TOGL Toga Limited (CE)

Item 1A. Risk Factors.

There are numerous factors that affect our business and operating results, many of which are beyond our control. The following is a description of significant factors that might cause our future results to differ materially from those currently expected. The risks described below are not the only risks facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business operations. If any of the following risks actually occur, our business, financial condition, results of operations, cash flows and/or our ability to pay our debts and other liabilities could suffer. As a result, the trading price and liquidity of our securities could decline, perhaps significantly, and you could lose all or part of your investment. The risks discussed below also include forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements. See the section entitled “Cautionary Note Concerning Forward-Looking Statements.”

RISKS RELATED TO OUR BUSINESS AND OUR FINANCIAL CONDITION

We have never been profitable and may never achieve or sustain profitability.

We operate within two primary lines of business – our Yippi App business, which focuses on the development of a social media app, and our Eostre business, which focuses on the sale of products based on traditional, eastern wellness principles under our “Eostre” brand through a direct marketing network. We have a limited operating history. Currently, our primary focus is the development of the Yippi App and the attraction of active users, both of which require continuous and increasing expenses, however, we are also in the business of selling wellness products through a direct marketing platform, which depends largely on our ability to attract and retain a large active base of independent agents as well as customers. Currently, most of our revenue is generated by our Eostre business. Both business lines require significant salary and wages expenses, including commissions and incentives. We have never been profitable and we may never become profitable on a continuous basis in the foreseeable future. Further, we cannot be certain that our existing cash reserves will be sufficient to sustain our operations until we achieve profitability. As of July 31, 2019 and 2018, our cash and cash equivalents held in bank accounts totaled $15 million and $1.1 million respectively.

In the event that we require additional capital, our ability to raise such additional capital may be dependent upon various factors, including our past financial performance. The audited consolidated financial statements for the years ended July 31, 2019 and 2018, were prepared under the assumption that we would continue our operations as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Without additional funds from sales of equity instruments; traditional financing, such as loans; obtaining capital from management and significant stockholders; sales of our wellness products, and sales of advertising, emoji stickers, and special filters, effects and features for use with the Yippi App, we may exhaust our resources and may be unable to commence other portions of our operating plan.

We have incurred losses since our inception, have yet to achieve profitable operations and anticipate that we will continue to incur losses for the foreseeable future.

Our accumulated deficit as of July 31, 2019 is $24.6 million. We plan to continue to increase our expenses associated with the development of our social media business and our direct marketing business. There is no assurance we will be able to derive revenues from the exploitation of either of our business lines to successfully achieve positive cash flow or that either of our business lines will be successful. In addition, we expect to make significant investments in growing our business. These investments, while increasing our expenses, may not result in an increase in revenues or growth in our business. We cannot provide assurances that we will achieve profitable operations in the future. If we achieve profitability, we may be unable to sustain or increase profits on a quarterly or annual basis.

We believe that long-term profitability and growth will depend on our ability to:

Inability to successfully execute on any of the above, among other factors, could have a material adverse effect on our business, financial results, or operations.

We identified a material weakness in our internal control over financial reporting. If we do not adequately address this material weakness or if other material weaknesses or significant deficiencies in our internal control over financial reporting are discovered, our financial statements could contain material misstatements and our business, operations and stock price may be adversely affected.

As disclosed under “Item 9A. Controls and Procedures” of this report, our management has identified a material weakness in our internal control over financial reporting at July 31, 2019. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. Although no material misstatement of our historical financial statements was identified, the existence of this or one or more material weaknesses or significant deficiencies could result in material misstatements in our financial statements and we could be required to restate our financial statements. Further, significant costs and resources may be needed to remediate the identified material weakness or any other material weaknesses or internal control deficiencies. If we are unable to remediate, evaluate, and test our internal controls on a timely basis in the future, management will be unable to conclude that our internal controls are effective and our independent registered public accounting firm will be unable to express an unqualified opinion on the effectiveness of our internal controls. If we cannot produce reliable financial reports, investors may lose confidence in our financial reporting, the price of our common stock could be adversely impacted and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which could negatively impact our business, financial condition and results of operations.

If we are not able to maintain our “Yippi” brand, our “Eostre” brand, or further develop widespread awareness of either brand cost-effectively, our ability to expand our user base or customer base, as applicable, may be impaired, and our business may suffer.

We believe that developing and maintaining awareness of our brands in a cost-effective manner is critical to achieving widespread acceptance of our Yippi App and Eostre products, and attracting new users or customers, as applicable. Many of our new users or customers are referred by existing users or customers and, therefore, we strive to ensure that our users or customers are satisfied with our products and services and otherwise remain favorably inclined toward our Yippi App and Eostre products. Maintaining and enhancing our brands will depend largely on our ability to continue to provide simple, user-friendly, reliable, trustworthy, and innovative products and services, which we may not do successfully. Brand promotion activities may not generate consumer awareness or result in revenue and, even if they do, any revenue may not offset the expenses we incurred in building our brands.

