(*) On October 28, 2016, the Company performed the forward stock split, whereby every one (1) share of the
common stock was automatically reclassified and changed into twenty (20) shares (the “20-for-1 Forward Stock Split”).
The authorized number of shares and par value per share were not be affected by the 20-for-1 Forward Stock Split. The Company’s
capital accounts have been retroactively restated to reflect the 20-for-1 Forward Stock Split.
(*) On October 28, 2016, the Company performed the forward stock split, whereby every one (1) share of the
common stock was automatically reclassified and changed into twenty (20) shares (the “20-for-1 Forward Stock Split”).
The authorized number of shares and par value per share were not be affected by the 20-for-1 Forward Stock Split. The Company’s
capital accounts have been retroactively restated to reflect the 20-for-1 Forward Stock Split.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2017
NOTE 1 - ORGANIZATION, DESCRIPTION
OF BUSINESS, AND BASIS OF PRESENTATION
Exceed
World, Inc., formerly known as Brilliant Acquisition, Inc. (the “Company”), was incorporated under the laws of the
State of Delaware on November 25, 2014.
As of September 30, 2017, we operate
through our wholly owned subsidiary, School TV Co., Ltd. (“School TV”), which is engaged in various business activities
and industries including:
- The sale and distribution of health related products;
- The promotion of third party consumer goods and services;
- RE/MAX business in Kanagawa, Okinawa and Tokyo (See
Note 6).
NOTE
2 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES
OF CONSOLIDATION
The consolidated financial statements
include the financial statements of its wholly-owned subsidiary, School TV. Intercompany transactions are eliminated.
FISCAL YEAR
On August 1, 2016, the Board of Directors
of the Company approved a resolution to change the Company's fiscal year end from November 30 to September 30, effective immediately
as of the date of the board resolution. As a result of this change, our fiscal year 2016 is a 10-month transition period beginning
December 1, 2015 through September 30, 2016. The accompanying Consolidated Financial Statements, and the Notes thereto, include
our results of operations and cash flows for the year ended September 30, 2017 and the 10-month transition period ended September
30, 2016. In addition, we have presented on the accompanying Consolidated Statements of Operations and Comprehensive Loss and
Consolidated Statements of Cash Flows our unaudited results of operations and cash flows for the comparable 10-month period ended
September 30, 2015.
ACCOUNTS RECEIVABLE AND ALLOWANCE
Accounts receivable are recognized and
carried at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made
when collection of the full amount is no longer probable. Bad debts are written off against the allowance when identified.
USE OF ESTIMATES
The presentation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenue and expenses during the reporting periods. The most significant estimates and assumptions
made by management include going concern, valuation allowance on deferred income tax, inventory obsolescence and sales allowance.
Operating results in the future could vary from the amounts derived from management's estimates and assumptions.
RELATED PARTY TRANSACTION
A related party is generally defined
as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s
management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or
(iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to
be a related party transaction when there is a transfer of resources or obligations between related parties. The Company conducts
business with its related parties in the ordinary course of business.
Transactions involving related parties
cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free market dealings
may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions
were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
Cash
equivalents
The Company considers all highly liquid investments
with maturities of three months or less at the time of purchase to be cash equivalents.
INVENTORIES
Inventories, consisting of products
available for sale, are primarily accounted for using the first-in, first-out ("FIFO") method, and are valued at the
lower of cost or market value. This valuation requires the Company to make judgments, based on currently-available information,
about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations,
and expected recoverable values of each disposition category.
INTANGIBLE ASSETS
Intangible assets representing two
franchise rights the Company leased from RE/MAX Japan are shown at cost less accumulated amortization. Intangible assets are amortized
over 15 years.
Intangible assets are periodically
evaluated for recoverability, and those evaluations take into account events or circumstances that warrant revised estimates of
useful lives or that indicate that impairment exists.
-F7-
Table of Contents
FOREIGN CURRENCY TRANSLATION
The Company maintains its books and
record in its local currency, Japanese YEN (“JPY”), which is a functional currency as being the primary currency of
the economic environment in which its operation is conducted. 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 the United States Dollars (“US$”) and the accompanying consolidated financial statements have been expressed in
US$. In accordance with ASC Topic 830-30, “Translation of Financial Statement”, assets and liabilities of the Company
whose functional currency is not US$ are translated into US$, 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
are recorded as a separate component of accumulated other comprehensive income within the statements of shareholders’ equity.
