Our unaudited consolidated financial statements
included in this Form 10-Q are as follows:
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 May 31, 2020 are not necessarily indicative of
the results that can be expected for the full year.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
For the nine months ended May 31, 2020 and May
31, 2019
(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 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.
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 for an initial period
of one year from October 1, 2017 to September 30, 2018, subject to a right to renew. 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. In October of 2019, the term of this sublicensing agreement was renewed
and extended until October 31, 2020.
Our License to the Technology generates revenue
through sub-license monthly fees from a smartphone app on Android devices. This app was already existing and licensed at the time
we acquired the Technology.
On March 10, 2018, we acquired intellectual
property for $200,000 from All In One Media Ltd, previously named as Aura Blocks Ltd. On March 19, 2018, we entered into consulting
agreements (the “Consulting Agreements”) with four consultants (the “Consultants”). The Consulting Agreements
have terms or either two or three years. Under the Consulting Agreements the Consultants will provide services to us in Hong Kong
and China related to blockchain technology and krypto kiosks. In consideration for the services provided by the Consultants, we
have issued the Consultants a total of 1,100,000 shares of our common stock. On November 10, 2018, the Company sold this intellectual
property to China IPTV Industry Park Holdings Ltd. for $80,000.
On March 21, 2018, we acquired the intellectual
assets of KryptoKiosk Limited, a crypto currencies kiosk company which has licenses and patent in Australia, which enable the operation
of cryptocurrency ATMs that allow buying and selling of Bitcoin, Litecoin, and Ethererum all in one terminal. The Company plans
to generate revenue through sub-licensing fees for the operation of cryptocurrency ATMs. Through the foregoing the Company proposes
to bring a physical aspect to something that is otherwise very abstract to people. We also issued to JPC Fintech Limited 2,400,000
common shares with a market value of $72,000 exchange of KryptoKiosk Limited’s assets consist mostly of intellectual property,
including, but not limited to, certain domain names, copyrights, trademarks, and patents pending, but also include contract rights
and personal property.
We planned to
generate revenue through sub-licensing fees for the operation of cryptocurrency ATMs. Through the foregoing, we proposed to bring
a physical aspect to something that is otherwise very abstract to people. We planned to invest in machines and sell sub-licenses
in the Asia Pacific region with future world-wide expansion. We had promoted and marketed the ATM business for 6 months or until
around August 2018, because the BTC and cryptocurrencies price went
down. The IP, however, was never transferred to us. We have
repeatedly requested from Messrs. Grounds, Vickery and Shakespare access to the domains and websites and other information concerning
the IP assets. As of the date of this annual report, no such information has been provided. In addition, the IP including domain
names were transferred to others while Messrs. Vickery and Shakespare were officers of our company. As a result, we ceased promotions
and marketing on the ATM business and relations cryptocurrencies business in September 2018. On November 21, 2018, we had sent
the final notice that JPC Fintech has materially breached the agreement. We requested that JPC Fintech Ltd. return its stock certificate
received in the transaction to our transfer agent for immediate cancellation. We have not yet received the certificate for termination.
In February of 2020, 100% of the intellectual assets of KryptoKiosk Limited‘s carrying value $48,000 net of amortization
is written off since the IP was never transferred to us and
no revenue was generated from this intellectual asset.
On May 9, 2018, we entered into an investor
agreement with iCrowdU Inc. We agreed to purchase 228,013 shares of iCrowdU Inc. at a share price of $1.228 for total consideration
of $280,000. iCrowdU Inc. offers an online platform and mobile app for crowd funding services targeting the global crowd funding
market.
Furthermore, it was agreed to exchange 2,000,000
shares of our common stock for 2,000,000 shares of common stock in iCrowdU Inc. This share exchange was made as collateral in advance
of an investment of $1,935,000 by us into iCrowdU Inc., which never occurred.
On or about May 9, 2018, we entered into consultancy
agreements with Alexander Holtermann, Ian Wright and Luis Hadic. Each of Messrs. Holtermann, Wright and Hadic received 200,000
shares of our common stock under the consultancy agreements.
