UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 30, 2024

 

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to _____________

 

Commission File Number: 001-38876

 

ATIF HOLDINGS LIMITED

(Exact Name of Registrant as Specified in Its Charter)

 

British Virgin Islands   Not Applicable

(State of Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

     
25391 Commercentre Dr., Ste 200, Lake Forest, CA   92630
(Address of Principal Executive Offices)   (ZIP Code)

 

308-888-8888

(Registrant’s Telephone Number, Including Area Code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Title of each class   Trading Symbol   Name of exchange on which registered
Ordinary Shares   ATIF   The Nasdaq Stock Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ YES ☐ NO

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ YES ☐ NO

 

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

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
    Emerging growth company

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) ☐ YES  NO

 

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

 

As of June 14, 2024, there were 11,917,452 of the registrant’s ordinary shares issued and outstanding.

 

 

 

 

 

TABLE OF CONTENTS

 

  Page 
   
PART I-FINANCIAL INFORMATION  
Item 1. Financial Statements 1
Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
Item 4. Controls and Procedures 25
PART II-OTHER INFORMATION  
Item 1. Legal Proceedings 26
Item 1A. Risk Factors 27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Mine Safety Disclosures 27
Item 5. Other Information 27
Item 6. Exhibits 28
SIGNATURES 29

 

i

 

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements.  The statements herein which are not historical reflect our current expectations and projections about the Company’s future results, performance, liquidity, financial condition, prospects and opportunities and are based upon information currently available to us and our management and our interpretation of what we believe to be significant factors affecting our business, including many assumptions about future events.  Such forward-looking statements include statements regarding, among other things:

 

  our ability to produce, market and generate sales of our products and services;

 

  our ability to develop and/or introduce new products and services;

 

  our projected future sales, profitability and other financial metrics;

 

  our future financing plans;

  

  our anticipated needs for working capital;

 

  the anticipated trends in our industry;

  

  our ability to expand our sales and marketing capability;

  

  acquisitions of other companies or assets that we might undertake in the future;

 

  competition existing today or that will likely arise in the future; and

 

  other factors discussed elsewhere herein.

 

Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words “may,” “should,” “will,” “plan,” “could,” “target,” “contemplate,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “seek,” or “project” or the negative of these words or other variations on these or similar words.  Actual results, performance, liquidity, financial condition and results of operations, prospects and opportunities could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various risks, uncertainties and other factors, including the ability to raise sufficient capital to continue the Company’s operations.  These statements may be found under Part I, Item 2-“Management’s Discussion And Analysis Of Financial Condition And Results Of Operations,” as well as elsewhere in this Quarterly Report on Form 10-Q generally.  Actual events or results may differ materially from those discussed in forward-looking statements as a result of various factors, including, without limitation, matters described in this Quarterly Report on Form 10-Q.  

 

In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this Quarterly Report on Form 10-Q will in fact occur.

 

Potential investors should not place undue reliance on any forward-looking statements. Except as expressly required by the federal securities laws, there is no undertaking to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

 

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q.  Such statements are presented only as a guide about future possibilities and do not represent assured events, and we anticipate that subsequent events and developments will cause our views to change.  You should, therefore, not rely on these forward-looking statements as representing our views as of any date after the date of this Quarterly Report on Form 10-Q. 

 

This Quarterly Report on Form 10-Q also contains estimates and other statistical data prepared by independent parties and by us relating to market size and growth and other data about our industry. These estimates and data involve a number of assumptions and limitations, and potential investors are cautioned not to give undue weight to these estimates and data. We have not independently verified the statistical and other industry data generated by independent parties and contained in this Quarterly Report on Form 10-Q. In addition, projections, assumptions and estimates of our future performance and the future performance of the industries in which we operate are necessarily subject to a high degree of uncertainty and risk.

 

Potential investors should not make an investment decision based solely on our projections, estimates or expectations.

 

ii

 

 

PART I.

 

FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS 

 

ATIF HOLDINGS LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   April 30,
2024
   July 31,
2023
 
   (unaudited)     
ASSETS        
CURRENT ASSETS        
Cash and cash equivalents  $2,116,156   $606,022 
Accounts receivable   200,000    650,000 
Accounts receivable – a related party   
-
    600,000 
Deposits   99,000    86,000 
Investment in trading securities   239,068    130,649 
Due from a related party   320,539    40,539 
Prepaid expenses and other current assets   214,724    429,570 
Total current assets   3,189,487    2,542,780 
           
Property and equipment, net   69,716    93,637 
Intangible assets, net   13,331    73,331 
Right-of- use assets, net   60,915    1,058,822 
TOTAL ASSETS  $3,333,449   $3,768,570 
           
LIABILITIES AND EQUITY          
CURRENT LIABILITIES          
Accrued expenses and other current liabilities  $122,259   $293,140 
Deferred revenue   
-
    70,000 
Taxes payable   16,685    31,200 
Due to related parties   
-
    729,968 
Operating lease liabilities, current   61,052    415,411 
Total current liabilities   199,996    1,539,719 
           
Operating lease liabilities, noncurrent   28,864    689,498 
TOTAL LIABILITIES   228,860    2,229,217 
           
Commitments   
 
    
 
 
           
EQUITY          
Ordinary shares, $0.001 par value, 100,000,000,000 shares authorized, 11,917,452 shares and 9,627,452 shares issued and outstanding as of April 30, 2024 and July 31, 2023, respectively   11,917    9,627 
Additional paid-in capital   32,599,985    29,196,350 
Accumulated deficit   (29,507,313)   (27,666,624)
Total ATIF Holdings Limited Stockholders’ equity   3,104,589    1,539,353 
TOTAL LIABILITIES AND EQUITY  $3,333,449   $3,768,570 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

1

 

 

ATIF HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE (LOSS) INCOME

 

   For the Three Months Ended
April 30,
   For the Nine Months Ended
April 30,
 
   2024   2023   2024   2023 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
Revenues  $200,000   $100,000   $350,000   $2,300,000 
                     
Operating expenses:                    
Selling expenses   (86,000)   (72,000)   (251,000)   (125,000)
General and administrative expenses   (635,282)   (629,934)   (1,824,577)   (1,710,942)
Total operating expenses   (721,282)   (701,934)   (2,075,577)   (1,835,942)
                     
(Loss) income from operations   (521,282)   (601,934)   (1,725,577)   464,058 
                     
Other income (expenses):                    
Interest income, net   
-
    
-
    23    1,874 
Other income, net   23,215    191,998    223,120    314,401 
(Loss) income from investment in trading securities   (309,521)   82,265    (338,255)   101,381 
Gain from disposal of subsidiaries   
-
    
-
    
-
    56,038 
Total other (loss) income, net   (286,306)   274,263    (115,112)   473,694 
                     
(Loss) income before income taxes   (807,588)   (327,671)   (1,840,689)   937,752 
                     
Income tax provision   
-
    (8,099)   
-
    (575,056)
Net (loss) income and comprehensive (loss) income  $(807,588)  $(335,770)  $(1,840,689)  $362,696 
                     
(Loss) earnings per share – basic and diluted
  $(0.08)  $(0.03)  $(0.19)  $0.04 
Weighted Average Shares Outstanding                    
Basic and diluted
   9,799,195    9,627,452    9,670,270    9,627,452 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2

 

 

ATIF HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 2024 AND 2023

 

For the Three Months Ended April 30, 2024 and 2023

 

   Ordinary Share   Additional
Paid in
   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance at January 31, 2023 (unaudited)   9,627,452   $9,627   $29,196,350   $(24,085,859)  $5,120,118 
Net loss for the period   -    
-
    
-
    (335,770)   (335,770)
Balance at April 30, 2023 (unaudited)   9,627,452   $9,627   $29,196,350   $(24,421,629)  $4,784,348 
                          
Balance at January 31, 2024 (unaudited)   9,627,452   $9,627   $29,196,350   $(28,699,725)  $506,252 
Issuance of ordinary shares pursuant to a private placement   1,905,522    1,906    2,341,886    
-
    2,343,792 
Issuance of ordinary shares to settle payroll payable due to a management   384,478    384    349,491    
-
    349,875 
Waive of liabilities by a related party   -    
-
    712,258    
-
    712,258 
Net loss for the period   -    
-
    
-
    (807,588)   (807,588)
Balance at April 30, 2024 (unaudited)   11,917,452   $11,917   $32,599,985   $(29,507,313)  $3,104,589 

 

For the Nine Months Ended April 30, 2024 and 2023

 

   Ordinary Share   Additional
Paid in
   Accumulated   Non-controlling     
   Shares   Amount   Capital   deficit   Interest   Total 
Balance at July 31, 2022   9,627,452   $9,627   $29,496,350   $(24,784,325)  $(369,045)  $4,352,607 
Disposal of a subsidiary   -    
-
    (300,000)   
-
    369,045    69,045 
Net income for the period   -    
-
    
-
    362,696    
-
    362,696 
Balance at April 30, 2023 (unaudited)   9,627,452   $9,627   $29,196,350   $(24,421,629)  $
-
   $4,784,348 
                               
Balance at July 31, 2023   9,627,452   $9,627   $29,196,350   $(27,666,624)  $
-
   $1,539,353 
Issuance of ordinary shares pursuant to a private placement   1,905,522    1,906    2,341,886    
-
    
-
    2,343,792 
Issuance of ordinary shares to settle payroll payable due to a management   384,478    384    349,491    
-
    
-
    349,875 
Waive of liabilities by a related party   -    
-
    712,258    
-
    
-
    712,258 
Net loss for the period   -    
-
    
-
    (1,840,689)   
-
    (1,840,689)
Balance at April 30, 2024 (unaudited)   11,917,452   $11,917   $32,599,985   $(29,507,313)  $
-
   $3,104,589 

 

The accompanying notes are an integral part of these condensed consolidated financial statements. 

 

3

 

 

ATIF HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

   For the Nine Months Ended
April 30,
 
   2024   2023 
   (unaudited)   (unaudited) 
Cash flows from operating activities:        
Net (loss) income  $(1,840,689)   362,696 
Adjustments to reconcile net (loss) income to net cash used in operating activities:          
Depreciation and amortization   89,007    109,967 
Amortization of right-of-use assets   265,042    322,462 
Loss from early termination of an operating lease   7,600    
-
 
Loss from disposal of a subsidiary   
-
    69,045 
Loss (gain) from investment in trading securities   338,255    (101,381)
Changes in operating assets and liabilities:          
Accounts receivable   450,000    (1,750,000)
Accounts receivable – related parties   600,000    
-
 
Deposits   (13,000)   55,000 
Prepaid expenses and other current assets   214,846    81,711 
Deferred revenue   (70,000)   (20,785)
Taxes payable   (14,515)   575,056 
Accrued expenses and other liabilities   178,994    (763,012)
Lease liabilities   (289,728)   (301,867)
Net cash used in operating activities   (84,188)   (1,361,108)
           
Cash flows from investing activities:          
Purchase of property and equipment   (5,086)   (9,002)
Investment in trading securities   (446,674)   (148,941)
Release of investment in an equity investee   
-
    335,000 
Loans made to a related party   (317,710)   (100,000)
Collection of borrowings from a related party   20,000    1,500 
Net cash (used in) provided by investing activities   (749,470)   78,557 
           
Cash flows from financing activities:          
Proceeds from issuance of ordinary shares pursuant to a private placement   2,343,792    
-
 
Net cash provided by financing activities   2,343,792    
-
 
           
Net increase (decrease) in cash   1,510,134    (1,282,551)
Cash, beginning of period   606,022    1,750,137 
Cash, end of period  $2,116,156   $467,586 
           
Supplemental disclosure of cash flow information:          
Cash paid for interest expenses  $
-
   $
-
 
Cash paid for income tax  $14,515   $
-
 
           
Supplemental disclosure of Non-cash investing and financing activities          
Issuance of ordinary shares to settle payroll payable due to a management  $349,875   $
-
 
Waive of liabilities by a related party  $712,258   $
-
 
Right-of-use assets obtained in exchange for operating lease obligations  $
-
   $109,492 
Disposal of right-of-use assets with decrease of operating lease obligations  $799,232   $
-
 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

  

4

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

 

ATIF Holdings Limited (“ATIF” or the “Company”), formerly known as Eternal Fairy International Limited and Asia Times Holdings Limited, was incorporated under the laws of the British Virgin Islands (“BVI”) on January 5, 2015, as a holding company to develop business opportunities in the People’s Republic of China (the “PRC” or “China”). The Company adopted its current name on March 7, 2019. The Company is primarily engaged in providing business advisory and financial consulting services to small and medium-sized enterprise customers.