Translation of amounts from the local
currency of the Company into US$1 has been made at the following exchange rates:
|
September 30, 2017
|
Current JPY: US$1 exchange rate
|
112.47
|
Average JPY: US$1 exchange rate
|
111.36
|
COMPREHENSIVE INCOME OR LOSS
ASC Topic 220, “Comprehensive Income”,
establishes standards for reporting and display of comprehensive income or loss, its components and accumulated balances. Comprehensive
income or loss as defined includes all changes in equity during a period from non-owner sources. Accumulated comprehensive income,
as presented in the accompanying consolidated statements of shareholders’ equity consists of changes in unrealized gains
and losses on foreign currency translation.
REVENUE RECOGNITION
The Company recognizes revenue when
it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following
criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been
rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
COST OF REVENUES
Cost of revenues consists of cost of
inventory, amortization of RE/MAX Japan franchise rights and other costs related to the lease of the franchise rights, and cost
paid to Investech Co. (See Note 7), all of which are directly attributable to the Company’s business practices.
Net
loss per common share
Net loss per common share is computed pursuant
to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by
the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by
dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during
each period. There were no potentially dilutive shares outstanding as of September 30, 2017 and 2016.
On October 28, 2016, the Company performed
the forward stock split, whereby every one (1) share of the common stock was automatically reclassified and changed into twenty
(20) shares (the “20-for-1 Forward Stock Split”). The authorized number of shares and par value per share were not
be affected by the 20-for-1 Forward Stock Split. The Company’s capital accounts have been retroactively restated to reflect
the 20-for-1 Forward Stock Split.
INCOME TAX
The Company follows Section 740-10-30 of the
FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in the Statements of Operations in the period that includes the enactment date. The Company adopted section
740-10-25 of the FASB Accounting Standards Codification ("Section 740-10-25"). Section 740-10-25 addresses the determination
of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under
Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that
has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement.
RECENT
ACCOUNTING PRONOUNCEMENTS
In November 2016, the FASB issued ASU
2016-18, “
Statement of Cash Flows (Topic 230): Restricted Cash”
. These amendments require that a statement of
cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted
cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents
should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown
on the statement of cash flows. The amendments do not provide a definition of restricted cash or restricted cash equivalents. The
amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years. Early adoption is permitted. The amendments should be applied using a retrospective transition
method to each period presented. The adoption of ASU 2016-18 is not expected to have a material impact on the Company’s consolidated
financial statements.
In December 2016, the FASB issued ASU
2016-20,
“Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers”
.
The amendments in ASU 2016-20 affect narrow aspects of the guidance issued in ASU 2014-09 including Loan Guarantee Fees, Contract
Costs, Provisions for Losses on Construction-Type and Production-Type Contracts, Disclosure of Remaining Performance Obligations,
Disclosure of Prior Period Performance Obligations, Contract Modifications, Contract Asset vs. Receivable, Refund Liabilities,
Advertising Costs, Fixed Odds Wagering Contracts in the Casino Industry, and Costs Capitalized for Advisors to Private Funds and
Public Funds. The effective date of these amendments are at the same date that Topic 606 is effective. Topic 606 is effective for
public entities for annual reporting periods beginning after December 15, 2017, including interim reporting periods therein (i.e.,
January 1, 2018, for a calendar year entity). The adoption of ASU 2016-20 is not expected to have a material impact on the Company’s
consolidated financial statements.
In January 2017, the FASB issued ASU
2017-03,
“Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures
(Topic 323)”.
This pronouncement amends the SEC’s reporting requirements for public filers in regard to new
accounting pronouncements or existing pronouncements that have not yet been adopted. Companies are to provide qualitative disclosures
if they have not yet implemented an accounting standards update. Companies should disclose if they are unable to estimate the impact
of a specific pronouncement, and provide disclosures including a description of the effect on accounting policies that the registrant
expects to apply. These provisions apply to all pronouncements that have not yet been implemented by registrants. There are additional
provisions that relate to corrections to several other prior FASB pronouncements. The Company has incorporated language into other
recently issued accounting pronouncement notes, where relevant for the corrections in FASB ASU 2017-03. The Company is implementing
the updated SEC requirements on not yet adopted accounting pronouncements with these consolidated financial statements.
In September 2017, the FASB issue ASU 2017-13, “Revenue Recognition (Topic 605), Revenue from Contracts
with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement
at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments”. This pronouncement
provides additional clarification and implementation guidance on the previously issued ASU 2014-09, Revenue from Contracts with
Customers (Topic 606). The effective date and transition requirements for these amendments are the same as the effective date and
transition requirements of ASU 2014-09, which is effective for fiscal years, and for interim periods within those years, beginning
after December 15, 2017. The adoption of ASU 2014-09 is not expected to have a material impact on the Company’s consolidated
financial statements.
-F8-
Table
of Contents
NOTE
3 - INCOME TAXES
The Company conducts its major businesses
in Japan and is subject to tax in this jurisdiction. As a result of its business activities, the Company files tax returns that
are subject to examination by the local tax authority.
