Leader Capital Holdings Corp. - Quarter Report: 2019 November (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For The Quarterly Period Ended November 30, 2019

or

For the transition period from ____________ to ____________

Commission File Number 333-221548

LEADER CAPITAL HOLDINGS CORP.

(Exact name of registrant issuer as specified in its charter)

Registrant’s phone number, including area code: +852-3487-6378

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES [  ] NO [X]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES [  ] NO [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

LEADER CAPITAL HOLDINGS CORP.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2019

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION
CONTAINED IN THIS REPORT

This quarterly report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and the provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “hopes,” “expects,” “anticipates,” “estimates,” “projects,” “intends,” “plans,” “would,” “should,” “could,” “may” or other similar expressions in this Form 10-Q. In particular, these include statements relating to future actions, future performance, anticipated expenses, or projected financial results. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. These risks and uncertainties include the following:

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, or joint ventures we may make or collaborations or strategic partnerships we may enter into.

You should read this Form 10-Q and the documents that we have filed as exhibits to this Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Unless otherwise stated or the context otherwise requires, the terms “Leader Capital Holdings Corp.,” “we,” “us,” “our” and the “Company” refer collectively to Leader Capital Holdings Corp. and, where appropriate, its subsidiaries.

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

INDEX TO UNAUDITED FINANCIAL STATEMENTS

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to the condensed consolidated financial statements.

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(In U.S. dollars except for share data)

See accompanying notes to the condensed consolidated financial statements.

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In U.S. dollars except for share data)

See accompanying notes to the condensed consolidated financial statements.

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In U.S. dollars)

See accompanying notes to the condensed consolidated financial statements.

LEADER CAPITAL HOLDINGS CORP. AND SUBSIDIARIES

NOTES TO condensed consolidated FINANCIAL STATEMENTS

(UNaudited)

For the three months ended November 30, 2019 and 2018

(In U.S. dollars except for share data)

1. ORGANIZATION AND BUSINESS BACKGROUND

Leader Capital Holdings Corp. was incorporated on March 22, 2017 under the laws of the State of Nevada.

The Company, through its subsidiaries, mainly operates and services a mobile application investment platform.

Leader Capital Holdings Corp. and its subsidiaries are hereinafter referred to as the “Company”.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These interim condensed consolidated financial statements of the Company and its subsidiaries are unaudited. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”), and include the accounts of the Company and its subsidiaries. However, they do not include all information and footnotes necessary for a complete presentation of financial statements in conformity with U.S. GAAP. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Intercompany accounts and transactions have been eliminated in consolidation.

The Company has adopted August 31 as its fiscal year end. These unaudited financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended August 31, 2019, which was filed with the SEC on November 29, 2019.

Going Concern

The accompanying interim 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.

The Company has suffered recurring losses from operations, and recorded an accumulated deficit of $2,714,376 as of November 30, 2019. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company’s profit generating operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due.

The Company expects to finance its operations primarily through loans from existing directors and stockholders, sales of capital stock and cash flow from operations. In the event that the Company requires additional funding to finance the Company’s current and expected future operations, as well as to achieve its strategic objectives, a stockholder 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 the Company. Any such additional financing may contain undue restrictions on the Company’s operations and/or cause substantial dilution to its stockholders.

These interim condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and the classification of liabilities that might be necessary should the Company be unable to continue as going concern.

Use of Estimates

The preparation of these unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and related disclosures. On an on-going basis, the Company evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Identified below are the accounting policies that reflect the Company’s most significant estimates and judgments, and those that the Company believes are the most critical to fully understanding and evaluating its condensed consolidated financial statements.

Cash and Cash Equivalents

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date of such investments.

Software Development Costs

The Company expenses software development costs, including costs to develop software products or the software component of products to be marketed to external users, before technological feasibility is reached. Technological feasibility is typically reached shortly before the release of such products and, as a result, development costs that meet the criteria for capitalization were not material for the periods presented.

The Company capitalizes development costs related to these software applications once the preliminary project stage is complete and it is probable that the project will be completed and the software will be used to perform the function intended.

