertising costs totaled $240,049 and $143,828, respectively. For the three months ended February 28, 2022 and 2021, advertising costs totaled $29,446 and $46,467, respectively.

 

From September 2019, customers or users of the FinMaster App can obtain points through any other ways such as account registration referral to the FinMaster App, frequent sign-ins to the application and sharing articles from the application to users’ own social media, etc. The Company believes these points are to encourage user engagement and generate market awareness. As a result, the Company accounts for such points as sales and marketing expenses with a corresponding liability recorded under other current liabilities of its unaudited condensed consolidated balance sheets upon the points offering. The Company estimates liabilities under the customer loyalty program based on cost of the merchandise that can be redeemed, and its estimate of probability of redemption. At the time of redemption, the Company records a reduction of inventory and other current liabilities.

 

Since historical information is limited for the Company to determine any potential points forfeiture and most merchandise can be redeemed without requiring a significant amount of points compared with the amount of points provided to users, the Company has used an estimated forfeiture rate of zero.

 

For the six months ended February 28, 2022 and 2021, redeemable point liability charged as sales and marketing expenses were $7,487 and $26,902, respectively.

 

For the three months ended February 28, 2022 and 2021, redeemable point liability charged as sales and marketing expenses were $4,318 and $14,561, respectively.

 

As of February 28, 2022 and August 31, 2021, liabilities recorded related to unredeemed points were $82,043 and $75,648, respectively, which were included in other payables (note 8).

 

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 an 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 February 28, 2022 and August 31, 2021 represents merchandise inventory which can be redeemed by deducting membership rewards points of customer loyalty program.

 

12
 

 

Leases

 

The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease liabilities are recognized based on the present value of the remaining lease payments, discounted using the discount rate for the lease at the commencement date. As the rate implicit in the lease is not readily determinable for the operating lease, the Company generally uses an incremental borrowing rate based on information available at the commencement date to determine the present value of future lease payments. Operating lease right-of-use (“ROU assets”) assets represent the Company’s right to control the use of an identified asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. Lease expense is recognized on a straight-line basis over the lease term. The Company elected the package of practical expedients permitted under the transition guidance to combine the lease and non-lease components as a single lease component for operating leases associated with the Company’s office space lease, and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.

 

The operating lease is included in operating lease right-of-use assets, operating lease liabilities-current and operating lease liabilities-non-current on the Company’s consolidated balance sheets.

 

Plant and Equipment

 

Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:

 

  

Expected

useful life

 
Furniture and fixture  3 
Office equipment  3 
Leasehold improvement  3 

 

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  5 years
Technical know-hows  8 years
Trademarks  10 years

 

Impairment of Long-Lived Assets (including amortizable intangible assets)

 

The Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If the assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment has been recorded by the Company for the six and three months ended February 28, 2022 and 2021.

 

13
 

 

Income taxes

 

Income taxes are determined in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” (“ASC 740”). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

 

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. As of February 28, 2022, the Company has no accrued interest or penalties related to uncertain tax positions.

 

The Company conducts business in the PRC, Taiwan and Hong Kong and is subject to tax in these jurisdictions. As a result of its business activities, the Company will file tax returns that are subject to examination by the respective tax authorities.

 

Net Loss Per Share

 

The Company calculates net loss per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income/(loss) per share is computed by dividing the net income/(loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted income per share is computed similar to basic income/(loss) per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock equivalents had been issued and if the additional shares of common stock were dilutive. The following table presents a reconciliation of basic and diluted net loss per share:

 

   February 28, 2022   February 28, 2021   February 28, 2022   February 28, 2021 
   For the six months ended   For the three months ended 
   February 28, 2022   February 28, 2021   February 28, 2022   February 28, 2021 
                 
Net loss  $(4,496,286)  $(6,227,407)  $(2,377,399)  $(2,570,347)
Weighted average number of shares of common stock outstanding - Basic and diluted*   

165,431,246

    139,224,402    

170,033,710

    141,553,018 
Net loss per share - Basic and diluted  $(0.03)  $(0.05)  $(0.02)  $(0.02)

 

  * Including 1,600,000 shares converted from convertible notes but not yet issued and 4,578,868 shares granted and vested but not yet issued for the period ended February 28, 2022; and including 58,333 shares that were granted and vested but not yet issued for the period ended February 28, 2021.

 

As of February 28, 2022 and August 31, 2021, the Company’s convertible notes payable were excluded from the diluted loss per share calculation as they were anti-dilutive.

 

Stock-based compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 (“ASC 718”), which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the vesting period or immediately if fully vested and non-forfeitable. The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

Additionally, ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur.

