| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES Basis of Presentation and Principles of Consolidation The interim
unaudited condensed consolidated financial statements are prepared and presented in accordance with accounting principles generally accepted
in the United States (“U.S. GAAP”). The unaudited
condensed consolidated balance sheets as of April 30, 2023 and for the unaudited condensed consolidated statement of operations and comprehensive
loss for the three and nine months ended April 30, 2023 and 2022 have been prepared without audit, pursuant to the rules and regulations
of the SEC and pursuant to Regulation S-X. Certain information and footnote disclosures, which are normally included in annual financial
statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated
financial statements should be read in conjunction with the audited financial statements and the notes thereto, included in the Form 10-K
for the fiscal year ended July 31, 2022, which was filed with the SEC on November 2, 2022. In the opinion
of the management, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments, which
are necessary for a fair presentation of financial results for the interim periods presented. The Company believes that the disclosures
are adequate to make the information presented not misleading. The accompanying unaudited condensed consolidated financial statements
have been prepared using the same accounting policies as used in the preparation of the Company’s unaudited condensed consolidated
financial statements for the year ended July 31, 2022. The results of operations for the three and nine months ended April 30, 2023 and
2022 are not necessarily indicative of the results for the full years. The unaudited
condensed consolidated financial statements of the Company include the accounts of the Company and its subsidiaries. All intercompany
balances and transactions have been eliminated upon consolidation. Noncontrolling Interests As of July 31, 2022, the non-controlling interest
represent minority shareholders’ 76.6% ownership interest in ATIF LP, over which the Company had 23.4% ownership interest and acted
as an investment manager. The Company had non-controlling interest of $(369,045) as of July 31, 2022. On August 1, 2022, the Company entered into a
sales agreement with a third party, pursuant to which the Company sold all of its equity interest in ATIF GP for $50,000. Upon the closing
of the Agreement, ATIF GP is no longer our subsidiary and ATIF USA ceased to be the investment manager of ATIF LP. As of April 30, 2023,
the Company had no non-controlling interest. Use of Estimates In preparing the consolidated financial statements
in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates are based on information as of the date of the unaudited condensed consolidated financial
statements. Significant estimates required to be made by management include, but are not limited to, the valuation of accounts receivable,
useful lives of property and equipment and intangible assets, the recoverability of long-lived assets, provision necessary for contingent
liabilities and realization of deferred tax assets. Actual results could differ from those estimates. Fair Value of Financial Instruments ASC 825-10 requires certain disclosures regarding
the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes
the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of
unobservable inputs. The three levels of inputs used to measure fair value are as follows:
● Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
● Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data.
● Level 3 – inputs to the valuation methodology are unobservable. Fair value of investment in trading securities
are based on quoted prices in active markets. The carrying amounts of the Company’s other financial instruments including cash and
cash equivalents, accounts receivable, deposits, due from a related party, due from buyers of LGC and other current assets, accounts payable,
and accrued expenses and other current liabilities approximate their fair values because of the short-term nature of these assets and
liabilities. For lease liabilities, fair value approximates their carrying value at the year-end as the interest rates used to discount
the host contracts approximate market rates. Revenue Recognition The Company recognizes revenue in accordance with
ASC 606 Revenue from Contracts with Customers (“ASC 606”). To determine revenue recognition for contracts
with customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the
performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that
it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance
obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The Company recognizes revenue when it transfers
its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company currently generates its revenue from
the following main sources:
(1) Revenue from customer’s initial registration fee In order to engage with the Company for various
consulting services, a new customer is required to pay an initial non-refundable registration fee to the Company and the Company will
then post the customer’s information and profiles on its website, at which point, the Company’s performance obligations are
satisfied and such registration fee is recognized as revenue. The Company does not charge additional customer profile maintenance fee
after the initial posting is completed as limited effort is required for the Company to maintain such information on an on-going basis.
No revenues were generated from customer’s initial registration for the three and nine months ended April 30, 2023 and 2022.