In addition, our brands can be harmed if our users, in the case of the Yippi App, or our customers, in the case of the Eostre products have a negative experience. Our Yippi App may contain undetected errors, “bugs,” flaws, corrupted data, outages, security breaches, negative media, or violations of laws. Our Eostre products may not perform as expected, or harm our customers. Maintaining and enhancing our brands may require us to make substantial investments and these investments may not be successful. We may also fail to adequately support the needs of our users or customer, which could erode confidence in our brands. If we fail to successfully promote and maintain the Yippi brand or Eostre brand, or if we incurred excessive expenses in this effort, our business, financial condition, and results of operations may be adversely affected and we may fail to achieve the widespread brand awareness that is critical for broad user adoption of our Yippi App or expanding sales of our Eostre products.

If we are unable to maintain a good relationship with Apple, Google, Amazon Web Services (“AWS”), Alibaba Cloud (Malaysia) Sdn. Bhd. (“Alibaba”), and any other third-party suppliers, it will negatively affect our operations and our business will suffer.

Apple’s “App Store” and Google’s “Google Play” are our primary distribution, marketing, and promotion platforms for our Yippi App, while we rely heavily on AWS and Alibaba for data storage purposes and also other third-party suppliers for our camera features. For instance, Hangzhou Xiangxin Technology Co. Ltd. one of our suppliers that provides us “Face Unity” special facial effect software, which includes avatars, animations, and beauty camera functions. We rely heavily on their support for these particular camera features. Hence, any deterioration in our relationship with Apple, Google, AWS, Alibaba, or other third-party suppliers would harm our business and adversely affect the value of our stock.

We are subject to Apple’s, Google’s, and AWS’ standard terms and conditions for application developers, which govern the promotion, distribution, and operation of mobile applications on their respective platforms. We are also subject to certain standard terms and conditions with AWS and Alibaba related to data storage purposes.

Our business would be harmed if:

If Apple, Google, AWS or Alibaba lose their market position or otherwise fall out of favor with internet users, we would need to identify alternative channels for marketing, promoting, and distributing the Yippi App, which would consume substantial resources and may not be effective. In addition, Apple, Google, AWS, and Alibaba have broad discretion to change their terms of service and other policies with respect to us, and those changes may be unfavorable to us. Therefore, we believe that maintaining successful partnerships with Apple, Google, AWS, Alibaba, and other third-party suppliers is critical to our success.

We have limited experience in operating a direct sales network.

Prior to June 2020, we licensed the “Eostre” brand to Agel and Toga Japan, which had direct marketing networks in Malaysia and Japan, and sold “Eostre” branded products directly to independent sales agents to sell within the agents’ own networks in Taiwan and Indonesia. Beginning in June 2020, we brought this business in-house and now, through our partially-owned subsidiary, Eostre Bhd., operate direct marketing sales programs in Malaysia and Japan. We have limited experience in operating direct marketing sales programs. Our future growth and profitability will depend on the successful operation of this program and our ability to recruit and maintain sales agents that sell our Eostre products in these markets.

We may not obtain or maintain the necessary licenses and authorizations to operate our direct marketing business.

We are in the process of acquiring Eostre Bhd. for the sole purpose of obtaining the License to operate a business in the “direct sales” space in Malaysia. Subject to the “Direct Sales and Anti-Pyramid Scheme Act 1933,” this License is a pre-requisite to operating a company in the direct sales space in Malaysia. The expiration date of the License is November 21, 2021. We anticipate that we will renew the License at such time; however, we may not be able to obtain a renewal of the License at that time, or may only be able to do so at great cost.

In addition, in the future, we may be required to obtain and maintain licenses, authorizations, or permits in other jurisdictions in which we are currently conducting or desire to conduct our direct marketing business. We may not be able to obtain or maintain the necessary licenses, authorizations, or permits for our direct marketing business, or may only be able to do so at great cost. In addition, we may not be able to comply fully with the wide variety of laws and regulations applicable to the direct marketing industry, or fail to realize all of the applicable laws and regulations. Failure to comply with or to obtain the necessary licenses, permits, or authorizations, could result in restrictions on our ability to operate our direct marketing business, which could have a material adverse effect on our business.

Interruptions with the delivery of our third-party cloud-based systems, such as AWS’ or Alibaba’s, that we use in our operations, may adversely affect our business, operating results, and financial condition.

Our reputation and ability to attract, retain, and serve users depends on the reliable performance of the Yippi App. The Yippi App runs on a complex distributed system, or what is commonly known as cloud computing. We rely on the cloud services operated by Alibaba, an entity that we do not control and which would require significant time to replace. Alibaba may experience service disruptions, outages, and other performance problems, which could adversely affect our business. Further, Alibaba’s systems and operations, which are currently located in Hong Kong, and AWS’ systems and operations, which are currently located in South Korea, are vulnerable to damage or interruption from fires, floods, power losses, telecommunications failures, cyber-attacks, terrorist attacks, acts of war, human errors, break-ins and similar events beyond our control, which could negatively affect the Yippi App and our ability to provide services to our users.

