TOGA LIMITED The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q/A (this "Quarterly Report"). The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Our unaudited consolidated financial statements are stated inUnited States Dollars and are prepared in accordance with GAAP. Forward-Looking Statement This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and is subject to the "safe harbor" created by those sections. Any statements that are not statements of historical fact should be considered to be forward-looking statements. Words such as "anticipates," "believes," "continue," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "seek," "should," "targets," "will," "would," and similar expressions or variations or negatives of such words are intended to identify forward-looking statements, but are not the exclusive means of identifying forward-looking statements in this Quarterly Report. Additionally, forward-looking statements include, but are not limited to:
• our plans to develop and market new products, enhancements or technologies
and the timing of these development and marketing plans;
• our estimates regarding our capital requirements and our needs for
additional financing;
• our estimates of our expenses, future revenues and profitability;
• our estimates of the size of the markets for our products and services;
• our expectations related to the rate and degree of market acceptance of
our products; and
• our estimates of the success of other competing technologies that may
become available.
Although forward-looking statements in this Quarterly Report reflect the good
faith judgment of our management, such statements can only be based on facts and
factors currently known and understood by us. Consequently, forward-looking
statements involve inherent risks and uncertainties and actual financial results
and outcomes may differ materially and adversely from the results and outcomes
discussed in or anticipated by the forward-looking statements. A number of
important factors could cause actual financial results to differ materially and
adversely from those in the forward-looking statements. We urge you to consider
the risks and uncertainties discussed elsewhere in this Quarterly Report and in
the other documents filed by us with the SEC in evaluating our forward-looking
statements. We have no plans, and undertake no obligation, to revise or update
our forward-looking statements to reflect any event or circumstance that may
arise after the date of this report. We caution readers not to place undue
reliance upon any such forward-looking statements, which speak only as of the
date made.
In this document, the words "we," "our," "ours," "us," "Toga Limited ," and "the Company" refer only toToga Limited , and its consolidated subsidiaries and
not any other person or entity. Overview
We were incorporated onOctober 23, 2003 pursuant to the laws of theState of Delaware under the nameFashionfreakz International Inc. , which we later changed toBlink Couture, Inc. From 2003 until 2008, our principal business was the online retail marketing of trendy clothing and accessories produced by independent designers, with headquarters based inCanada . From 2008 until 2017, the Company's business plan consisted of exploring potential targets for a business combination. OnJuly 22, 2016 , we changed our name to "Toga Limited ." InJuly 2018 , we changed our state of incorporation to theState of Nevada .
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Subsidiaries
InSeptember 2017 , we formedTOGL Technology Sdn . Bhd. ("TOGL Technology"), a wholly-owned subsidiary located inMalaysia . InMay 2018 , TOGL Technology opened a branch office inTaiwan . The Company suspended operations of itsTaiwan branch inJuly 2020 due to the novel coronavirus ("COVID-19"). TOGL Technology offers technology and professional services to facilitate the use of technology by enterprises and end users. These services include software development, integration, maintenance, mobile services, and web applications. TOGL Technology also provides development of, and upgrades to, our mobile application, the
Yippi App. InNovember 2017 , we formed PT. Toga International Indonesia ("PT TogaIndonesia "), a majority-owned subsidiary located inIndonesia . We own a 95% interest in PT Toga Indonesia. The remaining portion is owned by three individuals who are employed by our subsidiaries. PT Toga Indonesia mainly sells health-related and facial products via retail stores or through direct selling independent sales agents that sell our "Eostre" branded products at exhibitions and healthy introduction seminars.
In
In
InJune 2019 , TOGL Technology acquired 100% of the issued and outstanding shares ofWGS Discovery Tours and Travel (M) Sdn . Bhd., a Malaysian based company ("WGS"). WGS manages our travel, hotel, and flight feature ("TogaGo") offered through the Yippi App.
Subsidiaries formed after
InJune 2020 ,Michael Toh Kok Soon ("Mr. Toh"), our Chief Executive Officer and Chairman,Roy Lim Jun Hao ("Mr. Lim"), TOGL Technology's Deputy Executive Officer, and we collectively acquired 65% of the issued and outstanding shares ofEostre Bhd ., aMalaysia corporation ("Eostre Bhd ."). We intend to acquire the remaining 35% of the issued and outstanding shares ofEostre Bhd . as described in more detail below under the section entitled "Eostre - Recent Changes to the Eostre Business." Further,Eostre Bhd .'s business is discussed in detail below under the section entitled "Eostre." Yippi Industry Overview An "app" is a type of application software designed to run on a mobile device, such as a smartphone or tablet device. Over the last several years, mobile devices, including smartphones and tablets, have proliferated extensively around the world across a wide range of demographic groups. As mobile devices have become more prevalent, the mobile apps industry has experienced corresponding growth in the number of apps published and the niches they serve, as well as the revenues they generate. We believe that there will continue to be an increase in the number of smartphones and tablets sold. In addition, Apple, Inc. ("Apple"),Samsung Group ("Samsung"), and other mobile device manufacturers have introduced new, larger, and more powerful smartphones and tablets that enable more complex apps and that allow app developers to create apps that are optimized for larger screen sizes and designed to take advantage of these devices' advanced capabilities and functionality. We believe that the proliferation of, and technological developments to, mobile devices will continue to drive growth in our industry for the foreseeable future. 6 Table of Contents Product and Market The Yippi App is a mobile application with a social media messaging focus that enables users to discover new friends as well as connect with friends and family. The Yippi App also focuses on entertainment and security. Users download the Yippi App through theApple App Store ,Amazon App Store . Similar to other social media mobile apps, the Yippi App allows users to post photos and videos, watch, like, and share live events, use a beauty camera to enhance photos, and generally connect with others through chat messaging and video calls. Our chat feature allows users to use a "secret chat" function that automatically deletes text messages, voice messages, or photos sent through chat messages. We also have other features to allow chat messages to be more interactive between users, such as our "whiteboard presentation" feature that allows up to 5 users to draw on a whiteboard within the chat message. Finally, through Yippi, we also offer an in-app feature called TogaGo, which enables users to search for the best price for their travel needs on an array of hotel, cruise, and flights and book and purchase these accommodations. Currently, prices are comparable to major travel applications in the market, and with this feature we have bridged these two different applications into one comprehensive application. These extensions are essentially bridged within Yippi with a link to the target platform while the user is still logged into his or her Yippi account. We also maintain a website that allows users to access TogaGo. In addition to TogaGo, we also generate revenue from selling advertising, emoji stickers, and Yipps through our tipping feature calledYippi Star . As ofDecember 1, 2020 , we had 214,442 monthly active users and 120,412 daily active users on Yippi. We define a "monthly active user" as a registered user of the Yippi App who opens the Yippi App at least once during a 30-day period. We define a "daily active user" as a registered user of the Yippi App who opens the Yippi App at least once during a 24-hour period for a consecutive 30-day period. The market for our Yippi App is characterized by rapid technological change, particularly in the technical capabilities of smartphones and tablets, and changing end-user preferences. Therefore, we will be required to continuously invest capital to innovate and modify our Yippi App and publish new applications. We cannot provide assurances that we will have adequate capital to modify our Yippi App or develop new applications. Marketing Strategy In an effort to increase our daily active users and monthly active users, our marketing strategy focuses on three areas: (i) Market Penetration; (ii) Yippi Publicity; and (iii) Market Development. Market Penetration. Market Penetration focuses on engaging key opinion leaders and agencies to help increase our publicity and contests within Yippi. We also intend to engage in corporate branding on social media and increase our internet presence.
