Item 5. Market for Registrant’s Common Equity
ITEM 5 - MARKET FOR REGISTRANT’S COMMON
EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market for Common Stock
Our Ordinary Shares have been listed on the Nasdaq
Capital Market since May 3, 2019, under the symbol “ATIF.”
Holders of Record of Ordinary Shares
As of October 25, 2022, we had approximately
32 shareholders of record for our ordinary shares. The foregoing number of shareholders of record does not include an unknown number
of shareholders who hold their shares in “street name.”
Dividend Policy
We do not intend to pay dividends for the foreseeable
future. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect
to declare or pay any dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Ordinary
Shares if the market price of our Ordinary Shares increases.
Purchases of Equity Securities
Neither we nor any “affiliated purchaser,”
as defined in Rule 10b-18(a)(3) of the Exchange Act, purchased any of our equity securities during the period covered by this
annual report.
Securities Authorized for Issuance Under Equity
Compensation Plans.
None.
Use
of Proceeds
The following “Use of Proceeds” information
relates to the registration statement on Form F-1, as amended (File Number 333-228750) for our IPO of up to 800,000 ordinary shares
(as adjusted to reflect the Reverse Split), which was declared effective by the SEC on February 8, 2019, and the registration statement
on Form F-3, as amended (File Number 333-239131) for the sale of our securities of up to an aggregate initial offering price not
to exceed $50,000,000, which was declared effective by the SEC on September 21, 2020.
In April 2019, we completed our IPO in which
we issued and sold an aggregate of 414,935 ordinary shares (as adjusted to reflect the Reverse Split) at a price of $25.00 per ordinary
shares (as adjusted to reflect the Reverse Split) for a total offering size of approximately $10,373,360. The net proceeds raised from
the IPO were $9,558,243 after deducting underwriting commissions and the offering expenses payable by us. Boustead Securities, LLC was
the underwriter of our IPO.
We incurred approximately $1,440,680 in expenses
in connection with our IPO, which included approximately $720,253 in underwriting commissions for the IPO and approximately $720,427
in other costs and expenses. None of the transaction expenses included payments to directors or officers of our company or their associates,
persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds we received from the IPO were
paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities
or our affiliates.
As of July 31, 2022, we have used all of
the net proceeds from our IPO, including (i) $3,155,853 for daily operations, (ii) $1,452,792 for investment in financial instruments,
(iii) $1,354,579 for acquisition and related fees, (iv) $994,041 for marketing, (v) $895,651 for outsourced services, (vi) $746,853
for for purchases of fixed assets, (vii) $450,000 for securities accounts deposit, (viii) $316,567 for Online system development
and IT technology supporting expenses, and(ix) $191,908 for IPO related expenses.
In June 2020, we filed a registration statement
on Form F-3, as amended (File Number 333-239131), to offer ordinary shares, preferred shares, warrants to purchase ordinary shares,
preferred shares, debt securities, (not to exceed $10,000,000 in the aggregate), or units consisting of a combination of any or all of
these securities at an aggregate offering price of up to $50,000,000 We intend to use the net proceeds from such offerings in the manner
as disclosed in our registration statement on Form F-3, as amended (File Number 333-239131).
In January 2021, we filed a registration statement
on Form F-1, as amended (File Number 333-251924) relating to the resale of an aggregate of 947,826 ordinary shares (as adjusted for the
Reverse Split) that are issuable upon the exercise of outstanding warrants by the selling shareholders identified herein. These warrants
were issued in connection with a private placement we completed on November 5, 2020. We will not receive any of the proceeds from the
sale by the selling shareholders of the ordinary shares. Upon any exercise of the warrants by payment of cash, however, we will receive
the exercise price of the warrants.
In April 2021, we filed a registration statement
on Form F-1 (File Number 333-255545) to offer ordinary shares and warrants to purchase ordinary shares not to exceed an aggregate offering
price of up to $15,000.000. We intend to use the net proceeds from such offerings in the manner as disclosed in our registration statement
on Form F-1 (File Number 333-255545).