 

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 the State of California of the United States, respectively. On April 25, 2022, the Company established ATIF Investment Limited (“ATIF Investment”) under the laws of BVI. On December 22, 2021, ATIF Inc. established ATIF BD LLC (“ATIF BD”) under the laws of California of the United States.

 

On August 1, 2022, the Company entered into a sales agreement with a third party, pursuant to which the Company sold all of its equity interest in ATIF GP at the cost of $50,000. The management believed the disposition does not represent a strategic shift because it is not changing the way it is running its consulting 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 April 30, 2024, the Company’s condensed consolidated financial statements reflect the operating results of the following entities:

 

Name of Entity  Date of
Incorporation
  Place of
Incorporation
  % of
Ownership
  Principal Activities
Parent company:            
ATIF Holdings Limited (“ATIF”)  January 5, 2015  British Virgin Islands  Parent  Investment holding
Wholly owned subsidiaries of ATIF            
ATIF Inc. (“ATIF USA”)  October 26, 2020  USA  100%  Consultancy and information technology support
ATIF Investment LLC (“ATIF Investment”)  April 25, 2022  BVI  100%  Consultancy and information technology support
ATIF BD  December 22, 2021  USA  100% owned by ATIF USA  Consultancy and information technology support
ATIF BC  October 6, 2022  USA  100% owned by ATIF USA  Consultancy and information technology support
ATIF BM  October 6, 2022  USA  100% owned by ATIF USA  Consultancy and information technology support

 

5

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 2 – LIQUIDITY and GOING CONCERN

 

For the three and nine months ended April 30, 2024, the Company reported a net loss of approximately $0.8 million and approximately $1.8 million, respectively. For the three and nine months ended April 30, 2023, the Company reported a net loss of approximately $0.3 million and a net income of approximately $0.4 million, respectively. For the nine months ended April 30, 2024 and 2023, the Company reported operating cash outflows of $84,188 and approximately $1.4 million, respectively. 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 April 30, 2024, the Company had cash of approximately $2.1 million, accounts receivable of approximately of $0.2 million and short-term investments of approximately $0.2 million, which were highly liquid. On the other hand, the Company had current liabilities of approximately $0.2 million The Company’s current assets could well cover its current liabilities. For the nine months ended April 30, 2024, the Company raised net proceeds of approximately $2.3 million from issuance of ordinary shares in a private placement. In addition, one of the related parties waived liabilities payable of approximately $0.7 million due to the related party. 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 and the requirement of additional capital to fund our current operating plan at April 30, 2024, these factors indicate the existence of an uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern. The Company anticipates that it will need to raise additional capital immediately in order to continue to fund its operations. There is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all. There is also no assurance that the amount of funds the Company might raise will enable the Company to complete its initiatives or attain profitable operations. If the Company is unable to raise additional funding to meet its working capital needs in the future, it will be forced to delay, reduce, or cease its operations.

 

The accompanying condensed 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. 

 

6

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation and Principles of Consolidation

 

The interim unaudited condensed consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”).

 

The unaudited condensed consolidated balance sheets as of April 30, 2024 and for the unaudited condensed consolidated statement of operations and comprehensive income (loss) for the three and nine months ended April 30, 2024 and 2023 have been prepared without audit, pursuant to the rules and regulations of the SEC and pursuant to Regulation S-X. Certain information and footnote disclosures, which are normally included in annual financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 10-K for the fiscal year ended July 31, 2023, which was filed with the SEC on November 13, 2023.

 

In the opinion of the management, the accompanying condensed consolidated financial statements reflect all normal recurring adjustments, which are necessary for a fair presentation of financial results for the interim periods presented. The Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying condensed consolidated financial statements have been prepared using the same accounting policies as used in the preparation of the Company’s consolidated financial statements for the year ended July 31, 2023. The results of operations for the three and nine months ended April 30, 2024 and 2023 are not necessarily indicative of the results for the full years.

 

The unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.

 

Use of Estimates

 

In preparing the condensed consolidated   financial statements in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the condensed consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for credit losses, useful lives of property and equipment and intangible assets, the recoverability of long-lived assets, revenue recognition, provision necessary for contingent liabilities and realization of deferred tax assets. Actual results could differ from those estimates.

 

Accounts Receivable, net

 

On August 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), using the modified retrospective transition method. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. Upon adoption, the Company changed the impairment model to utilize a forward-looking current expected credit losses (CECL) model in place of the incurred loss methodology for financial instruments measured at amortized cost and receivables resulting from the application of ASC 606, including contract assets. The adoption of the guidance had no impact on the allowance for credit losses for accounts receivable.

 

7

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Accounts Receivable, net (continued)

 

Prior to the Company’s adoption of ASU 2016-13, accounts receivable are presented net of allowance for doubtful accounts. The Company usually determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the condensed consolidated statements of operations and comprehensive loss. Delinquent account balances are written off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.

 

After the adoption of ASU 2016-13, The Company maintains an allowance for credit losses and records the allowance for credit losses as an offset to accounts receivable and the estimated credit losses charged to the allowance is classified as “General and administrative expenses” in the condensed consolidated statements of operations and comprehensive loss. The Company uses loss-rate methods to estimate allowance for credit loss. The Company assesses collectability by reviewing accounts receivable on an individual basis because the Company had limited customers and each of them has difference characteristics, primarily based on business line and geographical area. In determining the amount of the allowance for credit losses, the Company multiplied the loss rate with the amortized cost of accounts receivable. The loss rate refers to the corporate default rate published by credit rating companies, which considers current economic conditions, reasonable and supportable forecasts of future economic conditions. Delinquent account balances are written-off against the allowance for credit losses after management has determined that the likelihood of collection is not probable. For the three and nine months ended April 30, 2024, the Company did not provide allowance for credit losses.

 

Fair Value of Financial Instruments

 

ASC 825-10 requires certain disclosures regarding the fair value of financial instruments. Fair value is defined 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. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data.

 

Level 3 – inputs to the valuation methodology are unobservable.

 

Fair value of investment in trading securities are based on quoted prices in active markets. The carrying amounts of the Company’s other financial instruments including cash and cash equivalents, accounts receivable, deposits, due from related parties, and other current assets, due to related parties and accrued expenses and other current liabilities approximate their fair values because of the short-term nature of these assets and liabilities. For lease liabilities, fair value approximates their carrying value at the year-end as the interest rates used to discount the host contracts approximate market rates. For the three and nine months ended April 30, 2024 and 2023, there are no transfers between different levels of inputs used to measure fair value.

 

8

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 606 Revenue from Contracts with Customers (“ASC 606”).

 

To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.

 

The Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange.

 

For the three and nine months ended April 30, 2024 and 2023, the Company primarily generated revenues from consulting services to customers who would like to go public.

 

The Company provides various consulting services to its members, especially to those who have the intention to be publicly listed in the stock exchanges in the United States and other countries. The Company categorizes its consulting services into three Phases:

 

Phase I consulting services primarily include due diligence review, market research and feasibility study, business plan drafting, accounting record review, and business analysis and recommendations. Management estimates that Phase I normally takes about three months to complete based on its past experience.

 

Phase II consulting services primarily include reorganization, pre-listing education and tutoring, talent search, legal and audit firm recommendation and coordination, VIE contracts and other public-listing related documents review, merger and acquisition planning, investor referral and pre-listing equity financing source identification and recommendations, and independent directors and audit committee candidate’s recommendation. Management estimates that Phase II normally takes about eight months to complete based on its past experience.

 

Phase III consulting services primarily include shell company identification and recommendation for customers expecting to become publicly listed through reverse merger transaction; assistance in preparation of customers’ public filings for IPO or reverse merger transactions; and assistance in answering comments and questions received from regulatory agencies. Management believes it is very difficult to estimate the timing of this phase of service as the completion of Phase III services is not within the Company’s control.  

 

Each phase of consulting services is stand-alone and fees associated with each phase are clearly identified in service agreements. Revenue from providing Phase I and Phase II consulting services to customers is recognized ratably over the estimated completion period of each phase as the Company’s performance obligations related to these services are carried out over the whole duration of each Phase. Revenue from providing Phase III consulting services to customers is recognized upon completion of the reverse merger transaction or IPO transaction when the Company’s promised services are rendered and the Company’s performance obligations are satisfied. Revenue that has been billed and not yet recognized is reflected as deferred revenue on the balance sheet.

 

Depending on the complexity of the underlying service arrangement and related terms and conditions, significant judgments, assumptions, and estimates may be required to determine when substantial delivery of contract elements has occurred, whether any significant ongoing obligations exist subsequent to contract execution, whether amounts due are collectible and the appropriate period or periods in which, or during which, the completion of the earnings process occurs. Depending on the magnitude of specific revenue arrangements, adjustment may be made to the judgments, assumptions, and estimates regarding contracts executed in any specific period.

 

9

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Income Taxes

 

The Company accounts for income taxes under ASC 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted 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 on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

An uncertain tax position is recognized only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. The Company did not have unrecognized uncertain tax positions or any unrecognized liabilities, interest or penalties associated with unrecognized tax benefit as of April 30, 2024. As of April 30, 2024, all of the Company’s income tax returns for the tax years ended December 31, 2019 through December 31, 2023 remain open for statutory examination by relevant tax authorities.

 

Segment reporting

 

Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s CODM is Mr. Liu, the Chairman of the Board of Directors and CEO.

 

The Company’s organizational structure is based on a number of factors that the CODM uses to evaluate, view and run its business operations which include, but not limited to, customer base, homogeneity of service and technology. The Company’s operating segments are based on such organizational structure and information reviewed by the CODM to evaluate the operating segment results. Based on management’s assessment, the management has determined that the Company now operates in one operating segment with one reporting segment as of April 30, 2024 and July 31, 2023, which is the consulting service business.

 

10

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Risks and Uncertainty

 

(a) Credit risk

 

As of April 30, 2024, the Company held cash and cash equivalents of approximately $2.1 million deposited in the banks located in the U.S., which were insured by FDIC up to $250,000, and held cash and cash equivalents of approximately $0.5 million deposited in the investment bank accounts located in the U.S. which are not insured by FDIC.

 

(b) Concentration risk

 

Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.

 

The Company has a concentration of its revenues and receivables with specific customers. For the three months ended April 30, 2024 and 2023, one and one customer accounted for 100% of the Company’s consolidated revenue, respectively.

 

For the nine months ended April 30, 2024, two customers accounted for 71% and 17% of the Company’s consolidated revenue, respectively. For the nine months ended April 30, 2023, four customers accounted for 28%, 28%, 26% and 17% of the Company’s consolidated revenue, respectively.

 

As of April 30, 2024, one customer accounted for 100% of the Company’s consolidated accounts receivable. As of July 31, 2023, two customers accounted for 54% and 46% of the Company’s consolidated accounts receivable, respectively.

 

For the three and nine months ended April 30, 2024 and 2023, substantially all of the Company’s revenues was generated from providing going public related consulting services to customers. The concentration risk   is mitigated by the Company’s plan to transition its consulting services from the PRC based customers to more international customers.

 

(c) Other risks and uncertainties

 

The Company’s business, financial condition and results of operations may also be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could significantly disrupt the Company’s operations.

 

11

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS 

 

Prepaid expenses and other current assets consisted of the following:

 

   April 30,
2024
   July 31,
2023
 
   (unaudited)     
Prepayment for advertising service fee (a)  $202,500   $408,000 
Advance to vendors   10,000    10,000 
Others   2,224    11,570 
Total  $214,724   $429,570 

 

(a) Prepayment for advertising services represent the advance payments made by the Company to a third party advertising company for producing advertising contents. These prepayments are typically expensed over the period when the services are performed.