 

14
 

 

On September 1, 2019, the Company adopted ASU No. 2018-07, “Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”), which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. Before the adoption of this guidance, the equity-classified share-based awards held by non-employees were subject to re-measurement through each vesting date. Upon the adoption of this guidance, the Company no longer re-measures equity-classified share-based awards granted to consultants or non-employees at each reporting date through the vesting date and the accounting for these share-based awards to consultants or non-employees and employees was substantially aligned.

 

Cancellation of a share-based payment by the entity results in accelerated recognition of any unrecognised cost. Cancellation by the counterparty does not change recognition of the compensation cost. The termination of an employee that resulted in the forfeiture of share-based awards is not considered to be a cancellation of the awards.

 

Foreign Currencies Translation

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.

 

The reporting currency of the Company is United States Dollars (“US$”). The Company’s subsidiary in Seychelles, the PRC, Taiwan and Hong Kong maintains its books and record in United States Dollars (“US$”), Renminbi (“RMB”), New Taiwanese Dollars (“NT$”) and Hong Kong Dollars (“HK$”) respectively, which are the primary currencies of the economic environment in which the entities operate (the functional currencies).

 

In general, for consolidation purposes, the assets and liabilities of the Company’s subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of the financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of retained earnings.

 

Translation of amounts from foreign currencies into US$ has been made at the following exchange rates for the respective periods:

 

   As of
February 28, 2022
   As of
August 31, 2021
 
         
Period-end HK$ : US$ 1 exchange rate   7.80    7.80 
Period-end NT$ : US$ 1 exchange rate   28.04    27.66 
Period-end RMB : US$ 1 exchange rate   6.31    6.46 

 

   February 28, 2022   February 28, 2021 
   For the six months ended, 
   February 28, 2022   February 28, 2021 
         
Period average HK$ : US$ 1 exchange rate   7.80    7.80 
Period average NT$ : US$ 1 exchange rate   27.79    28.45 
Period average RMB : US$ 1 exchange rate   6.39    6.61 

 

Related Parties

 

Parties, which can be a corporation or an individual, are considered to be related if the Company has the ability to, directly or indirectly, control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

 

15
 

 

Convertible instruments

 

The Company accounts for hybrid contracts that feature conversion options in accordance with U.S. GAAP. ASC 815 “Derivatives and Hedging Activities,” (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

Conversion options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result in their bifurcation from the host instrument.

 

The Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not be bifurcated from their host instruments, in accordance with ASC 470-20 “Debt with Conversion and Other Options” (“ASC 470-20”). Under ASC 470-20 the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their host instruments) in accordance with ASC 815. Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract are allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in results of operations.

 

Fair Value of Financial Instruments:

 

The carrying value of the Company’s financial instruments: cash and cash equivalents, deposits, accounts payable and accrued liabilities, balances due with directors and shareholders, convertible notes payable and bonds payable, approximate at their fair values because of the short-term nature of these financial instruments or the rate of interest of these instruments approximate the market rate of interest.

 

The Company also follows the guidance of the ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), with respect to financial assets and liabilities that are measured at fair value. ASC 820 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

 

Level 1: Observable inputs such as quoted prices in active markets;

 

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

 

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

16
 

 

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis:

 

       Level 1   Level 2   Level 3 
   Carrying
Value at
     
   August 31, 2021  

Fair Value Measurement at

August 31, 2021

 
       Level 1   Level 2   Level 3 
Convertible notes measured at fair value  $990,000   $-   $-   $990,000 

 

       Level 1   Level 2   Level 3 
   Carrying
Value at
     
   February 28, 2022  

Fair Value Measurement at

February 28, 2022

 
       Level 1   Level 2   Level 3 
Convertible notes measured at fair value  $

518,000

   $-   $-   $

518,000

 

 

A summary of changes in financial liabilities for the six months ended February 28, 2022 and 2021 was as follows:

 

   2022   2021 
         
Balance at September 1  $990,000   $104,000 
Issuance of convertible notes   -    800,000 
Fair value loss on issuance of convertible notes   -    526,838 
Interest waived in conversion of convertible notes   

(6,330

)   - 
Interest paid   (42,000)   - 
Interest expenses on convertible notes   

20,670

    2,712 
Change in fair value of convertible notes   (1,181,330)   (196,550)
Conversion of convertible notes   

(1,632,000

)   - 
Balance at February 28  $

518,000

   $1,237,000 

 

17
 

 

Fair value of the convertible notes is determined using the binomial model using the following assumptions at inception and on subsequent valuation dates:

Convertible notes holders  Jui-Chin Chen   Teh-Ling Chen   

Chin-Ping Wang Chin-Nan Wang

   Chin-Chiang Wang   Teh-Ling Chen 
Appraisal Date (Inception Date)   March 18, 2020     November 2, 2020       November 25, 2020     November 25, 2020     January 15, 2021  
Risk-free Rate   0.54%   0.16%     0.16 %   0.16%   0.1%
Applicable Closing Stock Price  $1.20   $0.12    $ 3.00    $3.00   $2.00 
Conversion Price  $1.00(i)  $0.40    $ 0.40    $0.40   $0.40 
   $1.50(ii)                   
Volatility   34.20%   41.51%     42.00 %   42.00%   43.50%
Dividend Yield   0.00%   0.00%     0.00 %   0.00%   0.00%
Credit Spread   6.88%   7.52%     6.93 %   6.93%   6.76%
Liquidity Risk Premium   51.08%   77.62%     78.14 %   78.14%   75.73%
                             
Appraisal Date   August 31, 2021     August 31, 2021       August 31, 2021     August 31, 2021     August 31, 2021  
Risk-free Rate   0.05%   0.09%     0.10 %   0.10%   0.12%
Applicable Closing Stock Price  $2.01   $2.01    $ 2.01    $2.01   $2.01 
Conversion Price  $0.40   $0.40    $ 0.40    $0.40   $0.40 
Volatility   45.20%   49.90%     49.76 %   49.76%   48.45%
Dividend Yield   0.00%   0.00%     0.00 %   0.00%   0.00%
Credit Spread   3.63%   3.63%     3.63 %   3.63%   3.63%
Liquidity Risk Premium   84.04%   86.98%     86.63 %   86.63%   85.12%
                             
Appraisal Date   February 28, 2022     February 28, 2022             February 28, 2022     February 28, 2022  
Risk-free Rate   0.03%   0.76%           0.81%   0.91%
Applicable Closing Stock Price  $0.80   $0.80           $0.80   $0.80 
Conversion Price  $0.40   $0.40           $0.40   $0.40 
Volatility   34.77%   45.21%           44.51%   39.64%
Dividend Yield   0.00%   0.00%           0.00%   0.00%
Credit Spread   7.39%   7.39%           7.39%   7.30%
Liquidity Risk Premium   68.06%   68.34%           69.19%   60.36%

 

  (i) USD1.00 per share if converted on or before the one-year anniversary of the issuance date
     
  (ii) USD1.50 per share if converted at any time after the one-year anniversary of the issuance date

 

18
 

 

Segment reporting

 

ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the company for making operating decisions assessing performance and allocating resources. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company.

 

Management determined the Company’s operations constitute a single reportable segment in accordance with ASC 280. The Company operates exclusively in one business and industry segment: the provision of investment platform services through mobile application.

 

Recent Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions and enhances and simplifies various aspects of the income tax accounting guidance in ASC 740. The Company adopted ASU 2019-12 on September 1, 2021. The adoption of ASU 2019-12 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

 

In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models. Upon adoption of ASU 2020-06, convertible debt proceeds, unless issued with a substantial premium or an embedded conversion feature that is not clearly and closely related to the host contract, will no longer be allocated between debt and equity components. This modification will reduce the issue discount and result in less non-cash interest expense in financial statements. ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. For contracts in an entity’s own equity, the type of contracts primarily affected by ASU 2020-06 are freestanding and embedded features that are accounted for as derivatives under the current guidance due to a failure to meet the settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and (iii) assess shareholder rights. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, and only if adopted as of the beginning of such fiscal year. The Company adopted ASU 2020-06 effective September 1, 2021. The adoption of ASU 2020-06 did not have any impact on the Company’s consolidated financial statement presentation or disclosures.

 

Recently issued accounting pronouncements not yet adopted

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326) (“ASU 2016-13”), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASU 2016-13 replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 is to be adopted on a modified retrospective basis. As a smaller reporting company, ASU 2016-13 will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statement presentations and disclosures.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 eliminates Step 2 of the two-step Goodwill impairment test, under which a goodwill impairment loss was measured by comparing the implied fair value of a reporting unit’s Goodwill with the carrying amount of that Goodwill. ASU 2017-04 requires only a one-step quantitative impairment test, whereby a Goodwill impairment loss is measured as the excess of a reporting unit’s carrying amount over its fair value (not to exceed the total Goodwill allocated to that reporting unit). Adoption of the ASUs is on a modified retrospective basis. As a smaller reporting company, the standard will be effective for the Company for interim and annual reporting periods beginning after December 15, 2022. The Company is currently evaluating the impact that the adoption of ASU 2017-04 will have on its consolidated financial statement presentation or disclosures.

