NOTE 2. LIQUIDITY

As reflected in the Company’s unaudited condensed consolidated financial statements, the Company had recurring net losses for the six months ended December 31, 2018 and 2019. In assessing its liquidity, management monitors and analyzes the Company’s cash on-hand and its ability to generate sufficient revenue sources in the future to support its operating and capital expenditure commitments. The Company's liquidity needs are to meet its working capital requirements, operating expenses and capital expenditure obligations. Debt financing in the forms of loans payable and loans from related parties have been utilized to finance the working capital requirements of the Company.

Despite those negative financial trends, the Company has positive working capital and management has plans to enhance its liquidity:

The Company has been enhancing the collection of current receivable balances. As of February 29, 2020, about ¥12.5 million ($1.8 million) has been collected.

The Company is mainly financed through borrowing from shareholders and senior management. On August 31, 2019, two major shareholders of the Company signed a 3-year commitment letter to support the Company and whenever the Company met liquidity difficulty, they will provide working capital to support daily operation of the Company.

The Company may also consider financing directly from a commercial bank by contract pledge or discount of notes receivable.

Management believes that the foregoing measures collectively will provide sufficient liquidity for the Company to meet its future liquidity and capital obligations.