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 ended August 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 Overview
Leader Capital Holdings Corp. is an early stage technology company that conducts
its operations through its wholly owned subsidiaries, Leader Financial Group
Limited, a Seychelles corporation incorporated on March 6, 2017 ("LFGL"), and
JFB Internet Service Limited, a Hong 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 of May 31, 2022 and August 31,
2021, our accumulated deficits were $$32,271,468 and $23,001,067, respectively.
We generated revenue of $156,527 and $78,696 for the nine months ended May 31,
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 of May 31, 2022, we have suffered recurring losses from operations, and
recorded an accumulated deficit and a working capital deficit of $32,271,468 and
$2,310,367, 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 to
Taiwan's Central Epidemic Command Center ("CECC"), Taiwan's Covid-19 cases have
been increased dramatically since the first half of April, 2022 and reached the
peak during mid-May and mid-June. As of July 13, totally 4,131,663 local
infections reported this year, in which over 3,700,000 cases recorded during the
second quarter, comparing with 1,226 cases in the first quarter of 2022. CECC
confirms that 99.55% of the reported cases were asymptomatic or had mild
symptoms. The average daily reported cases maintained over 30,000 cases in July.
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 in Taiwan, Hong
Kong, and mainland China, 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, including Taiwan, 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 nine months ended
May 31, 2022 May 31, 2021
Net cash used in operating activities $ (2,367,049 ) $ (2,873,554 )
Net cash used in investing activities (39,856 ) (63,081 )
Net cash provided by financing activities 1,930,446 4,272,333
Cash and cash equivalents, beginning of period 787,154 432,087
Effects of exchange rate changes on cash and
cash equivalents (11,900 ) (218,623 )
Cash and cash equivalents, end of period $ 298,795 $ 1,549,162
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Cash Used in Operating Activities
Net cash used in operating activities for the nine months ended May 31, 2022 and
2021 was $2,367,049 and $2,873,554, 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 nine months ended May 31, 2022 and
2021 was $39,856 and $63,081, 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 nine months ended May 31, 2022
and 2021 was $1,930,446 and $4,272,333, 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 nine months ended May 31, 2022 and 2021
For the nine months ended
May 31, 2022 May 31, 2021
Revenue $ 156,527 $ 78,696
Research and development expenses (366,040 ) (456,428 )
Sales and marketing expenses (272,801 ) (186,068 )
General and administrative expenses (4,590,793 ) (7,779,743 )
Loss from operations (5,073,107 ) (8,343,543 )
Interest expenses (62,338 ) (51,000 )
Loss on change in fair value of convertible notes (3,983,877 ) (129,288 )
Other (expense) income (164,526 ) 3,813
Loss before income tax (9,283,848 ) (8,520,018 )
Income tax benefit 13,447 16,108
Net loss $ (9,270,401 ) $ (8,503,910 )
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 $156,527 and $78,696 for the nine months ended May 31,
2022 and 2021, respectively. During the nine months ended May 31, 2022, we,
through our subsidiary, NPI, earned revenue of $26,295, compared to $73,696 for
the nine months ended May 31, 2021. The increment of revenue was arisen from the
new custom-made app project commenced during the third quarter of current fiscal
year.
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Research and Development Expenses
Research and development expenses for the nine months ended May 31, 2022 and
2021 amounted to $366,040 and $456,428, 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 in August 2020. The reduction of
expenses was mainly due to the termination of consultancy agreement on December
31, 2021.
Sales and Marketing Expenses
Sales and marketing expenses were $272,801 and $186,068 for the nine months
ended May 31, 2022 and 2021, respectively. It consists of the advertising costs
and the redeemable point liability charges after our acquisition of NPI in
August 2020. To promote the FinMaster APP downloads, LOC allocated funding to
the marketing for the nine months ended May 31, 2022, thus the sales and
marketing expenses increased.
