UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q10-Q/A
Amendment No. 1
| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 31, 2019
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| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
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For the transition period from __________ to __________
Commission file number: 333-138951number 001-39052
Toga Limited |
(Exact name of registrant as specified in its charter) |
Nevada | 98-0568153 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
515 S. Flower Street 18th Floor Los Angeles, CA 90071 | ||
(Address of principal executive offices) |
(949) 333-1603
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
| Name of each exchange on which registered | |
N/A | N/A | N/A |
2575 McCabe Way, Suite 100
Irvine, CA 92614
(Address of principal executive offices)
(949) 333-1603
(Registrant’s telephone number)
Indicate by check mark whether the registrantregistrant: (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 x ☐ No ¨☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x ☐ No ¨☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”filer”, “accelerated filer,”filer”, “smaller reporting company,”company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer |
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Non-accelerated filer |
| Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicateindicated 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. ¨Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ ☐ No x☒
The number of shares of the issuer’s common stock outstanding as of December 18, 2019February 10, 2021 was 91,011,318 shares,91,013,640, par value $0.0001 per share.
EXPLANATORY NOTE
This Amendment No. 1 to the Form 10-Q (this “Amendment”) amends the Quarterly Report on Form 10-Q of Toga Limited (the “Company”) for the quarterly period ended October 31, 2019 (the “Form 10-Q”), filed on December 19, 2019 with the Securities and Exchange Commission (the “SEC”). This Amendment restates the Company’s financial statements in order to correct errors resulting from improper timing of revenue recognition from PT Toga International Indonesia (“PT Toga”), the Company’s wholly-owned Indonesian subsidiary. In the course of preparing the Annual Report on Form 10-K for the annual period ended July 31, 2020, the Company’s management discovered that revenue recognition was occurring on the collection of proceeds rather than on the shipment of product. In addition, the related commissions expense is being restated to properly reflect these costs against the restated revenues, resulting in a prepaid commission asset balance for the portion of the commissions expense for which revenue recognition was deferred. A summary of the accounting impact of these adjustments to the Company’s condensed consolidated unaudited financial statements as of and for the three months ended October 31, 2019 is provided at “Note 8. Restatement of Financial Statements.”
This Amendment also amends and includes a summary of updates to the business description of the Company to include descriptions of the Company’s direct marketing line of business and the Company’s general services agreement with a related party, both of which comprise the majority of the Company’s revenue during the quarterly period ended October 31, 2019. These discussions should be read in conjunction with the Company’s Form 10-K/A for the fiscal year ended July 31, 2019, as filed on February 8, 2021.
In order to provide the Company’s stockholders with a better understanding of the Company’s business, this Amendment also includes modifications and updates to Management’s Discussion and Analysis of Financial Condition and Results of Operations and other disclosures made in the original Form 10-Q to be accurate as of the date of filing of this Amendment.
Finally, in accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company is also including with this Amendment currently dated certifications of the Company’s Chief Executive Officer and Chief Financial Officer (attached as Exhibits 31.1, 31.2, 32.1, and 32.2).
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FORM 10-Q10-Q/A
Quarterly Period Ended October 31, 2019
INDEX
PART
Condensed Consolidated Balance Sheets (Unaudited)
October 31, July 31, 2019 2019 ASSETS Current Assets Cash and cash equivalents Accounts receivable, net Prepaid expense, deposits and other current assets Inventories Total Current Assets Operating lease right-of-use assets Property and equipment Intangible asset - goodwill TOTAL ASSETS LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities Accounts payable and accrued liabilities Due to related parties Notes due to related parties Deferred revenue Income tax payable Operating lease liabilities Total Current Liabilities Operating lease liabilities Stockholders’ Equity Preferred stock, $0.0001 par value, 20,000,000 shares authorized; none issued and outstanding Common stock, $0.0001 par value, 10,000,000,000 shares authorized; 90,758,279 and 90,762,893 shares issued and outstanding as of October 31, 2019 and July 31, 2019, respectively Common stock subscribed; 30,000,000 common shares, $0.0001 par value Additional paid-in capital Accumulated other comprehensive income 28,751 Accumulated deficit (28,037,066 (24,210,347 Total Stockholders’ Equity of Toga Ltd. 14,857,969 Non-controlling interest Total Stockholders' Equity TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
See accompanying notes to the unaudited condensed consolidated financial statements
Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
Three Months Ended October 31, 2019 2018 Revenue Cost of goods sold Gross profit OPERATING EXPENSES General and administrative expenses Research and development Depreciation Total Operating Expenses LOSS FROM OPERATIONS OTHER INCOME (EXPENSE) Interest income Interest expense Total Other Income (Expense) Loss before Income Taxes Income Tax Provision Net Loss Less: Net Loss attributable to non-controlling interest Net Loss attributable to Toga Ltd. (3,826,719 OTHER COMPREHENSIVE LOSS Foreign currency translation adjustments (40,487 Total Comprehensive Loss BASIC AND DILUTED NET LOSS PER COMMON SHARE: WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING NET LOSS PER COMMON SHARE
Accumulated Common Stock Additional Other Total Number of Shares Amount Subscription Receivable Paid-in Capital Accumulated Deficit Comprehensive Income Non-controlling Interest Stockholders' Equity Balance - July 31, 2019 Cancellation of common shares Reissuance of previously cancelled shares Issuance of stock options Other comprehensive loss (40,487 Net loss Balance - October 31, 2019 (28,037,066 28,751
See accompanying notes to the unaudited condensed consolidated financial statements
Condensed Consolidated Statements of For the three months ended October 31, 2019 (Unaudited) (Restated)
Three Months Ended October 31, 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES Net loss Adjustments to reconcile net loss to net cash from operating activities: Depreciation Gain on sale of digital currency Stock based compensation Changes in operating assets and liabilities: Accounts receivable Prepaid expenses and other current assets Inventories Accounts payable and accrued liabilities Customer deposits Deferred revenue Income tax payable Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock - cash Proceeds from related parties Repayment to related party Net cash provided by financing activities Effects on changes in foreign exchange rate Net increase (decrease) in cash and cash equivalents Cash and cash equivalents - beginning of period Cash and cash equivalents - end of period Supplemental Cash Flow Disclosures Cash paid for interest Cash paid for income taxes Non-Cash Investing and Financing Activity: Cancellation of Common Stock Reissuance of previously cancelled Common Stock Operating lease right-of-use assets
See accompanying notes to the unaudited condensed consolidated financial statements
Toga Limited Condensed Consolidated Statements of Changes in Stockholders’ Equity For the three months ended October 31, 2018 (Unaudited)
See accompanying notes to the unaudited condensed consolidated financial statements
Condensed Consolidated Statements of Cash Flows (Unaudited)
See accompanying notes to the unaudited condensed consolidated financial statements
Notes to the Condensed Consolidated Financial Statements October 31, 2019 (Unaudited)
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Business description
On June 30, 2016, Blink Couture, Inc. entered into a merger agreement with its wholly-owned subsidiary, Toga Limited (the “Company”), a Delaware corporation with no material operations. The Company continued operations under the name Toga Limited.
Blink Couture, Inc. was originally incorporated as Fashionfreakz International Inc. on October 23, 2003, under the laws of the State of Delaware. On December 2, 2005, Fashionfreakz International Inc. changed its name to Blink Couture, Inc. Until March 4, 2008, the Company’s principal business was the online retail marketing of trendy clothing and accessories produced by independent designers. On March 4, 2008, the Company discontinued its prior business and changed its business plan. On June 13, 2016, a change of control of the Company occurred. On that date, the current president and Chief Executive Officer purchased a total of 13,869,150 of the issued and outstanding shares of the Company.
