LEADER CAPITAL HOLDINGS CORP. The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and the notes to those financial statements appearing elsewhere in this Form 10-K.
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Certain statements in this Form 10-K constitute forward-looking statements. These forward-looking statements include statements, which involve risks and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends in our industry, (d) our future financing plans, and (e) our anticipated needs for, and use of, working capital. They are generally identifiable by use of the words "may," "will," "should," "anticipate," "estimate," "plan," "potential," "project," "continuing," "ongoing," "expects," "management believes," "we believe," "we intend," or the negative of these words or other variations on these words or comparable terminology. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this filing will in fact occur. You should not place undue reliance on these forward-looking statements.
The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.
Overview
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.
Use of the JFB platform is currently free; however, we have an agreement with a
third party whereby we have authorized the third party to use our investment
platform and related applications until
The Company is currently developing a new, more comprehensive FinMaster mobile
application ("FinMaster App"), to offer to our clients for a fee. This FinMaster
App intends to offer one-stop shopping for multi financial services. Key
services include real-time
As a result of the acquisition, the Company now owns, indirectly through the
Buyer, 100% of NPI. NPI, through its wholly-owned subsidiaries,
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We have incurred significant operating losses. As of
Going concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
We have suffered recurring losses from operations, and recorded an accumulated
deficit, a working capital deficit and a net stockholders' deficit of
We expect to finance our operations primarily through cash flow from operations, loans from existing directors and stockholders 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 our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.
The COVID-19 pandemic has created and may continue to create significant uncertainty in macroeconomic conditions, which may cause further business slowdowns or shutdowns, depress demand for our business, and adversely impact our results of operations. We expect uncertainties around our key accounting estimates to continue to evolve depending on the duration and degree of impact associated with the COVID-19 pandemic. Its estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Results of Operations
Comparison of years ended
Year ended August 31,
2022 2021
Revenue $ 339,442 $ 95,166
Research and development expenses (510,723 ) (602,118 )
Sales and marketing expenses (300,507 ) (203,646 )
General and administrative expenses (4,804,688 ) (9,702,342 )
Impairment loss of intangible assets (537,866 ) (88,415 )
Impairment loss of goodwill (1,747,945 ) (1,226,419 )
Loss from operations (7,562,287 ) (11,727,774 )
Interest expenses (94,684 ) (102,196 )
Loss on change in fair value of convertible notes (3,980,908 ) (47,092 )
Other (expense) income (407,720 ) 145,432
Loss before income tax (12,045,599 ) (11,731,630 )
Income tax benefit 125,502 38,138
Net loss $ (11,920,097 ) $ (11,693,492 )
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Revenue
We signed an agreement with a third party whereby we authorized the third party
to use our investment platform and related applications, from
We generated revenue of
Research and Development Expenses
Research and development expenses for the years ended
Sales and Marketing Expenses
Sales and marketing expenses were
General and Administrative Expenses
General and administrative expenses for the year ended
Impairment loss of intangible assets
During the course of our strategic review of our operations, the financial
performance of NPI's technical know-hows fall below our original expectations,
we assessed the recoverability of the carrying value of certain intangible
assets which resulted in impairment losses of
Impairment loss of goodwill
Our impairment loss of goodwill was
Loss on Change in Fair Value of Convertible Notes
We incurred a fair value loss of
Other (Expense) Income
Other expense for the year ended
Net Loss
As a result of the foregoing, our net loss was
Liquidity and Capital Resources
We had
Net cash used in operating activities for the year ended
The net cash used in operating activities for the years ended
Net cash used in investing activities for the years ended
Net cash provided by financing activities for the year ended
We may also require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. We plan to renew our loans and bonds upon maturity, if required, and plan to raise additional funds through equity financing in the future to meet our daily cash demands, if required. However, there can be no assurance that we will be successful in obtaining such financing. If our existing cash and borrowings are insufficient to meet our requirements, we may seek to sell debt securities, or borrow from shareholders. We can make no assurance that financing will be available in the amounts we need or on terms acceptable to us, if at all. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.
