UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For The Quarterly Period Ended February 28, 2021

 

or

 

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

 

For the transition period from ____________ to ____________

 

Commission File Number 333-221548

 

LEADER CAPITAL HOLDINGS CORP.

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

 

Nevada		37- 1853394
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
Room 2708-09, Metropolis Tower, 10 Metropolis Drive, Hung Hom, Hong Kong
(Address of principal executive offices)		(Zip Code)

 

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

 

Securities registered pursuant to Section 12(b) of the Act:

 

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

 

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

 

YES [  ] NO [X]

 

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 [X]

 

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

 

Large Accelerated Filer [  ]	Accelerated Filer [  ]
Non-accelerated Filer [X]	Smaller reporting company [X]
	Emerging growth company [X]

 

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

 

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

Yes [  ] No [X]

 

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

 

Class		Outstanding at April 12, 2021
Common Stock, $0.0001 par value			138,894,219

 

 

 

LEADER CAPITAL HOLDINGS CORP.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28, 2021

 

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, 2021 (unaudited) and August 31, 2020	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Six and Three Months Ended February 28, 2021 and February 29, 2020 (unaudited)	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Six and Three Months Ended February 28, 2021 and February 29, 2020 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended February 28, 2021 and February 29, 2020 (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

 

 

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;
	●	changes or developments in laws, regulations or taxes in our industry;
	●	actions taken or omitted to be taken by third parties including our suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities;
	●	competition in our industry;
	●	the loss of or failure to obtain any license or permit necessary or desirable in the operation of our business;
	●	changes in our business strategy, capital improvements or development plans;
	●	the availability of additional capital to support capital improvements and development; and
	●	other risks identified in our other filings with the Securities and Exchange Commission.

 

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

 

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

 

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

 

 

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

 

 

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

		As of
		February 28, 2021				August 31, 2020
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	164,012			$	432,087
Prepayments, deposits and other receivables			3,031,401				596,166
Inventory			1,811				-
Tax recoverable			648				-
Due from a director			-				189,474
Due from a related company			-				36,666
Loan to a shareholder			35,881				34,048
Total current assets			3,233,753				1,288,441
Non-current assets
Plant and equipment, net			74,291				33,667
Intangible assets			768,034				818,200
Goodwill			2,974,364				2,974,364
Operating lease right-of-use assets, net			291,937				237,239
Total non-current assets			4,108,626				4,063,470
TOTAL ASSETS		$	7,342,379			$	5,351,911
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accrued expenses and other payables		$	373,905			$	292,246
Contract liabilities			9,962				2,896
Operating lease liability, current			212,101				189,253
Loan from a shareholder			60,075				60,075
Tax payable			-				31,871
Due to shareholders			292,951				99,730
Due to a director			1,419,730				1,400,459
Total current liabilities			2,368,724				2,076,530
Non-current liabilities
Operating lease liability, non-current			82,586				54,095
Deferred tax liabilities			153,413				163,640
Bonds payable			600,000				600,000
Convertible notes payable to related parties			1,237,000				104,000
Total non-current liabilities			2,072,999				921,735
TOTAL LIABILITIES		$	4,441,723			$	2,998,265
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; 138,894,219 and 135,474,219 shares issued and outstanding as of February 28, 2021 and August 31, 2020, respectively			13,890				13,548
Additional paid-in capital			20,386,164				13,647,673
Accumulated other comprehensive income			35,584				-
Accumulated deficits			(17,534,982	)			(11,307,575	)
TOTAL STOCKHOLDERS’ EQUITY		$	2,900,656			$	2,353,646
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	7,342,379			$	5,351,911

 

See accompanying notes to the condensed consolidated financial statements.

 

 

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

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

 

		For the six months ended								For the three months ended
		February 28, 2021				February 29, 2020				February 28, 2021				February 29, 2020
REVENUE		$	55,252			$	3,333			$	32,389			$	1,666
OPERATING EXPENSES
Research and development expenses			(304,565	)			-				(157,594	)			-
Sales and marketing expenses			(170,730	)			-				(61,028	)			-
General and administrative expenses			(5,477,927	)			(2,484,998	)			(2,524,760	)			(1,246,851	)
LOSS FROM OPERATIONS			(5,897,970	)			(2,481,665	)			(2,710,993	)			(1,245,185	)
Interest expense			(32,403	)			(30,107	)			(16,957	)			(15,148	)
(Loss) gain on change in fair value of convertible notes			(330,288	)			-				150,755				-
OTHER INCOME
Other income – from related parties			1,823				-				-				-
Other income – from non-related parties			21,202				50,282				1,733				28,473
			23,025				50,282				1,733				28,473
LOSS BEFORE INCOME TAX			(6,237,636	)			(2,461,490	)			(2,575,462	)			(1,231,860	)
Income tax benefit (expense)			10,229				(30,250	)			5,115				(10,250	)
NET LOSS		$	(6,227,407	)		$	(2,491,740	)		$	(2,570,347	)		$	(1,242,110	)
OTHER COMPREHENSIVE LOSS
Foreign currency translation adjustment			35,584				-				35,791				-
TOTAL COMPREHENSIVE LOSS		$	(6,191,823	)		$	(2,491,740	)		$	(2,534,556	)		$	(1,242,110	)
Net loss per share - Basic and diluted		$	(0.05	)		$	(0.02	)		$	(0.02	)		$	(0.01	)
Weighted average number of shares of common stock outstanding - Basic and diluted			139,224,402				113,684,073				141,553,018				113,684,073

 

See accompanying notes to the condensed consolidated financial statements.

 

 

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

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

 

		FOR THE THREE MONTHS ENDED FEBRUARY 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			$	19,626,317			$	(207	)		$	(14,964,635	)		$	4,674,473
Shares 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				177,007				-				-				177,907
Cancellation of restricted shares			(5,000,000	)			(500	)			500				-				-				-
Share based compensation			-				-				362,832				-				-				362,832
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			$	20,386,164			$	35,584			$	(17,534,982	)		$	2,900,656

 

		FOR THE THREE MONTHS ENDED FEBRUARY 29, 2020
		COMMON STOCK								ADDITIONAL				ACCUMULATED OTHER								TOTAL
		Number of shares				Amount				PAID IN CAPITAL				COMPREHENSIVE INCOME				ACCUMULATED DEFICITS				STOCKHOLDERS’ EQUITY
Balance as of December 1, 2019			105,184,073			$	10,519			$	6,138,909			$	-			$	(2,714,376	)		$	3,435,052
Share based compensation			8,500,000				850				(850	)			-				-				-
Net loss			-				-				-				-				(1,242,110	)			(1,242,110	)
Balance as of February 29, 2020			113,684,073			$	11,369			$	6,138,059			$	-			$	(3,956,486	)		$	2,192,942

 

