PART
I
Item
1. Business.
Corporate
History
The
Company was originally incorporated with the name Brilliant Acquisition, Inc., under the laws of the State of Delaware on November
25, 2014, with an objective to acquire, or merge with, an operating business.
On
January 12, 2016, Thomas DeNunzio of 780 Reservoir Avenue, #123, Cranston, RI 02910, the sole shareholder of the Company, entered
into a Share Purchase Agreement (the “Agreement”) with e-Learning Laboratory Co., Ltd. (“e-Learning”),
with an address at 1-23-38-6F, Esakacho, Suita-shi, Osaka 564-0063 Japan. Pursuant to the Agreement, Mr. DeNunzio transferred
to e-Learning, 20,000,000 shares of our common stock which represented all of our issued and outstanding shares at the time of
sale.
Following
the closing of the share purchase transaction, e-Learning gained a 100% interest in the issued and outstanding shares of our common
stock and became the controlling shareholder of the Company.
On
January 12, 2016, the Company changed its name to Exceed World, Inc. and filed with the Delaware Secretary of State, a Certificate
of Amendment.
On
January 12, 2016, Mr. Thomas DeNunzio resigned as our Chief Executive Officer, Chief Financial Officer, President, Director, Secretary,
and Treasurer. The resignation was not the result of any disagreement with us on any matter relating to our operations, policies
or practices.
On
January 12, 2016, Mr. Tomoo Yoshida was appointed as our Chief Executive Officer, Chief Financial Officer, President, Director,
Secretary, and Treasurer.
On
February 29, 2016, the Company entered into a Stock Purchase Agreement with Tomoo Yoshida, our Chief Executive Officer, Chief
Financial Officer, President, Director, Secretary, and Treasurer. Pursuant to this Agreement, Tomoo Yoshida transferred to Exceed
World, Inc., 10 shares of the common stock of E&F Co., Ltd., a Japan corporation (“E&F”), which represented
all of its issued and outstanding shares in consideration of $4,835 (JPY 500,000). Following the effective date of the share purchase
transaction on February 29, 2016, Exceed World, Inc. gained a 100% interest in the issued and outstanding shares of E&F’s
common stock and E&F became a wholly owned subsidiary of Exceed World.
On
August 4, 2016, the E&F changed its name to School TV Co., Ltd (“School TV”) and filed such amendment with the
Legal Affairs Bureau in Osaka, Japan.
On
April 1, 2016, e-Learning entered into stock purchase agreements with 7 Japanese shareholders. Pursuant to these agreements, e-Learning
sold 140,000 shares of common stock in total to these individuals and received $270 as aggregate consideration. Each shareholder
paid $0.215 Japanese Yen per share. At the time of purchase the price paid per share by each shareholder was the equivalent of
about $0.002 USD.
The
aforementioned sale of shares was exempt from registration in accordance with Regulation S of the Securities Act of 1933, as amended
("Regulation S") because the above sales of the stock were made to non-U.S. persons (as defined under Rule 902 section
(k)(2)(i) of Regulation S), pursuant to offshore transactions, and no directed selling efforts were made in the United States
by the issuer, a distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing.
On
August 1, 2016, the Company changed its fiscal year end from November 30 to September 30.
On
August 9, 2016, e-Learning entered into stock purchase agreements with 33 Japanese shareholders. Pursuant to these agreements,
e-Learning sold 3,300 shares of common stock in total to these individuals and received $330 as aggregate consideration. Each
shareholder paid 10 Japanese Yen per share. At the time of purchase the price paid per share by each shareholder was the equivalent
of about $0.1 USD.
These
shares were sold pursuant to the Company’s effective S-1 Registration Statement deemed effective on July 20, 2016 at 4pm
EST.
On
October 28, 2016, Exceed World, Inc., a Delaware corporation, (the “Company” or “Exceed”), with the approval
of its board of directors and its majority shareholders by written consent in lieu of a meeting, authorized the cancellation of
shares owned by e-Learning. e-Learning has provided consent for the cancellation of shares. The total number of shares cancelled
was 19,000,000 shares which was comprised of 16,500,000 restricted common shares and 2,500,000 free trading shares.
Shareholder’s
name: e-Learning Laboratory Co., Ltd.
Total
amount of shares cancelled
|
19,000,000
|
shares
|
|
Restricted
shares
|
16,500,000
|
shares
|
|
Free
trading shares
|
2,500,000
|
shares
|
On
October 28, 2016, every one (1) share of Common Stock, par value $.0001 per share, of the company issued and outstanding was automatically
reclassified and changed into twenty (20) shares fully paid and non-assessable shares of Common Stock of the company, par value
$.0001 per share. (“20-for-1 Forward Stock Split”) No fractional shares were issued. The authorized number of shares,
and par value per share, of Common Stock are not affected by the 20-for-1 Forward Stock Split.
On
October 28, 2016, we filed a Certificate of Amendment with the Delaware Secretary of State. The effective date of the 20-for-1
Forward Stock Split was upon the acceptance of the Certificate of Amendment with the Secretary of State of the State of Delaware.
The Certificate of Amendment can be found as Exhibit 3.1 to Form 8-K filed November 1, 2016.
During
July 2017 and August 2017, e-Learning entered into stock purchase agreements with 24 Japanese individuals. Pursuant to these agreements,
e-Learning sold 2,240,000 shares of its common stock in total to these individuals and received $38,263 as aggregate consideration.
On
September 26, 2018, e-Learning, a direct wholly owned subsidiary of Force International Holdings Limited, a Hong Kong limited
company (“Force Holdings”), which was incorporated in Hong Kong with limited liability, entered into a share purchase
agreement with Force Internationale Limited, a Cayman Island limited company (“Force Internationale”), the sole shareholder
of Force Holdings, in which e-Learning agreed to sell and Force Internationale agreed to purchase 74.5% equity interest of the
Company at a consideration of US$26,000.
On
September 26, 2018, the Company entered into, and consummated, a share purchase agreement with Force Internationale to acquire
100% of Force Holdings. Force Holdings is the 100% owner of e-Learning. In consideration of this agreement, the Company issued
12,700,000 common shares to Force Internationale.
On
December 6, 2018, Exceed World, Inc., a Delaware company (the "Company" and or "Exceed") entered into a Share
Contribution Agreement (this "Agreement") with Force Internationale Limited, a Cayman Island limited company ("Force
Internationale"), our controlling shareholder. Under this Agreement, the Company transferred 100% of the equity interests
of School TV Co., Ltd., a Japan corporation ("School TV"), to Force Internationale without consideration. This Agreement
and action were approved by the board of directors of each of, Exceed, Force Internationale and School TV. A copy of this Agreement
is included as Exhibit 10.1 to this Current Report and is hereby incorporated by reference.
Our
principal executive offices are located at 1-1-36, 1-2-38-6F, Esaka-cho, Suita-shi, Osaka 564-0063, Japan. Our phone number is
+81-6-6339-4177.
-
1 -
Table
of Contents
Background
Information
Exceed
World, Inc., is referred to herein as, “the Company.”
With
the completion of the Company’s acquisition of Force Holdings and its subsidiaries (hereinafter, collectively referred to
as the “Group”), our primary business activity became to provide education services as of September 26, 2018, the
date the Company acquired 100% ownership of Force Holdings. The Company and the Group share the same business plan, which is to
provide educational services.
Note:
e-Learning Laboratory Co., Ltd, a Japan Corporation, is the wholly owned subsidiary of Force International Holdings Limited, a
Hong Kong limited company. e-Communications Co., Ltd, a Japan Corporation, is a wholly owned subsidiary of e-Learning Laboratory
Co, Ltd, a Japan Corporation.
The
Group is an education service provider in Japan that offers a range of e-learning education programs, and additional supporting
services, through an internet platform called “Force Club”, which was launched in 2007. The Group has offered, and
continues to offer, e-learning programs through Force Club, all of which were procured from independent third-party software developers,
based in Japan, who have been identified and hired by the Group. The e-learning education programs include, but are not strictly
limited to, pre-school learning resources, learning resources supplementing elementary school, junior high school and senior high
school curriculum, preparation courses for university entrance examinations, professional qualification examinations, and English
learning. Through this diverse range of courses, it is the Group’s intention to sustain a diverse customer base ranging
from pre-school children to students and adult learners.
A
list of the Group’s e-learning programs, target customer groups, and release date are set out below. The e-learning programs
of Force Club mainly serve as supplemental learning resources and self-learning tools for students and adult learners.
No.
|
Content
Name
|
Target
Audience
|
Compatible
Devices
|
Release
Date
|
1
|
ENGLISH
MONSTERS
|
Primary
school student
|
iOS
smartphone / tablet
|
2013
|
Android
smartphone / tablet
|
2013
|
2
|
Romantic
English Conversation - London Ver.
|
Age
18 and over
|
iOS
smartphone / tablet
|
2013
|
Android
smartphone / tablet
|
2013
|
3
|
Romantic
English Conversation - College Life Ver.
|
Age
18 and over
|
iOS
smartphone / tablet
|
2013
|
Android
smartphone / tablet
|
2013
|
4
|
ENGLISH
MONSTERS AR
|
Primary
school student
|
iOS
smartphone / tablet
|
2013
|
Android
smartphone / tablet
|
2013
|
5
|
The
Blue Danube
|
Infants
|
iOS
smartphone / tablet
|
2012
|
Android
smartphone / tablet
|
2014
|
6
|
The
Nutcracker
|
Infants
|
iOS
smartphone / tablet
|
2012
|
Android
smartphone / tablet
|
2014
|
7
|
Peter
& the Wolf
|
Infants
|
iOS
smartphone / tablet
|
2012
|
Android
smartphone / tablet
|
2014
|
8
|
The
Four Seasons
|
Infants
|
iOS
smartphone / tablet
|
2012
|
Android
smartphone / tablet
|
2014
|
9
|
The
Carnival of the Animals
|
Infants
|
iOS
smartphone / tablet
|
2012
|
Android
smartphone / tablet
|
2014
|
10
|
Play
A,B,C on the Keyboard
|
Infants
|
iOS
smartphone / tablet
|
2012
|
Android
smartphone / tablet
|
2014
|
11
|
Say
Hello to English Words!
|
Infants
|
iOS
smartphone / tablet
|
2012
|
Android
smartphone / tablet
|
2014
|
12
|
Force
Paint
|
Infants
|
iOS
smartphone / tablet
|
2012
|
Android
smartphone / tablet
|
2014
|
13
|
Force
Musician
|
Infants
|
iOS
smartphone / tablet
|
2012
|
14
|
Inheritance
Diagnosis Consultant
|
Adult
|
iOS
smartphone / tablet
|
2013
|
Android
smartphone / tablet
|
2013
|
15
|
Sign
Language Course
|
Adult
|
PC
|
2014
|
16
|
University
Entrance Exam Preparation Course
|
High
school student /
Those who prepare for entrance exam
|
PC
|
2008
|
Android
smartphone / tablet
|
2014
|
17
|
LEARNING
EYES
|
Adult
|
PC
|
2012
|
Android
smartphone / tablet
|
2014
|
18
|
High
School Student-oriented e-learning
|
High
school student
|
PC
|
2009
|
Android
smartphone / tablet
|
2014
|
19
|
Folstar
|
Adult
|
Feature
Phone
|
2008
|
20
|
Qualification
Attainment Strategies Course
|
Adult
|
iOS
smartphone / tablet
|
2015
|
Android
smartphone / tablet
|
21
|
School
TV
|
Primary
school student / Middle school student
|
PC
|
2015
|
iOS
smartphone / tablet
|
Android
smartphone / tablet
|
23
|
English
Monsters app
|
Main:
High school student / College student
(However, primary school student, middle school student, and adults are also included as targets.)
|
iOS
smartphone / tablet
|
2015
|
23
|
ForceMart
|
Force
Club Members
|
PC
|
2017
|
iOS
smartphone / tablet
|
Android
smartphone / tablet
|
In
order to access the Group’s e-learning programs, customers must first register as a member of Force Club. From 2002 to 2007
the Group began to offer its e-learning programs to customers via CD-ROMs with pre-loaded learning content. Due to the rise in
internet usage, the Group has made its e-learning programs available on its website for its customers from 2007 onwards. Customers
need to pay a monthly fee in order to access and view the most up-to-date content on the website of the Group.
In
light of the increasing popularity of tablet devices, and to cater to the demand of young learners and users in rural areas of
Japan, the Group released its e-learning programs on smartphones and tablet devices for customer use beginning in 2012. The e-learning
programs of Force Club are designed for residents of Japan, and thus the e-learning programs are presented in Japanese only and
no translated version is available.
Beginning
in 2015, in addition to e-learning, the Group began to conduct offline classes, such as the Force Abacus School (teaching abacus
and arithmetic by using the Ishido method) and Force Robot Programming School (a program related to computer programming by using
tablet-type devices). At present any and all offline courses are, and will be, taught by teachers contracted by the Group.
The
Group regularly updates its e-learning materials and programs and performs an annual review of all courses. However, if any changes
in rules and regulations will affect the Group’s materials or programs (such as amendments to the Course of Study by Ministry
of Education, Culture, Sports, Science and Technology), such changes will be reflected in our materials and programs accordingly.
In particular, the learning resources supplementing elementary school, junior high school and senior high school curriculum would
be overhauled in conjunction with any revision of school curriculums, which generally takes place once in a four-year period.
In addition, most preparation courses for university entrance examinations and professional qualification examinations would be
revised at one to two-year intervals to cater to any changes to the examination syllabus. The website of the Group is updated
from time to time to reflect the updates and changes to the learning materials and programs. For users with smartphones and tablet
devices, these updates can also be downloaded from the Group’s website.
The
website of e-Learning Laboratory Co. Ltd can be found at the following link: https://e-ll.co.jp/en/ Users can find corporate information
on the website as well as the company’s business, services and social contribution activities. Visitors to the website can
find information on the Force Club (which will be detailed below), as well as MANA Digi (the company’s online portal site
for business education) and GAKU LOG (an online portal with information regarding educational institution, from kindergarten to
graduate school).
Business
Model
Apart
from using a conventional direct sales marketing strategy, the Group has also adopted multilevel marketing (“MLM”),
via the Premium Membership in the Force Club, in operating its businesses.
Since
2002, the Group has adopted a direct sales marketing strategy to market its e-learning programs. Subsequently, in 2007, the Group
gradually changed its marketing strategy from direct sales to MLM for the purposes of (i) establishing its brand name and penetrating
into the rural areas of Japan; (ii) promoting its products to wider customer groups through premium members; and (iii) incentivizing
premium members to recruit new members to join Force Club in order to increase the sales of its products and maximize profits
for the Group. Currently, the Group has no retail shops or other point-of-sale for its products (e-learning courses).
MLM
was adopted by the Group in order to expand the sales of its e-learning programs through its Force Club members. There are two
tiers of Force Club members, namely standard members and premium members. Among Force Club members, premium members get a tablet
device which entitles the premium members to life-time access of all of the Group’s e-learning educational content. Since
the Group’s e-learning education programs are distributed in the form of online downloads, it can be used both online and
offline.
-2-
Table
of Contents
Force
Club Membership
Force
Club members are those who intend to use products and services the Group offers. There are two tiers of Force Club members, namely
standard members and premium members. Premium members”) are those who wish to engage in recruiting new members (“Premium
Members”).
Premium
Members have to join a premium plan under which members are given rights to use all products and services of the Group, and engage
in activities to recruit new Force Club members and obtain monetary rewards and bonuses (special income or commissions) from such
activities. The Group enters into a contract (the “Premium Member Contract”) with each of its Premium Members. The
salient terms of the Premium Member Contract are as follows:
Eligibility
-
the following individuals/corporations are eligible to register as the Group’s Premium Members:
(i)
Individuals (other than students) who are 20 years old or above and are residents of Japan; and
(ii)
Corporations established in Japan.
Applicants
are required to provide proof of identity, such as driver’s license, passport or resident card for individual members or
a certified copy of the commercial registration for corporate members.