Yippi Publicity. Yippi Publicity focuses on corporate social responsibility (such as raising money for charitable causes), awareness campaigns (to increase daily active users or to increase users' daily activity), and live concerts and music sharing (such as engaging Malaysian singers and exclusive content for the Yippi App). We intend to have monthly events broadcast through "YippiTV" (which is a function within the Yippi App for video streaming of these publicity events). We may utilize celebrity endorsements fromthe Philippines ,Indonesia , andMalaysia . We have also engaged in a series of branding campaigns, or sponsorships, with selected corporate entities in the Asian region, specificallySoutheast Asia . For example, we have partnered withAirAsia Academy in cross-promotion and sponsorship of the academy players in badminton competitions sinceJuly 2018 . We also sponsored the Panagbenga Flower Festival inthe Philippines inFebruary 2019 , which festival was the marketing promotion that created brand awareness of the Yippi App throughoutAsia . Market Development. Market Development focuses on contests within the Yippi App to connect users to each other and encourage content creation within the Yippi ecosystem. Beginning inMay 2018 , we have had and continue to have on-going weekly contests via the social function of the Yippi App. The contests encompass questions, quizzes, personal preferences, and favorite pictures, among others, all of which are intended to increase engagement among users through their participation of commenting and sharing on their social walls. The winners are picked based on the criteria of either most creative, most shares, or most "likes" earned. We also hold weekly contests based on the top downloaded "sticker" within the Yippi App, and the designer of the most downloaded sticker for that particular week wins$100 . A sticker set may only win once in a month, and only verified sticker designers are eligible to win. Winners are fromMalaysia ,Indonesia , ROC Taiwan, andthe Philippines . SinceMarch 2020 , we have held daily non-monetary contests ranking all live streams from Yippi users and awarding the "star of the day" to the Yippi users with the most points based on live stream unique views and rewards earned for each day. Users can create a live stream by live broadcasting to users through the Yippi App. The winner receives "Yellow Beans" (tokens) and a privilege badge (similar to a virtual trophy), with the achievements being unlocked in the winning user's Yippi profile. Similar contests are held in the Yippi App for celebrations such asMother's Day (for the most likes on a photo or video submission) and National Day (for the most creative photo or video post). 7 Table of Contents
Scientific Advisory Council . In order to further our market development, inSeptember 2019 , we established aScientific Advisory Council (the "Council") consisting of Dr.Beverly Rubik , Prof. Dr.Konstantin Korotkov , Deputy Director ofSaint-Petersburg Federal Research institute of Physical Culture, andErick Wayne Thompson ofSubtle Energy Sciences, LLC . The members of the Council were retained to provide product ideas and advice on technologies relating to energy, lifestyle and nutrition wellness, as well as to deliver keynote speeches and attend Company events. The members of the Council were each paid an annual fee of$36,000 with additional payments for each keynote presentation. As of the date of this report, all agreements with the members have expired. Target Market
The Yippi App is free for users and can be downloaded through theApple App Store ,Amazon App Store . We are focused on increasing our users. Currently, our users are concentrated inIndonesia ,Malaysia ,China ,Philippines ,Vietnam , andTaiwan . The Yippi App is also available to users inthe United States ; however, the Toga Resonance Technology ("TRT") feature within the Yippi App is not available to users inthe United States . Competition We compete with companies that focus on mobile social engagement and advertising. Many of these companies, such as Apple; Facebook Inc. ("Facebook"), which owns and operates the applications Facebook, Instagram, andSnapchat ;Google, LLC ("Google"), which owns and operates YouTube; and Twitter, Inc. ("Twitter"), which owns and operates the social networking service known as Twitter, have significantly greater financial and human resources. Our competitors span from internet technology companies and digital platforms to traditional companies in print, radio, and television sectors to underlying technologies like default smartphone messaging. Additionally, our competition for engagement varies by region. The main bases on which we currently compete with competitors include engagement, partnerships, advertising, and talent. We compete by attracting and retaining our users' attention, both in terms of reach and engagement. We focus on constantly improving and expanding the Yippi App and related features, as described below under "New Product Development."
Finally, we also compete for advertising revenue, especially with respect to video and other highly engaging formats. We believe our ability to compete depends primarily on our reach and ability to deliver a strong return on investment to our advertisers, which is driven by our advertising products, delivery and measurement capabilities, including application programming interfaces, and other tools. The industry in which we operate is changing rapidly and we find ourselves in competition with internet-based platforms, advertising networks, and traditional media.