		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			$	13,647,673			$	-			$	(11,307,575	)		$	2,353,646
Shares issued in private placement			1,420,000				142				417,858				-				-				418,000
Shares issued to service providers			3,500,000				350				2,499,650				-				-				2,500,000
Shares issued to employees			9,000,000				900				177,007				-				-				177,907
Cancellation of restricted shares			(10,500,000	)			(1,050	)			1,050				-				-				-
Share based compensation			-				-				3,642,926				-				-				3,642,926
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			$	20,386,164			$	35,584			$	(17,534,982	)		$	2,900,656

 

		FOR THE SIX MONTHS ENDED FEBRUARY 29, 2020
		COMMON STOCK								ADDITIONAL				ACCUMULATED OTHER								TOTAL
		Number of shares				Amount				PAID IN CAPITAL				COMPREHENSIVE INCOME				ACCUMULATED DEFICITS				STOCKHOLDERS’ EQUITY
Balance as of September 1, 2019			105,184,073			$	10,519			$	1,888,909			$	-			$	(1,464,746	)		$	434,682
Share based compensation			8,500,000				850				4,249,150				-				-				4,250,000
Net loss			-				-				-				-				(2,491,740	)			(2,491,740	)
Balance as of February 29, 2020			113,684,073			$	11,369			$	6,138,059			$	-			$	(3,956,486	)		$	2,192,942

 

See accompanying notes to the condensed consolidated financial statements.

 

 

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In U.S. dollars)

 

		For the six months ended
		February 28, 2021				February 29, 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(6,227,407	)		$	(2,491,740	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on change in fair value of convertible notes			330,288				-
Share based compensation			3,459,593				2,125,000
Amortization of operating lease right-of-use assets			152,989				-
Depreciation and amortization			70,713				4,658
Changes in operating assets and liabilities:
Prepayments, deposits and other receivables			426,005				(45,211	)
Inventory			(1,774	)			-
Amount due from a director			189,474				-
Deferred tax liabilities			(10,227	)			-
Operating lease liabilities			(147,911	)			-
Accrued expenses and other payables			47,070				29,029
Net cash used in operating activities			(1,711,187	)			(378,264	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment			(58,609	)			(371	)
Issuance of notes receivable			-				(812,952	)
Acquisition of intangible assets			(1,023	)			-
Net cash used in investing activities			(59,632	)			(813,323	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shares issued in private placement			418,000				-
Proceeds from convertible notes issuance			800,000				130,000
Advance from a shareholder			175,770				-
Advance from a director			55,937				845,818
Net cash provided by financing activities			1,449,707				975,818
Effects of exchange rate changes on cash and cash equivalents			53,037				-
Net decrease in cash and cash equivalents			(268,075	)			(215,769	)
Cash and cash equivalents, beginning of period			432,087				447,562
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	164,012			$	231,793
SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for income taxes		$	-			$	-
Cash paid for interest		$	-			$	30,000

 

See accompanying notes to the condensed consolidated financial statements.

 

 

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

For the six months ended February 28, 2021 and February 29, 2020

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

 

1. ORGANIZATION AND BUSINESS BACKGROUND

 

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

 

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

 

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

 

On August 17, 2020, LCHD, through JFB Internet Service Limited (“JFB”), acquired all of the issued and outstanding capital stock (the “Acquisition”) of Nice Products Inc. (“NPI”), pursuant to the terms and conditions of that certain Stock Purchase Agreement, dated as of August 17, 2020, among the Company, JFB, NPI, the selling shareholders of NPI identified therein (each a “Seller,” and, collectively, the “Sellers”) and the representative of the Sellers identified therein. As a result of the Acquisition, the Company now owns indirectly 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 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”.

 

 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

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

 

The Company has adopted August 31 as its fiscal year end. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended August 31, 2020, which was filed with the SEC on December 15, 2020.

 

Going Concern

 

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

 

The Company has suffered recurring losses from operations, and records an accumulated deficit of $17,534,982 as of February 28, 2021. 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 interim condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should the Company be unable to continue as going concern.

 

 

Use of Estimates

 

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

 

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 condensed consolidated financial statements.

 

Business combination

 

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

 

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

 

Goodwill and impairment of goodwill

 

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

 

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

 

 

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.

 

On September 1, 2018 (before the acquisition of NPI (Note 1)), JFB appointed LOC to develop a mobile application in four stages for total consideration of TWD20,000,000 ($651,466), payable in the form of shares of the Company’s restricted common stock. As of 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 $600,000 was incurred for additional functions developed and $200,000 was incurred for the acquisition of the ownership of the intellectual property in the year ended August 31, 2020.

 

No development costs were expensed as general and administrative expenses for the six and three months ended February 28, 2021 and February 29, 2020.

 

Revenue Recognition

 

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

 

 

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

 

Step 1: Identify the contract

Step 2: Identify the performance obligations

Step 3: Determine the transaction price

Step 4: Allocate the transaction price

Step 5: Recognize revenue

 

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

 

Provision of investment platform services

 

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

 

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

 

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

 

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

 

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

 

Provision of software development service and maintenance service

 

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

 

Revenue by major product line

 

		For the six months ended								For the three months ended
		February 28, 2021				February 29, 2020				February 28, 2021				February 29, 2020
Provision of investment platform services		$	10,408			$	3,333			$	6,788			$	1,666
Provision of software development service and maintenance service			44,844				-				25,601				-
		$	55,252			$	3,333			$	32,389			$	1,666

 

 

Revenue by Recognition Over Time vs Point in Time

 

		For the six months ended								For the three months ended
		February 28, 2021				February 29, 2020				February 28, 2021				February 29, 2020
Revenue by recognition over time		$	55,252			$	3,333			$	32,389			$	1,666
Revenue by recognition at a point in time			-				-				-				-
		$	55,252			$	3,333			$	32,389			$	1,666

 

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, 2021, the Company’s remaining performance obligations were $9,962, 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, 2021:

 

		Receipt in advance
Balance as of September 1, 2020		$	2,896
Advances received from customers related to unsatisfied performance obligations			9,760
Revenue recognized from beginning contract liability balance			(2,990	)
Exchange difference			296
Balance as of February 28, 2021		$	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, 2021 and February 29, 2020, the total R&D expenses were $304,565 and $nil, respectively.

 

For the three months ended February 28, 2021 and February 29, 2020, the total R&D expenses were $157,594 and $nil, respectively.

 

 

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, 2021 and February 29, 2020, advertising costs totaled $143,828 and $nil, respectively. For the three months ended February 28, 2021 and February 29, 2020, advertising costs totaled $46,467 and $nil, 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 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, 2021 and February 29, 2020, redeemable point liability charged as sales and marketing expenses were $26,902 and $nil, respectively.

 

For the three months ended February 28, 2021 and February 29, 2020, redeemable point liability charged as sales and marketing expenses were $14,561 and $nil, respectively.

