UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
For the quarterly period ended November 30, 2021
| |
| ☐ | Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
|
For the transition period from __________ to__________
| |
| Commission File Number: 000-55979 |
AB International Group Corp.
(Exact name of registrant as specified in its charter)
| Nevada | 37-1740351 |
(State or other jurisdiction of incorporation or organization)
| (IRS Employer Identification No.) |
48 Wall Street, Suite 1009, New York, NY 10005 | |
(Address of principal executive offices)
| |
| (212) 918-4519 | |
| (Registrant’s telephone number) | |
| _______________________________________________________ | |
| (Former name, former address and former fiscal year, if changed since last report) | |
Indicate by check mark whether the registrant (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.
[X] Yes [ ] 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 fi les). [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☐ Large accelerated filer | ☐ Accelerated filer |
| ☒ Non-accelerated Filer | ☒ Smaller reporting company |
| ☒ Emerging growth company |
If an emerging growth company, indicate 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. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X] No
State the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practicable date: common shares as of January 19, 2022
| 1 |
| TABLE OF CONTENTS | ||
| Page | ||
PART I – FINANCIAL INFORMATION
| ||
| Item 1: | Financial Statements | 3 |
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 8 |
| Item 4: | Controls and Procedures | 8 |
PART II – OTHER INFORMATION
| ||
| Item 1: | Legal Proceedings | 9 |
| Item 1A: | Risk Factors | 9 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 9 |
| Item 3: | Defaults Upon Senior Securities | 10 |
| Item 4: | Mine Safety Disclosures | 10 |
| Item 5: | Other Information | 10 |
| Item 6: | Exhibits | 10 |
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our unaudited consolidated financial statements included in this Form 10-Q are as follows:
| F-1 | Condensed Consolidated Balance Sheets as of November 30, 2021 (unaudited) and August 31, 2021 (audited); |
| F-2 | Condensed Consolidated Statements of Operations for the three months ended November 30, 2021 and November 30, 2020 (unaudited); |
| F-3 | Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended November 30, 2021 and November 30, 2020 (unaudited); |
| F-4 | Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 2021 and November 30, 2020 (unaudited); and |
| F-5 | Notes to Condensed Consolidated Financial Statements (unaudited). |
These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended November 30, 2021 are not necessarily indicative of the results that can be expected for the full year.
| 3 |
AB INTERNATIONAL GROUP
Condensed Consolidated Balance Sheets
| November 30, | August 31, | |||||||
| 2021 | 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 170,668 | $ | 132,253 | ||||
| Prepaid expenses | 24,478 | 13,566 | ||||||
| Account receivable | — | — | ||||||
| Related party receivable | 1,439 | 1,439 | ||||||
| Subscription receivable | — | 87,239 | ||||||
| Interest receivable | — | — | ||||||
| Other receivable | 1,184,385 | 644,785 | ||||||
| Total Current Assets | 1,380,971 | 879,282 | ||||||
| Fixed assets, net | 16,020 | 17,128 | ||||||
| Leasehold improvement, net | 24,385 | 36,577 | ||||||
| Right of use operating lease assets, net | 1,076,679 | 47,827 | ||||||
| Intangible assets, net | 3,312,238 | 3,998,805 | ||||||
| Long-term prepayment | 883,200 | 761,600 | ||||||
| Other assets | 45,240 | 16,508 | ||||||
| TOTAL ASSETS | $ | 6,738,733 | $ | 5,757,727 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | 129,080 | $ | 118,283 | ||||
| Related party payable | 916,922 | 933,434 | ||||||
| Current portion of obligations under operating leases | 166,834 | 48,226 | ||||||
| Convertible note and derivative liability | — | — | ||||||
| Due to shareholder | 2,870 | 2,347 | ||||||
| Tax payable | — | — | ||||||
| Other payable | 392,947 | 3,827 | ||||||
| Dividend payable | 3,345 | 1,834 | ||||||
| Total Current Liabilities | 1,611,998 | 1,107,951 | ||||||
| Obligations under operating leases, non-current | 944,527 | — | ||||||
| Total Liabilities | 2,556,525 | 1,107,951 | ||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, par value, preferred shares authorized; | — | — | ||||||
| Series A preferred stock, shares issued and outstanding, as of November 30, 2021 and August 31, 2021 | 100 | 100 | ||||||
| Series B preferred stock, shares issued and outstanding, as of November 30, 2021 and August 31, 2021 | 20 | 20 | ||||||
| Series C preferred stock, and shares issued and outstanding, as of November 30, 2021 and August 31, 2021, respectively | 333 | — | ||||||
| Series D preferred stock, and shares issued and outstanding, as of November 30, 2021 and August 31, 2021, respectively | — | — | ||||||
| Common stock, par value, shares authorized; and shares issued and outstanding, as of November 30, 2021 and August 31, 2021, respectively | 235,237 | 226,590 | ||||||
| Additional paid-in capital | 11,581,264 | 11,009,517 | ||||||
| Accumulated deficit | (7,631,023 | ) | (6,578,978 | |||||
| Unearned shareholders’ compensation | (3,723 | ) | (7,473 | ) | ||||
| Total Stockholders’ Equity | 4,182,207 | 4,649,776 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 6,738,733 | $ | 5,757,727 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-1 |
AB INTERNATIONAL GROUP CORP.
Condensed Consolidated Statements of Operations
(Unaudited)
| Three Months Ended | ||||||||
| November 30, | ||||||||
| 2021 | 2020 | |||||||
| Revenue | $ | — | $ | 76,800 | ||||
| Cost of revenue | (686,567 | ) | (156,086 | ) | ||||
| Gross Profit (Loss) | (686,567 | ) | (79,286 | ) | ||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses | (308,966 | ) | (231,146 | ) | ||||
| Research and development expenses | — | — | ||||||
| Related party salary and wages | (55,000 | ) | (6,350 | ) | ||||
| Total Operating Expenses | (363,967 | ) | (237,496 | ) | ||||
| Loss From Operations | (1,050,534 | ) | (316,782 | ) | ||||
| OTHER INCOME (EXPENSES) | ||||||||
| Interest expense, net | — | (81,750 | ) | |||||
| Preferred shares dividend expense | (1,511 | ) | — | |||||
| Gain (Loss) from change in fair value | — | (98,787 | ) | |||||
| Loss from lease termination | — | (3,251 | ) | |||||
| Loss from warrant termination | — | (12,343 | ) | |||||
| Loss from warrant exercise | — | (12,540 | ) | |||||
| Total Other Expenses | (1,511 | ) | (208,672 | ) | ||||
| Loss Before Income Tax Provision | (1,052,045 | ) | (525,454 | ) | ||||
| Income tax provision | — | — | ||||||
| NET LOSS | $ | (1,052,045 | ) | $ | (525,454 | ) | ||
| NET LOSS PER SHARE: BASIC | $ | (0.00 | ) | $ | (0.01 | ) | ||
| NET LOSS PER SHARE: DILUTED | $ | (0.00 | ) | $ | (0.00 | ) | ||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC | 231,884,710 | 93,965,474 | ||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: DILUTED | 231,884,710 | 143,576,929 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-2 |
AB INTERNATIONAL GROUP CORP.
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
| Common Stock | Preferred Stock | ||||||||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Unearned Shareholders' Compensation | Total Equity | ||||||||||||||||||||||||
| Balance - August 31, 2020 | 46,661,417 | $ | 46,661 | — | $ | — | $ | 7,271,983 | $ | ( 2,970,880 | ) | $ | (391,667 | ) | $ | 3,956,097 | |||||||||||||||
| Common shares issued for cash at$0.015312 or $0.014256 per share | 5,470,000 | 5,470 | — | — | 75,398 | — | — | 80,868 | |||||||||||||||||||||||
| Common shares issued from note conversions | 25,406,238 | 25,406 | — | — | 158,347 | — | — | 183,753 | |||||||||||||||||||||||
| Common shares issued from warrant exercises | 47,070,294 | 47,070 | — | — | 28,236 | — | — | 75,306 | |||||||||||||||||||||||
| Series A Preferred Shares issued | — | — | 100,000 | 100 | — | — | — | 100 | |||||||||||||||||||||||
| Common shares returned due to officer resignations | (261,111 | ) | (261 | ) | — | — | (391,405 | ) | — | 391,667 | — | ||||||||||||||||||||
| Warrants termination and Exercised | — | — | — | — | (145,423) | — | — | (145,423) | |||||||||||||||||||||||
| Net loss | — | — | — | — | — | (525,454 | ) | — | (525,454) | ||||||||||||||||||||||
| Balance - November 30, 2020 | 124,346,838 | $ | 124,347 | 100,000 | $ | 100 | $ | 6,997,136 | $ | (3,496,335 | ) | $ | — | $ | 3,625,248 | ||||||||||||||||
| |||||||||||||||||||||||||||||||
| Balance - August 31, 2021 | 226,589,735 | $ | 226,590 | 120,000 | $ | 120 | $ | 11,009,517 | $ | (6,578,978 | ) | $ | (7,473 | ) | $ | 4,649,776 | |||||||||||||||
| Put Shares issued for cash | 5,500,000 | 5,500 | — | — | 133,276 | — | — | 138,776 | |||||||||||||||||||||||
| Preferred shares series C issuance | — | — | 332,625 | 333 | 288,617 | — | — | 288,950 | |||||||||||||||||||||||
| Preferred shares series D issuance | — | — | 153 | — | 153,000 | — | — | 153,000 | |||||||||||||||||||||||
| Preferred shares and dividend shares converted into common shares | 3,146,854 | 3,147 | (75 | ) | (0 | ) | (3,147 | ) | — | — | — | ||||||||||||||||||||
| Common shares issued to officers for services | — | — | — | — | — | — | 3,750 | 3,750 | |||||||||||||||||||||||
| Net loss | — | — | — | — | — | (1,052,045 | ) | — | (1,052,045) | ||||||||||||||||||||||
| Balance - November 30, 2021 | 235,236,589 | $ | 235,237 | 452,703 | $ | 453 | $ | 11,581,264 | $ | (7,631,023 | ) | $ | (3,723 | ) | $ | 4,182,207 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
AB INTERNATIONAL GROUP CORP.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended | ||||||||
| November 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (1,052,045 | ) | $ | (525,454 | ) | ||
| Adjustments to reconcile net income (loss) to net cash from operating activities: | ||||||||
| Executive salaries and consulting fees paid in stock | 3,750 | 100 | ||||||
| Depreciation of fixed asset | 13,300 | 13,148 | ||||||
| Amortization of intangible asset | 686,567 | 140,726 | ||||||
| Loss/(gain) from change in fair value of derivatives | — | 98,787 | ||||||
| Loss/(gain) from lease termination | — | 3,251 | ||||||
| Loss/(gain) from warrant termination | — | 12,343 | ||||||
| Loss/(gain) from warrant exercise | — | 12,540 | ||||||
| Non-cash interest for convertible notes | — | 81,755 | ||||||
| Non-cash note conversion fees | — | 8,750 | ||||||
| Non-cash dividend expense for preferred shares | 1,511 | — | ||||||
| Non-cash lease expense | 34,284 | 1,190 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | — | 86,362 | ||||||
| Receivable on asset disposal | — | — | ||||||
| Interest receivable | — | 26,240 | ||||||
| Related party receivable | — | 86,142 | ||||||
| Other receivable | (539,600 | ) | — | |||||
| Prepaid expenses | (10,912 | ) | 3,024 | |||||
| Rent security & electricity deposit | (28,733 | ) | 3,533 | |||||
| Purchase of movie and TV series broadcast right and copyright | (121,600 | ) | (1,621,333 | ) | ||||
| Accounts payable and accrued liabilities | 10,797 | (237,344 | ) | |||||
| Related party payable | (16,512 | ) | — | |||||
| Due to / from shareholders | 523 | 61,024 | ||||||
| Other payable | 389,120 | 243 | ||||||
| Net cash used in operating activities | (629,550 | ) | (1,744,973 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of furniture and equipment | — | (5,000 | ) | |||||
| Net cash provided by /(used in) investing activities | — | (5,000 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of convertible notes | — | 233,017 | ||||||
| Proceeds from common stock issuances | 226,015 | 80,868 | ||||||
| Proceeds from preferred share C issuances | 288,950 | — | ||||||
| Proceeds from preferred share D issuances | 153,000 | — | ||||||
| Net cash provided by financing activities | 667,965 | 313,885 | ||||||
| Net increase (decrease) in cash and cash equivalents | 38,415 | (1,436,088 | ) | |||||
| Cash and cash equivalents –beginning of the quarter | 132,253 | 2,455,061 | ||||||
| Cash and cash equivalents – end of the quarter | 170,668 | 1,018,974 | ||||||
| Supplemental Cash Flow Disclosures | ||||||||
| Cash paid for interest | — | — | ||||||
| Cash paid for income taxes | — | — | ||||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Cashless warrant exercises | $ | — | $ | (75,306 | ) | |||
| Convertible notes converted to common shares | $ | — | $ | (183,752 | ) | |||
| Additions to ROU assets from operating lease liabilities | $ | 1,080,156 | $ | 20,038 | ||||
| Common shares returned due to officer resignations | $ | — | $ | (391,666 | ) | |||
| Preferred shares converted into common shares | $ | 75,000 | $ | — | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended August 31, 2021 and August 31, 2020
(Unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS
AB International Group Corp. (the “Company”, “we” or “us”) was incorporated under the laws of the State of Nevada on July 29, 2013. The Company's fiscal year end is August 31.
