Item
8. Financial Statements and Supplementary Data.
Exceed
World, Inc.
FINANCIAL
STATEMENTS
INDEX
TO FINANCIAL STATEMENTS
|
|
Pages
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F2-F3
|
|
|
|
Consolidated
Balance Sheets
|
|
F4
|
|
|
|
Consolidated
Statements of Operations and Comprehensive Income
|
|
F5
|
|
|
|
Consolidated
Statements of Shareholders' Equity
|
|
F6
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
F7
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F8-F11
|
-F1-
Table
of Contents
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Exceed World, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheet of Exceed World, Inc. and its subsidiaries (collectively, the “Company”) as of September 30, 2019, and
the related consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows for the
year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2019,
and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the
standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to
assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable
basis for our opinion.
/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since
2019.
Houston, Texas
March
20, 2020
-F2-
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Shareholders
and Board of Directors of
Exceed World, Inc.
Opinion
on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Exceed World, Inc. (the “Company”) and its subsidiaries
(collectively referred to as the “Group”) as of September 30, 2018, and the related consolidated statements of
operations and comprehensive income, consolidated statements of shareholders’ equity, and consolidated statements of
cash flows for the year ended September 30, 2018, and the related notes (collectively referred to as the “consolidated
financial statements”).
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Group as of September 30, 2018, and the results of its operations and its cash flows for the year then ended, in conformity
with generally accepted accounting principles in the United States of America.
Basis
for Opinion
The
consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the
Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We
have served as the Company’s auditor since 2018.
Lo and Kwong C.P.A.
& Co. (successor to Lo and Kwong C.P.A. Company Limited)
Hong
Kong
January
14, 2019 (July 11, 2019 as the effects of the restatement)
-F3-
Table
of Contents
EXCEED WORLD, INC.
|
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
As of
|
|
As of
|
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
|
|
|
|
(Restated)
|
ASSETS
|
|
|
|
|
Current Assets
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
20,198,362
|
$
|
22,737,755
|
|
Marketable securities
|
|
1,156,108
|
|
830,331
|
|
Accounts receivable
|
|
2,344
|
|
1,032
|
|
Short-term loan receivable
|
|
-
|
|
395,848
|
|
Income tax recoverable
|
|
-
|
|
425,303
|
|
Prepaid expenses
|
|
865,274
|
|
295,510
|
|
Inventories
|
|
626,142
|
|
380,925
|
|
Due from related party
|
|
92,524
|
|
-
|
|
Other current assets
|
|
453,291
|
|
255,030
|
TOTAL CURRENT ASSETS
|
|
23,394,045
|
|
25,321,734
|
|
|
|
|
|
|
Non-current Assets
|
|
|
|
|
|
Property, plant and equipment, net
|
$
|
792,452
|
$
|
343,991
|
|
Software, net
|
|
1,051,398
|
|
2,236,447
|
|
Other intangible assets, net
|
|
176,897
|
|
992,208
|
|
Long-term prepaid expenses
|
|
84,968
|
|
58,341
|
|
Deferred tax assets
|
|
134,936
|
|
287,157
|
|
Long-term loan receivable from related party
|
|
232,128
|
|
-
|
|
Insurance Funds
|
|
91,161
|
|
-
|
TOTAL NON-CURRENT ASSETS
|
|
2,563,940
|
|
3,918,144
|
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
25,957,985
|
$
|
29,239,878
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
Accounts payable
|
$
|
1,226,111
|
$
|
4,572,204
|
|
Accrued expenses and other payables
|
|
565,506
|
|
65,811
|
|
Deposit receipt
|
|
-
|
|
100,657
|
|
Contingency liability
|
|
409,428
|
|
-
|
|
Income tax payable
|
|
287,301
|
|
-
|
|
Deferred income
|
|
3,267,399
|
|
4,460,652
|
|
Capital lease obligations, current
|
|
28,683
|
|
9,327
|
|
Due to related parties
|
|
814,153
|
|
338,725
|
|
Due to director
|
|
741,133
|
|
596,059
|
|
Other current liabilities
|
|
735,926
|
|
1,741,639
|
TOTAL CURRENT LIABILITIES
|
|
8,075,640
|
|
11,885,074
|
|
|
|
|
|
|
Non-current Liabilities
|
|
|
|
|
|
Capital lease obligations, long-term
|
$
|
98,964
|
$
|
41,786
|
|
Long-term note payable
|
|
-
|
|
483,814
|
|
Long-term deferred income
|
|
-
|
|
2,183
|
TOTAL NON-CURRENT LIABILITIES
|
|
98,964
|
|
527,783
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
$
|
8,174,604
|
$
|
12,412,857
|
|
|
|
|
|
|
Shareholders' Equity
|
|
|
|
|
|
Preferred stock ($0.0001 par value, 20,000,000 shares authorized;
|
|
|
|
|
|
none issued and outstanding as of September 30, 2019 and 2018)
|
$
|
-
|
$
|
-
|
|
Common stock ($0.0001 par value, 500,000,000 shares authorized,
|
|
|
|
|
|
32,700,000 shares issued and outstanding as of September 30, 2019 and 2018)
|
|
3,270
|
|
3,270
|
|
Additional paid-in capital
|
|
261,516
|
|
99,440
|
|
Accumulated earnings
|
|
16,764,282
|
|
16,896,299
|
|
Accumulated other comprehensive income (loss)
|
|
754,313
|
|
(171,988)
|
TOTAL SHAREHOLDERS' EQUITY
|
$
|
17,783,381
|
$
|
16,827,021
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
|
$
|
25,957,985
|
$
|
29,239,878
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
-F4-
Table
of Contents
EXCEED WORLD, INC.