 

As of February 28, 2021 and August 31, 2020, liabilities recorded related to unredeemed points were $67,301 and $40,003, 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 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 February 28, 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 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 asset

 

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, 2021 and February 29, 2020.

 

 

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, 2021, 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:

 

		For the three months ended								For the three months ended
		February 28, 2021				February 29, 2020				February 28, 2021				February 29, 2020
Net loss		$	(6,227,407	)		$	(2,491,740	)		$	(2,570,347	)		$	(1,242,110	)
Weighted average number of shares of common stock outstanding - Basic and diluted*			139,224,402				113,684,073				141,553,018				113,684,073
Net loss per share - Basic and diluted		$	(0.05	)		$	(0.02	)		$	(0.02	)		$	(0.01	)

 

* Including 58,333 shares that were granted and vested but not yet issued for the period ended February 28, 2021 (note 13); and including nil shares that were granted and vested but not yet issued for the period ended February 29, 2020.

 

As of February 28, 2021 and August 31, 2020, the Company’s convertible notes payable were excluded from the diluted loss per share calculation as they were anti-dilutive.

 

Stock-based compensation

 

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

 

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

 

 

In June 2018, the FASB issued ASU No. 2018-07, “Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”), which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC Topic 606, Revenue from Contracts with Customers. The Company adopted ASU 2018-07 on September 1, 2019 and there was no cumulative effect of adoption.

 

Foreign Currencies Translation

 

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

 

The reporting currency of the Company is United States Dollars (“US$”). The Company’s subsidiary in Seychelles, the PRC, Taiwan and Hong Kong maintains its books and record in United States Dollars (“US$”), 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, 2021				As of August 31, 2020
Period-end HK$ : US$ 1 exchange rate			7.80				7.80
Period-end NT$ : US$ 1 exchange rate			27.87				29.37
Period-end RMB : US$ 1 exchange rate			6.47				6.85

 

		For the six months ended,
		February 28, 2021				February 29, 2020
Period average HK$ : US$ 1 exchange rate			7.80				7.80
Period average NT$ : US$ 1 exchange rate			28.45				N/A
Period average RMB : US$ 1 exchange rate			6.61				N/A

 

Related Parties

 

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

 

 

Convertible instruments

 

The Company accounts for hybrid contracts that feature conversion options in accordance with U.S. GAAP. ASC 815 “Derivatives and Hedging Activities,” (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not 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.

 

 

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		$	104,000			$	-			$	-			$	104,000

 

		Carrying Value at				Fair Value Measurement at
		February 28, 2021				February 28, 2021
						Level 1				Level 2				Level 3
Convertible notes measured at fair value		$	1,237,000			$	-			$	-			$	1,237,000

 

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

 

Balance at September 1, 2020		$	104,000
Issuance of convertible notes			800,000
Fair value loss on issuance of convertible notes			526,838
Interest expenses on convertible notes			2,712
Change in fair value of convertible notes			(196,550	)
Balance at February 28, 2021		$	1,237,000

 

 

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)			February 24, 2020				February 27, 2020				March 18, 2020				November 2, 2020				November 25, 2020				January 15, 2021
Risk-free Rate			1.25	%			1.06	%			0.54	%			0.16	%			0.16	%			0.1	%
Applicable Closing Stock Price		$	1.25			$	1.25			$	1.20			$	0.12			$	3.00			$	2.00
Conversion Price		$	1.00	(i)		$	1.00	(i)		$	1.00	(i)		$	0.40			$	0.40			$	0.40
		$	1.50	(ii)		$	1.50	(ii)		$	1.50	(ii)
Volatility			27.82	%			27.94	%			34.20	%			41.51	%			42.00	%			43.50	%
Dividend Yield			0.00	%			0.00	%			0.00	%			0.00	%			0.00	%			0.00	%
Credit Spread			2.71	%			2.96	%			6.88	%			7.52	%			6.93	%			6.76	%
Liquidity Risk Premium			42.09	%			36.26	%			51.08	%			77.62	%			78.14	%			75.73	%
Appraisal Date											August 31, 2020
Risk-free Rate			N/A				N/A				0.13	%			N/A				N/A				N/A
Applicable Closing Stock Price			N/A				N/A			$	1.00				N/A				N/A				N/A
Conversion Price			N/A				N/A			$	0.40				N/A				N/A				N/A
Volatility			N/A				N/A				43.71	%			N/A				N/A				N/A
Dividend Yield			N/A				N/A				0.00	%			N/A				N/A				N/A
Credit Spread			N/A				N/A				3.80	%			N/A				N/A				N/A
Liquidity Risk Premium			N/A				N/A				76.69	%			N/A				N/A				N/A
Appraisal Date											February 28, 2021				February 28, 2021				February 28, 2021				February 28, 2021
Risk-free Rate			N/A				N/A				0.07	%			0.11	%			0.11	%			0.12	%
Applicable Closing Stock Price			N/A				N/A			$	2.01			$	2.01			$	2.01			$	2.01
Conversion Price			N/A				N/A			$	0.40			$	0.40			$	0.40			$	0.40
Volatility			N/A				N/A				47.51	%			44.53	%			44.13	%			45.25	%
Dividend Yield			N/A				N/A				0.00	%			0.00	%			0.00	%			0.00	%
Credit Spread			N/A				N/A				6.66	%			6.70	%			6.70	%			6.71	%
Liquidity Risk Premium			N/A				N/A				77.11	%			70.65	%			74.28	%			70.11	%

 

(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

 

 

Segment reporting

 

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

 

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

 

Recent Accounting Pronouncements

 

Recently Adopted Accounting Standards

 

In 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.

 

Recently issued accounting pronouncements 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 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.

 

 

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.

 

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

 

The aggregate purchase price for the Acquisition was $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	)
		$	1,429,279

 

 

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.

 

4. PLANT AND EQUIPMENT, NET

 

Plant and equipment as of February 28, 2021 and August 31, 2020 are summarized below:

 

		As of February 28, 2021				As of August 31, 2020
Furniture and fixtures		$	29,313			$	20,159
Office equipment			47,004				65,809
Leasehold improvement			91,378				18,832
Total			167,695				104,800
Less: Accumulated depreciation			(93,404	)			(71,133	)
Plant and Equipment, net		$	74,291			$	33,667

 

Depreciation expenses, classified as operating expenses, were $19,535 and $4,658 for the six months ended February 28, 2021 and February 29, 2020, respectively; and $9,308 and $2,344 for the three months ended February 28, 2021 and February 29, 2020, respectively.