 

NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET

 

Property and equipment, net, consisted of the following:

 

   April 30,
2024
   July 31,
2023
 
   (unaudited)     
Furniture, fixtures and equipment  $209,290   $204,204 
Less: accumulated depreciation   (139,574)   (110,567)
Total  $69,716   $93,637 

 

Depreciation expense was $9,669 and $16,656 for the three months ended April 30, 2024 and 2023, respectively. Depreciation expense was $29,007 and $49,967 for the nine months ended April 30, 2024 and 2023, respectively.

 

NOTE 6 – INTANGIBLE ASSETS

 

Net intangible assets consisted of the following:

 

   April 30,
2024
   July 31,
2023
 
   (unaudited)     
Software  $320,000   $320,000 
Less: accumulated amortization   (306,669)   (246,669)
Total  $13,331   $73,331 

 

Amortization expense was $20,000 and $20,000 for the three months ended April 30, 2024 and 2023, respectively. Amortization expense was $60,000 and $60,000 for the nine months ended April 30, 2024 and 2023, respectively.

 

12

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 7 – INVESTMENTS IN TRADING SECURITIES

 

As of April 30, 2024 and July 31, 2023, the balance of investments in trading securities represented certain equity securities of listed companies purchased through various open market transactions by the Company during the relevant periods. All trading securities were invested by ATIF. The investments are initially recorded at cost, and subsequently measured at fair value with the changes in fair value recorded in other income (expenses), net in the consolidated statement of operations and comprehensive (loss) income. For the three months ended April 30, 2024 and 2023, the Company recorded a decrease in fair value of $309,521 and an increase in fair value of $82,265, respectively. For the nine months ended April 30, 2024 and 2023, the Company recorded a decrease in fair value of $338,255 and an increase in fair value of $101,381, respectively.

 

NOTE 8 – OPERATING LEASES

 

The Company leases offices spaces and a car under non-cancelable operating leases, with lease terms ranging between 14 months to 60 months. Among the lease agreements, one office space agreement was entered into with a related party. On March 1, 2024, the Company and Zachary Group modified the lease agreement to reduce the office space. (Note 11).

 

The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Rent expense for the three months ended April 30, 2024 and 2023 was $45,400 and $121,655, respectively. Rent expense for the nine months ended April 30, 2024 and 2023 was $291,771 and $372,516, respectively.

 

During the three and nine months ended April 30, 2024, the Company early terminated a car lease arrangement, and recognized losses of $62,282 arising from early termination in the condensed consolidated statements of operations comprehensive (loss) income. The losses of $62,282 was comprised of $7,600 arising from the derecognition of operating right-of-use assets and operating lease liabilities, and $54,682 arising from penalties.

 

Effective August 1, 2019, the Company adopted the new lease accounting standard using a modified retrospective transition method, which allows the Company not to recast comparative periods presented in its consolidated financial statements. In addition, the Company elected the package of practical expedients, which allows the Company to not reassess whether any existing contracts contain a lease, to not reassess historical lease classification as operating or finance leases, and to not reassess initial direct costs. The Company has not elected the practical expedient to use hindsight to determine the lease term for its leases at transition. The Company combines the lease and non-lease components in determining the ROU assets and related lease obligation. Adoption of this standard resulted in the recording of operating lease ROU assets and corresponding operating lease liabilities as disclosed below. ROU assets and related lease obligations are recognized at commencement date based on the present value of remaining lease payments over the lease term.

 

The following table presents the operating lease related assets and liabilities recorded on the balance sheets as of April 30, 2024   and July 31, 2023. 

 

   April 30,
2024
   July 31,
2023
 
   (unaudited)     
Right-of- use assets, net  $60,915   $1,058,822 
           
Operating lease liabilities, current  $61,052   $415,411 
Operating lease liabilities, noncurrent   28,864    689,498 
Total operating lease liabilities  $89,916   $1,104,909 

 

The weighted average remaining lease terms and discount rates for all of operating leases were as follows as of April 30, 2024 and July 31, 2023:

 

   April 30,
2024
   July 31,
2023
 
   (unaudited)     
Remaining lease term and discount rate        
Weighted average remaining lease term (years)   1.83    3.35 
Weighted average discount rate   8.50%   4.90%

 

13

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 8 – OPERATING LEASES (continued)

 

The following is a schedule of maturities of lease liabilities as of April 30, 2024 and July 31, 2023:

 

   April 30,
2024
   July 31,
2023
 
   (unaudited)     
For the nine months/twelve months ended July 31, 2024  $38,000   $457,708 
For the twelve months ended July 31, 2025   36,000    267,239 
For the twelve months ended July 31, 2026   21,000    267,239 
For the twelve months ended July 31, 2027   
-
    204,540 
Total lease payments   95,000    1,196,726 
Less: imputed interest   (5,084)   (91,817)
Present value of lease liabilities  $89,916   $1,104,909 

 

NOTE 9 – ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

 

Accrued expenses and other current liabilities consisted of the following:

 

   April 30,
2024
   July 31,
2023
 
   (unaudited)     
Accrued legal expenses  $55,552   $
-
 
Rental deposit payable   42,765    66,000 
Accrued payroll expenses (a)   23,942    212,953 
Others   
-
    14,187 
   $122,259   $293,140 

 

(a)On April 30, 2024, the Company issued 384,478 ordinary shares to settle accrued payroll expenses of $349,875 due to Mr. Jun Liu, the Chief Executive Officer of the Company. The fair value of ordinary shares was $0.91, which was the closing market price on April 30, 2024.

 

NOTE 10 – DEFERRED REVENUE

 

As of April 30, 2024 and July 31, 2023, the balance of deferred revenue represented the Company’s contract liabilities, including payments received in advance of providing consulting services which will be recognized as revenue as the Company completed the performances. As of April 30, 2024 and July 31 2023, the Company had deferred revenues of $nil and $70,000, respectively. 

 

For the three months ended April 30, 2024 and 2023, no advance from customer balance as of July 31, 2023 and 2022 were recognized as revenues, respectively. For the nine months ended April 30, 2024 and 2023, $nil and $20,785 of advance from customer balance as of July 31, 2023 and 2022 were recognized as revenues, respectively.

 

For the three and nine months ended April 30, 2024, $nil and $70,000 of advance from customer balance as of July 31, 2023 was recognized as other income, respectively. 

 

14

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 11 – RELATED PARTY TRANSACTIONS

 

1) Nature of relationships with related parties

 

The table below sets forth the major related parties and their relationships with the Company, with which the Company entered into transactions during the three and nine months ended April 30, 2024 and 2023, or recorded balances as of April 30, 2024 and July 31, 2023:

 

Name   Relationship with the Company
Mr. Jun Liu   The Chief Executive Officer of the Company
Huaya*   Wholly owned by Mr. Pishan Chi, the former Chief Executive Officer of the Company
Asia International Securities Exchange Co., Ltd.   Wholly owned by Mr. Jun Liu
Zachary Group   Wholly owned by Mr. Jun Liu

 

2) Transactions with related parties

 

For the three and nine months ended April 30, 2024, the Company repaid loans of $nil and $17,710 to Asia International Securities Exchange Co., Ltd. On April 30, 2024, the Company and Asia International Securities Exchange Co., Ltd. entered into an agreement, pursuant to which the related party waived the liabilities due to the related party. Accordingly, the Company derecognized the balance due to the related party with corresponding account charged against additional paid-in capital. As of April 30, 2024, the Company had no payables due to the related party.

 

In April 2024, the Company made a three-month loan of $300,000 to Mr. Jun Liu. The loan was interest free and was repayable in July 2024.

 

On April 29, 2024, the Company entered into a deferred salary conversion agreement (“Deferred Salary Conversion Agreement”) with Mr. Jun Liu, the president, chief executive officer and chairman of the board of directors of the Company.

 

Pursuant to the Agreement, the Company agreed to issue and Mr. Liu agreed to accept 384,478 ordinary shares (“Deferred Salary Debt Shares”), $0.001 par value in lieu of an unpaid salary of $349,875 owed to Mr. Liu at a per share price of $0.91 which was the Nasdaq consolidated closing bid price per share of the Company’s ordinary shares on April 29, 2024.

 

For the three and nine months ended April 30, 2023, the Company make a loan of $nil and $100,000 to Huaya to support its operations. The loan was interest free and was repayable on demand. Huaya made repayments of $20,000 and $1,500, respectively, for the nine months ended April 30, 2024 and 2023, respectively.

 

In June 2022, the Company entered into an office lease agreement with Zachary Group. Pursuant to the agreement, the Company would lease the office space for a lease term of 5 years, matured in May 2027. The monthly rental fee was $20,000, payable on a monthly basis. On March 1, 2024, the Company and Zachary Group modified the lease agreement to reduce the office space. The modified agreement was for a lease term of 2 years through February 2026, and monthly rental fee was $3,000, payable on a monthly basis. For the three months ended April 30, 2024 and 2023, the Company recorded rental expenses of $26,000 and $60,000, respectively. For the nine months ended April 30, 2024 and 2023, the Company recorded rental expenses of $146,000 and $180,000, respectively.

 

3) Balances with related parties

 

As of April 30, 2024 and July 31, 2023, the balances due from related parties were as follows:

 

   April 30,
2024
   July 31,
2023
 
   (unaudited)     
Accounts receivable*:        
Asia International Securities Exchange Co., Ltd.  $
-
   $600,000 
   $
-
   $600,000 
           
Other receivable*:          
Mr. Jun Liu  $300,000   $
-
 
Huaya   20,539    40,539 
   $320,539   $40,539 

 

* As of July 31, 2023, the balance due from related parties were repayable on demand. The Company expected to collect the outstanding receivables from related parties before July 31, 2024.

 

(a) During the year ended July 31, 2023, the Company provided full provision of $762,000 against accounts receivable due from Huaya because the management assessed the collection was remote.

 

15

 

 

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

As of April 30, 2024 and July 31, 2023, the balances due to related parties were as follows:

 

   April 30,
2024
   July 31,
2023
 
   (unaudited)     
Other payables:        
Asia International Securities Exchange Co., Ltd.  $
                -
   $729,968 
   $
-
   $729,968 

 

In April 2024, Asia International Securities Exchange Co., Ltd. waived debts of $712,258 due from the Company. The forgiveness of liabilities was considered as a contribution from the principal shareholder and recorded as additional paid-in capital.

 

NOTE 12 – TAXES

 

The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

 

British Virgin Islands

 

Under the current laws of the British Virgin Islands, the Company and ATIF Investment 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.

 

USA

 

For the US jurisdiction, ATIF Inc., ATIF BC, ATIF BM, and ATIF BD 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%. The Company 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 both were passed in 2020, no material impact on the Company is expected based on the analysis. The Company will continue to monitor the potential impact going forward. 

 

For the nine months ended April 30, 2024, the Company did not incur income tax expenses. For the nine months ended April 30, 2023, the Company incurred income tax expenses of $575,056.

 

The Company follows ASC 740, “Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company’s deferred tax assets primarily derived from the net operating loss (“NOL”). For the three and nine months ended April 30, 2024, the Company suffered net operating losses due to limited number of customers for ATIF’s consulting service. The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion or all of the deferred tax assets will not be realized. The Company considers many factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes, and other relevant factors. As of April 30, 2024 and July 31, 2023, management believes that the realization of the deferred tax assets appears to be uncertain and may not be realizable in the near future. Therefore, a 100% valuation allowance has been provided against the deferred tax assets.

 

Uncertain tax positions

 

The Company accounts for uncertainty in income taxes using a two-step approach to recognizing and measuring uncertain tax positions. 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 on audit, 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. Interest and penalties related to uncertain tax positions are recognized and recorded as necessary in the provision for income taxes. In the case of transfer pricing issues, the statute of limitation is ten years. There is no statute of limitation in the case of tax evasion. There were no uncertain tax positions as of April 30, 2024 and July 31, 2023 and the Company does not believe that its unrecognized tax benefits will change over the next twelve months. 

