TOGA LIMITED The following discussion and analysis of our results of operations and financial condition for fiscal years endedJuly 31, 2019 and 2018, should be read in conjunction with our consolidated financial statements and the related notes and the other financial information that are included elsewhere in this Amended Annual Report. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Special Note Regarding Forward-Looking Statements, and Business sections in this Amended Annual Report. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and similar expressions to identify forward-looking statements. Subsequent Event - COVID-19 InMarch 2020 , theWorld Health Organization declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure. COVID-19 continues to spread throughout the world. We are closely monitoring developments and are taking steps to mitigate the potential risks related to the COVID-19 pandemic to us, our employees, and our customers. To protect our employees while continuing to provide the services needed by our clients, we limited customer contact and minimized employee contact with other employees by having our employees work remotely. 44 Table of Contents OnMarch 19, 2020 , the Malaysian Prime Minister issued a Movement Control Order (MCO), which reduced movement withinMalaysia and cancelled all non-essential travel and limited travel from outsiders deemed as non-essential. Eventually, the MCO was lifted as ofJune 9, 2020 , and certain safe-distance and other controlling protocols were put into place, which were in effect untilDecember 31, 2020 . The Malaysian Government has since extended the MCO untilJanuary 26 and then again toMarch 31, 2021 . Our offices inMalaysia closed as a result of the MCO, and our office-based employees located both inMalaysia ,Vietnam ,Indonesia , and inthe United States have been working remotely since the middle of March. All of our employees have been able to continue to address customer needs in a timely fashion. Travel remains restricted to limit the risk of our employees coming in contact with COVID-19. As a result of COVID-19, we have terminated certain agreements with Agel andToga Japan . Please see Item 1. Business, Recent Changes to the Eostre Business, for additional information. ThroughJuly 31, 2020 , we have not had any of our employees contract COVID-19. Should a significant number of our employees contract COVID-19, our ability to serve our customers in a timely fashion could be negatively impacted on our ability to serve customers in a timely fashion. In addition to the termination of the License Agreements and the Yipps Agreement, COVID-19 also has negatively impacted our business with respect to TogaGo revenue. The MCO restricted travel, which resulted in customers not booking travel and hotels through the Yippi app. TogaGo's revenue decreased significantly during the year endedJuly 31, 2020 . However, we expect TogaGo's revenue to increase once the MCO is lifted.
Further, while we have not yet experienced any interruption to our normal materials and supplies process, it is impossible to predict whether COVID-19 will cause future interruptions and delays.
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Table of Contents
Results of Operations
Fiscal Year Ended July 31, 2019 (Restated) Compared to Fiscal Year Ended July
31, 2018
Year ended
July 31,
2019
(Restated) 2018 Change %
Revenue $ 5,888,234 $ 1,254,495 $ 4,633,739 369.4 %
Cost of Goods Sold 1,729,748 145,847 1,583,901 1,086.0 %
Gross Profit (Loss) $ 4,158,486 $ 1,108,648 $ 3,049,838 275.1 %
Gross Margin 70.62 % 88.37 %
Gross Margin by product for the year ended
Software
Maintenance
Product Royalty Management &
Sales Advertising Fee Fee Yippi TogaGo Subscription Total
Revenue $ 4,273,252 $ 190,400 $ 240,000 $ 1,072,630 $ - $ - $ 111,952 $ 5,888,234
Cost of
Goods
Sold 379,237 - - - 1,337,477 13,034 - 1,729,748
Gross
Profit
(Loss)
- - 100.00 % 70.62 %
Gross Margin by product for the year ended
Software
Maintenance
Product Management &
Sales Advertising Fee Yippi Subscription Total
Revenue $ 29,345 $ 141,893 $ 531,449 $ - $ 551,808 $ 1,254,495
Cost of
Goods
Sold 2,087 - - 143,760 - 145,847
Gross
Profit
(Loss) $ 27,258 $ 141,893 $ 531,449 $ (143,760 ) $ 551,808 $ 1,108,648
Gross
Margin 92.89 % 100.00 % 100.00 % -
100.00 % 88.37 %
Revenue increased by approximately$4.6 million in the year endedJuly 31, 2019 , compared to the prior year period, driven by a$4.7 million increase in revenue generated by new business lines, such as product sales of the Company's Eostre brand and management fees. 46 Table of Contents