 

5. INTANGIBLE ASSETS, NET

 

Intangible assets costs as of February 28, 2021 and August 31, 2020 are summarized below:

 

		As of February 28, 2021				As of August 31, 2020
Investment platform		$	30,000			$	30,000
Technical know-hows			818,200				818,200
Trademarks			1,023				-
Total			849,223				848,200
Less: Accumulated amortization			(57,689	)			(6,500	)
Impairment			(23,500	)			(23,500	)
Intangible assets, net		$	768,034			$	818,200

 

 

Amortization expense for intangible assets was $51,178 and $nil for the six months ended February 28, 2021 and February 29, 2020, respectively ; and $25,583 and $nil for the three months ended February 28, 2021 and February 29, 2020, respectively.

 

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. No impairment loss of intangible asset was recognized for the six and three months ended February 28, 2021 and February 29, 2020.

 

As of February 28, 2021, amortization expenses related to intangible assets for future periods are estimated to be as follows:

 

12 months ending February 28,
2021		$	102,378
2022			102,378
2023			102,378
2024			102,378
2025 and thereafter			358,522
Total		$	768,034

 

6. RELATED PARTY TRANSACTIONS

 

		For the six months ended								For the three months ended
		February 29, 2021				February 29, 2020				February 29, 2021				February 29, 2020
Professional fee - Greenpro Financial Consulting Limited (a)		$	-			$	15,253			$	-			$	1,753
Other Income:
Miscellaneous income from Greenpro LF Limited (b)			1,823				-				-				-

 

(a)	The Company incurred professional fees of $nil and $15,253 for services provided by Greenpro Financial Consulting Limited for the six months ended February 28, 2021 and February 29, 2020, respectively; and $nil and $1,753 for the three months ended February 28, 2021 and February 29, 2020, respectively. The fees are due for payment to Greenpro Financial Consulting Limited upon receipt of an invoice.
	The directors of Greenpro Financial Consulting Limited (Mr. Chong Kuang Lee and Mr. Che Chan Loke) are the directors of the investment managers of Greenpro Asia Strategic SPC. As of February 28, 2021, Greenpro Asia Strategic SPC is the holder of approximately 3.85% of the Company’s issued and outstanding common stock.
(b)	Mr. Lin is a director of Greenpro LF Limited.

 

7. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

 

		As of February 28, 2021				As of August 31, 2020
Rental and management fee deposits		$	143,564				137,088
Prepaid share based compensation to directors (Note 13)			800,000				-
Prepaid share based compensation to consultants (Note 13)			1,883,334				375,000
Prepaid share based compensation to employee (Note 13)			177,907				-
Other prepaid expenses			22,934				81,108
Staff advances			3,662				2,970
		$	3,031,401				596,166

 

 

8. ACCRUED EXPENSES AND OTHER PAYABLES

 

		As of February 28, 2021				As of August 31, 2020
Accrued interests (Note 9, 10 and 11)		$	5,882				6,191
Accrued expenses			296,296				240,172
Unearned income			-				2,222
Other payables			71,727				43,661
		$	373,905				292,246

 

The Company signed an agreement with a third party whereby it authorized the third party to use its investment platform and related applications, for a period until December 31, 2020, for an upfront service fee. An additional fee is charged upon the third party’s sale of products on the Company’s mobile application. Unearned income on this contract was $nil and $2,222 as of February 28, 2021 and August 31, 2020, respectively.

 

9. DUE FROM (TO) SHAREHOLDERS, DIRECTORS AND A RELATED COMPANY

 

		As of February 28, 2021				As of August 31, 2020
Loan to Cheng Hung-Pin (a shareholder)		$	35,881			$	34,048
Due from a director:
Cheng Shui-Fung		$	-			$	189,474
Due from a related company:
Greenpro LF Limited		$	-			$	36,666
Due to a director:
Lin Yi-Hsiu		$	1,419,730			$	1,400,459
Loan from Hsu Kuo-Hsun (a shareholder)		$	60,075			$	60,075
Due to shareholders:
Tu Yu-Cheng		$	110,347			$	96,530
Cheng Hung-Pin			800				800
Huang Mei-Ying			180,204				800
Lo Shih-Chu			800				800
Chen Jun-Yuan			800				800
		$	292,951			$	99,730

 

On March 10, 2020, LOC entered into a loan agreement with Cheng Hung-Pin and loaned him NT$1,000,000. The loan is unsecured, bears interest at a rate of 3% per annum and repayable on demand.

 

On July 20, 2020, the Company obtained a loan of RMB420,000 from Hsu Kuo-Hsun which accrues interest at the rate of 8% per annum. The loan is due on July 17, 2021 and Mr. Lin Yi-Hsiu would be liable when the Company fails to repay. Interest of $2,947 and $544 was accrued as of February 28, 2021 and August 31, 2020, respectively.

 

Amounts due from (to) other shareholders, directors and a related company are unsecured, interest-free with no fixed payment term.

 

 

10. BONDS PAYABLE

 

The Company entered into a Bond Purchase Agreement with an individual third party on August 14, 2019, pursuant to which the Company issued and sold to the purchaser a bond at an aggregate purchase price of $600,000. The bond will mature three years from August 14, 2019. Interest on the bond accrues at rate of 10% per annum and is payable on semi-yearly basis. The Company may exercise its right to repay this bond at any time on or before two years from the maturity date by wiring 100% of all outstanding principal and interest to the purchaser. Interest of $nil and $2,935 was accrued as of February 28, 2021 and August 31, 2020, respectively.

 

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 $1,030,000. A summary of the major terms of the Agreements are presented as follows:

 

		Principal amount				Issue date		Maturity date		Interest rate
Teh-Ling Chen		$	110,000			February 24, 2020		February 24, 2022			6	%
Li-Ching Yang			20,000			February 27, 2020		February 27, 2022			6	%
Jui-Chin Chen			100,000			March 18, 2020		March 18, 2022			6	%
Teh-Ling Chen			100,000			November 2, 2020		November 2, 2022			6	%
Chin-Ping Wang			200,000			November 25, 2020		November 25, 2022			6	%
Chin-Nan Wang			200,000			November 25, 2020		November 25, 2022			6	%
Chin-Chiang Wang			200,000			November 25, 2020		November 25, 2022			6	%
Teh-Ling Chen			100,000			January 15, 2021		January 15, 2023			6	%
		$	1,030,000

 

On February 24, 2020, the Company issued a convertible promissory note in the principal amount of $110,000, which accrues interest at the rate of 6% per annum, to a shareholder – Teh-Ling Chen. The note is due on February 24, 2022 and unsecured.

 

On February 27, 2020, the Company issued a convertible promissory note in the principal amount of $20,000, which accrues interest at the rate of 6% per annum, to a shareholder – Li-Ching Yang. The note is due on February 27, 2022 and unsecured.

 

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 $0.4 per share. 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.

 

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 $900,000 as of February 28, 2021 is 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 Company 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.