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt — Modifications and Extinguishments (Subtopic 470-50), Compensation — Stock Compensation (Topic 718), and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). ASU 2021-04 is effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the guidance provided in ASU 2021-04 prospectively to modifications or exchanges occurring on or after the effective date. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt ASU 2021-04 in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. The adoption of ASU 2021-04 is not expected to have any impact on the Company’s consolidated financial statement presentation or disclosures.

 

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance. This update requires certain annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This update is effective for annual periods beginning after December 15, 2021, and early application is permitted. This guidance should be applied either prospectively to all transactions that are reflected in financial statements at the date of initial application and new transactions that are entered into after the date of initial application or retrospectively to those transactions. The Company does not expect the impact of this guidance to have a material impact on the Company’s consolidated financial statements.

 

19
 

 

The Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

 

3. ACQUISITION OF SUBSIDIARIES

 

On August 17, 2020, the Company, through its wholly-owned subsidiary JFB, acquired all of the issued and outstanding capital stock (the “Acquisition”) of NPI, pursuant to the terms and conditions of that certain Stock Purchase Agreement, dated as of August 17, 2020, among the Company, JFB, NPI, the selling shareholders of NPI identified therein (each a “Seller,” and, collectively, the “Sellers”) and the representative of the Sellers identified therein.

 

The aggregate purchase price for the Acquisition was $4,850,000, less certain discounts, expenses and reductions for outstanding NPI debt owed to the Company and/or its affiliates, resulting in a net purchase price of $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.

 

After the completion of the Acquisition, NPI became an indirect wholly owned subsidiary of the Company.

 

The Company completed the valuations necessary to assess the fair values of the tangible and intangible assets acquired and liabilities assumed, resulting from which the amount of Goodwill was determined and recognized as of the respective acquisition date. The following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing date, August 31, 2020.

 

      
Cash and cash equivalents  $185,117 
Prepayments, deposits and other receivables   145,228 
Due from a shareholder   34,048 
Right-of-use operating lease assets   113,590 
Plant and equipment, net   30,365 
Intangible assets- Technical know-hows   818,200 
Goodwill   2,974,364 
Other payables and accrued liabilities   (383,087)
Contract liabilities   (2,896)
Due to shareholders   (99,730)
Operating lease liability   (113,646)
Tax payable   (31,871)
Deferred tax liabilities   (163,640)
Net purchase price  $3,506,042 
      
Less: Outstanding NPI debt owed to the Company     
Accounts receivable   989,854 
Notes payable   (3,066,617)
Aggregate fair values of the assets acquired and liabilities assumed  $1,429,279 

 

20
 

 

The transaction resulted in a purchase price allocation of $2,974,364 to Goodwill, representing the financial, strategic and operational value of the transaction to the Company. Goodwill is attributed to the premium that the Company paid to obtain the value of the business of NPI and the synergies expected from the combined operations of NPI and the Company, the assembled workforce and their knowledge and experience in provision of products and projects utilizing NPI’s technical know-hows. The total amount of the Goodwill acquired is not deductible for tax purposes.

 

The balances of the Goodwill as of February 28, 2022 and 2021 are as follows

 

   As of
February 28, 2022
   As of
August 31, 2021
 
         
Balance as of Goodwill  $1,747,945   $1,747,945 

 

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. No impairment loss of Goodwill of the reporting unit of the Fintech App development was recognized for the six and three months ended February 28, 2022 and 2021.

 

4. PLANT AND EQUIPMENT, NET

 

Plant and equipment as of February 28, 2022 and August 31, 2021 are summarized below:

 

   As of
February 28, 2022
   As of
August 31, 2021
 
Furniture and fixtures  $71,006   $64,791 
Office equipment   31,805    32,038 
Leasehold improvement   88,725    83,883 
Total   191,536    180,712 
Less: Accumulated depreciation   (115,455)   (110,952)
Plant and Equipment, net  $76,081   $69,760 

 

Depreciation expenses, classified as operating expenses, were $21,072 and $19,535 for the six months ended February 28, 2022 and 2021, respectively; and $11,217 and $9,308 for the three months ended February 28, 2022 and 2021, respectively.

 

5. INTANGIBLE ASSETS, NET

 

Intangible assets costs as of February 28, 2022 and August 31, 2021 are summarized below:

 

   As of
February 28, 2022
   As of
August 31, 2021
 
Investment platform  $30,000   $30,000 
Technical know-hows   818,200    818,200 
Trademarks   4,920    3,483 
Total   853,120    851,683 
Less: Accumulated amortization   (153,967)   (108,959)
Impairment   (111,915)   (111,915)
Intangible assets, net  $587,238