The following table sets forth our contractual obligations and commercial
commitments as of
Payments Due by Period
Total Less than 1 year 1 - 3 years
Contractual Obligations
Other loans $ 460,709 $ 260,709 $ 200,000
Bonds payable 600,000 600,000 -
Due to a director 973,564 973,564 -
Due to shareholders 45,343 45,343 -
Future interest payment on loans 54,885 30,893 23,992
Future interest payment on bonds 72,000 72,000 -
Total $ 2,206,501 $ 1,982,509 $ 223,992
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Critical Accounting Estimates
We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management. The discussion of our critical accounting policies contained in Note 2 to our consolidated financial statements, "Summary of Significant Accounting Policies," is incorporated herein by reference. We believe that the following critical accounting policies affect the most significant estimates and management judgments used in preparing our consolidated financial statements.
In accordance with ASC Topic 350, "Intangibles-Goodwill and Other," goodwill is not amortized but is tested for impairment, annually or more frequently when circumstances indicate a possible impairment may exist. Impairment testing is performed at a reporting unit level. An impairment loss generally would be recognized when the carrying amount of the reporting unit exceeds its fair value.
We estimate fair value of the applicable reporting unit or units using a
discounted cash flow methodology. This methodology represents a level 3 fair
value measurement as defined under ASC 820, Fair Value Measurements and
Disclosures, since the inputs are not readily observable in the marketplace. The
goodwill impairment testing process involves the use of significant assumptions,
estimates and judgments, including projected sales, gross margins, selling,
general and administrative expenses, and capital expenditures, and the selection
of an appropriate discount rate, all of which are subject to inherent
uncertainties and subjectivity. When we perform goodwill impairment testing, its
assumptions are based on annual business plans and other forecasted results,
which it believes represent those of a market participant. We select a discount
rate, which is used to reflect market-based estimates of the risks associated
with the projected cash flows based on the best information available as of the
date of the impairment assessment. Based on the annual impairment analysis,
there is impairment of
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Given the current macro-economic environment and the uncertainties regarding its
potential impact on our business, there can be no assurance that its estimates
and assumptions used in its impairment tests will prove to be accurate
predictions of the future. If our assumptions regarding forecasted cash flows
are not achieved, it is possible that an impairment review may be triggered and
goodwill may be impaired. During the year ended
Revenue recognition
We adopted Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
We recognized revenues following the five-step model prescribed under ASU No. 2014-09:
Step 1: Identify the contract Step 2: Identify the performance obligations Step 3: Determine the transaction price Step 4: Allocate the transaction price Step 5: Recognize revenue
Revenues are recognized when control of the promised goods or services is transferred to our customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.
Provision of investment platform services
We signed an agreement with a third party whereby the Company authorizes the
third party to use our investment platform and related applications for a period
until
From September, 2020, we generated additional revenue from a new, more comprehensive mobile application, which 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. Income from providing investment platform services with the use of a mobile application is recognized when the service is performed.
We offer a self-managed points program, which can be used in the FinMaster App to redeem merchandise or services. We determine the value of each point based on estimated incremental cost. Customers and advocates have a variety of ways to obtain the points. The major accounting policy for its points program is described as follows:
We conclude the bonus points offered linked to the purchase transaction of the points is a material right and accordingly a separate performance obligation according to ASC 606, and should be taken into consideration when allocating the transaction price of the point sales. We also estimate the probability of points redemption when performing the allocation. The amount allocated to the bonus points as separate performance obligation is recorded as contract liability (deferred revenue) and revenue should be recognized when future goods or services are transferred. We will continue to monitor when and if forfeiture rate data becomes available and will apply and update the estimated forfeiture rate at each reporting period.
Since historical information is limited for us to determine any potential points forfeitures and most merchandise can be redeemed without requiring a significant amount of points compared with the amount of points provided to users, we have used an estimated forfeiture rate of zero.
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Provision of software development service and maintenance service
We entered into several agreements with third party customers to assist the customers in the development of their mobile communications software and mobile e-commerce software. Income from provision of software development service and maintenance service are recognized when the service is performed.
Impairment of long-lived assets (including amortizable intangible assets)
We review the carrying values of long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to the undiscounted future
net cash flows expected to be generated by the asset. If the assets are
considered to be impaired, the impairment recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value of the assets.
Impairment of
Recent Accounting Pronouncements
For further information on recently issued accounting pronouncements, see Note 2-Summary of Significant Accounting Policies in the accompanying notes to consolidated financial statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
As of
Fiscal Year
Our fiscal year ends on
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