 

12. INCOME TAXES

 

For the period ended February 28, 2021 and February 29, 2020, the local (United States) and foreign components of loss before income tax were comprised of the following:

 

		Six months ended								Three months ended
		February 28, 2021				February 29, 2020				February 28, 2021				February 29, 2020
Tax jurisdictions from:			$				$				$				$
- Local			(2,904,736	)			(2,270,224	)			(1,385,216	)			(1,110,746	)
- Foreign, representing
Seychelles			(1,610	)			(1,603	)			(1,610	)			(1,603	)
British Virgin Islands			(84,978	)			-				(1,836	)			-
Taiwan			(950,060	)			-				(456,170	)			-
PRC			(311,398	)			-				(168,436	)			-
Hong Kong			(1,984,854	)			(189,663	)			(562,194	)			(119,511	)
Loss before income tax		$	(6,237,636	)		$	(2,461,490	)		$	(2,575,462	)		$	(1,231,860	)

 

 

The components of the provision (benefit) for income taxes expenses are:

 

 

		Six months ended								Three months ended
		February 28, 2021				February 29, 2020				February 28, 2021				February 29, 2020
Current		$	-			$	30,250			$	-			$	10,250
Deferred			(10,229	)			-				(5,115	)			-
Total income tax (benefit) expense		$	(10,229	)		$	30,250			$	(5,115	)		$	10,250

 

The provision for income taxes consisted of the following:

 

		Six months ended								Three months ended
		February 28, 2021				February 29, 2020				February 28, 2021				February 29, 2020
Loss before income taxes		$	(6,237,636	)		$	(2,461,490	)		$	(2,575,462	)		$	(1,231,860	)
Statutory income tax rate			21	%			21	%			21	%			21	%
Income tax credit computed at statutory income rate			(1,309,904	)			(516,913	)			(540,847	)			(258,691	)
Reconciling items:
Non-deductible expenses			113,046				978				90,021				978
Share-based payments			805,264				446,250				351,819				223,125
Tax effect of tax exempt entity			18,184				337				724				337
Rate differential in different tax jurisdictions			86,363				8,535				23,123				5,378
Valuation allowance on deferred tax assets			276,818				91,063				70,045				39,123
Income tax (benefit) expense		$	(10,229	)		$	30,250			$	(5,115	)		$	10,250

 

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 February 28, 2021, the operations in the United States of America incurred $1,871,274 of cumulative net operating losses (NOL’s) which can be carried forward to offset future taxable income. The NOL carryforwards begin to expire in 2037, if unutilized. As of February 28, 2021 and August 31, 2020, the Company has provided for a full valuation allowance of $392,968 and $323,322, respectively, against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

 

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 20%. However, for profit-seeking entities with less than NT$ 500,000 (approximately $17,577) in taxable income, the CIT rate is 18% in 2018, 19% in 2019, and 20% in 2020 if taxable income exceeds NT$120,000 (approximately $4,218). As of February 28, 2021, LOC had net operating loss carry-forwards in Taiwan of $2,385,603, which will expire in various years through 2025. The Company has provided for a full valuation allowance of $477,120 against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

 

 

PRC

 

BJDC is subject to corporate income tax (“CIT”) at 25% in accordance with the relevant tax laws and regulations of the PRC. As of February 28, 2021, BJDC had net operating loss carry-forwards in the PRC of $1,548,453, which will expire in various years through 2027. The Company has provided for a full valuation allowance of $387,113 against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

 

Hong Kong

 

JFB is subject to Hong Kong Profits Tax, which is charged at the statutory income rate of 16.5% on its assessable income. No provision for Hong Kong profits tax has been made in the financial statements as JFB has no assessable profits for the years. As of February 28, 2021 and August 31, 2020, the operations in Hong Kong incurred $1,692,170 and $1,810,691 of cumulative net operating losses (NOL’s) which can be carried forward indefinitely to offset future taxable income. As of February 28, 2021 and August 31, 2020, the Company has provided for a full valuation allowance of approximately $279,208 and $298,764, respectively, against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.

 

		February 28, 2021				August 31, 2020
Deferred tax assets:
Net operating loss carryforwards
– United States of America		$	(392,968	)		$	(323,322	)
– Taiwan			(477,120	)			(328,752	)
– PRC			(387,113	)			(309,264	)
– Hong Kong			(279,208	)			(298,764	)
Less: valuation allowance			1,536,409				1,260,102
		$	-			$	-

 

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 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 cash or 2,500,000 shares of restricted common stock, which vested on September 16, 2019 and September 1, 2020. 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 fair value of the shares of restricted common stock was $2,500,000 and $1,250,000, respectively, which was calculated based on a price per share of $0.40 and $0.50, respectively and amortized over the service term. During the six months ended February 28, 2021 and February 29, 2020, the Company amortized $500,000 and $625,000, respectively and amortized $250,000 and $312,500 for the three months ended February 28, 2021 and February 29, 2020, respectively, as remuneration. Prepaid expenses were $500,000 as of February 28, 2021 (Note 7).

 

On September 1, 2019, the Company issued a director offer letter to Shui Fung Cheng, pursuant to which Mr. Cheng agreed to serve as a director of the Company for a one-year term. For his service as a director, Mr. Cheng will receive an annual compensation, prorated for any partial year, in the form of $30,000 in cash or 1,500,000 shares of restricted common stock. The offer letter provided that compensation, either in cash or shares of restricted common stock, shall be paid or granted immediately on September 1, 2019. The fair value of the shares of restricted common stock was $750,000, which was calculated based on a price per share of $0.50 and amortized over the service term. The offer was renewed on September 1, 2020 and all shares were granted and vested on the same date. The fair value of the shares of restricted common stock was $1,500,000, which was calculated based on a price per share of $0.40 and amortized over the service term. During the six months February 28, 2021 and February 29, 2020, the Company amortized $300,000 and $375,000, respectively and amortized $150,000 and $187,500 for the three months ended February 28, 2021 and February 29, 2020, respectively, as remuneration. Prepaid expenses were $300,000 as of February 28, 2021 (Note 7).

 

 

On September 1, 2019, the Company entered into a consulting agreement with a consultant to provide business development services to the Company for a one-year term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $40,000 in the form of 2,000,000 shares of restricted common stock, which vested on September 15, 2019, prorated for any partial year. The fair value of the shares of restricted common stock was $1,000,000, which was calculated based on a price per share of $0.50 and amortized over the service term. During the six months ended February 28, 2021 and February 29, 2020, the Company amortized $nil and $500,000, respectively and amortized $nil and $250,000 for the three months ended February 28, 2021 and February 29, 2020, respectively, as consulting expenses under this agreement.

 

On September 1, 2019, the Company entered into a consulting agreement with a consultant to provide business advisory services to the Company for a one-year term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $50,000 in the form of 2,500,000 shares of restricted common stock, which vested on September 15, 2019, prorated for any partial year. The fair value of the shares of restricted common stock was $1,250,000, which was calculated based on a price per share of $0.50 and amortized over the service term. During the six months ended February 28, 2021 and February 29, 2020, the Company amortized $nil and $625,000, respectively and amortized $nil and $312,500 for the three months ended February 28, 2021 and February 29, 2020, respectively, as consulting expenses under this agreement.