We are an intellectual property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectual property. We are engaged to acquisition and distribution of movies. We have a patent license to a video synthesis and release system for mobile communications equipment, in which the technology is the subject of a utility model patent in the People’s Republic of China. We had launched a business application (Ai Bian Quan Qiu) through smartphones and official social media accounts based on WeChat platform in February 2019, utilizing Artificial Intelligence, it is a matching platform for performers, advertiser merchants, and owners for more efficient services. We generate revenues through an agency service fee from each matched performance.
On January 22, 2016, our former sole officer, who owned 83% of our outstanding common shares, sold all of his common shares to unrelated investor Jianli Deng. After the stock sale, we modified our business to focus on the creation of a mobile app marketing engine. The app was designed for movie trailer promotions and we planned to generate a subscriber base of smartphone users primarily through pre-installed app smartphone makers, online app stores, WeChat official accounts, Weibo and other social network media outlets and sell prepaid cards or coins to movie distributors or other video advertisers in China. We created the app “Amoney” for the Android smartphone platform to develop a WeChat micro-shop that was designed to display and deliver a variety of information and links for download or online watch prices in the China market.
On June 1, 2017 we entered into a Patent License Agreement (the “Agreement”) pursuant to which Guangzhou Shengshituhua Film and Television Company Limited, a company incorporated in China (“Licensor”), granted to us a worldwide license to a video synthesis and release system for mobile communications equipment (the “Technology”). The Technology is the subject of a utility patent in the People’s Republic of China. Under the Agreement, we are able to utilize, improve upon, and sub-license the technology a term of five years commencing on the June 1, 2017 (Effective Date) and subject to a right to renew for another five years. We were obligated to pay the Licensor $500,000 within 30 days of the date of the Agreement and a royalty fee in the amount of 20% of any proceeds resulting from our utilization of the Technology, whether in the form of sub-licensing fees or sales of licensed products. Our Chief Executive Officer, Chiyuan Deng and former Chief Executive Officer, Jianli Deng, jointly own and control Licensor. On October 10, 2017, we completed the payment of $500,000 initial payment amount due under the Agreement. The term of this sublicensing agreement was renewed and extended for another five years in October of 2019.
Our License to the Technology generates revenue through sub-license monthly fees from a smartphone app on Android devices. This smartphone app was already existing and licensed at the time we acquired the Technology of video synthesis. In January, 2021, our sublicensing agreement with Anyone Picture to generate revenues was terminated. As such, there has been no revenues generated from sub-licensing the Technology since the end of December, 2020.
| F-5 |
In December of 2018, we engaged StarEastnet, a software developer that holds common shares of the Company as of August 31, 2019, to start developing a performance matching platform (Ai Bian Quan Qiu) and a WeChat official account to advertise the platform. The matching platform is to arrange performance events for celebrities and performers. Performers can set their schedules and quotes on the platform. The platform will maximize their profits from performance events by optimizing their schedules based upon quotes and event locations and save time from commuting among different events. “Ai Bian Quan Qiu” utilizes the artificial intelligence (AI) matching technology to instantly and accurately match performers and advertisers or merchants. The company charges agency service fees for each successful event matched through the platform. Since no large social gathering is allowed as a result of COVID-19, there has been no revenue generated from the performance matching platform (Ai Bian Quan Qiu) since the end of January, 2020. The Company decided to impair 100% of the carrying amount of Ai Bian Quan Qiu platform and its Wechat official account.
In June, 2019, the Company completed the development of a video mix APP for social video sharing via iOS and Android smartphones. This app was originally planned to take advantage of the core design philosophy of “My film anyone, anywhere, anytime be together” as similar and competitive innovative video and community apps have been activated on over 2 million unique devices in China as of December 31, 2017 and precipitated the duet video synthesis phenomenon in China. However, the Company decided to focus on the “Ai Bian Quan Qiu” platform as its main business and thus sold the video mix APP to Anyone Pictures Limited, which holds common shares of the Company, for $422,400 with a gain of $59,792 in August of 2019. Due to the quarantine and continuous control imposed by the state and local governments in areas affected by COVID-19, merchant advertising events were suspended. The Company decided to shut down the Ai Bian Quan Qiu platform and no revenue was generated after January 31, 2020. As a result, it has created an adverse impact on the business and financial condition and hampered its ability to generate revenue and access sources of liquidity on reasonable terms.
In August of 2019, the Company entered into a one year loan agreement to lend $1,047,040 at an annual interest rate of 10% to All In One Media Ltd, previously named as Aura Blocks Limited, for producing films and digital videos in Hong Kong. The term of note receivable was from August 1, 2019 to July 31, 2020. This loan principal balance was paid off in full in July, 2020. All the interest income of $95,979 was received by August 31, 2020.
On September 4, 2019, the Company entered into another loan agreement to lend $1,049,600 at an annual interest rate of 10% to All In One Media Ltd, previously named as Aura Blocks Limited. The term of note receivable was from September 4, 2019 to March 3, 2020. This loan balance was paid off in full on May 4th, 2020 with two months’ extension. All the interest income of $70,021 was received by November 13, 2020.
On April 22, 2020, the Company announced the first phase development of its video streaming service. The online service will be marketed and distributed in the world under the brand name ABQQ.tv. The Company’s professional team are sourcing such dramas and films to provide video streaming service on the ABQQ.tv. The video streaming website www.ABQQ.tv was officially launched on December 29, 2020. As of August 31, 2021, the Company acquired 4 movie copyrights and 59 movie broadcast rights. The Company will continue marketing and promoting the ABQQ.tv website through GoogleAds and acquire additional broadcast rights for movies and TV series, and plan to charge subscription fees once the Company has obtained at least 200 broadcast rights of movie and TV series.
| F-6 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and are presented in US dollars. The Company’s year-end is August 31.
Basis of Consolidation
The financial statements have been prepared on a consolidated basis, with the Company’s fully owned subsidiary App Board Limited registered and located in Hong Kong. All intercompany balances and transactions have been eliminated in consolidation.
Going Concern Uncertainties
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of November 30, 2021, the Company had an accumulated deficit of approximately $7.63 million and a working capital deficit of $231,027. For the three months ended November 30, 2021, the Company incurred a net loss of approximately $1 million and the net cash used in operations was $629,550. Losses have principally occurred as a result of the substantial resources required for general and administrative expenses associated with our operations. The continuation of the Company as a going concern through November 30, 2022 is dependent upon the continued financial support from its stockholders or external financing. Management believes the existing stockholders will provide the additional cash to meet the Company’s obligations as they become due. However, there is no assurance that the Company will be successful in securing sufficient funds to sustain the operations.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Foreign Currency Transactions
The Company’s planned operations are outside of the United States, which results in exposure to market risks from changes in foreign currency rates. The financial risk arises from the fluctuations in foreign exchange rates and the degrees of volatility in these rates. Currently the Company does not use derivative instruments to reduce its exposure to foreign currency risk. Non-monetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the year. Revenues and expenses are translated at average rates for the year. Gains and losses from translation of foreign currency financial statements into U.S. dollars are included in current results of operations.
| F-7 |
Account Receivable
Account receivable consisted of amounts due from Anyone Pictures Limited for the sub-licensing fee revenue. Amount receivable balances are recorded at the invoiced amount and do not bear interest. As the sublicensing agreement with Anyone Picture was terminated in January, 2021, there was no account receivable balance as of November 30, 2021 or August 31, 2021. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. No amount for bad debt expense was recorded by the Company during the three months ended November 30, 2021 and August 31, 2021, and no write-offs for bad debt were recorded for the three months ended November 30, 2021 and November 30, 2020.
Prepaid Expenses
Prepaid expenses primarily consist of prepayments of OTC market annual fee. The prepaid balances are amortized when the related expense is incurred.
Fixed Asset
Fixed asset consists of furniture and appliances acquired for the office. The balance is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives listed below:
| Estimated Useful Life | |||
| Furniture | 7 years | ||
| Appliances | 5 years |
Leasehold Improvement
Leasehold improvement is related to the enhancements paid by the Company to leased office and store. Leasehold improvement represents capital expenditures for direct costs of renovation or acquisition and design fees incurred. The amortization of leasehold improvements commences once the renovation is completed and ready for the Company’s intended use. Leasehold improvement is amortized over the lease term of 3 years.
Intangible Assets
Intangible assets are stated at the lower of cost or amortized cost or estimated fair value and amortized as follows:
| ● | Movie copyrights and broadcast rights: straight-line method over the estimated life of the asset, which has been determined by management to be 2 years |
| ● | Patent: straight-line method over the term of 5 years based on the patent license agreement |
Amortized costs of the intangible asset are recorded as cost of sales, as the intangible assets are directly related to generation of revenues in the Company.
Lease property under operating lease
In February 2016, the Financial Accounting Standards Board (“FASB”) issued updated guidance to improve financial reporting about leasing transactions. This guidance required organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued new guidance which included an option to not restate comparative periods in transition. Under this new guidance, a company applies the standard to leases in place as of the date of initial application, records a cumulative-effect adjustment to retained earnings as of the first day of the adoption year, and follows the new rules for all leases entered or modified going forward. The Company adopted this new standard on June 1, 2020 with no retrospective adjustments to prior comparative periods. In accordance with ASC 250-10-45-14, a change in accounting principle made in an interim period shall be reflected as if the entity had adopted the new principle on the first day of the adoption year, which is September 1, 2019 for the Company. As such, the adoption of ASC 842 lease accounting standard has resulted in $196,813 lease liabilities with corresponding $201,025 ROU assets net of amortization as of September 1, 2019 based on the present value of the remaining rental payments under current leasing standards for existing leases. The remaining balance of lease liabilities are presented within the current portion of lease liabilities and the non-current portion of lease liabilities on the Consolidated Balance Sheet.
| F-8 |
Impairment of Long-lived asset
The Company evaluates its long-lived assets or asset group, including intangible assets with indefinite and finite lives, for impairment. Intangible assets with indefinite lives that are not subject to amortization are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the assets might be impaired in accordance with ASC 350. Such impairment test compares the fair values of assets with their carrying values with an impairment loss recognized when the carrying values exceed fair values. For long-lived assets and intangible assets with finite lives that are subject to depreciation and amortization are tested for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of an asset or a Group of long-lived assets may not be recoverable. When these events occur, the Company evaluates impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value.