On June 10, 2017, the Board of Directors unanimously adopted resolutions authorizing the increase of the Company’s authorized number of shares of common stock from one hundred million (100,000,000) shares to ten billion (10,000,000,000) shares and increased the number of the Company’s total issued and outstanding shares of common stock by conducting a forward split at the rate of fifty (50) shares for every one (1) share (50:1) In July 2018, we changed our state of incorporation to the
The Company incorporated a wholly-owned subsidiary, TOGL Technology Sdn. Bhd. (“
The Company incorporated a wholly-owned subsidiary, PT. Toga International Indonesia (“PT Toga”) in Indonesia on November 23, 2017.
On May 28, 2018, the Company’s wholly-owned subsidiary TOGL Technology formed a branch office in Taiwan. The Company’s wholly-owned subsidiary TOGL Technology formed a wholly-owned subsidiary Toga Vietnam Company Limited (“Toga Vietnam”) in Vietnam on January 15, 2019, acquired 100% shares of WGS Discovery Tours & Travel in Malaysia on June 24, 2019 and acquired 67% of the shares in PT TOGL Technology Indonesia in Indonesia on May 24, 2019.
On May 8, 2019, the Company filed a Certificate of Amendment with the Nevada Secretary of State whereby it amended Article IV of its Articles of Incorporation by decreasing the Company’s authorized number of shares of common stock from ten billion (10,000,000,000) shares to one billion (1,000,000,000) shares and decreasing its issued and outstanding shares of common stock at a ratio of ten (10) shares for every one (1) share held (“10-1 Reverse Split”). The Company’s Board of Directors approved this amendment on April 24, 2019.
On May 17, 2019, the Company filed an Issuer Company-Related Action Notification Form with FINRA requesting that the 10-1 Reverse-Split and share decrease be effected in the market. The 10-1 Reverse Split was effectuated on June 5, 2019. All share and per share information
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation (Restated)
The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required for audited annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the consolidated financial statements not misleading have been included. The balance sheet at July 31, 2019, has been derived from the Company’s audited consolidated financial statements as of that date.
The unaudited consolidated condensed financial statements included herein should be read in conjunction with the audited consolidated financial statements and the notes thereto that are included in the Company’s Annual Report on Form
Basis of Consolidation
These consolidated condensed financial statements include the accounts of the Company and the wholly-owned subsidiaries, TOGL Technology Sdn. Bhd., and
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make 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 expenses during the reporting period. Some of these judgments can be subjective and complex, and, consequently, actual results may differ from these estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with remaining maturities of less than ninety days at the date of purchase.
Basic and Diluted Earnings per Share
Pursuant to the authoritative guidance, basic net income and net loss per share are computed by dividing the net income and net loss by the weighted average number of common shares outstanding. Diluted net income and net loss per share is the same as basic net income and net loss per share when their inclusion would have an anti-dilutive effect due to our continuing net losses.
As
Software Development
The Company accounts for all software and development costs in accordance with ASC 985-20 – Software. Accordingly, all costs incurred prior to establishing technological feasibility have been expensed. As of October 31, 2019, none of the costs subsequent to technological feasibility associated with software and development met the criteria for capitalization.
Inventories
Inventories are stated at lower of cost or net realizable value, with cost being determined on the first-in, first-out (“FIFO”) method.
No reserves are considered necessary for slow moving or obsolete inventory as inventory on hand at year-end was purchased near the end of the year. The Company continuously evaluates the adequacy of these reserves and makes adjustments to these reserves as required.
As of October 31, 2019, and July 31, 2019, the Company had inventories consisting of finished goods of $972,364 and $162,985, respectively.
Leases
The Company adopted ASC 842 for the recognition of operating leases on office premises commencing from the three months ended October 31, 2019. Under ASC 842, the Company recognizes on the balance sheet the assets and liabilities for the right and obligations from the operating leases.
Equipment and Furniture
Property and equipment are stated at cost. Depreciation is computed on the straight-line method. The depreciation and amortization methods are designed to amortize the cost of the assets over their estimated useful lives, in years, of the respective assets as follows:
Maintenance and repairs are charged to expense as incurred. Improvements of a major nature are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts and any gains or losses are reflected in income.
The long-lived assets of the Company are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”), whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During the three months ended October 31, 2019 and 2018, no impairment losses have been identified.
Goodwill and Other Intangible Assets
We account for goodwill and intangible assets in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). ASC 350 requires that goodwill and other intangibles with indefinite lives be tested for impairment annually or on an interim basis if events or circumstances indicate that the fair value of an asset has decreased below its carrying value. In addition, ASC 350 requires that goodwill be tested for impairment at the reporting unit level (operating segment or one level below an operating segment) on an annual basis and between annual tests when circumstances indicate that the recoverability of the carrying amount of goodwill may be in doubt. Application of the goodwill impairment test requires judgment, including the identification of reporting units; assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value. Significant judgments required to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. Changes in these estimates and assumptions or the occurrence of one or more confirming events in future periods could cause the actual results or outcomes to materially differ from such estimates and could also affect the determination of fair value and/or goodwill impairment at future reporting dates.
On June 24, 2019, the Company’s wholly-owned subsidiary TOGL Technology acquired 100% shares of WGS Discovery Tours & Travel in Malaysia, which generated goodwill of $11,718. The Company has accounted for transaction in accordance with ASC 805 “Business Combinations.”
Based on the Company’s analysis of goodwill as of October 31, 2019, no indicators of impairment exist. No impairment loss on goodwill was recognized for the three months ended October 31, 2019 and 2018.
Foreign Currency Translations
The Company’s functional and reporting currency is the U.S. dollar. Our subsidiary’s functional currency is the Malaysian
Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders’ equity as a component of comprehensive income or loss. Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income. Gains and losses from foreign currency transactions are included in earnings in the period of settlement.
Stock-based Compensation
We account for stock-based awards at fair value on the date of grant and recognize compensation over the service-period that they are expected to vest. We estimate the fair value of stock options and stock purchase warrants using the Black-Scholes option pricing model. The estimated value of the portion of a stock-based award that is ultimately expected to vest, taking into consideration estimated forfeitures, is recognized as expense over the requisite service periods. The model includes subjective input assumptions that can materially affect the fair value estimates. The expected volatility is estimated based on the most recent historical period of time, of other comparative securities, equal to the weighted average life of the options. The estimate of stock awards that will ultimately vest requires judgment, and to the extent that actual forfeitures differ from estimated forfeitures, such differences are accounted for as a cumulative adjustment to compensation expenses and recorded in the period that estimates are revised.
Stock-based compensation incurred for the three months ended October 31, 2019 and 2018, respectively, are summarized as follows:
Fair Value
FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) establishes a framework for all fair value measurements and expands disclosures related to fair value measurement and developments. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
ASC 820 requires that assets and liabilities measured at fair value are classified and disclosed in one of the following three categories:
Level 1—Quoted market prices for identical assets or liabilities in active markets or observable inputs;
Level 2—Significant other observable inputs that can be corroborated by observable market data; and
Level 3—Significant unobservable inputs that cannot be corroborated by observable market data.
The carrying amounts of cash, accounts payable and other liabilities and accrued interest payable fair value because of the short-term nature of these items.
Related Party Balances and Transactions
The Company follows FASB ASC 850, “Related Party Disclosures,” for the identification of related parties and disclosure of related party transaction. (See Note
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. 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 that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized.
Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense. The Company has not recognized any tax benefits from uncertain tax positions for any of the reporting periods presented.
In accordance with ASC 606 – Revenue from Contracts with
Revenue related to contracts with customers is evaluated utilizing the following steps: (i) Identify the contract, or contracts, with a customer; (ii) Identify the performance obligations in the contract; (iii) Determine the transaction price; (iv) Allocate the transaction price to the performance obligations in the contract; (v) Recognize revenue when the Company satisfies a performance obligation.
When the Company enters into a contract, the Company analyzes the services required in the contract in order to identify the required performance obligations which would indicate the Company has met and fulfilled its obligations. For the current contracts in place, the Company has identified performance obligations as agreement from both parties (implicit or explicit) that the obligations have been met. To appropriately identify the performance obligations, the Company considers all of the services required to be satisfied per the contract, whether explicitly stated or implicitly implied. The Company allocates the full transaction price to the single performance obligation being satisfied.
