ATIF (ATIF) - 2023 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the period ended January 31, 2023, reflect significant revenue growth, a shift to net income, a slight increase in total assets to $8.43 million, a decrease in total liabilities to $3.31 million, and a net cash outflow from operating activities Unaudited Condensed Consolidated Balance Sheets The balance sheets show an increase in total assets and stockholders' equity, alongside a decrease in total liabilities, with a notable reduction in cash and cash equivalents Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Items | Jan 31, 2023 ($) | July 31, 2022 ($) | | :--- | :--- | :--- | | Total Current Assets | 6,793,260 | 5,992,460 | | Total Assets | 8,434,866 | 8,136,955 | | Total Current Liabilities | 2,488,678 | 2,799,099 | | Total Liabilities | 3,314,748 | 3,784,348 | | Total Stockholders' Equity | 5,120,118 | 4,721,652 | - Cash and cash equivalents decreased from $1.75 million on July 31, 2022, to $0.83 million on January 31, 2023[13] Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The statements show a dramatic increase in revenues and a significant shift from net loss to net income for both the three and six-month periods ended January 31, 2023 Three Months Ended January 31, Performance (Unaudited) | Metric | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Revenues | 1,900,000 | 7,680 | | Income (Loss) from Operations | 1,333,888 | (819,420) | | Net Income (Loss) | 810,981 | (1,354,169) | | (Earnings) Loss Per Share | 0.08 | (0.11) | Six Months Ended January 31, Performance (Unaudited) | Metric | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Revenues | 2,200,000 | 524,155 | | Income (Loss) from Operations | 1,065,992 | (1,406,213) | | Net Income (Loss) | 698,466 | (2,253,694) | | (Earnings) Loss Per Share | 0.07 | (0.23) | Unaudited Condensed Consolidated Statements of Cash Flows The cash flow statements indicate a net cash outflow from operating activities for the six months ended January 31, 2023, a reversal from the prior year's inflow, leading to a net decrease in cash Cash Flow Summary for Six Months Ended January 31 (Unaudited) | Cash Flow Activity | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | (754,714) | 328,160 | | Net Cash Used in Investing Activities | (166,036) | (2,094,308) | | Net Cash Used in Financing Activities | 0 | (39,642) | | Net Decrease in Cash | (920,750) | (1,877,462) | | Cash, End of Period | 829,387 | 3,719,278 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail significant events such as the sale of ATIF GP, ongoing liquidity concerns, revenue recognition policies, customer concentration, divestment of long-term investments, and pending legal proceedings - On August 1, 2022, the Company sold its entire equity interest in ATIF GP for $50,000, resulting in ATIF GP no longer being a subsidiary[31][42] - The company faces liquidity concerns, with $0.8 million in cash against $2.5 million in current liabilities as of January 31, 2023; management believes it can continue as a going concern, expecting to collect $2.4 million in consulting fees over the next 12 months, though COVID-19 impacts could cause delays[35] - Revenue from consulting services is recognized ratably over the estimated completion period for Phase I and II, and upon completion for Phase III (reverse merger or IPO transaction)[54] - For the six months ended January 31, 2023, four customers accounted for 30%, 30%, 27%, and 14% of consolidated revenue, indicating significant customer concentration[69] - During the six months ended January 31, 2023, the Company sold its long-term investments in Solarever and Armstrong at cost to focus on its core financial consulting services[88][92] - The company is involved in a pending legal proceeding with Boustead Securities, LLC, which alleges breach of contract related to an acquisition; the outcome is currently premature to predict[119][120][123] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes significant revenue growth to expanded consulting services for more customers, particularly in North America following a strategic shift from China, resulting in a net income turnaround for both three and six-month periods ended January 31, 2023, despite ongoing liquidity concerns from operating cash outflows Business Overview The company provides financial consulting services to SMEs, shifting its strategic focus from China to North America to assist companies in going public on U.S. capital markets, and now operates as a single reporting segment - The company provides financial consulting services to small and medium-sized enterprises (SMEs) in Asia and North America, focusing on helping them go public[125] - In May 2022, the company shifted its geographic focus from China to North America to assist mid and small companies in becoming public on U.S. capital markets[130] - On August 1, 2022, the company sold its equity interest in ATIF GP, ceasing to be the