|
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
|
|
|
|
(Restated)
|
Revenues
|
$
|
28,393,548
|
$
|
34,878,988
|
Cost of revenues
|
|
16,105,594
|
|
18,654,182
|
Gross profit
|
|
12,287,954
|
|
16,224,806
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
Selling and distribution expenses
|
|
1,908,950
|
|
1,989,146
|
|
Administrative expenses
|
|
10,853,331
|
|
11,623,028
|
Total operating expenses
|
|
12,762,281
|
|
13,612,174
|
|
|
|
|
|
|
Income (loss) from operations
|
|
(474,327)
|
|
2,612,632
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
Other income
|
|
1,270,353
|
|
266,946
|
|
Other expenses
|
|
(845,289)
|
|
(18,171)
|
|
Change in fair value of marketable securities
|
|
365,026
|
|
(568,990)
|
|
Interest expenses
|
|
(1,513)
|
|
(6,082)
|
Total other income (expense)
|
|
788,577
|
|
(326,297)
|
|
|
|
|
|
|
Net income before tax
|
|
314,250
|
|
2,286,335
|
Income tax expense (credit)
|
|
446,267
|
|
(89,297)
|
Net income (loss)
|
$
|
(132,017)
|
$
|
2,375,632
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
Net income (loss)
|
|
(132,017)
|
|
2,375,632
|
Other comprehensive income (loss)
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
926,301
|
|
(244,734)
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE INCOME
|
$
|
794,284
|
$
|
2,130,898
|
|
|
|
|
|
|
Income (loss) per common share
|
|
|
|
|
|
Basic
|
$
|
(0.00)
|
$
|
0.12
|
|
Diluted
|
$
|
(0.00)
|
$
|
0.12
|
Weighted average common shares outstanding
|
|
|
|
|
|
Basic
|
|
32,700,000
|
|
20,173,973
|
|
Diluted
|
|
32,700,000
|
|
20,173,973
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
-F5-
Table
of Contents
EXCEED WORLD, INC.
|
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
ADDITIONAL
|
|
OTHER
|
|
|
|
|
|
COMMON STOCK
|
|
PAID IN
|
|
COMPREHENSIVE
|
|
RETAINED
|
|
|
|
NUMBER
|
|
AMOUNT
|
|
CAPITAL
|
|
INCOME (LOSS)
|
|
EARNINGS
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - September 30, 2017
|
20,000,000
|
$
|
2,000
|
$
|
59,679
|
$
|
72,746
|
$
|
14,520,667
|
$
|
14,655,092
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (Restated)
|
-
|
|
-
|
|
-
|
|
-
|
|
2,375,632
|
|
2,375,632
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for the acquisition of subsidiaries
|
12,700,000
|
|
1,270
|
|
(1,270)
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal of a subsidiary under common control
|
-
|
|
-
|
|
15,031
|
|
-
|
|
-
|
|
15,031
|
|
|
|
|
|
|
|
|
|
|
|
|
Reorganization of the Group
|
-
|
|
-
|
|
26,000
|
|
-
|
|
-
|
|
26,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (Restated)
|
-
|
|
-
|
|
-
|
|
(244,734)
|
|
-
|
|
(244,734)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – September 30, 2018 (Restated)
|
32,700,000
|
$
|
3,270
|
$
|
99,440
|
$
|
(171,988)
|
$
|
16,896,299
|
$
|
16,827,021
|
|
|
|
|
|
|
|
|
|
|
|
|
Disposal of subsidiary
|
-
|
|
-
|
|
162,076
|
|
-
|
|
-
|
|
162,076
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
-
|
|
-
|
|
-
|
|
-
|
|
(132,017)
|
|
(132,017)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation
|
-
|
|
-
|
|
-
|
|
926,301
|
|
-
|
|
926,301
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – September 30, 2019
|
32,700,000
|
$
|
3,270
|
$
|
261,516
|
$
|
754,313
|
$
|
16,764,282
|
$
|
17,783,381
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
-F6-
Table
of Contents
EXCEED WORLD, INC.
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
|
|
|
|
(Restated)
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net income (loss)
|
$
|
(132,017)
|
$
|
2,375,632
|
|
Adjustments
to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
1,482,474
|
|
1,120,652
|
|
Loss on written off of property, plant and equipment
|
|
-
|
|
11,178
|
|
Gain on disposal of property, plant and equipment
|
|
(8,178)
|
|
-
|
|
Loss on written off of intangible asset
|
|
-
|
|
6,275
|
|
Change in fair value of marketable securities
|
|
(365,026)
|
|
568,990
|
|
Interest expenses
|
|
-
|
|
6,082
|
|
Gain on company owned life insurance policies
|
|
(1,106,958)
|
|
-
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
(2,018)
|
|
(32)
|
|
Income tax recoverable
|
|
439,331
|
|
(1,072,527)
|
|
Prepaid expense
|
|
(470,721)
|
|
26,221
|
|
Inventories
|
|
(299,412)
|
|
888,033
|
|
Other current assets
|
|
(182,333)
|
|
179,344
|
|
Long-term prepaid expenses
|
|
(23,241)
|
|
-
|
|
Deferred tax asset
|
|
164,108
|
|
-
|
|
Accounts payable
|
|
(3,513,357)
|
|
3,489,220
|
|
Accrued expenses and other payables
|
|
539,697
|
|
(3,928)
|
|
Deposit receipt
|
|
-
|
|
100,611
|
|
Income tax payable
|
|
282,158
|
|
-
|
|
Deferred income
|
|
(1,398,006)
|
|
2,589,542
|
|
Due to related parties
|
|
-
|
|
(29,485)
|
|
Due to director
|
|
-
|
|
431,173
|
|
Other current liabilities
|
|
(360,390)
|
|
(21,611)
|
|
Net cash provided by (used in) operating activities
|
|
(4,953,889)
|
|
10,665,370
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
Collection of short-term loan receivable
|
|
408,905
|
|
-
|
|
Purchase of property, plant and equipment
|
|
(224,865)
|
|
-
|
|
Proceeds from disposal of property, plant and equipment
|
|
8,178
|
|
-
|
|
Purchase of intangible assets
|
|
(24,989)
|
|
(593,662)
|
|
Proceeds from sale of securities
|
|
87,333
|
|
-
|
|
Payment towards company-owned life insurance policies
|
|
(442,744)
|
|
-
|
|
Proceeds from company-owned life insurance policies
|
|
1,460,173
|
|
-
|
|
Reorganization of the Company
|
|
-
|
|
26,000
|
|
Disposal of subsidiary
|
|
(79,876)
|
|
-
|
|
Net cash provided by (used in) investing activities
|
|
1,192,115
|
|
(567,662)
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
Interest expense paid
|
|
-
|
|
(6,082)
|
|
Repayment of capital lease obligation
|
|
(12,113)
|
|
(9,146)
|
|
Short-term loan
|
|
-
|
|
(395,848)
|
|
Proceeds from related parties
|
|
185,525
|
|
-
|
|
Repayments to related parties and director
|
|
(58,723)
|
|
-
|
|
Net cash provided by (used in) financing activities
|
|
114,689
|
|
(411,076)
|
|
|
|
|
|
|
Net effect of exchange rate changes on cash
|
$
|
1,107,692
|
$
|
(175,575)
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
|
|
Cash and cash equivalents - beginning of year
|
|
22,737,755
|
|
13,226,698
|