 

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 5,500,000 shares (the “Surrendered Shares”) of the Company’s common stock, par value $0.0001 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. 5,500,000 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 one-year term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $60,000 and 1,000,000 shares of restricted common stock, which vested not later than June 30, 2020, prorated for any partial year. On June 30, 2020, the Company’s board of directors approved additional 500,000 shares to the consultant in exchange for services rendered. The fair value of the shares of restricted common stock was $750,000, which was calculated based on a price per share of $0.50 and amortized over the service term. During the six and three months ended February 28, 2021, the Company amortized $375,000 and $187,500 respectively as consulting expenses under this agreement. The shares were granted on July 7, 2020.

 

On June 30, 2020, the Company’s board of directors agreed to grant a new employee of JFB, (i) 5,000,000 shares of Restricted Common Stock in connection with such employee’s employment (the “Inducement Shares”) and (ii) 5,000,000 shares of Restricted Common Stock upon the achievement of each of two milestones set forth in such employee’s offer letter relating to the FinMaster mobile application. In addition, on that same day, the Company’s board of directors approved an aggregate of 3,000,000 shares to a service provider in exchange for services rendered. As of August 31, 2020, 5,000,000 and 3,000,000 common shares 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 $3,200,000, which was calculated based on a price per share of $0.40. As of February 28, 2021, 4,555,232 shares were granted to the employee upon achievement of the milestones set forth in the employee’ offer letters. During the six and three months ended February 28, 2021, the Company amortized $1,584,593 and $337,832, respectively, as salaries and professional fees. 5,000,000 shares were issued on January 8 2021. Prepaid expenses were $177,907 as of February 28, 2021 (Note 7).

 

The Company issued 8,415,111 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 Chieh Chen, pursuant to which Ms. Chen agreed to serve as an executive assistant of the Company. For her service as an executive assistant, Ms. Chen will receive a monthly compensation in the form of NT$77,000 ($2,671) for the first three months (probationary period) and thereafter NT$92,500 ($3,209) in cash. In addition, Ms. Chen will be granted 50,000 shares of restricted common stock upon completion of the first year of service and 50,000 shares of restricted common stock if she meets the criteria established by the Company. The fair value of the shares of restricted common stock was $50,000, which was calculated based on a price per share of $1.00 and amortized over the service term. During the six and three months ended February 28, 2021, the Company recognized $29,167 and $12,500 respectively as compensation under this arrangement.

 

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 one-year term. Pursuant to the agreement, the Company agreed to pay the provider an annual compensation of $66,000, prorated for any partial year. In addition, for the services of its employees on a one-year term, the provider was granted 1,000,000 shares of restricted common stock, vested on September 15, 2020. The fair value of 1,000,000 shares granted was $400,000, which was calculated based on the stock price of $0.40 per share and will be amortized over the service term. During the six and three months ended February 28, 2021, the Company recognized $183,333 and $100,000 respectively as compensation under these arrangements. Prepaid expenses were $216,667 as of February 28, 2021 (Note 7). The shares were issued on January 6, 2021.

 

On August 3, 2020, the Company issued an offer letter to Annie Chung, pursuant to which Ms. Chung agreed to serve as an executive assistant of the Company. For her service as an executive assistant, Ms. Chung will receive a monthly compensation in the form of NT$77,000 ($2,671) in cash. In addition, Ms. Chung will be granted 50,000 shares of restricted common stock upon completion of the first year of service and 50,000 shares of restricted common stock if she meets the criteria established by the Company. The fair value of the shares of restricted common stock was $50,000, which was calculated based on a price per share of $1.00 and amortized over the service term. During the six and three months ended February 28, 2021, the Company recognized $29,167 and $12,500 respectively as compensation under this arrangement.

 

On November 1, 2020, the Company entered into consulting agreements with two consultants to assist in monitoring and improving FinMaster APP for a one-year term. Pursuant to the agreement, the Company agreed to pay the consultants in the form of 2,500,000 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 $2,500,000, which was calculated based on a price per share of $1.00 and amortized over the service term. During the six and three months ended February 28, 2021, the Company amortized $833,333 and $625,000 respectively as consulting expenses under these agreements. Prepaid expenses were $1,666,667 as of February 28, 2021 (Note 7).

 

From August to January 2021, the Company entered into securities purchase agreement with several accredited investors whereby the investors purchased a total of 1,420,000 shares of the Company’s common stock at $0.40 per share. The Company received aggregate gross proceeds of $568,000. Pursuant to the terms of the securities purchase agreements, the investors have piggyback registration rights with respect to the shares. The shares were issued in January 2021.

 

On February 8, 2021, the Company and First Leader Capital Ltd. mutually agreed to forfeit and surrender further 5,000,000 shares (the “Surrendered Shares”) of the Company’s common stock, par value $0.0001 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.

 

As of February 28, 2021, unrecognized share-based compensation expense was $4,902,907.

 

As of February 28, 2021, 58,333 shares were granted to employees and vested but not yet issued.

 

 

14. COMMITMENTS AND CONTINGENCIES

 

During the period ended February 28, 2021, the Company entered into agreements with independent third parties to lease office and staff quarter premises in Taiwan, Shenzhen, Beijing and Hong Kong on a monthly basis for the operations of the Company. The rental expense for the six months ended February 28, 2021 and February 29, 2020 were $163,404 and $63,565 respectively and $80,392 and $28,913 for the three months ended February 28, 2021 and February 29, 2020, respectively.

 

The following table lists the future minimal payments to be paid by the Company under a non-cancellable operating lease for office space in Taiwan with an initial term of one-year as of February 28, 2021:

 

Year ending February 28,
2022		$	1,615
2023			-
2024			-
2025			-

 

As of February 28, 2021, the Company had future minimum lease payments for non-cancelable short-term operating leases of $1,615 payable to a shareholder.

 

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 six months ended
		February 28, 2021				February 29, 2020
Operating lease cost – classified as general and administrative expenses		$	150,916			$	-
Weighted Average Remaining Lease Term – Operating leases			1.32 years				N/A
Weighted Average Discounting Rate – Operating leases			5.75	%			N/A

 

The following is a schedule, by years, of maturities of lease liabilities as of February 28, 2021:

 

		Operating leases
2022		$	219,033
2023			83,467
2024			-
2025			-
2026			-
Thereafter			-
Total undiscounted cash flows			302,500
Less: imputed interest			(7,813	)
Present value of lease liabilities		$	294,687

 

 

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 $92,000 and $86,000 as of February 28, 2021 and August 31, 2020, respectively, which have not been reflected in its consolidated financial statements, because it is more likely than not that this will not be paid or incurred.