On or about July 26, 2018, we entered into
an investment agreement with iCrowdU Inc. for the purchase of 40% of iCrowdU in exchange for 8,000,000 shares of our common stock
that would be split between Messrs. Holtermann and Wright at 70% and 30%, respectively, and an investment of $10,000,000. The 8,000,000
shares were cut but not delivered to Messrs. Holtermann and Wright and no part of the $10,000,000 was invested by us into iCrowdU
Inc.
On or about July 31, 2018, we entered into
employment agreements with Messrs. Holtermann and Wright for the consideration provided for under the agreements.
On October 25, 2018, the above parties entered
into an Agreement for Termination and Release that terminated all outstanding agreements among the parties and released each party
from the other. We agreed to settle outstanding expenses and costs incurred by iCrowdU Inc., in the sum of $6,444.90. In addition,
all parties agreed to return any shares received from the above agreements, save we shall be permitted to retain the 228,013 shares
purchased in iCrowdU Inc. Finally, we agreed to amend our Current Report on Form 8-K concerning certain disclosures made therein.
We amended the report as per the agreement.
On September 5, 2018, the Company entered into
an agreement to acquire a movie copyright for $768,000 from All In One Media Ltd, which holds 200,000 common shares of the Company
as of August 31, 2019 and is previously named as Aura Blocks Limited. The remaining balance to Aura Blocks Limited is $153,600
as of August 31, 2019. The Company has obtained the exclusive permanent broadcasting right outside the mainland China and is expected
to generate revenues from showing the movie online, in theaters, and on TV outside the mainland China once this movie is completed
in June, 2019. In August of 2019, the Company sold this movie copyright to China IPTV Industry Park Holding Ltd for $857,600 with
a gain of $89,538.
In December of 2018, we engaged StarEastnet,
a software developer that holds 171,000 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. In February of 2020, the Company decided
that 80% of the carrying amount of Ai Bian Quan Qiu platform and its Wechat official account should be impaired.
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 242,980 common shares of the Company,
for $422,400 with a gain of $59,792 in August of 2019.
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 is from August 1, 2019 to July
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 is from September 4, 2019 to March 3, 2020. This loan balance was paid off in full on May 4th, 2020.
On April 22, 2020, the Company has announced the first phase development
of its highly anticipated video streaming service, the Company expects a full launch this year. The online service will be marketed
and distributed in the world under the brand name ABQQ.tv. ABQQ.tv is expected to generate a new and profitable revenue stream
immediately following its launch derived from its hybrid subscription and advertising business model.
The Company is currently designing and creating the website, the
Company's professional team are watching and sourcing such dramas and films to prepare the ABQQ.tv official launch in December
this year.
NOTE 2 –SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have
been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in
US dollars. The Company’s year-end is August 31. The financial statements have been prepared on a consolidated basis, with
their fully owned subsidiary App Board Limited.
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.
No intercompany balances or transactions exist during the period ended May 31, 2020 and May 31, 2019.
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
For purposes of the statement of cash flows,
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
arise 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.
Accounts Receivable
Accounts receivable consist of amounts due
from Anyone Pictures Limited for the sub-licensing fee revenue. Amounts receivable are recorded at the invoiced amount and do not
bear interest. 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 has been recorded by the Company during the nine months ended
May 31, 2020 and May 31, 2019, and no write-off for bad debt were recorded for the nine months ended May 31, 2020 and May 31, 2019.
Prepaid Expenses
Prepaid expenses primarily consist of consulting
fees that have been paid in advance and prepayments of OTC market annual fee, website domain fee, TV promotion fee, and investor
relation fee.
The prepaid balances are amortized when the
related expense is incurred.
Note Receivable
Note receivable is a one-year note bearing
annual interest of 10% with the principal payable annually at the end of the term. Interest is due and payable, at the election
of the Company, in cash on the Maturity Date, as applicable, or if the note receivable is prepaid earlier, on such prepayment date.