Impairment losses are included in the general and administrative expense. There was no impairment loss during the three months ended November 30, 2021 and the year ended August 31, 2021.
Revenue Recognition
The Company adopted ASC Topic 606, “Revenue from Contracts with Customers”, applying the modified retrospective method.
In accordance with ASC Topic 606, revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
| ● | the contract with a customer; |
| ● | identify the performance obligations in the contract; |
| ● | determine the transaction price; |
| ● | allocate the transaction price to performance obligations in the contract; and |
| ● | recognize revenue as the performance obligation is satisfied. |
The Company does not believe that significant management judgements are involved in revenue recognition, but the amount and timing of the Company’s revenues could be different for any period if management made different judgments or utilized different estimates. Generally, the Company recognizes revenue under ASC Topic 606 for its performance obligation.
The Company generates revenue from sub-licensing a patent. The sub-licensing revenue is recognized monthly based upon the number of users who download the APP that utilizes the Company’s patent. The monthly royalty the Company charges Anyone Pictures Limited is $12.8 per 1000 APP users. Both parties agreed to charge the sublicensing fee based upon a fixed number 2,000,000 users. In January, 2021, our sublicensing agreement with Anyone Picture to generate revenues was terminated. As such, there has been no revenues generated from sub-licensing the Technology since the end of December, 2020. Once the Company finds another company to sublicense the patent, it will generate royalty revenue again.
| F-9 |
Fair Value of Financial Instruments
ASC 820, “Fair Value Measurements” (ASC 820) and ASC 825, “Financial Instruments” (ASC 825), requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 – Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 – Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 – Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The carrying values of cash, accounts payable, and accrued liabilities approximate fair value due to their short-term nature. The fair values of warrant liabilities and derivative liabilities embedded in convertible notes are determined by level 3 inputs.
Accounting for Derivative Instruments
The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” (ASC 815) and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet.
The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company's policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for the Company's liabilities), relying first on observable data from active markets. Additional adjustments may be made for factors including liquidity, credit, bid/offer spreads, etc., depending on current market conditions. Transaction costs are not included in the determination of fair value. When possible, the Company seeks to validate the model's output to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. Changes in fair value are recognized in the period incurred as either gains or losses.
Warrants
Warrants are classified as equity and the proceeds from issuing warrants in conjunction with convertible notes are allocated based on the relative fair values of the base instrument of convertible notes and the warrants by following the guidance of ASC 470-20-25-2 as below:
Proceeds from the sale of a debt instrument with stock purchase warrants (detachable call options) shall be allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants shall be accounted for as paid-in capital. The remainder of the proceeds shall be allocated to the debt instrument portion of the transaction. This usually results in a discount (or, occasionally, a reduced premium), which shall be accounted for as interest expense under Topic 835 Interest.
| F-10 |
Income Taxes
The Company accounts for income taxes pursuant to FASB ASC 740 “Income Taxes”. Under ASC 740 deferred income taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. At November 30, 2021 and 2020, there were no unrecognized tax benefits. Please see Note 14 for details.
Value-Added Taxes
The Company generates revenue in People's Republic of China (PRC) via the “Ai Bian Quan Qiu” platform and is subject to a value-added tax at an effective rate of 6%. In accordance with PRC law, the Company is also subject to surcharges, which includes urban maintenance and construction taxes and additional education fees on VAT payable.
The Company’s revenue generated from the “Ai Bian Quan Qiu” platform is subject to VAT at a rate of 6% and subject to surcharges at a rate of 12% of the VAT payable.
The Company computes income (loss) per share in accordance with FASB ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. The earnings per share after the reverse stock split is presented retrospectively as if the reverse split had occurred at the very beginning of the business. Basic loss per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share is computed using the weighted average number of common shares and potential common shares outstanding during the period for warrants, options and restricted shares under treasury stock method, and for convertible debts under if-convertible method, if dilutive. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period and excludes all potential common shares if their effects are anti-dilutive.
In accordance with the Company’s convertible note agreements, the Note Holders have the option to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into common stock at a conversion price equal to a price which is 55% or 60% of the lowest trading price during the 10 or 20 days prior to the day that the Holder requests conversion. 55% is applicable to EMA Financial whereas 60% applies for the other counterparties. The lowest trading price during 10 days prior to conversion is applicable to East Capital and Fidelis Capital, whereas the other counterparties utilize the lowest trading price during the preceding 20 days. The number of diluted shares from convertible notes is calculated with the assumption of converting all the outstanding principal balance and unpaid interest expense to common shares at the beginning of the period or at the time of issuance, if later.
The number of diluted shares from warrants is the upper limit to which warrants can be converted into common shares and adjusted for anti-dilution clauses.
| F-11 |
The Company has prepaid all the remaining convertible notes and exercised all the warrants as of November 30, 2021. As such, 0 potentially diluted shares were from convertible notes and warrants as of November 30, 2021, whereas 45,230,142 potentially diluted shares were from convertible notes and potentially diluted shares were from warrants as of November 30, 2020.
| Diluted shares NOT included in basic loss per share computation | As of November 30, | |||||||
| 2021 | 2020 | |||||||
| Warrants | ||||||||
| Convertible notes | 0 | 45,230,142 | ||||||
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” to improve the effectiveness of disclosures in the notes to financial statements related to recurring or nonrecurring fair value measurements by removing amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The new standard requires disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” to remove specific exceptions to the general principles in Topic 740 and to simplify accounting for income taxes. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815,” which clarifies the interaction of the accounting for equity investments under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
| F-12 |
NOTE 3 –PREPAID EXPENSES
Prepaid expense was $24,478 and $13,566 as of November 30, 2021 and August 31, 2021, respectively. Prepaid expense as of November 30, 2021 primarily includes $15,145 prepayment of rents.
NOTE 4 – SUBSCRIPTION RECEIVABLE
Subscription receivable is cash not yet collected from the shareholders for issuance of common stock. As of November 30, 2021, the company has no Subscription receivable. As of August 31, 2021, the subscription receivable balance of $87,239 was cash to be collected from Put shares to Peak One Opportunity Fund LP
NOTE 5 – FIXED ASSETS AND LEASEHOLD IMPROVEMENT
The Company capitalized the renovation cost as leasehold improvement and the cost of furniture and appliances as fixed asset. Leasehold improvement relates to renovation and upgrade of an office and an offline display store. The leasehold improvement is depreciated over 3 years which equal the terms of the operating lease for renting an office. The furniture and appliances are depreciated over 7 and 5 years, respectively.
The depreciation expense was $13,300 and $13,148 for three months November 31, 2021 and November 30, 2020, respectively.
| November 30, 2021 | August 31, 2021 | |||||||
| Leasehold improvement | $ | 146,304 | $ | 146,304 | ||||
| Appliances and furniture | 25,974 | 25,974 | ||||||
| Total cost | 172,278 | 172,278 | ||||||
| Accumulated depreciation | (131,873 | ) | (118,573 | ) | ||||
| Property and equipment, net | $ | 40,405 | $ | 53,705 | ||||
NOTE 6 – INTANGIBLE ASSETS
As of November 30, 2021 and August 31, 2021, the balance of intangible assets are as follows;
| November 30, 2021 | August 31, 2021 | |||||||
| Patent | $ | 500,000 | $ | 500,000 | ||||
| Movie copyrights - Love over the world | 853,333 | 853,333 | ||||||
| Sitcom copyrights - Chujian | 640,000 | 640,000 | ||||||
| Movie copyrights - Huafeng | 422,400 | 422,400 | ||||||
| Movie copyrights - Our treasures | 936,960 | 936,960 | ||||||
| Movie and TV series broadcast rights | 2,439,840 | 2,439,840 | ||||||
| Total cost | 5,792,533 | 5,792,533 | ||||||
| Less: Accumulated amortization | (2,480,295 | ) | (1,793,728 | ) | ||||
| Intangible asset, net | $ | 3,312,238 | $ | 3,998,805 | ||||
Intangible assets include 1) a patent obtained from Guangzhou Shengshituhua Film and Television Company Limited as a worldwide license to a video synthesis and release system for mobile communications equipment, 2) copyrights for the movie “Love over the world”, “Huafeng”, “Our treasures” and the sitcom “Chujian”, and 3) broadcast rights for fifty nine movie and TV series. The amortization expense for three months ended November 30, 2021 and November 30, 2020 was $686,567 and $140,726, respectively.
| F-13 |
The estimated amortization expense for each of the two succeeding years is as follows. The intangible assets as of November 30, 2021 will be fully amortized in the fiscal year of 2023.
| Year ending November 30, | Amortization expense | ||||
| 2022 | $ | 2,580,541 | |||
| 2023 | $ | 731,697 | |||
NOTE 7 – RIGHTS-TO-USE OPERATING LEASE ASSETS, NET
Rights-to-use lease assets, net consisted of the following:
| November 30, 2021 | August 31, 2021 | |||||||
| Right-to-use gross asset | $ | 1,303,393 | $ | 223,237 | ||||
| Less: accumulated amortization | (226,714 | ) | (175,410 | ) | ||||
| Right-to-use asset, net | $ | 1,076,679 | $ | 47,827 | ||||
The estimated amortization expenses for succeeding years is as follows:
| Year ending November 30, | Amortization expense | |||||
| 2022 | $ | 229,675 | ||||
| 2023 | 200,970 | |||||
| 2024 | 202,235 | |||||
| 2025 | 203,854 | |||||
| 2026 | 205,525 | |||||
| 2027 | 34,420 | |||||
| Total lease payments | $ | 1,076,679 | ||||
NOTE 8 – LONG-TERM PREPAYMENT
In September 2019, the Company entered into an agreement with Guangzhou Yuezhi Computer Ltd. For upgrading software of the “Ai Bian Quan Qiu” platform at a cost of $128,000. $108,800 was paid upon signing the agreement and recorded as long-term prepayment in Q1, FY2020. As COVID-19 restricted crowd-gathering, “Ai Bian Quan Qiu” platform has not generated any revenue since mid-January, 2020, the Company impaired 80% of the “Ai Bian Quan Qiu” platform intangible asset value in Q2 FY2020 and the remaining 20% intangible asset in Q4 FY2020. As such, $108,800 prepayment was expensed as research and development expense from the previously recognized long-term prepayment asset in FY2020.
