LEADER CAPITAL HOLDINGS CORP. The following discussion and analysis of our financial condition and results of operations should be read together with our unaudited financial statements and related notes appearing elsewhere in this Form 10-Q and our audited financial statements and related notes for the year endedAugust 31, 2021 included in our most recent annual report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors. Company OverviewLeader Capital Holdings Corp. is an early stage technology company that conducts its operations through its wholly owned subsidiaries,Leader Financial Group Limited , aSeychelles corporation incorporated onMarch 6, 2017 ("LFGL"), andJFB Internet Service Limited , aHong Kong corporation incorporated on July
6,
2017 ("JFB").
Through LFGL, we act as the service provider for a mobile application investment
platform that is owned by JFB. The platform connects investors with financial
service providers in an effort to sharpen operational efficiency and seeks to
address customer demands for more innovative services. It is a ready-made
application created to meet the needs of financial service providers, especially
trust companies and insurance companies. The platform is customizable and each
financial institution can adjust the platform to better suit their client's
needs.
We had an agreement with a third party whereby we authorized the third party to
use our investment platform and related applications until December 31, 2020 for
a fee. The agreement terminated on December 31, 2020 .
We developed a new, comprehensive mobile application, the FinMaster App. The
FinMaster App intends to offer one-stop solution for multi-facet financial
services. Key services include real-time Taiwan stock market quotes, financial
industry information and news, social media activities, on-line live broadcast,
A.I. stock selection and other features. With more than 380,000 downloads of the
FinMaster App, we continue to collect data as well as user feedback to enhance
current APP features and fine tune R&D plans to optimize customer experience.
On August 17, 2020 , the Company, through its wholly-owned subsidiary JFB,
acquired all of the issued and outstanding capital stock (the "Acquisition") of
Nice Products Inc. , a company organized under the laws of the British Virgin
Islands and the Company's software developer of the FinMaster APP ("NPI"),
pursuant to the terms and conditions of that certain Stock Purchase Agreement,
dated as of August 17, 2020 , among the Company, JFB, NPI, the selling
shareholders of NPI identified therein (each a "Seller," and, collectively, the
"Sellers") and the representative of the Sellers identified therein. The
aggregate purchase price for the acquisition was $4,850,000 , less certain
discounts, expenses and reductions for outstanding NPI debt owed to the Company
and/or its affiliates. The net purchase price for the acquisition was
$3,506,042 , payable in 8,415,111 shares of the Company's common stock to the
Sellers in accordance with their respective pro rata percentage.
As a result of the acquisition, the Company now owns, indirectly through JFB,
100% of NPI. NPI, through its wholly-owned subsidiaries, LOC Weibo Co., Ltd.
("LOC") and Beijing DataComm Cloud Media Technology Co., Ltd. ,("BJDC") companies
organized under the laws of the Republic of China and the laws of the People's
Republic of China , respectively, engages primarily in the development of
ecological-system applications, integration of big data and promotion of OTT
applications. As a result of the acquisition, our FinMaster App was launched to
the market in a timely and efficient manner and clients on this open platform
are served more effectively and satisfactorily. Based on the successful
development of our FinMaster App, LOC and BJDC jointly accumulated in-depth
knowledge of FinTech App development, including the marketing expertise built up
and the perfect allocation of the Company's resources. We believe LCHD, through
LOC and BJDC will further conclude more customized App contracts to help the
clients to incubate the avant-garde Apps to expand their businesses efficiently
and effectively.