Therefore, interest income is recorded along with interest receivable throughout the note period.
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:
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Estimated Useful Life
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Furniture
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7 years
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Appliances
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5 years
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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 cost and depreciated
as follows:
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●
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Mobile application product: straight-line method over the estimated life of the asset, which has been determined by management to be 3 years
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Movie copyrights: income forecast method for a period not to exceed 10 years
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●
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Patent: straight-line method over the term of 5 years based on the patent license agreement
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Amortized costs of the intangible asset are
recorded as cost of sales, as the intangible asset is directly related to generation of revenues in the Company.
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:
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●
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the contract with a customer;
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identify the performance obligations in the contract;
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●
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determine the transaction price;
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●
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allocate the transaction price to performance obligations in the contract; and
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●
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recognize revenue as the performance obligation is satisfied.
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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 and charging a service fee from the “Ai Bian Quan Qiu” platform for actors and commercial events matching.
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. During the year of 2019, both parties agreed to charge the sublicensing fee
based upon a fixed number 2,000,000 users.
The “Ai Bian Quan Qiu” platform
service revenue is derived principally from providing matching service to merchants who are looking for actors to perform at their
advertising events. The Company recognizes revenue upon a matching event is accepted by actors with a service fee of 10% of the
actors’ quote for performing at the events. For the service fee revenue from the “Ai Bian Quan Qiu” platform,
the Company does not control the specified goods or services before that is transferred to the customers and thus the Company is
an agent. Therefore, this service revenue is recognized at a net basis.
Leasing
The Company has operating
leases for an office and a store for display with expiration dates through 2022. The Company determines whether an arrangement
is or includes an embedded lease at contract inception. Lease expense is recognized on a straight-line basis over the lease term.
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 G&A expense. The impairment loss of intangible assets was $111,115, including $48,000 for the intellectual
assets acquired from KryptoKiosk Limited and $63,115 for the performance matching platform “Ai Bian Quan Qiu” and its
WeChat official account.
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. Pursuant to ASC 820 and 825, the fair value of cash is determined based on "Level
1" inputs, which consist of quoted prices in active markets for identical assets. 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.
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 May 31, 2020, there was unrecognized tax benefits. Please see Notes 13 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.
For the nine months ended May 31, 2020, 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.
Basic and Diluted Income (Loss) Per Share
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
East 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.
As of May 31, 2020, 101,716 potentially diluted
shares were from convertible notes and 49,060 potentially diluted shares were from warrants. 49,060 diluted shares are the maximum
number of common shares these warrants can be converted into. No potentially dilutive debt or equity instruments were issued or
outstanding as of August 31, 2019.
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Nine Months Ended
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May 31,
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Diluted shares not included in basic loss per share computation
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2020
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2019
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Warrants
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|
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49,060
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|
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—
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Convertible notes
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|
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101,716
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—
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Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases.
The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize
in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to
use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting
policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors
are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach.
The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018.
In September 2017, the FASB has issued ASU
No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases
(Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of
Prior SEC Staff Announcements and Observer Comments.” The amendments in ASU No. 2017-13 amends the early adoption date option
for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. Both of the below entities may still adopt
using the public company adoption guidance in the related ASUs, as amended. The effective date is the same as the effective date
and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02.
In February 2018, the FASB issued
guidance to address the income tax accounting treatment of the tax effects within other comprehensive income due to the enactment
of the Tax Cuts and Jobs Act (the “Act”). This guidance allows entities to elect to reclassify the tax effects of the
change in the income tax rates from other comprehensive income to retained earnings. The guidance is effective for periods beginning
after December 15, 2018 although early adoption is permitted. The Company has evaluated and concluded that there was no impact
on its consolidated financial position and results of operations.
In March 2018, the FASB issued ASU 2018-05:
“Income Taxes (Topic 740)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”. The amendments
in this ASU add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118, which expresses the view
of the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 –
the date on which the Tax Cuts and Jobs Act was signed into law. The Company has evaluated and concluded that there was no impact
on its consolidated financial position and results of operations.