44
On August 12, 2021, our Board of Directors approved
a reverse stock split (the “Reverse Split”) of the Company’s issued and outstanding ordinary shares, par value $0.001
per share, at a ratio of 5-for-1 so that every five (5) shares of US$0.001 par value in issue on the date of the Reverse Split was combined
into one (1) share of US$0.005 par value. Shareholders otherwise entitled to receive a fractional share as a result of the reverse stock
split will receive a whole share in lieu of such factional share, as relevant. Both immediately before and after completion of the
Reverse Split, the Company is and will be authorized to issue 100,000,000,000 shares of US$0.001 par value each, divided into two classes.
As a result of the Reverse Split, the Company’s issued and outstanding ordinary shares will be reduced from 45,806,952 ordinary
shares of US$0.001 par value to approximately 9,161,390 ordinary shares of US$0.005 par value each. The par value of the ordinary shares
will be $0.001 per share after completion of the Reverse Split, as the par value of each share was amended back to US$0.001.
Recent Sales of Unregistered Securities
In the three years preceding the filing of this
registration statement, we issued the securities described below without registration under the Securities Act. Unless otherwise indicated
below, the securities were issued pursuant to the private placement exemption provided by Section 4(a)(2) of the Securities Act and Regulation
D promulgated thereunder.
On November 6, 2020, in a private placement,
we sold to three accredited investors 869,565 Ordinary Shares and warrants to purchase a total of 869,565 Ordinary Shares at an exercise
price of $4.60 per share which are exercisable for five years from the date of issuance. We also issued to the placement agent warrants
to purchase 78,261 ordinary shares at an exercise price equal to $4.60 and are exercisable 180 days after November 3, 2020.
ITEM 6. [RESERVED]
ITEM
7. - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto contained in this Annual Report
on Form 10-K. Some of the statements contained in the following discussion of the Company’s financial condition and results of
operations refer to future expectations or include other “forward-looking” information. Those statements are subject to known
and unknown risks, uncertainties and other factors that could cause the actual results to differ materially from those contemplated,
including, but not limited to, those discussed in Part I, Item 1A of this report under the heading “Risk Factors,” which
are incorporated herein by reference. See “Special Note regarding Forward-Looking Statements” included in this Report on
Form 10-K for a discussion of factors to be considered when evaluating forward-looking information detailed below. These factors could
cause our actual results to differ materially from the forward-looking statements.
Business
Overview
We offer financial consulting services to small and medium-sized enterprise
customers in Asia and North America. Our goal is to become an international financial consulting company with clients and offices throughout
Asia. Since our inception in 2015, the focus of our consulting business has been providing comprehensive going public consulting services
designed to help SMEs become public companies on suitable markets and exchanges.
On
January 4, 2021, we established an office in California, USA, through our wholly owned subsidiary ATIF Inc., a California corporation,
and launched, in addition to our business consulting services, additional service models consisting of asset management, investment holding
and media services to expand our business with a flexible business concept to achieve a goal of high growth revenue and strong profit
growth.
Reverse
Split
On
August 12, 2021, our Board of Directors approved a reverse stock split (the “Reverse Split”) of our issued and outstanding
ordinary shares, par value $0.001 per share, at a ratio of 5-for-1 so that every five (5) shares of US$0.001 par value in issue on the
date of the Reverse Split was combined into one (1) share of US$0.005 par value. Shareholders otherwise entitled to receive a fractional
share as a result of the reverse stock split will receive a whole share in lieu of such factional share, as relevant. Both before
and after completion of the Reverse Split, the Company is and will be authorized to issue 100,000,000,000 ordinary shares of US$0.001
par value each. As a result of the Reverse Split, the Company’s issued and outstanding ordinary shares was reduced from 45,806,952
ordinary shares of US$0.001 par value each to approximately 9,161,390 ordinary shares of par value $0.005 per share. On August 23, 2021,
we amended our Memorandum of Association and Articles of Association in connection with our five-for-one reverse stock split to amend
the par value back to $0.001 per ordinary share. Our ordinary shares, as adjusted per the Reverse Split, began trading on the Nasdaq
Capital Market on August 30, 2021.
