NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the YEARS ended August 31, 2020 and 2019
(In
U.S. dollars)
1.
ORGANIZATION AND BUSINESS BACKGROUND
Leader
Capital Holdings Corp. (“LCHD” or the “Company”) was incorporated on March 22, 2017 under the laws
of the State of Nevada.
The
Company mainly engages in the provision of investment platform services with the use of a mobile application through the following
subsidiaries:
Company
name
|
|
Place/date
of incorporation
|
|
Principal
activities
|
|
|
|
|
|
1.
Leader Financial Group Limited (“LFG”)
|
|
Seychelles
/ March 6, 2017
|
|
Investment
Holding
|
|
|
|
|
|
2.
JFB Internet Service Limited (“JFB”)
|
|
Hong
Kong / July 6, 2017
|
|
Provide
an Investment platform
|
On
August 17, 2020, LCHD, through JFB, acquired all of the issued and outstanding capital stock (the “Acquisition”) of
Nice Products Inc. (“NPI”), pursuant to the terms and conditions of that certain Stock Purchase Agreement, dated as
of the Closing Date, among the Company, JFB, NPI, the selling shareholders of NPI identified therein (each a “Seller,”
and, collectively, the “Sellers”) and the representative of the Sellers identified therein. As a result of the Acquisition,
the Company now owns indirectly 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 a wholly owned subsidiary of the Company.
NPI
was incorporated in the British Virgin Islands on December 17, 2018.
NPI,
through its subsidiaries, mainly engages in the development of ecological-systems applications, integration of big data and promotion
of OTT applications.
Company
name
|
|
Place/date
of incorporation
|
|
Principal
activities
|
|
|
|
|
|
1.
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
The
consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States
of America (“US GAAP”) and include the financial statements of LCHD and its wholly owned subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation. The Company has adopted August 31 as its fiscal year end.
Going
concern
The
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course of business.
The
Company has suffered recurring losses from operations, and records an accumulated deficit and a working capital deficit of $11,307,575
and $788,089, respectively as of August 31, 2020. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s profit
generating operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities
arising from normal business operations when they become due.
The
Company expects to finance its operations primarily through cash flows from operations, loans from existing directors and shareholders
and placements of capital stock for additional funding. In the event that the Company requires additional funding to finance the
growth of the Company’s current and expected future operations as well as to achieve our strategic objectives, a shareholder
has indicated the intent and ability to provide additional financing. No assurance can be given that any future financing, if
needed, will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company
is able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing,
or cause substantial dilution for its stock holders, in the case of equity financing.
In
March 2020 the World Health Organization declared coronavirus COVID-19 a global pandemic. The COVID-19 pandemic has negatively
impacted the global economy, workforces, customers, and created significant volatility and disruption of financial markets. It
has also disrupted the normal operations of many businesses, including the Company’s businesses. This outbreak could decrease
spending, adversely affect demand for the Company’s services and harm its business and results of operations. It is not
possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on its business
or results of operations at this time.
These
consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts
and classification of liabilities that might be necessary should the Company be unable to continue as going concern.
Use
of estimates
The
preparation of these consolidated financial statements in conformity with U.S. GAAP requires management of the Company to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures.
On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
The
COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause
further business slowdowns or shutdowns, depress demand for the Company’s business, and adversely impact its results of
operations. The Company expects uncertainties around its key accounting estimates to continue to evolve depending on the duration
and degree of impact associated with the COVID-19 pandemic. Its estimates may change as new events occur and additional information
emerges, and such changes are recognized or disclosed in its consolidated financial statements.
Identified
below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the
Company believes are the most critical to fully understanding and evaluating its consolidated financial statements.
Business
combination
The
Company accounts for its business combinations using the acquisition method of accounting in accordance with Accounting Standards
Codification (“ASC”) 805 “Business Combinations.” The cost of an acquisition is measured as the aggregate
of the acquisition date fair values of the assets transferred and liabilities incurred by the Company to the sellers and equity
instruments issued. Transaction costs directly attributable to the acquisition are expensed as incurred. Identifiable assets and
liabilities acquired or assumed are measured separately at their fair values as of the acquisition date, irrespective of the extent
of any non-controlling interests. The excess of (i) the total costs of acquisition, fair value of the non-controlling interests
and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable
net assets of the acquiree is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of
the subsidiary acquired, the difference is recognized directly in the consolidated statements of comprehensive income. During
the measurement period, which can be up to one year from the acquisition date, the Company may record adjustments to the assets
acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final
determination of the values of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded
to the consolidated statements of comprehensive income.
When
there is a change in ownership interests that result in a loss of control of a subsidiary, the Company deconsolidates the subsidiary
from the date control is lost. Any retained non-controlling investment in the former subsidiary is measured at fair value and
is included in the calculation of the gain or loss upon deconsolidation of the subsidiary.
Goodwill
and impairment of goodwill
Goodwill
represents the excess of the purchase price and related costs over the fair value of the net identified tangible and intangible
assets and liabilities assumed and is not amortized. The total amount of goodwill is deductible for tax purposes.
In
accordance with ASC Topic 350, “Intangibles-Goodwill and Other,” goodwill is not amortized but is tested for impairment,
annually or more frequently when circumstances indicate a possible impairment may exist. Impairment testing is performed at a
reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds
its fair value.