In June 2018, the FASB issued ASU
2018-07: “Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting”.
This ASU expands the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments
to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based
payments to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity—Equity-Based
Payments to Nonemployees. The amendments in this ASU are effective for public companies for fiscal years beginning after December
15, 2018, including interim periods within that fiscal year. For all other companies, the amendments are effective for fiscal
years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption
is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company
does not currently expect the adoption of the amendment to have a material impact on its consolidated financial position and results
of operations.
In July 2018, the FSAB issued ASU
2018-10 ASC Topic 842: “Codification Improvements to Leases” The amendments are to address stakeholders’ questions
about how to apply certain aspects of the new guidance in Accounting Standards Codification (ASC) 842, Leases. The clarifications
address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification,
lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition
adjustments. The amendments in ASC Topic 842 are effective for EGC for fiscal years beginning after December 15, 2019, and interim
periods within fiscal years beginning after December 15, 2020. While early application is permitted, including adoption in an interim
period, the Company has not elected to early adopt. The Company is currently evaluating the impact of this accounting standard
update on its consolidated financial statements.
In July 2018, the FASB issued ASU
2018-11, Leases (Topic 842). This update provides entities with an additional (and optional) transition method to adopt the new
leases standard. Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect
adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative period’s
financials will remain the same as those previously presented. Entities that elect this optional transition method must provide
the disclosures that were previously required. The Company is evaluating the effect this new guidance will have on our consolidated
financial statements and related disclosures.
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.
NOTE 3 –PREPAID EXPENSES
Prepaid expense was $21,739 and $21,970 as
of May 31, 2020 and August 31, 2019, respectively. Prepaid expense at May 31, 2020 included $15,333 prepaid consulting fees, $2,000
prepayment of OTC market annual fee, $219 prepaid website and domain fee, $1,853 prepaid TV promotion fee, and $2,333 prepaid investor
relation fee.
NOTE 4 – NOTE RECEIVABLE
Note receivable relates to two loan agreements
entered with All In One Media, previously named as Aura Blocks Limited, in August and September of 2019, respectively. The note
receivable entered in August, 2019 is a one-year loan of $1,047,040 the Company lends to All In One Media Ltd at an annual interest
rate of 10%. The loan principal is due on July 31, 2020. The note receivable entered in September, 2019 is to lend $1,049,600 at
an annual interest rate of 10% to All In One Media Ltd with a term from September 4, 2019 to March 3, 2020.
On May 4th, 2020, All In One Media paid off
the loan principal of $1,049,600 with 5 months’ interest of $43,717. The Company has received 2 months’ extra interest
income due to the delay in payment from All In One Media Ltd. As of May 31, 2020, and August 31, 2019, the Note receivable balance
was both $1,047,040 and the interest receivable balance was $34,965 and $8,725, respectively. For the nine months ended May 31,
2020, the Company has generated an interest income of $148,549 from these two note receivables.
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 total original cost was $167,278, including
$146,304 for renovation of the office and the store and $20,974 office furniture and appliances. The accumulated depreciation was
$52,404 and $12,631 at May 31, 2020 and August 31, 2019, respectively.
|
|
May 31,
|
|
August 31,
|
|
|
2020
|
|
2019
|
Appliances and furniture
|
|
$
|
20,974
|
|
|
$
|
20,974
|
Leasehold improvement
|
|
|
146,304
|
|
|
|
146,304
|
Total cost
|
|
|
167,278
|
|
|
|
167,278
|
Accumulated depreciation
|
|
|
(52,404
|
)
|
|
|
(12,631)
|
Property and equipment, net
|
|
$
|
114,874
|
|
|
$
|
154,647
|
NOTE 6 – INTANGIBLE ASSETS
As of May 31, 2020 and August 31, 2019, the
balance of intangible assets are as follows;
|
|
May 31,
|
|
August 31,
|
|
|
2020
|
|
2019
|
Patent
|
|
$
|
500,000
|
|
|
$
|
500,000
|
Intellectual property: Kryptokiosk
|
|
|
—
|
|
|
|
72,000
|
Ai Bian Quan Qiu platform
|
|
|
19,917
|
|
|
|
99,584
|
Total cost
|
|
|
519,917
|
|
|
|
671,584
|
Accumulated amortization
|
|
|
(305,970
|
)
|
|
|
(257,791)
|
Intangible asset,net
|
|
$
|
213,947
|
|
|
$
|
413,793
|
Amortization expenses for nine months ended
May 31, 2020 and 2019 was $88,731 and $89,904, respectively.