On September 1, 2018, the Company engaged LOC Weibo Co., Ltd (“LOC”), an unrelated company incorporated in Taiwan, to develop a mobile application in four stages for total consideration of TWD20,000,000 ($651,466), payable in the form of shares of the Company’s restricted common stock. The first and second stages of development for the basic functions of the mobile application have been completed, and the Company has issued an aggregate total of 908,678 shares of restricted common stock at a price per share of $0.50 for the work completed up to November 30, 2019.

Of the shares of restricted common stock that have been issued to LOC, nil and 390,375 shares of restricted common stock were issued during the three months ended November 30, 2019 and 2018, respectively, for the work completed during each period. The Company expensed $0 and $195,187 in development costs as general and administrative expenses for the three months ended November 30, 2019 and 2018, respectively. As of November 30, 2019, the development of the mobile application is still in progress and the Company has not capitalized any of the development costs.

Revenue Recognition

The Company adopted Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The Company recognizes revenue following the five-step model prescribed under ASU 2014-09:

Step 1: Identify the contract

Step 2: Identify the performance obligations

Step 3: Determine the transaction price

Step 4: Allocate the transaction price

Step 5: Recognize revenue

Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, which may occur at a point in time or over time depending on the terms and conditions of the agreement, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Currently, the Company has an agreement with a third party whereby the Company authorized the third party to use the Company’s investment platform and related applications from January 1, 2018 to December 31, 2020. Income from providing investment platform services with the use of a mobile application is recognized when the service is performed.

Revenue by Recognition Over Time vs Point in Time

Other Income – Related Party

Revenue from the subletting of leasehold land and buildings is recognized on a straight-line basis over the lease term when collectability is reasonably assured and the tenant has taken possession or controls the physical use of the leased assets. The Company leased its commercial office in Taipei from April 1, 2018 to February 28, 2019 under a non-cancelable operating lease with a term of 31 months to a related party, Greenpro LF Limited, which is owned by Mr. Yi-Hsiu Lin, the Company’s Chief Executive Officer and a member of its board of directors (“Mr. Lin”), and Mr. Chong Kuang Lee.

Practical Expedients and Exemption

The Company has not incurred any costs to obtain contracts, and does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.

Plant and Equipment

Plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected useful lives from the date on which they become fully operational:

Impairment of Long-Lived Assets

The Company reviews the carrying values of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If the assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. No impairment has been recorded by the Company for the three months ended November 30, 2019 and 2018.

Income Taxes

Income taxes are determined in accordance with the provisions of Accounting Standards Codification (“ASC”) Topic 740, “Income Taxes” (“ASC 740”). Under this 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 basis. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which those temporary differences are expected to be recovered or settled. Any 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.

ASC 740 prescribes a comprehensive model for how companies should recognize, measure, present, and disclose in their financial statements uncertain tax positions taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.

The Company recorded a liability for an uncertain income tax position, tax penalties and any imputed interest thereon of $20,000 and $0 at November 30, 2019 and August 31, 2019, respectively, included in accrued payables and accrued liabilities due to the potential of incurring a tax penalty for filing tax returns with the Internal Revenue Service late and, if recognized, such penalty will affect the Company’s effective tax rate.

The Company conducts business in Hong Kong and is subject to tax in the jurisdiction of Hong Kong. As a result of its business activities, the Company will file tax returns that are subject to examination by the Hong Kong tax authority.

Net Income/(Loss) Per Share

The Company calculates net income/(loss) per share in accordance with ASC Topic 260, “Earnings per Share.” Basic income/(loss) per share is computed by dividing the net income/(loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted income per share is computed similar to basic income/(loss) per share except that the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the potential common stock equivalents had been issued and if the additional shares of common stock were dilutive. The following table presents a reconciliation of basic and diluted net income (loss) per share:

* Including 8,500,000 and nil shares that were granted and vested but not yet issued for the three months ended November 30, 2019 and 2018, respectively.