The
Company estimates fair value of the applicable reporting unit or units using a discounted cash flow methodology. This methodology
represents a level 3 fair value measurement as defined under ASC 820, Fair Value Measurements and Disclosures, since
the inputs are not readily observable in the marketplace. The goodwill impairment testing process involves the use of significant
assumptions, estimates and judgments, including projected sales, gross margins, selling, general and administrative expenses,
and capital expenditures, and the selection of an appropriate discount rate, all of which are subject to inherent uncertainties
and subjectivity. When the Company performs goodwill impairment testing, its assumptions are based on annual business plans and
other forecasted results, which it believes represent those of a market participant. The Company selects a discount rate, which
is used to reflect market-based estimates of the risks associated with the projected cash flows based on the best information
available as of the date of the impairment assessment. Based on the annual impairment analysis, there is 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
a total consideration of TWD20,000,000 ($651,466), payable in the form of common shares of the Company. As of August 31, 2019,
the first and second stages of development for the basic functions of the mobile application have been completed, and the Company
has issued a total of 908,678 of restricted common shares in aggregate at $0.50 per share for the work completed up to August
31, 2019. The Company has expensed $454,339 development costs for the first and second development stage in general and administrative
expenses for the year ended August 31, 2019. In August 2020, the development of the mobile application has been completed, and
the Company expensed $0.2 million development costs in general and administrative expenses for the year ended August 31, 2020.
Further $600,000 was incurred for additional functions developed and $200,000 was incurred for the acquisition of the ownership
of the intellectual property.
Revenue
recognition
The
Company adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which establishes
principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the
entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue
to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled
to receive in exchange for those goods or services recognized as performance obligations are satisfied.
The
Company recognizes revenues following the five-step model prescribed under ASU No. 2014-09:
|
Step
1: Identify the contract
|
|
Step
2: Identify the performance obligations
|
|
Step
3: Determine the transaction price
|
|
Step
4: Allocate the transaction price
|
|
Step
5: Recognize revenue
|
Revenues
are recognized when control of the promised goods or services is transferred to the Company’s customers, which may occur
at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration
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 authorizes the third party to use the Company’s investment
platform and related applications for a period until December 31, 2020. Income from provision of investment platform services
with the use of the Company’s mobile applications is recognized when the service is performed.
Provision
of software development service and maintenance service
The
Company entered into several agreements with third party customers to assist the customers in the development of their mobile
communications software and mobile e-commerce software. Income from provision of software development service and maintenance
service are recognized when the service is performed.
Revenue
by major product line
|
|
Year
ended August 31,
|
|
|
|
2020
|
|
|
2019
|
|
Provision of investment
platform services
|
|
$
|
6,667
|
|
|
$
|
11,111
|
|
Provision of
software development service and maintenance service
|
|
|
-
|
|
|
|
7,000
|
|
|
|
$
|
6,667
|
|
|
$
|
18,111
|
|
Revenue
by recognition over time vs point in time
|
|
Year
ended August 31,
|
|
|
|
2020
|
|
|
2019
|
|
Revenue by recognition over
time
|
|
$
|
6,667
|
|
|
$
|
11,111
|
|
Revenue by recognition
at a point in time
|
|
|
-
|
|
|
|
7,000
|
|
|
|
$
|
6,667
|
|
|
$
|
18,111
|
|
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.
Other
Income-Related Party
Revenue
from subletting of leasehold land and buildings are recognized on a straight-line basis over the lease term when collectability
is reasonably assured and the tenant has taken possession or controls the physical use of the leased assets. The Company leased
its commercial office in Taipei from April 1, 2018 to February 28, 2019 under non-cancelable operating leases with terms of 31
months to a related party which is Greenpro LF Limited, a Seychelles company, owned by Mr. Lin Yi-Hsiu, the director of the Company
and Mr. Lee Chong Kuang.
From
April 2019, the Company entered into multiple loan agreements with LOC and BJDC. The loans are secured by personal guarantees
of certain of its ultimate shareholders, bear interest at 8% per annum, and are due on various dates through August 2021. Interest
of $137,626 and $9,400 was charged as expenses from these two companies for the years ended August 31, 2020 and 2019, respectively
(note 8).
Practical
expedients and exemption
The
Company had not occurred any costs to obtain contracts, and do not disclose the value of unsatisfied performance obligations for
contracts with an original expected length of one year or less.
Sales
and marketing expenses
Sales
and marketing expenses consist primarily of marketing and promotional expenses, salaries and other compensation-related expenses
to sales and marketing personnel. Advertising expenses consist primarily of costs for the promotion of corporate image and product
marketing. The
Company expenses all advertising costs as incurred and classifies these costs under sales and marketing expenses. For the years
ended August 31, 2020 and 2019, no advertising costs were recognized.
From
September, 2019, customers or users of the Company’s mobile application can obtain points through ways such as frequent
sign-ins to the Company’s mobile application, sharing articles from the application to users’ own social media. The
Company believes these points are to encourage user engagement and generate market awareness. As a result, the Company accounts
for such points as selling and marketing expenses with a corresponding liability recorded under other current liabilities of its
consolidated balance sheets upon the points offering. The Company estimates liabilities under the customer loyalty program based
on cost of the merchandise that can be redeemed, and its estimate of probability of redemption. At the time of redemption,
the Company records a reduction of inventory and other current liabilities.
Since
historical information is limited for the Company to determine any potential points forfeiture and most merchandise can be redeemed
without requiring a significant amount of points compared with the amount of points provided to users, the Company has used an
estimated forfeiture rate of zero.