investment manager of ATIF LP; as of January 31, 2023, the company operates as a single reporting segment: financial consulting services[128] Results of Operations The company experienced substantial revenue growth and a significant reduction in operating expenses, leading to a turnaround from net loss to net income for both the three and six-month periods ended January 31, 2023 Comparison of Operations for the Three Months Ended January 31 | Metric | 2023 ($) | 2022 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | 1,900,000 | 7,680 | 24,640% | | Total Operating Expenses | (566,112) | (827,100) | (32)% | | Net Income (Loss) | 810,981 | (1,354,169) | (160)% | Comparison of Operations for the Six Months Ended January 31 | Metric | 2023 ($) | 2022 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | 2,200,000 | 524,155 | 320% | | Total Operating Expenses | (1,134,008) | (1,930,368) | (41)% | | Net Income (Loss) | 698,466 | (2,253,694) | (131)% | - The substantial increase in revenue for the three and six-month periods is attributed to providing consulting services to four customers in the current period versus only one in the prior-year period[140][148] - General and administrative expenses decreased by 37% for both the three and six-month periods, mainly due to the disposal of ATIF HK and termination of the Qianhai VIE Agreement[142][150] Liquidity and Capital Resources The company faces liquidity concerns with low cash reserves relative to current liabilities, experiencing net cash outflows from operating activities primarily due to increased accounts receivable, despite management's expectation of future fee collections - As of January 31, 2023, the company had $0.8 million in cash and $2.5 million in current liabilities, raising going concern considerations; management expects to collect $2.4 million in service fees over the next 12 months to support operations[163] Cash Flow Summary for Six Months Ended January 31 | Cash Flow Activity | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Operating Activities | (754,714) | 328,160 | | Investing Activities | (166,036) | (2,094,308) | | Financing Activities | 0 | (39,642) | - Net cash used in operating activities was $0.8 million for the six months ended Jan 31, 2023, primarily due to a $1.7 million increase in accounts receivable, a significant shift from the $0.3 million provided by operations in the prior year period[168][169] Quantitative and Qualitative Disclosures About Market Risk The company, as a smaller reporting company, is not required to provide information for this item - As a smaller reporting company, ATIF Holdings Limited is not required to provide quantitative and qualitative disclosures about market risk[175] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of January 31, 2023, due to four identified material weaknesses in internal control over financial reporting, for which remediation measures are currently being implemented - Management concluded that disclosure controls and procedures were not effective as of January 31, 2023[176] - Four material weaknesses in internal control over financial reporting were identified[177][178] - 1. Insufficient personnel with U.S. GAAP knowledge to handle complex accounting issues[178] - 2. Lack of an internal control department and adequate internal audit function[178] - 3. Insufficient risk assessment in accordance with the COSO 2013 Framework[178] - 4. Lack of sufficient documented financial closing policies and procedures[178] - Remediation efforts include hiring more qualified accounting personnel, implementing training programs, and establishing an internal audit function[180][181] PART II - OTHER INFORMATION Legal Proceedings The company is involved in a lawsuit filed by Boustead Securities, LLC, alleging breach of contract related to the acquisition of LGC, with the outcome currently premature to predict - Boustead Securities, LLC filed a lawsuit against the Company and LGC on May 14, 2020, alleging breach of contract and other claims related to the Company's acquisition of a 51.2% equity interest in LGC[184][185] - After several motions and amended complaints, the court denied the Company's motion to dismiss the second amended complaint on July 6, 2022; the Company has since filed a motion to compel arbitration[188] - Management considers it premature to assess and predict the outcome of this pending litigation[188] Other Items As a smaller reporting company, the company is not required to provide information for Item 1A (Risk Factors), and Items 2, 3, 4, and 5 are all deemed not applicable - Item 1A (Risk Factors): Not required as the company is a smaller reporting company[190] - Items 2, 3, 4, and 5 are marked as 'Not applicable'[190] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes required certifications from the Chief Executive Officer and Chief Financial Officer[191] - XBRL instance documents and related taxonomy files are filed as exhibits[191]