Gross profit also increased by approximately$3.0 million in the year endedJuly 31, 2019 , compared to the prior year period, due to the new business lines. We invested significantly in staff and infrastructure, which was in the early implementation stage, but management expects reductions in our general and administrative expenses as a percentage of revenue going forward. Year ended July 31, 2019 (Restated) 2018 Change % Operating expenses: General and administrative expenses$ 3,183,220 726,016 2,457,204 338.5 % Salaries and wages 13,074,717 467,621 12,607,096 2,696.0 % Professional fees 1,110,236 443,068 667,168 150.6 % Depreciation 93,426 15,050 78,376 520.8 % Total operating expenses 17,461,599 1,651,755 15,809,844 957.2 % Loss from Operations (13,303,113 ) (543,107 ) (12,760,006 ) 2,349.4 % Other Income (Expense) 3,246,419 (13,077,201 ) 16,323,620 (124.8 )% Net Loss$ (10,212,214 ) (13,620,308 ) 3,408,094 (25.0 )%
Net loss decreased by approximately$3.4 million , or 25%, in the year endedJuly 31, 2019 , compared to the prior year period, due to a decrease in other expense of$16.3 million , offset by an increase in loss from operations primarily attributed to the increases in salary and wages, including stock-based compensation of approximately$11.1 million , offset by an increase in gross profit of approximately$3.3 million . Segment Operating Performance
Our operating performance by segment are as follows for the year ended
Year ended
USA Malaysia Taiwan Vietnam Indonesia Total
Revenue $ 240,000 $ 1,356,336 $ 1,673,781 $ - $ 2,618,117 $ 5,888,234
Gross Profit $ 240,000 $ 2,924 $ 1,531,364 $ - $ 2,384,198 $ 4,158,486
Gross Margin 100.00 % 0.22 % 91.49 % - 91.07 % 70.62 %
Net Loss
$ 883,997 $ (10,212,214 ) 47 Table of Contents Year endedJuly 31, 2018 : USA Malaysia Taiwan Vietnam Indonesia Total Revenue $ -$ 1,225,149 $ 29,346 $ - $ -$ 1,254,495 Gross Profit (Loss) $ -$ 1,081,389 $ 27,259 $ - $ -$ 1,108,648 Gross Margin - 88.27 % 92.89 % - - 88.37 % Net Income (Loss)$ (13,853,448 ) $ 307,381 $ 862 $ -$ (75,103 ) $ (13,620,308 ) During the year endedJuly 31, 2019 , most of our revenue was derived from management fees generated inMalaysia , product sales of the Company's Eostre brand generated inTaiwan and inIndonesia . During the year endedJuly 31, 2018 , most of our revenue was derived from management fees Software Maintenance & Subscription generated inMalaysia . Net loss decreased by approximately$3.4 million due to the decrease in other expense offset by the increase in loss from operations. During the year endedJuly 31, 2018 , the operations were primarily inMalaysia . We recognized a net loss, primarily due to a loss from debt settlement of$13.3 million .
Liquidity and Capital Resources
July 31,
2019 July 31,
(Restated) 2018 Change %
Cash and cash equivalents $ 14,916,556 $ 1,064,672 $ 13,851,884 1,301.0 %
Total Assets $ 23,554,425 $ 2,952,954 $ 20,601,471 697.7 %
Total Liabilities $ 9,049,782 $ 411,589 $ 8,638,193 2,098.7 %
Working Capital $ 10,080,247 $ 1,046,959 $ 9,033,288 862.8 %
As of
Our stockholders' equity increased from
We had$14.9 million in cash as ofJuly 31, 2019 , and we had assets to meet ongoing expenses or debts that may accumulate. Accumulated deficit was$24.6 million as ofJuly 31, 2019 , compared to accumulated deficit of approximately$14.4 million as ofJuly 31, 2018 . Our working capital increased by$9.0 million to$10.1 million atJuly 31, 2019 , as compared to$1.1 million atJuly 31, 2018 , due primarily to the increase in our current assets, consisting of an increase in cash and cash equivalents of$13.9 million and an increase in prepaid expense and other current assets of$3.7 million , and the increase in our current liabilities, consisting of an increase in accounts payable and accrued liabilities of$4.0 million and deferred revenue of$4.7 million . 48 Table of Contents Cash Flow Year ended July 31, Change 2019 (Restated) 2018 Amount %
Cash Flows provided by (used in)
(654.7%)
operating activities$ 2,729,719 $ (492,089 ) $
3,221,808
Cash Flows (used in) investing activities (372,077 ) (152,287 ) (219,790 ) 144.3 % Cash Flows provided by financing activities 11,371,008 1,698,818 9,672,190 569.3 % Effects on changes in foreign exchange rate 123,234 10,130 113,104 1,116.5 % Net change in cash and cash equivalents during period$ 13,851,884 $ 1,064,572 $ 12,787,312 1,201.2 %
Cash Flow from Operating Activities
As ofJuly 31, 2019 , we had generated positive cash flow from operating activities. For the year endedJuly 31, 2019 , net cash flows provided by operating activities was$2.7 million compared to$492,000 used in operating activities during the year endedJuly 31, 2018 . Cash flows provided by operating activities for the year endedJuly 31, 2019 was comprised of a net loss of$10.2 million , which was increased by non-cash income of$3.2 million for gain on sale of digital currency, and was offset by non-cash expenses of$93,000 for depreciation,$11.1 million for stock-based compensation, and a net change in working capital of$5.0 million . Cash flows used in operating activities for the year endedJuly 31, 2018 was comprised of a net loss of$13.6 million , which was offset by non-cash expenses of$15,000 for depreciation,$13.3 million for loss on settlement of debt, and a net change in working capital of$169,000 .