 

16

 

  

ATIF HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 13 – CONTINGENCIES 

 

From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

 

Pending Legal Proceeding with Boustead Securities, LLC (“Boustead”)  

 

On May 14, 2020, Boustead filed a lawsuit against the Company and LGC for breaching the underwriting agreement Boustead had with each of the Company and LGC, in which Boustead was separately engaged as the exclusive financial advisor to provide financial advisory services to the Company and LGC.

 

In April 2020, the Company acquired 51.2% equity interest in LGC after LGC terminated its efforts to launch an IPO on its own. Boustead alleged that the acquisition transaction between the Company and LGC was entered into during the tail period of the exclusive agreement between Boustead and the Company, and therefore deprived Boustead of compensation that Boustead would otherwise have been entitled to receive under its exclusive agreement with the Company and LGC. Therefore, Boustead is attempting to recover from the Company an amount equal to a percentage of the value of the transaction it conducted with LGC.

 

Boustead’s Complaint alleges four causes of action against the Company, including breach of contract; breach of the implied covenant of good faith and fair dealing; tortious interference with business relationships and quantum meruit.

 

On October 6, 2020, ATIF filed a motion to dismiss Boustead’s Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) and 12(b)(5). On October 9, 2020, the United States District Court for the Southern District of New York directed Boustead to respond to the motion or amend its Complaint by November 10, 2020.  Boustead opted to amend its complaint and filed the amended complaint on November 10, 2020.  Boustead’s amended complaint asserts the same four causes of action against ATIF and LGC as its original complaint. The Company filed another motion to dismiss Boustead’s amended complaint on December 8, 2020.

 

On August 25, 2021, the United States District Court for the Southern District of New York granted ATIF’s motion to dismiss Boustead’s first amended complaint. In its order and opinion, the United States District Court for the Southern District of New York allowed Boustead to move for leave to amend its causes of action against ATIF as to breach of contract and tortious interference with business relationships, but not breach of the implied covenant of good faith and fair dealing and quantum meruit. On November 4, 2021, Boustead filed a motion seeking leave to file a second amended complaint to amend its cause of action for Breach of Contract. The Court granted Boustead’s motion for leave and Boustead filed the second amended complaint on December 28, 2021 alleging only breach of contract and dropping all other causes of action alleged in the original complaint. On January 18, 2022, the Company filed a motion to dismiss Boustead’s second amended complaint. Boustead filed its opposition on February 1, 2022 and the Company replied on February 8, 2022.

 

On July 6, 2022, the Court denied our motion to dismiss the second amended complaint. Thereafter, on August 3, 2022, the Company filed a motion to compel arbitration of Boustead’s claims in California. Briefing on the Company’s motion to compel concluded on August 23, 2022. Since the agreement between ATIF and Boustead contains a valid arbitration clause that applies to Boustead’s breach of contract claim, and the parties have not engaged in discovery, on February 14, 2023, the Court ordered that ATIF’s motion to compel arbitration is granted and this case is stayed pending arbitration.

 

On March 10, 2023, Boustead, filed Demand for Arbitration against ATIF (the Respondent) before JAMS in California and the assigned JAMS case Ref. No. is 5220002783. On May 25, 2023, ATIF filed its answer to deny Boustead’s Demand for Arbitration, which was unsuccessful and the arbitration process was initiated. The arbitrator ordered a motion to be filed by Boustead for a determination of contact interpretation, prior to extensive discovery into issues such as the alleged merits and damages, and to determine whether the contract interpretation should allow the matter to further proceed. Boustead had filed the Motion for Contract Interpretation Determination. ATIF filed its opposition to that Motion on October 16, 2023. The hearing on the motion was held on November 8, 2023, during which the arbitrator extended the hearing to February 29, 2024. The arbitrator also established December 15, 2023, as the deadline for Boustead to submit its reply regarding the contract interpretation issues raised by the Company. Simultaneously, the Company was granted until February 12, 2024, to present its response brief. The arbitrator ordered the entire matter, concerning liability issues and damage issues for a final arbitration hearing currently scheduled to be conducted on September 9 and 10, 2024.

 

Our management believes it is premature to assess and predict the outcome of this pending arbitration.

 

Pending Legal Proceeding with J.P Morgan Securities LLC (“JPMS”)  

 

On December 22, 2023, J.P Morgan Securities LLC (“JPMS”) filed a lawsuit in the Superior Court of California, County of Orange, bearing Case Number 30-2023-01369978-CU-FR-CJC against ATIF Holdings Limited (“Holdings”), ATIF Inc., ATIF-1 GP, LLC (ATIF-1 GP”), and two officers of Holdings and ATIF Inc., Jun Liu and Zhiliang “Ian” Zhou, alleging and asserting that it is entitled to recover $5,064,160 in damages plus interest and attorneys’ fees relating to a stock transaction by ATIF-1 GP. 

 

The parties have agreed to attempt to mediate the dispute before proceeding to litigation.  A mediation was held on May 6, 2024, but the parties could not come to a resolution. The Defendants’ time to respond to the lawsuit was May 20, 2024. On May 15, 2024, the Defendants filed a Petition with the Superior Court of California seeking to compel arbitration under the operative agreements and stay the underlying State Court action. The motion is scheduled to be heard by the Court on September 19, 2024. At this time, the management is still in the process of evaluating the claims and defenses.

 

17

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 

The following discussion and analysis should be read together with the Company’s annual report on Form 10-K for the fiscal year ended July 31, 2023 and the consolidated financial statements and notes included therein (collectively, the “2023 Annual Report”), as well as the Company’s condensed consolidated financial statements and the related notes included in this report. Pursuant to Instruction 2 to paragraph (b) of Item 303 of Regulation S-K promulgated by the SEC, in preparing this discussion and analysis, the Company has presumed that readers have access to and have read the disclosure under the same heading contained in the 2023 Annual Report. This discussion and analysis contains forward-looking statements. Please see the cautionary note regarding these statements at the beginning of this report.

 

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 small and medium-sized enterprises (“SME”) 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.

 

Our financial consulting services 

 

Currently we provide consulting services to the companies based in North America and Asia 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 SMEs 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 nine months ended April 30, 2024 and 2023, we provided consulting services to four and two customers, respectively, which primarily engaged the Company to provide consulting services relating to going public in the US through IPO, reverse merger and acquisition. We plan to focus on providing consulting services to customers based in North America and other areas and intend to continue cooperating with Huaya, which was one of our subsidiaries before May 2022, in connection with the expansion and provision of our business services in China.

 

Our total revenue generated from consulting services was approximately $0.2 million and $0.1 million for the three months ended April 30, 2024 and 2023, respectively. Our total revenue generated from consulting services was approximately $0.4 million and $2.3 million for the nine months ended April 30, 2024 and 2023, respectively.

 

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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, academic institutions, and local business associations. 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. 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.

 

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Results of Operations

 

Comparison of Operation Results for the Three Months Ended April 30, 2024 and 2023

 

The following table summarizes the results of our operations for the three months ended April 30, 2024 and 2023, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

 

   For the Three Months ended   Changes 
   April 30,
2024
   April 30,
2023
   Amount
Increase
(Decrease)
   Percentage
Increase
(Decrease)
 
   (unaudited)   (unaudited)         
Revenues  $200,000   $100,000   $100,000    100%
                     
Operating expenses:                    
Selling expenses   (86,000)   (72,000)   14,000    19%
General and administrative expenses   (635,282)   (629,934)   5,348    1%
Total operating expenses   (721,282)   (701,934)   19,348    3%
                     
Loss from operations   (521,282)   (601,934)   (80,652)   (13)%
                     
Other income (expenses):                    
Other income, net   23,215    191,998    (168,783)   (88)%
(Loss) gain from investment in trading securities   (309,521)   82,265    (391,786)   (476)%
Total other (expenses) income, net   (286,306)   274,263    (560,569)   (204)%
                     
Loss before income taxes   (807,588)   (327,671)   479,917    146%
                     
Income tax provision   -    (8,099)   (8,099)   (100)%
Net loss  $(807,588)  $(335,770)  $471,818    141%

 

Revenues. Our total revenue increased by approximately $0.1 million from approximately $0.1 million for the three months ended April 30, 2023, to approximately $0.2 million in three months ended April 30, 2024.

 

During the three months ended April 30, 2024, we completed phase III services for one customer and earned consulting service fees of $0.2 million. During the three months ended April 30, 2023, we provided phase II services for one customer and earned consulting service fees of $0.1 million.  

 

Selling expenses. Our selling expenses primarily consisted of advertising and promotion expenses. For the three months ended April 30, 2024, our selling expenses was $86,000, representing an increase of $14,000, or 19%, from $72,000 for the three months ended April 30, 2023. The increase was primarily due to an increase of amortization expenses of $14,000 for TV promotion videos.

 

As a percentage of sales, our absolute amount of selling expenses were 43% and 72% of our total revenues for the three months ended April 30, 2024 and 2023, respectively.

 

General and administrative expenses. Our general and administrative expenses primarily consisted of salary of management and administrative team, office expenses, operating lease expenses, and professional fees such as audit and legal fees. Our general and administrative expenses kept stable at approximately $0.6 million for the three months ended April 30, 2024 and 2023.

 

As a percentage of sales, our general and administrative expenses were 318% and 630% of our total revenues for the three months ended April 30, 2024 and 2023, respectively.

 

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Other income, net. Other income, net was primarily comprised of rental income from a sublease arrangement and realized gains from sales of trading securities. Compared with the other income, net for the three months ended April 30, 2023, the other income, net decreased by $168,783 for the three months ended April 30, 2024. The decrease was primarily because of a decrease of rental income of $40,468 because we terminated the sublease agreement in February 2024, and a decrease of realized gains of $128,299 from sales of trading securities.

 

(Loss) gain from investment in trading securities. (Loss) gain from investments in trading securities represented unrealized (loss) gain from investment in trading securities, which was measured at market price. For the three months ended April 30, 2024 and 2023, the Company recorded a loss from investment in trading securities of approximately $0.3 million and a gain from investment in trading securities of approximately $82,265, respectively.

 

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 Inc, 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 $nil for the three months ended April 30, 2024 due to net operating loss incurred in the quarter. Income tax expense was $8,099 for the three months ended April 30, 2023, which arose from net income earned by ATIF BC.

 

Net loss. As a result of foregoing, net loss was approximately $0.8 million for the three months ended April 30, 2024, an increase of approximately $0.5 million from net loss of $0.3 million for the same period ended April 30, 2023.

 

Comparison of Operation Results for the Nine Months Ended April 30, 2024 and 2023

 

The following table summarizes the results of our operations for the nine months ended April 30, 2024 and 2023, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.

 

   For the Nine Months ended   Changes 
   April 30,
2024
   April 30,
2023
   Amount
Increase
(Decrease)
   Percentage
Increase
(Decrease)
 
   (unaudited)   (unaudited)         
Revenues  $350,000   $2,300,000   $(1,950,000)   (85)%
                     
Operating expenses:                    
Selling expenses   (251,000)   (125,000)   126,000    101%
General and administrative expenses   (1,824,577)   (1,710,942)   113,635    7%
Total operating expenses   (2,075,577)   (1,835,942)   239,635    13%
                     
(Loss) income from operations   (1,725,577)   464,058    (2,189,635)   (472)%
                     
Other income (expenses):                    
Interest income, net   23    1,874    (1,851)   (99)%
Other income, net   223,120    314,401    (91,281)   (29)%
(Loss) gain from investment in trading securities   (338,255)   101,381    (439,636)   (434)%
Gain from disposal of subsidiaries   -    56,038    (56,038)   (100)%
Total other (loss) income, net   (115,112)   473,694    (588,806)   (124)%
                     
(Loss) income before income taxes   (1,840,689)   937,752    (2,778,441)   (296)%
                     
Income tax provision   -    (575,056)   (575,056)   (100)%
Net (loss) income  $(1,840,689)  $362,696   $(2,203,385)   (608)%

 

Revenues. Our total revenue decreased by approximately $1.9 million from approximately $2.3 million for the nine months ended April 30, 2023, to approximately $0.4 million in nine months ended April 30, 2024.