The Company recognizes revenue
(1) The sale of products through a direct marketing network (approximately $2.2 million and $231,000 for three months ended October 31, 2019 and 2018, respectively). Invoices are prepared for all sales of products through a direct marketing network. In accordance with ASC 606, revenues related to direct marketing network sales are recognized when:
(2) The in-app purchases through the Company’s mobile application called “Yippi” or the “Yippi App” (approximately $935,000 and $0 for the three months ended October 31, 2019 and 2018, respectively). In accordance with ASC 606, revenue related to in-app purchases are recognized when:
(3) The hotel and flight feature (“TogaGo”) in the Yippi App (approximately $500 and $0 for three months ended October 31, 2019 and 2018, respectively). In accordance with ASC 606, revenue related to the TogaGo platform purchases are recognized when:
(4) Royalty fees ($60,000 and $60,000 for three months ended October 31, 2019 and 2018, respectively). In accordance with ASC 606, related to royalty/licensing fees are recognized when:
(5) Advertising revenue (approximately $45,000 and $80,000 for three months ended October 31, 2019 and 2018, respectively). In accordance with ASC 606, related to in-app advertising are recognized when:
The Company analyses whether gross sales, or net sales should be recorded. Since the Company has control over establishing price, and has control over the related costs with earning revenues, it has recorded all revenues at the gross price.
For the period ended October 31, 2019, deferred revenue was related to Yippi in-app purchases and sales of product. Deferred Revenue from Yippi In-App Purchases The Company has created in-app points to use within the Yippi App. These in-app points are Yipps points are purchased in cash. When these points are initially purchased (but not yet used), they are recognized as deferred revenue. When these points are later used within the Yippi App (for purchases, tipping, gifting, etc.), the revenue The Company monitors the
The increase in deferred revenue for the three months ended October 31, 2019 is due to an increase from product sales not yet shipped and in the amount of Yipps credits that were purchased (but remained unused) compared to the amount of Yipps credits that were used during that period and, therefore, recognized as revenue during the period. Thus, the total amount of unused Yipps increased during the period. Please refer to the Revenue Recognition policy above Upon use or redemption of the Yipps inside of the Yippi app, the Company pays the price set by the third-party supplier of the desired product or service (approximately 70% of the total cost of the item) and retains the balance as Yipps do not have an expiration date, and this is a relatively new revenue source for the Company (deferred revenue from Yipps was first recorded in May 2019). On an ongoing basis as Yipps are purchased and used in-app, the Company expects to recognize all of the deferred revenue from a Yipps purchase as revenue within 12 months of the original purchase of such Yipps. The Company’s estimate is qualified by the limited data of historical usage. Prepaid Commission In connection with the sale of our Eostre branded products, we pay a commission to our independent agents. The commission is payable upon the sale of the products, not upon shipment of the products. The Company books the commission at the time of sale to a prepaid Commission account, included in prepaid expense and other current assets, and offsets this amount by booking a payable to the independent agent. At the time the product is shipped, and the obligation is fulfilled, the Company then recognizes commission expense out of the prepaid commission account. As of October 31, 2019, and July 31, 2019, the Company recorded in prepaid expense and other current assets $1,642,632 and $2,503,269, respectively, for prepaid commissions.
Concentration of Revenue by Customer
During three months ended October 31, 2019, the Company’s concentration of revenue for individual customers above 10% are as follows:
During three months ended October 31, 2018, the Company’s concentration of revenue for individual customers above 10% are as follows:
Concentration of Revenue by Country:
Three months ended October 31, 2019:
Three months ended October 31, 2018:
The Company attributes revenue from external customers to individual countries based upon the responsibility of the entity to fulfil the sales obligation and the entity from which the actual service is provided.
Accounts Receivable
The Company’s accounts receivable
As of October 31, 2019, the Company’s accounts receivable are concentrated 64% with Shen Zhen Shi Ding Shang Internet Tech Co. and 18% with
As of October 31, 2018, the Company’s accounts receivable are concentrated 55% with Agel Enterprise International Sdn Bhd, and 26% with Fuji Avenue Sdn Bhd.
As of October 31, 2019, the Company’s accounts receivable are concentrated 82% in Malaysia (TOGL Technology Sdn. Bhd) and 18% in United States (Toga Limited).
As of October 31, 2018, the Company’s accounts receivable are concentrated 92% in Malaysia (TOGL Technology Sdn. Bhd), 7% in United States (Toga Limited) and 1% in Indonesia (PT. Toga International Indonesia).
Research and Development Expenses
We follow ASC 730, “Research and Development,” and expense research and development costs when incurred. Accordingly, third-party research and development costs, including designing, prototyping and testing of product, are expensed when the contracted work has been performed or milestone results have been achieved. Indirect costs are allocated based on percentage usage related to the research and development.
Recent Accounting Pronouncements
In November 2018, the FASB issued ASU No. 2018-08 “Collaborative Arrangements” (Topic 808) intended to improve financial reporting around collaborative arrangements and align the current guidance under ASC 808 with ASC 606 “Revenue from Contracts with Customers.” The ASU affects all companies that enter into collaborative arrangements. The ASU clarifies when certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 and changes certain presentation requirements for transactions with a collaborative arrangement participants that are not directly related to sales to third parties. The standard is effective for fiscal years beginning after December 15, 2019 and interim periods therein. Earlier adoption is permitted for any annual or interim period for which consolidated financial statements have not yet been issued. The Company has not entered into any collaborative arrangements and therefore does not currently expect the adoption of this standard to have a material effect on its Consolidated Financial Statements. The Company plans to adopt this ASU either on the effective date of January 1, 2020 or possibly in an earlier period if a collaborative arrangement is entered. Upon adoption, the Company will utilize the retrospective transition approach, as prescribed within this ASU.
The Company has reviewed and analyzed the above recent accounting pronouncements and notes no material impact on the financial statements as of October 31, 2019.
NOTE 3. PROPERTY AND EQUIPMENT As of October 31, 2019 and July 31, 2019, the balance of property and equipment represented consisted of the
Depreciation expense for the three months ended October 31, 2019 and 2018 was $50,803 and $10,524, respectively.
During the three months ended October 31, 2019 and 2018, the Company acquired property and equipment of $77,769 and $20,566, respectively.
NOTE 4. RELATED PARTY TRANSACTIONS Revenue and accounts receivable During the three months ended October 31, 2019 and 2018, the Company recorded revenue of $219,709 and $335,143 from Agel, respectively. As of October 31, 2019 and July 31, 2019, the Company recorded accounts receivable from Agel of $20,000 and $205,210, respectively. Notes due to related parties
On May 31, 2016, all outstanding related party advances were paid by a current director of the Company. The Company has outstanding notes payable to a related party,
Due to related parties
During the three months ended October 31, 2019 and 2018, the Company borrowed a total amount of $52 and $0 from a related party, Toga Capital, and repaid $332 and $42,438, respectively.
During the three months ended October 31, 2019 and 2018, total expenses paid directly by a related party, Toga Capital, on behalf of the Company were $0 and $38,225, respectively.
During the three months ended October 31, 2019 and 2018, the Company received advancement for a total amount of $66,670 and $0, respectively and repaid $4,135 and $0, respectively, from the Chief Executive Officer of the Company. The amount is non-interest bearing, unsecured and due on demand.
During the three months ended October 31, 2019 and 2018, the Company purchased property and equipment of $0 and $20,566 from related parties, Toga Capital, respectively.
As at October 31, 2019 and July 31, 2019, $63,608 and $1,083 is due to related parties. The amount is non-interest bearing, unsecured and due on demand.
Related party compensation
During the three months ended October 31, 2019 and 2018, the Company incurred director’s fees of $10,000 and $0, respectively, to directors of the Company.
During the three months ended October 31, 2019 and 2018, the Company incurred wages of $45,000 and $0, respectively, to the CFO of the Company.