For
the year ended August 31, 2020, the total points recorded as selling and marketing expenses were $nil.
As
of August 31, 2020, liabilities recorded related to unredeemed points were $40,003.
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.
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.
Accounts
receivable
Accounts
receivable are stated at the original amount less an allowance for doubtful receivables, if any, based on a review of all outstanding
amounts at period end. An allowance is also made when there is objective evidence that the Company will not be able to collect
all amounts due according to the original terms of the receivables. The Company analyzes the aging of the customer accounts, coverage
of credit insurance, customer concentrations, customer credit-worthiness, historical and current economic trends and changes in
its customer payment patterns when evaluating the adequacy of the allowance for doubtful accounts.
Plant
and equipment
Plant
and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated
on the straight-line basis over the following expected useful lives from the date on which they become fully operational:
|
|
Expected
useful life
|
|
Furniture and fixtures
|
|
|
3
|
|
Office equipment
|
|
|
3
|
|
Leasehold improvements
|
|
|
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
|
|
Impairment
of long-lived assets (including amortizable intangible assets)
The
Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that
the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison
of the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by the asset. If the assets
are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. No impairment has been recorded by the Company for the years ended August 31, 2020 and 2019.
Income
taxes
Income
taxes are determined using an asset and liability method in accordance with the provisions of ASC Topic 740, “Income
Taxes” (“ASC Topic 740”). Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities
and their respective tax basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply
to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Any effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
ASC
740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements
uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized
in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities.
Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant
facts.
The
Company recorded a liability for an uncertain income tax position, tax penalties and any imputed interest thereon of $0 at August
31, 2020 and 2019, included in accrued payables and accrued liabilities due to the potential of incurring a tax penalty for late
filing of its tax returns with the Internal Revenue Service and, if recognized, such penalty will affect the Company’s effective
tax rate.
The
Company conducts businesses in the PRC, Taiwan and Hong Kong. The Company is subject to tax in these jurisdictions. As a result
of its business activities, the Company will file tax returns that are subject to examination by the respective tax authorities.
Net
loss per share
The
Company calculates net income/(loss) per share in accordance with ASC Topic 260, “Earnings per Share.” Basic
income/(loss) per share is computed by dividing the net income/(loss) by the weighted-average number of common shares 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 common shares that would have been outstanding if the potential common stock equivalents
had been issued and if the additional common shares were dilutive. The following table presents a reconciliation of basic and
diluted net loss per share:
|
|
Year
ended August 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,842,829
|
)
|
|
$
|
(902,094
|
)
|
Weighted average number of common shares
outstanding - Basic and diluted (Note)
|
|
|
115,207,489
|
|
|
|
104,850,604
|
|
Net loss per
share - Basic and diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.01
|
)
|
Note:
Including 5,500,000 shares to be canceled, 593,750 shares as stock compensation and 375,000 shares to be issued to investors
(note 14).
As
of 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. 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 transaction. Monetary assets and liabilities denominated in currencies other than the functional
currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting
exchange differences are recorded in the statements of operations.
The
reporting currency of the Company is United States Dollars (“US$”). The Company’s subsidiary in Seychelles,
the PRC, Taiwan and Hong Kong maintains its books and record in United States Dollars (“US$”), Renminbi (“RMB”),
New Taiwanese Dollars (“NT$”) and Hong Kong Dollars (“HK$”) respectively, which are the primary currencies
of the economic environment in which the entities operate (the functional currencies).
In
general, for consolidation purposes, assets and liabilities of its subsidiary whose functional currency is not the US$ are translated
into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate
on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses
resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other
comprehensive income within the statement of retained earnings.
Translation
of amounts from foreign currencies into US$ has been made at the following exchange rates for the respective periods:
|
|
As
of and for the
year ended
August 31, 2020
|
|
|
As
of and for the
year ended
August 31, 2019
|
|
|
|
|
|
|
|
|
Year-end / average HK$ :
US$ 1 exchange rate
|
|
|
7.80
|
|
|
|
7.80
|
|
Year-end NT$ : US$ 1 exchange rate
|
|
|
29.37
|
|
|
|
31.32
|
|
Year-average NT$ : US$ 1 exchange rate
|
|
|
30.10
|
|
|
|
N/A
|
|
Year-end RMB : US$ 1 exchange rate
|
|
|
6.85
|
|
|
|
7.15
|
|
Year-average RMB : US$ 1 exchange rate
|
|
|
7.03
|
|
|
|
N/A
|
|
Related
parties
Parties,
which can be a corporation or individual, are considered to be related if the Company has the ability, directly or indirectly,
to control the other party or exercise significant influence over the other party in making financial and operating decisions.
Companies are also considered to be related if they are subject to common control or common significant influence.
Convertible
instruments
The
Company accounts for hybrid contracts that feature conversion options in accordance with U.S. GAAP. ASC 815 “Derivatives
and Hedging Activities,” (“ASC 815”) requires companies to bifurcate conversion options from their host instruments
and account for them as free standing derivative financial instruments according to certain criteria. The criteria includes circumstances
in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related
to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative
instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles
with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded
derivative instrument would be considered a derivative instrument.
Conversion
options that contain variable settlement features such as provisions to adjust the conversion price upon subsequent issuances
of equity or equity linked securities at exercise prices more favorable than that featured in the hybrid contract generally result
in their bifurcation from the host instrument.