Further, as the number of our users increases, and as our users generate and transmit increasing volumes of content, including photos, videos, and music, we have to rely on Alibaba to provide us with their cloud infrastructure to continue to reliably store and service such content. It is possible that Alibaba will be unable to accommodate these increased demands, which would harm our business and reputation. Further, any disruption or failure in the services we receive from Alibaba could harm our ability to handle existing or increased traffic and could seriously harm our business. We expect this dependence on third parties to continue for the foreseeable future.

If Alibaba or other service providers are unable to sufficiently meet our needs, our business, financial condition, and results of operations may be harmed.

If we fail to retain current users or add new users, or if our users decrease their level of engagement with our Yippi App, our business would be seriously harmed.

The success of our Yippi App heavily depends on the size of our user base and the level of engagement of our users. Thus, our business performance will also become increasingly dependent on our ability to increase levels of user engagement in existing and new markets. As of December 31, 2020, we had 214,462 monthly active users (MAU) and 120,412 daily active users (DAU). Taking into consideration that the majority of our users range between 18 and 34 years old, this particular demographic is faster pace and less likely to be brand loyal. In addition, we are continuously subject to a highly competitive market in order to attract and retain our users’ attention. A number of factors could negatively affect user retention, growth, and engagement, including if:

Any decrease in user retention, growth, or engagement could render our products less attractive to users, advertisers, or partners, thereby reducing our revenues from them, which may have a material and adverse impact on our business, financial condition, and results of operations. In addition, there can be no assurance that we will succeed in developing products and services that eventually become widely accepted, that we will be able to timely release products and services that are commercially viable, or that we will establish ourselves as a successful player in a new business area. Our inability to do so would have an adverse impact on our business, financial condition, and results of operations.

We have a limited operating history in the competitive and rapidly emerging market for our social media products and services, which make it difficult for us to assess our prospects and future financial results, which could increase the risk that we will not be successful.

We launched our Yippi messaging application in July 2017, and our other Yippi related products and services more recently. Our short operating history in the market makes it difficult to effectively assess our prospects and forecast our future financial results. Our growth depends on our Yippi App achieving significant popularity. Our Yippi App, and any mobile application we may develop in the future, requires significant engineering, marketing, and other resources to develop, launch, and sustain via regular upgrades. Our ability to successfully launch new mobile applications, sustain and expand the Yippi App, and expand and retain a user-base, largely will depend on our ability to:

Mobile malware, viruses, hacking attacks, and improper or illegal use of the Yippi App could harm our business and results of operations.

Mobile malware, viruses, and hacking attacks have become more prevalent in our industry, and may occur on our systems in the future. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses could harm our business, financial condition, and operating results. Any failure to detect such attack and maintain performance, reliability, security, and availability of products and technical infrastructure to the satisfaction of our users may also seriously harm our reputation and our ability to retain existing users and attract new users.

Our information technology systems are susceptible to a growing and evolving threat of cybersecurity risk. Any substantial compromise of our data security, whether externally or internally, or misuse of agent, customer, or employee data, could cause considerable damage to our reputation, cause the public disclosure of confidential information, and result in lost sales, significant costs, and litigation, which would negatively affect our financial position and results of operations. Although we maintain policies and processes surrounding the protection of sensitive data, which we believe to be adequate, there can be no assurances that we will not be subject to such claims in the future.

If our security is compromised or if our products and services are subject to attacks that frustrates or thwarts our user’s ability to access the Yippi App, our products and services may be perceived as insecure and users may curtail or stop using our products and services.

Our products and services involve the storage and transmission of large amounts of users’ confidential information, such as a user’s name, address, phone number, date of birth, passport information, credit card information, and bank account information. Security breaches expose us to a risk of unauthorized access to this information and could lead to improper use or disclosure of such information, ensuing potential liability and litigation, any of which could damage our reputation and our brand and diminish our competitive position. We believe that we take reasonable steps to protect the security, integrity and confidentiality of the information we collect, use, store, and disclose, but there is no guarantee that inadvertent (e.g., software bugs or other technical malfunctions, employee error or malfeasance, or other factors) or unauthorized data access or use will not occur despite our efforts. Although we have not experienced any material security breaches to date, we may in the future experience attempts to breach the security of our systems. Techniques used to obtain unauthorized access to personal information, confidential information on the systems, and/or to sabotage systems change frequently and generally are not recognized until launched against a target. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures.

Maintaining the trust of our users is important to sustain our growth, retention, and user’s engagement. If an actual or perceived security breach occurs, the market perception of our security measures could be harmed and we could lose users and/or suffer other negative consequences to our business. Any failure to maintain the security of our infrastructure could result in loss of personal information and/or other confidential information, damage to our reputation and user relationships, early termination of our contracts and other business losses, indemnification of our users, financial penalties, litigation, regulatory investigations, and other significant liabilities. In the event of a major third-party security incident, we may incur losses in excess of their insurance coverage. Further, we do not have insurance currently, and certain incidents that we can experience may not be covered by any insurance that we may carry in the future.