Payments
–
an applicant who wishes to be a Force Club Premium Member has to join the premium plan and pay an initial payment of JPY453,600,
comprising:
(i)
The one-off registration fee of JPY10,800;
(ii)
The premium package fee of JPY421,200; and
(iii)An
advanced payment of monthly membership fees for the initial two months amounting to JPY21,600.
Standard
members pay the same registration fee, but a reduced monthly rate and no premium package fee. Monthly membership fees payable
from the third month onwards will be automatically transmitted from a member’s bank account until termination of membership.
Based
on provisions described fully in the Premium Member Contract there are fees related to, but not exclusively limited to, cancellation
of membership and other stipulations pursuant to certain actions. If a Premium Member does not pay the monthly membership fee
before the prescribed due date, such Premium Member will be disqualified and will not be paid any commission with respect to his/her
recruitment performance in the preceding month, and Force Club services for such Premium Member will be suspended in the following
month. The commission and Force Club services for such Premium Member will be resumed in the subsequent month if the monthly membership
fee is paid within three months from the due date. Otherwise, the Premium Member is deemed to have withdrawn from his membership
if the monthly membership fee is not paid for three consecutive months after the payment due date.
In
addition, the Premium Member Contract sets out the rules of conduct required to be observed by Premium Members in recruiting new
members to join Force Club. The Group is entitled to suspend a Premium Member’s business activities, suspend his or her
commission, demand return of commission(s), remove his or her title, or terminate his or her membership if such Premium Member
violates or infringes the rules of conduct or other related laws or regulations, and/or acts in a way that is offensive to public
order and morals.
Upon
registration as Force Club members, applicants will be given a user ID to gain access to the e-learning programs through Force
Club platform. Force Club members will be given additional four user IDs after registration so that they can use a total of five
user IDs for accessing e-learning content through Force Club platform.
The
number of Force Club members has increased from approximately 3,989 as of September 30, 2008 to approximately 7,635 as of the
date of this report.
Competition
We
believe that our main competitors are those provide similar e-learning product offerings in Japan. Specifically, we believe our
biggest competitors at present are Recruit Marketing Partners Co., Ltd., which provides "Study Supplements", JustSystem
Corporation, which provides "Smile Zemi", Benesse Corporation which provides "Challenge Touch" and SuRaLa
Net Co., Ltd. which provides "SuRaLa", whose product offerings are also consistent of e-learning programs and services.
Current
Advertising
Our
advertising expenses are primarily comprised of, but not limited to, sales events hosted for sales agents, exhibitions to promote
and display company product offerings, signboards, and public relations activities.
Future
Plans
Over
the course of the next twelve months, the Group intends to focus on expanding its sales network in order to strengthen its business
activities. Currently, revenue is derived primarily from sales of the premium package. While it is the intention of the Group
to maintain this revenue stream, and to further increase the number of premium members of the Force Club, the Group also intends
to diversify its operations and develop additional business activities.
In
order to do so, the Group intends to focus on development of an online educational platform on which additional advertising income
can be generated. At present, there are no definitive plans that have been made regarding the implementation or direction of this
future online educational platform. However, we intend to begin efforts to hire additional personnel with extensive experience
in web marketing in order to assist in the development of our future platform.
Further,
it is the intention of the Group to begin development of a plan to set up after-school care facilities within Japan. Our exact
plan has not been finalized in any capacity, as we will need to hire additional personnel in order to assist with the formulation
of such plans with any level of specificity.
Employees
The
number of the employees of the Company, and all subsidiaries, as of the filing date is forty-six. All forty-six employees are
considered full-time employees. We do not presently have pension, health, annuity, insurance, stock options, profit sharing, or
similar benefit plans; however, we may adopt plans in the future. There are presently no personal benefits available to our officers/or
directors and or employees.
Government
Regulations
Companies
in Japan are regulated by the “Act on Specified Commercial Transactions in Japan.” The Company believes it is fully
in compliance with this Act, which outlines the rules and regulation regarding transactions arising from door-to-door sales, mail
order sales, telemarketing sales, and multilevel marketing transactions, among other transactions defined in the Act.
The
Group has legal counsel in Japan whom provides instruction, direction, and reviews Company activities to ensure, to the best of
Legal Counsel’s knowledge, that the Company is in compliance with the aforementioned Act.
-3-
Table
of Contents
Former
Business Plan
*The
below plans pertain to our operations up until December 6, 2018, when 100% of the Company’s equity interest in School TV
was transferred to Force Internationale, a Cayman Island limited company, without consideration. As of December 6, 2018, the below
business plan is no longer related, in any way, to the Company. Any language that is written in present tense, in the below business
plan, is only current as of the period in which School TV was a subsidiary of the Company.
We
operate three lines of business through our wholly owned subsidiary, School TV. These include:
-
The sale and distribution of health-related products;
-
The promotion of third-party consumer goods and services; and
-
RE/MAX realtor business in Kanagawa, Okinawa, and Tokyo, Japan.
Nature
of Business: Sale and Distribution of Health-Related Products
*The
chart above does not depict when we make direct sales to consumers.
School
TV sells primarily health related consumer goods to distributors and consumers alike. School TV primarily operates under the operational
model of “drop shipping.” It should be noted however, that School TV does hold inventory and sells products directly
to the consumer from time to time. For products sold through our drop shipping model, after a purchase order has been filled out
by a consumer the product is shipped out by School TV’s suppliers, rather than School TV. School TV sends a portion of the
proceeds from the sale of any our products directly to suppliers when sold through the drop shipping model. This accounts for
Exceed World’s cost of the good and any other related expenses. School TV is responsible for shipping goods sold that come
from its own supply of inventory.
School
TV has acquired its physical inventory, which will be explained in further detail below, from suppliers, and has plans to acquire
additional inventory from as of yet unidentified suppliers.
School
TV has future intentions to create an online marketplace to sell goods through but at this time, has not yet begun pursuing development
of such a marketplace or website. Plans and timeline of such also remain undetermined.
School
TV has no storefront and there is no guarantee that it will ever obtain a storefront. School TV is not actively seeking to acquire
a storefront and it relies exclusively on personal relationships of our Chief Executive Officer to sell its current inventory.
Health
Related Products
We
offer the below products for sale:
|
|
PURE
ESALA
|
POPOCA
|
Le
jeune
|
Magic
Soap in Bath
|
Becker
|
|
|
Supplement
|
Supplement
|
Supplement
|
Soap
|
Health
Beauty Equipment
|
|
|
|
|
|
|
|
Benefit
|
|
Discharges
excessive moisture and salt from the body; Relieves constipation.
|
Heats
the body; Promotes metabolism.
|
Antioxidation
from the body; Keeps moisture in the skin.
|
Free
of additives; Positive for skin health
|
Activation
of tissue by impulse waves
|
Principal
Ingredients
|
|
Potassium
chloride, Essence of vitamin Hyaluronic acid
|
Piper
longum extracts, Essential vitamins, Ginger and pepper
|
Placental
extracts, Collagen peptide, Essence of melon
|
Olive
oil, Palm oil, Clay called kaoline
|
N/A
|
Supplier
|
|
Exceed
Japan Co., Ltd.
|
Exceed
Japan Co., Ltd.
|
Exceed
Japan Co., Ltd.
|
Exceed
Japan Co., Ltd.
|
Amoto
Kyouiku Kenko Co., Ltd.
|
Unit
Price and Cost
|
Selling
Price JPY
|
4,000
|
4,000
|
9,800
|
2,400
|
58,320
|
Selling
Price USD
|
38.10
|
38.10
|
93.33
|
22.86
|
555.43
|
Cost
Price JPY
|
1,920
|
1,920
|
5,220
|
600
|
37,800
|
Cost
Price USD
|
18.29
|
18.29
|
49.71
|
5.71
|
360.00
|
Markup
%
|
|
52%
|
52%
|
46.7%
|
75%
|
35.2%
|
Process
of Ordering, Delivery and Payment
Should
a customer purchase a health related supplement or product directly from School TV, the Company provides the purchaser a “call
sheet” or in other words a purchase order form which includes but is not limited to, basic information on the purchaser,
the shipping address of the purchaser, and payment details of the purchaser. School TV offers standard methods of shipping for
its products at the cost of the purchaser. School TV bills the purchaser directly as the purchase is from School TV’s own
stock of inventory.
Purchasers
may also decide to purchase products through particular ‘distributors’ or sales agents of School TV. In this case
the distributors receive a commission decided upon by the Company on a case by case basis. Payments, billing, and shipping are
still handled by School TV.
For
products not available in School TV’s inventory, the Company utilizes the drop-shipping model described in the proceeding
paragraphs. In this case School TV is responsible for collecting payment and shipping information from the purchaser and then
provides this information to the supplier at which time the supplier bills the purchaser for the purchase of the product(s) and
handles any shipping of the product(s) thereafter. A commission is then paid to School TV for facilitating the transaction. Commissions
are on a case by case basis with no set commission.
Competition
- Health, Food, and Related Goods
Our
primary competition comes from other health food and supplement companies within Japan, but can also include global companies
who offer their products within Japan. Some of our competitors have larger resources than we have, a longer operating history,
and established connections throughout our target regions, which may make it difficult to penetrate into the market effectively.
Even if we do manage to penetrate into the health food and or supplement market with our products there can be no guarantee that
we will be able to continue to compete effectively with these established competitors.
Our
competition includes, but is not limited to, MUSO Co., Ltd, Asahi Food & Healthcare Co., Ltd., Daiichi Sankyo Co., Ltd., Taisho
Pharmaceutical Co., Ltd. and Takeda Pharmaceutical Co., Ltd.. Several of these competitors have an established track record in
Japan and offer highly valued products throughout the country, which may serve to make it more difficult for our own products
to gain attention as we begin operations.
Nature
of Business: Promotion of Third-Party Consumer Goods and Services
In
addition to our retail and drop-shipping business described above we also provide promotional services for third party businesses
and receive a commission upon the sale of such product(s) or service(s). Included below we have disclosed the name, and principal
good or service, of each third party business to whom we offer promotional services.
Products
and Services - Sales
Products
|
Supplier
of Product or Service
|
Internet
provider service(s)
|
Next
BB Co., Ltd.
|
Delivery
service(s) of Goods
|
Real
Web Co., Ltd.
|
Food
product(s)
|
Morita
Seicha
|
Food
product(s)
|
TOMOTO
Co., Ltd.
|
Promotional
activities are made through existing relationships of School TV.
Process
of Ordering, Delivery and Payment
Any
and all billing, fulfillment, and shipping (if applicable) related to this business is handled entirely by the supplier of each
product or service exclusively. We receive a commission upon facilitating a sale of a service or product that varies on a case
by case basis. We are not directly involved in the sale of any product or service in any way except for assisting with facilitating
the sale via promotional services.
Nature
of Business: RE/MAX Realtor Business in Kanagawa, Okinawa, and Tokyo, Japan
Basic
structure
(description
continued on next page)
Kanagawa
region and Okinawa region
On
July 7, 2017, our wholly owned subsidiary, School TV entered into a RE/MAX Regional Franchise Agreement with the master franchisor
of RE/MAX Japan, Kidding Co., to lease the franchise rights to two Japanese Prefectures, Kanagawa and Okinawa, in consideration
of JPY75,060,000 ($674,333) effective on July 7, 2017. Both lease terms are for a term of fifteen years and, after expiration
of the lease term, School TV will need to pay to renew its rights to franchise RE/MAX should the Company decide to do so at that
time. (*1, *2)
As
depicted in the chart above, School TV has leased the rights to be regional franchisor owner of RE/MAX brokerage offices in two
Prefectures (regions) of Japan from Kidding Co. Kidding Co. is the managing company for all of Japan’s RE/MAX operations.
School TV is not engaged in any real estate activities and any brokerage offices opened up in these prefectures under School TV
will be Japanese real estate companies with the proper licenses to carry out real estate sales and activities.
There
is no brokerage office in either of these Prefectures and we have not yet generated any income relating to these activities. School
TV is actively searching for real estate companies which will agree to open up, own and run RE/MAX broker offices for each region.
However, any and all plans regarding the identification of an appropriate and interested real estate company remain speculative
in nature and are still under development. (*3)
Tokyo
region
On
July 28, 2017, School TV entered into an Agreement with Investech Co. whereas it is agreed that School TV will provide monetary
support to Investech Co., a Japanese Company, which operates a real estate brokerage office of RE/MAX Japan in the Tokyo region
(the “Investech Agreement”). (*4)
On
July 28, 2017, School TV entered into a Memorandum of Understanding with Kidding Co., pursuant to which Kidding Co. consents for
School TV to provide monetary support to Investech Co., a Japanese Company, which operates a regional branch of RE/MAX Japan in
the Tokyo region (further details can be found in the agreement titled “Kidding MOU”).
The
Tokyo region has the largest real estate market in Japan. However, there is no regional owner in the Tokyo area. As such, Kidding
Co. conducts management of the RE/MAX location in Tokyo, Japan.
School
TV cannot, at this time, open and/or own a real estate brokerage office pursuant to Japanese regulations. However, they are not
forbidden from providing monetary support to such brokerage offices in exchange for a percentage of profits from the brokerage
offices. At present, School TV provides monetary support to Investech Co., the owner and operator of the RE/MAX brokerage office
located in Tokyo. Investech Co. has three sales agents.
From
time to time Kidding Co., may pay fees to School TV to cover some or all of the monetary support given to Investech Co., by School
TV.
(*5) Ikezoe Trust owns Kidding
Co., referred to in the chart as “Kidding”.
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Table
of Contents
Item
1A. Risk Factors.
Risks
Related to Our Company
If
we lose the services of members of our senior management team, then our financial condition and operating results could be harmed.
We
depend on the continued services of our Chief Executive Officer, Tomoo Yoshida, who also serves as our Chief Financial Officer,
Director, President, Secretary, and Treasurer, and our senior management team as it works to create an environment of inspiration,
motivation and entrepreneurial business success. Any significant leadership change or senior management transition involves inherent
risk and any failure to ensure a smooth transition could hinder our strategic planning, execution and future performance. While
we strive to mitigate the negative impact associated with changes to our senior management team, there may be uncertainty among
investors, employees, Force Club and Premium Members and others concerning our future direction and performance. Any disruption
in our operations or uncertainty could have a material adverse effect on our business, financial condition or results of operations.
Additionally,
although we do not believe that any of our senior management team are planning to leave or retire in the near future, we cannot
assure you that our senior managers will remain with us. The loss or departure of any member of our senior management team could
adversely impact our Force Club and Premium Member relations and operating results. If any of these executives do not remain with
us, our business could suffer. Also, our continued success will also be dependent on our ability to retain existing, and attract
additional, qualified personnel to meet our needs. We currently do not maintain “key person” life insurance with respect
to our senior management team.
Foreign
currency fluctuations and inflation in foreign markets could impact our financial position and results of operations.
In
2018, 100% of our sales occurred in Japan. In preparing our financial statements, we translate revenue and expenses in our markets
outside the United States from their local currencies into U.S. dollars using weighted-average exchange rates. Foreign currency
fluctuations can also cause losses and gains resulting from translation of foreign currency denominated balances on our balance
sheet. In addition, high levels of inflation and currency devaluations in any of our markets could negatively impact our balance
sheet and results of operations. It is difficult to predict future fluctuations and the effect these fluctuations may have upon
future reported results or our overall financial condition.
Difficult
economic conditions could harm our business.
Global
economic conditions continue to be challenging. Difficult economic conditions could adversely affect our business by causing a
decline in demand for our products, particularly if the economic conditions are prolonged or worsen. In addition, such economic
conditions may adversely impact access to capital and may otherwise adversely impact our operations and overall financial condition.
We
may become involved in legal proceedings and other matters that, if adversely adjudicated or settled, could adversely affect our
financial results.
We
have been, and may again become in the future, party to litigation, investigations or other legal matters. In general, litigation
claims could result in settlements or damages that could significantly affect financial results. It is not possible to predict
the final resolution of any litigation to which we may become party, and the impact of these matters on our business, results
of operations and financial condition could be material.