General and Administrative Expenses
General and administrative expenses were $4,590,793 and $7,779,743 for the nine
months ended May 31, 2022 and 2021, respectively. We recognized share-based
compensation to directors, employees and consultants of $2,259,025 and
$5,409,296 for the nine months ended May 31, 2022 and 2021, respectively. Such
share-based compensation decreased by $3.15 million from the nine months ended
May 31, 2021 to the same period in 2022.
Loss on change in fair value of convertible notes
We incurred a fair value loss of $3,983,877 and $129,288 on our convertible
promissory notes for the nine months ended May 31, 2022 and 2021, respectively.
The fair value loss of $3,983,877 is due to change of conversion price and
conversion of convertible notes for the nine months ended May 31, 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 nine months ended May 31, 2022 amounted to
$(164,526) as compared to $3,813 in the same period of prior year. Other
(expense) income mainly consists of the exchange difference, net which was
exchange loss arose from the depreciation of NTD and RMB against USD for
inter-group remittance. It was partially offset by the reversal of overstated
payroll payable to the COO.
Net Loss
Our net loss was $9,270,401 and $8,503,910 for the nine months ended May 31,
2022 and 2021, respectively. The net loss was mainly derived from our general
and administrative expenses.
Comparison for the three months ended May 31, 2022 and 2021
For the three months ended
May 31, 2022 May 31, 2021
Revenue $ 134,091 $ 23,444
Research and development expenses (104,861 ) (151,863 )
Sales and marketing expenses (25,265 ) (15,338 )
General and administrative expenses (1,809,371 ) (2,301,816 )
Loss from operations (1,805,406 ) (2,445,573 )
Interest expenses (11,642 ) (18,597 )
(Loss) Gain on change in fair value of
convertible notes (2,802,547 ) 201,000
Other expense (159,003 ) (19,212 )
Loss before income tax (4,778,598 ) (2,282,382 )
Income tax benefit 4,483 5,879
Net loss $ (4,774,115 ) $ (2,276,503 )
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 $134,091 and $23,444 for the three months ended May 31,
2022 and 2021, respectively. During the three months ended May 31, 2022, we,
through our subsidiary, NPI, earned revenue of $3,860, compared to $20,667 for
the three months ended May 31, 2021. The increment of revenue was arisen from
the new custom-made app project commenced during the third quarter of current
fiscal year.
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Research and Development Expenses
Research and development expenses for the three months ended May 31, 2022 and
2021 amounted to $104,861 and $151,863, 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 in August 2020. The reduction of
expenses was mainly due to termination of consultancy agreement on December 31,
2021.
Sales and Marketing Expenses
Sales and marketing expenses were $25,265 and $15,338 for the three months ended
May 31, 2022 and 2021, respectively. It consists of the advertising costs and
the redeemable point liability charges after our acquisition of NPI in August
2020. The Company found the media advertising less effective than prior period,
thus maintained cost control over the advertising expense during the three
months ended May 31, 2022, and the sales and marketing expenses decreased.
General and Administrative Expenses
General and administrative expenses were $1,809,371 and $2,301,816 for the three
months ended May 31, 2022 and 2021, respectively. We recognized share-based
compensation to directors, employees and consultants of $1,198,212 and
$1,574,704 for the three months ended May 31, 2022 and 2021, respectively. Such
share-based compensation decreased by $0.38 million from the three months ended
May 31, 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 $(2,802,547) and $201,000 on our
convertible promissory notes for the three months ended May 31, 2022 and 2021,
respectively. The fair value loss of $2,802,547 is due to change of conversion
price and conversion of convertible notes for the three months ended May 31,
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
Other expense for the three months ended May 31, 2022 amounted to $159,003 as
compared to $19,212 in the same quarter of prior year. Other expense mainly
consists of the exchange difference, net which was exchange loss arose from the
depreciation of NTD and RMB against USD for inter-group remittance. It was
partially offset by the reversal of overstated payroll to the COO.
Net Loss
Our net loss was $4,774,115 and $2,276,503 for the three months ended May 31,
2022 and 2021, respectively. The net loss was mainly derived from our general
and administrative expenses.
Off-Balance Sheet Arrangements
As of May 31, 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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LEADER CAPITAL HOLDINGS CORP. 