Stock-based compensation

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment topic of ASC Topic 718 (“ASC 718”), which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the vesting period or immediately if fully vested and non-forfeitable. The Financial Accounting Standards Board (“FASB”) also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

Additionally, ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, permits the election of an accounting policy for forfeitures of share-based payment awards, either to recognize forfeitures as they occur or estimate forfeitures over the vesting period of the award. The Company has elected to recognize forfeitures as they occur.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation—Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”), which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt prior to adopting the new revenue recognition guidance in ASC Topic 606, Revenue from Contracts with Customers. The Company adopted ASU 2018-07 on September 1, 2019 and there was no cumulative effect of adoption.

Foreign Currencies Translation

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting exchange differences are recorded in the statements of operations.

The reporting currency of the Company is United States Dollars (“US$”). The Company’s subsidiaries in Seychelles and Hong Kong maintain their books and records in US$ and Hong Kong Dollars (“HK$”), respectively. HK$ is the functional currency and the primary currency of the economic environment in which the Company operates.

In general, for consolidation purposes, the assets and liabilities of the Company’s subsidiaries whose functional currency is not US$ are translated into US$, in accordance with ASC Topic 830-30, “Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from the translation of the financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of retained earnings.

Related Parties

Parties, which can be a corporation or an individual, are considered to be related if the Company has the ability to, directly or indirectly, control the other party or exercise significant influence over the other party in making financial and operating decisions. Companies are also considered to be related if they are subject to common control or common significant influence.

Fair Value of Financial Instruments:

The carrying value of the Company’s financial instruments, such as cash and cash equivalents, deposits, notes receivable, accounts payable and accrued liabilities, balances due to a director and bonds payable, approximate at their fair values because of the short-term nature of these financial instruments or the rate of interest of these instruments approximate the market rate of interest.

The Company also follows the guidance of the ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”), with respect to financial assets and liabilities that are measured at fair value. ASC 820 establishes a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:

Level 1: Observable inputs such as quoted prices in active markets;

Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

Leasing

Under ASC Topic 842, “Leases”, the Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date, based on the present value of the remaining lease payments, and discounted using the discount rate for the lease at the commencement date. The ROU assets represent the Company’s right to control the use of an identified asset for the lease term and the lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets are generally recognized based on the amount of the initial measurement of the lease liability. The ROU assets also include any lease payments made prior to the commencement of the lease and is recorded net of any lease incentives received. The Company elected the package of practical expedients permitted under the transition guidance to combine the lease and non-lease components as a single lease component for operating leases associated with the Company’s office space lease, and to keep leases with an initial term of 12 months or less off the balance sheet and recognize the associated lease payments in the consolidated statements of income on a straight-line basis over the lease term.

The Company’s only lease meets the definition of a short-term lease because the initial lease term is 12 months or less. Consequently, the Company does not recognize the ROU asset and the lease liability arising from this lease.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” and issued certain transitional guidance and subsequent amendments between January 2018 and March 2019 within ASU No. 2018-01, ASU No. 2018-10, ASU No. 2018-11, ASU No. 2018-20 and ASU No. 2019-01 (collectively, including ASU No. 2016-02, “ASC 842”), which amends ASC Topic 840, the existing accounting standards for lease accounting. ASC 842 generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. We adopted ASC 824 on September 1, 2019 using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases. The adoption of ASC 842 did not have a material impact on net assets and the consolidated statement of comprehensive income.

In June 2018, the FASB issued ASU 2018-07, which expands the scope of ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. The new standard became effective for the Company on September 1, 2019. The adoption of ASU 2018-07 did not have a material impact on the Company’s condensed consolidated financial statements.

3. PLANT AND EQUIPMENT, NET

Plant and equipment costs as of November 30, 2019 and August 31, 2019 are summarized below:

Depreciation expenses, classified as operating expenses, were $2,314 and $2,091 for the three months ended November 30, 2019 and 2019, respectively.