As of November 30, 2021, the long-term prepayment balance of $883,200 relates to movie copyrights and broadcast rights for movies as below:
| • | In November 2019, the Company acquired a broadcast right of “Lushang” (English name: “On the Way”) from All In One Media Ltd for online streaming at a price of $256,000. This broadcast right permits online streaming globally and has been fully paid. As “Lushang” has not yet been approved for screening by the Chinese government, the payment of $256,000 was recorded as long-term prepayment |
| • | In November 2019, the Company acquired a broadcast right of “Qi Qing Kuai Che” (English name: “Confusion”) from All In One Media Ltd for online streaming at a price of $115,200. This broadcast right only allows online streaming outside China. In July 2021, the Company acquired the full movie copyright for both domestic and overseas with an additional cost of $908,800, and the total price is $1,024,000. As of November 30, 2021, $627,200 has been paid. As this movie has not yet been fully paid or approved for screening by the Chinese government, the total payment of $627,200 was recorded as long-term prepayment. |
NOTE 9 – CONVERTIBLE NOTES
On November 18, 2019, the Company closed a private financing with EMA Financial, LLC (“EMA Financial” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $250,000, and upon issuance, the Company is expected to receive net proceeds of $228,333 after subtracting an original issue discount of $21,667 per the Note agreement. This Note carries a prorated original issue discount of up to $21,667 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.
| F-14 |
As part of initial closing the outstanding principal amount shall be $75,000 and the Holder shall pay $68,500 of the consideration (the “First Tranche”). Out of $68,500 consideration, the Company has received $64,737 cash from EMA Financial with the remaining $3,763 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 9 months with the maturity date on August 18, 2020. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 55.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading Days on which at least 100 shares of common stock were traded including and immediately preceding the Conversion Date.
In connection with the issuance of the Note, the Company granted EMA Financial a five-year cashless warrant (the “Warrant”) to purchase 30,000 shares of common stock at an exercise price of $12.5 per share. As of November 30, 2020, EMA Financial exercised of the total warrant shares to acquire 45,851,221 common shares through cashless exercises.
On December 13, 2019, the Company entered into a Securities Purchase Agreement with Peak One Opportunity Fund, L.P., a Delaware limited partnership (“Peak One” or the “Holder”), pursuant to which we issued and sold to the Peak One a convertible promissory note. The Note has an original principal amount of $235,000, and upon issuance, the Company is expected to receive net proceeds of $211,500 after subtracting an original issue discount of $23,500 per the Note agreement. This Note carries a prorated original issue discount of up to $23,500 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.
As part of initial closing the outstanding principal amount shall be $85,000 and the Holder shall pay $76,500 of the consideration (the “First Tranche”). Out of $76,500 consideration, the Company has received $65,312 cash from Peak One with the remaining $11,188 spent as legal expense for note issuance and due diligence fees. Peak One has converted all the convertible notes into common shares by July 16th, 2020.
The term of this convertible note is 1 year with the maturity date on December 9, 2020. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features. The conversion price shall equal to the lesser of (a) $10.00 or (b) Sixty percent (60%) of the lowest closing bid price (as reported by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion of the Debentures (provided, further, that if either the Company is not DWAC Operational at the time of conversion or the Conversion Price is less than $0.01 per share, then sixty percent (60%) shall automatically adjust to Fifty percent (50%) of the lowest closing bid price (as reported by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of conversion of the Debenture), subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events.
In connection with the issuance of the Note, the Company granted Peak One a five-year cashless warrant (the “Warrant”) to purchase 10,000 shares of common stock at an exercise price of $10 per share. As of November 30, 2020, Peak One exercised of the total warrant shares to acquire 3,720,326 common shares through cashless exercises.
On January 8, 2020, the Company entered into a Securities Purchase Agreement with Crown Bridge Partners, LLC, a New York limited company (“Crown Bridge”), pursuant to which the Company issued and sold to Crown a convertible promissory note, dated January 8, 2020, in the principal amount of $121,500. Upon issuance, the Company is expected to receive net proceeds of $109,500 after subtracting an original issue discount of $12,000 per the Note agreement. This Note carries a prorated original issue discount of up to $12,000 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.
As part of initial first tranche closing on January 8th, 2020 the outstanding principal amount shall be $40,500 and the Holder shall pay $36,500 of the consideration (the “First Tranche”). Out of $36,500 consideration, the Company has received $34,992 cash from Crown Bridge with the remaining $1,508 spent as legal expense for note issuance and due diligence fees.
| F-15 |
As part of the second tranche closing on July 23rd, 2020 the outstanding principal amount shall be $50,000 and the Holder shall pay $47,500 of the consideration (the “Second Tranche”). Out of $47,500 consideration, the Company has received $42,987 cash from Crown Bridge with the remaining $4,513 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with the maturity date on January 8, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal lesser (i) fifteen percent (15%) per annum or (ii) the maximum amount permitted by law from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The Conversion Price shall be the lesser of (i) the lowest closing price of the Common Stock during the previous twenty (20) Trading Day period ending on the latest complete Trading Day prior to the date of this Note or (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events) (also subject to adjustment as further described herein). The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein) (representing a discount rate of 40%). “Market Price” means the lowest one (1) Trading Price (as defined below) for the Common Stock during the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date.
“Trading Price” means, for any security as of any date, the lesser of the (i) lowest traded price and (ii) lowest closing bid price on the Over-the-Counter Pink Marketplace, OTCQB, or applicable trading market (the “Principal Market”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the Principal Market is not the principal trading market for such security, on the principal securities exchange or trading market where such security is listed or traded or, if the lowest intraday trading price of such security is not available in any of the foregoing manners, the lowest intraday price of any market makers for such security that are quoted on the OTC Markets
In connection with the issuance of each tranche of the Note, the Company granted Crown Bridge a five-year cashless warrant (the “Warrant”) to purchase 4,680 shares of common stock at an exercise price of $12.5 per share.
On December 31, 2019, the Company closed a private financing with Auctus Capital Partners, LLC, (“Auctus” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $75,000 with no original discount upon issuance.
As part of initial closing the outstanding principal amount shall be $75,000 and the Holder shall pay $75,000 of the consideration (the “First Tranche”). Out of $75,000 consideration, the Company has received $59,342 cash from Auctus with the remaining $15,658 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 9 months with the maturity date on September 30, 2020. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal the lesser of (i) twenty-four percent (24%) per annum and (ii) the maximum amount permitted under law from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price is the lesser of: (i) the lowest closing price of the Common Stock during the previous twenty (20) Trading Day period ending on the latest complete Trading Day prior to the date of this Note, and (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein) (representing a discount rate of 40%). “Market Price” means the lowest Trading Price (as defined below) for the Common Stock during the twenty (20) Trading Days on which at least 100 shares of Common Stock were traded including and immediately preceding the Conversion Date. “Trading Price” means, for any security as of any date, the lowest trade price on the OTC Pink, OTCQB or applicable trading market as reported by a reliable reporting service (“Reporting Service”) designated by the Holder or, if the OTC Pink is not the principal trading market for such security, the trading price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no trading price of such security is available in any of the foregoing manners, the average of the trading prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.
| F-16 |
On February 13, 2020, the Company closed a private financing with East Capital Investment Corporation (“East Capital” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $50,000 with no original discount upon issuance.
As part of initial closing the outstanding principal amount shall be $50,000 and the Holder shall pay $50,000 of the consideration (the “First Tranche”). Out of $50,000 consideration, the Company has received $43,492 cash from EMA Financial with the remaining $6,508 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with the maturity date on February 13, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features. The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties.
On February 19, 2020, the Company closed a private financing with Fidelis Capital, LLC, (“Fidelis” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $50,000 with no original discount upon issuance.
As part of initial closing the outstanding principal amount shall be $50,000 and the Holder shall pay $50,000 of the consideration (the “First Tranche”). Out of $50,000 consideration, the Company has received $43,487 cash from Fidelis with the remaining $6,513 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with the maturity date on February 19, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features. The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties.
On March 12, 2020, the Company closed a private financing with Armada Capital Partners, LLC, (“Armada” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $38,500 and an original issue discount of $3,500 per the Note agreement.
As part of initial closing the outstanding principal amount shall be $38,500 and the Holder shall pay $35,000 of the consideration (the “First Tranche”). Out of $35,000 consideration, the Company has received $32,992 cash from Fidelis with the remaining $2,008 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with the maturity date on March 12, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features. The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties. In connection with the issuance of the Armada Note, the Company granted Armada a five-year cashless warrant (the “Warrant”) to purchase 4,200 shares of the Company’s common stock at an exercise price of $12.50 per share.
On July 17, 2020, the Company closed a private financing with EMA Financial, LLC (“EMA Financial” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $50,000, and upon issuance, carries a prorated original issue discount of up to $2,500 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.
As part of initial closing the outstanding principal amount shall be $50,000 and the Holder shall pay $47,500 of the consideration. Out of $47,500 consideration, the Company has received $42,987 cash from EMA Financial with the remaining $4,513 spent as legal expense for note issuance and due diligence fees.
| F-17 |
The term of the convertible note is 1 year with the maturity date on July 17, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On July 24, 2020, the Company closed a private financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $130,000 with no original discount upon issuance.
As part of initial closing the outstanding principal amount shall be $130,000 and the Holder shall pay $130,000 of the consideration (the “First Tranche”). Out of $130,000 consideration, the Company has received $116,079 cash from Power up with the remaining $13,921 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with the maturity date on July 24, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On August 18, 2020, the Company closed another private financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $63,000 with no original discount upon issuance.
As part of closing the outstanding principal amount shall be $63,000 and the Holder shall pay $63,000 of the consideration (the “Second Tranche”). Out of $63,000 consideration, the Company has received $54,939 cash from Power up with the remaining $8,061 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with the maturity date on August 18, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On September 1, 2020, the Company closed another private financing with Jefferson Street Capital LLC, (“Jefferson Street Capital” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $82,500 with $7,500 discount upon issuance.
As part of closing the outstanding principal amount shall be $82,500 and the Holder shall pay $75,000 of the consideration. Out of $75,000 consideration, the Company has received $68,949 cash from Jefferson Street Capital with the remaining $6,051 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with the maturity date on September 1, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
| F-18 |
On September 1, 2020, the Company closed another private financing with FirstFire Global Opportunities Fund, LLC, (“FirstFire Global” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $75,000 with $3,750 discount upon issuance.
As part of closing the outstanding principal amount shall be $75,000 and the Holder shall pay $71,250 of the consideration. Out of $71,250 consideration, the Company has received $61,498 cash from FirstFire Global with the remaining $9,752 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 9 months with the maturity date on June 1, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On October 8, 2020, the Company closed another private financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $55,000 with no original discount upon issuance.
As part of closing the outstanding principal amount shall be $55,000 and the Holder shall pay $55,000 of the consideration. Out of $55,000 consideration, the Company has received $47,579 cash from Power up with the remaining $7,421 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with the maturity date on October 8, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On October 9, 2020, the Company closed another private financing with East Capital Investment Corp., (“East Capital” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $62,700 with no original discount upon issuance.