During the three months ended October 31, 2019 and 2018, the Company granted 3,662 and 0 stock options to Directors and CFO, valued at $44,470 and $0, respectively (See Note
NOTE 5. EQUITY Amendment to Articles of Incorporation and reverse stock split
On May 8, 2019, the Company filed a Certificate of Amendment with the Nevada Secretary of State whereby it amended Article IV of its Articles of Incorporation by decreasing the Company’s authorized number of shares of common stock from 10,000,000,000 shares to 1,000,000,000 shares and decreasing its issued and outstanding shares of common stock at a ratio of 10 shares for every 1 share held (“10-1 Reverse Split”) (see Note 1). All share and per share information in these consolidated financial statements retroactively reflect this stock distribution.
Preferred stock
The Company is authorized to issue 20,000,000 shares of preferred stock at a par value of $0.0001.
As of October 31, 2019 and July 31, 2019, no preferred shares were issued and outstanding.
Common stock
The Company is authorized to issue 1,000,000,000 shares of common stock at a par value of $0.0001 at October 31, 2019.
During the three months ended October 31, 2019, the Company issued 20,000 shares and cancelled 24,614 of common stock, as follows:
On October 29, 2018, a shareholder of the Company canceled 20,000 shares of common stock without consideration for such cancelation.
As of October 31, 2019 and July 31, 2019, 90,758,279 and 90,762,893 shares of the Company’s common stock were issued and outstanding, respectively.
Stock Options
During the three months ended October 31, 2019, the Company granted 3,662 options to the CFO at an exercise price of $0.20 and were valued at the fair value calculated using the Black-Scholes-Merton model. The value of the options was $44,470 and recorded as stock based compensation. The options are subject to a vesting schedule of ⅓ of the options vesting every thirty (30) days.
During the year ended July 31, 2019, the Company granted 120,000 options to the CFO. 60,000 of those options had an exercise price of $0.20 and 60,000 options at an exercise price of $0.40, and were valued at the fair value calculated using the Black-Scholes-Merton model. During the year ended July 31, 2019, the stock options were fully vested . The value of the options was $1,061,017 and recorded as stock based compensation. The options are subject to a vesting schedule of ⅓ of the options vesting every thirty (30) days.
The following assumptions were used to determine the fair value for the options granted using a Black-Scholes-Merton pricing model during the three months ended October 31, 2019:
A summary of the change in stock options outstanding for the three months ended October 31, 2019 and year ended July 31, 2019 is as follows:
NOTE 6. The following table shows operating activities information by geographic segment for the three months ended October 31, 2019 and 2018:
Three Months Ended October 31, 2019
During the three months ended October 31, 2019, our Indonesian entities generated sale of products through a direct marketing network of approximately
During the three months ended October 31, 2019, our Malaysian entities generated advertising revenue from Yippi of approximately
During the three months ended October 31, 2019, our Taiwan entity generated revenue through the direct marketing network sales of approximately $308,000.
During the three months ended October 31, 2019, our USA parent company recognized management fee revenue of approximately $60,000 from Agel Enterprise International Sdn Bhd.
During the three months ended October 31, 2019, our Malaysian entities incurred general administrative expenses primarily related to maintenance of applications, corporate overhead, financial and administrative contracted services, professional fees, salaries and wages, legal fees for reorganization of the Company and costs incurred for potential acquisitions.
Three Months Ended October 31, 2018
During the three months ended October 31, 2018, our Malaysian entities generated advertising revenue of approximately $80,000, information technology fee revenue of approximately $48,000 and management fee revenue from Agel Enterprise International Sdn Bhd. of approximately $324,000.
During the three months ended October 31, 2018, our Taiwan entity generated revenue through the direct marketing network sales of approximately $231,000.
During the three months ended October 31, 2018, our USA parent company recognized management fee revenue of $60,000 from Agel Enterprise International Sdn Bhd.
During the three months ended October 31, 2018, our Malaysian entity and USA parent company incurred general administrative expenses primarily related to maintenance of applications, corporate overhead, financial and administrative contracted services, professional fees, salaries and wages, legal fees for reorganization of the Company and costs incurred for potential acquisitions.
The following table shows assets information by geographic segment at October 31,
As of October 31, 2019, our USA parent company has current assets of $9.3 million, which primarily includes cash and cash equivalents of $9.2 million.
As of October 31, 2019, our Malaysian entities have current assets of $752,000, which primarily includes cash and cash equivalents of $109,000, prepaid expenses of $155,000 and accounts receivable of $481,000.
As of October 31, 2019, our Malaysian entities have property and equipment of $4.3 million, including land and building of $3.9 million, automobile of $140,000, leasehold improvement of $104,000 and furniture and equipment of $110,000
As of October 31, 2019, our Taiwan entity has current assets of $724,000, which primarily includes cash and cash equivalent of $521,000 and inventory of $154,000.
As of October 31, 2019, our Indonesian entities have current assets of
As of October 31, 2019, our Indonesian entities have operating lease right-of-use assets of $196,000.
The following table shows assets information by geographic segment at July 31, 2019:
As of July 31, 2019, our USA parent company has current assets of $9.6 million, which primarily includes cash and cash equivalents of $9.5 million.
As of July 31, 2019, our Malaysian entities have current assets of $1.9 million, which primarily includes cash and cash equivalents of $1.2 million, prepaid expenses of $222,000 and accounts receivable of $194,000.
As of July 31, 2019, our Malaysian entities have property and equipment of $4.4 million, including land and building of $4 million, automobile of $151,000, leasehold improvement of $109,000 and tolls and equipment of $64,000.
As of July 31, 2019, our Taiwan entity has current assets of $1.0 million, which primarily includes cash and cash equivalent of $820,000 and inventory of $140,000.
As of July 31, 2019, our Indonesian entities have current assets of
NOTE 7. LEASES As of October 31, 2019, the Company owns right-of-use assets under operating leases for eight office premises of $333,798 and operating lease liabilities of $333,798.