Business Overview Subsequent to Quarter ended
New Yippi Product Development - Subsequent to
Between January andJuly 31, 2020 , we launched new features within the Yippi App to enhance our user experience, including, but not limited to, new TRT features, which include relieving fatigue, relaxation and rejuvenation, and enhancements to live streaming, "yellow bean" social tokens, sticker artist profiles, social gamification, leaderboard, daily login reward, "Pong Pong" social networking, web instant messaging, text translation, eShop e-commerce, TogaGo user experience and "Go Cash" rewards points, and in-app Yipps purchasing through the Apple Appstore,
We also have a number of new features and enhancements to current features in development that we plan to incorporate into the Yippi App in the future, including, but not limited to, eSports live streaming, mini videos, a portal to allow for journalists and blogger content updates, expanded travel features such as train service and airport transfers bookable through TogaGo, and other "mini-programs." Mini-programs are "sub-applications" within the Yippi App ecosystem, which offer advanced features to users in e-commerce, task management, coupons/offers, brand page, or exclusive content from official accounts. These enhancements provide experiences that are built completely within the Yippi App, for a more complete user experience. Mini-programs are similar to separate applications but because the mini-programs are within the Yippi App, users do not need to separately download each mini-program; thus, the mini-programs do not use any additional storage space on the user's device. Users may scan quick response, or QR, codes or input the names of the mini-programs in-app to launch them. The success of the mini-programs is dependent upon encouraging talented and independent developers to create these mini-programs that are powered by our Yipp App. We currently anticipate that our mini-programs will be publicly released in 2021. Our newest version of the Yippi App, "Yippi X" was unveiled inJanuary 2021 . Yipps Agreements We generate revenue from the sale of Yipps, which are the in-app credit that can be used for purchases, services and tipping within the Yippi App. We use third party entities to distribute Yipps to certain end users, pursuant to Yipps Agreements. Each Yipps Agreement provides that the company purchasing the Yipps can purchase them via a purchase order, for a price set by TOGL Technology, and then distribute the Yipps to their members / agents to be used in the Yippi App. TOGL Technology has the right to change the price of the Yipps from time to time. InMay 2019 , TOGL Technology entered into Yipps Agreements with each ofAgel Enterprise International Sdn . Bhd., Malaysian corporation ("Agel"),Toga Japan Co. Ltd. , a Japanese company ("Toga Japan"), andShenZhen DingShang Network Technology Co. Ltd. , a Chinese company ("ShenZhen DingShang"), for the purchase and distribution of Yipps. However, because of the COVID-19 pandemic, the Yipps Agreement with Agel was terminated inMay 2020 . OnMarch 1, 2020 (as amended onJuly 1, 2020 ), TOGL Technology entered into a Yipps Agreement withSuccess Fortune Trading Limited , aHong Kong company ("Success Fortune") for the purchase and distribution of Yipps that can be
used by the Yippi App users. OnJune 1, 2020 , TOGL Technology entered into a Yipps Agreement with our newly acquired, partially-owned Malaysian subsidiary,Eostre Bhd ., for the purchase and distribution of Yipps that can be used by the Yippi App users.
Eostre - Products Sold Through Our Direct Marketing Network
Recent Changes to the Eostre Business
We recently changed our business model for our Eostre business line by bringing the direct marketing sales activities inAsia under our newly acquired, partially-owned Malaysian subsidiary,Eostre Bhd . Beginning onJune 1, 2020 , independent sales agents inMalaysia and Japan can purchase our "Eostre" branded products directly fromEostre Bhd .
Prior Business Structure; Eostre Trademark License Agreements
The recent changes to the business model of our Eostre business occurred because of the prolonged effect of the COVID-19 pandemic. Previously, from 2018 untilMay 31, 2020 , we sold our "Eostre" branded products exclusively to independent sales agents inMalaysia , Japan,Taiwan , andIndonesia . We did not sell our products directly to consumers. These independent sales agents distributed our products through direct marketing networks in our principal markets. InIndonesia andTaiwan , we, through our subsidiaries, administered the sale of such products. Independent agents inIndonesia andTaiwan purchase products and earn commission through a point system. InMalaysia , the program for sales was administered by Agel, and, inJapan , by Toga Japan, an unaffiliated third party. 9 Table of Contents Agel and Toga Japan each engaged independent sales agents to sell our products through their respective direct marketing networks. At no time were any of the independent sales agents of Agel or Toga Japan employed by us. In order to sell our products, we granted Agel and Toga Japan certain licensing rights to use our "Yippi App" and "Eostre" trademarks for marketing purposes pursuant to, (i) in the case of Agel, a Trademark License Agreement datedApril 1, 2018 , as subsequently amended onAugust 1, 2019 (the "Agel License Agreement") and, (ii) in the case of Toga Japan, a Trademark License Agreement datedApril 1, 2019 , as subsequently amended onAugust 1, 2019 (the "Toga Japan License Agreement" and, together with the Agel License Agreement, the "License Agreements"). The License Agreements allowed Agel and Toga Japan to administer the sales programs. As consideration for the licenses, each of Agel and Toga Japan paid us a monthly fee in the amount of$20,000 USD . We also granted our subsidiaries operating inTaiwan andIndonesia licensing rights to use our "Yippi App" and "Eostre" trademarks for marketing purposes pursuant to a Trademark License Agreement datedSeptember 1, 2018 with TOGL Technology'sTaiwan branch and a Trademark License Agreement datedAugust 1, 2019 with PT Toga Indonesia. As consideration for the licenses, each of TOGL Technology and PT Toga Indonesia paid us a monthly fee in the amount of$20,000 USD . Because of the COVID-19 pandemic and the resulting inability of independent agents to engage with customers in person, neither Agel nor Toga Japan had been able to sell our Eostre products sinceFebruary 2020 . As a result, the License Agreements with Agel and Toga Japan were terminated inMay 2020 . Because of the COVID-19 pandemic, TOGL Technology'sTaiwan branch requested and received a reduction to the monthly royalty fee to$10,000 per month for each of April andMay 2020 , and the license agreement with TOGL Technology'sTaiwan branch was terminated inJune 2020 .