Cash Flows from Investing Activities
During the year endedJuly 31, 2019 , we used$372,000 in investing activities for the purchase of property and equipment. During the year endedJuly 31, 2018 , we used$152,000 for the purchase of property and equipment.
Cash Flows from Financing Activities
We have financed our operations primarily from either advances and loans from related and third parties or the issuance of equity instruments. For the year endedJuly 31, 2019 , net cash provided by financing activities was$11.4 million , consisting of proceeds from the sale of shares of our Common Stock of$2.1 million , and proceeds from sales of digital currency of$9.5 million , offset by repayment to related parties of$185,000 . For the year endedJuly 31, 2018 , net cash provided by financing activities was$1.7 million , consisting of proceeds from the sale of shares of our Common Stock of$1.3 million and proceeds from related parties of$434,000 , offset by repayment to related parties of$49,000 . 49 Table of Contents
Off Balance Sheet Arrangements
We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information under this Item.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles generally accepted inthe United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of income and expense during the reporting periods presented. Our critical estimates include revenue recognition and intangible assets. Although we believe that these estimates are reasonable, actual results could differ from those estimates given a change in conditions or assumptions that have been consistently applied. We also have other policies that we consider key accounting policies, such as our policy for revenue recognition, however, the application of these policies does not require us to make significant estimates or judgments that are difficult or subjective. Management has discussed the selection of critical accounting policies and estimates with our Board, and our Board has reviewed our disclosure relating to critical accounting policies and estimates in this Amended Annual Report. The critical accounting policies used by management and the methodology for its estimates and assumptions are as follows: Revenue is generally recognized upon transfer of control, including the risks and rewards of ownership, of products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. We recognize revenues on contracts with customers in accordance with the ASC 606, including performing the following: (i) identifying the contract, (ii) identifying the performance obligations; (iii) determining the transaction price; (iv) allocating the transaction price; and (v) recognizing revenue upon fulfilment of obligations. Stock-based Compensation is accounted for stock-based awards at fair value on the date of grant, and recognize compensation over the service-period that they are expected to vest. We estimate the fair value of stock options and stock purchase warrants using the Black-Scholes option pricing model. The estimated value of the portion of a stock-based award that is ultimately expected to vest, taking into consideration estimated forfeitures, is recognized as expense over the requisite service periods. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time, of other comparative securities, equal to the weighted average life of the options. The estimate of stock awards that will ultimately vest requires judgment, and to the extent that actual forfeitures differ from estimated forfeitures, such differences are accounted for as a cumulative adjustment to compensation expenses and recorded in the period that estimates are revised. 50 Table of Contents
Goodwill and Other Intangible Assets - digital currency is accounted for in accordance with ASC 350 "Intangibles-Goodwill and Other" ("ASC 350"). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. In addition, ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units; assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates. Income Taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense. The Company has not recognized any tax benefits from uncertain tax positions for any of the reporting periods presented. Impact of recently issued accounting pronouncements that have recently been issued but have not yet been implemented by us are described in Note 2, Summary of Significant Accounting Policies, to the Notes to the Consolidated Financial Statements to this Amended Annual Report, which describes the potential impact that these pronouncements are expected to have on our financial condition, results of operations, and cash flows.
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