As part of closing the outstanding principal amount shall be $62,700 and the Holder shall pay $62,700 of the consideration. Out of $62,700 consideration, the Company has received $54,992 cash from Power up with the remaining $7,708 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with the maturity date on October 9, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
| F-19 |
The below table summarizes all the convertible notes issued during the year ended August 31, 2020.
| Counterparties | Issuance date | Maturity date | Principal Amount | Purchase Price | Discount on Note issuance | Note issuance costs | Proceeds Received (USD) | ||||||||||||||||
| EMA Financial | November 18, 2019 | August 18, 2020 | $ | 75,000 | $ | 68,500 | $ | 6,500 | $ | 3,763 | $ | 64,737 | |||||||||||
| Peak One Opportunity | December 9, 2019 | December 9, 2022 | $ | 85,000 | $ | 76,500 | $ | 8,500 | $ | 11,188 | $ | 65,312 | |||||||||||
| Crown Bridge (Tranche I) | January 8, 2020 | January 8, 2021 | $ | 40,500 | $ | 36,500 | $ | 4,000 | $ | 1,508 | $ | 34,992 | |||||||||||
| Auctus Fund Note | December 31, 2019 | September 30, 2020 | $ | 75,000 | $ | 75,000 | $ | - | $ | 15,658 | $ | 59,342 | |||||||||||
| East Capital | February 13, 2020 | February 13, 2021 | $ | 50,000 | $ | 50,000 | $ | - | $ | 6,508 | $ | 43,492 | |||||||||||
| Fidelis Capital | February 19, 2020 | February 19, 2021 | $ | 50,000 | $ | 50,000 | $ | - | $ | 6,513 | $ | 43,487 | |||||||||||
| Armada Partners | March 12, 2020 | March 12, 2021 | $ | 38,500 | $ | 35,000 | $ | 3,500 | $ | 2,008 | $ | 32,992 | |||||||||||
| EMA Financial | July 17, 2020 | July 17, 2021 | $ | 50,000 | $ | 47,500 | $ | 2,500 | $ | 4,513 | $ | 42,987 | |||||||||||
| Crown Bridge (Tranche II) | July 23, 2020 | July 23, 2021 | $ | 40,500 | $ | 36,500 | $ | 4,000 | $ | 2,208 | $ | 34,292 | |||||||||||
| Power Up Lending (Tranche I) | July 24, 2020 | July 24, 2021 | $ | 130,000 | $ | 130,000 | $ | - | $ | 13,921 | $ | 116,079 | |||||||||||
| Power Up Lending (Tranche II) | August 18, 2020 | August 18, 2021 | $ | 63,000 | $ | 63,000 | $ | - | $ | 8,061 | $ | 54,939 | |||||||||||
| $ | 697,500 | $ | 668,500 | $ | 29,000 | $ | 75,849 | $ | 592,651 | ||||||||||||||
The below table summarizes all the convertible notes issued during the year ended August 31, 2021.
| Counterparties | Issuance date | Maturity Date | Principal Amount | Purchase Price | Discount on Note issuance | Note issuance costs | Proceeds Received (USD) | ||||||||||||||||
| Jefferson Street Capital | September 1,2020 | September 1, 2021 | 82,500 | 75,000 | 7,500 | 6,051 | 68,949 | ||||||||||||||||
| FirstFire Global | September 1,2020 | June 1, 2021 | 75,000 | 71,250 | 3,750 | 9,752 | 61,498 | ||||||||||||||||
| Power Up Lending | October 8, 2020 | October 8, 2021 | 55,000 | 55,000 | - | 7,421 | 47,579 | ||||||||||||||||
| East Capital | October 9, 2020 | October 9, 2021 | 62,700 | 62,700 | - | 7,708 | 54,992 | ||||||||||||||||
| $ | 275,200 | $ | 263,950 | $ | 11,250 | $ | 30,932 | $ | 233,018 | ||||||||||||||
The following table summarizes the convertible note and derivative liability in the balance sheet at August 31, 2021:
| Balance, August 31, 2020 | $ | 438,921 | |
| Issuance of Convertible Note Principal | $ | 275,200 | |
| Issuance of MFN Principal | $ | 15,000 | |
| Discount on Note issuance, net of amortization | $ | 75,075 | |
| Accrued interest expense | $ | 24,562 | |
| Converted Note Principal | $ | (166,464) | |
| Converted accrued and unpaid interest | $ | (8,538) | |
| Prepayment of Note Principal | $ | (559,782) | |
| Paid interest expense | $ | (29,390) | |
| Change in fair value of Derivative liability | $ | (64,584) | |
| Balance, August 31, 2021 | $ | — |
| F-20 |
The Company valued its derivatives liability using Monte Carlo simulation. Assumptions used as of August 31, 2021 include (1) risk-free interest rates of , (2) expected equity volatility of - , (3) zero dividends, (4) discount for lack of marketability of (5) remaining terms and conversion prices as set forth in the convertible note agreement, and (6) the common stock price of the underlying share on the valuation date of August 31, 2021.
The Company recognizes gain due to convertible feature of $64,584 in the income statement for the year ended August 31, 2021.
The Company prepaid nine convertible notes during the year ended August 31, 2021 as below:
| Convertible Notes | Beginning Principal after Note Conversion | Total Interest Accrued | Paid Date | Paid Principal | Paid Interest | Principal balance Outstanding | Payment amount | Loss from prepaid convertible note |
| Crown Bridge (Tranche I) | 1,082 | 2,641 | 12/9/20 | (1,082) | (2,641) | - | - | - |
| Crown Bridge (Tranche II) | 40,500 | 1,545 | 12/9/20 | (40,500) | (1,545) | - | 72,5001 | (26,732)1 |
| EMA Financial | 50,000 | 1,990 | 12/9/20 | (50,000) | (1,990) | - | 72,800 | (20,810) |
| Power Up Lending | 130,000 | 6,491 | 1/22/21 | (130,000) | (6,491) | - | 190,925 | (54,434) |
| Power Up Lending | 63,000 | 3,042 | 2/10/21 | (63,000) | (3,042) | - | 92,380 | (26,338) |
| East Capital | 62,700 | 3,114 | 4/7/21 | (62,700) | (3,114) | - | 87,467 | (21,652) |
| Power Up Lending | 55,000 | 2,746 | 4/7/21 | (55,000) | (2,746) | - | 80,797 | (23,051) |
| Jefferson Street | 82,500 | 4,097 | 3/1/21 | (82,500) | (4,097) | - | 116,975 | (30,378) |
| FirstFire Global | 75,000 | 3,724 | 3/1/21 | (75,000) | (3,724) | - | 108,125 | (29,401) |
| Total | 559,782 | 29,390 | - | (559,782) | (29,390) | - | 821,969 | (232,796) |
1. The balance is the total of Crown Bridge Tranche I and Tranche II
The Holders converted convertible notes to common shares during the year ended August 31, 2021 as detailed below:
EMA Financial:
| Conversion date | Beginning principal balance | Principal Amount Converted | Interest Amount Converted | MFN Principal | Total converted principals and unpaid interest | Closing Fee | Ending principal balance | Conversion Price | Converted Shares | ||||||||||||||||||||||||||
| September 1, 2020 | 5,285 | 5,285 | 5,154 | — | 10,439 | 1,000 | — | $ | 0.00812 | ||||||||||||||||||||||||||
| Total | 5,285 | 5,154 | — | 10,439 | 1,000 | ||||||||||||||||||||||||||||||
Auctus Capital Partners:
| Conversion date | Beginning principal balance | Principal Amount Converted | Interest Amount Converted | MFN Principal | Total converted principals and unpaid interest | Closing Fee | Ending principal balance | Conversion Price | Converted Shares | ||||||||||||||||||||||||||
| September 8, 2020 | 33,295 | 12,055 | 73 | — | 12,128 | 750 | 21,240 | $ | 0.00510 | ||||||||||||||||||||||||||
| September 18, 2020 | 21,240 | 15,233 | 58 | — | 15,291 | 750 | 6,007 | $ | 0.00510 | ||||||||||||||||||||||||||
| September 29, 2020 | 6,007 | 6,007 | 18 | 11,082 | 17,107 | 750 | — | $ | 0.00480 | ||||||||||||||||||||||||||
| October 22, 2020 | — | — | — | 3,918 | 3,918 | 750 | — | $ | 0.00216 | ||||||||||||||||||||||||||
| Total | 33,295 | 149 | 15,000 | 48,444 | 3,000 | ||||||||||||||||||||||||||||||
*On September 29, 2020, $6,007 of the Auctus Capital convertible note was converted to shares of common stock at a conversion price , 60% of the lowest trading price in the 20 days prior to the conversion dates. Additional most-favored-nation (MFN) principal of $15,000 was triggered when the conversion price is lower than $0.1. The remaining Auctus Capital convertible note principal balance was $0, including $15,000 MFN principal.
| F-21 |
East Capital:
| Conversion date | Beginning principal balance | Principal Amount Converted | Interest Amount Converted | MFN Principal | Total converted principals and unpaid interest | Closing Fee | Ending principal balance | Conversion Price | Converted Shares | ||||||||||||||||||||||||||
| September 8, 2020 | 26,600 | 13,300 | 250 | — | 13,550 | — | 13,300 | $ | 0.01020 | ||||||||||||||||||||||||||
| September 25, 2020 | 13,300 | 13,300 | 129 | — | 13,429 | — | — | $ | 0.00960 | ||||||||||||||||||||||||||
| Total | 26,600 | 379 | — | 26,979 | — | ||||||||||||||||||||||||||||||
Fidelis Capital:
| Conversion date | Beginning principal balance | Principal Amount Converted | Interest Amount Converted | MFN Principal | Total converted principals and unpaid interest | Closing Fee | Ending principal balance | Conversion Price | Converted Shares | ||||||||||||||||||||||||||
| September 1, 2020 | 41,000 | 25,671 | — | 25,671 | — | 15,329 | $ | 0.01218 | |||||||||||||||||||||||||||
| September 9, 2020 | 15,329 | 15,329 | 2,605 | — | 17,934 | — | — | $ | 0.01020 | ||||||||||||||||||||||||||
| Total | 41,000 | 2,605 | — | 43,605 | — | ||||||||||||||||||||||||||||||
Armada Partners:
| Conversion date | Beginning principal balance | Principal Amount Converted | Interest Amount Converted | MFN Principal | Total converted principals and unpaid interest | Closing Fee | Ending principal balance | Conversion Price | Converted Shares | ||||||||||||||||||||||||||
| September 25, 2020 | 25,500 | 13,000 | 213 | — | 13,213 | 500 | 12,500 | $ | 0.01020 | ||||||||||||||||||||||||||
| October 6, 2020 | 12,500 | 12,500 | 38 | — | 12,538 | 500 | — | $ | 0.00960 | ||||||||||||||||||||||||||
| Total | 25,500 | 251 | — | 25,751 | 1,000 | ||||||||||||||||||||||||||||||
Crown Bridge (Tranche I):
| Conversion date | Beginning principal balance | Principal Amount Converted | Interest Amount Converted | MFN Principal | Total converted principals and unpaid interest | Closing Fee | Ending principal balance | Conversion Price | Converted Shares | ||||||||||||||||||||||||||
| September 8, 2020 | 20,867 | 6,400 | — | — | 6,400 | 1,250 | 14,467 | $ | 0.00765 | ||||||||||||||||||||||||||
| September 22, 2020 | 14,467 | 5,635 | — | — | 5,635 | 1,250 | 8,832 | $ | 0.00765 | ||||||||||||||||||||||||||
| October 1, 2020 | 8,832 | 7,750 | — | — | 7,750 | 1,250 | 1,082 | $ | 0.00720 | ||||||||||||||||||||||||||
| Total | 19,785 | — | 19,785 | 3,750 | |||||||||||||||||||||||||||||||
| F-22 |
In summary, the Company has either converted or prepaid all the outstanding convertible notes as of August 31, 2021. The below table lists conversions and prepayments during each quarter in FY2021.
