NOTE 9 BUSINESS COMBINATION AND GOODWILL

On May 28, 2020, ECXJ completed the acquisition of 100% equity interest of HZ CXJ. The Company is an automobile aftermarket products wholesaler, as well as an auto detailing store consultancy company in Hangzhou City, Zhejiang Province through this acquisition. The purchase consideration was $4,094,453, consists of 1,364,800 shares of the Company’s common stock issued to HZ CXJ’s original owner fair valued at the acquisition date. These shares were issued on May 28, 2020. The Company accounted for the acquisition using the purchase method of accounting for business combination under ASC 805. The total purchase price was allocated to the tangible and identifiable intangible assets acquired and liabilities based on their estimated fair values as of the acquisition date.

The determination of fair values involves the use of significant judgment and estimates and in the case of HZ CXJ, this is with specific reference to acquired intangible asset. The judgments used to determine the estimated fair value assigned to assets acquired and liabilities assumed, as well as the intangible asset life and the expected future cash flows and related discount rate, can materially impact the Company’s consolidated financial statements. Significant inputs and assumptions used for the model included the amount and timing of expected future cash flows and discount rate. The Company utilized the assistance of a third-party valuation appraiser to determine the fair value as of the date of acquisition.

The purchase price was allocated on the acquisition date of HZ CXJ as follows:

 SCHEDULE OF PURCHASE PRICE ALLOCATED ON ACQUISITION

Goodwill is tested for impairment annually as of the first day of fiscal May or more frequently when events or changes in circumstances indicate that impairment may have occurred. The Company performed its fourth quarter 2024 annual goodwill impairment test using a quantitative assessment for its HZ CXJ reporting unit. The quantitative assessment for HZ CXJ reporting unit indicated that its carrying amount exceeded its fair value, and resulted the fully impairment of $1,742,577 in the fourth quarter of 2025. This non-cash impairment charge is presented within the General & Administrative Expenses line for 2025 in the accompanying Consolidated Statements of Operations. As at May 31, 2025 and 2026, the goodwill balance is $0.

The fair value estimate for the HZ CXJ reporting unit was based on a blended analysis of the present value of future discounted cash flows and market value approach. The significant estimates used in the discounted cash flow model included the Company’s weighted average cost of capital, projected cash flows and the long-term rate of growth. Significant estimates in the market approach model included identifying similar companies with comparable business factors such as size, growth, profitability, risk and return on investment and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit.

The decline in the fair value of the HZ CXJ’s reporting unit has mainly resulted from changes to its projected revenue growth rates and timeline, which were finalized during the Company’s annual long-term planning process in the fourth quarter of 2025. The HZ CXJ reporting unit has been in operation since June 2019, therefore the Company has less experience estimating the operating performance of this reporting unit. The Company’s expected revenue increase has been slower than anticipated due to the time required to ramp up activity for new customers. In addition, during its long-term planning process performed, the Company made adjustments to reduce its forecasted spend on HZ CXJ in 2025 and beyond, which further impacted expected revenue growth rate and their timing. These changes in critical assumptions related to the reporting unit resulted in a reduction in its estimated fair value.

The goodwill value $4,763,015 was recognised on the acquisition. The impairment loss on goodwill of $0 and $1,742,577, were recognized during the year ended May 31, 2026 and 2025 respectively. As of May 31, 2026, the balance of goodwill is $0.

The summary of impairment loss on goodwill is as below:

 SCHEDULE OF IMPAIRED LOSS ON GOODWILL