 

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During the nine months ended April 30, 2024, the Company provided listing related consulting services for four customers and earned consulting service fees of approximately $0.4 million. During the nine months ended April 30, 2023, we completed phase I and phase II services for four customers and earned consulting service fees of $2.3 million.

 

Selling expenses. Our selling expenses primarily consisted of advertising and promotion expenses. For the nine months ended April 30, 2024, our selling expenses was approximately $0.3 million, representing an increase of approximately $0.1 million, or 101%, from approximately $0.1 million for the nine months ended April 30, 2023. The increase was primarily due to an increase of amortization expenses of approximately $0.1 million for TV promotion videos..

 

As a percentage of sales, our absolute amount of selling expenses were 72% and 5% of our total revenues for the nine months ended April 30, 2024 and 2023, respectively.

 

General and administrative expenses. 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. Our general and administrative expenses increased from approximately $1.7 million in the nine months ended April 30, 2023 to approximately $1.8 million in the same period of 2024, which was primarily due to an increase of legal expenses of approximately $0.2 million for legal proceedings with both Boustead Securities, LLC and J.P Morgan Securities LLC.  

 

As a percentage of sales, our general and administrative expenses were 521% and 74% of our total revenues for the nine months ended April 30, 2024 and 2023, respectively.

 

Other income, net. Other income, net was primarily comprised of rental income from a sublease arrangement, realized gains from sales of trading securities, Employee Retention Credit (“ERC”) created by the CARES Act and waive of customer deposits payable, net off against loss from early termination of a lease arrangement. Compared with the other income, net for the nine months ended April 30, 2023, the other income, net decreased by $91,281 for the nine months ended April 30, 2024. The decrease was primarily attributable to a decrease of $27,577 in rental income as we terminated the sublease agreement in February 2024, a loss of $62,282 from early termination of a lease arrangement with a landlord, and a decrease of $128,299 in realized gains from sales of trading securities, partially net off by an increase of $70,000 due to waive of customer deposits and an increase of $51,896 in ERC.  

 

(Loss) gain from investment in trading securities. (Loss) gain from investments in trading securities represented unrealized gains or losses from investment in trading securities, which was measured at market price. For the nine months ended April 30, 2024 and 2023, the Company recorded a loss from investment in trading securities of approximately $0.3 million and a gain from investment int trading securities of approximately $0.1 million, respectively.

 

Gain from disposal of subsidiaries. For the nine months ended April 30, 2023, the Company reported a gain of $0.06 million from disposal of ATIF GP. For nine months ended April 30, 2024, the Company did not record gain or loss from disposal of subsidiaries.

 

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 Inc, 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 $nil for the nine months ended April 30, 2024 due to net operating loss incurred. Income tax expense was approximately $0.6 million for the nine months ended April 30, 2023, which arose from net income earned by ATIF BC.

 

Net (loss) income. As a result of foregoing, net loss was approximately $1.8 million for the nine months ended April 30, 2024, a change of $2.2 million from net income of approximately $0.4 million for the nine months ended April 30, 2023.

 

Capital Commitments and Contingencies

 

We had no material capital commitments as of April 30, 2024.

 

From time to time, we are a party to various legal actions arising in the ordinary course of business. We accrue costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred.

 

Off-Balance Sheet Commitments and Arrangements

 

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in product development services with us.

 

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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 three and nine months ended April 30, 2024, the Company reported a net loss of approximately $0.8 million and approximately $1.8 million, respectively. For the three and nine months ended April 30, 2023, the Company reported a net loss of approximately $0.3 million and a net income of approximately $0.4 million, respectively. For the nine months ended April 30, 2024 and 2023, the Company reported operating cash outflows of $84,188 and approximately $1.4 million, respectively.

 

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 April 30, 2024, the Company had cash of approximately $2.1 million, accounts receivable of approximately of $0.2 million and short-term investments of approximately $0.2 million, which were highly liquid. On the other hand, the Company had current liabilities of approximately $0.2 million The Company’s current assets could well cover its current liabilities. For the nine months ended April 30, 2024, the Company raised net proceeds of approximately $2.3 million from issuance of ordinary shares in a private placement. In addition, one of the related parties waived liabilities payable of approximately $0.7 million due to the related party. 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 and the requirement of additional capital to fund our current operating plan at April 30, 2024, these factors indicate the existence of an uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern.

 

The condensed 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 April 30, 2024.

 

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.

 

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The following table sets forth summary of our cash flows for the periods indicated:

 

   For the Nine Months Ended
April 30,
 
   2024   2023 
   (unaudited)   (unaudited) 
Net cash used in operating activities  $(84,188)  $(1,361,108)
Net cash (used in) provided by investing activities   (749,470)   78,557 
Net cash provided by financing activities   2,343,792    - 
Net increase (decrease) in cash   1,510,134    (1,282,551)
Cash, beginning of period   606,022    1,750,137 
Cash, end of period  $2,116,156   $467,586 

 

Operating Activities

 

Net cash used in operating activities was $84,188 in the nine months ended April 30, 2024. Net cash used in operating activities was primarily comprised of net loss of approximately $1.8 million, adjusted for loss from investment of trading securities of approximately $0.3 million, and net changes in our operating assets and liabilities, principally comprising of (i) a decrease of accounts receivable of approximately $0.5 million and $0.6 million, respectively, due from third party customers and related party customers as a result of collection of consulting fees from customers, (ii) a decrease of prepaid expenses and other current assets of approximately $0.2 million due to amortization of prepaid advertising service fees, and (iii) an increase of accrued expenses and other current liabilities of approximately of $0.2 million as a result of accrual of payroll expenses and legal service fees.

 

Net cash used in operating activities was $1.4 million in the nine months ended April 30, 2023. Net cash used in operating activities was primarily comprised of net income of $0.4 million, adjusted for amortization of right of use assets of $0.3 million, and net changes in our operating assets and liabilities, principally comprising of i) an increase of accounts receivable of $1.8 million as we provided financial consulting services to more customers during the nine months ended April 30, 2023, and ii) an increase of income tax payable of $0.6 million arising from net profit generated by one of our subsidiaries.

 

Investing Activities

 

Net cash used in investing activities was approximately $0.7 million in the nine months ended April 30, 2024, primarily used in investment in trading securities of approximately $0.4 million and loans made to related parties of approximately $0.3 million.

 

Net cash provided by investing activities was $78,557 in the nine months ended April 30, 2023, primarily provided by release of investment in equity investees of $0.3 million, partially offset by loans of $0.1 million to a related party, and investment in trading securities of $0.1 million.

 

Financing Activities

 

For the nine months ended April 30, 2024, the Company raised proceeds of approximately $2.3 million in a private placement by issuance of 1,905,522 ordinary shares.

 

For the nine months ended April 30, 2023, the Company did not generate cash flows from financing activities.

 

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Critical Accounting Estimate

 

We prepare our condensed 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.

 

Recently Issued Accounting Pronouncements

 

A list of recently issued accounting pronouncements that are relevant to us is included in note 3 to our condensed consolidated financial statements included elsewhere in this report.

 

ITEM 3. 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 4. CONTROLS AND PROCEDURES 

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures, which is defined in Rules 13a-15(e) of the Exchange Act, as of April 30, 2024. Based on that evaluation, our management has concluded that, as of April 30, 2024, our disclosure controls and procedures were not effective in ensuring that the information required to be disclosed by us in the reports that we file and furnish under the Exchange Act was recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms, and that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our conclusion is based on the fact that we do not have sufficient full-time accounting and financial reporting personnel with appropriate levels of accounting knowledge and experience to monitor the daily recording of transactions, to address complex U.S. GAAP accounting issues and the related disclosures under U.S. GAAP. In addition, there was a lack of sufficient documented financial closing procedure and a lack of risk assessment in accordance with COSCO 2013 framework. Our management is currently in the process of evaluating the steps necessary to remediate the ineffectiveness, such as (i) hiring more qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework, and (ii) implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel, and (iii) establishing an internal audit function and standardizing the Company’s semi-annual and year-end closing and financial reporting processes.

 

Changes in Internal Control over Financial Reporting

 

Except as disclosed above, there have been no changes in our internal controls over financial reporting that occurred during fiscal quarter ended April 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II

 

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. Except for the litigation disclosed below, we are not currently a party to any legal or arbitration proceeding the outcome of which, if ‘determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our business, operating results, cash flows, or financial condition. 

 

On May 14, 2020, Boustead filed a lawsuit against the Company and Leaping Group Co., Ltd. a limited liability organized under the laws of Cayman Islands (“LGC”) for breaching the underwriting agreement Boustead had with each of the Company and LGC, in which Boustead was separately engaged as the exclusive financial advisor to provide financial advisory services to the Company and LGC.

 

In April 2020, the Company acquired 51.2% equity interest in LGC after LGC terminated its efforts to launch an IPO on its own. Boustead alleged that the acquisition transaction between the Company and LGC was entered into during the lockup period of the exclusive agreement between Boustead and LGC, and therefore deprived Boustead of compensation that Boustead would otherwise have been entitled to receive under its exclusive agreement with LGC. Therefore, Boustead is attempting to recover from the Company an amount equal to a percentage of the value of the transaction it conducted with LGC.

 

Boustead’s Complaint alleged four causes of action against the Company, including breach of contract; breach of the implied covenant of good faith and fair dealing; tortious interference with business relationships and quantum meruit.

  

On October 6, 2020, we filed a motion to dismiss Boustead’s Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) and 12(b)(5). On October 9, 2020, the United States District Court for the Southern District of New York directed Boustead to respond to the motion or amend its Complaint by November 10, 2020. Boustead opted to amend its complaint and filed the amended complaint on November 10, 2020. Boustead’s first amended complaint asserted the same four causes of action against LGC and us as its original complaint. We filed another motion to dismiss Boustead’s amended complaint on December 8, 2020.

  

On August 25, 2021, the United States District Court for the Southern District of New York granted ATIF’s motion to dismiss Boustead’s first amended complaint. In its order and opinion, the United States District Court for the Southern District of New York allowed Boustead to move for leave to amend its causes of action against us as to breach of contract and tortious interference with business relationships, but not breach of the implied covenant of good faith and fair dealing and quantum meruit. On November 4, 2021, Boustead filed a motion seeking leave to file a second amended complaint to amend its cause of action for Breach of Contract. The Court granted Boustead’s motion for leave and Boustead filed the second amended complaint on December 28, 2021 alleging only breach of contract and dropping all other causes of action alleged in the original complaint. On January 18, 2022, the Company filed a motion to dismiss Boustead’s second amended complaint. Boustead filed its opposition on February 1, 2022 and the Company replied on February 8, 2022.

 

On July 6, 2022, the Court denied our motion to dismiss the second amended complaint. Thereafter, on August 3, 2022, the Company filed a motion to compel arbitration. Briefing on the Company’s motion to compel concluded on August 23, 2022 Since the agreement between ATIF and Boustead contains a valid arbitration clause that applies to Boustead’s breach of contract claim, and the parties have not engaged in discovery, on February 14, 2023, the Court ordered that ATIF’s motion to compel arbitration is granted and this case is stayed pending arbitration.

 

26

 

 

On March 10, 2023, Boustead, filed Demand for Arbitration against ATIF (the Respondent) before JAMS in California and the assigned JAMS case Ref. No. is 5220002783. On May 25, 2023, ATIF filed its answer to deny Boustead’s Demand for Arbitration, which was unsuccessful and the arbitration process was initiated. The arbitrator ordered a motion to be filed by Boustead for a determination of contact interpretation, prior to extensive discovery into issues such as the alleged merits and damages, and to determine whether the contract interpretation should allow the matter to further proceed. Boustead had filed the Motion for Contract Interpretation Determination. ATIF filed its opposition to that Motion on October 16, 2023. The hearing on the motion was held on November 8, 2023, during which the arbitrator extended the hearing to February 29, 2024. The arbitrator also established December 15, 2023, as the deadline for Boustead to submit its reply regarding the contract interpretation issues raised by the Company. Simultaneously, the Company was granted until February 12, 2024, to present its response brief. The arbitrator ordered the entire matter, concerning liability issues and damage issues for a final arbitration hearing currently scheduled to be conducted on September 9 and 10, 2024.