National income tax in Japan is
charged at 15% of a company’s assessable profit. The Company’s subsidiary, School TV, was incorporated in Japan
and is subject to Japanese national income tax and city income tax at the applicable tax rates on the taxable income as
reported in their Japanese statutory accounts in accordance with the relevant enterprises income tax laws applicable to
foreign enterprises.
School TV’s operation
during the year ended September 30, 2017 has resulted a net taxable loss, as such School TV was not subject to income tax for
the year ended September 30, 2017. The effective income tax rate of School TV is 0%. Net operating loss of $18,420 is fully
allowed as the Company is not able to estimate future operating results due to limited operating history.
For the ten months ended September
30, 2016, income tax for School TV was $837, and the effective income tax rate of School TV was 15%.
Exceed World, Inc., which acts as a
holding company on a non-consolidated basis, does not plan to engage any business activities and current or future loss will be
fully allowed. For the year ended September 30, 2017 and ten months ended September 30, 2016, Exceed World, Inc., as a holding
company registered in the state of Delaware, has incurred net losses and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry forward has been fully reserved. The cumulative net
operating loss carry forward is approximately $88,035 and $45,012 as of September 30, 2017 and 2016 and will expire beginning in
the year 2034. Annual use of the net operating loss may be limited by Internal Revenue Code Section 382 due to an ownership change.
NOTE 4 - GOING CONCERN
The accompanying consolidated financial
statements are prepared on a basis of accounting assuming that the Company is a going concern that contemplates realization of
assets and satisfaction of liabilities in the normal course of business. For the year ended September 30, 2017, the Company had
generated net loss of $61,443 and negative cash flows from operations of $32,555. As of September 30, 2017, the Company had working
deficit of $33,911. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The financial
statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
As a first priority, we plan to increase
sufficient revenues for necessary working capital from our business. If we cannot generate sufficient revenues, we plan to borrow
working capital from the director or parent company.
NOTE 5 - RELATED-PARTY TRANSACTIONS
As of September 30, 2017 and 2016,
the Company had $159,243 and $176,749 owed to Tomoo Yoshida, Chief Executive Officer and Chief Financial Officer of the Company,
respectively. The advance is due on demand and bears no interest.
On May 24, 2017, the Company borrowed
JPY 25,000,000, or $223,534 from e-Learning Laboratory Co., Ltd., the beneficial owner of the Company, primarily for the payment
to lease the regional franchise rights of the RE/MAX System. The loan matures on May 24, 2023 with an interest rate of 2% per
annum. For the year ended September 30, 2017 and ten months ended September 30, 2016, the interest expense related to this note
payable was $1,871 and $0, respectively.
For the year ended September 30, 2017,
e-Learning Laboratory Co. Ltd. provided 10 square meters of office space and 2 square meters of storage space to the Company free
of charge.
NOTE 6 - LONG-TERM NOTE PAYABLE
The
Company planned to obtain the rights from RE/MAX LLC to franchise a system that helps real estate offices in their developments
and operations (the “RE/MAX System”). Ikez
oe
Trust Co. is a sole licensee for RE/MAX System in Japan and is a sole master franchisor authorized by RE/MAX, LLC for a real
estate franchising business of RE/MAX, LLC in Japan. Kidding Co. has been appointed as an exclusive sole agent for and on
behalf of master franchisor to perform the works relating to the RE/MAX system for the purposes of expanding the RE/MAX
system throughout Japan.
On July 7, 2017, School TV entered
into a RE/MAX Regional Franchise Agreement (the “Agreement”) with Ikezoe Trust Co. and Kidding Co. (collectively the
“RE/MAX Japan”) to lease the franchise rights to 2 prefectures, Kanagawa and Okinawa. Also see Note 7.
On May 22, 2017, in anticipation to the Agreement entered
into on July 7, 2017, the Company entered into a loan agreement to borrow JPY 55,000,000, or $492,346 from Mr. Toshihiro Hirai,
the CEO of Actcall Inc., the 100% owner of Kidding Co., for the initial payment required upon the execution of the Agreement.
The Company received the loan proceeds on May 25, 2017 and made a payment of JPY75,060,000 or $674,333, including the initial
consideration and the imposed sales tax, to RE/MAX Japan on May 29, 2017. The loan matures on May 31, 2022 with an interest rate
of 1% per annum. For the year ended September 30, 2017 and ten months ended September 30, 2016, the interest expense related to
this note payable was $2,058 and $0, respectively.
The principal payments of long-term
notes payable and long-term notes payable, related party for the next five years at September 30, 2017 were as follows.