4. RELATED PARTY TRANSACTIONS

5. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

6. NOTES RECEIVABLE

On February 13, 2019, the Company entered into a loan agreement with a third party, Kurrency Technology Holding Limited. (“Kurrency”) and loaned Kurrency a total of $50,000. The loan was unsecured and bears interest at a rate of 8% per annum. Kurrency agreed to repay the loan principal in five equal installments commencing on December 15, 2019. Interest of $3,181 and $2,181was accrued as of November 30, 2019 and August 31, 2019, respectively.

In April 2019, the Company entered into multiple loan agreements with LOC (Notes 2 and 12) and loaned LOC a total amount of $810,517 and $582,521 as of November 30, 2019 and August 31, 2019, respectively. The loans are secured by the personal guarantees of some of LOC’s ultimate stockholders, bear interest at a rate of 8% per annum, and are due on various dates from April 12, 2020 through November 6, 2020. Interest of $20,952 and $6,564 was accrued as of November 30, 2019 and August 31, 2019, respectively.

In May 2019, the Company entered into multiple short-term loan agreements with another unrelated company in Beijing, China, and loaned this company a total amount of $365,626 and $192,337 as of November 30, 2019 and August 31, 2019, respectively. The loans are secured by the personal guarantees of some of that company’s ultimate stockholders, bear interest at a rate of 8% per annum, and are due on various dates from May 14, 2020 through November 6, 2020. Interest of $9,193 and $2,836 was accrued as of November 30, 2019 and August 31, 2019, respectively.

The Company made the loans to LOC and the company in Beijing as part of the Company’s plans to expand its business in software technology.

7. ACCRUED EXPENSES AND OTHER PAYABLES

The Company signed an agreement with a third party whereby it authorized the third party to use its investment platform and related applications, for a period until December 31, 2020, for an upfront service fee. An additional fee is charged upon the third party’s sale of products on the Company’s mobile application. Unearned income on this contract was $7,222 and $8,889 as of November 30, 2019 and August 31, 2019, respectively.

8. AMOUNT DUE TO DIRECTOR

The outstanding amounts of $437,661 and $262,159 as of November 30, 2019 and August 31, 2019, respectively, represent an advance from Mr. Lin. It is unsecured and interest-free with no fixed payment term.

9. BONDS PAYABLE

The Company entered into a Bond Purchase Agreement with an individual third party on August 14, 2019, pursuant to which the Company issued and sold to the purchaser a bond at an aggregate purchase price of $600,000. The bond will mature three years from August 14, 2019. Interest on the bond accrues at rate of 10% per annum and is payable on semi-yearly basis. The Company may exercise its right to repay this bond at any time on or before two years from the maturity date by wiring 100% of all outstanding principal and interest to the purchaser.

10. COMMON STOCK

On September 1, 2018, the Company engaged LOC to develop a mobile application in four stages for total consideration of TWD20,000,000 ($651,466), payable in the form of shares of the Company’s restricted common stock. As of November 30, 2019, the first and second stages of development for the basic functions of the mobile application have been completed.

During the three months ended November 30, 2019 and 2018, the Company issued nil and 390,375 shares of restricted common stock, respectively, for the work completed during the respectively periods. The Company has issued an aggregate total of 908,678 shares of restricted common stock at a price per share of $0.50 for the work completed up to November 30, 2019 (Note 2).

On September 1, 2019, the Company entered into an employment agreement with Yi-Hsiu Lin to serve as the Chief Executive Officer of the Company for a two-year term. Pursuant to the agreement, Mr. Lin will be compensated at an annual rate of $50,000 per year (the “Base Compensation”), prorated for any partial year in cash or 2,500,000 shares of restricted common stock, which would vest as of September 16, 2019. In addition, Mr. Lin may be entitled to bonus compensation of up to three (3) times Base Compensation based on his achievement of appropriate performance criteria to be determined by the board of directors or a committee thereof. The fair value of the shares of restricted common stock was $1,250,000, which was calculated based on a price per share of $0.50 and amortized over the service term. During the three months ended November 30, 2019 and 2018, the Company amortized $312,500 and $0, respectively, as remuneration. Prepaid expenses were $937,500 as of November 30, 2019 (Note 5).