There are low barriers to entry in the mobile application industry, and competition is intense.

The mobile application industry is highly competitive as we face significant domestic and international competitors that are more established, have greater financial resources and a larger user base. In addition to these major players, there are also smaller companies that may enter the sector and compete with the Yippi App.

Furthermore, we have limited experience in developing applications for mobile and other platforms and our ability to succeed on those platforms is uncertain. As we continue to devote resources to our Yippi App, we will face intense competition from both established companies and new-comers. Some of these current, emerging, and potential competitors have significant resources for developing applications, and have a more diversified set of revenue sources than we do and may be less severely affected by changes in consumer preferences, regulations, or other developments that may impact the market for mobile apps. As we introduce new products and our existing products evolve, or as other companies introduce new products and services, we may become subject to additional competition. Increased competition could result in loss of existing users or reduce our ability to acquire new users, both of which could harm our business. If we are unable to compete against our competitors in such intense circumstances, our user engagement may decrease, which could make us less attractive to users, advertisers, and will seriously harm our business.

The global wellness industry is highly competitive and such competition could harm our business.

The global wellness industry is fragmented and highly competitive. We compete for independent sales agents with other direct marketing companies both within and outside the wellness industry. Many of our competitors have greater name recognition and financial resources, which may give them a competitive advantage. Our competitors may also be able to devote greater resources to marketing, promotional, and pricing campaigns that may influence our continuing and potential independent agents and our preferred customers to buy products from our competitors rather than from us. Such competition could adversely affect our business and current market share.

If we are unable to attract and retain independent agents for our direct marketing business, our business may suffer.

Our future success depends upon our ability to attract and retain a large active base of independent agents and customers for our direct marketing business. We rely on our non-employee independent agents to market and sell our products to customers to generate growth and to attract new independent agents who are interested in building a business. Our ability to increase sales depends on our ability to increase the number of customers in each of our markets around the world. Our success will also depend on our ability to retain and motivate our existing independent agents and attract new independent agents. We cannot give any assurances that the number of our independent agents will continue at their current levels or increase in the future. Several factors affect our ability to attract and retain independent agents and preferred customers, including:

The loss of key high-level leaders of our independent agents could negatively impact our agent growth and our revenue.

As of July 31, 2020, we had approximately 112,429 active independent agents. As of July 31, 2019 we had approximately 8,838 active independent agents working with PT Toga.  These high-level independent agents are important in maintaining and growing our revenue. As a result, the loss of a high-level independent agent or a group of leading agents in the independent agent’s networks of downlines, whether by their own choice or through disciplinary actions by us for violations of our policies and procedures, could negatively impact our growth and our revenue with respect to our independent agents.

The loss of key management personnel could adversely affect our business.

We depend on the continued services of our executive officers and senior management team as they work closely with both our employees and independent agents. Such executive officers and senior management team are also responsible for our day-to-day operations. Our success depends in part on our ability to retain our executive officers, to compensate our executive officers at attractive levels, and to continue to attract additional qualified individuals to our management team. We do not believe that any of our senior executive officers are planning to leave or retire in the near term; however, we cannot assure that our senior executive officers or members of our senior management team will remain with us. The loss or limitation of the services of any of our executive officers or members of our senior management team, including our regional and country managers, or the inability to attract additional qualified management personnel, could have a material adverse effect on our business, financial condition, results of operations, or independent agent relations.

To date, we have not obtained directors’ and officers’ liability (“D&O”) insurance. Without adequate D&O insurance, the amounts we would pay to indemnify its officers and directors should they be subject to legal action based on their service to us could have a material adverse effect on our financial condition, results of operations, and liquidity. Furthermore, our lack of adequate D&O insurance may make it difficult for us to retain and attract talented and skilled directors and officers, which could adversely affect our business.

If we are unable to protect our intellectual property rights, our business could suffer.

Our primary intellectual property rights are our trademarks, primarily “Yippi” and “Eostre.” In addition, we have entered into collaboration agreements and confidentiality agreements with certain of our software programmers, employees, suppliers, manufacturers, directors, officers, consultants, and other third-parties to help protect our proprietary rights. However, these only afford limited protection, and unauthorized parties may attempt to copy aspects of our mobile application features and functionality, or to use information that we consider proprietary or confidential. Further, with respect to mobile applications, the features and functionality can be easily republicated; thus, it may be difficult to protect. With respect to our Eostre products, we use white-labeled products that are then branded with our trademarked name “Esotre.” Other companies can, and currently do, use the same white-labeled products and market these products under their own name.

We consult with outside legal counsel to help ensure that we protect our proprietary rights, to the extent possible and feasible. However, our business, profitability, and growth prospects could be adversely affected if we fail to receive adequate protection of our proprietary rights.

We could be required to cease certain activities and/or incur substantial costs as a result of any claim of infringement of another party’s intellectual property rights.