October 31, 2019 Office Lease Less: accumulated amortization Right-of-use, net
As of Oct 31, 2019 Right-of-use Lease Office Premises Location Term Monthly Rent Assets Liability TOGA LTD. USA Sep 1 2019 - Aug 31 2020 TOGL TECHNOLOGY SDN BHD Malaysia Aug 1 2018 - Jul 31 2020 TOGL TAIWAN BRANCH Taiwan Jun 10 2018- Jun 9 2020 TOGA VIETNAM Vietnam May 15 2019- May 31 2020 PT TOGL TECHNOLOGY INDONESIA -Menara Mandiri (Cohive) Big room 47 Indonesia Sept 16 2019 - Dec 15 2019 PT TOGL TECHNOLOGY INDONESIA -Menara Mandiri Small room 86 Indonesia Sept 9 2019- Dec 8 2019 PT TOGA INTERNATIONAL INDONESIA-office 1 (Plaza Asia) Indonesia Feb 1 2019 - Jan 31 2021 PT TOGA INTERNATIONAL INDONESIA-new office 2 (Menara Sudirman) Indonesia Aug 1 2019- July 31 2021
NOTE 8. COMMITMENTS AND CONTINGENCIES (RESTATED) On July 29, 2019, TOGL Technology entered into two Sale and Purchase Agreements (the “Second Mammoth Agreements”) with Mammoth, for the purchase of additional real estate located in the Empire Damansara. The Second Mammoth Agreements relate to the acquisition of an additional 11,614 square feet of space in the Empire Damansara. This additional space is located on the Level Basement 1 and Level Basement 3 of the building. Pursuant to the Second Mammoth Agreements, we entered into a Subscription Agreement with Mammoth dated July 29, 2019 for the purchase of an aggregate of 118,174 shares of our Common Stock for an aggregate purchase price of approximately $1,418,087, valued at $12.00 per share, which was the closing price of the shares on July 29, 2019 as reported by the OTC Markets Group Inc.’s (“OTCM”) Pink Open Market (“OTC Pink”). Mammoth agreed to pay the purchase price in the form of legal title to those certain portions of real estate set forth in the Mammoth Agreements. Legal title has not been passed to us and no shares have been issued pursuant to the Second Mammoth Agreements. We are still awaiting the bank serving as the bridging financier to disclaim its interest in such property in favor of TOGL Technology. NOTE 9 - RESTATEMENT OF FINANCIAL STATEMENTS The Company’s financial statements as of October 31, 2019, contained the following errors: (i) understatement of revenue of $471,044 and general and administrative expense of $860,637 and overstatement of cost of goods sold of $666,562; and (ii) understatement of prepaid commission of $2,353,924 and understatement of deferred revenue of $2,488,649. Certain income statement items have been reclassified to conform to the 2020 fiscal year end presentation. These reclassifications had no impact on reported operating and net loss. The effects of the adjustments on the Company’s previously issued financial statements as of October 31, 2019 and for the three months ended October 31, 2019 are summarized as follows:
NOTE Subsequent events are disclosed through the date these financial statements were originally issued on December 19, 2019. On November 7, 2019, the Company issued a total of 253,039 shares of its common stock to twenty-seven (27) of its employees, pursuant to an Employee Stock Bonus Agreement. Pursuant to the terms of such agreement, said shares were fully vested as of July 15, 2019.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this
Forward-Looking Statement
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and is subject to the “safe harbor” created by those sections. Any statements that are not statements of historical fact should be considered to be forward-looking statements. Words such as
Although forward-looking statements in this Quarterly Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known and understood by us. Consequently, forward-looking statements involve inherent risks and uncertainties and actual financial results and outcomes may differ materially and adversely from the results and outcomes discussed in or anticipated by the forward-looking statements. A number of important factors could cause actual financial results to differ materially and adversely from those in the forward-looking statements. We urge you to consider the risks and uncertainties discussed elsewhere in this
In this document, the words
Overview
Subsidiaries InSeptember 2017, we formed TOGL Technology Sdn. Bhd. (“TOGL Technology”), a wholly-owned subsidiary located in Malaysia. In May 2018, TOGL
In January In May 2019, TOGL Technology formed a majority-owned subsidiary,
In June
In June 2020, Michael Toh Kok Soon (“Mr. Toh”), our Chief Executive Officer and Chairman, Roy Lim Jun Hao (“Mr. Lim”), TOGL Technology’s Deputy Executive Officer, and we collectively acquired 65% of the issued and outstanding shares of
Industry Overview An “app” is a type of application software designed to run on a mobile device, such as a smartphone or tablet device. Over the last several years, mobile devices, including smartphones and tablets, have proliferated extensively around the world across a wide range of demographic groups. As mobile devices have become more prevalent, the mobile apps industry has experienced corresponding growth in the number of apps published and the niches they serve, as well as the revenues they generate. We believe that there will continue to be an increase in the number of smartphones and tablets sold. In addition, Apple, Inc. (“Apple”), Samsung Group (“Samsung”), and other mobile device manufacturers have introduced new, larger, and more powerful smartphones and tablets that enable more complex apps and that allow app developers to
The Yippi App is a
These extensions are
In addition to
The
In an effort to increase our Market Penetration. Market Penetration focuses on engaging key opinion leaders and agencies to Yippi Publicity. Yippi Publicity focuses on corporate social responsibility (such as raising money for We have also engaged in a series of branding campaigns, or sponsorships, with selected corporate entities in the Asian region, specifically Southeast Asia. For example, we have partnered with AirAsia Academy in cross-promotion and sponsorship of the academy players in badminton competitions since July 2018. We also sponsored the Panagbenga Flower Festival in the Philippines in February 2019, which festival was the marketing promotion that created brand awareness of the Yippi App Market Development. Market Development focuses on contests within the Yippi App to connect users to each other and
Scientific Advisory Council. In order to further our market development, in September 2019, we established a Scientific Advisory Council (the “Council”) consisting of Dr. Beverly Rubik, Prof. Dr. Konstantin Korotkov, Deputy Director of Saint-Petersburg Federal Research institute of Physical Culture, and Erick Wayne Thompson of Subtle Energy Sciences, LLC. The members of the Council were retained to provide product ideas and advice on technologies relating to energy, lifestyle and nutrition wellness, as well as to deliver keynote speeches and attend Company events. The members of the Council were each paid an annual fee of $36,000 with additional payments for each keynote presentation. As of the date of this report, all agreements with the members have expired. Target Market The Yippi App is free for users and can be downloaded through the Apple App Store, Google Play, or the Amazon App Store. We are focused on increasing our users. Currently, our users are concentrated in Indonesia, Malaysia, China, Philippines, Vietnam, and Taiwan. The Yippi App is also available to users in the United States; however, the Toga Resonance Technology (“TRT”) feature within the Yippi App is not available to users in the United States. Competition We compete with companies that focus on mobile social engagement and advertising. Many of these companies, such as Apple; Facebook Inc. (“Facebook”), which owns and operates the applications Facebook, Instagram, and WhatsApp; Tencent Holdings, Ltd., which owns and operates the application WeChat; Snap Inc., which owns and operates the application Snapchat; Google, LLC (“Google”), which owns and operates YouTube; and Twitter, Inc. (“Twitter”), which owns and operates the social networking service known as Twitter, have significantly We compete by attracting and retaining our users’ attention, both in terms of reach and engagement. We focus on constantly improving and expanding the Yippi App and related features, as described below under “New Product Development.” Finally, we also compete for advertising revenue, especially with respect to video and other highly engaging formats. We believe our ability to Business Overview Subsequent to Quarter ended October 31, 2019 New Yippi Product Development – Subsequent to October 31, 2019 Between January and July 31, 2020, we launched new features within the
We also have a number of Yipps Agreements We generate revenue from the sale of Yipps, which are the in-app credit that can be used for purchases, services and tipping within the Yippi App. We use third party entities to distribute Yipps to certain end users, pursuant to Yipps Agreements. Each Yipps Agreement provides that the company purchasing the Yipps can purchase them via a purchase order, for a price set by TOGL Technology, and then distribute the Yipps to their members / agents to be used in the Yippi App. TOGL Technology has the right to change the price of the Yipps from time to time. In May 2019, TOGL Technology entered into Yipps Agreements with each of Agel Enterprise International Sdn. Bhd., Malaysian corporation (“Agel”), Toga Japan Co. Ltd., a Japanese company (“Toga Japan”), and ShenZhen DingShang Network Technology Co. Ltd., a Chinese company (“ShenZhen DingShang”), for the purchase and distribution of Yipps. However, because of the COVID-19 pandemic, the Yipps Agreement with Agel was terminated in May 2020. On March 1, 2020 (as amended on July 1, 2020), TOGL Technology entered into a Yipps Agreement with Success Fortune Trading Limited, a Hong Kong company (“Success Fortune”) for the purchase and distribution of Yipps that can be used by the Yippi App users. On June 1, 2020, TOGL Technology entered into a Yipps Agreement with our newly acquired, partially-owned Malaysian subsidiary, Eostre Bhd., for the purchase and distribution of Yipps that can be used by the Yippi App users. Eostre – Products Sold Through Our Direct Marketing Network Recent Changes to the Eostre Business We recently changed our business model for our Eostre business line by bringing the direct marketing sales activities in Asia under our newly acquired, partially-owned Malaysian subsidiary, Eostre Bhd. Beginning on June 1, 2020, independent sales agents in Malaysia and Prior Business Structure; Eostre Trademark License Agreements The recent changes to the business model of our Eostre business occurred because of the prolonged effect of the COVID-19 pandemic. Previously, from 2018 until May 31, 2020, we sold our “Eostre” branded products exclusively to independent sales agents in Malaysia, Japan, Taiwan, and Indonesia. We