Government
authorities may question our tax or customs positions or change their laws in a manner that could increase our effective tax rate
or otherwise harm our business.
As
a U.S. company doing business globally, we are subject to all applicable tax laws. We are subject to audit by tax authorities.
If authorities challenge our tax positions, we may be subject to penalties, interest and payment of back taxes. The tax laws are
continually changing and are further subject to interpretation by the local government agencies. Such situations may require that
we defend our positions and/or adjust our operating procedures in response to such changes. Any or all of these potential risks
may increase our effective tax rate, increase our overall tax costs or otherwise harm our business.
We
may be held responsible for certain taxes or assessments relating to the activities of our Premium Members, which could harm our
financial condition and operating results.
Our
Premium Members are independent contractors and subject to taxation in their country of residency. In the event that our independent
distributors are deemed as employees rather than independent distributors under local laws and regulations, or the interpretation
of local laws and regulations, we may be held responsible for a variety of obligations that are imposed upon employers relating
to their employees, including withholding and related taxes plus any related assessments and penalties, which could harm our financial
condition and operating results. If our independent distributors were deemed to be employees rather than independent contractors,
we would also face the risk of increased liability for their actions.
Market
conditions and the strengths of competitors may harm our business.
Our
results of operations may be harmed by market conditions and competition in the future. In addition, our business may be negatively
impacted if we fail to adequately adapt to trends in consumer behavior and technologies.
-5-
Table
of Contents
The
intellectual property we utilize may infringe on the rights of others, resulting in costly litigation.
Currently,
the rights of 70% of our products are licensed from third party providers and the remaining 30% are owned by the Group. We expect
that competition for developing new products will become more severe in the competitive education industry. Under such circumstances,
if we depend on development of our own products, it would be time consuming and expensive. Rather, as our established sales system
has proved effective, we plan to continue to use the products developed by other companies. We expect to increase the ratio of
the products licensed by third parties.
In
recent years, there has been significant litigation involving patents and other intellectual property rights. In particular, there
has been an increase in the filing of suits alleging infringement of intellectual property rights, which pressure defendants into
entering settlement arrangements quickly to dispose of such suits, regardless of their merit. Other companies or individuals may
allege that we, or our members consumers, licensees or other parties indemnified by us infringe on their intellectual property
rights. Even if we believe that such claims are without merit, defending such intellectual property litigation can be costly,
distract management's attention and resources, and the outcome is inherently uncertain. Claims of intellectual property infringement
also might require us to redesign affected products, enter into costly settlement or license agreements, pay costly damage awards,
or face a temporary or permanent injunction prohibiting us from marketing or selling certain of our products. Any of these results
may adversely affect our financial condition.
If
we are unable to protect our intellectual property rights, our ability to compete could be negatively impacted.
Many
of our products rely on technologies developed or licensed by third parties, and we may not be able to obtain or continue to obtain
licenses and technologies from these third parties on reasonable terms or at all. The market for our products depends to a significant
extent upon the value associated with our product innovations and our brand equity. We rely upon patent, copyright, trademark
and trade secret laws in Japan and similar laws in other markets, and non-disclosure, confidentiality and other types of agreements
with our employees, members, consumers, suppliers and other parties, to establish, maintain and enforce our intellectual
property rights. Despite these measures, any of our intellectual property rights could be challenged, invalidated, circumvented
or misappropriated, or such intellectual property rights may not be sufficient to permit us to provide competitive advantages,
which could result in costly product redesign efforts, discontinuance of certain product offerings or other competitive harm.
The costs required to protect our intellectual property may be substantial or even not practical.
To
enforce and protect our intellectual property rights, we may initiate litigation against third parties. Any lawsuits that we initiate
could be expensive, take significant time and divert management's attention from other business concerns, and we may ultimately
fail to prevail or recover on any claim. Litigation also puts our intellectual property at risk of being invalidated or interpreted
narrowly. Additionally, we may provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate
and the damages or other remedies awarded, if any, may not be commercially valuable. The occurrence of any of these events may
adversely affect our financial condition or diminish our investments in this area.
If
we are unable to protect the confidentiality of our proprietary information and know-how, the value of our products could be adversely
affected.
We
rely on our licenses, copyrights, trade secrets, processes and know-how. Despite these measures, any of our intellectual property
rights could be challenged, invalidated, circumvented or misappropriated. We generally seek to protect this information by confidentiality,
non-disclosure and assignment of invention agreements with our employees, consultants, scientific advisors and third parties.
Our employees may leave to work for competitors. Our distributors or sales leaders may seek other opportunities. These agreements
may be breached, and we may not have adequate remedies for any such breach. In addition, our trade secrets may be disclosed to
or otherwise become known or be independently developed by competitors. To the extent that our current or former employees, distributors,
sales leaders, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as
to the rights in related or resulting know-how and inventions. If, for any of the above reasons, our intellectual property is
disclosed or misappropriated, it would harm our ability to protect our rights and adversely affect our financial condition.
A
failure of our internal controls over financial reporting or our compliance efforts could harm our stock price and our financial
and operating results or could result in fines or penalties.
We
have implemented internal controls to help ensure the accuracy and completeness of our financial reporting and have implemented
compliance policies and programs to help ensure that our employees and members comply with applicable laws and regulations.
Our internal audit team regularly audits our internal controls and various aspects of our business and compliance program, and
we regularly assess the effectiveness of our internal controls. There can be no assurance, however, that our internal or external
assessments and audits will identify all significant deficiencies or material weaknesses in our internal controls. If a material
weakness results in a material misstatement of our financial results, we would be required to restate our financial statements.
Cyber
security risks and the failure to maintain the integrity of company, employee, member data could expose us to data loss, litigation,
liability and harm to our reputation.
We
collect, store and transmit large volumes of company, employee and member data, including personally identifiable information,
for business purposes, including for transactional and promotional purposes, and our various information technology systems enter,
process, summarize and report such data. The integrity and protection of this data is critical to our business.
In
addition, a penetrated or compromised data system or the intentional, inadvertent or negligent release, misuse or disclosure of
data could result in theft, loss or fraudulent or unlawful use of company, employee or member data. Although we take measures
to protect the security, integrity and confidentiality of our data systems, we experience cyber-attacks of varying degrees and
types on a regular basis, and our infrastructure may be vulnerable to these attacks. Our security measures may also be breached
due to employee error or malfeasance, system errors or otherwise. Additionally, outside parties may attempt to fraudulently induce
employees, users, or customers to disclose sensitive information to gain access to our data or our users' or customers' data.
Any such breach or unauthorized access could result in the unauthorized disclosure, misuse or loss of sensitive information and
lead to significant legal and financial exposure, regulatory inquiries or investigations, loss of confidence by our members, disruption
of our operations and damage to our reputation. These risks are heightened as we work with third-party partners and as our members
use social media, as the partners and social media platforms could be vulnerable to the same types of breaches.
We
will need additional capital to expand our current operations or to enter into new fields of operations.
Currently,
a significant portion of our revenue derives from sales of our premium package. We expect this revenue to continue to grow. While
we will maintain and further increase the base for sale of this product, we also aim to expand our business by developing other
services as well as entering into other promising market. We will need to seek additional financing either through borrowing,
private offerings of our securities or through strategic partnerships and other arrangements with corporate partners. We cannot
be assured that additional financing will be available to us, or if available, will be available to us on terms favorable to us.
If adequate additional financing is not available on acceptable terms, we may not be able to implement our business development
plan or expand our operations.
If
we fail to effectively manage our growth our future business results could be harmed and our managerial and operational resources
may be strained.
As
we proceed with the expansion of our operations, we expect to experience significant and rapid growth in the scope and complexity
of our business. We will need to hire additional personnel in order to successfully advance our operations. This growth is likely
to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire
and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our potential
business, or the failure to manage growth effectively, could have a materially adverse effect on our business and financial condition.
Relationships
with our majority shareholder and its parent and affiliates may be on terms which are perceived by investors as more or less favorable
than those that could be obtained from third parties.
Our
majority shareholder, Force Internationale, presently owns 84.4% of our issued and outstanding common stock. While we anticipate
that such percentage will be diluted over time, our majority shareholder, its parent and affiliates will be perceived as having
influence over our management and operations, and any loans or other agreements which we may enter into with our majority shareholder
and its parents and affiliates may be perceived by investors as being on terms that are less favorable than we could otherwise
receive; such perception could adversely impact the price of our common stock. Similarly, such agreements could be perceived as
being on terms more favorable than those that could be obtained from third parties, and any unwillingness by our majority shareholder
and its parent and affiliates to engage with our common stock could discourage investors.
The
recently enacted JOBS Act will allow the Company to postpone the date by which it must comply with certain laws and regulations
intended to protect investors and to reduce the amount of information provided in reports filed with the SEC.
The
recently enacted JOBS Act is intended to reduce the regulatory burden on “emerging growth companies”. The Company
meets the definition of an “emerging growth company” and so long as it qualifies as an “emerging growth company,”
it will, among other things:
-be
exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that its independent registered public accounting
firm provide an attestation report on the effectiveness of its internal control over financial reporting;
-be
exempt from the "say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain
executive officers) and the "say on golden parachute” provisions (requiring a non-binding shareholder vote to approve
golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations)
of The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and certain disclosure requirements
of the Dodd-Frank Act relating to compensation of Chief Executive Officers;
-be
permitted to omit the detailed compensation discussion and analysis from proxy statements and reports filed under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”) and instead provide a reduced level of disclosure concerning
executive compensation; and
-be
exempt from any rules that may be adopted by the Public Company Accounting Oversight Board (the “PCAOB”) requiring
mandatory audit firm rotation or a supplement to the auditor’s report on the financial statements.
Although
the Company is still evaluating the JOBS Act, it currently intends to take advantage of all of the reduced regulatory and reporting
requirements that will be available to it so long as it qualifies as an “emerging growth company”. The Company has
elected not to opt out of the extension of time to comply with new or revised financial accounting standards available under Section
102(b)(1) of the JOBS Act. Among other things, this means that the Company's independent registered public accounting firm will
not be required to provide an attestation report on the effectiveness of the Company's internal control over financial reporting
so long as it qualifies as an “emerging growth company”, which may increase the risk that weaknesses or deficiencies
in the internal control over financial reporting go undetected. Likewise, so long as it qualifies as an “emerging growth
company”, the Company may elect not to provide certain information, including certain financial information and certain
information regarding compensation of executive officers, which would otherwise have been required to provide in filings with
the SEC, which may make it more difficult for investors and securities analysts to evaluate the Company. As a result, investor
confidence in the Company and the market price of its common stock may be adversely affected.
Notwithstanding
the above, we are also currently a “smaller reporting company”, meaning that we are not an investment company, an
asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company and have a public
float of less than $75 million and annual revenues of less than $50 million during the most recently completed fiscal year. In
the event that we are still considered a “smaller reporting company”, at such time are we cease being an “emerging
growth company”, the disclosure we will be required to provide in our SEC filings will increase, but will still be less
than it would be if we were not considered either an “emerging growth company” or a “smaller reporting company”.
Specifically, similar to “emerging growth companies”, “smaller reporting companies” are able to provide
simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley
Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal
control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among
other things, being required to provide only two years of audited financial statements in annual reports. Decreased disclosures
in our SEC filings due to our status as an “emerging growth company” or “smaller reporting company” may
make it harder for investors to analyze the Company’s results of operations and financial prospects.
We
are an “Emerging growth company” under the JOBS Act of 2012, and we cannot be certain if the reduced disclosure requirements
applicable to emerging growth companies will make our common stock less attractive to investors.
We
are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from
various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute
payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely
on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market
for our common stock and our stock price may be more volatile.
In
addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended
transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.
In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards
would otherwise apply to private companies. We are choosing to take advantage of the extended transition period for complying
with new or revised accounting standards. As a result, our financial statements may not be comparable to those of companies that
comply with public company effective dates.
We
will remain an “emerging growth company” for up to five years, although we will lose that status sooner if our revenues
exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of
our common stock that is held by non-affiliates exceeds $700 million.
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Table
of Contents
If
we fail to further penetrate existing markets, then the growth in sales of our products, along with our operating results, could
be negatively impacted.
We
plan to expand business around Asia. Recently the number of foreigners visiting Japan for sightseeing and other purposes is increasing
and there has been a growing interest in Japanese culture. We plan to start providing language education services which include
Japanese language education to foreigners.
Our
business could be materially and adversely affected as a result of natural disasters, other catastrophic events, acts of
war or terrorism, or cyber-security incidents and other acts by third parties.
We
depend on the ability of our business to run smoothly, including the ability of Premium Members to engage in their business building
activities and the ability of our programs and products to be available to consumers. Any material disruption caused by natural
disasters, including, but not limited to, fires, floods, hurricanes, volcanoes, and earthquakes; power loss or shortages; environmental
disasters; telecommunications or business information systems failures; acts of war or terrorism and other similar disruptions,
including those due to cyber-security incidents, ransomware, or other actions by third parties, could adversely affect our ability
to conduct business.
We
depend on the integrity and reliability of our information technology infrastructure, and any related inadequacies may result
in substantial interruptions to our business.
Our
ability to provide products and services to our Force Club and Premium Members depends on the performance and availability of
our core transactional systems. While we continue to invest in our information technology infrastructure, there can be no assurance
that there will not be any significant interruptions to such systems or that the systems will be adequate to meet all of our future
business needs.
The
most important aspect of our information technology infrastructure is the system through which we calculate, record and store
Premium Member sales and other incentives. We have encountered, and may encounter in the future, errors in our software or our
enterprise network, or inadequacies in the software and services supplied by our vendors, although to date none of these errors
or inadequacies has had a meaningful adverse impact on our business. Any such errors or inadequacies that we may encounter in
the future may result in substantial interruptions to our services and may damage our relationships with, or cause us to lose,
our Force Club and Premium Members if the errors or inadequacies impair our ability to calculate sales and pay royalty overrides,
bonuses and other incentives, which would harm our financial condition and operating results. Such errors may be expensive
or difficult to correct in a timely manner, and we may have little or no control over whether any inadequacies in software
or services supplied to us by third parties are corrected, if at all.
Anyone
who is able to circumvent our security measures could misappropriate confidential or proprietary information, including that of
third parties such as our Force Club and Premium Members, cause interruption in our operations, damage our computers or otherwise
damage our reputation and business. We may need to expend significant resources to protect against security breaches or to address
problems caused by such breaches. Any actual security breaches could damage our reputation and result in a violation of applicable
privacy and other laws, legal and financial exposure, including litigation and other potential liability, and a loss of confidence
in our security measures, which could have an adverse effect on our results of operations and our reputation as a brand, business
partner or employer. In addition, employee error or malfeasance or other errors in the storage, use or transmission of any such
information could result in a disclosure to third parties. If this should occur, we could incur significant expenses addressing
such problems. Since we collect and store Force Club and Premium Member and vendor information, these risks are heightened.
Risks
Relating to the Education Industry
It
is expected that if the birthrate continues to be declining in Japan, the Japanese education industry will face severe competition
and face reduced revenues over the medium and long terms. Taking such risk into consideration, we are planning to develop business
in the emerging countries in Asia and establish education platform adding usability to provision of content. However, if the change
in the market is faster than expected or conversion into new business is not promptly made, our revenue or financial condition
may be adversely affected.
Risks
Associated with Multi-Level Marketing
Our
failure to establish and maintain Force Club and Premium Member relationships for any reason could negatively impact sales of
our products and harm our financial condition and operating results.
We
distribute our products exclusively to and through Force Club and Premium Members, and we depend upon them directly for substantially
all of our sales. Our Force Club and Premium Members may voluntarily terminate their agreements with us at any time subject to
the termination provisions. To increase our revenue, we must increase the number of, or the productivity of, our Force Club and
Premium Members. Accordingly, our success depends in significant part upon our ability to recruit, retain and motivate a large
base of Premium Members. The loss of a significant number of Force Club or Premium Members for any reason could negatively impact
sales of our products and could impair our ability to attract new Force Club or Premium Members. Our operating results could be
harmed if our existing and new business opportunities and products do not generate sufficient interest to retain existing, and
attract new, Force Club and Premium Members.