 

Our management believes it is premature to assess and predict the outcome of this pending arbitration.

 

On December 22, 2023, J.P Morgan Securities LLC (“JPMS”) filed a lawsuit in the Superior Court of California, County of Orange, bearing Case Number 30-2023-01369978-CU-FR-CJC against ATIF Holdings Limited (“Holdings”), ATIF Inc., ATIF-1 GP, LLC (ATIF-1 GP”), and two officers of Holdings and ATIF Inc., Jun Liu and Zhiliang “Ian” Zhou,alleging and asserting that it is entitled to recover $5,064,160 in damages plus interest and attorneys’ fees relating to a stock transaction by ATIF-1 GP. 

 

The parties have agreed to attempt to mediate the dispute before proceeding to litigation.  A mediation was held on May 6, 2024, but the parties could not come to a resolution. The Defendants’ time to respond to the lawsuit was May 20, 2024. On May 15, 2024, the Defendants filed a Petition with the Superior Court of California seeking to compel arbitration under the operative agreements and stay the underlying State Court action. The motion is scheduled to be heard by the Court on September 19, 2024 At this time, the management is still in the process of evaluating the claims and defenses.

 

ITEM 1A. RISK FACTORS

 

As a smaller reporting company we are not required to provide the information required by this item.

 

ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

On April 16, 2024, the Company entered into a Securities Purchase Agreement (the “April 16 Purchase Agreement”) with a non- U.S investor named in the Purchase Agreement (the “Purchaser”), pursuant to which the Company agreed to sell an aggregate of 1,092,512 newly issued ordinary shares of the Company, $0.001 par value per ordinary share (the “Ordinary Shares”) at a purchase price of $1.23 per share (the “April 16 Private Placement”). In connection with the Private Placement, the Company received gross proceeds in the amount of $1,343,789.76.

 

On April 18, 2024, the Company entered into two securities purchase agreements (the “April 18 Purchase Agreements”) in a private placement (the “April 18 Private Placement”) of the Company’s newly issued ordinary shares, par value $0.001 per ordinary share, with one (1) U.S. accredited investor, as defined under Rule 501 of Regulation D, and one (1) non-U.S. investor (individually, an “Investor” and collectively, the “Investors”), at the purchase price of $1.23 per ordinary share. The Company received gross proceeds in the amount of $1,000,002.38 in connection with the Private Placement.

 

Each of the April 18 Purchase Agreements and April 16 Purchase Agreement contained customary representations, warranties and covenants by the parties for offerings of similar sizes. The Company agreed that within a reasonable time after the Closing, the Company shall file a registration statement on Form S-3 (or other appropriate form if the Company is not then S-3 eligible) providing for the resale by the Investors of the purchased ordinary shares. We are filing the registration statement of which this prospectus forms a part to satisfy this obligation.

 

On April 29, 2024, the Company entered into a deferred salary conversion agreement (“Deferred Salary Conversion Agreement”) with Mr. Jun Liu, the president, chief executive officer and chairman of the board of directors of the Company.

 

Pursuant to the Agreement, the Company agreed to issue and Mr. Liu agreed to accept 384,478 ordinary shares (“Deferred Salary Debt Shares”), $0.001 par value in lieu of an unpaid salary of $349,875 owed to Mr. Liu at a per share price of $0.91 which was the Nasdaq consolidated closing bid price per share of the Company’s ordinary shares on April 29, 2024.

 

ITEM 3. DEFAULT UPON SENIOR SECURITIES.

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURE.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

27

 

 

ITEM 6. EXHIBITS

 

The following exhibits are filed herewith:

 

Exhibit    
Number   Description of Exhibit
10.1   The Securities Purchase Agreement, dated April 16, 2024
10.2   The Securities Purchase Agreement, dated April 18, 2024
10.3   The Securities Purchase Agreement for U.S Investor, dated April 18, 2024
10.4   The Deferred Salary Conversion Agreement dated April 29, 2024
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
32.1*   Certification of the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*   Certification of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   Inline XBRL Instance Document
101.SCH   Inline XBRL Taxonomy Extension Schema Document
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

*The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 

28

 

 

SIGNATURES

 

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

 

  ATIF HOLDINGS LIMITED
     
June 14, 2024 By: /s/ Jun Liu
    Jun Liu
    Chief Executive Officer

 

  ATIF HOLDINGS LIMITED
     
June 14, 2024 By: /s/ Yue Ming
    Yue Ming
    Chief Financial Officer

 

 

29

 

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Exhibit 10.3

 

SECURITIES PURCHASE AGREEMENT

 

This Securities Purchase Agreement (this “Agreement”) is dated as of April 18, 2024, between ATIF HOLDINGS LIMITED., a company limited by shares incorporated in the British Virgin Islands with company number 1857285 and having its principal executive offices in the state of California (the “Company”), and the purchaser identified on the signature page hereto (including its successors and assigns, the “Purchaser”).

 

WHEREAS, subject to the terms and conditions set forth in this Agreement, the Company desires to issue and sell to the Purchaser, and Purchaser desires to subscribe for and purchase from the Company, restricted ordinary shares (the “Shares”), $0.001 par value per share (the “Ordinary Shares”) of the Company as more fully described in this Agreement.

 

NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Purchaser agrees as follows:

 

ARTICLE I.

DEFINITIONS

 

1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings set forth in this Section 1.1:

 

Acquiring Person” shall have the meaning ascribed to such term in Section 4.5.

 

Action” shall have the meaning ascribed to such term in Section 3.1(j).

 

Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 under the Securities Act.

 

Board of Directors” means the board of directors of the Company.

 

Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

 

Closing Date” means, initially the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto in connection with the initial Closing, and, to the extent applicable, all conditions precedent to (i) the Purchaser’s obligations to pay the Subscription Amount as to each Closing and (ii) the Company’s obligations to deliver the Securities as to such Closing, in each case, have been satisfied or waived.

 

Closing” means the closing of the purchase and sale of the Securities pursuant to Section 2.1(a), which shall occur on each Closing Date.

 

Commission” means the United States Securities and Exchange Commission.

 

Company Counsel” means Sichenzia Ross Ference Carmel LLP.

 

Disclosure Schedules” shall have the meaning ascribed to such term in Section 3.1.

 

Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

  

1

 

 

FCPA” means the Foreign Corrupt Practices Act of 1977, as amended.

 

GAAP” means generally accepted accounting principles in the U.S.

 

Intellectual Property Rights” shall have the meaning ascribed to such term in Section 3.1(o).

 

Liens” means a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

 

Material Adverse Effect” means (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s ability to perform in any material respect on a timely basis its obligations under any Transaction Document.

 

Material Permits” shall have the meaning ascribed to such term in Section 3.1(m).

 

Ordinary Shares” means the ordinary shares of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

Ordinary Share Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time, Ordinary Shares, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Ordinary Shares.

 

Per Share Purchase Price” means $1.23.

 

Person” means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

 

Proceeding” means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial proceeding, such as a deposition), whether commenced or threatened.

 

Purchaser Party” shall have the meaning ascribed to such term in Section 4.7.

 

Required Approvals” shall have the meaning ascribed to such term in Section 3.1(e).

 

Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

Rule 424” means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.

 

SEC Reports” shall have the meaning ascribed to such term in Section 3.1(g).

 

Securities” means the Ordinary Shares.

 

2

 

 

Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Shares” means the Ordinary Shares issued or issuable to Purchaser pursuant to this Agreement.

 

Short Sales” means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to include the location and/or reservation of borrowable Ordinary Shares).

 

Subscription Amount” shall mean the aggregate amount to be paid for the Shares purchased hereunder as specified on the signature page under the heading “Subscription Amount,” in United States dollars and in immediately available funds.

 

Subsidiary” means any subsidiary of the Company as set forth on Schedule 3.1(a) and shall, where applicable, also include any direct or indirect subsidiary of the Company formed or acquired after the date hereof.

 

Trading Day” means a day on which the principal Trading Market is open for trading.

 

Trading Market” means any of the following markets or exchanges on which the Ordinary Shares are listed or quoted for trading on the date in question: the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, the OTCQB or the OTC Markets (or any successors to any of the foregoing).

 

Transaction Documents” means this Agreement, all exhibits and schedules thereto and hereto and any other documents or agreements executed in connection with the transactions contemplated hereunder.

 

Transfer Agent” means Transhare Corporation, or such other Person who is then serving as the transfer agent for the Company in respect of the Ordinary Shares.

 

ARTICLE II.

PURCHASE AND SALE

 

2.1 (a) Closing. Upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery of this Agreement by the parties hereto, the Company agrees to sell and issue, and Purchaser agrees to subscribe for and purchase, up to an aggregate of [*] dollars ($[*]) worth of restricted Ordinary Shares at the Per Share Purchase Price (the “Purchased Shares”), and at the Closing, the Purchaser shall deliver to the Company, via wire transfer immediately available funds equal to the Purchaser’s Subscription Amount as set forth on the signature page hereto executed by the Purchaser, and the Company shall issue to the Purchaser within five business days of the Closing such number of Ordinary Shares purchased, as determined pursuant to Section 2.1(a) and set forth on the Purchase’s signature page and the other items set forth in Section 2.1(b). Upon satisfaction of the covenants and conditions set forth in Sections 2.2, the Closing shall occur at the offices of the Company Counsel or such other location as the parties shall mutually agree.

 

(b) Legend. The Purchased Shares shall bear the following legend

 

“THESE ORDINARY SHARES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE.  THESE SECURITIES ARE OFFERED AND SOLD IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND APPLICABLE STATE SECURITIES LAW EXEMPTIONS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.”

 

3

 

 

(c) Deliveries.

 

  (A) On or prior to the Closing Date (or as otherwise indicated below), the Company shall deliver or cause to be delivered to the Purchaser the following:

 

  (i) this Agreement duly executed by the Company;

  

  (ii) the Purchased Shares, which (notwithstanding anything to the contrary herein, shall be issued electronically to each Purchaser per instructions provided to the Company by each Purchaser within five business days of the Closing of receipt of the purchase price therefore); and

 

  (B) On or prior to the Closing Date, each Purchaser shall deliver or cause to be delivered to the Company, as applicable, the following:

 

  (i) this Agreement duly executed by the Purchaser; and

 

  (ii) the Purchaser’s Subscription Amount by wire transfer to the account specified in writing by the Company.

  

2.2 Closing Conditions.

 

(a) The obligations of the Company hereunder in connection with the Closing are subject to the following conditions being met:

 

  (i) the accuracy in all material respects on the applicable Closing Date of the representations and warranties of the Purchaser contained herein (unless as of a specific date therein in which case they shall be accurate as of such date);

 

  (ii) all obligations, covenants and agreements of the Purchaser required to be performed at or prior to the applicable Closing Date shall have been performed; and

 

  (iii) the delivery by the Purchaser of the items set forth in Section 2.1(b)(B) of this Agreement.

 

(b) The obligations of each Purchaser hereunder in connection with the Closing are subject to the following conditions being met:

 

  (i) the accuracy in all material respects when made and on the applicable Closing Date of the representations and warranties of the Company contained herein (unless as of a specific date therein);

 

  (ii) all obligations, covenants and agreements of the Company required to be performed at or prior to the applicable Closing Date shall have been performed;

 

  (iii) the delivery by the Company of the items set forth in Section 2.1(b)(A) of this Agreement;

 

  (iv) there shall have been no Material Adverse Effect with respect to the Company since the date hereof; and

 

  (v) from the date hereof to the applicable Closing Date, trading in the Ordinary Shares shall not have been suspended by the Commission or the Company’s principal Trading Market and, at any time prior to the applicable Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of the Purchaser, makes it impracticable or inadvisable to purchase the Securities at the Closing.

  

4

 

 

ARTICLE III.