Some of our competitors may own technology patents, copyrights, trademarks, trade secrets, and website content, which they may use to assert claims against us. As we face increasing competition and as litigation becomes a more common way to resolve disputes, we face a higher risk of being the subject of intellectual property infringement claims. We cannot assure you that we will not become subject to claims that we have misappropriated or misused other parties’ intellectual property rights. Any claim or litigation alleging that we have infringed or otherwise violated intellectual property or other rights of third parties, with or without merit, and whether or not settled out of court or determined in our favor, could be time-consuming and costly to address and resolve, and could divert the time and attention of our management and technical personnel.

The results of any intellectual property litigation to which we might become a party may require us to do one or more of the following:

If we are required to make substantial payments or undertake any of the other actions noted above as a result of any intellectual property infringement claims against us, such payments or costs could have a material adverse effect upon our business and financial results.

Our businesses are subject to a variety of laws and regulations in the United States and other foreign laws, many of which are subject to change and uncertain interpretation and could result in claims, changes to our business practices, or otherwise harm our business.

We are subject to a variety of laws and regulations in the United States and other countries that involves matters central to our business, including but not limited to the FCPA, laws regarding consumer protection, intellectual property, export, and national security. Many of these laws and regulations are still evolving and could be interpreted or applied in ways that could limit our business or require us to make certain fundamental and potentially detrimental changes to the products and services we offer. For example, laws relating to the liability of providers of online services for activities of their users and other third-parties are currently being tested by a number of claims, including actions based on invasion of privacy and other torts, unfair competition, copyright, and trademark infringement, and other theories based on the nature and content of the materials searched, the ads posted, or the content provided by users. Furthermore, the introduction of new products or services in our existing markets and the expansion of our business to other countries may subject us to additional laws and regulations, among others resulting from the need to obtain additional licenses and approvals to conduct our businesses as envisioned.

Our Eostre products are not currently offered in the United States. Should we choose to do so, we will have to comply with all rules and regulations of the FDA. The processes by which regulatory approvals are obtained from the FDA and foreign regulatory authorities to market and sell a new product are complex, require a number of years, depend upon the type, complexity, and novelty of the product candidate, and involve the expenditure of substantial resources for research, development, and testing. In addition, if we were to market our products in additional foreign jurisdictions, we may be required to obtain separate regulatory approvals in each country. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval.

If we are not able to comply with these laws or regulations or if we become liable under these laws or regulations, we could be directly harmed, and we may be forced to implement new measures to reduce our exposure to this liability. This may require us to expend substantial resources or to modify our Yippi App or our Eostre products, which would harm our business, financial condition, and results of operations. In addition, the increased attention focused upon liability issues as a result of lawsuits and legislative proposals could harm our reputation or otherwise impact the growth of our business. Any costs incurred as a result of this potential liability could harm our business and operating results.

We may experience fluctuations in our quarterly operating results due to a number of factors, which make our future results difficult to predict.

Our revenue and other operating results could vary significantly from quarter-to-quarter due to a variety of factors, many of which are outside our control. In addition, we have a limited operating history with the current scale of our business, which makes it difficult to predict our future revenue or results of operations. Our financial condition and results of operations can be influenced by numerous factors, which may include the following:

We base our current and future expense levels on our internal operating plans and forecasts, and some of our operating costs are to a large extent fixed in the near term. As a result, we may not be able to reduce our costs quickly enough to compensate for an unexpected shortfall in revenue and, even a small shortfall in revenue, could adversely affect financial results for that quarter.

Because substantially all of our executive officers, directors, and assets are located outside the United States, primarily in Malaysia, investors may experience difficulties in attempting to effect service of process and to enforce judgments based upon U.S. federal securities laws against us and our officers and directors.

While we are organized under the laws of State of Nevada, almost all of our executive officers and our directors are non-U.S. residents and our operations and assets are located outside the United States (primarily in Malaysia). Consequently, it may be difficult for investors to effect service of process on our officers and our directors in the United States and to enforce in the United States judgments obtained in United States courts against any of them based on the civil liability provisions of the United States securities laws, enforce United States judgments in a Malaysian court based on the civil liability provisions of the United States securities laws, or bring an original action against them in a Malaysian court to enforce liabilities based upon the United States federal securities laws. Since all our assets will be located outside the United States, it may be difficult or impossible for investors located in the United States to collect a judgment against us.

Our user metrics with respect to the Yippi App may be subject to inherent uncertainties in measurement, and real or perceived inaccuracies in such metrics may severely harm our reputation and negatively affect our business.

We use our internal company data to calculate our Yippi App monthly active users and daily active users for the evaluation of growth trends, performance, and to make strategic decisions, but these metrics have not been verified by an independent third party. While these numbers are based on what we reasonably believe to be the estimates of our active users for the applicable period of measurement, there are inherent challenges in measuring how our products and services are used across large online and mobile populations globally. For example, there might be several accounts created by the same individual utilizing different usernames, which may cause inaccuracy in the data collected. Some of our demographic data may be incomplete or inaccurate due to the incorrect or inadequate information given by the users when registering for Yippi account. These errors or inaccuracies in our metrics or data could result in incorrect business decisions and inefficiencies.