The
Company accounts for convertible instruments, when the Company has determined that the embedded conversion options should not
be bifurcated from their host instruments, in accordance with ASC 470-20 “Debt with Conversion and Other Options”
(“ASC 470-20”). Under ASC 470-20 the Company records, when necessary, discounts to convertible notes for the intrinsic
value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common
stock at the commitment date of the note transaction and the effective conversion price embedded in the note. The Company accounts
for convertible instruments (when the Company has determined that the embedded conversion options should be bifurcated from their
host instruments) in accordance with ASC 815. Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid
contract are allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting
date based on current fair value, with the changes in fair value reported in results of operations.
Fair
value of financial instruments
The
carrying value of the Company’s financial instruments: cash and cash equivalents, deposits, notes receivable, accounts payable
and accrued liabilities, balances due to a director and bonds payable approximate at their fair values because of the short-term
nature of these financial instruments or the rate of interest of these instruments approximate the market rate of interest.
The
Company also follows the guidance of the ASC Topic 820-10, “Fair Value Measurements and Disclosures” (“ASC 820-10”),
with respect to financial assets and liabilities that are measured at fair value. ASC 820-10 establishes a three-tier fair value
hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level
1: Observable inputs such as quoted prices (unadjusted) for identical assets or liabilities 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
|
|
A
summary of changes in financial liabilities for the year ended August 31, 2020 was as follows:
Balance at September 1, 2019
|
|
$
|
-
|
|
Issuance of convertible
notes
|
|
|
230,000
|
|
Interest expenses on convertible notes
|
|
|
3,997
|
|
Interest waived in conversion of convertible
notes
|
|
|
(3,997
|
)
|
Change in fair value of convertible
notes
|
|
|
199,000
|
|
Conversion of
convertible notes
|
|
|
(325,000
|
)
|
Balance at August 31, 2020
|
|
|
104,000
|
|
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 holder
|
|
Teh-Ling Chen
|
|
|
Li-Ching Yang
|
|
|
Jui-Chin Chen
|
|
Appraisal Date (Inception Date)
|
|
|
February
24, 2020
|
|
|
|
February
27, 2020
|
|
|
|
March
18, 2020
|
|
Risk-free Rate
|
|
|
1.25
|
%
|
|
|
1.06
|
%
|
|
|
0.54
|
%
|
Applicable Closing Stock Price
|
|
$
|
1.25
|
|
|
$
|
1.25
|
|
|
$
|
1.20
|
|
Conversion Price
|
|
$
|
1.00
|
(i)
|
|
$
|
1.00
|
(i)
|
|
$
|
1.00
|
(i)
|
|
|
$
|
2.00
|
(ii)
|
|
$
|
2.00
|
(ii)
|
|
$
|
2.00
|
(ii)
|
Volatility
|
|
|
27.82
|
%
|
|
|
27.94
|
%
|
|
|
34.20
|
%
|
Dividend Yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Credit Spread
|
|
|
2.71
|
%
|
|
|
2.96
|
%
|
|
|
6.88
|
%
|
Liquidity Risk Premium
|
|
|
42.09
|
%
|
|
|
36.26
|
%
|
|
|
51.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appraisal Date
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
August
31, 2020
|
|
Risk-free Rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0.13
|
%
|
Applicable Closing Stock Price
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
1.00
|
|
Conversion Price
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
0.40
|
|
Volatility
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
43.71
|
%
|
Dividend Yield
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
0.00
|
%
|
Credit Spread
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
3.80
|
%
|
Liquidity Risk Premium
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
76.69
|
%
|
(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
On
September 1, 2019, the Company adopted ASU 2016-02, Leases, using the modified retrospective method which allows for the
application of the transition provisions at the beginning of the period of adoption, rather than at the beginning of the earliest
comparative period presented in these consolidated financial statements. As permitted by the guidance, the Company elected to
retain the original lease classification and historical accounting for initial direct costs for leases existing prior to the adoption
date and did not reassess contracts entered into prior to the adoption date for the existence of a lease. The Company recognized
ROU assets and lease liabilities for short-term leases, which are leases in existence as of the adoption date with an original
term of twelve months or less as the Company was reasonably certain to exercise an option to extend the lease.
As
a result of the adoption of the standard, based on the present value of the lease payments for the remaining lease term of the
Company’s existing leases, the Company recognized ROU assets and lease liabilities of $262,766 on its consolidated balance
sheet as of September 1, 2019. The assets and liabilities recognized upon application of the transition provisions were
primarily associated with existing office leases. There were no finance leases as of August 31, 2020.
Accounting
Pronouncements Issued But Not Yet Adopted
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 eliminates, adds, and modifies certain disclosure requirements for fair value measurements
under ASC 820. This ASU is to be applied on a prospective basis for certain modified or new disclosure requirements, and all other
amendments in the standard are to be applied on a retrospective basis. The new standard is effective for interim and annual periods
beginning after December 15, 2019, with early adoption permitted. The new standard is effective for the Company on September 1,
2020 and the new standard did not have a material impact on the 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 acquired all of the issued and outstanding capital stock (the “Acquisition”) of NPI,
pursuant to the terms and conditions of that certain Stock Purchase Agreement, dated as of the Closing Date, among the Company,
NPI, the selling shareholders of NPI identified therein (each a “Seller,” and, collectively, the “Sellers”)
and the representative of the Sellers identified therein.
The
aggregate purchase price for the Acquisition was $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 a wholly owned subsidiary of the Company.