On September 1, 2019, the Company issued a director offer letter to Shui Fung Cheng, pursuant to which Mr. Cheng agreed to serve as a director of the Company for a one-year term. For his service as a director, Mr. Cheng will receive an annual compensation, prorated for any partial year, in the form of $30,000 in cash or 1,500,000   shares of restricted common stock. The offer letter provided that compensation, either in cash or shares of restricted common stock, shall be paid or granted immediately on September 1, 2019. The fair value of the shares of restricted common stock was $750,000, which was calculated based on a price per share of $0.50 and amortized over the service term. During the three months November 30, 2019 and 2018, the Company amortized $187,500 and $0, respectively, as remuneration. Prepaid expenses were $562,500 as of November 30, 2019 (Note 5).

On September 1, 2019, the Company entered into a consulting agreement with a consultant to provide business development services to the Company for a one-year term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $40,000 in the form of 2,000,000   shares of restricted common stock, which vests on September 15, 2019, prorated for any partial year. The fair value of the shares of restricted common stock was $1,000,000, which was calculated based on a price per share of $0.50 and amortized over the service term. During the three months ended November 30, 2019 and 2018, the Company amortized $250,000 and $0, respectively, as consulting expenses under this agreement. Prepaid expenses were $750,000 as of November 30, 2019 (Note 5).

On September 1, 2019, the Company entered into a consulting agreement with a consultant to provide business advisory services to the Company for a one-year term. Pursuant to the agreement, the Company agreed to pay the consultant a fee of $50,000 in the form of 2,500,000   shares of restricted common stock, which vests on September 15, 2019, prorated for any partial year. The fair value of the shares of restricted common stock was $1,250,000, which was calculated based on a price per share of $0.50 and amortized over the service term. During the three months ended November 30, 2019 and 2018, the Company amortized $312,500 and $0, respectively, as consulting expenses under this agreement. Prepaid expenses were $937,500 as of November 30, 2019 (Note 5).

11. COMMITMENTS AND CONTINGENCIES

During the period ended November 30, 2019, the Company entered into an agreement with an independent third party to lease office premises in Taiwan, Shenzhen and Hong Kong on a monthly basis for the operations of the Company. The rental expense for the period ended November 30, 2019 and 2018 were $34,652 and $35,088, respectively.

The following table lists the future minimal payments to be paid by the Company under a non-cancellable operating lease for office space in Hong Kong with an initial term of one-year as of November 30, 2019:

12. SUBSEQUENT EVENTS

In December 2019, the Company entered into short-term loan agreements with LOC, whereby the Company provided LOC with additional loans of $113,229. The loans are secured by the personal guarantees of some of LOC’s ultimate stockholders, bear interest at a rate of 8% per annum, and are due in December 2020.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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, 2019 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.

Use of the JFB platform is currently free; however, we have an agreement with a third party whereby we have authorized the third party to use our investment platform and related applications until December 31, 2020 for a fee. In the future, the Company intends to generate additional revenue by developing a new, more comprehensive mobile application, with similar functions as the JFB platform, to offer to our clients for a fee.

Going Concern

The accompanying 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.

We have suffered recurring losses from operations, and recorded an accumulated deficit of $2,714,376 as of November 30, 2019. 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 its obligations and repay our liabilities arising from normal business operations when they become due.

The Company expects to finance its operations primarily through loans from existing directors and stockholders, sales of capital stock and cash flow from operations. In the event that the Company requires additional funding to finance the Company’s current and expected future operations, as well as to achieve its strategic objectives, a stockholder 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 the Company. Any such additional financing may contain undue restrictions on the Company’s operations and/or cause substantial dilution to its stockholders.

These 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:

Cash Used in Operating Activities

Net cash used in operating activities for the three months ended November 30, 2019 and 2018 was $154,234 and $87,872, 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 three months ended November 30, 2019 and 2018 was $401,285 and $102,564, respectively. The net cash used in investing activities for the three months ended November 30, 2019 was related to the issuance of notes receivable. The cash used in investing activities for the three months ended November 30, 2018 resulted from an investment of $102,564 (HK$800,000) in the equity interest of Leader Financial Asset Management Limited.