Adverse
publicity associated with our products, ingredients or network marketing program, or those of similar companies, could harm our
financial condition and operating results.
The
size of our Force Club and Premium Members and the results of our operations may be significantly affected by the public’s
perception of the Company and similar companies. This perception is dependent upon opinions concerning:
|
•
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the
quality of our products;
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•
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the quality of similar
products distributed by other companies;
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•
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our Force Club and
Premium Members;
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Adverse
publicity concerning any actual or purported failure of our Company or our Force Club and Premium Members to comply with applicable
laws and regulations could have an adverse effect on the goodwill of our Company and could negatively affect our ability to attract,
motivate and retain Force Club and Premium Members, which would negatively impact our ability to generate revenue.
In
addition, our Force Club and Premium Members’ and consumers’ perception of the quality of our products and as well
as similar products distributed by other companies can be significantly influenced by media attention concerning our products
or similar products distributed by other companies. Adverse publicity questions the benefits of our or similar products could
lead to lawsuits or other legal challenges and could negatively impact our reputation, the market demand for our products, or
our general business.
Inability
of products to gain or maintain Force Club or Premium Membership could harm our business.
Our
operating results could be adversely affected if our products, business opportunities, and other initiatives do not generate sufficient
enthusiasm and economic benefit to retain our existing Force Club and Premium Members or to attract new Force Club or Premium
Members. Potential factors affecting the attractiveness of our products, business opportunities, and other initiatives include,
among other items, perceived product quality and value, product exclusivity or effectiveness, economic success in our business
opportunity, adverse media attention, or regulatory restrictions.
Challenges
to the form of our network marketing system could harm our business.
We
may be subject to challenges by government regulators regarding the form of our network marketing system. Legal and regulatory
requirements concerning the multi-level marketing industry generally do not include "bright line" rules and are inherently
fact-based and subject to interpretation. As a result, regulators and courts have discretion in their application of these laws
and regulations, and the enforcement or interpretation of these laws and regulations by government agencies or courts can change.
We could also be subject to challenges by private parties in civil actions. All of these actions and any future scrutiny of us
or our industry could generate negative publicity or further regulatory actions that could result in fines, restrict our ability
to conduct our business in our various markets, enter into new markets, motivate our membership, and attract consumers.
Improper
actions by our Members could harm our business.
Actions
by our Members, sanctioned by our Company or not, could violate applicable laws or regulations could result in government or third-party
actions against us, which could harm our business.
The
direct selling industry in Japan continues to experience regulatory and media scrutiny, and other direct selling companies have
been suspended from sponsoring activities in the past. Japan imposes strict requirements regarding how distributors approach
prospective customers. As a result, we continually evaluate and enhance our distributor compliance, education and training
efforts in Japan. However, we cannot be certain that our efforts will successfully prevent regulatory actions against us, including
fines, suspensions or other sanctions, or that the company and the direct selling industry will not receive further negative media
attention, all of which could harm our business.
The
loss of key Premium Members could negatively impact our growth and our revenue.
Currently
we have 20 key Premium Members. They are responsible for sales promotion to expand their group and provide support and compliance
training to the members of their group. The loss of a key Premium Member, or a sales leader or a group of leading sales leaders,
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.
Laws
and regulations may prohibit or severely restrict direct selling and cause our revenue and profitability to decline, and regulators
could adopt new regulations that harm our business.
Laws
and regulations in Japan are particularly stringent and subject to broad discretion in enforcement by regulators. These laws and
regulations are generally intended to prevent fraudulent or deceptive schemes, often referred to as "pyramid schemes,"
that compensate participants primarily for recruiting additional participants without significant emphasis on product sales to
consumers.
Complying
with these rules and regulations can be difficult, time-consuming and expensive, and may require significant resources. The laws
and regulations governing direct selling are modified from time to time, and, like other direct selling companies, we are subject
from time to time to government inquiries and investigations related to our direct selling activities. In addition, markets where
we currently do business could change their laws or regulations to prohibit direct selling. If we are unable to continue business
in existing markets or commence operations in new markets because of these laws, our revenue and profitability may decline.
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Risks
Related to Our Common Stock
The
shares of our common stock are currently not being traded and there can be no assurance that there will be an active market in
the future.
Our
shares of common stock are traded on the OTC Pink, which does not have the liquidity or corporate standards of the NYSE or NASDAQ
and as such, the price per share quoted on the OTC Pink may not reflect our value. There can be no assurance that there will be
an active market for our shares of common stock in the future. As a result, investors may not be able to liquidate their investment
or liquidate it at a price that reflects the value of the business.
It
is possible that we will not establish an active market unless our stock is listed for trading on an exchange, and we cannot assure
you that we will ever satisfy exchange listing requirements.
It
is possible that a significant trading market for our shares will not develop unless the shares are listed for trading on a national
exchange. Exchange listing would require us to satisfy a number of tests as to corporate governance, public float, shareholders,
equity, assets, market makers and other matters, some of which we do not currently meet. We cannot assure you that we will ever
satisfy listing requirements for a national exchange or that there ever will be significant liquidity in our shares.
If
we issue additional shares of our common stock, you will experience dilution of your ownership interest.
We
may issue shares of our authorized but unissued equity securities in the future. Such shares may be issued in connection with
raising capital, acquiring assets or firing or retaining employees or consultants. If we issue such shares, your ownership will
be diluted.
We
do not intend to pay dividends in the foreseeable future, and investors should not purchase our stock expecting to receive dividends.
We
have not paid any dividends on our common stock in the past, and we do not anticipate that we will pay dividends in the foreseeable
future. Accordingly, some investors may decline to invest in our common stock, and this may reduce the liquidity of our stock.
The
limitations on liability for officers, directors and employees under the laws of the State of Delaware and the existence of indemnification
rights for our officers, directors and employees could result in substantial expenditures by the Company and could discourage
lawsuits against our officers, directors and employees.
Our
Articles of Incorporation contain a specific provision that eliminates the liability of our officers and directors for monetary
damages to our company and shareholders. Further, we intend to provide indemnification to our officers and directors to the fullest
extent permitted by the laws of the State of Delaware. We may also enter into employment and other agreements in the future pursuant
to which we will have indemnification obligations. The foregoing indemnification obligations could result in the Company incurring
substantial expenditures to cover the cost of settlement or damage awards against officers and directors. These obligations may
discourage the filing of derivative litigation by our shareholders against our officers and directors even where such litigation
may be perceived as beneficial by our shareholders.
Because
the Company’s headquarters and assets are located in Japan, investors may experience difficulties in attempting to effect
service of process and to enforce judgments based upon US Federal Securities Laws against the Company and its non-US resident
officer and director.
While
we are organized under the laws of State of Delaware, our sole officer and director is a non-US resident and our headquarters
and assets are located outside the United States. Consequently, it may be difficult for investors to affect service of process
on our officer/director in the United States and to enforce, in the United States, judgments obtained in United States courts
against our officer/director based on the civil liability provisions of the United States securities laws. Since all our assets
will be located outside U.S. it may be difficult or impossible for U.S. investors to collect a judgment against us.
Due
to the fact that our sole officer and director is a non-US Citizen, and does not reside in the United States, an investor in the
United States may be limited in several ways.
As
an investor you may have difficulty with the following:
-Effecting
service of process within the United States against our sole officer and director;
-Enforcing
U.S. court judgments based upon the civil liability provisions of the U.S. federal securities laws against the above referenced
foreign person in the United States;
-Enforcing
in a Japanese court U.S. court judgments based on the civil liability provisions of the U.S. federal securities laws against the
above foreign person; and
-Bringing
an original action in a Japanese court to enforce liabilities based upon the U.S. federal securities laws against the above foreign
person.
Exceed
World will incur increased costs and compliance risks as a result of becoming a public company.
As
a public company, Exceed World will have additional legal, accounting and other expenses that Exceed World did not have prior
to acquiring Force Holdings and its subsidiaries.
-8-
Table
of Contents
Item
1B. Unresolved Staff Comments.
None.
Item
2. Properties.
Exceed
World, Inc. is provided office space rent free from e-Learning Laboratory Co., Ltd. at the address of 1-23-38-6F, Esakacho, Suita-shi.
e-Communications
Co., Ltd, a Japan corporation, is a wholly owned subsidiary of e-Learning Laboratory Co, Ltd., a Japan corporation.
e-Communications
sub-leases (rents) office space from its parent company, e-Learning Laboratory Co, Ltd., a Japan corporation at the following
addresses:
1-23-38-1F,
Esakacho, Suita-shi, Osaka Japan 1-23-38-6F, Esakacho, Suita-shi, Osaka Japan 1-23-38-8F, Esakacho, Suita-shi, Osaka Japan 1-8-40-1F,
Konan, Minato-ku, Tokyo, Japan. The aforementioned office spaces are shared by both e-Communications Co., Ltd. and e-Learning
Laboratory Co., Ltd,.
The
following table details the terms of the lease agreements for various properties leased by our wholly owned subsidiary, Force
International Holdings Limited, a Hong Kong company, and its wholly owned subsidiary, e-Learning Laboratory Co., Ltd., a Japan
company.
Work
space
|
Address
|
Lessee
|
Lessor
|
Monthly
Rent
|
Term
(Expiration of Lease)
|
Esaka,
Osaka, 1st floor
|
1-23-38-1F,
Esakacho, Suita-shi, Osaka Japan
|
e-Learning
Laboratory Co., Ltd.
|
F&M
Co., Ltd.
|
JPY
715,176
($6,329)
|
May
31, 2019
|
Esaka,
Osaka, 6th floor
|
1-23-38-6F,
Esakacho, Suita-shi, Osaka Japan
|
e-Learning
Laboratory Co., Ltd.
|
F&M
Co., Ltd.
|
JPY
1,190,700
($10,537)
|
July
31, 2019
|
Esaka,
Osaka, 8th floor
|
1-23-38-8F,
Esakacho, Suita-shi, Osaka Japan
|
e-Learning
Laboratory Co., Ltd.
|
F&M
Co., Ltd.
|
JPY
664,129
($5,877)
|
October
31, 2020
|
Tokyo
|
1-8-40-1F,
Konan,
Minato-ku,
Tokyo, Japan
|
e-Learning
Laboratory Co., Ltd.
|
Tokyu
Community Corp.
|
JPY
1,513,383
($13,393)
|
August
31, 2020
|
Wanchai,
Hong Kong
|
Unit
3306-12, 33/F.,
Shui
On Centre, 6-8 Harbour Road,
Wanchai,
Hong Kong
|
Force
International Holdings Limited
|
New
Trend Business Services (HK) Limited
|
HKD
9,000
($1,150)
|
June
30, 2019
|
Item
3. Legal Proceedings.
From
time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course
of our business.
We
are not currently involved in legal proceedings that could reasonably be expected to have a material adverse effect on our business,
prospects, financial condition or results of operations, and or those that are outside the ordinary routine litigation incidental
to our business.
Item
4. Mine Safety Disclosures.
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market
Information
We
are currently quoted on the OTC Marketplace. Our ticker symbol is EXDW.
Holders
Currently,
as of the date of this report, and as of our fiscal year end, there are approximately 60 shareholders of record of our common
stock and 32,700,000 shares of common stock deemed issued and outstanding.
Dividends
and Share Repurchases
We
have not paid any dividends to our shareholder. There are no restrictions which would limit our ability to pay dividends on common
equity or that are likely to do so in the future.
Issuer
Purchases of Equity Securities
None.
Equity
Compensation Plan Information
Not
applicable.
Recent
Sales of Unregistered Securities; Uses of Proceeds from Registered Securities
Recent
Sales of Unregistered Securities; Uses of Proceeds from Registered Securities
On
September 26, 2018, Force Internationale Limited, a Cayman Island limited company (“Force Internationale”) entered
into a Share Purchase Agreement with its wholly-owned subsidiary, e-Learning Laboratory Co., Ltd., a Japan corporation (“e-Learning”)
which, at the time, owned 74.5% of the Company. Under this Share Purchase Agreement, e-Learning transferred its 74.5% equity interest
in the Company (14,894,000 shares of common stock of Exceed World, Inc.) to Force Internationale. As consideration for this transfer,
Force Internationale paid $26,000.00 to e-Learning. Immediately thereafter, the Company entered into a Share Purchase Agreement
with Force Internationale, to acquire 100% of Force International Holdings Limited, a Hong Kong limited company (“Force
Holdings”), which is the 100% beneficial owner of e-Learning. In consideration of this agreement, the Company issued 12,700,000
common shares to Force Internationale. The result of these transactions is that Force Internationale became a 84.4% owner of the
Company, the Company (a 100% owner of Force Holdings), became 100% beneficial owner of e-Learning. Prior to the Share Purchase
Agreements, Force Internationale, through its subsidiaries, was an indirect owner of 74.5% of the Company and subsequent to the
Share Purchase Agreements, Force Internationale is a direct beneficial owner of 84.4% of the Company. The Share Purchase Agreements
were approved by the board of directors of each of the Company, Force Internationale, Force Holdings, and e-Learning. Copies of
the Share Purchase Agreements are included as Exhibit 2.1 and Exhibit 2.2 to the Form 8-K filed on October 2, 2018 and is hereby
incorporated by reference.
-9-
Table
of Contents
Item
6. Selected Financial Data.
EXCEED
WORLD, INC.
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
As
of
|
|
As
of
|
|
|
|
September
30, 2018
|
|
September
30, 2017
|
|
|
|
|
|
Restated
|
ASSETS
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
22,737,755
|
$
|
13,226,698
|
|
Marketable
securities
|
|
830,331
|
|
1,398,133
|
|
Accounts
receivable, trade, net
|
|
1,032
|
|
1,011
|
|
Short-term
loan receivable
|
|
395,848
|
|
-
|
|
Income
tax recoverable
|
|
425,303
|
|
-
|
|
Prepaid
expenses
|
|
295,510
|
|
326,612
|
|
Inventories,
net
|
|
380,925
|
|
1,282,610
|
|
Other
current assets
|
|
255,030
|
|
439,040
|
|
|
|
|
|
|
TOTAL
CURRENT ASSETS
|
|
25,321,734
|
|
16,674,104
|
|
|
|
|
|
|
Non-current
Assets
|
|
|
|
|
|
Long-term
prepaid expenses
|
$
|
58,341
|
$
|
343,698
|
|
Deferred
tax assets
|
|
287,157
|
|
195,908
|
|
Property,
plant and equipment, net
|
|
343,991
|
|
457,118
|
|
Other
intangible assets, net
|
|
3,228,655
|
|
3,406,262
|
|
|
|
|
|
|
TOTAL
ASSETS
|
$
|
29,239,878
|
$
|
21,077,090
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts
payable, trade
|
$
|
6,243,562
|
$
|
1,094,635
|
|
Accrued
expenses
|
|
65,811
|
|
70,489
|
|
Income
tax payable
|
|
-
|
|
350,995
|
|
Deposit
receipt
|
|
100,657
|
|
47
|
|
Deferred
income
|
|
4,460,652
|
|
1,845,457
|
|
Capital
lease obligations-current portion
|
|
9,327
|
|
9,244
|
|
Due
to related parties
|
|
338,725
|
|
368,527
|
|
Due
to director
|
|
382,544
|
|
166,660
|
|
Other
accounts payable
|
|
1,452,228
|
|
1,975,261
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
13,053,506
|
|
5,881,315
|
|
|
|
|
|
|
Capital
lease obligations-long term portion
|
|
41,786
|
|
51,664
|
Long-term
note payable
|
|
483,814
|
|
489,019
|
Long-term
deferred income
|
|
2,183
|
|
-
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
13,581,289
|
|
6,421,998
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
Preferred
stock ($0.0001 par value, 20,000,000 shares authorized;
|
|
|
|
|
|
none
issued and outstanding as of September 30, 2018 and 2017)
|
|
-
|
|
-
|
|
Common
stock ($0.0001 par value, 500,000,000 shares authorized,
|
|
|
|
|
|
32,700,000
and 20,000,000 shares issued and outstanding
|
|
|
|
|
|
as
of September 30, 2018 and 2017)
|
|
3,270
|
|
2,000
|
|
Additional
paid-in capital
|
|
99,440
|
|
59,679
|
|
Accumulated
earnings
|
|
15,679,291
|
|
14,520,667
|
|
Accumulated
other comprehensive income (loss)
|
|
(123,412)
|
|
72,746
|
|
|
|
|
|
|
TOTAL
SHAREHOLDERS' EQUITY
|
|
15,658,589
|
|
14,655,092
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
29,239,878
|
$
|
21,077,090
|
EXCEED
WORLD, INC.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
September
30, 2018
|
|
September
30, 2017
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
Revenues
|
$
|
34,878,988
|
$
|
36,860,282
|
|
|
|
|
|
|
Cost
of revenues
|
|
20,374,116
|
|
22,219,015
|
|
|
|
|
|
|
Gross
profit
|
|
14,504,872
|
|
14,641,267
|
|
|
|
|
|
|
OPERATING
EXPENSE
|
|
|
|
|
|
Selling
and distributions expenses
|
|
1,989,146
|
|
1,120,970
|
|
Administrative
expenses
|
|
11,120,102
|
|
9,724,573
|
Total
operating expenses
|
|
13,109,248
|
|
10,845,543
|
|
|
|
|
|
|
Income
from operations
|
|
1,395,624
|
|
3,795,724
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
Other
income
|
|
266,946
|
|
192,089
|
|
Change
in fair value of marketable securities
|
|
-
|
|
781,681
|
Total
other income
|
|
266,946
|
|
973,770
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
Change
in fair value of marketable securities
|
|
568,990
|
|
-
|
|
Interest
expenses
|
|
6,082
|
|
2,801
|
|
Other
expenses
|
|
18,171
|
|
-
|
Total
other expenses
|
|
593,243
|
|
2,801
|
|
|
|
|
|
|
Net
income before tax
|
|
1,069,327
|
|
4,766,693
|
|
|
|
|
|
|
Income
tax expense (credit)
|
|
(89,297)
|
|
533,439
|
|
|
|
|
|
|
NET
INCOME
|
$
|
1,158,624
|
$
|
4,233,254
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
(196,158)
|
|
(1,210,808)
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE INCOME
|
$
|
962,466
|
$
|
3,022,446
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS PER COMMON SHARE
|
$
|
0.06
|
$
|
0.21
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED
|
|
|
|
|
|
20,173,973
|
|
20,000,000
|
-10-
Table
of Contents
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Certain
statements, other than purely historical information, including estimates, projections, statements relating to our business plans,
objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking
statements.”