Year
ended September 30, 2018
|
$
|
-
|
Year
ended September 30, 2019
|
|
-
|
Year
ended September 30, 2020
|
|
-
|
Year
ended September 30, 2021
|
|
-
|
Year
ended September 30, 2022
|
|
489,019
|
Thereafter
|
|
222,281
|
Total
|
$
|
711,300
|
NOTE 7 - PREPAID EXPENSE
On July 28, 2017, School TV and Investech
Co. (“Investech”) signed an agreement, pursuant to which School TV agreed to provide monetary support which includes
JPY2,000,000 (approximately $18,000) lump sum opening fee and JPY560,500 (approximately $5,000) monthly management fee to Investech.
In return, School TV is entitled to 24% of any sale consummated by the RE/MAX brokerage office due to efforts of sales agents from
the Company or e-Learning Laboratory Co., Ltd., the controlling shareholder of the Company. The percentage is 5% when the sale
is consummated due to efforts of Investech’s own sales agents.
Only July 28, 2017, School TV entered
into a memorandum of understanding with Kidding Co. (“Kidding”), pursuant to which Kidding consents for School TV
to provide monetary support to Investech in its effort to expand business under the RE/MAX system. In return for School TV’s
effort to develop Investech as a RE/MAX brokerage office, Kidding agreed to reimburse School TV part of the monetary support School
TV has paid to Investech, including JPY980,000 (approximately $9,000) reimbursement to the lump sum opening fee and JPY42,000
(approximately $400) to the monthly management fee.
As of September 30, 2017, the unamortized
lump sum opening fee paid to Investech, net of reimbursement from Kidding of JPY918,000, or $8,244, is included in prepaid expense.
For the year ended September 30, 2017, the amortization of net lump sum opening fee of JPY183,600, or $1,649, and monthly management
fee, net of reimbursement from Kidding, of JPY1,104,084, or $9,915, are included in cost of revenues.
NOTE 8 - INTANGIBLE ASSETS, NET
The following table presents the
detail of intangible assets:
|
|
|
9/30/2017
|
|
|
9/30/2016
|
Franchise rights
|
|
|
|
|
|
|
Gross carrying value
|
|
$
|
667,378
|
|
$
|
-
|
Less: accumulated amortization total
|
|
|
10,550
|
|
|
-
|
Franchise rights, net
|
|
$
|
656,828
|
|
$
|
-
|
NOTE 9 - CONCENTRATIONS
Concentration of Customer
For the year ended September
30, 2017 and the ten months ended September 30, 2016, the Company sold products to a major
customer which accounts for 95% and 40.5% of its total revenue, respectively.
For the year ended September
30, 2017 and the ten months ended September 30, 2016, the Company sold products to a major
customer which accounts for 0% and 59.5% of its total revenue, respectively.
Concentration of Products
For the year ended September 30, 2017,
the Company sold four products, each accounts for 16%, 20%, 11%, and 48% of the Company’s total revenue.
For the ten months ended 2016, the Company
sold four products, each accounts for 15%, 12%, 13% and 60% of the Company’s total revenue.
Concentration of Purchase
The Company has not made any purchase for the year ended September 30, 2017.
For the ten months ended
September 30, 2016, the Company purchased products from two major customers, each accounts for 84.1% and 15.9% of its total
purchase, respectively.
NOTE 10 – SHAREHOLDERS’
EQUITY
On October 28, 2016, 19,000,000 shares
of the Company’s common stock owned by e-Learning Laboratory Co., Ltd. were cancelled (the “Stock Cancellation”).
On October 28, 2016, the Company performed
a forward stock split, whereby every one (1) share of the common stock was automatically reclassified and changed into twenty
(20) shares (the “20-for-1 Forward Stock Split”). The authorized number of shares and par value per share were not
affected by the 20-for-1 Forward Stock Split. The 20-for-1 Forward Stock Split was executed subsequent to the Stock Cancellation.
NOTE 11 – COMMITMENTS
Under
the lease of franchise rights (See Note 6), the Company is subjected to the following potential payment commitments: (1) membership
fee in the amount of JPY42,000 (approximately $400) per year per sales associate operating
under
the RE/MAX brokerage office franchised from the Company (“RE/MAX Office”); (2) monthly ongoing fees comprised of monthly
fixed fees, in the amount of JPY60,000 (approximately $500) per RE/MAX Office, and monthly percentage fees, in the amount of 3%
of the commission the Company charges from the RE/MAX Office; (3) monthly advertising fee of JPY10,000 (approximately $100) per
RE/MAX Office; and (4) unconditional monthly fixed technology fee of JPY10,000 (approximately $100) per leased franchise right.
The membership fee and monthly fixed fee are subjected to increase in every two years, and the monthly advertising fee is subjected
to increase upon request and negotiation.
As of September 30, 2017, the Company
has not had any RE/MAX Office or sales associate, and was not subject to any non-cancellable payments.
-F9-
Table of Contents