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We have incurred significant operating losses. As ofFebruary 28, 2022 andAugust 31, 2021 , our accumulated deficits were$27,497,353 and$23,001,067 , respectively. We generated revenue of$22,436 and$55,252 for the six months endedFebruary 28, 2022 and 2021, respectively. Our net losses were principally attributed to general and administrative expenses. Going Concern
The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As ofFebruary 28, 2022 , we have suffered recurring losses from operations, and recorded an accumulated deficit and a working capital deficit of$27,497,353 and$2,887,051 , respectively. These conditions raise substantial doubt about our ability to continue as a going concern. The ability to continue as a going concern is dependent upon our profit generating operations in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. We expect to finance our operations primarily through cash flows from operations, loans from existing directors and shareholders and placements of capital stock for additional funding. In the event that we require additional funding to finance the growth of our current and expected future operations as well as to achieve our strategic objectives, a shareholder has indicated the intent and ability to provide additional financing. No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, if needed, it may contain undue restrictions on its operations, in the case of debt financing, or cause substantial dilution for its stock holders, in the case of equity financing. Our business continues to be impacted by the COVID-19 pandemic. Significant COVID-19 related restrictions, including those in response to the outbreak of the Delta variant in the second and third quarters and the Omicron variant in the fourth quarter of calendar year 2021, have continued and in some instances, have been significantly tightened, in markets in which we operate. According toTaiwan's Central Epidemic Command Center ("CECC"),Taiwan's Covid-19 cases are increasing dramatically in the first half of April, 2022. As ofApr 14 , totally 7,759 local infections reported this year, in which 6,533 cases recorded in April, comparing with 1,226 cases in the first quarter of 2022. CECC confirms that 99.6% of the reported cases were asymptomatic or had mild symptoms, the peak is not yet emerged; due to gradual lifting of the restrictions, the number of confirmed cases will inevitably increase. To reduce the impact on people's daily life and to the economy, the government will activate the home care program for confirmed cases based on the developments in the pandemic situation. Border controls and travel restrictions, such as those imposed inTaiwan ,Hong Kong , and mainlandChina , have had and may continue to have an adverse effect on our operations. The impact of the pandemic and the measures taken by the relevant governments to contain the disease on the global economy, the economies of the markets in which we operate, and the movement of people have adversely affected, and we expect will continue to adversely affect, the roll out of our business plans and results of operations throughout the fiscal year of 2022. If any of our employees is suspected of having infected COVID-19, we may under certain circumstances be required to quarantine such employees and the affected areas of our premises, thus we have to temporarily suspend part of or all of our operations. Furthermore, government actions to contain the outbreak may restrict the level of economic activities in affected regions, includingTaiwan , and affect the willingness and ability of our employees and customers to travel, which may also adversely affect our business and prospects. As a result, we cannot assure you that any future outbreak of contagious diseases would not have a material adverse effect on our financial condition and results of operations. These unaudited condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as going concern.
Liquidity and Capital Resources
The following table sets forth a summary of our cash flows for the periods
indicated:
For the six months ended
February 28 , February 28,
2022 2021Net cash used in operating activities$ (1,940,530 ) $ (1,711,187 ) Net cash used in investing activities (29,224 ) (59,632 ) Net cash provided by financing activities 1,340,646
1,449,707
Cash and cash equivalents, beginning of period 787,154
432,087
Effects of exchange rate changes on cash and cash equivalents (475 )
53,037
Cash and cash equivalents, end of period$ 157,571 $
164,012
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Cash Used in Operating Activities
Net cash used in operating activities for the six months endedFebruary 28, 2022 and 2021 was$1,940,530 and$1,711,187 , respectively. The cash used in operating activities was mainly for payment of general and administrative expenses.
Cash Used in Investing Activities
Net cash used in investing activities for the six months endedFebruary 28, 2022 and 2021 was$29,224 and$59,632 , respectively. The net cash used in investing activities was related to the acquisition of plant and equipment and intangible assets.
Cash Provided by Financing Activities
Net cash provided by financing activities for the six months endedFebruary 28, 2022 and 2021 was$1,340,646 and$1,449,707 , respectively. The cash provided by financing activities were related to the issuance of shares and convertible notes, and advances from (to) shareholders and a director. Results of Operations
Comparison for the six months ended
For the six months ended
February 28, 2022 February 28, 2021
Revenue $ 22,436 $ 55,252Research and development expenses (261,179 ) (304,565 ) Sales and marketing expenses (247,536 ) (170,730 ) General and administrative expenses (2,781,422 )
(5,477,927 )
Loss from operations (3,267,701 ) (5,897,970 )
Interest expenses (50,596 ) (32,403 )Loss on change in fair value of convertible notes (1,181,330 )
(330,288 )
Other (expense) income (5,523 ) 23,025
Loss before income tax (4,505,250 ) (6,237,636 )
Income tax benefit 8,964 10,229
Net loss $ (4,496,286 ) $ (6,227,407 )
Revenue
We signed an agreement with a third party whereby we authorized the third party
to use our investment platform and related applications, from January 1, 2018 to
December 31, 2020 , for an upfront service fee. An additional fee is charged upon
the third party's sale of products on our mobile application. From September
2020 , we generated additional revenue from a new, more comprehensive mobile
application, which we refer to as the FinMaster mobile application (the
"FinMaster App" and together with the JFB platform, the "Apps"), with similar
functions as the JFB platform. We also provided software maintenance services.
We generated revenue of $22,436 and $55,252 for the six months ended February
28, 2022 and 2021, respectively. During the six months ended February 28, 2022 ,
we, through our subsidiary, NPI, earned revenue of $22,436 , compared to $53,029
for the six months ended February 28, 2021 . Since some of the custom-made app
projects have been completed, the revenue decreased.
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Research and Development Expenses
Research and development expenses for the six months endedFebruary 28, 2022 and 2021 amounted to$261,179 and$304,565 , respectively which primarily represented the charges for R&D and consulting work performed by third parties and salaries and benefits for those employees engaged in research, design and development activities after our acquisition of NPI inAugust 2020 . Sales and Marketing Expenses
Sales and marketing expenses were$247,536 and$170,730 for the six months endedFebruary 28, 2022 and 2021, respectively. It consists of the advertising costs and the redeemable point liability charges after our acquisition of NPI inAugust 2020 . To promote the FinMaster APP downloads, LOC allocated funding to the marketing for the six months endedFebruary 28, 2022 , thus the sales and marketing expenses increased.