These
forward-looking statements generally are identified by the words “believes,” “project,” “expects,”
“anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,”
“will,” “would,” “will be,” “will continue,” “will likely result,”
and similar expressions.
Forward-looking
statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual
results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects
on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability
of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also
be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
The
Company and Force International Holdings Limited, a Hong Kong limited company, and its subsidiaries share the same business plan,
which is to provide education services.
Liquidity
and Capital Resources
As
of September 30, 2018 and 2017, we had cash and cash equivalents in the amount of $22,737,755 and 13,226,698, respectively. The
increase in cash is attributed to the increase of accounts payable and deferred income. These accounts payable were mainly unpaid
commissions to force club premium members and these payments were completed as of the date of this report. Currently, our cash
balance is sufficient to fund our operations without the need for additional funding.
Revenues
We
recorded revenue of $34,878,988 for the year ended September 30, 2018 as opposed to $36,860,282 for the year ended September 30,
2017. The decrease in revenue, in our opinion, is attributed to a decrease in recruitment activities of premium force club members
in the first half of the year from 2017 to 2018.
Net
Income
We
recorded net income of $1,158,624 for the year ended September 30, 2018 and net income of $4,233,254 for the year ended September
30, 2017. The decrease in net income is attributed to a decrease in revenue from 2017 to 2018.
Cash
flow
For
the year ended September 30, 2018 and 2017, we generated cash flows from operations in the amount of $10,612,724 and $6,093,381,
respectively.
Working
capital
As
of September 30, 2018 and 2017, we had working capital of $12,268,228 and $10,792,789, respectively. The increase in working capital
is attributed to an increase in cash from 2017 to 2018.
Advertising
Advertising
costs are expensed as incurred and included in selling and distributions expenses. Advertising expenses were $913,480 and $761,891
for the years ended September 30, 2018 and 2017, respectively. Advertising expenses were comprised of, but not limited to, sales
events hosted for sales agents, exhibitions to promote and display company product offerings, signboards, and public relations
activities.
Future
Plans
Over
the course of the next twelve months, we the “Group” (which is comprised of the Company, Force International Holdings
Limited, a Hong Kong limited company, and its subsidiaries) intends to focus on expanding its sales network in order to strengthen
its business activities. Currently, revenue is derived primarily from sales of the Group’s Force Club premium package. While
it is the intention of the Group to maintain this revenue stream, and to further increase the number of premium users of the Force
Club, the Group also intends to diversify its operations and develop additional business activities.
In
order to do so, the Group intends to focus on development of an online educational platform on which additional advertising income
can be generated. At present, there are no definitive plans that have been made regarding the implementation or direction of this
future online educational platform. However, we intend to begin efforts to hire additional personnel with extensive experience
in web marketing in order to assist in the development of our future platform.
Further,
it is the intention of the group to begin development of a plan to set up after-school care facilities within Japan. Our exact
plan has not been finalized in any capacity, as we will need to hire additional personnel in order to assist with the formulation
of such plans with any level of specificity.
Item
7A. Quantitative and Qualitative Disclosures about Market Risk.
As
a “smaller reporting company”, we are not required to provide the information required by this Item.
-11-
Table
of Contents
Item
8. Financial Statements and Supplementary Data.
Exceed
World, Inc.
FINANCIAL
STATEMENTS
INDEX
TO FINANCIAL STATEMENTS
|
|
Pages
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F2
|
|
|
|
Consolidated
Balance Sheets
|
|
F3
|
|
|
|
Consolidated
Statements of Operations and Comprehensive Income
|
|
F4
|
|
|
|
Consolidated
Statements of Shareholders' Equity
|
|
F5
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
F6
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F7-F12
|
-F1-
Table
of Contents
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO
THE STOCKHOLDERS AND THE BOARD OF DIRECTORS OF
EXCEED
WORLD, INC.
Opinion
on the Consolidated Financial Statements
We
have audited the accompanying consolidated balance sheets of Exceed World, Inc. (the "Company") and its subsidiaries
(collectively referred to as the “Group”) as of September 30, 2018 and 2017, the related consolidated statements of
operations and comprehensive income, consolidated statements of shareholders’ equity, and consolidated statements of cash
flows for the years ended September 30, 2018 and 2017, and the related notes (collectively referred to as the “consolidated
financial statements”).
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Group as of September 30, 2018 and 2017, and the results of its operations and its cash flows for the year then ended,
in conformity with generally accepted accounting principles in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the
Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinions.
We
have served as the Company’s auditor since 2018.
Lo
and Kwong C.P.A. Company Limited
Hong
Kong
January
14, 2019
-F2-
Table
of Contents
EXCEED
WORLD, INC.
|
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
As
of
|
|
As
of
|
|
|
|
September
30, 2018
|
|
September
30, 2017
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
Cash
and cash equivalents
|
$
|
22,737,755
|
$
|
13,226,698
|
|
Marketable
securities
|
|
830,331
|
|
1,398,133
|
|
Accounts
receivable, trade, net
|
|
1,032
|
|
1,011
|
|
Short-term
loan receivable (Note 6)
|
|
395,848
|
|
-
|
|
Income
tax recoverable
|
|
425,303
|
|
-
|
|
Prepaid
expenses
|
|
295,510
|
|
326,612
|
|
Inventories,
net
|
|
380,925
|
|
1,282,610
|
|
Other
current assets
|
|
255,030
|
|
439,040
|
|
|
|
|
|
|
TOTAL
CURRENT ASSETS
|
|
25,321,734
|
|
16,674,104
|
|
|
|
|
|
|
Non-current
Assets
|
|
|
|
|
|
Long-term
prepaid expenses
|
$
|
58,341
|
$
|
343,698
|
|
Deferred
tax assets
|
|
287,157
|
|
195,908
|
|
Property,
plant and equipment, net (Note 7)
|
|
343,991
|
|
457,118
|
|
Other
intangible assets, net (Note 8)
|
|
3,228,655
|
|
3,406,262
|
|
|
|
|
|
|
TOTAL
ASSETS
|
$
|
29,239,878
|
$
|
21,077,090
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
Accounts
payable, trade
|
$
|
6,243,562
|
$
|
1,094,635
|
|
Accrued
expenses
|
|
65,811
|
|
70,489
|
|
Income
tax payable
|
|
-
|
|
350,995
|
|
Deposit
receipt
|
|
100,657
|
|
47
|
|
Deferred
income
|
|
4,460,652
|
|
1,845,457
|
|
Capital
lease obligations-current portion
|
|
9,327
|
|
9,244
|
|
Due
to related parties
|
|
338,725
|
|
368,527
|
|
Due
to director
|
|
382,544
|
|
166,660
|
|
Other
accounts payable
|
|
1,452,228
|
|
1,975,261
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
13,053,506
|
|
5,881,315
|
|
|
|
|
|
|
Capital
lease obligations-long term portion
|
|
41,786
|
|
51,664
|
Long-term
note payable (Note 9)
|
|
483,814
|
|
489,019
|
Long-term
deferred income
|
|
2,183
|
|
-
|
|
|
|
|
|
|
TOTAL
LIABILITIES
|
|
13,581,289
|
|
6,421,998
|
|
|
|
|
|
|
Shareholders'
Equity
|
|
|
|
|
|
Preferred
stock ($0.0001 par value, 20,000,000 shares authorized;
|
|
|
|
|
|
none
issued and outstanding as of September 30, 2018 and 2017)
|
|
-
|
|
-
|
|
Common
stock ($0.0001 par value, 500,000,000 shares authorized,
|
|
|
|
|
|
32,700,000
and 20,000,000 shares issued and outstanding
|
|
|
|
|
|
as
of September 30, 2018 and 2017)
|
|
3,270
|
|
2,000
|
|
Additional
paid-in capital
|
|
99,440
|
|
59,679
|
|
Accumulated
earnings
|
|
15,679,291
|
|
14,520,667
|
|
Accumulated
other comprehensive income (loss)
|
|
(123,412)
|
|
72,746
|
|
|
|
|
|
|
TOTAL
SHAREHOLDERS' EQUITY
|
|
15,658,589
|
|
14,655,092
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
29,239,878
|
$
|
21,077,090
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
-F3-
Table
of Contents
EXCEED
WORLD, INC.
|
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
September
30, 2018
|
|
September
30, 2017
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
Revenues
|
$
|
34,878,988
|
$
|
36,860,282
|
|
|
|
|
|
|
Cost
of revenues
|
|
20,374,116
|
|
22,219,015
|
|
|
|
|
|
|
Gross
profit
|
|
14,504,872
|
|
14,641,267
|
|
|
|
|
|
|
OPERATING
EXPENSE
|
|
|
|
|
|
Selling
and distributions expenses
|
|
1,989,146
|
|
1,120,970
|
|
Administrative
expenses
|
|
11,120,102
|
|
9,724,573
|
Total
operating expenses
|
|
13,109,248
|
|
10,845,543
|
|
|
|
|
|
|
Income
from operations
|
|
1,395,624
|
|
3,795,724
|
|
|
|
|
|
|
Other
income
|
|
|
|
|
|
Other
income
|
|
266,946
|
|
192,089
|
|
Change
in fair value of marketable securities
|
|
-
|
|
781,681
|
Total
other income
|
|
266,946
|
|
973,770
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
Change
in fair value of marketable securities
|
|
568,990
|
|
-
|
|
Interest
expenses
|
|
6,082
|
|
2,801
|
|
Other
expenses
|
|
18,171
|
|
-
|
Total
other expenses
|
|
593,243
|
|
2,801
|
|
|
|
|
|
|
Net
income before tax
|
|
1,069,327
|
|
4,766,693
|
|
|
|
|
|
|
Income
tax expense (credit)
|
|
(89,297)
|
|
533,439
|
|
|
|
|
|
|
NET
INCOME
|
$
|
1,158,624
|
$
|
4,233,254
|
|
|
|
|
|
|
OTHER
COMPREHENSIVE INCOME
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
(196,158)
|
|
(1,210,808)
|
|
|
|
|
|
|
TOTAL
COMPREHENSIVE INCOME
|
$
|
962,466
|
$
|
3,022,446
|
|
|
|
|
|
|
BASIC
AND DILUTED NET LOSS PER COMMON SHARE
|
$
|
0.06
|
$
|
0.21
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED
|
|
|
|
|
|
20,173,973
|
|
20,000,000
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
-F4-
Table
of Contents
EXCEED
WORLD, INC.
|
|
CONSOLIDATED
STATEMENT OF SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED
|
|
|
|
|
|
|
|
|
|
|
ADDITIONAL
|
|
OTHER
|
|
|
|
|
|
|
COMMON
STOCK (*)
|
|
PAID
IN
|
|
COMPREHENSIVE
|
|
EARNINGS
|
|
|
|
|
NUMBER
|
|
AMOUNT
|
|
CAPITAL
|
|
INCOME
(LOSS)
|
|
(DEFICIT)
|
|
TOTALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
- September 30, 2016
|
400,000,000
|
$
|
40,000
|
$
|
21,679
|
$
|
1,283,554
|
$
|
10,287,413
|
$
|
11,632,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
cancellation
|
(380,000,000)
|
|
(38,000)
|
|
38,000
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
-
|
|
-
|
|
-
|
|
-
|
|
4,233,254
|
|
4,233,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
-
|
|
-
|
|
-
|
|
(1,210,808)
|
|
-
|
|
(1,210,808)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– September 30, 2017
|
20,000,000
|
$
|
2,000
|
$
|
59,679
|
$
|
72,746
|
$
|
14,520,667
|
$
|
14,655,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for the acquisition of subsidiaries
|
12,700,000
|
|
1,270
|
|
(1,270)
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal
of a subsidiary under common control
|
-
|
|
-
|
|
15,031
|
|
-
|
|
-
|
|
15,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization
of the Group
|
-
|
|
-
|
|
26,000
|
|
-
|
|
-
|
|
26,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
-
|
|
-
|
|
-
|
|
-
|
|
1,158,624
|
|
1,158,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
|
-
|
|
-
|
|
-
|
|
(196,158)
|
|
-
|
|
(196,158)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
– September 30, 2018
|
32,700,000
|
$
|
3,270
|
$
|
99,440
|
$
|
(123,412)
|
$
|
15,679,291
|
$
|
15,658,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
|
(*)
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.
-F5-
Table
of Contents
EXCEED
WORLD, INC.