| Sr. No. | Note | Total convertible note issued | Total principal converted as of 08/31/2020 | Total principal converted as of 11/30/2020 | Total principal paid off as of 2/28/2021 | Total principal paid off as of 8/31/2021 | Principal balance Outstanding as of 8/31/2021 |
| 1 | EMA Financial | 90,000 | (84,716) | (5,285) | - | - | - |
| 2 | Peak One Opportunity | 85,000 | (85,000) | - | - | - | - |
| 3 | Auctus Fund Note | 90,000 | (41,705) | (48,295) | - | - | - |
| 4 | Crown Bridge (Tranche I) | 40,500 | (19,633) | (19,785) | (1,082) | - | - |
| 5 | East Capital | 50,000 | (23,400) | (26,600) | - | - | - |
| 6 | Fidelis Capital | 50,000 | (9,000) | (41,000) | - | - | - |
| 7 | Armada Partners | 38,500 | (13,000) | (25,500) | - | - | - |
| 8 | Crown Bridge (Tranche II) | 40,500 | - | - | (40,500) | - | - |
| 9 | EMA Financial (Issue Date: 7.17.2020) | 50,000 | - | - | (50,000) | - | - |
| 10 | Power Up Lending (Issue Date: 07.24.2020) | 130,000 | - | - | (130,000) | - | - |
| 11 | Power Up Lending (Issue Date: 08.18.2020) | 63,000 | - | - | (63,000) | - | - |
| 12 | East Capital (Issue Date: 10.09.2020) | 62,700 | - | - | - | (62,700) | - |
| 13 | Power Up Lending (Issue Date: 10.08.2020) | 55,000 | - | - | - | (55,000) | - |
| 14 | Jefferson Street (Issue Date: 09.01.2020) | 82,500 | - | - | - | (82,500) | - |
| 15 | FirstFire Global (Issue Date: 09.01.2020) | 75,000 | - | - | - | (75,000) | - |
| Total | 1,002,700 | (276,454) | (166,464) | (284,582) | (275,200) | - |
| F-23 |
NOTE 10 – WARRANTS
On December 9, 2019, January 8, 2020, January 17, 2020, March 12, 2020, and July 23, 2020 the Company issued warrants to EMA Financial, Peak One Opportunity, Crown Bridge, and Armada Partners in conjunction with their convertible notes (see Note 9). Classified as equity, these detachable warrants issued in a bundled transaction with convertible notes are accounted for separately as additional paid-in capital for the portion of the proceeds allocated to them. The allocation of the sales proceeds between the base instrument of convertible notes and the warrants are allocated based on the relative fair values of the base instrument of convertible notes and the warrants following the guidance in ASC 470-20-25-2.
On July 30, 2020, the Company issued $750,000 warrant shares to Peak One Opportunity in connection with the Equity Purchase Agreement, which is the “Financing Agreement” signed on July 30, 2020 to sell to Peak One up to $10,000,000 worth of the Company’s common stock over the period ending twenty-four (24) months after the date the Registration Statement.
The fair value of the stock warrants granted to EMA Financial was estimated at $106,540 on the date granted using the Black-Scholes pricing model, with the following assumption used for the valuation: exercise price of $12 per share, average risk-free interest rate of , expected dividend yield of , remaining contractual life of 4.89 years, and an average expected volatility of .
The fair value of the stock warrants granted to Peak One was estimated at $39,515 on the date granted using the Black-Scholes pricing model, with the following assumption used for the valuation: exercise price of $10 per share, average risk-free interest rate of , expected dividend yield of , remaining contractual life of 4.78 years, and an average expected volatility of . The fair value of the stock warrants granted to Crown Bridge (Tranche I) was estimated at $17,443 on the date granted using the Black-Scholes pricing model, with the following assumption used for the valuation: exercise price of $12.5 per share, average risk-free interest rate of , expected dividend yield of , remaining contractual life of 4.86 years, and an average expected volatility of .
The fair value of the stock warrants granted to Armada was estimated at $12,341 on the date granted using the Black-Scholes pricing model, with the following assumption used for the valuation: exercise price of $12.5 per share, average risk-free interest rate of , expected dividend yield of , remaining contractual life of 4.78 years, and an average expected volatility of .
The fair value of the stock warrants granted to Crown Bridge (Tranche II), issued on July 23, 2020 was estimated at $126,112 on August 31, 2020 using the Black-Scholes pricing model, with the following assumption used for the valuation: exercise price of $0.00905 per share, average risk-free interest rate of , expected dividend yield of , remaining contractual life of 4.90 years, and an average expected volatility of .
The fair value of the stock warrants granted to Peak One, a standalone warrant issued on July 30, 2020 was estimated at $45,722 on August 31, 2020 using the Black-Scholes pricing model, with the following assumption used for the valuation: exercise price of $0.1 per share, average risk-free interest rate of , expected dividend yield of , remaining contractual life of 4.92 years, and an average expected volatility of .
As of November 30, 2021, the Company exercised the following warrant shares to acquire common shares via cashless exercises as below:
| F-24 |
Peak One warrant issued on December 9, 2019:
| Date of Exercise | Anti Dilution Value of Warrant Shares | Anti Dilution Base (Exercise) Price (B) | Mkt Price (90 Day High Preceding Exercise date) (A) | # of WTS Shares Elected for purchase (Y) | Common Shares to be issued upon exercise (X) = Y(A-B)/A | Cashless Payment |
| July 20, 2020 | $100,000 | $ 0.0300 | $ | $7,511 | ||
| July 21, 2020 | $92,489 | $ 0.0300 | $ | $7,511 | ||
| July 23, 2020 | $84,979 | $ 0.0300 | $ | $7,511 | ||
| July 29, 2020 | $77,468 | $ 0.0300 | $ | $7,511 | ||
| August 4, 2020 | $69,957 | $ 0.0300 | $ | $7,511 | ||
| August 11, 2020 | $62,446 | $ 0.0300 | $ | $15,021 | ||
| August 21, 2020 | $47,425 | $ 0.0300 | $ | $15,021 | ||
| August 25, 2020 | $32,403 | $ 0.0205 | $ | $10,260 | ||
| August 31, 2020 | $22,143 | $ 0.0205 | $ | $10,260 | ||
| September 9, 2020 | $11,883 | $ 0.0205 | $ | $9,651 | ||
| Total | $ 97,768 |
Peak One warrant issued on July 30, 2020
| Date of Exercise | Anti Dilution Value of Warrant Shares | Anti Dilution Base (Exercise) Price (B) | Market Price (90 Day High Preceding Exercise date) (A) | # of WTS Shares Elected for purchase (Y) | Common Shares to be issued upon exercise (X) = Y(A-B)/A | Cashless Payment |
| October 8, 2020 | $75,000 | 0.01672 | $12,540 | |||
| December 21, 2020 | $62,460 | 0.00609 | $15,615 | |||
| December 28, 2020 | $46,845 | 0.00609 | $15,615 | |||
| January 6, 2021 | $31,230 | 0.00609 | $31,230 | |||
| Total | $75,000 |
EMA Financial warrant issued on January 17, 2020:
| Date of Exercise | Anti Dilution Value of Warrant Shares | Anti Dilution Base (Exercise) Price (B) | Market Price (90 Day High Preceding Exercise date) (A) | # of WTS Shares Elected for purchase (Y) | Common Shares to be issued upon exercise (X) = Y(A-B)/A | Cashless Payment |
| September 8, 2020 | $375,000 | 0.00812 | $19,488 | |||
| September 14, 2020 | $355,512 | 0.00812 | $23,954 | |||
| September 22, 2020 | $331,558 | 0.00812 | $27,608 | |||
| September 25, 2020 | $303,950 | 0.00812 | $29,232 | |||
| October 1, 2020 | $274,718 | 0.00812 | $33,698 | |||
| October 12, 2020 | $241,020 | 0.00812 | $37,352 | |||
| October 19, 2020 | $203,668 | 0.00812 | $38,976 | |||
| October 29, 2020 | $164,692 | 0.00812 | $42,224 | |||
| November 5, 2020 | $122,468 | 0.00812 | $44,660 | |||
| November 11, 2020 | $77,808 | 0.00812 | $46,284 | |||
| November 20, 2020 | $31,524 | 0.00812 | $31,524 | |||
| Total | $375,000 |
| F-25 |
If the Market Price of one share of Common Stock is greater than the Exercise Price, the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder a number of Common Stock computed using the formula of X = Y (A-B)/A, where X, Y, A, B are as below.
X = the number of Warrant Shares to be issued to Holder.
Y = the number of Warrant Shares that the Holder elects to purchase under this
Warrant (at the date of such calculation).
A = the Market Price (at the date of such calculation).
B = Exercise Price (as adjusted to the date of such calculation).
The exercise prices for all the warrants are subject to anti-dilution adjustments. If the Company issues common stocks under a purchase agreement, issue options, or convert notes to common stocks at a lower price than the warrant exercise prices while the warrants are still outstanding, such lower price is the base price that the warrant exercise price can be reduced to. As such, the Holder will receive additional warrant shares to keep the same warrant value as the original issuance before the exercise price is adjusted down.
A summary of the status of the Company’s warrants as of November 30, 2021 is presented below. The number of shares is adjusted in accordance with the anti-dilution adjustment and equals the original number of warrant shares times the original exercise prices divided by based prices. Base price is either the note conversion price or the share issuance price used by the Company while the warrants are outstanding.
| Number of warrants | ||||||||
| Original shares issued | Anti-dilution Adjusted | |||||||
| Warrants as of August 31, 2020 | 68,163,661 | |||||||
| Warrants granted | — | |||||||
| Exercised, forfeited or expired | ( | ) | (68,163,661 | ) | ||||
| Outstanding as of November 30, 2021 | — | |||||||
| Exercisable as of November 30, 2021 | — | |||||||
(1). Exercise price is reduced to the latest base price. Base price is either the note conversion price or the share issuance price, which the Company used while the warrants were outstanding.
(2). The number of shares is adjusted in accordance with the anti-dilution clause per the warrant agreement and equals the original number of warrant shares times the original exercise prices divided by base price.
NOTE 11 – FAIR VALUE MEASUREMENTS
The Company applies ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.
| F-26 |
ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 — Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Include other inputs that are directly or indirectly observable in the marketplace.
Level 3 — Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
Derivative liabilities of conversion features in convertible notes are classified within Level 3. We estimate the fair values of these liabilities at November 30, 2021 by using Monte Carlo simulation based on the remaining contractual terms, risk-free interest rates, and expected volatility of the stock prices, etc. The assumptions used, including the market value of stock prices in the future and the expected volatilities, were subjective unobservable inputs.
Liabilities measured at fair value on a recurring basis as of November 30, 2021 are summarized below:
| Fair value measurement using: | |||||||||||||||
| Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs ( Level 2) | Unobservable inputs ( Level 3) | Total Fair value at November 30, 2021 | ||||||||||||
| Derivative liabilities | $ | — | $ | — | $ | — | $ | — | |||||||
| Derivative liabilities embedded in convertible notes | ||||
| Fair value at August 31, 2020 | $ | 64,584 | ||
| Increase from note issuances | 74,187 | |||
| Decrease from note conversions | (33,490 | ) | ||
| Changes in the fair value | 58,090 | |||
| Fair value at November 30, 2020 | $ | 163,371 | ||
| Increase from note issuances | — | |||
| Decrease from note prepayment | (136,321 | ) | ||
| Changes in the fair value | 18,439 | |||
| Decrease from note prepayment | (45,490 | ) | ||
| Fair value at November 30, 2021 | $ | — | ||
| F-27 |
NOTE 12– RELATED PARTY TRANSACTIONS
In support of the Company’s efforts and cash requirements, it may rely on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary in nature and have not been formalized by a promissory note. As of November 30, 2021 and August 31, 2021, there are no such related party transactions.