Recent
Updates
On February 16, 2021, ATIF-1, LP (“ATIF LP”) was established
as a private equity fund through our indirectly-wholly owned subsidiary, ATIF-1 GP, LLC (“ATIF GP”), a Delaware limited liability
company, as the general partner. We own 76.6% limited partner interest in ATIF, LP. The investment manager for the fund is
ATIF Inc. ATIF LP manages approximately $1.3 million and $4.8 million assets under management (“AUM”) as of July 31, 2022
and 2021, respectively. For the year ended July 31, 2022, three limited partners of ATIF LP withdrew the investment of $3.0 million. In
addition, the Company also paid investment gain of $29,149 to the limited partner, which was recorded as a reduction of non-controlling
interest. On August 1, 2022, ATIF USA entered into and closed a Sale and Purchase Agreement (the “Agreement”) with
Asia Time (HK) International Finance Service Limited (the “Buyer”), pursuant to which the Company sold all of its equity interest
in ATIF GP for cash consideration of US$50,000 (the “Agreement”). The management believed the disposition does not represent
a strategic shift because it is not changing the way it is running its business. The Company has not shifted the nature of its operations.
The termination is not accounted as discontinued operations in accordance with ASC 205-20. Upon the closing of the Agreement, ATIF GP
is no longer our subsidiary and ATIF USA ceased to be the investment manager of ATIF LP.
On May 31, 2022, we completed the transfer of
our equity interest in ATIF HK and Huaya to Mr. Pishan Chi for $nil consideration. The transfer of equity interest was to mitigate the
potential risks arising from the PRC government provision of new guidance to and restrictions on China-based companies raising capital
offshore. We determined that the transfer of our equity interest in ATIF HK and Huaya did not have a major effect on its operations and
financial results as we did not change our way of running business. We also determined that the transfer of equity interest does not represent
a strategic shift in our business because there was no change to our operation of our consulting services. There was no change to the
nature of our business, and did not affect our customers in North America, which is the major geographic market area of our business.
The termination is not accounted as discontinued operations in accordance with ASC 205-20.
45
On
February 3, 2021, we closed termination of our variable interest entity (“VIE”) agreements with Qianhai Asia Times (Shenzhen)
International Financial Services Co., Ltd. (“Qianhai”) and its shareholders. As of the date of this report, we do not, and
do not plan to use variable interest entities to execute our business plan or to conduct our China-based operations. Qianhai transferred
all of its China-based business and employees to Huaya before termination of the VIE agreements. The termination of the VIE agreements
did not cause material impairment of our long-lived assets (primarily including fixed assets such as office furniture and equipment and
automobile) because all of the fixed assets have been transferred to our PRC subsidiary Huaya upon termination of the VIE agreements
and there were no assets held for sale or disposal. The termination of the Qianhai VIE agreements does not represent a strategic shift
that has (or will have) a major effect on the Company’s operations because our consulting service business as originally undertook
by Qianhai has been transferred to Huaya and ATIF Inc. to serve the clients located in China and U.S. respectively. The termination of
the VIE agreements did not cause any regulatory penalties or non-compete agreements. As a result, management concluded that the termination
of the Qianhai VIE agreements does not deemed to be a discontinued operation of our consulting service business.
On January 29, 2021, we completed the disposition of 51.2% of the equity
interest of LGC. We sold all of our shares of LGC to Jiang Bo, Jiang Tao and Wang Di (collectively, the “Buyers”) in exchange
for (i) 1,111,110 of our ordinary shares owned by the Buyers and (ii) payment by the Buyers in the amount of $2,300,000 plus interest
at an interest rate of 10% per annum on the unpaid amount if the principal amount of US$2,300,000 is not paid by January 14, 2022. All
principal and accrued and unpaid interest shall be due on January 14, 2023. As of July 31, 2022, the principal and accrued and unpaid
interest amounted to $2,654,767.
As
of July 31, 2022, we have one reporting segment, which is the provision of financial consulting services.
Our
financial consulting services
We
launched our consulting services in 2015. Our aim was to assist these Chinese enterprises by filling the gaps and forming a bridge between
PRC companies and overseas markets and exchanges. We have a team of qualified and experienced personnel with legal, regulatory, and language
expertise in several overseas jurisdictions. Our services are designed to help SMEs in China achieve their goal of becoming public companies.
We create a going public strategy for each client based on many factors, including our assessment of the client’s financial and
operational situations, market conditions, and the client’s business and financing requirements. Since our inception and up to
the date of this report, we have successfully helped three Chinese enterprises to be quoted on the U.S. OTC markets and are currently
assisting our other clients in their respective going public efforts. All of our current and past clients have been Chinese companies,
and we plan to expand our operations to other Asian countries, such as Malaysia, Vietnam, and Singapore in the coming years.