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
Year
ended
|
|
Year
ended
|
|
|
September
30, 2018
|
|
September
30, 2017
|
|
|
|
|
(Restated)
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
Net
income
|
$
|
1,158,624
|
$
|
4,233,254
|
Adjustments
to reconcile net income to net cash from (used in) operating activities:
|
|
|
|
|
Depreciation
of property, plant and equipment
|
|
100,229
|
|
110,739
|
Loss
on written off of property, plant and equipment
|
|
11,178
|
|
-
|
Loss
on written off of intangible asset
|
|
6,275
|
|
-
|
Amortization
of intangible asset
|
|
1,020,423
|
|
988,526
|
Change
in fair value of marketable securities
|
|
568,990
|
|
(781,681)
|
Interest
expenses
|
|
6,082
|
|
2,801
|
Changes
in operating assets and liabilities:
|
|
|
|
|
Accounts
receivable
|
|
(32)
|
|
(1,011)
|
Other
current assets
|
|
179,344
|
|
741,691
|
Inventories
|
|
888,033
|
|
(140,762)
|
Prepaid
expenses
|
|
26,221
|
|
62,485
|
Accounts
payable
|
|
5,160,578
|
|
399,877
|
Deferred
income
|
|
2,589,542
|
|
(344,230)
|
Income
tax recoverable
|
|
(1,072,527)
|
|
461,036
|
Deposit
receipts
|
|
100,611
|
|
47
|
Accrued
expenses
|
|
(3,928)
|
|
70,489
|
Other
payables
|
|
(311,020)
|
|
184,906
|
Due
to related parties
|
|
(29,485)
|
|
114,203
|
Due
to director
|
|
213,586
|
|
(8,989)
|
Net
cash provided by operating activities
|
|
10,612,724
|
|
6,093,381
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
-
|
|
(37,583)
|
Reorganization
of the Company
|
|
26,000
|
|
-
|
Payment
for acquisition of intangible assets
|
|
(593,662)
|
|
(792,903)
|
Net
cash used in investing activities
|
|
(567,662)
|
|
(830,486)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
Interest
expense paid
|
|
(6,082)
|
|
(2,801)
|
Repayment
of capital lease obligation
|
|
(9,146)
|
|
(5,992)
|
Proceeds
from long-term note payables
|
|
-
|
|
489,019
|
Short-term
loan
|
|
(395,848)
|
|
-
|
Net
cash (used in) provided by financing activities
|
|
(411,076)
|
|
480,226
|
|
|
|
|
|
Net
effect of exchange rate changes on cash
|
|
(122,929)
|
|
(49,350)
|
|
|
|
|
|
Net
change in cash and cash Equivalents
|
$
|
9,511,057
|
$
|
5,693,771
|
Cash
and cash equivalents - beginning of period
|
|
13,226,698
|
|
7,532,927
|
Cash
and cash equivalents - end of period
|
$
|
22,737,755
|
$
|
13,226,698
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Income
taxes (paid) refund
|
$
|
(553,889)
|
$
|
348,295
|
|
|
|
|
|
See
Notes to Consolidated Financial Statements.
|
-F6-
Table
of Contents
EXCEED
WORLD, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2018
NOTE
1 - ORGANIZATION, DESCRIPTION OF BUSINESS, AND BASIS OF PRESENTATION
Exceed
World, Inc., (the “Company”), was incorporated under the laws of the State of Delaware on November 25, 2014.
On
September 26, 2018, e-Learning Laboratory Co., Ltd. (“e-Learning”), a direct wholly owned subsidiary of Force International
Holdings Limited, which was incorporated in Hong Kong with limited liability (“Force Holdings”), entered into a share
purchase agreement with Force Internationale Limited (“Force Internationale”), the holding company of Force Holdings,
in which e-Learning agreed to sell and Force Internationale agreed to purchase 74.5% equity interest of the Company at a consideration
of US$26,000.
On
September 26, 2018, the same date, Force Internationale entered into a share purchase agreement with the Company, in which Force
Internationale agreed to sell and the Company agreed to purchase 100% equity interest of Force Holdings. In consideration of the
agreement, the Company issue 12,700,000 common stock at US$1 each to Force Internationale. The results of these transactions are
that Force Internationale is a 84.4% owner of the Company and the Company is a 100% owner of Force Holdings. (the “Reorganization”).
As
of September 30, 2018, we operate through our wholly owned subsidiaries, which are 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;
-
Educational service provider through the distributors named “Force Club”
The
Company has elected September 30th as its fiscal year end.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES
OF CONSOLIDATION
The
accompanying consolidated financial statements include the accounts of the Company and its subsidiaries (the “Group”).
Inter-company accounts and transactions have been eliminated.
Name
of Subsidiary
|
State
or Other Jurisdiction of Incorporation or Organization
|
School
TV Co., Ltd.
|
Japan
|
Force
International Holdings Limited
|
Hong
Kong
|
e-Learning
Laboratory Co., Ltd.
|
Japan
|
e-Communications
Co., Ltd. (“e-Communications”)
|
Japan
|
Universe
Incorporation Limited*
|
Hong
Kong
|
*
It had been disposed of during the year ended September 30, 2018
COMBINED
FINANCIAL STATEMENTS
The
Company and Force Holdings were under common control before and after the Reorganization, we are required under the generally
accepted accounting principles in the United States of America (“U.S. GAAP”) to account for this common control acquisition
in a manner similar to the pooling of interests method of accounting. Under this method of accounting, our consolidated financial
statements as of September 30, 2018 and 2017 reflect Force Holdings historical carryover basis in the assets and liabilities instead
of reflecting the fair market value of the assets and liabilities. We have also retrospectively recast our financial statements
to combine the operating results of the Company and Force Holdings from the date common control began, January 12, 2016.
USE
OF ESTIMATES
The
presentation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities
as the date of the financial statements and the reported amounts of revenue and expenses reported in those financial statements.
Certain significant accounting policies that contain subjective management estimates and assumptions include those related to
going concern, allowance for doubtful accounts, valuation allowance on deferred income tax, write-down in value of inventory 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 date of purchase are classified
as cash equivalents.
-F7-
Table
of Contents
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.
MARKETABLE
SECURITIES
Investments
in marketable securities with readily determinable fair values and all investments in equity securities are reported at their
fair values as quoted by market exchanges in the consolidated balance sheets. Unrealized and realized gains and losses are included
in the change in fair value of marketable securities.
INVENTORIES
Inventories,
consisting of educational products accounted for using the weighted average method and health related products accounted for using
the first-in, first-out method, are valued at the lower of cost and market value.
PROPERTY,
PLANT AND EQUIPMENT
Property,
plant and equipment are stated at cost less depreciation and impairment loss. Depreciation is calculated using the straight-line
method or reducing balance method at the following estimated useful life:
Building
|
Over
the shorter of the lease terms or 10 years on straight-line method
|
Equipment
|
2
to 15 years on reducing balance method
|
Vehicle
|
3
years on reducing balance method
|
Assets
held under capital lease obligation are depreciated over their expected useful lives on the same basis as owned assets. However,
when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over
the shorter of the lease term and their useful lives.
INTANGIBLE
ASSETS
The
Company amortizes its intangible assets with definite useful lives over their estimated useful lives and 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.
The
intangible assets with definite useful life are amortized using the straight-line basis over the following estimated useful life:
Software
|
5
years
|
Franchise
rights
|
15
years
|
Membership
|
15
years – 30 years
|
IMPAIRMENT
OF LONG-LIVED ASSETS
The
carrying value of property, plant and equipment and intangible assets subject to amortization is evaluated whenever events or
changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be measured
by the amount by which the carrying value of the asset exceeds the fair value of the asset. Management has determined there were
no events or changes in circumstances that required an impairment during the years ended September 30, 2018 and 2017.
-F8-
Table
of Contents
REVENUE
RECOGNITION
The
Company recognizes revenue from sales of goods when the following criteria have been met: (1) persuasive evidence of an arrangement
exists; (2) delivery has occurred and risk of loss has passed; (3) the fee is fixed or determinable; and (4) collectability is
reasonably assured. When payments are received in advance of recognizing revenue, the Company includes the amount in deferred
income on the consolidated balance sheets. Membership income of e-learning educational services was recognized when the membership
services are rendered.
ADVERTISING
Advertising
costs are expensed as incurred and included in selling and distributions expenses. Advertising expense was $913,480 and $761,891
for the years ended September 30, 2018 and 2017, respectively.
FOREIGN
CURRENCY TRANSLATION
The
Company maintains its books and records in its local currencies, Japanese YEN (“JPY”) and Hong Kong Dollars (“HK$”),
which are the functional currencies as being the primary currencies of the economic environment in which their operations are
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 consolidated statements of operations and comprehensive income.
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 Group 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 Group into US$1 has been made at the following exchange rates:
|
September
30, 2018
|
Current
JPY: US$1 exchange rate
|
113.68
|
Average
JPY: US$1 exchange rate
|
110.47
|
|
|
|
September
30, 2018
|
Current
HK$: US$1 exchange rate
|
7.83
|
Average
HK$: US$1 exchange rate
|
7.83
|
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.
BASIC
EARNINGS PER SHARE
The
Company computes basic and diluted earnings per share in accordance with ASC Topic 260,
Earnings per Share
. Basic
earnings per share is computed by dividing net income by the weighted average number of common stock outstanding during the reporting
period. Diluted earnings per share reflects the potential dilution that could occur if stock options and other commitments to
issue common stock were exercised or equity awards vest resulting in the issuance of common stock that could share in the earnings
of the Company.
The
Company does not have any potentially dilutive instruments as of September 30, 2018 and 2017 and, thus, anti-dilution issues are
not applicable.
INCOME
TAXES
The
provision for income taxes includes income taxes currently payable and those deferred as a result of temporary differences between
the financial statements and the income tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured
using enacted income 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 of a change in income tax rates on deferred income tax assets and liabilities is recognized
in income or loss in the period that includes the enactment date. A valuation allowance is provided to reduce deferred tax assets
to the amount of future tax benefit when it is more likely than not that some portion or all of the deferred tax assets will not
be realized. Projected future taxable income and ongoing tax planning strategies are considered and evaluated when assessing the
need for a valuation allowance. Any increase or decrease in a valuation allowance could have a material adverse or beneficial
impact on the Group’s income tax provision and net income or loss in the period the determination is made.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) 2014-09,
Revenue
from Contracts with Customers
(Topic 606). The objective of the update is to recognize revenue to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange
for those goods or services. ASU 2015-14 deferred the effective date of the update to annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting period. This update provides a five-step analysis of transactions
to determine when and how revenue is recognized, along with expanded disclosure requirements. An entity should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity
expects to be entitled in exchange for those goods or services. The Company will adopt this accounting standard update using the
modified retrospective method, with the cumulative effect of initially applying this update, recognized in the first quarter of
fiscal 2019. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02,
Leases
(Topic 842). This new guidance will require that a lessee recognize
assets and liabilities on the balance sheet for all leases with a lease term of more than twelve months, with the result being
the recognition of a right of use asset and a lease liability. The new lease accounting requirements are effective for fiscal
years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company
is currently evaluating the impact of the new guidance on its consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement
(Topic 820). This new guidance removes and modifies disclosure
requirements on fair value statements. This update is effective for fiscal years beginning after December 15, 2019 and interim
periods within those fiscal year. The Company is currently evaluating the impact, if any, on its disclosures in the Notes to Consolidated
Financial Statements.
-F9-
Table
of Contents
NOTE
3 – FAIR VALUE MEASUREMENT
The
Company’s valuation techniques used to measure the fair value of marketable equity securities are derived from quoted prices
in active markets for identical assets or liabilities.
NOTE
4 - INCOME TAXES
The
Group conducts its major businesses in Japan and is subject to tax in this jurisdiction. As a result of its business activities,
the Group files tax returns that are subject to examination by the local tax authority.
National
income tax in Japan is charged at 15% with taxable income up to JPY8,000,000 and 23.2%, 23.4% at September 30, 2018 and September
30, 2017, respectively, with taxable income over JPY8,000,000. The Company’s subsidiaries, School TV, e-Learning and e-Communications
(“Japanese Subsidiaries”), were incorporated in Japan and are subject to Japanese national income tax and local corporate
tax, business tax and corporate inhabitant taxes 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.
For
the year ended September 30, 2018 and September 30, 2017, income tax credit (expense) for Japanese Subsidiaries is $89,297 and
$(533,439), respectively.
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, 2018 and 2017, respectively, Exceed World, Inc.,
as a holding company registered in the state of Delaware, has incurred net loss and, therefore, has no tax liability. The net
deferred tax asset generated by the loss carry forward has been fully reserved.
United
States
The
Company is a Delaware corporation that is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for
taxable years beginning after December 31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax
years. Recent U.S. federal tax legislation, commonly referred to as the Tax Cuts and Jobs Act (the “2017 Act”), was
signed into law on December 22, 2017. The 2017 Act significantly modified the U.S. Internal Revenue Code by, among other things,
reducing the statutory U.S. federal corporate income tax rate from 35% to 21% for taxable years beginning after December 31, 2017;
limiting and/or eliminating many business deductions; migrating the U.S. to a territorial tax system with a one-time transition
tax on a mandatory deemed repatriation of previously deferred foreign earnings of certain foreign subsidiaries; subject to certain
limitations, generally eliminating U.S. corporate income tax on dividends from foreign subsidiaries; and providing for new taxes
on certain foreign earnings. Taxpayers may elect to pay the one-time transition tax over eight years or in a single lump sum.
The
2017 Act also includes provisions for a new tax on the Global Intangible Low-taxed Income (“GILTI”) effective for
tax years of foreign corporations beginning after December 31, 2017. The GILTI provisions impose a tax on foreign income in excess
of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of
foreign tax credits and a deduction equal to 50 percent to offset the income tax liability, subject to some limitations.
The
Company’s management is still evaluating the effect of the 2017 Act on the Company. Management may update its judgment of
that effect based on its continuing evaluation and on future regulations or guidance issued by the U.S. Department of the Treasury,
and specific actions the Company may take in the future.
To
the extent that portions of the Company’s U.S. taxable income, such as Subpart F income or GILTI, are determined to be from
sources outside of the U.S., subject to certain limitations, the Company may be able to claim foreign tax credits to offset its
U.S. income tax liabilities. If dividends that the Company receives from its subsidiaries are determined to be from sources outside
of the U.S., subject to certain limitations, the Company will generally not be required to pay U.S. corporate income tax on those
dividends. Any liabilities for U.S. corporate income tax will be accrued in the Company’s consolidated statements of operations
and comprehensive income and estimated tax payments will be made when required by U.S. law.
One-Time
Transition Tax Related to the 2017 Act
The
Group estimated the amount of U.S. corporate income tax based on the deemed repatriation to the United States of the Company’s
share of previously deferred earnings of certain non-U.S. subsidiaries of the Company mandated by the 2017 Act. The Group retained
an accumulated deficit as of December 31, 2017 and therefore did not recognize any one-time transition tax. The actual impact
of the 2017 Act on the Company may differ from management’s estimates, and management may update its judgments based on
future regulations or guidance issued by the U.S. Department of the Treasury, and specific actions the Company may take in the
future.
NOTE
5 - RELATED-PARTY TRANSACTIONS
On
September 26, 2018, e-Learning, a direct wholly owned subsidiary of Force Holdings, which was incorporated in Hong Kong with limited
liability, entered into a share purchase agreement with Force Internationale, the holding company of Force Holdings, in which
e-Learning agreed to sell and Force Internationale agreed to purchase 74.5% equity interest of the Company at a consideration
of US$26,000.
On
September 26, 2018, the same date, Force Internationale entered into a share purchase agreement with the Company, in which Force
Internationale agreed to sell and the Company agreed to purchase 100% equity interest of Force Holdings at a consideration by
issuance of 12,700,000 common stock at US$1 each to Force Internationale.
As
of September 30, 2018 and 2017, the Company had $382,544 and $166,660, respectively, owed to Tomoo Yoshida, Chief Executive Officer,
Chief Financial Officer and the shareholder of the Company. The advance is unsecured, due on demand and bears no interest.
As
of September 30, 2018 and 2017, the Company had $47,710 and $Nil, respectively, owed to Keiichi Koga, which is the shareholder
of the Company and the director of the Company’s certain subsidiaries. The advance is unsecured, due on demand and bears
no interest.
As
of September 30, 2018 and 2017, the Company had $291,015 and $368,527, respectively, owed to Force Internationale which is our
holding company and Tomoo Yoshida, our CEO, is also the director of Force Internationale. The advance is unsecured, due on demand
and bears no interest.
NOTE
6 – SHORT-TERM LOAN RECEIVABLE
On
14 September 2018, the Company entered into a loan agreement to lend JPY45,000,000 or $395,848 to an independent third party,
Star Gate Investment Holdings Limited. The loan is unsecured, matures on March 31, 2019 with an interest of JPY 400,000 per quarter.
At
September 30, 2018, none of the loan and interest receivables was past due but not impaired.