 

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 $56,000 and $28,000 as of February 28, 2021 and August 31, 2020, respectively, which have not been reflected in its consolidated financial statements, because it is more likely than not that this will not be paid or incurred.

 

15. SUBSEQUENT EVENTS

 

On March 1, 2021, the Company renewed the consulting agreement with a consultant to provide business advisory services to the Company for a one-year term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $60,000 and 1,000,000 shares of restricted common stock, which vested not later than June 30, 2021, prorated for any partial year.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes appearing elsewhere in this Form 10-Q and our audited financial statements and related notes for the year ended August 31, 2020 included in our most recent annual report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors.

 

Company Overview

 

Leader Capital Holdings Corp. is an early stage technology company that conducts its operations through its wholly owned subsidiaries, Leader Financial Group Limited, a Seychelles corporation incorporated on March 6, 2017 (“LFGL”), and JFB Internet Service Limited, a Hong Kong corporation incorporated on July 6, 2017 (“JFB”).

 

Through LFGL, we act as the service provider for a mobile application investment platform that is owned by JFB. The platform connects investors with financial service providers in an effort to sharpen operational efficiency and seeks to address customer demands for more innovative services. It is a ready-made application created to meet the needs of financial service providers, especially trust companies and insurance companies. The platform is customizable and each financial institution can adjust the platform to better suit their client’s needs.

 

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 has been developing a new, more comprehensive FinMaster mobile application (“FinMaster App”), to offer to our clients for a fee, which has been made available for download as of December 2020. This FinMaster App offers 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, acquired all of the issued and outstanding capital stock (the “Acquisition”) of Nice Products Inc., a company organized under the laws of the British Virgin Islands and the Company’s software ODM developer of the FinMaster APP (“NPI”), pursuant to the terms and conditions of that certain Stock Purchase Agreement, dated as of August 17, 2020, among the Company, JFB, NPI, the selling shareholders of NPI identified therein (each a “Seller,” and, collectively, the “Sellers”) and the representative of the Sellers identified therein. The aggregate purchase price for the acquisition was $4,850,000, less certain discounts, expenses and reductions for outstanding NPI debt owed to the Company and/or its affiliates. The net purchase price for the acquisition was $3,506,042, payable in 8,415,111 shares of the Company’s common stock to the Sellers in accordance with their respective pro rata percentage.

 

As a result of the acquisition, the Company now owns, indirectly through JFB, 100% of NPI. NPI, through its wholly-owned subsidiaries, LOC Weibo Co., Ltd. and Beijing DataComm Cloud Media Technology Co., Ltd., companies organized under the laws of the Republic of China and the laws of the People’s Republic of China, respectively, engages primarily in the development of ecological-system applications, integration of big data and promotion of OTT applications.

 

 

We have incurred significant operating losses. As of February 28, 2021 and August 31, 2020, our accumulated deficits were $17,534,982 and $11,307,575, respectively. We generated revenue of $55,252 and $3,333 for the six months ended February 28, 2021 and February 29, 2020, respectively. Our net losses were principally attributed to general and administrative expenses.

 

Going Concern

 

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

 

We have suffered recurring losses from operations, and recorded an accumulated deficit of $17,534,982 as of February 28, 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 our obligations and repay our liabilities arising from normal business operations when they become due.

 

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

 

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. Our estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.

 

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

 

Liquidity and Capital Resources

 

The following table sets forth a summary of our cash flows for the periods indicated:

 

		For the six months ended
		February 28, 2021				February 29, 2020
Net cash used in operating activities		$	(1,711,187	)		$	(378,264	)
Net cash used in investing activities			(59,632	)			(813,323	)
Net cash provided by financing activities			1,449,707				975,818
Cash and cash equivalents, beginning of period			432,087				447,562
Effects of exchange rate changes on cash and cash equivalents			53,037				-
Cash and cash equivalents, end of period		$	164,012			$	231,793

 

 

Cash Used in Operating Activities

 

Net cash used in operating activities for the six months ended February 28, 2021 and February 29, 2020 was $1,711,187 and $378,264, respectively. The cash used in operating activities was mainly for payment of general and administrative expenses.

 

Cash Used in Investing Activities

 

Net cash used in investing activities for the six months ended February 28, 2021 and February 29, 2020 was $59,632 and $813,323, respectively. The net cash used in investing activities for the six months ended February 28, 2021 was related to the acquisition of plant and equipment and intangible assets. The net cash used in investing activities for the six months ended February 29, 2020 was related to the issuance of notes receivable.

 

Cash Provided by Financing Activities

 

Net cash provided by financing activities for the six months ended February 28, 2021 and February 29, 2020 was $1,449,707 and $975,818, respectively. The cash provided by financing activities were related to the issuance of shares and convertible notes, and advances from a shareholder and a director.

 

Results of Operations

 

Comparison for the six months ended February 28, 2021 and February 29, 2020

 

		For the six months ended
		February 28, 2021				February 29, 2020
Revenue		$	55,252			$	3,333
Research and development expenses			(304,565	)			-
Sales and marketing expenses			(170,730	)			-
General and administrative expenses			(5,477,927	)			(2,484,998	)
Loss from operations			(5,897,970	)			(2,481,665	)
Interest expenses			(32,403	)			(30,107	)
Loss on change in fair value of convertible notes			(330,288	)			-
Other income			23,025				50,282
Loss before income tax			(6,237,636	)			(2,461,490	)
Income tax benefit (expense)			10,229				(30,250	)
Net loss		$	(6,227,407	)		$	(2,491,740	)

 

Revenue

 

We signed an agreement with a third party whereby we authorized the third party to use our investment platform and related applications, from January 1, 2018 to December 31, 2020, for an upfront service fee. An additional fee is charged upon the third party’s sale of products on our mobile application. From September 2020, we generated additional revenue from a new, more comprehensive mobile application, which we refer to as the FinMaster mobile application (the “FinMaster App” and together with the JFB platform, the “Apps”), with similar functions as the JFB platform. We also provided software maintenance services.

 

We generated revenue of $55,252 and $3,333 for the six months ended February 28, 2021 and February 29, 2020, respectively.

 

Research and Development Expenses

 

Research and development expenses for the six months ended February 28, 2021 amounted to $304,565 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 six months ended February 29, 2020.

 

 

Sales and Marketing Expenses

 

Sales and marketing expenses were $170,730 and $nil for the six months ended February 28, 2021 and February 29, 2020, respectively. It consists of the advertising costs amounted to $143,828 and the redeemable point liability charges of $26,902 after our acquisition of NPI in August 2020.