Net increase (decrease) in cash
|
|
(2,539,393)
|
|
9,511,057
|
Cash and cash equivalents - end of year
|
$
|
20,198,362
|
$
|
22,737,755
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING TRANSACTIONS
|
|
|
|
|
|
Equipment obtained in connection with capital lease
|
$
|
84,675
|
$
|
-
|
|
Liabilities assumed in connection with purchase of intangible asset
|
$
|
59,714
|
$
|
-
|
|
Operating expenses paid by related parties and director
|
$
|
405,835
|
$
|
-
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
Interest paid
|
$
|
-
|
$
|
-
|
Income taxes paid
|
$
|
1,908
|
$
|
553,889
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
|
-F7-
Table
of Contents
EXCEED
WORLD, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
AS
OF SEPTEMBER 30, 2019
NOTE 1 –
ORGANIZATION, DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Exceed World, Inc. (the “Company”),
was incorporated under the laws of the State of Delaware on November 25, 2014.
On September 26, 2018, e-Learning Laboratory
Co., Ltd. (“e-Learning”), a direct wholly owned subsidiary of Force International Holdings Limited, which was incorporated
in Hong Kong with limited liability (“Force Holdings”), entered into a share purchase agreement with Force Internationale
Limited (“Force Internationale”), the holding company of Force Holdings, in which e-Learning agreed to sell and Force
Internationale agreed to purchase 74.5% equity interest of the Company at a consideration of US$26,000.
On September 26, 2018, the same date, Force
Internationale entered into a share purchase agreement with the Company, in which Force Internationale agreed to sell and the Company
agreed to purchase 100% equity interest of Force Holdings. In consideration of the agreement, the Company issued 12,700,000 common
stock at US$1 each to Force Internationale. The results of these transactions are that Force Internationale is an 84.4% owner of
the Company and the Company is a 100% owner of Force Holdings (the “Reorganization”).
On December 6, 2018, the Company entered into
a share contribution agreement (the “Agreement”) with Force Internationale. Under this Agreement, the Company transferred
100% of the equity interest of School TV Co., Ltd. ("School TV"), to Force Internationale without consideration. This
Agreement was approved by the board of directors of the Company, Force Internationale and School TV. Upon the completion of the
disposal, School TV was deconsolidated from the Company's consolidated financial statements.
As of September 30, 2019, the Company operates
through our wholly owned subsidiaries, which are engaged in provision of the educational services through an internet platform
called “Force Club”.
The Company has elected September 30th as
its fiscal year end.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries. Inter-company accounts and transactions have been eliminated. The results
of subsidiaries disposed during the respective periods are included in the consolidated statements of operations and comprehensive
income up to the effective date of disposal.
Name of Subsidiary
|
Place of Organization
|
Percentage of
Effective
Ownership
|
Force International Holdings Limited (“Force Holdings”)
|
Hong Kong
|
100%
|
e-Learning Laboratory Co., Ltd. (“e-Learning”)
|
Japan
|
100% (*1)
|
e-Communications Co., Ltd. (“e-Communications”)
|
Japan
|
100% (*2)
|
(*1) Wholly owned subsidiary of Force Holdings
(*2) Wholly owned subsidiary of e-Learning
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to
the current period presentation. These reclassifications had no impact on net earnings and financial position.
USE OF ESTIMATES
The accompanying consolidated financial statements are prepared on a basis of conformity with accounting principles generally
accepted in the United States of America (“US GAAP”). The presentation of financial statements and related disclosures
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosures of contingent assets and liabilities as the date of the financial statements and the reported
amounts of revenue and expenses reported in those financial statements. Certain significant accounting policies that contain
subjective management estimates and assumptions include those related to going concern, allowance for doubtful accounts, valuation
allowance on deferred income tax, write-down in value of inventory, sales allowance, useful lives and impairment of long-lived
assets, and legal contingencies. Operating results in the future could vary from the amounts derived from management's estimates
and assumptions.
RELATED PARTY TRANSACTION
A related party is generally defined as (i)
any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management,
(iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone
who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related
party transaction when there is a transfer of resources or obligations between related parties.
Transactions involving related parties cannot
be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free market dealings may not
exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were
consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.
CASH
EQUIVALENTS
The Company considers all highly liquid investments with maturities
of three months or less at the date of purchase as cash equivalents.
ACCOUNTS RECEIVABLE AND ALLOWANCE
Accounts receivable are recognized and carried
at the original invoice amount less allowance for any uncollectible amounts. An estimate for doubtful accounts is made when collection
of the full amount is no longer probable. Bad debts are recorded corresponding to the allowance when identified.
INVESTMENTS
The Company's investments in marketable securities
are reported at their fair values as quoted by market exchanges in the consolidated balance sheets with changes in fair value recognized
in earnings. The Company regularly reviewed its investments in marketable securities for impairments. In the event that the carrying
value of an investment exceeds its fair value and the decline in value is determined to be other than temporary, the Company would
record an impairment charge and establish a new carrying value.