We regularly review and seek to address these technical issues by adjusting our processes for calculating our internal metrics to improve their accuracy. Our measures of user growth and user engagement may differ from estimates published by third parties or from similarly-titled metrics of our competitors due to differences in methodology. If advertisers, platform partners, or prospective investors do not perceive our user, geographic, or other demographic metrics to be accurate representations of our user base or user engagement, or if we discover material inaccuracies in our user metrics, our reputation may be harmed and platform partners and advertisers may be less willing to allocate their budgets or resources to our products and services, which may negatively affect our business.

We generate some revenue from advertising. The failure to attract new advertisers, the loss of advertisers, or a reduction in spending by our advertisers could harm our business.

We derive some revenues from advertising on our Yippi App. Although we have and continue to try to establish longer-term advertising commitments with advertisers, most of our advertisers do not have long-term advertising commitments with us. In addition, advertisers may view some of our products as experimental and unproven; thus, our efforts to establish long-term commitments may not succeed.

We rely heavily on our ability to collect and disclose data and metrics in order to attract new advertisers and retain existing advertisers. Any restriction, whether by law, regulation, policy, or other reason, on our ability to collect and disclose data that our advertisers find useful would impede our ability to attract and retain advertisers. Our advertising revenue could be seriously harmed by many other factors, including:

The occurrence of any of these or other factors could result in a reduction in demand for advertisements, which may reduce the prices we receive for our advertisements or cause advertisers to stop advertising with us altogether, either of which would negatively affect our business, financial condition and results of operations.

The requirements of being a public company may strain our resources, result in more litigation, and divert management’s attention.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act and other applicable securities rules and regulations. Complying with these rules and regulations have caused us and will continue to cause us to incur additional legal and financial compliance costs, make some activities more difficult, be time-consuming or costly, and continue to increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results. Further, by complying with public disclosure requirements, our business and financial condition are more visible, which we believe may result in increased threatened or actual litigation, including by competitors and other third parties. Compliance with these additional requirements may also divert management’s attention from operating our business. Any of these may adversely affect our operating results.

Foreign government initiatives to restrict access to the Yippi App could seriously harm our business.

Foreign data protection, privacy, consumer protection, content regulation, and other laws and regulations are often more restrictive than those in the United States. Foreign governments may censor Yippi in their countries, restrict access to Yippi from their countries entirely, impose laws on us that require data localization, or impose other restrictions that may affect their citizens’ ability to access Yippi for an extended period of time or even indefinitely. If foreign governments think we are violating their laws, or for other reasons, they may seek to restrict access to Yippi, which would give our competitors an opportunity to penetrate geographic markets that we cannot access. As a result, our user growth, retention, and engagement may be seriously harmed, and we may not be able to maintain or grow our revenue as anticipated and our business could be seriously harmed. For example, access to Google, which currently powers most of our infrastructure, is restricted in China, and we do not know if we will be able to enter the market in a manner acceptable to the Chinese government.

If government regulations regarding our direct marketing business change or are interpreted or enforced in a manner adverse to our business, we may be subject to new enforcement actions and material limitations regarding our overall business model.

Direct marketing business models are always subject to extensive governmental regulations, including foreign, federal, and state regulations. The FTC has issued certain guidance focusing on regulation of multi-level marketing related businesses. Although we currently do not operate a multi-level marketing program in the United States, we may be subject to similar regulation in the countries in which we do business. Any change in legislation and regulations could affect our business. Furthermore, significant penalties could be imposed on us for failure to comply with various statutes or regulations. Violations may result from:

While we prioritize ensuring that our business and compensation model are compliant, and that any product or income related claims are truthful and non-deceptive, we cannot be certain that the FTC or similar regulatory body in another country will not modify or otherwise amend its guidance, laws, or regulations or interpret in a way that would render our current practices inconsistent with the same.

Our success partially depends on our ability to hire and retain mobile application developers. If we are unable to do so, or if the developing process stops or is delayed for any reason, we may not deliver our products within the Yippi App to our customers on time, which may seriously harm our business.

We have limited experience developing our products within the Yippi App. Our ability to hire and retain experienced developers to build such products is crucial. Experienced developers could, at times, be in short supply, we may be unable to hire sufficient number of developers, or the market compensation payable to such experienced developers could be significant. Delays and other developer problems could impair the release of our in-app products and, ultimately, our brand. This may lead to unsatisfied customers and users and increase costs to us, which could seriously harm our business.

We may face lawsuits or incur liabilities in the future in connection with our businesses.

In the future, we may face lawsuits or incur liabilities in connection with our businesses. For example, we could face claims relating to information that is published or made available on the Yippi App. In particular, the nature of our business exposes us to claims related to defamation, intellectual property rights, rights of publicity and privacy, and personal injury torts. We might not be able to monitor or edit the vast majority of the content that appears on the Yippi App. This risk is enhanced in certain jurisdictions outside the United States where our protection from liability for third-party actions may be unclear and where we may be less protected under local laws than we are in the United States.