 

General and Administrative Expenses

 

General and administrative expenses were $5,477,927 and $2,484,998 for the six months ended February 28, 2021 and February 29, 2020, respectively. We recognized share-based compensation to directors, employees and consultants of $3,459,593 and $2,125,000 for the six months ended February 28, 2021 and February 29, 2020, respectively. Besides, we incurred more payroll costs and other administrative expenses after our acquisition of NPI in August 2020. We also incurred a fair value loss of $330,288 and $nil on our convertible promissory notes. We elected to measure the convertible promissory notes in their entirety at fair value with changes in fair value recognized as non-operating income or loss at each balance sheet date.

 

Other Income

 

Other income for the six months ended February 28, 2021 amounted to $23,025 as compared to $50,282 in the same period of prior year.

 

Net Loss

 

Our net loss was $6,227,407 and $2,491,740 for the six months ended February 28, 2021 and February 29, 2020, respectively. The net loss was mainly derived from our general and administrative expenses.

 

Comparison for the three months ended February 28, 2021 and February 29, 2020

 

		For the three months ended
		February 28, 2021				February 29, 2020
Revenue		$	32,389			$	1,666
Research and development expenses			(157,594	)			-
Sales and marketing expenses			(61,028	)			-
General and administrative expenses			(2,524,760	)			(1,246,851	)
Loss from operations			(2,710,993	)			(1,245,185	)
Interest expenses			(16,957	)			(15,148	)
Gain on change in fair value of convertible notes			150,755				-
Other income			1,733				28,473
Loss before income tax			(2,575,462	)			(1,231,860	)
Income tax benefit (expense)			5,115				(10,250	)
Net loss		$	(2,570,347	)		$	(1,242,110	)

 

Revenue

 

We signed an agreement with a third party whereby we authorized the third party to use our investment platform and related applications, from January 1, 2018 to December 31, 2020, for an upfront service fee. An additional fee is charged upon the third party’s sale of products on our mobile application. From September 2020, we generated additional revenue from a new, more comprehensive mobile application, which we refer to as the FinMaster mobile application (the “FinMaster App” and together with the JFB platform, the “Apps”), with similar functions as the JFB platform. We also provided software maintenance services.

 

We generated revenue of $32,389 and $1,666 for the three months ended February 28, 2021 and February 29, 2020, respectively.

 

 

Research and Development Expenses

 

Research and development expenses for the three months ended February 28, 2021 amounted to $157,594 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 three months ended February 29, 2020

 

Sales and Marketing Expenses

 

Sales and marketing expenses were $61,028 and $nil for the three months ended February 28, 2021 and February 29, 2020, respectively. It consists of the advertising costs amounted to $46,467 and the redeemable point liability charges of $14,561 after our acquisition of NPI in August 2020.

 

General and Administrative Expenses

 

General and administrative expenses were $2,524,760 and $1,246,851 for the three months ended February 28, 2021 and February 29, 2020, respectively. We recognized share-based compensation to directors, employees and consultants of $1,300,332 and $1,062,500 for the three months ended February 28, 2021 and February 29, 2020, respectively. Besides, we incurred more payroll costs and other administrative expenses in 2020 after our acquisition of NPI in August 2020. We also incurred a fair value gain of $150,755 and $nil on our convertible promissory notes. We elected to measure the convertible promissory notes in their entirety at fair value with changes in fair value recognized as non-operating income or loss at each balance sheet date.

 

Other Income

 

Other income for the three months ended February 28, 2021 amounted to $1,733 as compared to $28,473 in the same quarter of prior year.

 

Net Loss

 

Our net loss was $2,570,347 and $1,242,110 for the three months ended February 28, 2021 and February 29, 2020, respectively. The net loss was mainly derived from our general and administrative expenses.

 

Off-Balance Sheet Arrangements

 

As of February 28, 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.

 

Contractual Obligations

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our principal executive officer and principal financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of February 28, 2021. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

 

Management conducted its evaluation of disclosure controls and procedures under the supervision of our principal executive officer and principal financial and accounting officer. Based upon, and as of the date of this evaluation, our principal executive officer and principal financial and accounting officer have concluded that our disclosure controls and procedures were not effective as of February 28, 2021 due to the following material weaknesses in our internal control over financial reporting.

 

1.	We do not have an audit committee – While we are not obligated to have an audit committee, it is management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial reporting. Currently, our Chief Executive Officer and directors act in the capacity of the audit committee, and do not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.
2.	We do not have adequate written policies and procedures – Due to lack of adequate written policies and procedures for accounting and financial reporting, we did not establish a formal process to close our books monthly and account for all transactions in a timely manner.
3.	We did not implement appropriate information technology controls – As at August 31, 2020, we retained copies of all financial data and material agreements; however, there is no formal procedure or evidence of normal backup of our data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors.
4.	We do not have sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements.

 

Our management does not believe that these material weaknesses had a material effect on our financial condition or results of operations or caused our condensed consolidated financial statements as of and for the period ended February 28, 2021 to contain a material misstatement.

 

 

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.

 

We anticipate that these initiatives will be at least partially, if not fully, implemented by the end of fiscal year 2021.

 

Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the quarter ending February 28, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

There are no material pending legal proceedings as defined by Item 103 of Regulation S-K, to which we are a party or of which any of our property is the subject, other than ordinary routine litigation incidental to the Company’s business.

 

There are no proceedings in which any of the directors, officers or affiliates of the Company, or any registered or beneficial holder of more than 5% of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company.

 

Item 1A. Risk Factors.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

Other than set forth below, there were no sales of unregistered securities during the quarter ended February 28, 2021 that were not previously reported on a Current Report on Form 8-K.

 

From September 2020 to January 2021, the Company entered into securities purchase agreement with several accredited investors whereby the investors purchased a total of 1,420,000 shares of the Company’s common stock at $0.40 per share. The Company received aggregate gross proceeds of $568,000 Pursuant to the terms of the securities purchase agreements, the investors have piggyback registration rights with respect to the shares. The shares were issued in January 2021.

 

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits.

 

Exhibit No.		Description
3.1		Articles of Incorporation (incorporated by Reference to Exhibit 3.1 to the registration statement on Form S-1 of the Company, filed with the U.S. Securities and Exchange Commission on November 14, 2017).
3.2		Bylaws (incorporated by reference to Exhibit 3.2 to the registration statement on Form S-1 of the Company, filed with the U.S. Securities and Exchange Commission on November 14, 2017).
10.1*		Consulting Agreement, dated March 1, 2021, by and between the Company and Raymond Kwan.
31.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of Sarbanes-Oxley Act of 2002.
32.1**		Certification of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document.
101.SCH*		XBRL Taxonomy Extension Schema Document.
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document.

 

* Filed herewith.

** Furnished herewith.

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	LEADER CAPITAL HOLDINGS CORP
	(Name of Registrant)
Date: April 19, 2021
	By:	/s/ Yi-Hsiu Lin
	Title:	Chief Executive Officer, President, Treasurer and Director (Principal Executive Officer and Principal Financial Officer)