The Company also has investments in
corporate-owned life insurance policies to insure its CEO and key employees. These insurance policies are recorded at their
cash surrender values in the consolidated balance sheets with change in the cash surrender value during the period recorded
in earnings.
INVENTORIES
Inventories, consisting of mainly educational
products accounted for using the weighted average method and health related products accounted for using the first-in, first-out
method, are valued at the lower of cost and market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at
cost less depreciation and impairment loss. Depreciation is calculated using the straight-line method or reducing balance method
at the following estimated useful life:
Building
|
47 years on straight-line method
|
Leasehold improvement
|
10 years on straight-line method
|
Equipment
|
2 to 15 years on declining balance method or straight-line method
|
Vehicle
|
6 years on declining balance method or straight-line method
|
Assets held under capital lease obligation
are depreciated over their expected useful lives on the same basis as owned assets.
INTANGIBLE ASSETS
Intangible
assets consist of internal use software, franchise rights, membership and land.
The Company capitalizes certain costs related
to obtaining or developing software for internal use. Costs incurred during the application development stage internally or externally
are capitalized and amortized on a straight-line basis over the expected useful life of five years. The application development
stage includes design of chosen path, software configuration and integration, coding, hardware installation and testing. Costs
incurred during the preliminary project stage and post implementation-operation stage are expensed as incurred.
Franchise rights were amortized on a straight-line
basis over a useful life of 15 years. The gross carrying value was $nil and $667,378, and accumulated amortization was $nil and
$55,848, included in other intangible asset as of September 30, 2019 and 2018, respectively. Franchise rights were disposed along
with the disposal of STV (see Note 11).
Membership
and land have indefinite useful life, and the balance was $176,897 and $386,390 as of September 30, 2019 and 2018, respectively,
included in other intangible assets.
IMPAIRMENT OF LONG-LIVED ASSETS
The
carrying value of property, plant and equipment and intangible assets subject to depreciation and amortization is evaluated whenever
events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would
be measured by the amount by which the carrying value of the asset exceeds the fair value of the asset.
-F8-
Table
of Contents
FOREIGN CURRENCY TRANSLATION
The Company maintains its books and records
in its local currencies, Japanese YEN (“JPY”) , Hong Kong Dollars (“HK$”) and United States Dollars (“US$”),
which are the functional currencies as being the primary currencies of the economic environment in which their operations are conducted.
Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange
rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated in currencies other than the functional
currency are translated into the functional currency using the applicable exchange rates at the balance sheet dates. The resulting
exchange differences are recorded in the consolidated statements of operations and comprehensive income.
The reporting currency of the Company is US$
and the accompanying consolidated financial statements have been expressed in US$. In accordance with ASC Topic 830-30, Translation
of Financial Statement, assets and liabilities of the Company whose functional currency is not US$ are translated into US$,
using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the
period. Shareholders’ equity is translated at historical exchange rate at the time of transaction. The gains and losses resulting
from translation of financial statements are recorded as a separate component of accumulated other comprehensive income within
the consolidated statements of shareholders’ equity.
Translation of amounts from the local currency
of the Company into US$1 has been made at the following exchange rates:
|
September 30, 2019
|
|
September 30, 2018
|
Current JPY: US$1 exchange rate
|
108.08
|
|
113.68
|
Average JPY: US$1 exchange rate
|
110.05
|
|
110.47
|
|
|
|
|
Current HK$: US$1 exchange rate
|
7.80
|
|
7.83
|
Average HK$: US$1 exchange rate
|
7.80
|
|
7.83
|
REVENUE RECOGNITION
The Company operates and manages multilevel
marketing (“MLM”) in operating its businesses as the Force Club Membership and generates revenues primarily by providing
the rights to access the Company’s educational content and to recruit new members.
On October 1, 2018, the Company adopted ASC
606, Revenue from Contracts with Customers, using the modified retrospective method applied to those contracts which were not completed
as of October 1, 2018. Results for reporting periods beginning after October 1, 2018 are presented under ASC 606, while prior period
amounts have not been adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC
605, Revenue Recognition. The adoption had no material impact on the Company’s consolidated financial statements and there
was no adjustment to the beginning retained earnings on October 1, 2018.
The Company
recognizes revenue by applying the following steps in accordance with ASC 606 - Revenue from contracts with Customers. The
Company recognizes revenue upon transfer of control of promised products or services to customers in an amount that reflects the
consideration we expect to be entitled to receive in exchange for those products or services.
- Identification of the contract, or contracts,
with a customer
- Identification of the performance obligations
in the contract
- Determination of the transaction price
- Allocation of the transaction price to the
performance obligations in the contract
- Recognition of revenue when (or as) we satisfy
the performance obligation
Force Club Membership fee
Nature of operation
Our revenue generated from Force Club Membership
arrangements accounted for substantially all of our revenues during the year ended September 30, 2019. Generally, the Company grants
Force Club members the rights to access the Company’s educational content. There are two tiers of members, namely standard
members and premium members.
The premium members are granted full access
to the Company’s educational contents and the right to recruit prospect customers to become the Company’s members.
Each premium member needs to purchase a premium pack, containing promotional materials aiding the recruiting process, from the
Company. The standard members are granted limited access to the Company’s educational content.
Revenue from the premium pack is recognized
at a point in time upon delivery. Revenue from the right to access the Company’s educational contents is recognized over
a period of time ratably over the effective period.
The revenue generated from premium members
consists substantially all of the Company’s revenue. The Company's chief operating decision make reviews results analyzed
by customers and the analysis is only presented at the revenue level with no allocation of direct or indirect costs. The Company
determines that it has only one operating segment. Consequently, the Company does not disaggregate revenue recognized from contracts
with customers
Contract asset and liability
Deferred
income is recorded when consideration is received from a member prior to the goods were delivered or the access was granted. As
of September 30, 2019, the Company's deferred income was $3,267,399.