Acquisition of
In connection with the termination of the License Agreements, we decided to operate the direct sales business inMalaysia and Japan ourselves, through our subsidiary,Eostre Bhd ., instead of through unaffiliated, third-parties. We anticipate that in the future all independent agents in various jurisdictions throughoutAsia will eventually purchase products directly fromEostre Bhd . As a result of this new business model, we (or our subsidiaries, as applicable), hired some of Agel's former employees to assist us in the operation of our direct marketing sales activities. In order to effectuate this new business model, we are acquiring 100% of the equity ofEostre Bhd . pursuant to two Stock Purchase Agreements, datedMarch 31, 2020 , withMr. Toh ,Mr. Lim , and the two shareholders ofEostre Bhd . (the "Stock Purchase Agreements"), and some other related agreements (the "Acquisition"), for a purchase price ofMYR 5 Million (approximately USD$1,250,000 ) (the "Purchase Price"). The Acquisition is subject to certain approvals by the relevant governmental authorities inMalaysia , which approvals are still being obtained by us. The Acquisition is expected to be completed in two phases to meet certain regulations under Malaysian law. In the first phase, (i) we acquired 20% ofEostre Bhd ., consisting of 1,000,000 ordinary shares of stock; (ii)Mr. Toh andMr. Lim acquired 20% (1,000,000 ordinary shares) and 25% (1,250,000 ordinary shares) ofEostre Bhd ., respectively; and (iii) a current owner ofEostre Bhd . acquired the balance of 1,350,000 shares, which, combined with his current ownership of 400,000 ordinary shares, resulted in his owning 35% (1,750,000 ordinary shares) ofEostre Bhd .Mr. Toh ,Mr. Lim , and the current owner ofEostre Bhd . are referred to herein as the "Individual Purchasers." We have deposited the Purchase Price directly into the bank account ofEostre Bhd ., which will be controlled by us or our designees subsequent to the closing date of the first phase. Pursuant to the Stock Purchase Agreements,Mr. Toh ,Mr. Lim , and the two original owners ofEostre Bhd . are not entitled to receive any profit in connection with the Acquisition. The Individual Purchasers executed demand notes in favor of us for their respective portions of the Purchase Price. Such demand notes bear interest at a rate of 4% per annum. In addition, the Individual Purchasers each executed a security and pledge agreement in favor of us pledging their shares inEostre Bhd . as collateral, until such time as the second phase of the Acquisition is completed. The Individual Purchasers also granted irrevocable proxies to us to vote their shares inEostre Bhd . until such time as the second phase of the Acquisition is completed. As such, we currently hold 100% voting control ofEostre Bhd . In the second phase of the Acquisition, set to begin onFebruary 21, 2021 , the promissory notes issued by the Individual Purchasers will be cancelled and deemed paid in full, and the remaining 80% of the equity inEostre Bhd . will be transferred to us. The second phase of the Acquisition is expected to close as soon as practicable after the six-month anniversary of the signing date of the Stock Purchase Agreements, based on the expected timing required to obtain the necessary approvals from theMalaysian Ministry of Trade . 10 Table of Contents At the time of the of completion of the first phase of the Acquisition,Eostre Bhd . was considered a shell entity with no current business or operations. Its sole asset is a direct selling license (the "License") to operate a business in the "direct sales" space inMalaysia . Subject to the "Direct Sales and Anti-Pyramid Scheme Act 1933," this License is a pre-requisite to operating a company in the direct sales space inMalaysia . The expiration date of the License isNovember 21, 2021 ; however, we anticipate that we will renew the License at such time. The License will allow us to operate the direct sales business directly, instead of through unaffiliated, third-parties. Business inChina OnJune 1, 2020 , we entered into a Collaboration Agreement (the "ShenZhen Yi Yi Collaboration Agreement") withShenZhen Yi Yi Technology Private Limited , a company registered inChina ("ShenZhen Yi Yi"), for provision of certain services to us and our subsidiaries within the territory ofthe Peoples' Republic of China (the "Territory"). The ShenZhen Yi Yi Collaboration Agreement memorialized the parties' understanding with respect to the provisions of these services, which began inMarch 2020 . Pursuant to the ShenZhen Yi Yi Collaboration Agreement, within the Territory, ShenZhen Yi Yi agreed to provide us with web hosting services, launch and release our apps, act as our exclusive proxy to promote our products and services, protect our trademarks, products and apps from unauthorized use, and make payments on behalf of the company to third-parties. The ShenZhen Yi Yi Collaboration Agreement grants ShenZhen Yi Yi a non-exclusive, non-sublicensable, and non-transferable right to use our trademarks. In consideration for the aforementioned services, we agreed to pay ShenZhen Yi Yi monthly consideration ofRMB 200,000 . Pursuant to a letter of authorization, datedMarch 1, 2020 , which had the effect of amending the ShenZhen Yi Yi Collaboration Agreement, TOGL Technology granted ShenZhen Yi Yi the right to sell Yipps to users in the Territory, with 30% of the total amount of the selling price for such Yipps sold payable to ShenZhen Yi Yi as commission. In addition, onJune 1, 2020 ,Eostre Bhd . also began collaborating with ShenZhen YiYi for the sale ofEostre Bhd .'s products in the Territory. This collaboration has not been memorialized in writing yet betweenEostre Bhd .
and ShenZhen YiYi. Industry Overview Since the 1990s, the use of direct selling and network marketing sales channels has grown in popularity and general acceptance, including acceptance by prominent investors and capital investment groups who have invested in direct selling companies. In addition, many large corporations have diversified their marketing strategy by entering the direct selling arena. Several consumer-product companies have launched their own direct selling businesses with international operations and often accounting for the majority of their revenues. Consumers and investors are beginning to realize that direct selling provides unique opportunities and a competitive advantage in today's markets. Businesses like us are able to quickly communicate and develop strong relationships with our customers, bypass expensive ad campaigns, and introduce products and services that would otherwise be difficult to promote through traditional distribution channels such as retail stores. According to the worldwide direct sales data published by theWorld Federation of Direct Selling Association , in 2019, approximately 118 million global direct sellers collectively generated annual retail sales of$180.4 billion , of which approximately 44% of total annual sales, or$78.9 billion , are generated in theAsia/Pacific marketplace by approximately 68.4 million independent sales agents operating in theAsia/Pacific marketplace. Products and Market Beginning onJune 1, 2020 , we sell our Eostre products directly to independent sales agents, that then sell to their customers through direct marketing networks. Prior toJune 1, 2020 , we licensed the "Eostre" brand to Agel and Toga Japan, both of which had direct marketing networks inMalaysia and Japan. We also sold Eostre products directly to independent sales agents to sell within the agents' own networks inTaiwan andIndonesia . We continue to rely on the revenues generated from our Eostre business to sustain the development of our Yippi App.