For the year ended July 31, 2022 and 2021, we
provided consulting services to three customers and three customers, respectively, which primarily engaged the Company to provide consulting
services relating to going public in the US through IPO, reverse merger and acquisition. The low volume of consulting services was due
to the recent intense tariff issues between the U.S. and China, which has become more fragile as a result of the outbreak and spread of
COVID-19, plus the tightening of U.S. legislation and public listing rules to curb some small Chinese companies to access the U.S.
capital markets. As a result, an increasing number of Chinese companies are putting off or slowing down their plans for U.S. listings
due to these uncertainties. On May 31, 2022, we completed the transfer of our equity interest in ATIF HK and Huaya, through which we provided
consulting services to Chinese companies We plan to focus on providing consulting services to customers based in North America and other
areas and intend to continue cooperating with Huaya in connection with the expansion and provision of our business services in China.
From April 2022 through the date of this report, the Company entered into consulting agreements with five customers, among which four
are based in the North America.
Our
total revenue generated from consulting services amounted to $1.6 million and $0.9 million for the years ended July 31, 2022 and
2021, respectively.
46
Key
Factors that Affect our Business
We
believe the following key factors may affect our consulting services:
The
trade disputes between China and the United States has negatively impacted our business.
During
the past two years, the U.S. government has, among other actions, imposed new or higher tariffs on specified products imported from China
to penalize China for what it characterizes as unfair trade practices and China has responded by imposing new or higher tariffs on specified
products imported from the United States. The uncertainties arising from the trade disputes between China and the United States negatively
impacted our potential customers’ confidence to go public through IPOs in the United States in fiscal year 2020 through 2022. As
a result, both the number of our new going public consulting service customers and our going public consulting service revenue were kept
at low volume in fiscal year 2022 and 2021.
Our
business success depends on our ability to acquire customers effectively.
Our
customer acquisition channels primarily include our sales and marketing campaigns and existing customer referrals. In order to acquire
customers, we have made significant efforts in building mutually beneficial long-term relationships with local government, academic institutions,
and local business associations. In addition, we also market our consulting services through social media, such as WeChat or Weibo. If
any of our current customer acquisition channels becomes less effective, if we are unable to continue to use any of these channels or
if we are not successful in using new channels, we may not be able to attract new customers in a cost-effective manner or convert potential
customers into active customers or even lose our existing customers to our competitors. To the extent that our current customer acquisition
and retention efforts become less effective, our service revenue may be significantly impacted, which would have a significant adverse
effect on our revenues, financial condition, and results of operations.
Our
consulting business faces strong market competition.
We
are currently facing intense market competition. Some of our current or potential competitors have significantly more financial, technical,
marketing, and other resources than we do and may be able to devote greater resources to the development, promotion, and support of their
customer acquisition and retention channels. In light of the low barriers to entry in the financial consulting industry, we expect more
players to enter this market and increase the level of competition. Our ability to differentiate our services from other competitors
will have significant impact on our business growth in the future
Changes
in PRC regulatory environment may impact our business and results of operations.
The
regulatory environment for the financial consulting industry in China is evolving. Recently, many local governments have established
various subsidization schemes and policies to stimulate and encourage local business enterprises to go public, and this may stimulate
the growth of more financial consulting firms to become new players given the low barrier of entry into the financial consulting industry
as well. As more players enter into the competition, PRC governmental authorities may publish and promulgate various new laws and rules to
regulate the financial consulting marketplace. We have been closely tracking the development and implementation of new rules and
regulations likely to affect us. We will continue to ensure timely compliance with any new rules and regulations and believe that
such timely compliance is essential to our growth. To the extent that we may be required to adapt our operations to new laws and regulations,
our operating costs may increase which will impact our profitability.
Our
business depends on our ability to attract and retain key personnel.
We
rely heavily on the expertise and leadership of our directors and officers to maintain our core competence. Under their leadership, we
have been able to achieve rapid expansion and significant growth since our inception in 2015. As our business scope increases, we expect
to continue to invest significant resources in hiring and retaining a deep talent pool of financial consultancy professionals. Our ability
to sustain our growth will depend on our ability to attract qualified personnel and retain our current staff.
47
Results
of Operations
Comparison
of Operation Results for the Years Ended July 31, 2022 and 2021
The
following table summarizes the results of our operations for the years ended July 31, 2022 and 2021, respectively, and provides
information regarding the dollar and percentage increase or (decrease) during such periods.