The
Company completed the valuations necessary to assess the fair values of the tangible and intangible assets acquired and liabilities
assumed, resulting from which the amount of goodwill was determined and recognized as of the respective acquisition date. The
following table summarizes the estimated aggregate fair values of the assets acquired and liabilities assumed as of the closing
date, August 31, 2020.
Cash and cash equivalents
|
|
$
|
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 August 31, 2020 and 2019 are summarized below:
|
|
As
of August 31,
|
|
|
|
2020
|
|
|
2019
|
|
Furniture and fixtures
|
|
$
|
20,159
|
|
|
$
|
3,912
|
|
Office equipment
|
|
|
65,809
|
|
|
|
7,678
|
|
Leasehold
improvements
|
|
|
18,832
|
|
|
|
16,178
|
|
Total
|
|
|
104,800
|
|
|
|
27,768
|
|
Less: Accumulated
depreciation
|
|
|
(71,133
|
)
|
|
|
(15,489
|
)
|
Plant and
equipment, net
|
|
$
|
33,667
|
|
|
$
|
12,279
|
|
Depreciation
expense, classified as operating expenses, was $9,349 and $8,667 for the year ended August 31, 2020 and 2019 respectively.
5.
INTANGIBLE ASSETS, NET
Intangible
assets, net, as of August 31, 2020 and 2019 consisted of the following:
|
|
As
of August 31,
|
|
|
|
2020
|
|
|
2019
|
|
Investment platform (a)
|
|
$
|
30,000
|
|
|
$
|
30,000
|
|
Technical know-hows
(Note 3)
|
|
|
818,200
|
|
|
|
-
|
|
Total
|
|
|
848,200
|
|
|
|
30,000
|
|
Less: Accumulated amortization
|
|
|
(6,500
|
)
|
|
|
(6,500
|
)
|
Impairment
|
|
|
(23,500
|
)
|
|
|
(23,500
|
)
|
Intangible
assets, net
|
|
$
|
818,200
|
|
|
$
|
-
|
|
(a)
|
On
August 4, 2017, JFB, a wholly owned subsidiary of the Company, acquired an investment platform, which connects investor with
other financial service providers in an effort to sharpen operational efficiency and respond to customer demands for more
innovative services from a related company which is wholly owned by Mr. Lin at a purchase price of $30,000.
|
According
to provisions of FASB ASC 805-50-30 Transactions Between Commonly Controlled Entities, when accounting for transfers of intangible
assets between entities under common control, the entity that receives the net intangible assets is required to measure the recognized
assets transferred at their carrying amounts in the accounts of the transferring entity at the date of the transfer and the value
recorded is from historical carrying value. Amortization expense for intangible assets was $nil for the years ended August
31, 2020 and 2019.
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 years ended August 31, 2020 and 2019.
As
of August 31, 2020, amortization expenses related to intangible assets for future periods are estimated to be as follows:
12 months ending
August 31,
|
|
|
|
2021
|
|
$
|
102,275
|
|
2022
|
|
|
102,275
|
|
2023
|
|
|
102,275
|
|
2024
|
|
|
102,275
|
|
2025 and thereafter
|
|
|
409,100
|
|
Total
|
|
$
|
818,200
|
|
6.
RELATED PARTY TRANSACTIONS
|
|
Year
ended August 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Professional fee - Greenpro
Financial Consulting Limited (a)
|
|
$
|
21,753
|
|
|
$
|
8,800
|
|
Computer and networking - LOC (note
2)
|
|
|
1,000,000
|
|
|
|
-
|
|
Other income:
|
|
|
|
|
|
|
|
|
Rental income from Greenpro LF Limited
(b)
|
|
|
-
|
|
|
|
25,561
|
|
Note interest income from LOC (note
8)
|
|
|
92,395
|
|
|
|
6,564
|
|
Note interest income from BJDC (note
8)
|
|
|
45,231
|
|
|
|
2,836
|
|
(a)
|
The
directors of Greenpro Financial Consulting Limited (Mr. Lee Chong Kuang and Mr. Loke Che Chan) are also the directors of the
investment managers of Greenpro Asia Strategic SPC, a 4.75% shareholder of the Company. This fee is due for payment to Greenpro
Financial Consulting Limited upon receipt of an invoice.
|
|
|
|
Greenpro
Financial Consulting Limited provides services to the Company and the Company incurred professional fees $21,753 and $8,800
for the year ended August 31, 2020 and 2019, respectively. There is no accrued amount as of August 31, 2020 and 2019.
|
|
|
(b)
|
Directors
of Greenpro LF Limited are Mr. Lin Yi-Hsiu, a director of the Company (“Mr. Lin”), and Mr. Lee Chong Kuang. The
Company sublet its commercial office in Taipei to Greenpro LF Limited under non-cancelable operating lease at a monthly rental
of HK$22,000 ($2,821), adjusted to HK$22,900 ($2,936) from November 1, 2019, with a term of 31 months until October 31, 2019.
Greenpro LF Limited was also obligated to pay the Company HK$230,000 ($29,487) for leasehold improvements. The sub-letting
arrangement was early terminated on February 28, 2019.
|
|
|
|
The
Company received $nil and $25,561 rental income from Greenpro LF Limited for the year ended August 31, 2020 and 2019, respectively.