Our Eostre products are based on traditional, eastern wellness principles. We
sell both physical products and digital products online (eostre.biz), through
our "E-Booster" App, and through direct marketing networks. Our products include
pendants (necklaces with crystals on them), home goods, personal care products
(supplements, topical sprays, serums, and creams), and digital downloads. We
offer the following physical products:
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Product Product Category Available Markets Manufactured
Eostre Energy Pendant Indonesia, Taiwan, Korea
Crystal Pendant Malaysia, and JapanEostre Quantum Disc Pendant Indonesia, Taiwan,
Korea Malaysia, and Japan Eostre Vitality Pendant Indonesia and Malaysia China Pendant
Eostre Sanare Sleep Home good Indonesia and Malaysia
Korea Mat Eostre Life Force Home good Indonesia and Malaysia China Diffuser (humidifier)
Eostre Ohrus (light) Home good Malaysia
Eostre Smart LED Home good Available in
September 2019, but since
discontinued
Essential Young Personal care Indonesia Serum
Perfect Hydrating Personal care Indonesia Indonesia Spray Healthy 99 Personal care Taiwan and Japan Taiwan Beauty 99 Personal care Taiwan Taiwan
Cadalobs Chlorella Personal care Taiwan
Toga Dammarane Personal care Taiwan
Dammarane Sapogenin Personal care Japan
Taiwan We also offer digital downloads and applications that use our "Toga-Resonance Technology" ("TRT"). TRT is part of our wellness program and is designed to be a solution for electric and magnetic field ("EFM") radiation, or emissions from wireless products or powered items. For example, our "headache" program application includes soothing nature sounds with video and a digital image for a user to use as his or her phone wallpaper. Our TRT digital downloads are available online at eostre.biz and through our Yippi App (for our non-U.S. users) and our "E-Booster" App (branded as "eT-RT" when delivered in connection with our Eostre brand), although such digital products are not available to users located inthe United States . E-Booster is a digital wellness app that delivers wellness-focused digital downloads of images, audio, and videos to users' electronic devices, which are also available for download on the eostre.biz website. Marketing Strategy We, and our subsidiaries, rely on our network of independent sales agents to sell our Eostre branded products in our various jurisdictions. The independent sales agents are eligible to receive compensation on a number of different levels, ranging from retaining profit from retail sales to bonuses, which may be achieved as each such agent becomes a leader of their own network. Independent sales agents purchase points packages from the Company, which can be used to purchase packages of products to then be sold to end users. Independent sales agents also distribute points that they have purchased from the Company to other independent sales agents within their direct marketing networks (their down-line, as described below), who then also use such points to purchase packages of products and then sell such product to end users. Enrolling new independent sales agents creates multiple levels in our direct selling structure. The independent sales agents that are enrolled by other independent sales agents within our network are referred to as "sponsored" independent sales agents, who may purchase product with their points packages solely for their own personal consumption, for resale, or both. Persons newly enrolled are assigned into network positions that can be "under" other independent sales agents, and thus they can be called "down-line" independent sales agents. If down-line independent sales agents also enroll new independent sales agents, they create additional levels within the structure, but their down-line independent sales agents remain in the same down-line network as the original independent sales agent that introduced them to our business. While we provide informational brochures and other sales materials, independent sales agents are primarily responsible for enrolling and educating their new down-line sales agents with respect to products, the compensation plan and how to build a successful direct marketing network. Independent sales agents are not required to enroll other sales agents as their down-line, and we do not pay any commissions for enrolling new independent sales agents. Enrollment in our direct marketing network is contingent upon an independent sales agent purchasing a points package. However, because of the financial incentives provided to those who succeed in building a direct marketing network that consumes and resells products, we believe that many of our independent sales agents attempt, with varying degrees of effort and success, to enroll additional sales agents in their respective direct marketing networks. Our Company policies and procedures establish the rules that independent sales agents must follow in each market. Independent sales agents' presentations to customers must be consistent with, and limited to, the product claims and representations made in our literature. Independent sales agents are not entitled to use our trademarks or other intellectual property without our prior consent. If we are made aware of unapproved materials being used, we notify and direct the relevant independent sales agents to cease using such materials. We provide training materials to our independent sales agents to ensure compliance with our Company policies and to prevent unauthorized publications and/or sales practices from independent sales agents. An example of such a training and compliance presentation for independent sales agents was included in the Company's Current Report on Form 8-K/A, filed onJune 9, 2020 , as Exhibits 99.1 ("The Importance of Optimization and Compliance") and 99.2 ("A country we have national laws, at home we have house rules").
In light of the current COVID-19 pandemic, we anticipate thatEostre Bhd .'s independent sales agents will primarily use e-commerce as their main sales channel. We intend to pursue paid marketing opportunities, such as Facebook ads with targeting marketing, and hiring product ambassadors to promote our products. In addition, we intend to pursue organic marketing strategies such as using social media accounts and search engine optimization to promote the products. 12 Table of Contents Target Market Independent sales agents sell our products to wellness-minded consumers, typically adults between the ages of 20 and 80 years old, within their sales network. These consumers include both men and women, located in urban centers throughoutAsia , including inMalaysia ,China ,Taiwan ,Indonesia , andthe Philippines . Competition We purchase white labeled products and brand them with the "Eostre" trademark. We then produce sales and marketing materials for such products. Because we own the Eostre brand, we have no competitors selling identically branded products without our authorization. However, we do not own the underlying intellectual property to the products that we sell, nor do we have exclusive rights to sell such products. We have competition risk in that we cannot ensure that we will continue to be able to source our products from our third-party suppliers,
at competitive prices. In addition, we are aware that those third-party suppliers sell the same white labeled products to other companies (with different branding applied), who compete directly or indirectly with us in our principal markets. Except for the "Eostre" product branding and marketing, we are aware of one such competitor who sells identical products (with the competitor's own marketing and branding applied to the underlying product) to the Eostre Energy Crystal Pendant, Eostre Vitality Pendant, Eostre Quantum Disc, Eostre Ohrus, Eostre Life Force Diffuser, Essential Young Serum, and Perfect Hydrating Spray. This provides additional direct sales competition with respect to those products and provides competition for talent for those independent sales agents who may want to sell these or similar wellness products through a direct marketing network. Furthermore, we have competition in each jurisdiction in which we operate with the entire market of other companies and individuals who sell health and wellness products, especially those that are in the business of selling natural products (including crystals, topical sprays, serums and cremes, home goods, supplements, and similar items) based on traditional, eastern wellness principles. Manufacturing
The Eostre products are manufactured by unaffiliated third-party companies, who ship finished products containing our Eostre branding. We receive fully manufactured products from the manufacturers, which we sell through wholesale distribution to independent sales agents who have their own respective direct marketing networks for selling the products. Collaboration Agreements From time to time, TOGL Technology enters into collaboration agreements with third parties to allow such parties to provide their services or sell their products on the Yippi App or in connection with Eostre products or the E-Booster App.