For the years ended
Changes
July 31,
2022
July 31,
2021
Amount
Increase
(Decrease)
Percentage
Increase
(Decrease)
Revenues – third parties
$
905,310
$
936,935
$
(31,625
)
(3
)%
Revenues – related party
762,000
-
762,000
100
%
Revenues
$
1,667,310
$
936,935
$
730,375
78
%
Cost of revenues
(660,000
)
-
(660,000
)
100
%
Gross profit
1,007,310
936,935
70,375
8
%
Operating expenses:
Selling expenses
569,529
439,174
130,355
30
%
General and administrative expenses
2,651,361
2,919,675
(268,314
)
(9
)%
Total operating expenses
3,220,890
3,358,849
(137,959
)
(4
)%
Loss from operations
(2,213,580
)
(2,421,914
)
208,334
(9
)%
Other income (expenses):
Interest income, net
354,832
313
354,519
113,265
%
Other expenses, net
(123,296
)
(84,194
)
(39,102
)
46
%
Loss from investment in trading securities
(2,432,107
)
(258,738
)
(2,173,369
)
840
%
Gain from disposal of subsidiaries and VIE
1,043,052
390,183
652,869
167
%
Total other (expense) income, net
(1,157,519
)
47,564
(1,205,083
)
(2,534
)%
Loss before income taxes
(3,371,099
)
(2,374,350
)
(996,749
)
(42
)%
Income tax provision
-
-
-
0
%
Net loss from continuing operations
(3,371,099
)
(2,374,350
)
(996,749
)
(42
)%
Net loss from discontinued operations
-
(6,625,898
)
6,625,898
(100
)%
Net loss
$
(3,371,099
)
$
(9,000,248
)
$
5,629,149
(63
)%
Revenues.
Our total revenue increased by $0.73 million, or 78%, from $0.9 million in fiscal year 2021, to $1.7 million in fiscal year 2022,
primarily attributable to completion of more phases of consulting services to customers. Among the revenues of $1.7 million, $0.8 million
was contributed from a related party. In July 2022, we provided consulting services to one of our related party’s customers and
earned revenues $0.8 million.
For
the year ended July 31, 2022, provision of our going public consulting services remained stable as compared with that of the same period
of 2021. For the years ended July 31, 2022 and 2021, we provided going public services to three and three customers. Our low-volume provision
of consulting services was mainly attributable to tightening of U.S. legislation and public listing rules to curb some small Chinese
companies to access the U.S. capital markets. Accordingly an increasing number of Chinese companies are putting off or slowing down their
plans for U.S. listings due to these uncertainties. As a result, our potential customers’ perception and confidence to go public
through initial public offerings (“IPOs”) in the United States has been negatively impacted.
48
Given
the uncertainty arising from the tightened U.S. legislation and public listing rules to curb IPOs by small Chinese companies to
access the United States capital market, we anticipate our limited revenue growth from our consulting services and our continuous operating
net loss in the near terms. However, we terminated VIE agreements with Qianhai and its shareholders, and we transferred equity interest
in ATIF HK and Huaya, and we aimed to provide our consulting services to more customers based in the U.S. We also plan to hire more specialized
and talented employees in order to provide better services to our customers in the future. We believe our competitive strengths, including
but not limited to, highly qualified professional service team with extensive experience in going public and consulting services, recognition
and reputation of our services achieved from our previous success helping our clients going public, established long-term professional
relationships with a group of well-known third-party professional providers both domestically and in the U.S., and established long-term
cooperation relationships with local chambers of commerce and associations, will help us develop more customers for our consulting services
to generate increased revenue in the long run.
From
April 2022 through the date of this report, we have entered into consulting service agreement with five customers, among which four are
based in the North America.
Cost of revenues. We incurred cost
of revenues of $0.7 million in the fiscal year 2022 which was mainly incurred for direct costs including purchase of a shell company on
the over-the-counter (“OTC”) market and consulting expenses for one customer.
Selling
expenses. Selling expenses increased by $0.1 million, or 30%, from $0.4 million in fiscal year 2021 to $0.5 million in fiscal
year 2022. Our selling expenses primarily consisted of outsourced service fees charged by third-party service providers, business development
expenses, potential customer referral commissions, salary and welfare expenses of our business development team, and business travel
expenses. The decrease in our selling expenses was primarily due to the following reasons: 1) an increase of $0.3 million in consulting
service fees for two consultants and marketing services for three consulting firms; partially offset against 2) a decrease of $0.2 million
in expenses incurred by Qianhai, the VIE agreement with which was terminated in February 2021.