The rental income is recorded under other income.
|
|
|
(c)
|
During
the year ended August 31, 2019, the Company intended to invest $102,564 (HK$800,000) in the equity interest of Leader Financial
Asset Management Limited. Leader Financial Asset Management Limited is a company incorporated in Hong Kong and was owned by
the Company’s directors Lin Yi-Hsiu and Cheng Shui Fung, respectively. The Company did not proceed with the investment
and $102,564 (HK$800,000) was refunded to the Company during the year ended August 31, 2019.
|
7.
PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
|
|
As
of August 31,
|
|
|
|
2020
|
|
|
2019
|
|
Rental and management fee
deposits
|
|
$
|
137,088
|
|
|
$
|
44,076
|
|
Prepaid expenses
|
|
|
81,108
|
|
|
|
135
|
|
Prepaid consulting fee (Note 14)
|
|
|
375,000
|
|
|
|
-
|
|
Staff advances
|
|
|
2,970
|
|
|
|
-
|
|
Interest receivables
(Note 8)
|
|
|
-
|
|
|
|
11,581
|
|
|
|
$
|
596,166
|
|
|
$
|
55,792
|
|
8.
NOTES RECEIVABLE
On
February 13, 2019, the Company entered into a loan agreement with Kurrency Technology Holding Limited. (“Kurrency”)
and loaned Kurrency $50,000. The loan was unsecured and interest bearing at 8% per annum. Kurrency Technology Holding Limited
will repay the loan principal in five equal instalments commencing December 15, 2019. Interest of $nil and $2,181 was accrued
as of August 31, 2020 and 2019 respectively.
From
April 2019, the Company entered into multiple loan agreements with LOC (Notes 2 and 14) and loaned LOC a total amount of $2,164,082
and $582,521 as of August 31, 2020 and 2019, respectively. The loans are secured by personal guarantees of certain of its ultimate
shareholders, bear interest at 8% per annum, and are due on various dates through August 2021.
From
May 2019, the Company entered into multiple short-term loan agreements with another company in Beijing, China, and loaned this
company a total amount of $841,763 and $192,337 as of August 31, 2020 and 2019, respectively. The loans are secured by personal
guarantees of certain of its ultimate shareholders, bear interest at 8% per annum, and are due on various dates through August
2021.
Interest
of $137,626 and $9,400 was charged as expenses from these two companies for the years ended August 31, 2020 and 2019, respectively.
As
of August 31, 2020, the outstanding balance of notes receivable from LOC and the company in Beijing were offset against the consideration
for the Company’s Acquisition of NPI (note 3).
9.
ACCRUED EXPENSES AND OTHER PAYABLES
|
|
As
of August 31,
|
|
|
|
2020
|
|
|
2019
|
|
Accrued interests (Notes
10, 11 and 12)
|
|
$
|
6,191
|
|
|
$
|
2,794
|
|
Accrued expenses
|
|
|
240,172
|
|
|
|
20,294
|
|
Unearned income
|
|
|
2,222
|
|
|
|
8,889
|
|
Other payable
|
|
|
43,661
|
|
|
|
11,673
|
|
|
|
$
|
292,246
|
|
|
$
|
43,650
|
|
The
Company signed an agreement with a third party whereby the Company authorizes the third party to use the Company’s investment
platform and related applications for a period until December 31, 2020, for an upfront fee. An additional fee is charged upon
the third party’s sale of products on the Company’s mobile application. Unearned income on this contract was $2,222
and $8,889 as of August 31, 2020 and 2019, respectively.
10.
DUE FROM (TO) SHAREHOLDERS, DIRECTORS AND A RELATED COMPANY
|
|
As
of August 31,
|
|
|
As
of August 31,
|
|
|
|
2020
|
|
|
2019
|
|
Loan
to Cheng Hung-Pin (a shareholder)
|
|
$
|
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
|
|
$
|
1,400,459
|
|
|
$
|
262,159
|
|
|
|
|
|
|
|
|
|
|
Loan from Hsu
Kuo-Hsun (a shareholder)
|
|
$
|
60,075
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Due to shareholders:
|
|
|
|
|
|
|
|
|
Tu Yu-Cheng
|
|
$
|
96,530
|
|
|
$
|
-
|
|
Cheng Hung-Pin
|
|
|
800
|
|
|
|
-
|
|
Huang Mei-Ying
|
|
|
800
|
|
|
|
-
|
|
Lo Shih-Chu
|
|
|
800
|
|
|
|
-
|
|
Chen
Jun-Yuan
|
|
|
800
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
99,730
|
|
|
$
|
-
|
|
On
March 10, 2020, LOC entered into a loan agreement with Cheng Hung-Pin and loaned him $33,322 (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 ($60,075) 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 $544
and $0 was accrued as of August 31, 2020 and 2019, respectively.
The amount due from a director was fully
repaid on October 30, 2020.
Amounts
due from (to) shareholders, directors and a related company are unsecured, interest-free with no fixed payment term.
11.
BONDS PAYABLE
The
Company had entered into a Bond Purchase Agreement with an individual third party on August 14, 2019, pursuant to which the Company
issued and sold to the purchaser a bond at an aggregate principal amount and an aggregate purchase price of $600,000. The bond
will mature in three years from August 14, 2019. Interest on the bond will be payable on semi-yearly basis at 10% per annum. 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(s) to the Purchaser. Interest of $2,935 and $2,794 was accrued as of August 31, 2020 and
August 31, 2019, respectively.
12.