Agel and Toga Japan each engaged independent sales agents to sell our products through their respective direct marketing networks. At no time were any of the independent sales agents of Agel or Toga Japan employed by us. In order to sell our products, we granted Agel and Toga Japan certain licensing rights to use our “Yippi App” and “Eostre” trademarks for marketing purposes pursuant to, (i) in the case of Agel, a Trademark License Agreement dated April 1, 2018, as subsequently amended on August 1, 2019 (the “Agel License Agreement”) and, (ii) in the case of Toga Japan, a Trademark License Agreement dated April 1, 2019, as subsequently amended on August 1, 2019 (the “Toga Japan License Agreement” and, together with the Agel License Agreement, the “License Agreements”). The License Agreements allowed Agel and Toga Japan to administer the sales programs. As consideration for the licenses, each of Agel and Toga Japan paid us a monthly fee in the amount of $20,000 USD. We also granted our subsidiaries operating in Taiwan and Indonesia licensing rights to use our “Yippi App” and “Eostre” trademarks for marketing purposes pursuant to a Trademark License Agreement dated September 1, 2018 with TOGL Technology’s Taiwan branch and a Trademark License Agreement dated August 1, 2019 with PT Toga Indonesia. As consideration for the licenses, each of TOGL Technology and PT Toga Indonesia paid us a monthly fee in the amount of $20,000 USD. Because of the COVID-19 pandemic and the resulting inability of independent agents to engage with customers in person, neither Agel nor Toga Japan had been able to sell our Eostre products since February 2020. As a result, the License Agreements with Agel and Toga Japan were terminated in May 2020. Because of the COVID-19 pandemic, TOGL Technology’s Taiwan branch requested and received a reduction to the monthly royalty fee to $10,000 per month for each of April and May 2020, and the license agreement with TOGL Technology’s Taiwan branch was terminated in June 2020. Acquisition of Eostre Bhd. – Subsequent to October 31, 2019 In connection with the termination of the License Agreements, we decided to operate the direct sales business in Malaysia and Japan ourselves, through our subsidiary, Eostre Bhd., instead of through unaffiliated, third-parties. We anticipate that in the future all independent agents in various jurisdictions throughout Asia will eventually purchase products directly from Eostre Bhd. As a result of this new business model, we (or our subsidiaries, as applicable), hired some of Agel’s former employees to assist us in the operation of our direct marketing sales activities. In order to effectuate this new business model, we are acquiring 100% of the equity of Eostre Bhd. pursuant to two Stock Purchase Agreements, dated March 31, 2020, with Mr. Toh, Mr. Lim, and the two shareholders of Eostre Bhd. (the “Stock Purchase Agreements”), and some other related agreements (the “Acquisition”), for a purchase price of MYR 5 Million (approximately USD $1,250,000) (the “Purchase Price”). The Acquisition is subject to certain approvals by the relevant governmental authorities in Malaysia, which approvals are still being obtained by us. The Acquisition is expected to be completed in two phases to meet certain regulations under Malaysian law. In the first phase, (i) we acquired 20% of Eostre Bhd., consisting of 1,000,000 ordinary shares of stock; (ii) Mr. Toh and Mr. Lim acquired 20% (1,000,000 ordinary shares) and 25% (1,250,000 ordinary shares) of Eostre Bhd., respectively; and (iii) a current owner of Eostre Bhd. acquired the balance of 1,350,000 shares, which, combined with his current ownership of 400,000 ordinary shares, resulted in his owning 35% (1,750,000 ordinary shares) of Eostre Bhd. Mr. Toh, Mr. Lim, and the current owner of Eostre Bhd. are referred to herein as the “Individual Purchasers.” We have deposited the Purchase Price directly into the bank account of Eostre Bhd., which will be controlled by us or our designees subsequent to the closing date of the first phase. Pursuant to the Stock Purchase Agreements, Mr. Toh, Mr. Lim, and the two original owners of Eostre Bhd. are not entitled to receive any profit in connection with the Acquisition. The Individual Purchasers executed demand notes in favor of us for their respective portions of the Purchase Price. Such demand notes bear interest at a rate of 4% per annum. In addition, the Individual Purchasers each executed a security and pledge agreement in favor of us pledging their shares in Eostre Bhd. as collateral, until such time as the second phase of the Acquisition is completed. The Individual Purchasers also granted irrevocable proxies to us to vote their shares in Eostre Bhd. until such time as the second phase of the Acquisition is completed. As such, we currently hold 100% voting control of Eostre Bhd. In the second phase of the Acquisition, set to begin on February 21, 2021, the promissory notes issued by the Individual Purchasers will be cancelled and deemed paid in full, and the remaining 80% of the equity in Eostre Bhd. will be transferred to us. The second phase of the Acquisition is expected to close as soon as practicable after the six-month anniversary of the signing date of the Stock Purchase Agreements, based on the expected timing required to obtain the necessary approvals from the Malaysian Ministry of Trade.
At the time of the of completion of the first phase of the Acquisition, Eostre Bhd. was considered a shell entity with no current business or operations. Its sole asset is a direct selling license (the “License”) to operate a business in the “direct sales” space in Malaysia. Subject to the “Direct Sales and Anti-Pyramid Scheme Act 1933,” this License is a pre-requisite to operating a company in the direct sales space in Malaysia. The expiration date of the License is November 21, 2021; however, we anticipate that we will renew the License at such time. The License will allow us to operate the direct sales business directly, instead of through unaffiliated, third-parties. Business in China On June 1, 2020, we entered into a Collaboration Agreement (the “ShenZhen Yi Yi Collaboration Agreement”) with ShenZhen Yi Yi Technology Private Limited, a company registered in China (“ShenZhen Yi Yi”), for provision of certain services to us and our subsidiaries within the territory of the Peoples’ Republic of China (the “Territory”). The ShenZhen Yi Yi Collaboration Agreement memorialized the parties’ understanding with respect to the provisions of these services, which began in March 2020. Pursuant to the ShenZhen Yi Yi Collaboration Agreement, within the Territory, ShenZhen Yi Yi agreed to provide us with web hosting services, launch and release our apps, act as our exclusive proxy to promote our products and services, protect our trademarks, products and apps from unauthorized use, and make payments on behalf of the company to third-parties. The ShenZhen Yi Yi Collaboration Agreement grants ShenZhen Yi Yi a non-exclusive, non-sublicensable, and non-transferable right to use our trademarks. In consideration for the aforementioned services, we agreed to pay ShenZhen Yi Yi monthly consideration of RMB 200,000. Pursuant to a letter of authorization, dated March 1, 2020, which had the effect of amending the ShenZhen Yi Yi Collaboration Agreement, TOGL Technology granted ShenZhen Yi Yi the right to sell Yipps to users in the Territory, with 30% of the total amount of the selling price for such Yipps sold payable to ShenZhen Yi Yi as commission. In addition, on June 1, 2020, Eostre Bhd. also began collaborating with ShenZhen YiYi for the sale of Eostre Bhd.’s products in the Territory. This collaboration has not been memorialized in writing yet between Eostre Bhd. and ShenZhen YiYi. Industry Overview Since the 1990s, the use of direct selling and network marketing sales channels has grown in popularity and general acceptance, including acceptance by prominent investors and capital investment groups who have invested in direct selling companies. In addition, many large corporations have diversified their marketing strategy by entering the direct selling arena. Several consumer-product companies have launched their own direct selling businesses with international operations and often accounting for the majority of their revenues. Consumers and investors are beginning to realize that direct selling provides unique opportunities and a competitive advantage in today’s markets. Businesses like us are able to quickly communicate and develop strong relationships with our customers, bypass expensive ad campaigns, and introduce products and services that would otherwise be difficult to promote through traditional distribution channels such as retail stores. According to the worldwide direct sales data published by the World Federation of Direct Selling Association, in 2019, approximately 118 million global direct sellers collectively generated annual retail sales of $180.4 billion, of which approximately 44% of total annual sales, or $78.9 billion, are generated in the Asia/Pacific marketplace by approximately 68.4 million independent sales agents operating in the Asia/Pacific marketplace. Products and Market Beginning on June 1, 2020, we sell our Eostre products directly to independent sales agents, that then sell to their customers through direct marketing networks. Prior to June 1, 2020, we licensed the “Eostre” brand to Agel and Toga Japan, both of which had direct marketing networks in Malaysia and Japan. We also sold Eostre products directly to independent sales agents to sell within the agents’ own networks in Taiwan and Indonesia. We continue to rely on the revenues generated from our Eostre business to sustain the development of our Yippi App.