As
a percentage of sales, our selling expenses were 34% and 47% of our total revenues for the years ended July 31, 2022 and 2021, respectively.
General
and administrative expenses. Our general and administrative expenses decreased by $0.3 million, or 9%, from $2.9 million in fiscal
year 2021 to $2.6 million in fiscal year 2022. Our general and administrative expenses primarily consisted of salary and welfare expenses
of management and administrative team, office expenses, operating lease expenses, and professional fees such as audit and legal fees.
The decrease was mainly due to a decrease of professional fees of $0.4 million because our auditor and counselor decreased service fees
with termination of Qianhai VIE Agreement, partially offset against an increase of payroll and welfare expenses of $0.1 million as we
employed increasing headcount in the USA.
As
a percentage of sales, our general and administrative expenses were 159% and 312% of our total revenues for the years ended July 31,
2022 and 2021, respectively.
Interest
income, net. For the year ended July 31, 2022, interest income represented 1) the interest income of $0.4 million from outstanding
balance of $2.3 million due from buyers of LGC arising from the Company’s disposition of 51.2% equity interest in LGC. The interest
rate for outstanding balance was 10% per annum, and 2) the minimal interest income from bank deposits. For the year ended July 31, 2021,
interest income arose from bank deposits.
Loss
from investment in trading securities. Loss from investment in trading securities represented fair value changes from investment
in trading securities, which was measured at market price. For the years ended July 31, 2022 and 2021, we recorded an investment
loss of $2.4 million and $0.3 million, respectively.
Gain
from disposal of subsidiaries and VIE . For the year ended July 31, 2022, the Company reported a gain of $1.0 million from disposal
of ATIF HK and Huaya. For the year ended July 31, 2021, the Company reported a gain of $0.4 million from termination of VIE agreement
with Qianhai.
Net
loss from discontinued operations. In January 2021, we completed the disposition of 51.2% of the equity interest of LGC. The
results of LGC, as a discontinued operation, for the years ended July 31, 2021 are reported as components of net loss separate from the
net loss of continuing operations. For details of composition of net loss from discontinued operations, please see Note 4 to our Consolidated
Financial Statements included with this annual report.
49
Income
taxes. We are incorporated in the British Virgin Islands. Under the current laws of the British Virgin Islands, we are not subject
to tax on income or capital gains in the British Virgin Islands. Additionally, upon payments of dividends to the shareholders, no British
Virgin Islands withholding tax will be imposed.
ATIF
HK is subject to Hong Kong profits tax at a rate of 16.5%. However, ATIF HK did not have any assessable profits arising in or derived
from Hong Kong for the fiscal years ended July 31, 2022 and 2021, and accordingly no provision for Hong Kong profits tax had been
made in these periods.
Huaya
was incorporated in the PRC. Under the Income Tax Laws of the PRC, Huaya is subject to income tax at a rate of 10% under the preferential
tax treatment to Smaller-scale Taxpayers.
ATIF
Inc, ATIF GP, ATIF LP and ATIF BD were incorporated in the U.S and are subject to federal and state income taxes on its business operations.
The federal tax rate is 21% and state tax rate is 8.84%. We also evaluated the impact from the recent tax reforms in the United States,
including the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and Health and Economic Recovery Omnibus Emergency
Solutions Act (“HERO Act”), which were both passed in 2020, No material impact on the ATIF US is expected based on our analysis.
We will continue to monitor the potential impact going forward.
Income
tax expense was $nil and $nil for the years ended July 31, 2022 and 2021 due to significant net operating loss in fiscal year 2022 and
2021 which resulted in taxable losses.
Net
loss. As a result of foregoing, net loss was $3.4 million for the year ended July 31, 2022, a decrease of $5.6 million from
net loss of $9.0 million in fiscal year 2021.
Liquidity
and Capital Resources
To
date, we have financed our operations primarily through cash flows from operations, working capital loans from our major shareholders,
proceeds from our initial public offering, and equity financing through public offerings of our securities. We plan to support our future
operations primarily from cash generated from our operations and cash on hand.