As of September 30, 2018, the Company's deferred income was $4,460,652, all of which was recognized as revenue in the year ended
September 30, 2019.
The Company does not have any contract asset.
ADVERTISING
Advertising costs are expensed as incurred
and included in selling and distributions expenses. Advertising expense was $1,908,950 and $913,480 for the years ended September
30, 2019 and 2018, respectively.
EARNINGS PER SHARE
The Company computes basic and diluted earnings
per share in accordance with ASC Topic 260, Earnings per Share. Basic earnings per share is computed by dividing net
income by the weighted average number of common stock outstanding during the reporting period. Diluted earnings per share reflects
the potential dilution that could occur if stock options and other commitments to issue common stock were exercised or equity awards
vest resulting in the issuance of common stock that could share in the earnings of the Company.
The Company does not have any potentially dilutive
instruments as of September 30, 2019 and 2018 and, thus, anti-dilution issues are not applicable.
INCOME TAXES
The provision for income taxes includes income
taxes currently payable and those deferred as a result of temporary differences between the financial statements and the income
tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using enacted income tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
of a change in income tax rates on deferred income tax assets and liabilities is recognized in income or loss in the period that
includes the enactment date. A valuation allowance is provided to reduce deferred tax assets to the amount of future tax benefit
when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Projected future taxable
income and ongoing tax planning strategies are considered and evaluated when assessing the need for a valuation allowance. Any
increase or decrease in a valuation allowance could have a material adverse or beneficial impact on the Company’s income
tax provision and net income or loss in the period the determination is made.
LEASES
The Company classifies leases as either capital
lease or operating lease. If the lease terms meet one or all of the following criteria, it is classified as a capital lease, otherwise
as an operating lease: (1) the ownership of the lease is transferred to the lessee at the end of the lease term; (2) the lease
contains a bargain purchase option; (3) the lease term is at least 75% of the economic life of the leased property; and (4) the
present value of the lease payments is at least 90% of the fair market value of the leased property.
RECENT
ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU 2014-09, “Revenue
from Contracts with Customers (ASC 606)” and issued subsequent amendments to the initial guidance or implementation guidance
between August 2015 and November 2017 within ASU 2015-04, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20, ASU 2017-13, and
ASU 2017-14 (collectively, including ASU 2014-09, “ASC 606”). Under ASC 606, revenue is recognized when a customer
obtains control of promised goods or services and is recognized in an amount that reflects the consideration which the entity expects
to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing,
and uncertainty of revenue and cash flows arising from contracts with customers. Effective October 1, 2018, the Company adopted
the standard using the modified retrospective method, the adoption of ASC 606 did not have a material impact on our consolidated
financial statements.
In January 2016, the FASB issued ASU 2016-01
“Financial Instruments – Overall.” The amendments in ASU 2016-01 are intended to improve the recognition, measurement,
presentation and disclosure of financial assets and liabilities to provide users of financial statements with information that
is more useful for decision-making purposes. Among other changes, ASU 2016-01 would require equity securities to be measured at
fair value with changes in fair value recognized through net income, but would allow equity securities that do not have readily
determinable fair values to be re-measured at fair value either upon the occurrence of an observable price change or upon identification
of an impairment. The amendments would simplify the impairment assessment of such equity securities and would require enhanced
disclosure about these investments. ASU 2016-01 would also require separate presentation of financial assets and liabilities by
measurement category and type of instrument, such as securities or loans, on the balance sheet or in the notes, and would eliminate
certain other disclosures relating to the methods and assumptions used to estimate fair value. For public entities, the amendments
in ASU 2016-01 are effective for interim and annual reporting periods beginning after December 15, 2017. The Company adopted ASU
2016-01 on October 1, 2018 with no impact to the Company’s beginning retained earnings.
In February 2016, the FASB issued ASU 2016-02,
“Leases (Topic 842)” and issued subsequent amendments to the initial guidance or implementation guidance including
ASU 2017-13, 2018-01, 2018-10, 2018-11, 2018-20 and 2019-01 (collectively, including ASU 2016-02, “ASC 842”). Under
ASC 842, lessees will be required to recognize all leases at the commencement date including a lease liability, which is a lessee’s
obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use (ROU) asset, which is
an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
The standard will be effective for the Company
beginning October 1, 2019, with early adoption permitted. The Company will adopt the standard on October 1, 2019 on a modified
retrospective basis and will not restate comparable periods. The Company will elect the package of practical expedients permitted
under the transition guidance, which allows the Company to carry forward the historical lease classification, the assessment whether
a contract is or contains a lease and initial direct costs for any leases that exist prior to adoption of the new standard. The
Company will also elect the practical expedient not to separate lease and non-lease components for certain classes of underlying
assets and the short-term lease exemption for contracts with lease terms of 12 months or less. The Company anticipates this standard
will have a material impact on the Company’s consolidated balance sheets. The Company estimates that approximately $563,000
would be recognized as ROU assets and lease liabilities upon adoption. However, the Company does not expect adoption will have
a material impact on the consolidated statements of operations and comprehensive income.
-F9-
Table
of Contents
NOTE 3 - FAIR VALUE MEASUREMENT
FASB ASC 820, Fair Value Measurements
and Disclosures, ("ASC 820") defines fair value as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair
value hierarchy that prioritizes the inputs used in valuation methodologies into three levels:
Level 1: Quoted prices in active markets
for identical assets or liabilities.
Level 2: Significant other inputs that
are directly or indirectly observable in the marketplace.
Level 3: Significant unobservable inputs
which are supported by little or no market activity.