-F10-
Table
of Contents
NOTE
7 - PROPERTY, PLANT AND EQUIPMENT
|
September
30, 2018
|
September
30, 2017
|
|
$
|
$
|
|
|
|
Buildings
|
54,984
|
61,028
|
Equipment
|
741,083
|
833,466
|
Vehicles
|
119,296
|
125,788
|
|
915,363
|
1,020,282
|
Accumulated
depreciation and amortization
|
(569,650)
|
(512,428)
|
|
|
|
|
345,713
|
507,854
|
Net
effect of exchange rate
|
(1,722)
|
(50,736)
|
|
|
|
Total
net book value
|
343,991
|
457,118
|
Depreciation
and amortization of property, plant and equipment was $100,229 and $110,739 in fiscal 2018 and 2017, respectively.
NOTE
8 – INTANGIBLE ASSETS
Intangible
assets consist of the following:
|
September
30, 2018
|
|
September
30, 2017
|
|
Gross
carrying value
|
Accumulated
amortization
|
Net
effect of exchange rate
|
Total
net book value
|
|
Gross
carrying value
|
Accumulated
amortization
|
Net
effect of exchange rate
|
Total
net book value
|
|
$
|
$
|
$
|
$
|
|
$
|
$
|
$
|
$
|
Software
|
5,121,311
|
(2,867,476)
|
(17,388)
|
2,236,447
|
|
5,649,309
|
(2,646,856)
|
(373,472)
|
2,628,981
|
Franchise
rights
|
667,378
|
(55,848)
|
(5,712)
|
605,818
|
|
674,333
|
(10,661)
|
(6,844)
|
656,828
|
Club
membership
|
450,285
|
(54,847)
|
(9,048)
|
386,390
|
|
180,598
|
(46,292)
|
(13,853)
|
120,453
|
|
|
|
|
|
|
|
|
|
|
|
6,238,974
|
(2,978,171)
|
(32,148)
|
3,228,655
|
|
6,504,240
|
(2,703,809)
|
(394,169)
|
3,406,262
|
The
aggregate amortization expenses related to the intangible assets was $1,020,423 and $988,526 in fiscal 2018 and
2017, respectively.
NOTE
9 - LONG-TERM NOTE PAYABLE
On
May 22, 2017, the Company entered into a loan agreement to borrow JPY55,000,000, or $483,814 from Mr. Toshihiro Hirai, an independent
third party. The loan is unsecured, matures on May 31, 2022 with an interest rate of 1% per annum due on maturity. The interest
expense related to this note payable was $4,979 and $2,058 in fiscal 2018 and 2017, respectively.
NOTE
10 – EARNINGS PER SHARE
The
following table shows how the computation of basic and diluted earnings per share for 2018 and 2017:
|
|
Year
ended 30 September
|
|
|
2018
|
|
2017
|
|
|
|
$
|
|
$
|
|
|
|
|
|
|
|
Net
income
|
|
1,158,624
|
|
4,233,254
|
|
|
|
|
|
|
|
Number
of shares
|
|
|
|
|
|
Weighted-average
common shares outstanding
|
|
20,173,973
|
|
20,000,000
|
|
|
|
|
|
|
|
No
diluted earnings per share were presented as there was no dilutive potential ordinary share for the fiscal 2018 and 2017.
NOTE
11 - SHAREHOLDERS’ EQUITY
On
October 28, 2016, 19,000,000 shares (equivalent to 380,000,000 shares after 20-for-1 Forward Stock Split (as defined below)) 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 Company’s capital accounts have been
retroactively restated to reflect the 20-for-1 Forward Stock Split.
On
September 26, 2018, the Company issued 12,700,000 common stock at US$1 each to Force Internationale for the acquisition of 100%
equity interests of Force Holdings.
NOTE
12 - COMMITMENTS
Lease
for Franchise Right
Under
the lease of franchise rights, the Company is subject to the following potential payment commitments: (1) membership fee in the
amount of JPY44,100 (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 JPY63,000
(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 5% in every two years, and the monthly advertising fee is subjected to increase upon request and
negotiation.
As
of September 30, 2018, the Company granted RE/MAX franchise to two RE/MAX Offices and had three sales associate under the franchise.
Operating
Lease
The
Company leases office premises and equipment under noncancelable operating lease arrangements. As of September 30, 2018, the Company’s
total future minimum lease payments under noncancelable operating leases were $360,883.
Leases
are negotiated and rentals are fixed for terms ranging for 2-4 years for the year ended September 30, 2018.
Rent
expense under all operating leases, including both cancelable and noncancelable leases, was $411,226 and $397,337 in 2018 and
2017, respectively. Future minimum lease payments under noncancelable operating leases having remaining terms in excess of one
year as of September 30, 2018, are as follows:
|
$
|
2019
|
204,242
|
2020
|
156,641
|
Total
|
360,883
|
-F11-
Table
of Contents
NOTE
13- SEGMENT INFORMATION AND GEOGRAPHIC DATA
The
director has been identified as the chief operating decision maker, who review the consolidated results when making decisions
about allocating resources and assessing performance of the Group. The Group operates and reports its performance in three segments.
The
three reportable and operating segments are:
e-learning
educational services – provision of e-learning educational services and educational products through multilevel marketing
and direct sale.
Sale
of health related products – selling and distributing of heath related products
RE/MAX
business – the franchise rights of RE/MAX to carry out real estate sales and activities in Kanagawa, Okinawa and Tokyo.
|
|
Year
Ended 30 September
|
PRODUCT
CATEGORY DATA
|
|
2018
|
|
2017
|
|
|
$
|
|
$
|
Net
Sales
:
|
|
|
|
|
e-learning
educational services
|
|
34,846,368
|
|
36,830,009
|
Sale
of health related products
|
|
1,728
|
|
30,273
|
RE/MAX
business
|
|
30,892
|
|
-
|
|
|
|
|
|
|
|
34,878,988
|
|
36,860,282
|
|
|
|
|
|
Operating
income
|
|
|
|
|
e-learning
educational services
|
|
1,479,409
|
|
4,423,448
|
Sale
of health related products
|
|
(9,957)
|
|
(61,443)
|
RE/MAX
business
|
|
(177,975)
|
|
-
|
|
|
|
|
|
|
|
1,291,477
|
|
4,362,005
|
Reconciliation:
|
|
|
|
|
Unallocated
corporate expense, net
|
|
(132,853)
|
|
(128,751)
|
|
|
|
|
|
|
|
1,158,624
|
|
4,233,254
|
The
Group’s operation is located in Japan. All the revenue from external customers of the Group is generated from customers
located in Japan.
There
was no single customer contributing over 10% of total revenue of the Group in fiscal 2018 and 2017.
NOTE
14 - SUBSEQUENT EVENTS
On
December 6, 2018, the Company entered into a share contribution agreement (the “Agreement”) with Force Internationale,
a 84.4% owner of the Company. Under the Agreement, the Company transferred 100% of the equity interest of School TV, to Force
Internationale without consideration. This Agreement was approved by the boards of directors of each of the companies, the Company,
Force Internationale and School TV. Upon the completion of the disposal, School TV will be deconsolidated from the Group’s
consolidated financial statements.
-F12-
Table
of Contents
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
On
September 7, 2018, Exceed World, Inc. (the “Company”) released its independent registered public accounting firm,
MaloneBailey, LLP (“MB”) of Houston, Texas.
MB's
report on the financial statements for the year ended September 30, 2017 and the ten-month period from December 1, 2015 through
September 30, 2016 contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to audit scope or
accounting principles, except that the report contained an explanatory paragraph stating that there was substantial doubt about
the Company's ability to continue as a going concern.
Our
Board of Directors participated in and approved the decision to change our independent registered public accounting firm. During
the year ended September 30, 2017 and the ten-month period from December 1, 2015 through September 30, 2016, and through September
7, 2018, there have been no disagreements with MB on any matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of MB would have caused them to
make reference thereto in their reports on the financial statements.
On
September 13, 2018, the Company engaged Lo and Kwong C.P.A. Company Limited (“L&K”) of Hong Kong, as its new Independent
Registered Public Accounting Firm. During the period ended June 30, 2018 and prior to September 13, 2018 (the date of the new
engagement), we did not consult with L&K regarding (i) the application of accounting principles to a specified transaction,
(ii) the type of audit opinion that might be rendered on the Company’s financial statements by L&K, in either case where
written or oral advice provided by L&K would be an important factor considered by us in reaching a decision as to any
accounting, auditing or financial reporting issues or (iii) any other matter that was the subject of a disagreement between us
and our former auditor or was a reportable event (as described in Items 304(a)(1)(iv) or Item 304(a)(1)(v) of Regulation S-K,
respectively).
Item
9A. Controls and Procedures.
Disclosure
Controls and Procedures
The
Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information
required to be disclosed in the reports filed under the Exchange Act, such as this annual report, is collected, recorded, processed,
summarized and reported within the time periods specified in the rules of the SEC. The Company’s disclosure controls
and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely
decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including
the Chief Executive Officer who also serves as our Principal Financial Officer, has conducted an evaluation of the effectiveness
of disclosure controls and procedures as of the end of the period covered by this annual report. Based on that evaluation,
the Chief Executive Office who also serves as our Principal Financial Officer concluded that the disclosure controls and procedures
are ineffective.
The
matters involving internal controls and procedures that our management considered to be material weaknesses under the standards
of the Public Company Accounting Oversight Board were: lack of segregation of duties, lack of an audit committee,
lack of well-established procedures to identify, approve and report related party transactions, lack of a majority of outside
directors on board of directors, and lack of sufficient accounting and finance personnel with appropriate understanding of U.S.
GAAP and SEC reporting requirement. These material weaknesses were identified by our Chief Executive Officer who also serves
as our Chief Financial Officer in connection with the above annual evaluation.
Management
believes that the material weaknesses did not have an effect on our financial results. However, management believes that the lack
of a functioning audit committee and inadequate segregation of duties results in ineffective oversight in the establishment and
monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements
in future periods.
Management
recognizes that its controls and procedures would be substantially improved if we had an audit committee and two individuals serving
as officers and as such is actively seeking to remediate this issue.
Management’s
Report on Internal Control over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting,
as defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is designed to
provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation
of published financial statements. Management conducted an assessment of the Company’s internal control over financial
reporting based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission
in Internal Control – Integrated Framework. Based on the assessment, management concluded that, as of September 30,
2018, the Company’s internal control over financial reporting is ineffective based on those criteria.
The
Company’s management, including its Chief Executive Officer who also serves as our Chief Financial Officer, does not expect
that the Company’s disclosure controls and procedures and its internal control processes will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there
are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of error or fraud, if any, within the Company have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override
of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and may not be detected. However, these inherent limitations are known features
of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not
eliminate, this risk.
Management’s
Remediation Initiatives
In
an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated,
or plan to initiate, the following series of measures:
We
will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical
accounting expertise within the accounting function when funds are available to us. And, we plan to appoint one or more outside
directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee
who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing
and approving estimates and assumptions made by management when funds are available to us.
Management
believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee,
will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.
We
will work as quickly as possible to implement these initiatives; however, the lack of adequate working capital and positive cash
flow from operations will likely slow this implementation.
Changes
in Internal Control
There
have been no changes in internal controls over the financial reporting that occurred during the fiscal fourth quarter, that have
materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
This
annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal
control over financial reporting. Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report
in this annual report.
Item
9B. Other Information.
None.
-12-
Table
of Contents
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
Biographical
information regarding the Officers and Directors of the Company, who will continue to serve as Officers and Directors of the Company
are provided below.
Exceed
World, Inc.
Name
|
|
Age
|
|
Position(s)
|
|
|
|
|
|
Tomoo
Yoshida
|
|
56
|
|
Chief
Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director
|
Tomoo
Yoshida
Mr.
Tomoo Yoshida graduated from Osaka University of Commerce in 1986. Also in 1986, Mr. Yoshida took a sales position with Toyota
Corolla Nankai Co. Ltd, where he remained until 1994. In 1997, Mr. Yoshida incorporated Dipro Data Service Co., Ltd., where he
worked in both a managerial capacity and as an IT support consultant until 2002. In 2002, Mr. Yoshida incorporated e-Learning
Laboratory Co., Ltd., a company that provides educational services and products. Currently, he is the President of e-Learning
Laboratory Co., Ltd. In 2009, Mr. Yoshida incorporated e-Communications Co., Ltd, a company offering educational services. He
is currently the president of e-Communications Co., Ltd. In 2011, Mr. Yoshida incorporated Force Internationale Limited, a holding
company, where he currently serves as a Director. In 2012, Mr. Yoshida incorporated Force International Holdings Limited, a holding
company, where he currently serves as a Director.
Corporate
Governance
The
Company promotes accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely
and understandable disclosure in reports and documents that the Company files with the Securities and Exchange Commission (the
"SEC") and in other public communications made by the Company; and strives to be compliant with applicable governmental laws,
rules and regulations. The Company has not formally adopted a written code of business conduct and ethics that governs the Company's
employees, officers and directors as the Company is not required to do so.
In
lieu of an Audit Committee, the Company's board of director(s) (the "Board of Directors" or "Board"), is responsible for reviewing
and making recommendations concerning the selection of outside auditors, reviewing the scope, results and effectiveness of the
annual audit of the Company's financial statements and other services provided by the Company's independent public accountants.
The Board of directors, the Chief Executive Officer and the Chief Financial Officer of the Company review the Company's internal
accounting controls, practices and policies. We, Exceed World, Inc., only have one Officer and Director, which is Mr. Tomoo Yoshida.
Committees
of the Board
Our
Company currently does not have nominating, compensation, or audit committees or committees performing similar functions nor does
our Company have a written nominating, compensation or audit committee charter. Our sole director believes that it is not necessary
to have such committees, at this time, because the director(s) can adequately perform the functions of such committees.
Audit
Committee Financial Expert
Our
director has determined that we do not have a board member that qualifies as an “audit committee financial expert”
as defined in Item 407(D)(5) of Regulation S-K, nor do we have a Board member that qualifies as “independent” as the
term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange Act of 1934, as amended, and as defined by Rule
4200(a)(14) of the FINRA Rules.
We
believe that our director(s) are capable of analyzing and evaluating our financial statements and understanding internal controls
and procedures for financial reporting. The director(s) of our Company does not believe that it is necessary to have an audit
committee because management believes that the Board of directors can adequately perform the functions of an audit committee.
In addition, we believe that retaining an independent director who would qualify as an "
audit committee financial expert
"
would be overly costly and burdensome and is not warranted in our circumstances given the stage of our development and the fact
that we have not generated any positive cash flows from operations to date.
Involvement
in Certain Legal Proceedings
Our
sole officer and director has not been involved in or a party in any of the following events or actions during the past ten years:
1.
|
any
bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either
at the time of the bankruptcy or within two years prior to that time;
|
2.
|
any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other
minor offenses);
|
3.
|
being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities
or banking activities; or
|
4.
|
being
found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission
to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
|
5.
|
Such
person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal
or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed,
suspended, or vacated;
|
6.
|
Such
person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to
have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading
Commission has not been subsequently reversed, suspended or vacated;
|
7.
|
Such
person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding,
not subsequently reversed, suspended or vacated, relating to an alleged violation of:(i) Any Federal or State securities or
commodities law or regulation; or(ii) Any law or regulation respecting financial institutions or insurance companies including,
but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary
or permanent cease-and-desist order, or removal or prohibition order; or(iii) Any law or regulation prohibiting mail or wire
fraud or fraud in connection with any business entity; or
|
8.
|
Such
person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined
in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or
organization that has disciplinary authority over its members or persons associated with a member.
|
Independence
of Directors
We
are not required to have independent members of our Board of Directors, and do not anticipate having independent Directors until
such time as we are required to do so.
Code
of Ethics
We
have not adopted a formal Code of Ethics. The Board of Director(s) evaluated the business of the Company and the number of employees
and determined that since the business is operated by a small number of persons, general rules of fiduciary duty and federal and
state criminal, business conduct and securities laws are adequate ethical guidelines. In the event our operations, employees and/or
Directors expand in the future, we may take actions to adopt a formal Code of Ethics.