General and Administrative Expenses
General and administrative expenses were$2,781,422 and$5,477,927 for the six months endedFebruary 28, 2022 and 2021, respectively. We recognized share-based compensation to directors, employees and consultants of$1,060,813 and$3,834,592 for the six months endedFebruary 28, 2022 and 2021, respectively. Such share-based compensation decreased by$2.77 million from the six months endedFebruary 28, 2021 to the same period in 2022.
Loss on change in fair value of convertible notes
We incurred a fair value loss of$1,181,330 and$330,288 on our convertible promissory notes for the six months endedFebruary 28, 2022 and 2021, respectively. The fair value loss of$1,181,330 is due to change of conversion price and conversion of convertible notes for the six months endedFebruary 28, 2022 . We elected to measure the convertible promissory notes in their entirety at fair value with changes in fair value recognized as non-operating income or loss at each balance sheet date. Other (Expense) Income
Other (expense) income for the six months ended
Net Loss Our net loss was$4,496,286 and$6,227,407 for the six months endedFebruary 28, 2022 and 2021, respectively. The net loss was mainly derived from our general and administrative expenses.
Comparison for the three months ended
For the three months ended
February 28, 2022 February 28, 2021
Revenue $ 7,631 $ 32,389
Research and development expenses (114,896 ) (157,694 )
Sales and marketing expenses (33,764 ) (61,028 )
General and administrative expenses (1,110,932 ) (2,524,760 )
Loss from operations (1,251,961 ) (2,710,993 )
Interest expenses (22,196 ) (16,957 )
(Loss) Gain on change in fair value of convertible notes (1,076,830 ) 150,755
Other (expense) income (30,894 ) 1,733
Loss before income tax (2,381,881 ) (2,575,462 )
Income tax benefit 4,482 5,115
Net loss $ (2,377,399 ) $ (2,570,347 )
Revenue
We signed an agreement with a third party whereby we authorized the third party
to use our investment platform and related applications, from January 1, 2018 to
December 31, 2020 , for an upfront service fee. An additional fee is charged upon
the third party's sale of products on our mobile application. From September
2020 , we generated additional revenue from a new, more comprehensive mobile
application, which we refer to as the FinMaster mobile application (the
"FinMaster App" and together with the JFB platform, the "Apps"), with similar
functions as the JFB platform. We also provided software maintenance services.
We generated revenue of $7,631 and $32,389 for the three months ended February
28, 2022 and 2021, respectively. During the three months ended February 28,
2022 , we, through our subsidiary, NPI, earned revenue of $7,631 , compared to
$31,833 for the three months ended February 28, 2021 . Since some of the
custom-made app projects have been completed, the revenue decreased.
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Research and Development Expenses
Research and development expenses for the three months endedFebruary 28, 2022 and 2021 amounted to$114,896 and$157,694 , respectively which primarily represented the charges for R&D and consulting work performed by third parties and salaries and benefits for those employees engaged in research, design and development activities after our acquisition of NPI inAugust 2020 . Sales and Marketing Expenses
Sales and marketing expenses were$33,764 and$61,028 for the three months endedFebruary 28, 2022 and 2021, respectively. It consists of the advertising costs and the redeemable point liability charges after our acquisition of NPI inAugust 2020 . The Company found the media advertising less effective than prior period, thus maintained cost control over the advertising expense during the three months endedFebruary 28, 2022 , and the sales and marketing expenses decreased.
General and Administrative Expenses
General and administrative expenses were$1,110,932 and$2,524,760 for the three months endedFebruary 28, 2022 and 2021, respectively. We recognized share-based compensation to directors, employees and consultants of$225,584 and$1,675,332 for the three months endedFebruary 28, 2022 and 2021, respectively. Such share-based compensation decreased by$1.45 million from the three months endedFebruary 28, 2021 to the same period in 2022.
(Loss) Gain on change in fair value of convertible notes
We incurred a fair value (loss) gain of$(1,076,830) and$150,755 on our convertible promissory notes for the three months endedFebruary 28, 2022 and 2021, respectively. The fair value loss of$1,076,830 is due to change of conversion price and conversion of convertible notes for the three months endedFebruary 28, 2022 . We elected to measure the convertible promissory notes in their entirety at fair value with changes in fair value recognized as non-operating income or loss at each balance sheet date. Other (Expense) Income
Other (expense) income for the three months ended
Net Loss
Our net loss was
Off-Balance Sheet Arrangements
As ofFebruary 28, 2022 , we have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
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