(2) Revenue from consulting services The Company provides various consulting services
to its customers, especially to those who have the intention to be publicly listed in the stock exchanges in the United States and other
countries. The Company categorizes its consulting services into three Phases: Phase I consulting services primarily include
due diligence review, market research and feasibility study, business plan drafting, accounting record review, and business analysis and
recommendations. Management estimates that Phase I normally takes about three months to complete based on its past experience. Phase II consulting services primarily include
reorganization, pre-listing education and tutoring, talent search, legal and audit firm recommendation and coordination, VIE contracts
and other public-listing related documents review, merger and acquisition planning, investor referral and pre-listing equity financing
source identification and recommendations, and independent directors and audit committee candidate’s recommendation. Management
estimates that Phase II normally takes about eight months to complete based on its past experience. Phase III consulting services primarily include
shell company identification and recommendation for customers expecting to become publicly listed through reverse merger transaction;
assistance in preparation of customers’ public filings for IPO or reverse merger transactions; and assistance in answering comments
and questions received from regulatory agencies. Management believes it is very difficult to estimate the timing of this phase of service
as the completion of Phase III services is not within the Company’s control. Each phase of consulting services is stand-alone
and fees associated with each phase are clearly identified in service agreements. Revenue from providing Phase I and Phase II consulting
services to customers is recognized ratably over the estimated completion period of each phase as the Company’s performance obligations
related to these services are carried out over the whole duration of each Phase. Revenue from providing Phase III consulting services
to customers is recognized upon completion of the reverse merger transaction or IPO transaction when the Company’s promised services
are rendered and the Company’s performance obligations are satisfied. Revenue that has been billed and not yet recognized is reflected
as deferred revenue on the balance sheet. Depending on the complexity of the underlying
service arrangement and related terms and conditions, significant judgments, assumptions, and estimates may be required to determine when
substantial delivery of contract elements has occurred, whether any significant ongoing obligations exist subsequent to contract execution,
whether amounts due are collectible and the appropriate period or periods in which, or during which, the completion of the earnings process
occurs. Depending on the magnitude of specific revenue arrangements, adjustment may be made to the judgments, assumptions, and estimates
regarding contracts executed in any specific period. The Company recognized revenues from consulting
services of $0.1 million and $0.3 million, respectively, for the three months ended April 30, 2023 and 2022. The Company recognized revenues
from consulting services of $2.3 million and $0.8 million, respectively, for the nine months ended April 30, 2023 and 2022. Income Taxes The Company accounts for income taxes under ASC
740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. An uncertain tax position is recognized only if
it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest
amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more
likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified
as income tax expense in the period incurred. The Company did not have unrecognized uncertain tax positions or any unrecognized liabilities,
interest or penalties associated with unrecognized tax benefit as of April 30, 2023. As of April 30, 2023, all of the Company’s
income tax returns for the tax years ended December 31, 2018 through December 31, 2022 remain open for statutory examination
by relevant tax authorities. Foreign Currency Translation The functional currency for ATIF is the U.S Dollar
(“US$”). ATIF HK uses Hong Kong dollar as its functional currency, and Huaya uses RMB as its functional currency. For the
three and nine months ended April 30, 2022, the Company primarily operates its business through ATIF Inc, ATIF HK and Huaya, and the latter
two entities were disposed of on May 31, 2022. For the three and nine months ended April 30, 2023, the Company operates its business through
ATIF Inc. The Company’s unaudited condensed consolidated
financial statements have been translated into US$. Assets and liabilities accounts are translated
using the exchange rate at each reporting period end date. Equity accounts are translated at historical rates. Income and expense accounts
are translated at the average rate of exchange during the reporting period. The resulting translation adjustments are reported under other
comprehensive income (loss). Gains and losses resulting from the translations of foreign currency transactions and balances are reflected
in the results of operations. The RMB is not freely convertible into foreign
currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB
amounts could have been, or could be, converted into US$ at the rates used in translation. The following table outlines the currency exchange
rates that were used in creating the unaudited condensed consolidated financial statements as of and for the nine months ended April 30,
2023 in this report:
April 30,
Foreign currency Period-end Average rate
RMB: 1USD 0.1447 0.1439
HKD: 1USD 0.1282 0.1282 Segment reporting Operating segments are defined as components of
an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker
(“CODM”), or decision making group, in deciding how to allocate resources and in assessing performance. The Company’s
CODM is Mr. Liu, the Chairman of the Board of Directors and CEO. The Company’s organizational structure is
based on a number of factors that the CODM uses to evaluate, view and run its business operations which include, but not limited to, customer
base, homogeneity of service and technology. The Company’s operating segments are based on such organizational structure and information
reviewed by the CODM to evaluate the operating segment results. Based on management’s assessment, the management has determined
that the Company now operates in one operating segment with one reporting segment as of April 30, 2023 and July 31, 2022, which is the
consulting service business. Risks and Uncertainty
(a) Credit risk Financial instruments that potentially subject
the Company to significant concentration of credit risk primarily cash, accounts receivables and due from buyers of LGC. The carrying
amounts of cash represent the maximum exposure to credit risk. As of April 30, 2023 and July 31, 2022, the Company had cash of $0.5 million
and $1.8 million, respectively, which is mainly held in cash and demand deposits with several financial institutions in the United States.