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 and March, 2020. Pursuant to the Agreements, the Company issued certain Convertible Promissory Notes (the “Notes”)
to the investors in a total principal amount of $230,000. A summary of the major terms of the Agreements are presented as follows:
Investor
|
|
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
|
%
|
|
|
$
|
230,000
|
|
|
|
|
|
|
|
|
|
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.
For
each of the convertible promissory notes, the Company is entitled to a one-year extension. The outstanding principal amounts of
the notes are convertible at any time at the option of the holders into common stock at a conversion price of either $1 per share
if converted within one year or $1.5 per share if converted after one year. Each of the lenders may convert part of the principal
outstanding in increments of $10,000 or multiples of $10,000 at any time. Accrued interest, if any, will be forfeited on any principal
amount being converted. Interest of $2,712 and $0 was accrued as of August 31, 2020 and 2019, respectively.
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 $100,000 as of August 31, 2020 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 Group
uses a weighted risk-free and risk interest rate (the combination of the risk free rate plus the credit spread for the underlying
Notes) weighted by the probability of conversion as internally solved out by binomial model in discounting its cash flows. The
main inputs to this model include the underlying share price, the expected share volatility, the expected dividend yield, the
risk free and risk interest rate.
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.
13.
INCOME TAXES
For
the years ended August 31, 2020 and 2019, the local (United States) and foreign components of loss before income tax were comprised
of the following:
|
|
Year
ended August 31,
|
|
|
|
2020
|
|
|
2019
|
|
Tax jurisdictions from:
|
|
|
|
|
|
|
|
|
- Local
|
|
$
|
(6,310,786
|
)
|
|
$
|
(82,118
|
)
|
- Foreign, representing
|
|
|
|
|
|
|
|
|
Seychelles
|
|
|
(1,603
|
)
|
|
|
-
|
|
British Virgin
Islands
|
|
|
-
|
|
|
|
-
|
|
Taiwan
|
|
|
-
|
|
|
|
-
|
|
PRC
|
|
|
-
|
|
|
|
-
|
|
Hong
Kong
|
|
|
(3,530,440
|
)
|
|
|
(819,976
|
)
|
Loss before
income tax
|
|
$
|
(9,842,829
|
)
|
|
$
|
(902,094
|
)
|
The
components of the provision (benefit) for income taxes expenses are:
|
|
|
Year
ended August 31,
|
|
|
|
|
2020
|
|
|
|
2019
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total income
tax expense
|
|
$
|
-
|
|
|
$
|
-
|
|
The
provision for income taxes consisted of the following:
|
|
Year
ended August 31,
|
|
|
|
2020
|
|
|
2019
|
|
Loss before income taxes
|
|
$
|
(9,842,829
|
)
|
|
$
|
(902,094
|
)
|
Statutory
income tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Income tax credit computed at statutory
income rate
|
|
|
(2,083,006
|
)
|
|
|
(189,440
|
)
|
Reconciling items:
|
|
|
|
|
|
|
|
|
Non-deductible expenses
|
|
|
1,980
|
|
|
|
-
|
|
Share-based payments
|
|
|
1,767,937
|
|
|
|
-
|
|
Tax effect of tax exempt entity
|
|
|
337
|
|
|
|
-
|
|
Rate differential in different tax
jurisdictions
|
|
|
158,870
|
|
|
|
36,899
|
|
Valuation
allowance on deferred tax assets
|
|
|
153,882
|
|
|
|
152,541
|
|
Income tax
expense
|
|
$
|
-
|
|
|
$
|
-
|
|
United
States of America
The
Company is registered in the State of Nevada and is subject to the tax laws of the United States of America. As of August 31,
2020, the operations in the United States of America incurred $6,837,708 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 August 31, 2020 and 2019, the Company has provided for a full valuation allowance of $1,435,919 and $110,654, respectively,
against the deferred tax assets on the expected future tax benefits from the net operating loss carryforwards as the management
believes it is more likely than not that these assets will not be realized in the future.
Seychelles
Under
the current laws of the Seychelles, LFG is registered as an international business company which governs by the International
Business Companies Act of Seychelles and there is no income tax charged in Seychelles.
British
Virgin Islands
NPI is tax exempted in the British
Virgin Islands where it was incorporated.
Taiwan
LOC
is subject to corporate income tax (“CIT”) in Taiwan. With effect from January 1, 2018, the CIT rate in Taiwan is
20%. However, for profit-seeking entities with less than NT$ 500,000 (approximately $16,000) 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 $3,900). As of August 31, 2020,
LOC had net operating loss carry-forwards in Taiwan of $1,138,789, which will expire in various years through 2025. The Company
has provided for a full valuation allowance of $227,758 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 August 31, 2020, BJDC had net operating loss carry-forwards in the PRC of $991,947, which will expire in various years
through 2027. The Company has provided for a full valuation allowance of $247,987 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 August 31, 2020 and 2019, the operations in Hong Kong incurred $4,350,416 and $819,976
of cumulative net operating losses (NOL’s) which can be carried forward indefinitely to offset future taxable income. As
of August 31, 2020 and 2019, the Company has provided for a full valuation allowance of approximately $717,819 and $135,296,
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.
|
|
As
of August 31,
|
|
|
|
2020
|
|
|
2019
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
|
|
|
|
|
|
|
– United States of
America
|
|
$
|
(1,435,919
|
)
|
|
$
|
(110,654
|
)
|
– Taiwan
|
|
|
(227,758
|
)
|
|
|
-
|
|
– PRC
|
|
|
(247,987
|
)
|
|
|
-
|
|
– Hong Kong
|
|
|
(717,819
|
)
|
|
|
(135,296
|
)
|
Less: valuation
allowance
|
|
|
2,629,483
|
|
|
|
245,950
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
14.