REPRESENTATIONS AND WARRANTIES

 

3.1 Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to the Purchaser:

 

(a) Subsidiaries. All of the material direct and indirect subsidiaries of the Company are set forth in on Schedule 3.1(a). Other than as noted on Schedule 3.1(a), the Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid, non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries, all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.

 

(b) Organization and Qualification. The Company is a company limited by shares and duly incorporated or otherwise organized; and as of the date of this Agreement, the Company is in good standing under the laws of its jurisdiction of its incorporation.

 

(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the Board of Directors or the Company’s shareholders in connection herewith or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(d) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

  

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(e) Filings, Consents and Approvals. The Company has timely filed all quarterly and annual reports required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”) for the two years preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material). The Company has delivered to Purchaser true and complete copies of the SEC Documents, except for such exhibits and incorporated documents, and except as such Documents are available EDGAR filings on the SEC’s sec.gov website. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to January 31, 2024, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act. For the avoidance of doubt, filing of the documents required in this Section 3(e) via the SEC’s Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”) shall satisfy all delivery requirements of this Section 3(e).

 

The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required pursuant to Section 4.4 of this Agreement, (ii) the notice and/or application(s) to each applicable Trading Market for the issuance and sale of the Securities, if applicable, (iii) such filings as are required to be made under applicable state and federal securities laws (collectively, the “Required Approvals”), and (iv) notices which have already been made, consents, authorizations or waivers which have already been received from third parties.

  

(f) Issuance of the Securities. The Securities are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer provided for in the Transaction Documents.

 

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(g) Capitalization. The capitalization of the Company is as set forth on Schedule 3.1(g), which Schedule 3.1(g) shall also include the number of Ordinary Shares owned beneficially, and of record, by Affiliates of the Company as of the date hereof. Except as set forth on Schedule 3.1(g), the Company has not issued any shares since its most recently filed periodic report under the Exchange Act, other than pursuant to the exercise of employee stock options under the Company’s stock option plans, the issuance of Ordinary Shares to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Ordinary Share Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act (“SEC Reports”). Other than as set forth on Schedule 3.1(g), no Person has any right of first refusal, preemptive right, right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents. Except as set forth on Schedule 3.1(g) or as set forth in the SEC Reports, and except as a result of the purchase and sale of the Securities, there are no outstanding options, warrants, scrip rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire any Ordinary Shares, or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue additional Ordinary Shares or Ordinary Share Equivalents. The issuance and sale of the Securities will not obligate the Company to issue Ordinary Shares or other securities to any Person and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All of the outstanding shares of the Company are duly authorized, validly issued, fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any shareholder, the Board of Directors or others is required for the issuance and sale of the Securities. There are no shareholders agreements, voting agreements or other similar agreements with respect to the Company’s shares to which the Company is a party or, to the knowledge of the Company, between or among any of the Company’s shareholders.

 

(h) Reserved.

 

(i) Reserved.

  

(j) Litigation. Except as disclosed in  the SEC Reports, there is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities Act.

 

(k) Reserved.

  

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(l) Compliance. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator or other governmental authority, or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, other than tax payments related to payroll that are late, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

(m) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

(n) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the payment of federal, state or other taxes, for which appropriate reserves have been made therefor in accordance with GAAP and, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in compliance.

 

(o) Intellectual Property. The Company and the Subsidiaries have, or have rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the SEC Reports as necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the “Intellectual Property Rights”). None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within one (1) year from the date of this Agreement. Neither the Company nor any Subsidiary has received, since the date of the latest audited financial statements included within the SEC Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company and its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

  

(p) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited to, directors and officers insurance coverage at least equal to the aggregate Subscription Amount. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.

 

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(q) Transactions with Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee, shareholder, member or partner, in each case in excess of $120,000 other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits, including stock option agreements under any stock option plan of the Company. All employee salaries and contractor fees have been paid to date and no such amounts are outstanding or past due.

  

(r) Sarbanes-Oxley; Internal Accounting Controls. Except as may be disclosed in the SEC Reports, the Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of each Closing Date. Except as disclosed in the SEC Reports, the Company and the Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. 

 

(s) Certain Fees. Except as set forth on Schedule 3.1(s), no brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by the Transaction Documents. The Purchaser shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

(t) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Securities, will not be or be an Affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become an “investment company” subject to registration under the Investment Company Act of 1940, as amended. 

 

(u) Reserved.

 

(v) Listing and Maintenance Requirements. On November 22, 2023, the Company received a letter from the Listing Qualifications Staff (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that the Company’s stockholders’ equity as reported in its Annual Report on Form 10-K for the period ended July 31, 2023 (“2023 10-K”), did not satisfy the continued listing requirement under Nasdaq Listing Rule 5550(b)(1) for the Nasdaq Capital Market, which requires that a listed company’s stockholders’ equity be at least $2,500,000. The Company responded to the Staff on March 22, 2024 with the details of their compliance plan.

 

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(w) Reserved.

 

(x) Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided the Purchaser or its agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms that the Purchaser will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchaser regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that the Purchaser does not make and has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof.

 

(y) No Integrated Offering. Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2, neither the Company, nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the Securities Act which would require the registration of any such securities under the Securities Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

  

(z) Tax Status. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no basis for any such claim. Immediately after closing of this transaction, the Company covenants to pay to the Past Due Taxes.

 

(aa) Foreign Corrupt Practices. Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of FCPA.

 

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(bb) Reserved.

 

(cc) Acknowledgment Regarding Purchaser’s Purchase of Securities. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by the Purchaser or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to the Purchaser’s purchase of the Securities. The Company further represents to the Purchaser that the Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

  

(dd) Acknowledgment Regarding Purchaser’s Trading Activity. Anything in this Agreement or elsewhere herein to the contrary notwithstanding, it is understood and acknowledged by the Company that: (i) the Purchaser has not been asked by the Company to agree, nor has the Purchaser agreed, to desist from purchasing or selling, securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term, (ii) past or future open market or other transactions by the Purchaser, specifically including, without limitation, “derivative” transactions, before or after a closing of this or future private placement transactions, may negatively impact the market price of the Company’s publicly-traded securities (iii) omitted; and (iv) the Purchaser shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction.

 

(ee) Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company, other than, in the case of clauses (ii) and (iii), compensation paid to the Company’s financial advisor in connection with the sale of the Securities.

 

(ff) Reserved.

 

(gg) Reserved.

 

(hh) Office of Foreign Assets Control. Neither the Company nor any Subsidiary nor, to the Company’s knowledge, any director, officer, agent, employee or affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”).

 

(ii) U.S. Real Property Holding Corporation. The Company is not and has never been a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and the Company shall so certify upon Purchaser’s request.

 

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(jj) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries or Affiliates is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or Affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or Affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.

 

(kk) Money Laundering. The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary, threatened.

  

3.2. Representations and Warranties of Purchaser. The Purchaser hereby represents and warrants as of the date hereof and as of the Closing Dates to the Company as follows (unless as of a specific date therein):

 

(a)(a) Organization; Authority. The Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or similar power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of the Transaction Documents and performance by the Purchaser of the transactions contemplated by the Transaction Documents have been duly authorized by all necessary corporate, partnership, limited liability company or similar action, as applicable, on the part of the Purchaser. Each Transaction Document to which it is a party has been duly executed by the Purchaser, and when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

 

(b)Understandings or Arrangements. The Purchaser is acquiring the Shares as principal for its own account and has no direct or indirect arrangement or understandings with any other persons to distribute or regarding the distribution of such Shares (this representation and warranty not limiting the Purchaser’s right to sell the Shares in compliance with applicable federal and state securities laws). the Purchaser is acquiring the Shares hereunder in the ordinary course of its business. Such Purchaser is acquiring such Shares as principal for his, her or its own account and not with a view to or for distributing or reselling such Shares or any part thereof in violation of the Securities Act or any applicable state securities law, has no present intention of distributing any of such Shares in violation of the Securities Act or any applicable state securities law.

 

(c)Purchaser Status. At the time the Purchaser was offered the Shares, it was, and as of the date hereof it is, it will be either: (i) an “accredited investor” as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act; or (ii) a “qualified institutional buyer” as defined in Rule 144A(a) under the Securities Act. The Purchaser further makes the representations and warranties to the Company set forth on Exhibit A. Such Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act and such Purchaser is not a broker-dealer, nor an affiliate of a broker-dealer.

 

(d)Experience of Such Purchaser. The Purchaser either alone or together with his, her or its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Shares, and has so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in Shares and, at the present time, is able to afford a complete loss of such investment.

 

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(e)Access to Information. The Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules thereto) and the SEC Reports and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Shares; (ii) access to information about the Company and its financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. 

 

(f)Certain Transactions and Confidentiality. Other than consummating the transactions contemplated hereunder, such the Purchaser has not, nor has any Person acting on behalf of or pursuant to any understanding with the Purchaser , directly or indirectly executed any purchases or sales, including Short Sales, of the securities of the Company during the period commencing as of the time that the Purchaser first received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding the foregoing, in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of such Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing other portions of the Purchaser’s assets, the representation set forth above shall only apply with respect to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Shares covered by this Agreement. Other than to other Persons party to this Agreement or to such Purchaser’s representatives, including, without limitation, its officers, directors, partners, legal and other advisors, employees, agents and Affiliates, such Purchaser has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares in order to effect Short Sales or similar transactions in the future.

 

(g)General Solicitation. The Purchaser is not purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or, to the knowledge of such Purchaser, any other general solicitation or general advertisement.

 

(h)Reliance on Exemptions. The Purchaser understands that the Shares are being offered and sold to the Purchaser in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Shares.

 

(i)Governmental Review. The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Shares.

 

(j)Restricted Purchased Shares.  Such Investor understands and agrees that the Purchased Shares have not been registered under the 33 Act or any applicable state securities laws, by reason of their issuance in a transaction that does not require registration under the Securities Act (based in part on the accuracy of the representations and warranties of the Investor contained herein), and that such Purchased Shares must be held indefinitely unless a subsequent disposition is registered under the Securities Act or any applicable state securities laws or is exempt from such registration.  The Investor acknowledges that the Investor is familiar with Rule 144 and that such person has been advised that Rule 144 permits resales only under certain circumstances. The Investor understands that to the extent that Rule 144 is not available, the Investor will be unable to sell any Purchased Shares without either registration under the Securities Act or the existence of another exemption from such registration requirement.

 

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The Company acknowledges and agrees that the representations contained in this Section 3.2 shall not modify, amend or affect the Purchaser ’s right to rely on the Company’s representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of the transactions contemplated hereby. Notwithstanding the foregoing, for the avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect to locating or borrowing shares in order to effect Short Sales or similar transactions in the future.

 

ARTICLE IV.

OTHER AGREEMENTS OF THE PARTIES

 

4.1 Registration Statement. Within a reasonable time after the Closing, the Company shall file a registration statement on Form S-3 (or other appropriate form if the Company is not then S-3 eligible) providing for the resale by the Purchaser of the Purchased Shares. The Company shall use commercially reasonable efforts to keep such registration statement effective at all times until the sooner to occur of one year from the date of the Closing or the first date that the Purchase may sell the Purchased Shares pursuant to Rule 144 without volume limitation.

 

4.2 Acknowledgment of Dilution of Voting Power. The Company acknowledges that the issuance of the Securities will result in dilution of the voting power of the outstanding Ordinary Shares.

 

4.3 Integration. The Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction.

 

4.4 Securities Laws Disclosure; Publicity. Within the time required by the Exchange Act, the Company shall file a Current Report on Form 8-K, including the Transaction Documents as exhibits thereto, with the Commission.

 

4.5 Shareholder Rights Plan. No claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that the Purchaser is an “Acquiring Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that the Purchaser could be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Securities under the Transaction Documents or under any other agreement between the Company and the Purchaser.

 

4.6  Non-Public Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants and agrees that neither it, nor any other Person acting on its behalf, will provide the Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto the Purchaser shall have entered into a written agreement with the Company regarding the confidentiality and use of such information. The Company understands and confirms that the Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.