Youall Perform Services Ltd, owned by the son of the Company’s Chief Executive Offer and the Company’s former Secretary and Treasurer Jianli Deng, collects revenue from the performance matching platform “Ai Bian Quan Qiu” via a Wechat official account on behalf of the Company. Due to the COVID-19 impact, the Company ceased operation of the “Ai Bian Quan Qiu” platform in January, 2020. For the three months ended November 30, 2021 and 2020, the Company recognized revenue of $0 and $0 from this performance matching platform, respectively. The balance of related party receivable from Youall Perform Services Ltd was $1,439 and $1,439 as of the three months ended November 30, 2021 and 2020, respectively.
In September 2019, the Company entered into an agreement with Youall Perform Services Ltd for two transactions. 1) The Company pays Youall Perform Services Ltd. 10% of the revenue generated from the “Ai Bian Quan Qiu” platform every month to reimburse the valued-added tax, tax surcharges, and foreign transaction fee Youall Perform Services Ltd. has been paying on behalf of the Company. 2) Youall Perform Services Ltd. will provide IT consulting service for “Ai Bian Quan Qiu” platform upgrade and maintenance at a total cost of $128,000, out of which $108,800 has been paid. As there has been no revenue from the “Ai Bian Quan Qiu” platform due to COVID-19 since mid-January, 2020, $108,800 long-term prepayment was expensed as research and development expense in FY2020. In July 2020, the Company changed the service scope of this agreement and turned it into a website maintenance contract over the next two years. The major website of this Company is ABQQ.tv for video streaming. The contract amount remains to be $128,000, out of which $108,800 was previously paid and $19,200 will be due on the twenty first month after the launch of the website www.abqq.tv. The website maintenance service began on January 1, 2021 and will end on December 31, 2022. The Company will pay Youall Perform Services Ltd the remaining balance of $19,200 in September, 2022.
The Company has entered into a patent license agreement with a related party Guangzhou Shengshituhua Film and Television Company Limited (“Licensor”) 100% owned by the Chief Executive Officer Chiyuan Deng. The agreement is for a term of 5 years commencing on the effective date on June 1, 2017. The Company has already paid the licensor a non-refundable, up-from payment of $500,000 and shall pay a royalty of 20% of the gross revenue realized from the sale of licensed products and sub-licensing of this patent every year. The royalty expenses during the three months ended November 30, 2021 and November 30, 2020 are $0 and $15,360, respectively. In January, 2021, the Company’s sublicensing agreement to generate royalty revenues was terminated with Anyone Picture. As such, there has been no royalty expenses since the end of December, 2020 given there has been no sublicensing royalty revenue generated from the patent. Once the Company finds another company to sublicense the patent, it will generate royalty revenue and pay royalty expense again.
The Company rented an office from ZESTV STUDIOS LIMITED, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng. On December 1, 2020, the Company entered an agreement with ZESTV STUDIOS LIMITED to grant ZESTV STUIDIOS LIMITED the distribution right for the movie “Love over the world” and charge ZESTV STUIDIOS LIMITED movie royalties. The Company’s royalties revenue is stipulated to equal 43% of the after-tax movie box office revenue deducting movie issuance costs. The movie box office revenue is tracked by a movie distributor Huaxia Film Distribution Co. Ltd (hereafter “Hua Xia”) in China as it connects with all movie theaters in China and can track the total movie box office revenue online in real time. Although ZESTV STUDIOS LIMITED has paid royalties revenue to the Company, ZESTV STUDIOS LIMITED failed to collect cash from Hua Xia. The Company will refund ZESTV STUDIOS LIMITED the movie royalties. As of November 30, 2021, the Company incurred related party payable of $916,922 of refund for the movie royalties revenue net of the movie distribution commission fee to ZESTV STUDIOS LIMITED.
| F-28 |
On August 29, 2020, the Company entered into a Separation Agreement and Release with each of Jianli Deng, Lijun Yu and Linqing Ye. Pursuant to the agreements, Mr. Deng resigned as Secretary and Treasurer, Ms. Yu resigned as Chief Marketing Officer and Mr. Ye resigned as Chief Operating Officer. Mr. Deng will remain on as a member of our board of directors. The Separation and Release Agreement cancelled the employment agreements for each of Messrs. Deng, Yu and Ye, and provided them each an indebtedness payment within five (5) business days of the agreements. Mr. Deng will receive $110,000, Ms. Yu will receive $110,000 and Mr. Ye will receive $120,000. We received a release of all claims from these prior officers. In addition, Mr. Deng, Ms. Yu, and Mr. Ye agreed to return to the Company their unvested restricted shares of , , and , respectively.
On September 11, 2020, we entered into an amended employment agreement with Chiyuan Deng, our Chief Executive Officer. Pursuant the amended agreement, we amended the compensation to Mr. Deng to include a salary of $180,000 annually, a reduction in common stock received under his initial employment agreement, a potential for a bonus in cash or shares, and the issuance of shares of our newly created Series A Preferred Stock at par value .
During the three months ended November, 2021, the Company paid the total salary of $51,250 in cash and in stock-based compensation.
NOTE 13 – STOCKHOLDERS’ EQUITY
The Company has and common shares issued and outstanding as of November 30, 2021 and August 31, 2021, respectively. These common shares were held by approximately and shareholders of record at November 30, 2021 and August 31, 2021, respectively. The Company has series A preferred shares issued and outstanding as of both November 30, 2021 and August 31, 2021. The Company has series B preferred shares issued and outstanding as of both November 30, 2021 and August 31, 2021. The Company has and series C preferred shares issued and outstanding as of November 30, 2021 and August 31, 2021, respectively. The Company has and series D preferred shares issued and outstanding as of November 30, 2021 and August 31, 2021, respectively.
The Company has the following equity activities during the three months ended November 30, 2021:
Common shares
| • | The Company issued shares of put shares for cash at , and per share. | |
| • | The Company issued of common shares from preferred shares series D conversion. |
| F-29 |
Preferred shares
On September 3, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby the investor purchased from the Company shares of Series C Convertible Preferred Stock of the Company for a purchase price of $203,500. The closing occurred on September 3, 2021. After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance of the Series C Preferred Stock totaled $184,000.
On October 21, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company shares of Series C Convertible Preferred Stock of the Company for a purchase price of $85,450. The closing occurred on October 21, 2021. After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance of the Series C Preferred Stock totaled $75,368.
For the Securities Purchase Agreement dated March 10, 2021 entered between the Company and the accredited investor GHS Investments, LLC (the “Investor”), the Company will issue up to shares of Series D Convertible Preferred Stock of the Company (the “Series D Preferred Stock”) to GHS Investments, LLC with a purchase price of per share. During the quarter ended November 30, 2021, the Company issued 153 shares of series D preferred stock to the investor for the purchase price of $153,000. After the payment of transaction-related expenses, net proceeds to the Company from the issuance of the Series D Preferred Stock was $140,760.
Warrant shares
| • | The Company canceled warrant shares with Crown Bridge and warrant shares with Armanda Partners in November, 2020. |
NOTE 14 – INCOME TAXES
Components of net deferred tax assets, including a valuation allowance, are as follows as of November 30, 2021 and August 31, 2021
November 30, 2021 | August 31, 2021 | |||||||
| Deferred tax asset attributable to: | ||||||||
| Net operating loss carry over | $ | 945,638 | $ | 871,681 | ||||
| Less: valuation allowance | (945,638 | ) | (871,681 | ) | ||||
| Net deferred tax asset | $ | — | $ | — | ||||
The valuation allowance for deferred tax assets was $945,638 as of November 30, 2021 and $871,681 as of August 31, 2021. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized as of November 30, 2021 and August 31, 2021
| F-30 |
Reconciliation between the statutory rate and the effective tax rate is as follows for the three months ended November 30, 2021 and November 30, 2020:
| Three months ended | ||||||||
| November 30, 2021, | ||||||||
| 2021 | 2020 | |||||||
| Federal statutory tax rate | 21 | % | 21 | % | ||||
| Change in valuation allowance | (21 | %) | (21 | %) | ||||
| Effective tax rate | 0 | % | 0 | % | ||||
The Company’s fully owned subsidiary App Board Limited is registered and located in Hong Kong. It is governed by the income tax law of the Hong Kong and is subject to a tax rate of 16.5%.
During the three months ended November, 2021 and November 30, 2020, the Company and its subsidiary have incurred a consolidated loss of $(1,052,045) and $(525,454), respectively. As a result, the Company and its subsidiary did not incur any income tax during the three months ended November 30, 2021 and November 30, 2020.
NOTE 15 – CONCENTRATION RISK
100% of revenue was generated from one customer during the three months ended November 30, 2020.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Operating lease
As of November 30, 2021, the Company leases office premises in Hong Kong, an office in New York city, and an office in Singapore under non-cancelable operating lease agreements with an option to renew these leases. On November 22, 2020, the Company closed down a display store and terminated its lease, which has an original term from February 23, 2019 to February 22, 2022, as a result of the COVID-19 impact and uncertainties of the economy in Hong Kong. The cash lease expense for the years ended November 30, 2021 and November 30, 2020 was $23,808 and $26,681, respectively. All leases are on a fixed payment basis. None of the leases include contingent rentals. The Company had lease commitment of $1,111,363 as of November 30, 2021.
In accordance with ASC 250-10-45-14, the adoption of ASC 842 lease accounting standard has resulted in $1,111,361 lease expenses for the year ended November 30, 2021, including both cash and non-cash lease expenses.
| As of November 30, 2021 | As of August 31, 2021 | ||||||
| Total Lease Payments | $ | 1,132,824 | $ | 48,822 | |||
| Less: imputed interest | $ | (21,463) | $ | (596) | |||
| Present value of lease liabilities | $ | 1,111,361 | $ | 48,226 | |||
| Current portion of obligations under operating leases | $ | 166,834 | $ | 48,226 | |||
| Obligations under operating leases, non-current | $ | 944,527 | $ |
0 | |||
| F-31 |
|
NOTE 17 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to November 30, 2021 to the date these financial statements were issued.
Covid-19 impact:
In December 2019, a novel strain of coronavirus (COVID-19) surfaced. The spread of COVID-19 around the world in the first quarter of 2020 has caused significant volatility in the U.S. and international markets. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact on the Company’s financial position, operations and cash flows. It is too early to quantify the impact this situation will have on company revenue and profits at this time. Possible areas that may be affected include, but are not limited to, disruption to the Company’s customers and revenue, labor workforce, unavailability of supplies used in operations, etc. Accordingly, Management is evaluating the Company’s liquidity position, reduction in revenues, and reviewing the analysis of the Company’s financial performance as the Company seeks to withstand the uncertainty related to the coronavirus. As no large-crowd gathering has been allowed since the outbreak of COVID-19, the Company has not generated any revenue from the Ai Bian Quan Qiu performance matching platform. Consequently, the Company has decided to impair all of the intangible asset carrying value related to the Ai Bian Quan Qiu performance matching platform and its Wechat official account, given that it is uncertain whether this platform will continue generating any revenue.
Issuance of Common Stock:
On December 14, 2021, the Company received $21,840 for the issuance of 1,800,000 shares. On January 18, 2022, the Company received $41,558 for the issuance of 3,000,000 shares. Also on January 18, 2022, the Company issued 5,521,473 shares for the conversion of Series D preferred stock.
NFT Movie and Music Market (NFT MMM) Development and Maintenance Contract:
The Company has entered into a contract with STAREASTnet to develop a decentralized application based on the NFT (Non-Fungible Token) for a movie and music marketplace with the option to buy physical, digital download or both, in one place. The digital copyrights of movies and music are generalized through NFTs, whose smart contracts facilitate the verifications of digital copyrights saved on the blockchain. The Company will hold 100% stake of STAREASTnet NFT Movies and Music Marketplace (NFT MMM).