In the event of bankruptcy of one of these financial institutions, the Company may not be able to claim its cash and demand deposits back
in full. The Company continues to monitor the financial strength of the financial institutions. Accounts receivable are typically unsecured and
denominated in USD, derived from revenue earned from customers, which are exposed to credit risk. The risk is mitigated by credit evaluations
the Company performs on its customers and its ongoing monitoring process of outstanding balances. Refer to major customers and supplying
channels below for detail. The balance of due from buyers of LGC are unsecured
and dominated in USD, derived from sales of equity interest in LGC (Note 4) to three buyers which are exposed to credit risk. The risk
is mitigated by credit evaluations the Company performs on these buyers and its ongoing monitoring process of outstanding balances.
(b) Concentration risk Accounts receivable are typically unsecured and
derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of
its customers’ creditworthiness and its ongoing monitoring of outstanding balances. The Company has a concentration of its revenues
and receivables with specific customers. For the three months ended April 30, 2023, one customer accounted for 100% of the Company’s
consolidated revenue. For the three months ended April 30, 2022, one customer accounted
for 97% of the Company’s total revenue. For the nine months ended April 30, 2023, four
customers accounted for 28%, 28%, 26% and 17% of the Company’s consolidated revenue, respectively. For
the nine months ended April 30, 2022, two customer accounted for 63% and 32% of the Company’s total revenue . As of April 30, 2023, four customers accounted
for 37%, 34%, 18% and 11% of accounts receivable. As of July 31, 2022, the Company had no accounts receivables due from third parties.
In addition, as of April 30, 2023 and July 31, 2022, the Company also had one related party which accounted for 100% of accounts receivable
due from related parties. For the three and nine months ended April 30,
2023 and 2022, substantially all of the Company’s revenues was generated from providing going public related consulting services
to customers. The risk is mitigated by the Company’s plan to transition its consulting services from the PRC based customers to
more international customers.
(c) Other risks and uncertainties The Company’s business, financial condition
and results of operations may also be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics
and other catastrophic incidents, which could significantly disrupt the Company’s operations. The Company’s operations have been affected
by the outbreak and spread of the coronavirus disease 2019 (COVID-19), which in March 2020, was declared a pandemic by the World
Health Organization. The COVID-19 outbreak is causing lockdowns, travel restrictions, and closures of businesses. The Company’s
businesses have been negatively impacted by the COVID-19 coronavirus outbreak to a certain extent. Some of the Company’s existing
customers have experienced financial distress and disruption of business, which resulted in delay or default on their payments. Nevertheless, the continued uncertainties associated
with COVID 19 may cause the Company’s revenue and cash flows to underperform in the next 12 months. A resurgence could negatively
affect the execution of the going public consulting service agreements and the collection of the payments from customers. The extent of
the future impact of COVID-19 is still highly uncertain and cannot be predicted as of the financial statement reporting date. |