Liquidity
and Going concern
For
the years ended July 31, 2022 and 2021, the Company reported a net loss from continuing operations of approximately $3.4 million and
$2.4 million, respectively, and operating cash outflows from continuing operations of approximately $0.1 million and $2.5 million.
In
assessing the Company’s ability to continue as a going concern, the Company monitors and analyzes its cash and its ability to generate
sufficient cash flow in the future to support its operating and capital expenditure commitments.
As
of July 31, 2022, the Company had cash of $1.8 million. On the other hand, the Company had current liabilities of $2.8 million. Currently
the Company had three service-in-progress agreements, and expected to generate consulting service fees of $2.5 million for the next 12
months. The Company also had $2.7 million receivable from buyers of LGC in connection with the disposal of LGC which will be due in early
2023. In addition, due to the recent intense relationship between the U.S. and China, which has become more fragile as a result of the
outbreak and spread of COVID-19, plus the tightening of U.S. legislation and public listing rules to curb some small Chinese companies
to access the U.S. capital markets, an increasing number of Chinese companies are putting off or slowing down their plans for U.S. listings
due to these uncertainties. Furthermore, due to the impact of COVID-19, some of our existing customers may experience financial distress
or business disruptions, which could lead to potential delay or default on their payments. Any increased difficulty in collecting accounts
receivable, or early termination of our existing consulting service agreements due to deterioration in economic conditions could further
negatively impact our cash flows. Given these factors, our potential customers’ perception and confidence to go public in the United
States has been negatively impacted and our operating revenue and cash flows may continue to underperform in the near terms. Although
we had cash of $1.8 million as of July 31, 2022, given the above-mentioned uncertainties, the management believes that the Company will
continue as a going concern in the following 12 months from the date the Company’s 2022 consolidated financial statements
are issued.
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We
believe that our existing cash, together with $3.2 million that currently remains available under our $8.0 million revolving line of
credit with Silicon Valley Bank (“SVB Credit Facility”), and $4.0 million available under the subordinated line of credit
(“Subordinated LOC”) as of September 12, 2022, will be sufficient to meet our anticipated capital resources to fund planned
operations for the next twelve (12) months.
Currently,
the Company intends to finance its future working capital requirements and capital expenditures from cash generated from operating activities
and funds raised from equity financings. In October 2021, the Company raised proceeds of $1.1 million from exercise of warrants to purchase
389,855 of its ordinary shares by warrant holders who subscribed for ordinary shares in the registered direct offering closed in November
2020.
The
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the
outcome of the uncertainties described above.
We
have not declared nor paid any cash dividends to our shareholders. We do not plan to pay any dividends out of our restricted net assets
as of July 31, 2022.
We
have limited financial obligations denominated in U.S. dollars, thus the foreign currency restrictions and regulations in the PRC on
the dividends distribution will not have a material impact on our liquidity, financial condition, and results of operations.
The
following table sets forth summary of our cash flows for the years indicated:
For the Years Ended
July 31,
2022
2021
Net cash used in by operating activities
$ (146,944 )
$ (2,667,060 )
Net cash (used in) provided by investing activities
(1,591,535 )
861,921
Net cash (used in) provided by financing activities
(1,960,946 )
6,835,000
Effect of exchange rate change on cash
(147,178 )
138,611
Net (decrease) increase in cash
(3,846,603 )
5,187,083
Cash, beginning of year
5,596,740
428,258
Cash, end of year
$ 1,750,137
$ 5,596,740
Operating
Activities
Net cash used in operating activities was $0.1
million in fiscal year ended July 31, 2022. Net cash used in operating activities was primarily comprised of net loss of $3.4 million,
adjusted for loss of $2.4 million from investment in trading securities, and net changes in our operating assets and liabilities, principally
comprising of an increase of accounts receivable of $0.8 million due from a related party, and an increase of accrued expenses and other
current liabilities of $1.8 million as the Company is liable to an investment bank for loss making during the year ended July 31, 2022.
Net
cash used in operating activities was $2.7 million in fiscal year ended July 31, 2021, consisting of the net cash used in operating
activities from continuing operations and discontinued operations of $2.6 million and $0.1 million, respectively. Net cash used in operating
activities from continuing operations was primarily comprised of net loss from continuing operations of $2.4 million, adjusted for amortization
of right-of-use assets of $0.5 million, loss of $0.3 million from investment in trading securities, and net changes in our operating
assets and liabilities, principally comprising of a decrease of tax payable by $0.6 million and a decrease of lease liabilities of $0.5
million due to the termination of our VIE agreements with Qianhai and its shareholders, leading to the decrease of such accounts.