Officer Resignation:
Brandy Gao resigned as Chief Financial Officer of the Company since the term of her contract with the Company ended on December 31, 2021.
Cancellation of Acquiring a Movie Copyright:
The Company acquired a movie copyright of “Too Simple” from Guang Dong Honor Pictures Ltd in July 2021 at a price of $1,271,680, which was to be paid in installments. As of November 30, 2021 and August 31, 2021, $1,184,385 and $644,785 was paid and recorded in long-term prepayment. On December 31, 2021, the Company entered into a termination contract with Guang Dong Honor Pictures Ltd to cancel the purchase of this movie copyright and will receive a full refund before May 31, 2022. Therefore, the Company has reclassified these amounts from long-term prepayment to other receivable on the balance sheet.
| F-32 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
AB International Group Corp. (the "Company", "we" or "us") was incorporated under the laws of the State of Nevada on July 29, 2013 and originally intended to purchase used cars in the United States and sell them in Krygyzstan. The Company's fiscal year end is August 31.
We are an intellectual property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectual property, including the acquisition and distribution of movies. We have a Patent License to a video synthesis and release system for mobile communications equipment, in which the technology is the subject of a utility model patent in the People's Republic of China. We had launched a business application (Ai Bian Quan Qiu) through smartphones and official social media accounts based on WeChat platform in February 2019, utilizing Artificial Intelligence, it is a matching platform for performers, advertiser merchants, and owners for more efficient services. We generate revenues through an agency service fee from each matched performance. Due to the quarantine and continuous control imposed by the state and local governments in areas affected by COVID-19, merchant advertising events have been suspended for 7 months. The Company decided to suspend the Ai Bian Quan Qiu platform, which, at the time, created an adverse impact on the business and financial condition and hampered its ability to generate revenue and access sources of liquidity on reasonable terms. Starting in January 2021, however, the Company started generating movie box-office revenue from the movie “Ai Bian Quan Qiu” as a result in the easing of COVID-19 restrictions.
On April 22, 2020, the Company announced the first phase development of its video streaming service. The online service will be marketed and distributed in the world under the brand name ABQQ.tv. The Company's professional team are sourcing such dramas and films to provide video streaming service on the ABQQ.tv. The video streaming website www.ABQQ.tv was officially launched on December 29, 2020. As of November 30, 2021, the Company acquired 59 movie broadcast rights. The Company will continue marketing and promoting the ABQQ.tv website through GoogleAds and acquire additional broadcast rights for movies and TV series, and plan to charge subscription fees once the Company has obtained at least 200 broadcast rights of movie and TV series.
| 4 |
On October 21, 2021, the Company entered into a Lease Agreement (the “Lease”) with Martabano Realty Corp. (the “Landlord”), pursuant to which the Company agreed to lease approximately 8,375 square feet of in what is known as the Mt. Kisco Theatre at 144 Main Street, Mount Kisco, New York. The term of the Lease is five years. Commencing in month four, the Company's monthly base rent obligation will be approximately $6,979, which amount will increase in year three to $13,260, year four at $13,658 and the final year at $14,067 in accordance with the terms of the Lease. The Lease contains customary provisions for real property leases of this type, including provisions allowing the Landlord to terminate the Lease upon a default by the Company.
The space was formerly used as a theatre with a total of 5 screens and 466 sets for screening films. The former theatre opened on December 21, 1962 with Hayley Mills in “In Search of the Castaways.” It was a replacement for the town’s other movie theatre that burned down. It was later twinned and further divided into 5 screens. It was operated for years by Lesser Theaters, then bought by Clearview Cinemas. In June, 2013 it was taken over by Bow-Tie Cinemas when they took most Clearview locations. It lasted until March, 2020 when it was closed by the Covid-19 pandemic. It was announced in September 2020 that the closure would be permanent. The Company intends to continue to use the space as a theatre with a total of 5 screens and 466 sets for screening films. It’s the first theatre of ABQQ Cinemas in America as the new business line of the Company.
Covid-19
The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict at the present time. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actions and the global health crisis caused by COVID-19 will negatively impact business activity across the globe. The movie industry in general has changed dramatically as a result of the pandemic restrictions. While movie theaters struggle to stay alive, online streaming programming has increased. We have endeavored to stay with the trend for streaming services to remain competitive. We have experienced the negative impact in our results of operations and in our financial condition for the year ended August, 2020, especially with respect to the movie distribution end of our business. These impacts concern delays in delivering our movies and IP because of health restrictions imposed on certain public events that concern our business, including, among other things, theaters, indoor and outdoor performances, filming restrictions, music festivals, concerts and other such events, Some of these restrictions include pandemic government mandated shutdowns and others restrictions on capacity gathered at these events, with some jurisdictions imposing fines or revocation of business licensing, and other restrictions. As a result of these factors, our revenue was reduced from March to May of 2020. With immediate closures, the resultant industry and business specific delays have negatively affected our company.
We plan to focus on the video streaming and other web based applications and expand our business into those areas that we believe we situate the company for continued and increased revenues. As the pandemic is forecasted to worsen in the United States and other areas around the globe, we believe that the demand for our IP, online products and services offerings increases. While we cannot guarantee that the negative effects of the pandemic will not interfere with our ability to generate revenues, we intend to strengthen our position in this dynamic market and position the company to best suit its shareholders.
Specific to our company operations, during the pandemic period, we have enacted precautionary measures to protect the health and safety of our employees and partners. These measures include closing our office, having employees work from home, and eliminating all travel. While having employees work from home may have a negative impact on efficiency and may result in negligible increases in costs, it does have an impact on our ability to execute on our agreements to deliver our core products.
We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, partners, or vendors, or on our financial results.
| 5 |
Results of Operations
Revenues
Our total revenue reported for the three months ended November 30, 2021 was $0, compared with $76,800 for the three months ended November 30, 2020.
The decrease in revenue for the three months ended November 30, 2021 over the three months ended November 30, 2020 is mainly attributable to lack of any movie box-office revenue for the current period, where in 2020, we achieved revenue of $76,800 from the movie “Ai Bian Quan Qiu.”
100% of revenue was generated from one customer during the three months ended November 30, 2020.
Our cost of revenues was $686,567 for the three months ended November 30, 2021, as compared with $156,086 for the three months ended November 30, 2020. Most of the increase in cost of revenues for the three months ended November 30, 2021 was the result of amortizing movie broadcast rights, not present in the same period 2020.
As a result, we had a gross loss of $686,567 for the three months ended November 30, 2021, as compared with a gross loss of $79,286 for the three months ended November 30, 2020. The decrease in gross profit margin for the three months ended November 30, 2021 is largely to the high cost of amortizing movie broadcast rights combined with a lack of revenue.
We hope to generate increased revenues for the balance of the fiscal year with continued box office revenue of Our Treasures, as well as achieving enough customers to start subscriptions for ABQQ.tv
Operating Expenses
Operating expenses increased to $363,967 for the three months ended November 30, 2021 from $237,496 for the three months ended November 30, 2020.
Our operating expenses for three months ended November 30, 2021 consisted of general and administrative expenses of $308,966 and related party salary and wages of $55,000. In contrast, our operating expenses for the three months ended November 30, 2020 consisted of general and administrative expenses of $231,146 and related party salary and wages of $6,350.
We experienced an increase in general and administrative expenses in 2021 over 2020, mainly as a result of increased rent, salaries, valuation fees, consulting fees, transaction costs for issuing preferred shares, travel and entertainment, and depreciation expense, etc.
We anticipate our operating expenses will increase as we undertake our plan of operations, including increased costs associated with marketing, personnel, and other general and administrative expenses, along with increased professional fees associated with SEC and COVID compliance as our business grows more complex and more expensive to maintain. On the COVID front, we expect that restrictions will ease moving forward, but there may still be setbacks as variants to the virus emerge and governments take lockdown measures in response. These and other costs for COVID expenditures may increase our operational costs in fiscal 2022 at various levels of operation.
Other Expenses
We had other expenses of $1,511 for the three months ended November 30, 2021, as compared with other expenses of $208,672 for the three months ended November 30, 2020. Our other expenses in 2021 were mainly the result of preferred share dividend expense. Our other expenses in 2020 were mainly the result of interest expense and loss from the change in fair value.
| 6 |
Net Loss
We incurred a net loss in the amount of $1,052,045 for the three months ended November 30, 2021, as compared with a net loss of $525,453 for the three months ended November 30, 2020.
Liquidity and Capital Resources
As of November 30, 2021, we had $1,380,971 in current assets consisting of cash, prepaid expenses, related party receivables and amounts due from shareholders. Our total current liabilities as of November 30, 2021 were $1,611,998. As a result, we have a working capital deficit of $231,027 as of November 30, 2021 as compared with $228,669 as of August 31, 2021.
Operating activities used $629,550 in cash for the three months ended November 30, 2021, as compared with $1,744,973 used in cash for the same period ended November 30, 2020. Our negative operating cash flow in 2021 was mainly the result of our net loss for the quarter combined with operating changes in receivables. Our negative operating cash flow in 2020 was mainly the result of our net loss for the quarter combined with operating changes in accounts payable and accrued liabilities, and from related party payables.
Investing activities used $0 in cash for the three months ended November 30, 2021, as compared with $5,000 used for the three months ended November 30, 2020. We have zero investing cash flow for November 30, 2021. Our negative investing cash flow for November 30, 2020 was mainly the result of the purchase of movie and TV series rights.
Financing activities provided $667,965 for the three months ended November 30, 2021, as compared with $313,885 provided in financing activities for the three months ended November 30, 2020. Our positive financing cash flow for November 30, 2021 was the result of proceeds from sales of our common stock and preferred stock. Our positive financing cash flow for November 30, 2020 was the result of proceeds from convertible notes and sales of our common stock.
The company has discussed selling the mainland China broadcast right of 3 movies (“Love over the world”, “Our treasures”, “Confusion”) (the Company is anticipating to sign a contract by the end of February 2022). The Company is also contemplating selling all other mainland China broadcast rights of all films owned by the Company due to restrictions on the Company in accessing the royalties earned on mainland China. The company plans to continue to own all other copyrights & broadcast rights.
Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
Off Balance Sheet Arrangements
As of November 30, 2021, there were no off-balance sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our critical accounting policies are set forth in Note 2 to the financial statements.
Recently Issued Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of October 31, 2018. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of November 30, 2021, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of November 30, 2021, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting
Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending August 31, 2022: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended November 30, 2021 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 1A: Risk Factors
See Risk Factors contained in our Form 10-K filed with the SEC on January 12, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company has the following equity activities during the three months ended November 30, 2021:
Common shares
The Company issued 5,500,000 shares of put shares for cash at $0.02288 and $0.02719 per share
The Company issued 3,146,854 of common shares from preferred shares series D conversions
Preferred shares
On September 3, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby the investor purchased from the Company 234,300 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $203,500.
On October 21, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company 98,325 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $85,450.
These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.
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Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
None
Item 6. Exhibits
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| Exhibit Number | Description of Exhibit
|
| 31.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101** | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2021 formatted in Extensible Business Reporting Language (XBRL). |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on the dates below on its behalf by the undersigned thereunto duly authorized.
| AB INTERNATIONAL GROUP CORP. |
| By: | /s/ Chiyuan Deng |
| Chief Executive Officer, Principal Executive Officer, and Director | |
| January 20, 2022 |
| By: | /s/ Vella Deng |
Chief Financial Officer | |
| January 20, 2022 |
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