ATIF Holdings Ltd 10-K

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for Ordinary shares 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 November 13, 2023, we had approximately 29 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. 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] 32 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 1 -for-5so that every five (5) shares issued and outstanding on the date of the Reverse Split was combined into one (1) ordinary share, 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 one -for- five 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 October 6 and October 7, 2022, ATIF Inc., a wholly owned subsidiary of ATIF, established ATIF Business Consulting LLC (“ATIF BC”) and ATIF Business Management LLC (“ATIF BM”) under the laws of California of the United States, respectively. 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. As of July 31, 2023, we had one reporting segment, which is the provision of financial consulting services. 33 Our financial consulting services Currently we provide consulting services to the companies based in North America seeking listing in U.S.. We launched our consulting services in 2015. Our aim was to assist Chinese enterprises by filling the gaps and forming a bridge between PRC companies and overseas stock markets and exchanges. We have a team of qualified and experienced personnel with legal, regulatory, and language expertise in several jurisdictions outside the U.S. Our services were designed to help small and medium-sized enterprises (“SME”) in China achieve their goal of becoming public companies. In May 2022, we shifted our geographic focus from China to North America emphasizing on helping mid and small companies in North America become public companies on the U.S. capital markets. We would create a going public strategy for each client based on many factors of such client, 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. Most of our current and past clients have been Chinese, U.S. and Mexican companies, and we plan to expand our operations to other Asian countries, such as Malaysia, Vietnam, and Singapore with continuing focus on the North American market in the coming years. For the years ended July 31, 2023 and 2022, we provided consulting services to three 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. 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 $2.5 million and $1.7 million for the years ended July 31, 2023 and 2022, respectively. Key Factors that Affect our Business We believe the following key factors may affect our consulting services: 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 and Weibo. If any of our current customer acquisition channels becomes less effective, we are unable to continue to use any of these channels or 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 into 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 a significant impact on our business growth in the future. 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. 34 Results of Operations The following table summarizes the results of our operations for the years ended July 31, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods. For the years ended Changes July 31, 2023 July 31, 2022 Amount Increase (Decrease) Percentage Increase (Decrease) Revenues – third parties $ 1,150,000 $ 905,310 $ 244,690 27 % Revenues – a related party 1,300,000 762,000 538,000 71 % Revenues $ 2,450,000 $ 1,667,310 $ 782,690 47 % Cost of revenues - 660,000 (660,000 ) (100 )% Gross profit 2,450,000 1,007,310 1,442,690 143 % Operating expenses: Selling expenses 207,238 569,529 (362,291 ) (64 )% General and administrative expenses 2,241,626 2,651,361 (409,735 ) (15 )% Provision against accounts receivable due from a related party 762,000 - 762,000 100 % Total operating expenses 3,210,864 3,220,890 10,026 0 % Loss from operations (760,864 ) (2,213,580 ) (1,452,716 ) (66 )% Other income (expenses): Interest income, net 1,874 354,832 (352,958 ) (99 )% Other income (expenses), net 314,518 (123,296 ) (437,814 ) (355 )% Provision against due from buyers of LGC (2,654,767 ) - 2,654,767 100 % Gain (loss) from investment in trading securities 192,102 (2,432,107 ) (2,624,209 ) (108 )% Gain from disposal of subsidiaries and VIE 56,038 1,043,052 (987,014 ) (95 )% Total other expense, net (2,090,235 ) (1,157,519 ) 932,716 81 % Loss before income taxes (2,851,099 ) (3,371,099 ) (522,000 ) (15 )% Income tax provision (31,200 ) - (31,200 ) 100 % Net loss $ (2,882,299 ) $ (3,371,099 ) $ (488,800 ) (14 )% Revenues. Our total revenue increased by $0.8 million, or 47%, from $1.7 million in fiscal year 2022, to $2.5 million in fiscal year 2023, primarily attributable to an increase of $0.5 million from consulting services to related parties. The increase in revenues from related parties was primarily because we provided consulting services to more customers on behalf of related parties. For the year ended July 31, 2023, we provided consulting services to two customers on behalf of a related party, while for the same period ended July 31, 2022, we provided consulting services to one customer on behalf of a related party. Cost of revenues. We incurred cost of revenues of $0.7 million in the year ended July 31, 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. For the year ended July 31, 2023, we did not incur such expenses. Selling expenses. Selling expenses decreased by $0.4 million, or 64%, from $0.6 million in year ended July 31, 2022 to $0.2 million in the same period ended July 31, 2023. 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 a decrease of $0.3 million in consulting expenses. For the year ended July 31, 2023, the Company identified potential customers on its own and did not engage consultants to develop new customers. Accordingly, the Company did not incur consulting expenses for the year ended July 31, 2023. 35 As a percentage of sales, our selling expenses were 8% and 34% of our total revenues for the years ended July 31, 2023 and 2022, respectively. General and administrative expenses. Our general and administrative expenses decreased by $0.4 million, or 15%, from $2.7 million in fiscal year 2022 to $2.2 million in fiscal year 2023. Our general and administrative expenses primarily consisted of salary and welfare expenses of management and administrative team, office expenses, operating lease expenses. The decrease in general and administrative expenses was primarily because the general and administrative expenses of the year 2022 included the expenses of $0.4 million incurred by ATIF HK and Huaya, the equity interest in which were transferred in May 2022. As a percentage of sales, our general and administrative expenses were 91% and 159% of our total revenues for the years ended July 31, 2023 and 2022, respectively. Provision against due from buyers of LGC. For the year ended July 31, 2023, the Company provided full provision of $2,654,767 against the balances due from buyers of LGC as the management assessed it is remote to collect the outstanding balance. The balance due from buyers of LGC arose from our disposition of 51.2% of the equity interest of LGC in January 2021. Provision against accounts receivable due from a related party. For the year ended July 31, 2023, the Company provided full provision of $762,000 against the accounts receivable due from Huaya as the management assessed it is remote to collect the outstanding balance. Interest income, net. For the year ended July 31, 2023, interest income arose from bank deposits. 