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Investing
Activities
Net
cash used in investing activities was $1.6 million in fiscal year 2022, primarily consisting of purchase of investment of $1.4 million
in listed equity securities, investment of $0.3 million in two equity securities, against proceeds of $0.2 million from disposal of property
and equipment.
Net
cash provided by investing activities was $0.9 million in fiscal year 2021, primarily consisting of purchase of investment of $0.4 million
in listed equity securities, collection of investment deposit of $1.2 million for life insurance contract, against cash of $0.1 million
provided by discontinued operations.
Financing
Activities
Net
cash used in financing activities was $2.0 million in fiscal year 2022, primarily consisting of payment of $3.0 million to three limited
partners of ATIF LP, as withdrawal of investment, partially offset by proceeds of $1.1 million in relation to exercise of warrants by
investors who subscribed for ordinary shares offered in registered direct offering which closed in November 2020.
Net
cash provided by financing activities was $6.8 million in fiscal year 2021, primarily consisting of capital injection of $3.3 million
from ATIF LP, and capital of $3.5 million raised in a registered direct offering in November 2020.
Critical
Accounting Estimate
We prepare our audited consolidated financial statements in accordance
with U.S. GAAP, which requires our management to make estimates that affect the reported amounts of assets, liabilities and disclosures
of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting
periods. To the extent that there are material differences between these estimates and actual results, our financial condition or results
of operations would be affected. We base our estimates on our own historical experience and other assumptions that we believe are reasonable
after taking account of our circumstances and expectations for the future based on available information. We evaluate these estimates
on an ongoing basis.
Our
expectations regarding the future are based on available information and assumptions that we believe to be reasonable, which together
form our basis for making judgments about matters that are not readily apparent from other sources. Since the use of estimates is an
integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies
require a higher degree of judgment than others in their application.
We consider an accounting estimate to be critical if: (i) the accounting
estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (ii)
changes in the estimate that are reasonably likely to occur from period to period or use of different estimates that we reasonably could
have used in the current period, would have a material impact on our financial condition or results of operations. When reading our audited
consolidated financial statements, you should consider our selection of critical accounting policies, the judgment and other uncertainties
affecting the application of such policies and the sensitivity of reported results to changes in conditions and assumptions.
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Valuation
allowance for deferred tax assets
We
account for income taxes using the liability method in accordance with ASC 740, Income Taxes (“ASC 740”). Under this method,
deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and
liabilities using enacted tax rates that will be in effect when the differences are expected to reverse. Changes in deferred tax assets
and liabilities are recorded in earnings. Deferred tax assets are reduced by a valuation allowance through a charge to income tax expense
when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized.
We
operate through our subsidiaries. The valuation allowance is considered on an individual entity basis. As of July 31, 2022 and 2021,
valuation allowances on deferred tax assets are provided because we believe that it is more-likely-than-not that certain of the subsidiaries
will not be able to generate sufficient taxable income in the near future, to realize the deferred tax assets carried-forwards.
As
of July 31, 2022 and 2021, the total valuation allowance for deferred tax assets was $1,668,413 and $997,378, respectively.
Uncertain
tax position
In
order to assess uncertain tax positions, we apply a more likely than not threshold and a two-step approach for the tax position measurement
and financial statement recognition. Under the two-step approach, the first step is to evaluate the tax position for recognition by determining
if the weight of available evidence indicates that it is more likely than not that the position will be sustained, including resolution
of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more
than 50% likely of being realized upon settlement. we recognize interest and penalties, if any, under accrued expenses and other current
liabilities on our consolidated balance sheet and under other expenses in its consolidated statement of comprehensive loss. As of July
31, 2022 and 2021, we did not have any significant unrecognized uncertain tax positions.
Fair
value of trading securities
We
measured our trading securities, which consisted of certain publicly-listed equity securities through various open market transactions,
at market value. We reported a loss of $2,432,107 and $258,738 from investment in trading securities for the years ended July 31, 2022
and 2021.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
As a smaller reporting company we are not required
to provide the information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The financial statements required by this item begin on page F-1 with
the index to financial statements followed by the financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.