The following table presents information about
the Company’s assets that are measured at fair value as of September 30, 2019 and 2018, and indicates the fair value hierarchy
of the valuation.
|
|
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Balance as of
September 30, 2019
|
Marketable Securities:
|
|
|
|
|
|
|
|
|
Publicly held equity securities
|
$
|
1,156,108
|
|
-
|
|
-
|
|
1,156,108
|
Total
|
|
1,156,108
|
|
-
|
|
-
|
|
1,156,108
|
|
|
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Balance as of
September 30, 2018
|
Marketable Securities:
|
|
|
|
|
|
|
|
|
Publicly held equity securities
|
$
|
830,331
|
|
-
|
|
-
|
|
830,331
|
Total
|
|
830,331
|
|
-
|
|
-
|
|
830,331
|
NOTE 4 - INCOME TAXES
For the years ended September 30, 2019, the provision of income tax expense was $446,267, consisting of current portion
of $282,159 and deferred portion of $164,108.
For the years ended September 30, 2018, the Company incurred income tax credit
in the amount of $89,297.
Japan
The Company conducts its major businesses in
Japan and e-Learning and e-Communications (“Japanese Subsidiaries”) are subject to tax in this jurisdiction. As a result
of its business activities, Japanese Subsidiaries file tax returns that are subject to examination by the local tax authority.
Japanese Subsidiaries are subject to a number of income taxes, which,
in aggregate, represent a statutory tax rate approximately as follows:
|
|
Company’s assessable profit
|
For the year ended September 30,
|
|
Up to JPY 4 million
|
|
Up to JPY 8 million
|
|
Over JPY 8 million
|
2018
|
|
21.42%
|
|
23.20%
|
|
33.80%
|
2019
|
|
21.42%
|
|
23.20%
|
|
33.80%
|
Open tax years in Japan are five years. As of September 30, 2019,
the Company’s earliest open tax year for Japanese income tax purposes is its fiscal year ended September 30, 2014. The Company's
tax attributes from prior periods remain subject to adjustment.
The reconciliations of the Japanese statutory
income tax rate and the Company’s effective income tax rate are as follows:
|
Year Ended
|
|
Year Ended
|
September 30, 2019
|
|
September 30, 2018
|
|
|
|
(Restated)
|
Japanese statutory tax rate
|
33.80 %
|
|
33.80 %
|
Carryover of losses
|
-
|
|
(33.80)%
|
Income tax difference under difference tax jurisdictions
|
49.50%
|
|
-
|
Additional deduction allowed for tax
|
(9.58)%
|
|
-
|
Deferred tax adjustments
|
59.83%
|
|
-
|
Other adjustments
|
8.46%
|
|
-
|
Total
|
142.01 %
|
|
-
|
Hong Kong
Force Holdings, a direct wholly owned subsidiary
of the Company in Hong Kong, is engaged in investment holding. Hong Kong profits tax has been provided at the rate of 16.5% on
the estimated assessable profit arising in Hong Kong.
No provision for the Hong Kong profits tax
has been made as Force Holdings did not generate any estimated assessable profits in Hong Kong during the years ended September
30, 2019 and 2018.
Open tax year in Hong Kong is six years after
the relevant year of assessment. This may be extended to ten years in the case of fraud of willful evasion of taxes. There are
no provisions that govern the time limit for tax collection.
United States
Exceed World, Inc., which acts as a holding
company on a non-consolidated basis, does not plan to engage any business activities and current or future loss will be fully allowed.
For the years ended September 30, 2019 and 2018, Exceed World, Inc., as a holding company registered in the state of Delaware,
has incurred net loss and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry forward has
been fully reserved.
The Company is a Delaware corporation that
is subject to U.S. corporate income tax on its taxable income at a rate of up to 21% for taxable years beginning after December
31, 2017 and U.S. corporate income tax on its taxable income of up to 35% for prior tax years. Recent U.S. federal tax legislation,
commonly referred to as the Tax Cuts and Jobs Act (the “2017 Act”), was signed into law on December 22, 2017. The 2017
Act significantly modified the U.S. Internal Revenue Code by, among other things, reducing the statutory U.S. federal corporate
income tax rate from 35% to 21% for taxable years beginning after December 31, 2017; limiting and/or eliminating many business
deductions; migrating the U.S. to a territorial tax system with a one-time transition tax on a mandatory deemed repatriation of
previously deferred foreign earnings of certain foreign subsidiaries; subject to certain limitations, generally eliminating U.S.
corporate income tax on dividends from foreign subsidiaries; and providing for new taxes on certain foreign earnings. Taxpayers
may elect to pay the one-time transition tax over eight years or in a single lump sum.
The 2017 Act also includes provisions for a
new tax on the Global Intangible Low-taxed Income (“GILTI”) effective for tax years of foreign corporations beginning
after December 31, 2017. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of
controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal
to 50 percent to offset the income tax liability, subject to some limitations. The Company elected to account for GILTI tax in
the period the tax is incurred, and no provision is made during the year ended September 30, 2019.
To the extent that portions of the Company’s
U.S. taxable income, such as Subpart F income or GILTI, are determined to be from sources outside of the U.S., subject to certain
limitations, the Company may be able to claim foreign tax credits to offset its U.S. income tax liabilities. If dividends that
the Company receives from its subsidiaries are determined to be from sources outside of the U.S., subject to certain limitations,
the Company will generally not be required to pay U.S. corporate income tax on those dividends. Any liabilities for U.S. corporate
income tax will be accrued in the Company’s consolidated statements of operations and comprehensive income and estimated
tax payments will be made when required by U.S. law.
As of September 30, 2019, the Company’s
earliest open tax year for U.S. federal income tax purposes is its fiscal year ended September 30, 2017. The Company's tax attributes
from prior periods remain subject to adjustment. Open tax years in state and foreign jurisdictions generally range from three to
six years.