OnMay 1, 2020 , we entered into a Supplier Agreement (the "Subtle Supplier Agreement") withSubtle Energy Sciences, LLC , anIndiana limited liability company ("Subtle"), where Subtle agreed to provide us with an "Immunity" app developed by Subtle which included digital files, videos, audio files and images. Pursuant to the Subtle Supplier Agreement, we were granted the exclusive right to publish and market the app worldwide. We paid Subtle a one-time sum of$30,000 as consideration under the Subtle Supplier Agreement. In connection with the Subtle Supplier Agreement, we entered into a mutual agreement, datedMay 15, 2020 , with Dr. Anura Gnanasothi Kandasamy, a Malaysian individual ("Dr. Anura"), who agreed to act as Subtle's agent under the Subtle Supplier Agreement and guarantee the delivery of Subtle's obligations thereunder, including the delivery of a scientific report in connection with Subtle's app, in exchange for a 10% commission from the total consideration payable under the Subtle Supplier Agreement. OnJune 1, 2020 , we entered into a Collaboration Agreement (the "Subtle Collaboration Agreement") with Subtle, for a period of two (2) years, which grants us the exclusive right inAsia and certain parts of theMiddle East to market and sell Subtle's products on our websites and mobile applications. We pay Subtle a monthly fee of the greater of 1% of gross sales of Subtle's products or$16,000 per month. In connection with the Subtle Collaboration Agreement, we entered into a mutual agreement, datedJune 1, 2020 , with Dr. Anura, who agreed to act as Subtle's agent under the Subtle Collaboration and guaranteed the delivery of a scientific report in connection with each of the 12 expected Subtle products to be delivered over the term of the Subtle Collaboration Agreement, in exchange for a 10% commission from the total consideration payable to Subtle under the Subtle Collaboration Agreement. 13 Table of Contents OnJune 1, 2020 , TOGL Technology entered into a Collaboration Agreement (the "Redbox Collaboration Agreement") with Redbox Holdings Berhad, a Malaysian company ("Redbox"). OnNovember 16, 2020 , TOGL Technology entered into anApp Development and Services Agreement with Redbox (the "Redbox App Development Agreement"). Redbox provides karaoke entertainment to the public via rentable rooms at public spaces such as shopping malls, where the public can book a karaoke room to sing. Pursuant to the Redbox Collaboration Agreement, TOGL Technology allows end users to purchase Redbox's products within the Yippi App, using Yipps as the form of payment. Redbox may also promote its product, including providing discounts or promotions within the Yippi App. Both parties also have agreed to collaborate to expand each party's respective business. The Redbox Collaboration Agreement grants a non-exclusive, non-sublicensable, and non-transferable right to use our Yippi trademarks, and we have a reciprocal right to use Redbox's trademarks. The trademarks are not to be used for any purpose other than the purpose of the Redbox Collaboration Agreement without our, or Redbox's, prior written consent, as applicable. Only Yipps can be used for paying for Redbox services or products, such as paying for karaoke rooms. Redbox pays TOGL Technology a portion of each transaction that utilized Yipps as the payment form. Each unit of Yipps is equivalent toRM 0.60 , however, the value of each unit may be changed from time to time in the discretion of TOGL Technology. The initial term of the Redbox Collaboration Agreement expires onJune 1, 2021 and automatically renews for an additional one-year term, unless either party provides notice to the other of its intention not to renew at least 30 days prior to the end of the initial term. Pursuant to the Redbox App Development Agreement, TOGL Technology provides development and servicing of a social karaoke app for Redbox, and, in exchange, Redbox will pay TOGL TechnologyRM 1,000,000.00 for such services, payable in installments upon completion of certain milestones as set forth in the Redbox App Development Agreement. OnJune 1, 2020 , TOGL Technology entered into a Collaboration Agreement (the "Gintell Collaboration Agreement") withGintell Rest N Go Sdn Bhd , a Malaysian company ("Gintell RNG"). OnJuly 21, 2020 , TOGL Technology entered into a Yippi E-Shop Collaboration Agreement (the "Gintell E-Shop Agreement") withGintell Irest Sdn . Bhd., a Malaysian company and affiliate of Gintell RNG ("Gintell Irest" and, collectively with Gintell RNG, the "Gintell Companies"). OnMarch 2, 2020 , TOGL Technology also entered into a Sponsorship Agreement with Gintell Irest for the provision of certain of Gintell Irest's products at two of our live streamed events broadcast on the Yippi App (the "Gintell Sponsorship Agreement"). The Gintell Companies are a healthcare retail chain store inMalaysia , which provides massage, exercise, and wellness products, such as massage chairs that are installed in public spaces and available for booking and use by customers in exchange for a fee. Pursuant to the Gintell Collaboration Agreement, TOGL Technology allows end users to purchase Gintell RNG's products within the Yippi App, using Yipps as the form of payment. Pursuant to the Gintell E-Shop Agreement, Yippi users may also purchase Gintell Irest's products through the Yippi App's online E-Shop. The Gintell Companies may also promote its products, including providing discounts or promotions within the Yippi App. Both TOGL Technology and the Gintell Companies also have agreed to collaborate to expand each party's respective business. Both the Gintell Collaboration Agreement and the Gintell E-Shop Agreement grant the Gintell Companies a non-exclusive, non-sublicensable, and non-transferable right to use our Yippi trademarks, and we have a reciprocal right to use the Gintell Companies' trademarks. The trademarks are not to be used for any purpose other than this purpose without our, or the Gintell Companies', prior written consent, as applicable. Yipps are intended to be the sole payment form accepted for Gintell RNG's customers purchasing services or products, such as by using Yipps at a massage chair to redeem massage time and services. Under the Gintell Collaboration Agreement, Gintell RNG pays TOGL Technology a portion of each transaction that utilized Yipps as payment. Each unit of Yipps is equivalent toRM 0.60 , however, the value of each unit may be changed from time to time in the discretion of TOGL Technology. Under the Gintell E-Shop Agreement, TOGL Technology may retain 15% from the sale of each of Gintell Irest's products. The initial term of the Gintell Collaboration Agreement expires onJune 1, 2021 and automatically renews for an additional one-year term, unless either party provides notice to the other of its intention not to renew at least 30 days prior to the end of the initial term. The Gintell E-Shop Agreement expired onJanuary 21, 2020 , and may be renewed by mutual written agreement of the parties. The Gintell Sponsorship Agreement expired onDecember 31, 2020 and the Company is in the process of renewing the agreement. OnAugust 11, 2020 , TOGL Technology entered into a Yippi E-Shop Collaboration Agreement (the "Ideahom E-Shop Agreement") with Ideahom Global Enterprise, a Malaysian company ("Ideahom"). Ideahom sells household appliance products, kitchen products and electrical appliances. Pursuant to the Ideahom E-Shop Agreement, Yippi users may purchase the Ideahom's products through the Yippi App's online E-Shop. The Ideahom E-Shop Agreement grants a non-exclusive, non-sublicensable, and non-transferable right for us to use Ideahom's trademarks for promotion and sales within the Yippi App with Ideahom's prior written consent. As consideration for featuring Ideahom's products in the Yipp App's E-Shop, TOGL Technology may retain a certain percentage from the sale of each of Ideahom's products. The Ideahom E-Shop Agreement will expire onFebruary 10, 2021 and will not be renewed. 