COMMON STOCK
On
September 1, 2018, the Company appointed LOC to develop a mobile application in four stages for total consideration of TWD20,000,000
($651,466), payable in the form of common shares of the Company (Note 2).
On
September 1, 2019, the Company entered into an employment agreement with Yi-Hsiu Lin to serve as the Chief Executive Officer of
the Company for a two-year term. Pursuant to the agreement, Mr. Lin will be compensated at an annual rate of $50,000 per year
(the “Base Compensation”), prorated for any partial year, payable in cash or with 2,500,000 shares of restricted common
stock, which would vest as of September 16, 2019. In addition, Mr. Lin may be entitled to bonus compensation of up
to three times the 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 $1,250,000, which was calculated
based on a price per share of $0.50 and amortized over the service term. During the year ended August 31, 2020, the Company amortized
$1,250,000, as remuneration.
On
September 1, 2019, the Company issued a director offer letter to Shui Fung Cheng, pursuant to which Mr. Cheng agreed to serve
as a director of the Company for a one-year term. For his service as a director, Mr. Cheng will receive an annual compensation,
prorated for any partial year, in the form of $30,000 in cash or 1,500,000 shares of restricted common stock. The offer letter
provided that compensation, either in cash or shares of restricted common stock, shall be paid or granted immediately on September
1, 2019. The fair value of the shares of restricted common stock was $750,000, which was calculated based on a price per share
of $0.50 and amortized over the service term. During the year ended August 31, 2020, the Company amortized $750,000 as remuneration.
On
September 1, 2019, the Company entered into a consulting agreement with a consultant to provide business development services
to the Company for a one-year term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $40,000 in the
form of 2,000,000 shares of restricted common stock, which vested on September 15, 2019, prorated for any partial year. The fair
value of the shares of restricted common stock was $1,000,000, which was calculated based on a price per share of $0.50 and amortized
over the service term. During the year ended August 31, 2020, the Company amortized $1,000,000 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 year ended August 31, 2020, the Company amortized $1,250,000 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 year ended August 31, 2020, the Company amortized $375,000 as consulting expenses
under this agreement. Prepaid expenses were $375,000 as of August 31, 2020 (Note 7). 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. During the year ended August 31, 2020, the Company amortized $1,200,000 and $2,237,500 as
professional fees and salaries respectively. The shares were granted on July 7, 2020.
From
May to August 2020, the Company entered into securities purchase agreement with several accredited investors whereby the investors
purchased a total of 3,925,035 shares of the Company’s common stock at $0.40 per share. The Company received aggregate gross
proceeds of $1,570,014. Pursuant to the terms of the securities purchase agreements, the investors have piggyback registration
rights with respect to the shares. The Company issued 3,550,035 shares in July 2020 and the remaining was expected to be issued
by end of December 2020.
The
Company issued 8,415,111 shares of common stock for the acquisition of NPI in August 2020 (Note 1).
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 $1,000,000, which
was calculated based on the stock price of $1.00 per share on September 15, 2020 and will be amortized over the service term.
During the year ended August 31, 2020, the Company recognized $5,500 as compensation under these arrangements. The shares are
expected to be issued by the end of December 2020.
15.
COMMITMENTS AND CONTINGENCIES
During
the year ended August 31, 2020, the Company entered into agreements with independent third parties to lease office premises in
Taiwan, Shenzhen and Hong Kong on a monthly basis, for the operations of the Company. Rental expense for the year ended August
31, 2020 and 2019 was $140,999 and $152,890, 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 August 31, 2020:
Year ending August 31,
|
|
|
|
2021
|
|
$
|
10,725
|
|
2022
|
|
|
-
|
|
2023
|
|
|
-
|
|
2024
|
|
|
-
|
|
2025
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Present value
of lease liabilities
|
|
$
|
10,725
|
|
As
of August 31, 2020, the Company had future minimum lease payments for non-cancelable short-term operating leases of $10,725
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 year ended August 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Operating
lease cost – classified as general and administrative expenses
|
|
$
|
128,580
|
|
|
$
|
-
|
|
Weighted Average Remaining Lease
Term – Operating leases
|
|
|
1.30
years
|
|
|
|
N/A
|
|
Weighted Average Discounting Rate
– Operating leases
|
|
|
5.53
|
%
|
|
|
N/A
|
%
|
The
following is a schedule, by years, of maturities of lease liabilities as of August 31, 2020:
|
|
Operating
leases
|
|
2021
|
|
$
|
193,302
|
|
2022
|
|
|
54,523
|
|
2023
|
|
|
-
|
|
2024
|
|
|
-
|
|
2025
|
|
|
-
|
|
Thereafter
|
|
|
-
|
|
Total undiscounted cash flows
|
|
|
247,825
|
|
Less: imputed interest
|
|
|
(4,477
|
)
|
Present value of lease liabilities
|
|
$
|
243,348
|
|
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 $86,000
as of August 31, 2020, 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 $28,000 as of August 31, 2020, 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.
16.
SUBSEQUENT EVENTS
On
November 1, 2020, the Company entered into consulting agreements with two consultants to assist in monitoring and improving FinMaster
APP to the Company for a one-year term. Pursuant to the agreement, the Company agreed to offer the consultant 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 and amortized
over the service term.