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. Gain (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, 2023 and 2022, we recorded an investment gain of $0.2 million and a loss of $2.4 million, respectively. Gain from disposal of subsidiaries . For the year ended July 31, 2023, the Company reported a gain of approximately $56,000 from disposal of ATIF GP. For the year ended July 31, 2022, the Company reported a gain of $1.0 million from disposal of ATIF HK and Huaya. 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 incorporated in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate for the first HKD$2 million of assessable profits is 8.25% and assessable profits above HKD$2 million will continue to be subject to the rate of 16.5% for corporations in Hong Kong, effective from the year of assessment 2018/2019. ATIF HK did not generate any assessable profits arising in or derived from Hong Kong for the period from July 1, 2021 through May 31, 2022 when the Company transferred its equity interests in ATIF HK. Accordingly no provision for Hong Kong profits tax has been made in the period. 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 for the year ended July 31, 2022. 36 ATIF Inc, ATIF GP, ATIF LP, ATIF BD, ATIF BC and ATIF BM were established 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 $31,200 for the year ended July 31, 2023 because our USA subsidiaries were making taxable income during the year of 2023. Income tax expense was $nil for the years ended July 31, 2022 due to significant net operating loss in fiscal year of 2022 which resulted in taxable losses. Net loss. As a result of foregoing, net loss was $2.9 million for the year ended July 31, 2023, a decrease of $0.5 million from net loss of $3.4 million in fiscal year 2022. 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. However, the Company may need to raise the cash flow from related parties, and there is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all. Liquidity and Going concern For the years ended July 31, 2023 and 2022, the Company reported a net loss of approximately $2.9 million and $3.4 million, respectively, and operating cash outflows from continuing operations of approximately $2.3 million and $0.1 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, 2023, the Company had cash of $0.6 million and accounts receivables of $0.6 million due from a related party, which were highly liquid. On the other hand, the Company had current liabilities of $1.5 million, among which $0.7 million was due to related parties. The balance due to related parties are payable on demand and may be extended. The Company’s ability to continue as a going concern is dependent on management’s ability to successfully execute its business plan, which includes increasing revenue while controlling operating cost and expenses to generate positive operating cash flows and obtain financing from outside sources. Because of losses from operations, working capital deficit, and the requirement of additional capital to fund our current operating plan at July 31, 2023, these factors indicate the existence of an uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern. 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, 2023. 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. 37 The following table sets forth summary of our cash flows for the years indicated: For the Years Ended July 31, 2023 2022 Net cash used in by operating activities $ (2,333,899 ) $ (146,944 ) Net cash provided by (used in) investing activities 459,816 (1,591,535 ) Net cash provided by (used in) financing activities 729,968 (1,960,946 ) Effect of exchange rate change on cash - (147,178 ) Net decrease in cash (1,144,115 ) (3,846,603 ) Cash, beginning of year 1,750,137 5,596,740 Cash, end of year $ 606,022 $ 1,750,137 Operating Activities Net cash used in operating activities was $2.3 million in fiscal year ended July 31, 2023. Net cash used in operating activities was primarily comprised of net loss of $2.9 million, adjusted for provision of $2.7 million against due from buyers of LGC, and provision of $0.8 million against accounts receivable due from a related party, and net changes in our operating assets and liabilities, principally comprising of (i) an increase of accounts receivable of $0.7 million due from third parties and $0.6 million due from a related party, respectively. The increase was in line with increase of revenues, and (ii) a decrease of accrued expenses and other current liabilities of $2.0 million as the Company was no longer liable to an investment bank for loss making since disposal of ATIF GP. 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. Investing Activities Net cash provided by investing activities was $0.4 million in fiscal year 2023, primarily consisting of proceeds of $0.3 million from disposal of investments in two equity securities, redemption of $94,799 from short-term investments, proceeds of $72,000 from disposal of property and equipment, and collection of loans of $59,000 from a related party, partially offset against loans of $0.1 million made to a related party. 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, partially offset against proceeds of $0.2 million from disposal of property and equipment. 38 Financing Activities Net cash provided by financing activities was $0.7 million in fiscal year 2023, which was provided by borrowings of $0.7 million from a related party. 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. Critical Accounting Policies and 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. As a result, management is required to routinely make judgments and estimates about the effects of matters that are inherently uncertain. Actual results may differ from these estimates under different conditions or assumptions. Critical accounting policy is both material to the presentation of financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on financial condition or results of operations. Accounting estimates and assumptions may become critical when they are material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on financial condition or operating performance. Critical accounting estimates are estimates that require us to make assumptions about matters that were highly uncertain at the time the accounting estimate were made and if different estimates that we reasonably could have used in the current period, or changes in the accounting estimate that are reasonably likely occur from period to period, have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. Due to the level of activity and lack of complex transactions, we believe there are currently no critical accounting policies and estimates that affect the preparation of our financial statements. 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. 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.