14 Table of Contents Other Agreements OnJune 1, 2020 , TOGL Technology entered into a Talent Agency Appointment Agreement withDe Top Entertainment , aMalaysian Company ("DTE Agency "), for services ofYumi Wong , an artist who works forDTE Agency , to be a promoting ambassador of the Yippi App and our other products and services. The agreement expires onMay 31, 2021 . OnJuly 1, 2020 , TOGL Technology entered into a ResearchGrant Agreement ("Research Agreement") withUniversiti Telekom Sdn . Bhd., a Malaysian company ("UTSB"), which is the registered owner ofMultimedia University , a private university that offers tertiary level education in multimedia and technology, among other subjects. TOGL Technology agreed to sponsor and fund a research project to be conducted by PhD postgraduate students attending UTSB to study the effects of extremely low frequency electric fields on cancer cells and normal cells (the "Project"). The Research Agreement expires onJune 1, 2023 . TOGL Technology agreed to provideRM 221,180 in three yearly installments ofRM 118,580 ,RM 51,300 , andRM 51,300 payable pursuant to certain milestones set forth in the Research Agreement. In exchange, TOGL Technology will own 90% of any intellectual property developed in connection with the Project, with UTSB owning the remaining 10%. TOGL Technology will be solely entitled to commercialize the intellectual property developed under the Project, and any profits derived from the commercialization will be divided in proportion to the parties respective ownership percentages of the intellectual property. OnJanuary 1, 2020 , we entered into a Service Agreement (the "SNA Service Agreement") withSocial Networking Association ("SNA"), whereby SNA agreed to present ten-minute multi-media presentations about us to 1,000 individuals over a period of 90 days. We agreed to pay SNA an aggregate of$30,000 in three installments of$10,000 payable onJanuary 1 ,February 1 , andMarch 1, 2020 . SNA is directed byJim Lupkin , a member of our Board.Mr. Lupkin was in charge of performing services on behalf of SNA under the SNA Service Agreement. Beginning inJune 2020 ,Mr. Bratt , another member of our Board, was appointed the Executive Vice President and Chief Operating Officer of SNA. Advertising Agreements
During the fiscal year endedJuly 31, 2020 , we entered into agreements with six different companies to provide advertising services for them on our Yippi app. Pursuant to these agreements, we generated an aggregate of approximately$100,000 per month. As ofJanuary 29, 2021 these agreements are still in effect. 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. OnMarch 19, 2020 , a Movement Control Order (the "MCO") was issued by the Malaysian Prime Minister, which reduced movement withinMalaysia , closed all offices within the country that were non-essential, 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 (the Recovery Movement Control Order or "RMCO") were put into place, which were in effect untilDecember 31, 2020 . As ofJanuary 26 , theRMCO has been extended 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. 15 Table of Contents As a result of COVID-19, we have terminated certain agreements with Agel and Toga Japan. Please see Item 1. Business, Recent Changes to the Eostre Business, for additional information. ThroughJanuary 31, 2021 , 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.
Results of Operations (Restated)
Three months endedOctober 31, 2019 Compared to Fiscal Three months endedOctober 31, 2018 Three months ended October 31, 2019 2018 Change % Revenue$ 3,217,030 $ 742,753 $ 2,474,277 333.1 % Cost of Goods Sold 1,741,800 117,499 1,624,301 1,382.4 % Gross Profit$ 1,475,230 $ 625,254 $ 849,976 135.9 % Gross Margin 45.86 % 84.18 %
Gross Margin by product for the three months ended
Product Royalty
Sales Advertising Fee Yippi TogaGo Total
Revenue $ 2,176,756 $ 45,133 $ 60,000 $ 934,642 $ 499 $ 3,217,030
Cost of
Goods
Sold 51,428 - - 1,245,546 444,826 1,741,800
Gross
Profit
(Loss) $ 2,125,328 $ 45,133 $ 60,000 $ (310,904 ) $ (444,327 ) $ 1,475,230
Gross
Margin 97,64 % 100.00 % 100.00 % (33.26 )% (89,043.49 )% 45.86 %
16
Table of Contents
Gross Margin by product for the three months ended
Software
Maintenance
Product Royalty Management &
Sales Advertising Fee Fee Yippi TogaGo Subscription Total
Revenue $ 231,450 $ 79,860 $ 60,000 $ 323,536 $ - $ - $ 47,907 $ 742,753
Cost of
Goods
Sold 20,238 - - - 97,261 - - 117,499
Gross
Profit
(Loss) $ 211,212 $ 79,860 $ 60,000 $ 323,536 $ (97,261 ) $ - $ 47,907 $ 625,254
Gross
Margin 91.26 % 100.00 % 100.00 % 100.00 % - - 100.00 % 84.18 %
Revenue increased by approximately
Gross profit also increased by approximately$850,000 in the three months endedOctober 31, 2019 , compared to the prior year period, due primarily to an increase in product sales of approximately 1.8 million, but offset by losses resulting from approximately$1.2 million of cost of goods sold in connection with [Yippi in-app purchases] and approximately$444,000 in [costs of goods sold] for TogaGo related to booking cost, hotel disbursement and handling charge, as well as the Company's decision to no longer provide general management services to Agel in exchange for a management fee. Gross margin percentage decreased to 46% in the three months endedOctober 31, 2019 compared to 84% in the prior year period, primarily driven by the sales mix shift from the higher margin businesses of management and information technology to the lower margin business of Yippi in-app purchases. The Company has invested significantly in staff and infrastructure, which are in the early implementation stage, but management expects reductions in our general and administrative expenses as a percentage of revenue going forward. Three months ended October 31, 2019 2018 Change % Operating expenses: General and administrative expenses$ 3,726,046 238,306 3,487,740 1,463.6 % Salaries and wages 840,218 400,407 439,811 109.8 % Professional fees 475,115 311,619 163,496 52.5 % Depreciation 50,803 10,524 40,279 382.7 % Total operating expenses 5,092,182 960,856 4,131,326 430.0 % Loss from Operations (3,616,952 ) (335,602 ) (3,281,350 ) 977.8 % Other Income 65,980 139 65,841 47,367.6 % Net Loss$ (3,551,373 ) (335,463 ) (3,215,910 ) 958.6 % Net loss increased by approximately$3.2 million , or 958.6%, in the three months endedOctober 31, 2019 , compared to the prior year period, due to an increase in operating expenses primarily attributed to the increases in general and administrative expenses. General and administrative expenses increased primarily due to the increase in sales and marketing commission of$2.3 million and advertising and promotion of$764,000 driven by increase in sales activities and advertising and marketing effort. 17 Table of Contents Segment Operating Performance
Our operating performance by segment are as follows for the three months ended
Three months ended
USA Malaysia Taiwan Vietnam Indonesia Total
Revenue $ 60,000 $ 975,567 $ 308,023 $ - $ 1,873,440 $ 3,217,030
Gross Profit $ 60,000 $ (704,924 ) $ 267,339 $ - $ 1,852,815 $ 1,475,230
Gross Margin 100.00 % (72.26 )% 86.79 % - 98.90 % 45,86 %
Net Loss $ (467,172 ) $ (2,112,575 ) $ (286,847 ) $ (7,935 ) $ (676,844 ) $ (3,551,373 ) Three months ended
USA Malaysia Taiwan Indonesia Total
Revenue $ 60,000 $ 451,303 $ 231,450 $ - $ 742,753
Gross Profit $ 60,000 $ 354,042 $ 211,212 $ - $ 625,254
Gross Margin 100.00 % 78.45 % 91.26 % - 84.18 %
Net Loss $ (268,647 ) $ 44,093 $ (66,926 ) $ (43,983 ) $ (335,463 )
During the three months ended October 31, 2019 most of the Company's revenue was
derived from Yippi in-app purchases in Malaysia , and product sales generated in
Taiwan and Indonesia . Net loss increased by approximately $3.2 million due to
the increase in operating expenses.