Shareholder
Proposals
Our
Company does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations
for Directors. The Board of Director(s) believes that, given the stage of our development, a specific nominating policy would
be premature and of little assistance until our business operations develop to a more advanced level. Our Company does not currently
have any specific or minimum criteria for the election of nominees to the Board of Directors and we do not have any specific process
or procedure for evaluating such nominees. The Board of Director(s) will assess all candidates, whether submitted by management
or shareholders, and make recommendations for election or appointment.
A
shareholder who wishes to communicate with our Board of Director(s) may do so by directing a written request addressed to our
sole Officer and Director Tomoo Yoshida, at the address appearing on the first page of this Information Statement.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires the Company’s executive officers, directors and persons who beneficially own more than
ten percent of a registered class of the Company’s equity securities, to file with the SEC initial reports of ownership
and reports of changes in ownership of the Company’s common stock. Such officers, directors and persons are required
by SEC regulation to furnish the Company with copies of all Section 16(a) forms that they file with the SEC.
Based
solely on a review of the copies of such forms that were received by the Company, or written representations from certain reporting
persons that no Form 5s were required for those persons, the Company is not aware of any failures to file reports or report transactions
in a timely manner during the Company’s fiscal year ended September 30, 2018.
Procedure
for Nominating Directors
In
2018, we have not made any material changes to the procedures by which security holders may recommend nominees to our Board of
Directors.
Family
Relationships
There
are no family relationships among our directors, executive officers or persons nominated to become executive officers or directors.
Involvement
in Certain Legal Proceedings
During
the past ten (10) years, none of our directors, persons nominated to become directors, executive officers, promoters or control
persons was involved in any of the legal proceedings listen in Item 401 (f) of Regulation S-K.
Arrangements
There
are no arrangements or understandings between an executive officer, director or nominee and any other person pursuant to which
he was or is to be selected as an executive officer or director.
-13-
Table
of Contents
Item
11. Executive Compensation.
The
table below summarizes all compensation awarded to, earned by, or paid to our named executive officer(s) and director(s) for the
year ended September 30, 2018 and for the year ended September 30, 2017. This in relation to the Company, Exceed World, Inc.
|
|
|
|
|
|
|
|
|
|
SUMMARY
COMPENSATION TABLE
|
Name
and
principal
position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
Tomoo
Yoshida
Chief
Executive Officer,
Chief
Financial Officer
|
2018
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
|
|
Tomoo
Yoshida
Chief
Executive Officer,
Chief
Financial Officer
|
2017
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Notes:
On
September 26, 2018, the Company entered into, and consummated, a Share Purchase Agreement with Force Internationale, to acquire
100% of Force Holdings and 100% direct owner of e-Learning. In consideration of this agreement, the Company issued 12,700,000
common shares to Force Internationale.
Note:
e-Learning Laboratory Co., Ltd, a Japan corporation, is a wholly owned subsidiary of Force International Holdings Limited, a Hong
Kong limited company. e-Communications Co., Ltd, a Japan corporation, is a wholly owned subsidiary of e-Learning Laboratory Co,
Ltd, a Japan corporation.
From
October 1, 2016 through ended September 30, 2017, e-Commuication Co., Ltd., paid out $140,086 to Mr. Tomoo Yoshida as salary compensation.
From
October 1, 2017 through ended September 30, 2018, e-Commuication Co., Ltd., paid out $114,058 to Mr. Tomoo Yoshida as salary compensation.
From
October 1, 2016 through ended September 30, 2018 School TV Co., Ltd. and Force International Holdings Limited had not paid any
compensation of any type to Mr. Tomoo Yoshida.
Option/SAR
Grants in Last Fiscal Year
None.
Outstanding
Equity Awards at Fiscal Year-End
None.
Compensation
of Directors
The
Company’s sole officer and director received no compensation for services as director during the last fiscal year.
Equity
Compensation Plan Information
Not
applicable.
Employment
Agreements of our Sole Officer and Director
None.
Compensation
Discussion and Analysis
Director
Compensation
The
Board of Directors reserves the right in the future to award the members of the Board of Directors cash or stock based consideration
for their services to the Company, which awards, if granted shall be in the sole determination of the Board of Directors.
Executive
Compensation Philosophy
Our
Board of Directors determines the compensation given to our executive officers in their sole determination. Our Board of Directors
reserves the right to pay our executive or any future executives a salary, and/or issue them shares of common stock issued in
consideration for services rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual
executive officer’s performance. This package may also include long-term stock based compensation to certain executives,
which is intended to align the performance of our executives with our long-term business strategies. Additionally, while our Board
of Directors has not granted any performance base stock options to date, the Board of Directors reserves the right to grant such
options in the future, if the Board in its sole determination believes such grants would be in the best interests of the Company.
Incentive
Bonus
The
Board of Directors may grant incentive bonuses to our executive officer and/or future executive officers in its sole discretion,
if the Board of Directors believes such bonuses are in the Company’s best interest, after analyzing our current business
objectives and growth, if any, and the amount of revenue we are able to generate each month, which revenue is a direct result
of the actions and ability of such executives.
Long-term,
Stock Based Compensation
In
order to attract, retain and motivate executive talent necessary to support the Company’s long-term business strategy we
may award our executive and any future executives with long-term, stock-based compensation in the future, at the sole discretion
of our Board of Directors, which we do not currently have any immediate plans to award.
-14-
Table
of Contents
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
As
of our fiscal year end, the Company had 32,700,000 shares of common stock and no shares of preferred stock issued and outstanding,
which number of issued and outstanding shares of common stock and preferred stock have been used throughout this report.
*The
table below is as of September 30, 2018.
Name
and Address of Beneficial Owner
|
Shares
of Common Stock Beneficially Owned
|
Common
Stock Voting Percentage Beneficially Owned
|
Voting
Shares of Preferred Stock
|
Preferred
Stock Voting Percentage Beneficially Owned
|
Total
Voting Percentage Beneficially Owned (1)
|
Executive Officers
and Directors
|
|
|
|
|
|
Tomoo Yoshida
|
1,400,000
|
4.3%
|
0
|
0.0%
|
4.3%
|
5% Shareholders
|
|
|
|
|
|
Keiichi Koga
|
1,400,000
|
4.3%
|
0
|
0.0%
|
4.3%
|
Force Internationale
Limited
|
27,594,000
|
84.4%
|
0
|
0.0%
|
84.4%
|
Note:
Tomoo Yoshida and Keiichi Koga are the controlling parties of Force Internationale Limited, a Cayman Island company. Collectively,
Mr. Yoshida and Keiichi Koga, through their personal equity interests and those indirect interests of the Company, through their
ownership in Force Internationale Limited, own 93% of the issued and outstanding shares of our common stock.
Beneficial
ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed
to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of
the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares
(for example, upon exercise of an option or warrant) within 60 days of the date as of which the information is provided. In computing
the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such
person by reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following
table does not necessarily reflect the person’s actual voting power at any particular date.
Item
13. Certain Relationships and Related Transactions.
On
January 12, 2016, Thomas DeNunzio of 780 Reservoir Avenue, #123, Cranston, RI 02910, the sole shareholder of the Company, entered
into a Share Purchase Agreement (the “Agreement”) with e-Learning Laboratory Co., Ltd. (“e-Learning”),
with an address at 1-23-38-6F, Esakacho, Suita-shi, Osaka 564-0063 Japan. Pursuant to the Agreement, Mr. DeNunzio transferred
to e-Learning, 20,000,000 shares of our common stock which represented all of our issued and outstanding shares at the time of
sale.
Following
the closing of the share purchase transaction, e-Learning gained a 100% interest in the issued and outstanding shares of our common
stock and became the controlling shareholder of the Company.
On
January 12, 2016, Mr. Thomas DeNunzio resigned as our Chief Executive Officer, Chief Financial Officer, President, Director, Secretary,
and Treasurer. The resignation was not the result of any disagreement with us on any matter relating to our operations, policies
or practices.
On
January 12, 2016, Mr. Tomoo Yoshida was appointed as our Chief Executive Officer, Chief Financial Officer, President, Director,
Secretary, and Treasurer.
On
February 29, 2016, the Company entered into a Stock Purchase Agreement with Tomoo Yoshida, our Chief Executive Officer, Chief
Financial Officer, President, Director, Secretary, and Treasurer. Pursuant to this Agreement, Tomoo Yoshida transferred to Exceed
World, Inc., 10 shares of the common stock of E&F Co., Ltd., a Japan corporation (“E&F”), which represented
all of its issued and outstanding shares in consideration of $4,835 (JPY 500,000). Following the effective date of the share purchase
transaction on February 29, 2016, Exceed World, Inc. gained a 100% interest in the issued and outstanding shares of E&F’s
common stock and E&F became a wholly owned subsidiary of Exceed World.
On
August 4, 2016, the E&F changed its name to School TV Co., Ltd (“School TV”) and filed such amendment with the
Legal Affairs Bureau in Osaka, Japan.
On
April 1, 2016, e-Learning entered into stock purchase agreements with 7 Japanese shareholders. Pursuant to these agreements, e-Learning
sold 140,000 shares of common stock in total to these individuals and received $270 as aggregate consideration. Each shareholder
paid $0.215 Japanese Yen per share. At the time of purchase the price paid per share by each shareholder was the equivalent of
about $0.002 USD.
The
aforementioned sale of shares was exempt from registration in accordance with Regulation S of the Securities Act of 1933, as amended
("Regulation S") because the above sales of the stock were made to non-U.S. persons (as defined under Rule 902 section
(k)(2)(i) of Regulation S), pursuant to offshore transactions, and no directed selling efforts were made in the United States
by the issuer, a distributor, any of their respective affiliates, or any person acting on behalf of any of the foregoing.
On
August 9, 2016, e-Learning entered into stock purchase agreements with 33 Japanese shareholders. Pursuant to these agreements,
e-Learning sold 3,300 shares of common stock in total to these individuals and received $330 as aggregate consideration. Each
shareholder paid 10 Japanese Yen per share. At the time of purchase the price paid per share by each shareholder was the equivalent
of about $0.1 USD.
These
shares were sold pursuant to the Company’s effective S-1 Registration Statement deemed effective on July 20, 2016 at 4pm
EST.
On
October 28, 2016, Exceed World, Inc., a Delaware corporation, (the “Company or “Exceed”), with the approval
of its board of directors and its majority shareholders by written consent in lieu of a meeting, authorized the cancellation of
shares owned by e-Learning. e-Learning has provided consent for the cancellation of shares. The total number of shares cancelled
was 19,000,000 shares which was comprised of 16,500,000 restricted common shares and 2,500,000 free trading shares.
Shareholder’s
name: e-Learning Laboratory Co., Ltd.
Total
amount of shares cancelled
|
19,000,000
|
Shares
|
|
Restricted
shares
|
16,500,000
|
Shares
|
|
Free
trading shares
|
2,500,000
|
Shares
|
On
October 28, 2016, every one (1) share of Common Stock, par value $.0001 per share, of the Company issued and outstanding was automatically
reclassified and changed into twenty (20) shares fully paid and non-assessable shares of Common Stock of the Corporation, par
value $.0001 per share. (“20-for-1 Forward Stock Split”) No fractional shares were issued. The authorized number of
shares, and par value per share, of Common Stock are not affected by the 20-for-1 Forward Stock Split.
On
October 28, 2016, we filed a Certificate of Amendment with the Delaware Secretary of State. The effective date of the 20-for-1
Forward Stock Split was upon the acceptance of the Certificate of Amendment with the Secretary of State of the State of Delaware.
The Certificate of Amendment can be found as Exhibit 3.1 to Form 8-K filed November 1, 2016.
During
July 2017 and August 2017, e-Learning entered into stock purchase agreements with 24 Japanese individuals. Pursuant to these agreements,
e-Learning sold 2,240,000 shares of its common stock in total to these individuals and received $38,263 as aggregate consideration.
On
September 26, 2018, e-Learning, a direct wholly owned subsidiary of Force Holdings, which was incorporated in Hong Kong with limited
liability, entered into a share purchase agreement with Force Internationale, the sole shareholder of Force Holdings, in which
e-Learning agreed to sell and Force Internationale agreed to purchase 74.5% equity interest of the Company at a consideration
of US$26,000.
On
September 26, 2018, the Company entered into, and consummated, a Share Purchase Agreement with Force Internationale, to acquire
100% of Force Holdings and 100% direct owner of e-Learning. In consideration of this agreement, the Company issued 12,700,000
common shares to Force Internationale.
On
December 6, 2018, the Company entered into a Share Contribution Agreement (this "Agreement") with Force Internationale,
our controlling shareholder. Under this Agreement, the Company transferred 100% of the equity interests of School TV to Force
Internationale without consideration. This Agreement and action were approved by the board of directors of each of, the Company,
Force Internationale and School TV. A copy of this Agreement is included as Exhibit 10.1 to this Current Report and is hereby
incorporated by reference.
Exceed
World, Inc. is provided office space rent free from e-Learning at the address of 1-23-38-6F, Esakacho, Suita-shi.
On
September 26, 2018, e-Learning, a direct wholly owned subsidiary of Force Holdings, which was incorporated in Hong Kong with limited
liability, entered into a share purchase agreement with Force Internationale, the sole shareholder of Force Holdings, in which
e-Learning agreed to sell, and Force Internationale agreed to purchase, 74.5% equity interest of the Company at a consideration
of US$26,000.
On
September 26, 2018, Force Internationale entered into a share purchase agreement with the Company, in which Force Internationale
agreed to sell, and the Company agreed to purchase, 100% equity interest of Force Holdings in consideration of 12,700,000 common
stock, at US$1 each, to Force Internationale.
As
of September 30, 2018 and 2017, the Company owed $382,544 and $166,660, respectively, to Tomoo Yoshida, Chief Executive Officer,
Chief Financial Officer and shareholder of the Company. The advance is unsecured, due on demand, and bears no interest.
As
of September 30, 2018 and 2017, the Company owed $47,710 and $Nil, respectively, to Keiichi Koga, a shareholder of the Company
and the director of certain subsidiaries of the Company. The advance is unsecured, due on demand, and bears no interest.
Mr.
Koga is the Vice President and Director of e-Learning. He is also the Supervisory Board Member of e-Communications Co., Ltd. Additionally,
Mr. Koga is Director of Force International Holdings Limited and Force Internationale Limited.
As
of September 30, 2018 and 2017, the Company owed $291,015 and $368,527, respectively, to Force Internationale, our holding company.
Tomoo Yoshida, our CEO, is also the Director of Force Internationale. The advance is unsecured, due on demand, and bears no interest.
Review,
Approval and Ratification of Related Party Transactions
Given
our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or
ratification of transactions, such as those described above, with our executive officer(s), Director(s) and significant stockholders.
We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional
Directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an
appropriate committee thereof. On a moving forward basis, our Directors will continue to approve any related party transaction.
Item
14. Principal Accounting Fees and Services.
Below
is the aggregate amount of fees billed for professional services rendered by our principal accountants with respect to our last
two fiscal years.
|
|
|
2018
|
2017
|
|
Audit
fees
|
MaloneBailey,
LLP
|
$21,081
|
$34,605
|
|
|
Lo
and Kwong C.P.A. Company Limited (1)
|
$100,000
|
|
|
Audit-related
fees
|
Lo
and Kwong C.P.A. Company Limited
|
$250,000
|
-
|
|
Tax
fees
|
|
-
|
-
|
|
All
other fees
|
|
-
|
-
|
|
|
|
|
|
|
Total
|
|
$371,081
|
$34,605
|
(1)
On September 13, 2018, the Company engaged Lo and Kwong C.P.A. Company Limited of Hong Kong, as its new Independent Registered
Public Accounting Firm.
Board
of Directors Pre-Approval Process, Policies and Procedures
Our
principal auditors have informed our sole director of the scope and nature of each service provided. With respect to the provisions
of services other than audit, review, or attest services, our principal accountants brought such services to the attention of
our sole director prior to commencing such services.
-15-
Table
of Contents