  

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4.7 Indemnification of Purchaser. Subject to the provisions of this Section 4.7, the Company will indemnify and hold each of the Purchasers and their respective directors, officers, shareholders, members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls such Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and to employ counsel or such defense once started is subsequently delayed owing to lack of timely payment by the Company of legal fees and expenses or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party under this Agreement (1) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which shall not be unreasonably withheld or delayed; or (2) to the extent, but only to the extent that a loss, claim, damage or liability is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.7 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.

  

4.8 Reserved.

 

4.9 Reserved.

 

4.10 Reserved.

 

4.11 Blue Sky Filings. The Company shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for, or to qualify the Securities for, sale to the Purchasers under applicable securities or “Blue Sky” laws of the states of the United States, and shall provide evidence of such actions promptly upon request of the Purchaser.

 

4.12 Reserved

 

ARTICLE V.

MISCELLANEOUS

 

5.1 Termination. This Agreement may be terminated by the Purchaser, as to such Purchaser’s obligations hereunder, if the Closing has not been consummated within five (5) Business Days of the date hereof; providedhowever, that such termination will not affect the right of any party to sue for any breach by any other party (or parties).

 

5.2 Fees and Expenses.    Except as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Purchaser.

 

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5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.

  

5.4 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) the second (2nd) Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as set forth on the signature pages attached hereto.

 

5.5 Amendments; Waivers. No provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment, by the Company and the holders of at least 75% in interest of the Securities then outstanding or, in the case of a waiver, by the party against whom enforcement of any such waived provision is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

 

5.6 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.

 

5.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchasers (other than by merger). The Purchasers may assign any or all of its rights under this Agreement to any Person to whom the Purchasers assigns or transfers any Securities, provided that such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions of the Transaction Documents that apply to the “Purchaser.”

 

5.8 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.7 and this Section 5.8.

  

5.9 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state or federal courts sitting in the Borough of Manhattan, New York, New York Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the Borough of Manhattan, New York, New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action, suit or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under Section 4.7, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

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5.10 Survival. The representations and warranties contained herein shall survive each Closing and the delivery of the Securities.

 

5.11 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.

 

5.12 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

 

5.13 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then the Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

  

5.14 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs (including customary indemnity) associated with the issuance of such replacement Securities.

 

5.15 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchaser and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

 

5.16 Payment Set Aside. To the extent that the Company makes a payment or payments to the Purchaser pursuant to any Transaction Document or the Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

 

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5.17 Liquidated Damages. The Company’s obligations to pay any partial liquidated damages or other amounts owing under the Transaction Documents is a continuing obligation of the Company and shall not terminate until all unpaid partial liquidated damages and other amounts have been paid notwithstanding the fact that the instrument or security pursuant to which such partial liquidated damages or other amounts are due and payable shall have been canceled.

 

5.18 Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.

 

5.19 Construction. The parties agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every reference to share prices and Ordinary Shares in any Transaction Document shall be subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Ordinary Shares that occur after the date of this Agreement.

 

5.20 WAIVER OF JURY TRIAL. IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.

 

(Signature Pages Follow)

 

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IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

ATIF HOLDINGS LIMITED.   Address for Notice:
     
   

25391 Commercentre Dr., Ste 200, Lake Forest, CA 92630

Email: steven@atifus.com

 

By:      
Name:  Jun Liu    
Title: Chief Executive Officer    

 

With a copy to (which shall not constitute notice):

 

Sichenzia Ross Ference Carmel LLP

1185 Avenue of the Americas, 31st Floor

New York, New York 10036

 

Telephone: (212) 930-9700
E-mail: hlou@srfc.law
Attention: Huan Lou, Esq.

 

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK

SIGNATURE PAGE FOR PURCHASER FOLLOWS]

 

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[PURCHASER SIGNATURE PAGE TO ATIF HOLDINGS LIMITED SECURITIES PURCHASE AGREEMENT]

 

IN WITNESS WHEREOF, the undersigned have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

 

Name of Purchaser:

 

Signature of Authorized Signatory of Purchaser: __________________________

 

Name of Authorized Signatory:

 

Title of Authorized Signatory:

 

Address for Notice to Purchaser:

Address for Delivery of Securities to Purchaser (if not same as address for notice): see above

 

Facsimile Number:

 

Subscription Amount:

 

Number of Ordinary Shares be issued with a customary securities law legend:

 

Subscription Date:

 

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Exhibit A

 

ACCREDITED INVESTOR QUESTIONNAIRE

 

The Purchaser warrants and represents to the Company that he/she qualifies as an “accredited investor,” as such term is defined in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended (the “Securities Act”), by virtue of the fact that the Purchaser meets the following criteria at the time of the sale of the Securities to the Purchaser (Purchaser must initial the applicable categories below):

 

I. ACCREDITED INVESTOR STATUS

 

A. Individual Investors: (Initial one or more of the following statements)

 

1. ____ I certify that I am an accredited investor because I have had individual income (exclusive of any income earned by my spouse) of more than $200,000 in each of the two most recent calendar years and I reasonably expect to have an individual income in excess of $200,000 for the current year.

 

2. ____ I certify that I am an accredited investor because I have had joint income with my spouse in excess of $300,000 in each of the two most recent calendar years and I reasonably expect to have joint income with my spouse in excess of $300,000 for the current year.

 

3. ____ I certify that I am an accredited investor because I have an individual net worth, or my spouse and I have a joint net worth, in excess of $1,000,000.

 

4. ____ I certify that I am an accredited investor because I am a director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer.

 

B. Partnerships, Corporations, Trusts or Other Entities: (Initial one of the following statements)

 

1. The undersigned hereby certifies that it is an accredited investor because it is:

 

a. ______ any corporation, partnership, or Massachusetts or similar business trust, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

 

b. ______ a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the securities offered as described in Rule 506(b)(2)(ii) under the Securities Act;

 

c. ______ an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, whose investment decisions are made by a plan fiduciary, as defined in Section 3 (21) of such act, which is either a bank, savings and loan association, an insurance company or registered investment adviser;

 

d. ______ a self-directed employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, with investment decisions made solely by persons that are accredited investors;

 

e. ______ an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 with total assets in excess of $5,000,000;

 

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f. ______ any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, with total assets in excess of $5,000,000;

 

g. ______ an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

 

h. ______ a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;

 

i. ______ any bank as defined in Section 3(a)(2) of the Securities Act or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity;

 

j. ______ any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended;

 

k. ______ any insurance company as defined in Section 2(a)(13) of the Securities Act;

 

l. ______ any investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of the Investment Company Act of 1940;

 

m. ______ any Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; or

 

2. ____ The undersigned hereby certifies that it is an accredited investor because it is an entity in which each of the equity owners qualifies as an accredited investor under items A(1), (2) or (3) or item B(1) above.

 

 

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Exhibit 31.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO RULE 13A-14(A)/15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Jun Liu, certify that:

 

1.I have reviewed this Quarterly Report on Form 10-Q of ATIF Holdings Limited;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15I and 15d-15I) for the registrant and have:

 

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: June 14, 2024

  

   
  By: /s/ Jun Liu
  Jun Liu
  Chief Executive Officer
(Principal Executive Officer)

 

Exhibit 31.2

 

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO RULE 13A-14(A)/15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Yue Ming, certify that:

 

1.I have reviewed this Quarterly Report on Form 10-Q of ATIF Holdings Limited;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15I and 15d-15I) for the registrant and have:

 

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: June 14, 2024  
   
  By: /s/ Yue Ming
  Yue Ming
  Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

 

Exhibit 32.1

 

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of ATIF Holdings Limited (the “Company”) on Form 10-Q for the quarterly period ended April 30, 2024, as filed with the Securities and Exchange Commission (the “Report”), I hereby certify in my capacity as Chief Executive Officer of the Company, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:

 

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

 

Date: June 14, 2024  
   
  By: /s/ Jun Liu
  Jun Liu
  Chief Executive Officer
(Principal Executive Officer)

 

Exhibit 32.2

 

CERTIFICATION OF P PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of ATIF Holdings Limited (the “Company”) on Form 10-Q for the quarterly period ended April 30, 2024 as filed with the Securities and Exchange Commission (the “Report”), I hereby certify in my capacity as Chief Financial Officer of the Company, pursuant to 18 U.S.C. §1350, as added by §906 of the Sarbanes-Oxley Act of 2002, that:

 

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

 

Date: June 14, 2024  
   
  By: /s/ Yue Ming
  Yue Ming
  Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)

 

v3.24.1.1.u2
Cover - shares
9 Months Ended
Apr. 30, 2024
Jun. 14, 2024
Document Information [Line Items]    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Entity Interactive Data Current Yes  
Amendment Flag false  
Document Period End Date Apr. 30, 2024  
Document Fiscal Year Focus 2024  
Document Fiscal Period Focus Q3  
Entity Information [Line Items]    
Entity Registrant Name ATIF HOLDINGS LIMITED  
Entity Central Index Key 0001755058  
Entity File Number 001-38876  
Entity Tax Identification Number 00-0000000  
Entity Incorporation, State or Country Code D8  
Current Fiscal Year End Date --07-31  
Entity Current Reporting Status Yes  
Entity Shell Company false  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company true  
Entity Ex Transition Period false  
Entity Contact Personnel [Line Items]    
Entity Address, Address Line One 25391 Commercentre Dr  
Entity Address, Address Line Two Ste 200  
Entity Address, City or Town Lake Forest  
Entity Address, Country CA  
Entity Address, Postal Zip Code 92630  
Entity Phone Fax Numbers [Line Items]    
City Area Code 308  
Local Phone Number 888-8888  
Entity Listings [Line Items]    
Title of 12(b) Security Ordinary Shares  
Trading Symbol ATIF  
Security Exchange Name NASDAQ  
Entity Common Stock, Shares Outstanding   11,917,452
v3.24.1.1.u2
Condensed Consolidated Balance Sheets - USD ($)
Apr. 30, 2024
Jul. 31, 2023
CURRENT ASSETS    
Cash and cash equivalents $ 2,116,156 $ 606,022
Accounts receivable 200,000 650,000
Deposits 99,000 86,000
Investment in trading securities 239,068 130,649
Prepaid expenses and other current assets 214,724 429,570
Total current assets 3,189,487 2,542,780
Property and equipment, net 69,716 93,637
Intangible assets, net 13,331 73,331
Right-of- use assets, net 60,915 1,058,822
TOTAL ASSETS 3,333,449 3,768,570
CURRENT LIABILITIES    
Accrued expenses and other current liabilities 122,259 293,140
Deferred revenue 70,000
Taxes payable 16,685 31,200
Operating lease liabilities, current 61,052 415,411
Total current liabilities 199,996 1,539,719
Operating lease liabilities, noncurrent 28,864 689,498
TOTAL LIABILITIES 228,860 2,229,217
Commitments
EQUITY    
Ordinary shares, $0.001 par value, 100,000,000,000 shares authorized, 11,917,452 shares and 9,627,452 shares issued and outstanding as of April 30, 2024 and July 31, 2023, respectively 11,917 9,627
Additional paid-in capital 32,599,985 29,196,350
Accumulated deficit (29,507,313) (27,666,624)
Total ATIF Holdings Limited Stockholders’ equity 3,104,589 1,539,353
TOTAL LIABILITIES AND EQUITY 3,333,449 3,768,570
Related Party    
CURRENT ASSETS    
Accounts receivable – a related party [1] 600,000
Due from a related party [1] 320,539 40,539
CURRENT LIABILITIES    
Due to related parties $ 729,968
[1] As of July 31, 2023, the balance due from related parties were repayable on demand. The Company expected to collect the outstanding receivables from related parties before July 31, 2024.
v3.24.1.1.u2
Condensed Consolidated Balance Sheets (Parentheticals) - $ / shares
Apr. 30, 2024
Jul. 31, 2023
Statement of Financial Position [Abstract]    
Ordinary shares, par value (in Dollars per share) $ 0.001 $ 0.001
Ordinary shares, authorized 100,000,000,000 100,000,000,000
Ordinary shares, issued 11,917,452 9,627,452
Ordinary shares, outstanding 11,917,452 9,627,452