NOTE 5 - DEFERRED TAX ASSETS
The Components of deferred tax assets
as of September 30, 2019 and 2018 are as follows:
|
|
September
30, 2019
|
|
September
30, 2018
|
|
|
|
|
(Restated)
|
Marketable
securities
|
$
|
(304,944)
|
$
|
-
|
Insurance
funds
|
|
73,551
|
|
287,157
|
Software
|
|
157,084
|
|
|
Expenses
|
|
153,949
|
|
-
|
Revenues
|
|
55,296
|
|
|
Deferred
tax assets
|
|
134,936
|
|
287,157
|
Valuation
allowance
|
|
-
|
|
-
|
Net
deferred tax assets, non-current
|
$
|
134,936
|
$
|
287,157
|
NOTE 6 - RELATED-PARTY TRANSACTIONS
Due to related parties and directors
As of September 30, 2019 and 2018, the Company’s
due to related parties and directors are as follows:
|
|
September 30, 2019
|
|
September 30, 2018
|
|
|
|
|
(Restated)
|
Due to director
|
|
|
|
|
Tomoo Yoshida, CEO, CFO, sole director and a shareholder of the Company
|
$
|
741,133
|
$
|
596,059
|
Total due to director
|
$
|
741,133
|
$
|
596,059
|
|
|
|
|
|
Due to related parties
|
|
|
|
|
Keiichi Koga, a shareholder of the Company and a director of certain subsidiaries of the Company
|
$
|
47,635
|
$
|
47,710
|
Force Internationale, the Company’s majority shareholder. Tomoo Yoshida is a director of Force Internationale
|
|
633,578
|
|
291,015
|
School TV Co., Ltd. (“School TV”), a wholly-owned subsidiary of the Company as of September 30, 2018, disposed to and currently owned by Force Internationale at the date of filing (See note 1)
|
|
132,940
|
|
-
|
Total due to related parties
|
$
|
814,153
|
$
|
338,725
|
The payable balances are unsecured, due on
demand, and bear no interest. From time to time, these related parties have advanced to the Company or paid expenses on behalf
of the Company, and the Company has also made repayments.
Tomoo Yoshida provided guarantee for the Company’s
office leases during the years ended September 30, 2019 and 2018.
Due from related parties
As of September 30, 2019, the Company had a
long-term loan of $232,128 due from School TV. The loan is unsecured, bears a 1% per annum interest, and is due on 5/24/2023. During
the year ended September 30, 2019, the Company received an interest of $2,272 from School TV.
As of September 30, 2019, the Company had
a short-term loan of $92,524 due from School TV included in due from related party. The loan is unsecured, due on demand, and
bears a 1% interest per annum. During the year ended September 30, 2019, the Company received an interest of $1,363 from School
TV.
-F10-
Table
of Contents
NOTE 7 – SHORT-TERM LOAN RECEIVABLE
On September 14, 2018, the Company entered
into a loan agreement to lend JPY45,000,000 ($395,848) to a third party, Star Gate Investment Holdings Limited. The loan was unsecured
with the maturity date on March 31, 2019 and an interest of JPY400,000 ($3,577) per quarter. The loan was collected in full on
April 24, 2019.
NOTE
8 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and
equipment consist of the following:
|
|
September 30, 2019
|
|
September 30, 2018
|
|
|
|
|
(Restated)
|
Building
|
$
|
243,840
|
$
|
54,984
|
Leasehold improvement
|
|
57,217
|
|
-
|
Equipment
|
|
1,086,546
|
|
741,083
|
Vehicles
|
|
68,930
|
|
119,296
|
|
|
1,456,533
|
|
915,363
|
|
|
|
|
|
Accumulated depreciation
|
|
(664,081)
|
|
(569,650)
|
|
|
792,452
|
|
345,713
|
Net effect of exchange rate
|
|
-
|
|
(1,722)
|
Total net book value
|
$
|
792,452
|
$
|
343,991
|
The aggregate depreciation
expense of property, plant and equipment was $108,152 and $100,229 for the years ended September 30, 2019 and 2018, respectively.
NOTE
9 – SOFTWARE
The
book value of the Company’s software as of September 30, 2019 and 2018 were as follows:
|
|
September 30, 2019
|
|
September 30, 2018
|
|
|
|
|
(Restated)
|
Software
|
$
|
3,917,921
|
$
|
5,121,311
|
Accumulated amortization
|
|
(2,866,523)
|
|
(2,867,476)
|
|
|
1,051,398
|
|
2,253,835
|
Net effect of exchange rate
|
|
-
|
|
(17,388)
|
Total net book value
|
$
|
1,051,398
|
$
|
2,236,447
|
The aggregate amortization expense related
to the software was $1,362,342 and $962,534 for the years ended September 30, 2019 and 2018, respectively, included
in cost of revenues.
The estimated future amortization expense of
our software as of September 30, 2019 is as follows:
Year ending September 30
|
|
Amount
|
2020
|
|
$
|
561,791
|
2021
|
|
|
265,306
|
2022
|
|
|
134,827
|
2023
|
|
|
80,613
|
2024
|
|
|
8,861
|
Thereafter
|
|
|
-
|
Total
|
|
$
|
1,051,398
|
NOTE
10 – COMMITMENTS
As of September 30, 2019, the Company has
three capital leases of equipment and vehicle with a gross value of $86,218 and $68,930, respectively, included in property,
plant and equipment.
The Company
also leases its offices under operating lease, and the rental expense is $550,683 and $411,226 for the years ended September 30,
2019 and 2018.
The future minimum
lease payments as of September 30, 2019 are as follows:
Year
ending September 30
|
|
Capital
lease
|
|
Operating
lease
|
2020
|
$
|
30,305
|
$
|
470,430
|
2021
|
|
30,305
|
|
112,212
|
2022
|
|
43,458
|
|
-
|
2023
|
|
19,558
|
|
-
|
2024
|
|
11,409
|
|
-
|
Thereafter
|
|
-
|
|
-
|
Total
|
|
135,035
|
$
|
582,642
|
Less:
imputed interest
|
|
(7,388)
|
|
|
Total
capital lease obligation
|
|
127,647
|
|
|
Less:
current portion
|
|
(28,683)
|
|
|
Long-term
lease obligation
|
$
|
98,964
|
|
|
NOTE 11 -
DISPOSAL OF SUBSIDIARY
On December
6, 2018, School TV, an entity under common control of Force Internationale, was deconsolidated from the Company's consolidated
financial statements (see Note 1). The Company recorded an increase in additional paid in capital of $162,076 at this deconsolidation.