Cash Provided by Financing Activities

Net cash provided by financing activities for the three months ended November 30, 2019 and 2018 was $175,502 and $1,237, respectively. The cash provided by financing activities were related to the advances and repayment from related parties and a director.

Results of Operations

Comparison for the three months ended November 30, 2019 and 2018

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.

Through this agreement, we generated revenue of $1,667 and $0 for the three months ended November 30, 2019 and 2018, respectively.

General and Administrative Expenses

General and administrative expenses were $1,238,147 and $410,794 for the three months ended November 30, 2019 and 2018, respectively. Our general and administrative expenses consist primarily of software development costs, consultancy fees, payroll expenses, rental expenses, marketing fees, consultancy fees and legal and professional fees. We recognized share-based compensation to directors and consultants of $1,062,500 and $0 for the three months ended November 30, 2019 and 2018, respectively. We started to incur software development expenses in fiscal year 2019. We have expensed $0 and $195,187 development costs in general and administrative expenses for the three months ended November 30, 2019 and 2018, respectively. In the three months ended November 30, 2018, the Company recorded an impairment loss of $102,564 on its investments in Leader Financial Asset Management Limited, a company incorporated in Hong Kong. No such impairment loss was incurred in the same period of 2019.

Other Income

Other income for the three months ended November 30, 2019 amounted to $21,809 as compared to $11,481 in the prior year, representing an increase of $10,328. The increase was due primarily to the increase in interest income of $21,746 primarily on notes receivable we issued, partially offsetting by the drop of subletting rental income of $11,354, from a subletting arrangement from April 1, 2018 to February 28, 2019 with a related company.

Net Loss

Our net loss was $1,249,630 and $399,313 for the three months ended November 30, 2019 and 2018, respectively. The net loss was mainly derived from our general and administrative expenses.

Off-Balance Sheet Arrangements

As of November 30, 2019, 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.

Contractual Obligations

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed under the Exchange Act is accumulated and communicated to management, including the principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.

In connection with the preparation of this Form 10-Q for the quarter ended November 30, 2019, our management, including our Chief Executive Officer and our principal financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of November 30, 2019. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of November 30, 2019, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of November 30, 2019, our disclosure controls and procedures were not effective: (i) a lack of an audit committee; (ii) a lack of adequate written policies and procedures for accounting and financial reporting (iii) insufficient appropriate information technology controls, and (iv) a lack of sufficient and skilled accounting personnel with an appropriate level of technical accounting knowledge and experience in the application of accounting principles generally accepted in the United States commensurate with our financial reporting requirements

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ending November 30, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

There are no material pending legal proceedings as defined by Item 103 of Regulation S-K, to which we are a party or of which any of our property is the subject, other than ordinary routine litigation incidental to the Company’s business.

There are no proceedings in which any of the directors, officers or affiliates of the Company, or any registered or beneficial holder of more than 5% of the Company’s voting securities, is an adverse party or has a material interest adverse to that of the Company.

Item 1A. Risk Factors.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On September 1, 2019, the Company issued 2,500,000 shares of restricted common stock to Yi-Hsiu Lin pursuant to an employment agreement, whereby Mr. Lin agreed to serve as the Chief Executive Officer of the Company for a two-year term.

On September 1, 2019, the Company issued 1,500,000   shares of restricted common stock to Shui Fung Cheng pursuant to a director offer letter, whereby Mr. Cheng agreed to serve as a director of the Company for a one-year term.

On September 1, 2019, the Company issued 2,000,000   shares of restricted common stock to a consultant pursuant to a consulting agreement, whereby the consultant agreed to provide business development services to the Company for a one-year term.

On September 1, 2019, the Company issued 2,500,000   shares of restricted common stock to a consultant pursuant to a consulting agreement, whereby the consultant agreed to provide business advisory services to the Company for a one-year term.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

* Filed herewith.

** Furnished herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.