We could also be subject to lawsuits or liabilities based on actions of our independent sales agents. Our independent sales agents could engage in misconduct, violate our policies and procedures, or engage in other conduct that leads to litigation, complains, enforcement actions, and inquiries by various foreign regulatory authorities.

Finally, even though it is unlikely given the countries we do business in, we could face financial liability from product liability claims if the use of our Eostre products results in significant loss or injury. We can make no assurances that we will not be exposed to any substantial future product liability claims. Such claims may include claims that our products contain contaminants, that we provide our independent agents and consumers with inadequate instructions regarding product use, or that we provide inadequate warnings concerning side effects of our products. Product liability insurance is uncommon in the jurisdictions that we do business in; therefore, a substantial future product liability claim could adversely affect our overall future financial condition.

Any such claims would result in us incurring significant costs investigating and defending such claims and, if we are found liable, significant damages. We could also face fines or orders restricting or blocking our services in particular geographies as a result of content hosted on our services. If any of these events occur, our business could be seriously harmed.

Our international operations are subject to political economic and social uncertainties, which may cause our business to suffer.

We currently sell our Eostre products in Malaysia to independent agents located throughout Asia and Southeast Asia. Our Yippi App is currently available around the world (however, the TRT feature within the Yippi App is not available to users in the United States). Our international operations could experience changes in legal and regulatory requirements, as well as difficulties in adapting to new foreign cultures and business customs. If we do not adequately address such issues, our international markets may not meet growth expectations. Our international operations and future expansion plans are subject to political, economic, and social uncertainties, including:

The risks outlined above could adversely affect our ability to sell advertising, products, obtain international customers, or to operate our international business profitably, which would have a negative impact on our overall business and results of operations. Furthermore, any negative changes in our distribution channels may force us to invest significant time and money related to our distribution and sales to maintain our position in certain international markets.

Currency exchange rate fluctuations could reduce our overall profits.

For the years ended July 31, 2019 and July 31, 2018, we recognized 96% and 100%, respectively, of net sales in markets outside of the United States. In preparing our consolidated financial statements, we are required to translate certain financial information from foreign currencies to the United States dollar using either the spot rate or the weighted-average exchange rate. If the United States dollar changes relative to applicable local currencies, there is a risk our reported sales, operating expenses, and net income could significantly fluctuate. For example, in fiscal 2019, we had a foreign exchange gain of $123,234 and in fiscal 2018, we had a foreign exchange loss of $53,996. There can be no assurance that foreign currency fluctuations will not have a material adverse effect on our business, assets, financial condition, liquidity, results of operations, or cash flows. We are not able to predict the degree of exchange rate fluctuations, nor can we estimate the effect any future fluctuations may have upon our future operations. To date, we have not entered into any hedging contracts or participated in any hedging or derivative activities.

Our financial condition, results of operations, cash flows, and performance may be adversely impacted or disrupted by public health epidemics, including the COVID-19 global health pandemic.

An outbreak of respiratory illness caused by COVID-19 emerged in late 2019 and has spread globally, including Malaysia, our Company’s principal place of operations. In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure. COVID-19 continues to spread throughout the world.

On March 19, 2020, a Movement Control Order (the “MCO”) was issued by the Malaysian Prime Minister, which reduced movement within Malaysia, closed all offices within the country that were non-essential, cancelled all non-essential travel and limited travel from outsiders deemed as non-essential. Eventually, the MCO was lifted as of June 9, 2020, and certain safe-distance and other controlling protocols (the Recovery Movement Control Order or “RMCO”) were put into place, which are now in effect until December 31, 2020. As of January 26, the RMCO has been extended to March 31, 2021.

Our offices in Malaysia closed as a result of the MCO, and our office-based employees located both in Malaysia and in the United States have been working remotely since the middle of March. Travel remains restricted to limit the risk of our employees coming in contact with COVID-19. In addition, as a result of COVID-19, we have terminated all agreements with Agel, formerly one of our largest customers. (See “Related Party Transactions” for additional information.) COVID-19 also resulted in a significant decrease in revenue being generated by TogaGo during fiscal 2020, the suspension of operations of our Taiwan branch office, and our customer service suffering.

If the pandemic continues and conditions worsen, it could further negatively impact our business, results of operations, financial condition and liquidity in numerous ways, including, but not limited, to:

These and other impacts of the COVID-19 pandemic, or other pandemics or epidemics, could have the effect of heightening many of the other risks described in this Amended Annual Report under the “Risk Factors” section. We might not be able to predict or respond to all impacts on a timely basis to prevent near- or long-term adverse impacts to our results. The severity, magnitude and duration of the COVID-19 pandemic is uncertain, rapidly changing, and hard to predict. We do not yet know the full extent of potential delays or impacts on our business, our results of operations, or financial condition or the global economy as a whole. However, these effects could have an adverse impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely, and such impact could be material.