Marketing Strategy We, and our subsidiaries, rely on our network of Independent sales agents purchase points packages from the
Independent sales agents are not required to enroll other sales agents as their down-line, and we do not pay any commissions for enrolling new independent sales agents. Enrollment in our direct marketing network is contingent upon an independent sales agent purchasing a
In
In addition, we are aware that those third-party suppliers sell the same white labeled products to other companies (with different branding applied), who compete directly or indirectly with us in our principal markets. Except for the
Furthermore, we have competition in each jurisdiction in which we operate with the entire market of other companies and individuals who sell health and wellness products, especially those that are in the business of selling natural products (including crystals, topical sprays, serums and cremes, home goods, supplements, and similar items) based on traditional, eastern wellness principles. Manufacturing The Eostre products are manufactured by unaffiliated third-party companies, who ship finished products containing our Eostre branding. We receive fully manufactured products from the manufacturers, which we sell through wholesale distribution to independent sales agents who have their own respective direct marketing networks for selling the products. Collaboration Agreements From time to time, TOGL Technology enters into collaboration agreements with third parties to allow such parties to provide their services or sell their products on the Yippi App or in connection with Eostre products or the E-Booster App. On May 1, 2020, we entered into a Supplier Agreement (the “Subtle Supplier Agreement”) with Subtle Energy Sciences, LLC, an Indiana limited liability company (“Subtle”), where Subtle agreed to provide us with an “Immunity” app developed by Subtle which included digital files, videos, audio files and images. Pursuant to the Subtle Supplier Agreement, we were granted the exclusive right to publish and market the app worldwide. We paid Subtle a one-time sum of $30,000 as consideration under the Subtle Supplier Agreement. In connection with the Subtle Supplier Agreement, we entered into a mutual agreement, dated May 15, 2020, with Dr. Anura Gnanasothi Kandasamy, a Malaysian individual (“Dr. Anura”), who agreed to act as Subtle’s agent under the Subtle Supplier Agreement and guarantee the delivery of Subtle’s obligations thereunder, including the delivery of a scientific report in connection with Subtle’s app, in exchange for a 10% commission from the total consideration payable under the Subtle Supplier Agreement. On June 1, 2020, we entered into a Collaboration Agreement (the “Subtle Collaboration Agreement”) with Subtle, for a period of two (2) years, which grants us the exclusive right in Asia and certain parts of the Middle East to market and sell Subtle’s products on our websites and mobile applications. We pay Subtle a monthly fee of the greater of 1% of gross sales of Subtle’s products or $16,000 per month. In connection with the Subtle Collaboration Agreement, we entered into a mutual agreement, dated June 1, 2020, with Dr. Anura, who agreed to act as Subtle’s agent under the Subtle Collaboration and guaranteed the delivery of a scientific report in connection with each of the 12 expected Subtle products to be delivered over the term of the Subtle Collaboration Agreement, in exchange for a 10% commission from the total consideration payable to Subtle under the Subtle Collaboration Agreement.
On June 1, 2020, TOGL Technology entered into a Collaboration Agreement (the “Redbox Collaboration Agreement”) with Redbox Holdings Berhad, a Malaysian company (“Redbox”). On November 16, 2020, TOGL Technology entered into an App Development and Services Agreement with Redbox (the “Redbox App Development Agreement”). Redbox provides karaoke entertainment to the public via rentable rooms at public spaces such as shopping malls, where the public can book a karaoke room to sing. Pursuant to the Redbox Collaboration Agreement, TOGL Technology allows end users to purchase Redbox’s products within the Yippi App, using Yipps as the form of payment. Redbox may also promote its product, including providing discounts or promotions within the Yippi App. Both parties also have agreed to collaborate to expand each party’s respective business. The Redbox Collaboration Agreement grants a non-exclusive, non-sublicensable, and non-transferable right to use our Yippi trademarks, and we have a reciprocal right to use Redbox’s trademarks. The trademarks are not to be used for any purpose other than the purpose of the Redbox Collaboration Agreement without our, or Redbox’s, prior written consent, as applicable. Only Yipps can be used for paying for Redbox services or products, such as paying for karaoke rooms. Redbox pays TOGL Technology a portion of each transaction that utilized Yipps as the payment form. Each unit of Yipps is equivalent to RM 0.60, however, the value of each unit may be changed from time to time in the discretion of TOGL Technology. The initial term of the Redbox Collaboration Agreement expires on June 1, 2021 and automatically renews for an additional one-year term, unless either party provides notice to the other of its intention not to renew at least 30 days prior to the end of the initial term. Pursuant to the Redbox App Development Agreement, TOGL Technology provides development and servicing of a social karaoke app for Redbox, and, in exchange, Redbox will pay TOGL Technology RM 1,000,000.00 for such services, payable in installments upon completion of certain milestones as set forth in the Redbox App Development Agreement. On June 1, 2020, TOGL Technology entered into a Collaboration Agreement (the “Gintell Collaboration Agreement”) with Gintell Rest N Go Sdn Bhd, a Malaysian company (“Gintell RNG”). On July 21, 2020, TOGL Technology entered into a Yippi E-Shop Collaboration Agreement (the “Gintell E-Shop Agreement”) with Gintell Irest Sdn. Bhd., a Malaysian company and affiliate of Gintell RNG (“Gintell Irest” and, collectively with Gintell RNG, the “Gintell Companies”). On March 2, 2020, TOGL Technology also entered into a Sponsorship Agreement with Gintell Irest for the provision of certain of Gintell Irest’s products at two of our live streamed events broadcast on the Yippi App (the “Gintell Sponsorship Agreement”). The Gintell Companies are a healthcare retail chain store in Malaysia, which provides massage, exercise, and wellness products, such as massage chairs that are installed in public spaces and available for booking and use by customers in exchange for a fee. Pursuant to the Gintell Collaboration Agreement, TOGL Technology allows end users to purchase Gintell RNG’s products within the Yippi App, using Yipps as the form of payment. Pursuant to the Gintell E-Shop Agreement, Yippi users may also purchase Gintell Irest’s products through the Yippi App’s online E-Shop. The Gintell Companies may also promote its products, including providing discounts or promotions within the Yippi App. Both TOGL Technology and the Gintell Companies also have agreed to collaborate to expand each party’s respective business. Both the Gintell Collaboration Agreement and the Gintell E-Shop Agreement grant the Gintell Companies a non-exclusive, non-sublicensable, and non-transferable right to use our Yippi trademarks, and we have a reciprocal right to use the Gintell Companies’ trademarks. The trademarks are not to be used for any purpose other than this purpose without our, or the Gintell Companies’, prior written consent, as applicable. Yipps are intended to be the sole payment form accepted for Gintell RNG’s customers purchasing services or products, such as by using Yipps at a massage chair to redeem massage time and services. Under the Gintell Collaboration Agreement, Gintell RNG pays TOGL Technology a portion of each transaction that utilized Yipps as payment. Each unit of Yipps is equivalent to RM 0.60, however, the value of each unit may be changed from time to time in the discretion of TOGL Technology. Under the Gintell E-Shop Agreement, TOGL Technology may retain 15% from the sale of each of Gintell Irest’s products. The initial term of the Gintell Collaboration Agreement expires on June 1, 2021 and automatically renews for an additional one-year term, unless either party provides notice to the other of its intention not to renew at least 30 days prior to the end of the initial term. The Gintell E-Shop Agreement expired on January 21, 2020, and may be renewed by mutual written agreement of the parties. The Gintell Sponsorship Agreement expired on December 31, 2020 and the Company is in the process of renewing the agreement. On August 11, 2020, TOGL Technology entered into a Yippi E-Shop Collaboration Agreement (the “Ideahom E-Shop Agreement”) with Ideahom Global Enterprise, a Malaysian company (“Ideahom”). Ideahom sells household appliance products, kitchen products and electrical appliances. Pursuant to the Ideahom E-Shop Agreement, Yippi users may purchase the Ideahom’s products through the Yippi App’s online E-Shop. The Ideahom E-Shop Agreement grants a non-exclusive, non-sublicensable, and non-transferable right for us to use Ideahom’s trademarks for promotion and sales within the Yippi App with Ideahom’s prior written consent. As consideration for featuring Ideahom’s products in the Yipp App’s E-Shop, TOGL Technology may retain a certain percentage from the sale of each of Ideahom’s products. The Ideahom E-Shop Agreement will expire on February 10, 2021 and will not be renewed.