Plan of Operation
Our current business activities do not at this time provide positive cash flow,
although we commenced generating revenue during the third quarter ended April
30, 2018 . During the next twelve months, we anticipate incurring costs related
to:
i. Further development to the Yippi app to add additional features;
ii. Marketing the Yippi app to users located throughout Asia ;
iii. Developing and marketing the Eostre business throughout Asia ;
iv. Investigating, analyzing, and consummating potential acquisition or
merger opportunities;
v. Other ongoing general and administrative type costs; and
vi. The preparation and filing of our financial statements and Exchange Act
reports.
We believe that in order to grow our business going forward, we will need to
continue to invest in marketing and advertising of our Yippi app and for our
Eostre business throughout Asia . Because of this, we expect going forward to
continue to invest heavily in marketing and advertising. We believe we will be
able to meet our operating costs and additional marketing and advertising in
excess of our revenues, through additional amounts, as necessary, to be loaned
to or invested in us by our stockholders and management, although no agreements
have been entered into with anyone.
Liquidity and Capital Resources
October 31, July 31,
2019 2019 Change %
Cash and cash equivalents $ 12,902,002 $ 14,916,556 $ (2,014,554 ) (13.5 %)
Total Assets $ 22,023,046 $ 23,554,425 $ (1,531,379 ) (6.5 %)
Total Liabilities $ 11,065,793 $ 9,049,782 $ 2,016,011 22.3 %
Working Capital $ 6,397,669 $ 10,080,247 $ (3,682,578 ) (36.5 %)
As of
Our stockholders' equity decreased from
We had$12.9 million in cash as ofOctober 31, 2019 , and the Company had assets to meet ongoing expenses or debts that may accumulate. Accumulated deficit was$28.2 million as ofOctober 31, 2019 compared to accumulated deficit of approximately$24.6 million as ofJuly 31, 2019 . Our working capital decreased by$3.7 from$10.1 million atJuly 31, 2019 , as compared to$6.4 million atOctober 31, 2019 , due primarily to the decrease in our current assets for the decrease by cash and cash equivalents of$2.0 million and the increase in our current liabilities, consisting of an increase in accounts payable and accrued liabilities of$1.1 million and deferred revenue of$534,000 . 18 Table of Contents Cash Flow Three months ended October 31, Change 2019 2018 Amount % Cash Flows (used in) operating activities$ (1,962,207 ) $ (357,027 ) $ (1,605,180 ) 449.6 % Cash Flows (used in) investing activities (77,769 ) (20,566 ) (57,203 ) 278.1 % Cash Flows provided by financing activities 62,525 1,249,938 (1,187,413 ) (95.0 )% Effects on changes in foreign exchange rate (37,103 ) 51,703 (88,806 ) (171.8 )% Net change in cash and cash equivalents during period$ (2,014,554 ) $ 924,048 $ (2,938,602 ) (318.0 )%
Cash Flow from Operating Activities
As ofOctober 31, 2019 , we had not generated positive cash flow from operating activities. For the three months endedOctober 31, 2019 , net cash flows used in operating activities was$2.0 million compared to$357,000 used during the three months endedOctober 31, 2018 . Cash flows used in operating activities for the three months endedOctober 31, 2019 , comprised of a net loss of$3.6 million , which was reduced by non-cash expenses of$51,000 for depreciation and$44,000 for stock-based compensation and a net change in working capital of$1.5 million . Cash flows used in operating activities for the three months endedOctober 31, 2018 , comprised of a net loss of$335,000 , which was reduced by non-cash expenses of$11,000 for depreciation and increased by a net change
in working capital of$32,000 .
Cash Flows from Investing Activities
During the three months endedOctober 31, 2019 , we used$78,000 in investing activities for the purchase of property and equipment. During the three months endedOctober 31, 2018 , we used$21,000 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 three months endedOctober 31, 2019 , net cash provided by financing activities was$63,000 , consisting of proceeds from related parties of$67,000 , offset by repayment to related parties of$4,000 . For the three months endedOctober 31, 2018 , net cash provided by financing activities was$1.2 million , consisting of proceeds from the sale of shares of our common stock of$1.3 million and proceeds from related parties of$38,000 , offset by repayment to related parties of$42,000 .
Application of Critical Accounting Policies
We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact on our business operations and any associated risks related to these policies are discussed throughout Management's Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported or expected financial results.
In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity withU.S. GAAP. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The material estimates for our company are that of the stock-based compensation recorded for options. The fair values of options are determined using the Black-Scholes option pricing model. We have no historical data on the accuracy of these estimates. The estimated sensitivity to change is related to the various variables of the Black-Scholes option pricing model. The specific quantitative variables are included in the notes to the consolidated financial statements. 19 Table of Contents We prepare our financial statements in conformity withU.S. GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared. On a regular basis, we review our accounting policies and how they are applied and disclosed in our financial statements.
While we believe that the historical experience, current trends and other factors considered support the preparation of our financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.
For our critical accounting policies and estimates for "Revenue Recognition" and "Leases" see Note 1, Summary of Significant Accounting Policies, to the unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report. Other than the policy changes disclosed in Note 1, Summary of Significant Accounting Policies, to the unaudited Condensed Consolidated Financial Statements in Item 1 of Part I of this Quarterly Report, there have been no material changes to our critical accounting policies and estimates during the three months endedOctober 31, 2019 from those disclosed in our Annual Report on Form 10-K for the year endedJuly 31, 2019 .
Off-Balance Sheet Arrangements
We do not engage in any activities involving variable interest entities or off-balance sheet arrangements.
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