The restatement of certain of our historical consolidated financial statements may have an adverse effect on us.

We have restated certain items on our consolidated financial statements for prior periods and are continuing to do so. On November 19, 2020, the Audit Committee of the Board of Directors of Toga Limited (the “Company”) concluded, after discussion with the Company’s management, that the Company’s consolidated financial statements for the (i) year ended July 31, 2019, (ii) interim period ended April 30, 2019, (iii) interim period ended October 31, 2019, (iv) interim period ended January 31, 2020, and (v) interim period April 30, 2020 (collectively, the “Non-Reliance Periods”) should no longer be relied upon due to errors in the consolidated financial statements and should be restated. Similarly, press releases, earnings releases, and investor presentations or other communications describing the Company’s consolidated financial statements and other related financial information covering the Non-Reliance Periods should no longer be relied upon. In addition, the audit report of Pinnacle Accountancy Group of Utah (“Pinnacle”) included in the Company’s Annual Report on the Original Form 10-K, for the year ended July 31, 2019, should no longer be relied upon.

In connection with the preparation of the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2020 (the “2020 Form 10-K”), the Company’s management became aware that the Company’s consolidated financial statements for the Non-Reliance Periods contained errors related to revenue recognition for one or more of the Company’s subsidiaries engaged in the Company’s direct sales business. In such instances, the Company improperly recognized the cash proceeds from sales of membership packages to its independent agents as revenues, rather than as deferred revenue. In accordance with Accounting Standards Codification 606, Revenues from Contracts with Customers, the proceeds should have been recognized as revenue upon the satisfaction of the subsidiary’s performance obligations, which would have been the time of shipment of inventory to such independent agents. This resulted in an overstatement of revenue and an understatement of deferred revenue.

The Company is working to complete the restatement of its financial statements for the Non-Reliance Periods. The Company has determined to file amendments to (i) each of the Quarterly Reports on Form 10-Q for the interim periods covered by the Non-Reliance Periods and (ii) the 2019 Form 10-K. Accordingly, investors and others should rely only on the financial information and other disclosures regarding the Non-Reliance Periods once the Company restates its consolidated financial statements and not rely on any previously issued or filed registration statements or reports, earning press releases, investor presentations or other communications related thereto covering the Non-Reliance Periods.

Management is assessing the effect of the restatements on the Company’s internal control over financial reporting and its disclosure controls and procedures. The Company expects to report one or more material weaknesses following completion of its investigation of the cause of these restatements. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. The existence of one or more material weaknesses precludes a conclusion by management that a company’s disclosure controls and procedures and internal control over financial reporting are effective. In addition, the Audit Committee, the Board of Directors, and management have begun evaluating appropriate remediation actions. For example, commencing in January 2021, management intends to implement a new Enterprise Resource Planning (ERP) system with more oversight and control of the Company’s subsidiaries’ financial reporting processes by key members of management.

Based on the restatements described above, our management concluded that our system of internal control over financial reporting was not effective during the Non-Reliance Periods, which resulted in the restatements described above. Management had identified internal control deficiencies which, in management’s judgment, represented material weakness in internal control over financial reporting. Specifically, management identified that due to the limited resources of the company and adequate staffing within the accounting department, segregation of duties had been identified as a weakness in internal control, as was the US GAAP qualifications of the accounting staff. In January 2020 we engaged an external consulting firm to assist with the design and implementation of our internal process, including those internal controls over financial reporting. Due to the COVID-19 pandemic, the lockdowns instituted by local governments and travel restrictions in each of the countries for our subsidiaries, including but not limited to, our international operation headquarters in Kuala Lumpur, Malaysia and our corporate offices in Los Angeles California, we have not been able to implement these internal controls as of January 28 2021.

Based on the discovery of the errors relating to the restatements described above, our management concluded that our internal control over financial reporting was not effective during the Non-Reliance Periods. Management had identified internal control deficiencies which, in management’s judgment, represented material weakness in internal control over financial reporting. The control deficiencies generally related to the limited resources of the company and adequate staffing within the accounting department, segregation of duties had been identified as a weakness in internal control, as was the US GAAP qualifications of the accounting staff. In January 2020 we engaged an external consulting firm to assist with the design and implementation of our internal process, including those internal controls over financial reporting. Due to the COVID-19 pandemic, the lockdowns instituted by local governments and travel restrictions in each of the countries for our subsidiaries, including but not limited to, our international operation headquarters in Kuala Lumpur, Malaysia and our corporate offices in Los Angeles California, we have not been able to implement these internal controls as of January 28, 2021.

As a result of the events described above, we may become subject to a number of significant risks, which could have an adverse effect on our business, financial condition and results of operations, including: we may be subject to potential civil litigation, including shareholder class action lawsuits and derivative claims made on behalf of us, and regulatory proceedings or actions, the defense of which may require us to devote significant management attention and to incur significant legal expense and which litigation, proceedings or actions, if decided against us, could require us to pay substantial judgments, settlements or other penalties.