This disposal does not constitute a strategic shift of the Company’s operation and business after Reorganization.
NOTE 12 -
CONTINGENCIES
The
Company is subject to various claims and legal proceedings in the course of conducting
the business related to Force Club Membership and, from time to time, the Company may become involved in additional claims and
lawsuits incidental to the businesses. The Company’s legal counsel and the management routinely assess the likelihood of
adverse judgments and outcomes to these matters, as well as ranges of probable losses; to the extent losses are reasonably estimable.
Accruals are recorded for these matters to the extent that management concludes a loss is probable and the financial impact, should
an adverse outcome occur, is reasonable estimable.
In the
opinion of management, appropriate and adequate accruals for legal matters have been made, and management believes that the probability
of a material loss beyond the amounts accrued is remote. Nevertheless, the Company cannot predict the impact of future developments
affecting our pending or future claims and lawsuits. The Company expenses legal costs as incurred, and all recorded legal liabilities
are adjusted as required as better information becomes available to the Company. The factors the Company considers when recording
an accrual for contingencies include, among others: (i) the opinions and views of the Company’s legal counsel; (ii) the Company’s
previous experience; and (iii) the decision of our management as to how we intend to respond to the complaints.
For the year ended September 30, 2019, the Company settled 11 legal cases in total amount of approximately JPY48.8 million
(approximately $443,000) related to the cancellation of contracts. From September 30, 2019 to the filing date, the Company
has settled one case under the same nature with the amount of approximately JPY2.7 million (approximately $25,000). As of
the filing date, the Company had 24 pending legal cases, claiming a damage of approximately JPY159.2 million (approximately
$1.5 million) under the same nature. Our legal counsel estimated a probable settlement of 23 of these cases with total settlement
amount of approximately JPY41.6 million (approximately $384,000). Our legal counsel was not able to estimate the likelihood
of the loss for one of the pending legal cases with an original claim of approximately JPY25.1 million (approximately $232,000).
The Company has recorded JPY44.3 million (approximately $409,000) as contingency liability as of September 30, 2019.
NOTE 13 – SUBSEQUENT EVENTS
On November 15, 2019, the Company entered into a loan agreement to lend JPY30,000,000 (approximately $278,000) to a third
party, CAI Media Co., Ltd (“CAI”). The loan is secured by a number of common shares of CAI. The loan charges an
annual interest rate of 2% and matures on May 14, 2020.
-F11-
Table
of Contents
Item
9A. Controls and Procedures.
Disclosure Controls and Procedures
The Company has adopted and maintains disclosure
controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports
filed under the Exchange Act, such as this annual report, is collected, recorded, processed, summarized and reported within the
time periods specified in the rules of the SEC. The Company’s disclosure controls and procedures are also designed
to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure.
As required under Exchange Act Rule 13a-15, the Company’s management, including the Chief Executive Officer who also
serves as our Principal Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures
as of the end of the period covered by this annual report. Based on that evaluation, the Chief Executive Office who also
serves as our Principal Financial Officer concluded that the disclosure controls and procedures are ineffective.
Our Chief Executive Officer, Tomoo Yoshida,
has reviewed the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act) as of the end of the period covered by the report September 30, 2019 and has concluded that (i) the Company’s disclosure
controls and procedures are not effective to ensure that material information relating to the Company is recorded, processed, summarized,
and reported within the time periods specified in the rules and forms of the Commission, and (ii) the Company’s controls
and procedures have not been designed to ensure that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive
and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure.
Management’s Report on Internal Control over Financial
Reporting
The Company’s management is responsible
for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f).
The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s
management and board of directors regarding the preparation and fair presentation of published financial statements. Management
conducted an assessment of the Company’s internal control over financial reporting based on the framework and criteria established
by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework. Based
on the assessment, management concluded that, as of September 30, 2019, the Company’s internal control over financial reporting
is ineffective based on those criteria.
The Company’s management, including its
Chief Executive Officer who also serves as our Chief Financial Officer, does not expect that the Company’s disclosure controls
and procedures and its internal control processes will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within the Company have
been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that
the breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system
of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may
become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and
may not be detected. However, these inherent limitations are known features of the financial reporting process. Therefore,
it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
The matters
involving internal controls and procedures that our Chief Executive Officer considered to be material weaknesses under the standards
of the Committee of Sponsoring Organizations of Treadway Commission were: domination of management by a single individual without
adequate compensating controls, lack of a majority of outside directors on board of directors, inadequate segregation of duties
consistent with control objectives, lack of well-established procedures to identify, approve and report related party transactions,
lack of sufficient accounting and finance personnel or written policies and procedures with respect to the understanding and application
of US GAAP and SEC reporting requirement and lack of an audit committee.
Management believes that the material weaknesses
did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and
inadequate segregation of duties results in ineffective oversight in the establishment and monitoring of required internal controls
and procedures, which could result in a material misstatement in our financial statements in future periods.
Management recognizes that its controls and
procedures would be substantially improved if we had an audit committee and two individuals serving as officers and as such is
actively seeking to remediate this issue.
Management’s Remediation Initiatives
In an effort to remediate the identified material
weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series
of measures:
We will create a position to segregate duties
consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting
function when funds are available to us. And, we plan to appoint one or more outside directors to our board of directors who shall
be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment
and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management
when funds are available to us.
Management believes that the appointment of
one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning
audit committee and a lack of a majority of outside directors on our Board.
We will work as quickly as possible to implement
these initiatives; however, the lack of adequate working capital and positive cash flow from operations will likely slow this implementation.
Changes in Internal Control
There have been no changes in internal controls
over the financial reporting that occurred during the fiscal fourth quarter, that have materially affected, or are reasonably likely
to materially affect our internal controls over financial reporting.
This annual report does not include an attestation
report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of
the SEC that permit the Company to provide only management’s report in this annual report.