Other Agreements On June 1, 2020, TOGL Technology entered into a Talent Agency Appointment Agreement with De Top Entertainment, a Malaysian Company (“DTE Agency”), for services of Yumi Wong, an artist who works for DTE Agency, to be a promoting ambassador of the Yippi App and our other products and services. The agreement expires on May 31, 2021. On July 1, 2020, TOGL Technology entered into a Research Grant Agreement (“Research Agreement”) with Universiti Telekom Sdn. Bhd., a Malaysian company (“UTSB”), which is the registered owner of Multimedia University, a private university that offers tertiary level education in multimedia and technology, among other subjects. TOGL Technology agreed to sponsor and fund a research project to be conducted by PhD postgraduate students attending UTSB to study the effects of extremely low frequency electric fields on cancer cells and normal cells (the “Project”). The Research Agreement expires on June 1, 2023. TOGL Technology agreed to provide RM 221,180 in three yearly installments of RM 118,580, RM 51,300, and RM 51,300 payable pursuant to certain milestones set forth in the Research Agreement. In exchange, TOGL Technology will own 90% of any intellectual property developed in connection with the Project, with UTSB owning the remaining 10%. TOGL Technology will be solely entitled to commercialize the intellectual property developed under the Project, and any profits derived from the commercialization will be divided in proportion to the parties respective ownership percentages of the intellectual property. On January 1, 2020, we entered into a Service Agreement (the “SNA Service Agreement”) with Social Networking Association (“SNA”), whereby SNA agreed to present ten-minute multi-media presentations about us to 1,000 individuals over a period of 90 days. We agreed to pay SNA an aggregate of $30,000 in three installments of $10,000 payable on January 1, February 1, and March 1, 2020. SNA is directed by Jim Lupkin, a member of our Board. Mr. Lupkin was in charge of performing services on behalf of SNA under the SNA Service Agreement. Beginning in June 2020, Mr. Bratt, another member of our Board, was appointed the Executive Vice President and Chief Operating Officer of SNA. Advertising Agreements During the Subsequent Event - COVID-19 In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic based on the rapid increase in global exposure. COVID-19 continues to spread throughout the world. We are closely monitoring developments and are taking steps to mitigate the potential risks related to the COVID-19 pandemic to us, our employees, and our customers. To protect our employees while continuing to provide the services needed by our clients, we limited customer contact and minimized employee contact with other employees by having our employees work remotely. On March 19, 2020, a Movement Control Order (the “MCO”) was issued by the Malaysian Prime Minister, which reduced movement within Malaysia, closed all offices within the country that were non-essential, cancelled all non-essential travel and limited travel from outsiders deemed as non-essential. Eventually, the MCO was lifted as of June 9, 2020, and certain safe-distance and other controlling protocols (the Recovery Movement Control Order or “RMCO”) were put into place, which were in effect until December 31, 2020. As of January 26, the RMCO has been extended to March 31, 2021. Our offices in Malaysia closed as a result of the MCO, and our office-based employees located both in Malaysia, Vietnam, Indonesia, and in the United States have been working remotely since the middle of March. All of our employees have been able to continue to address customer needs in a timely fashion. Travel remains restricted to limit the risk of our employees coming in contact with COVID-19.
As a result of COVID-19, we have terminated certain agreements with Agel and Toga Japan. Please see Item 1. Business, Recent Changes to the Eostre Business, for additional information. Through January 31, 2021, we have not had any of our employees contract COVID-19. Should a significant number of our employees contract COVID-19, our ability to serve our customers in a timely fashion could be negatively impacted on our ability to serve customers in a timely fashion. In addition to the termination of the License Agreements and the Yipps Agreement, COVID-19 also has negatively impacted our business with respect to TogaGo revenue. The MCO restricted travel, which resulted in customers not booking travel and hotels through the Yippi app. TogaGo’s revenue decreased significantly during the year ended July 31, 2020. However, we expect TogaGo’s revenue to increase once the MCO is lifted. Further, while we have not yet experienced any interruption to our normal materials and supplies process, it is impossible to predict whether COVID-19 will cause future interruptions and delays. Results of Operations (Restated) Three months ended October 31, 2019
Gross Margin by product for
Gross profit also increased by approximately $850,000 in the
Net loss increased by approximately $3.2 million, or 958.6%, in the three months ended October 31, 2019, compared to the prior year period, due to an increase in operating expenses primarily attributed to the increases in general and administrative expenses. General and administrative expenses increased primarily due to the increase in sales and marketing commission of $2.3 million and advertising and promotion of $764,000 driven by increase in sales activities and advertising and marketing effort.
Segment Operating Performance Our operating performance by segment are as follows for the three months ended October 31, 2019 and 2018: Three months ended October 31, 2019:
Three months ended October 31, 2018:
During the three months ended October 31, 2019 most of the Company’s revenue was derived from Yippi in-app purchases in Malaysia, and product sales generated in Taiwan and Indonesia. Net loss increased by approximately $3.2 million due to the increase in operating expenses. Plan of Operation
Liquidity and Capital Resources
As of October 31, 2019, our total assets were
We had Our working capital decreased by $3.7 from $10.1 million at July 31, 2019, as compared to $6.4 million at October 31, 2019, due primarily to the decrease in our current assets for the decrease by cash and cash equivalents of $2.0 million and the increase in our current liabilities, consisting of an increase in accounts payable and accrued liabilities of $1.1 million and deferred revenue of $534,000.
Cash Flow
Cash Flow from Operating Activities As of October 31, 2019, we had
Cash Flows from Investing Activities
During the
Cash Flows from Financing Activities
We have financed our operations primarily from either advances and loans from related and third parties or the issuance of equity instruments. For the
Application of Critical Accounting Policies We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact on our business operations and any associated risks related to these policies are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations when such policies affect our reported or expected financial results. In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with U.S. GAAP. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe that the following discussion addresses our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require our most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The material estimates for our company are that of the stock-based compensation recorded for options. The fair values of options are determined using the Black-Scholes option pricing model. We have no historical data on the accuracy of these estimates. The estimated sensitivity to change is related to the various variables of the Black-Scholes option pricing model. The specific quantitative variables are included in the notes to the consolidated financial statements.
While we believe that the historical experience, current For our critical accounting policies and estimates for “Revenue Recognition” and “Leases” see Note 1, Summary of Significant Accounting Policies, to the
Off-Balance Sheet Arrangements
We do not
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed under the supervision and with the participation of
Changes in Internal Control over Financial Reporting
In connection with our continued monitoring and maintenance of our controls procedures as part of the implementation of Section 404 of the Sarbanes-Oxley Act, we continue to review, test, and improve the effectiveness of our internal controls. There
There are no legal proceedings, which are pending or have been threatened against us or any of our officers, directors, or control persons, of which management is aware.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
Exhibits:
___________ *Filed herewith
In accordance with the requirements of the Securities Exchange Act of 1934, as amended, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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