NOTE 7 - LONG-TERM
PREPAYMENT
In September 2019,
the Company entered into an agreement with its related party Youall Perform Services 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 did not generate any revenue in
Q2 and Q3, FY2020. The Company impaired 80% of the “Ai Bian Quan Qiu” platform intangible asset value in Q2 2020. As
such, $108,800 prepayment was expensed as research and development expense in Q3, FY2020.
As of May 31, 2020,
the long-term prepayment balance of $1,011,200 relates to three movie copyrights. In November 2019, the Company acquired two movie
copyrights at a price of $256,000 for “Lushang” and $115,200 for “Qi Qing Kuai Che”. Both of them have
been fully paid and recorded as long-term prepayment. The estimated earliest release date of these two movies will be in the third
quarter of FY2021. In January 2020, the Company acquired another movie copyright “Ai Bian Quan Qiu” at a price of $870,978.
As of May 31, 2020, $640,000 has been paid and recorded as long-term prepayment for this movie copyright.
NOTE 8 - 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.
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 the 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.
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”), 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.
The term of the convertible note is 1 year
with the maturity date on December 09, 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.
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 closing the outstanding
principal amount shall be $40,500 and the Holder shall pay $36,500 of the consideration (the “First Tranche”). Out
of $68,500 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.
The term of the 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 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 Fund, LLC, (“Auctus” or the “Holder”) by issuing a convertible note (the
“Note”). The Note has an original principal amount of $75,000, and upon issuance, the Company is expected to receive
net proceeds of $75,000.
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 the 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.
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, and upon issuance, the Company
is expected to receive net proceeds of $50,000.
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 the 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, and upon issuance, the Company is expected to receive
net proceeds of $50,000.
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 the 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 upon issuance, the Company is expected to receive
net proceeds of $35,000 after subtracting 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 the 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.
The following table summarizes the convertible
note and derivative liability in the balance sheet at May 31, 2020:
Balance, August 31, 2019
|
|
$
|
—
|
Principal
|
|
$
|
414,000
|
Discount on Note issuance
|
|
$
|
(49,472)
|
Accrued interest expense
|
|
$
|
16,429
|
Derivative liability
|
|
$
|
54,316
|
Balance, May 31, 2020
|
|
$
|
435,273
|
The Company valued its derivatives liability
using Monte Carlo simulation. Assumptions used as of May 31, 2020 include (1) risk-free interest rates of 0.14% - 0.18%, (2) expected
equity volatility of 58.3% - 91.1%, (3) zero dividends, (4) discount for lack of marketability of 35% (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
dates.
The Company recognizes day one loss due to
convertible feature of $54,316 in the income statement for the nine months ended May 31, 2020.
NOTE 9 - WARRANTS
On December 9, 2019, January 8, 2020, January
17, 2020, and March 12, 2020, the Company issued warrants to EMA Financial, Peak One Opportunity, Crown Bridge, and Armada in conjunction
with their convertible notes (see Note 8). 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.
The fair value of the stock warrants granted
to EMA Financial was estimated at $85,156 on May 31, 2020 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 0.28%, expected dividend yield of zero,
remaining contractual life of 4.64 years, and an average expected volatility of 61%.
The fair value of the stock warrants granted
to Peak One was estimated at $31,793 on May 31,2020 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 0.27%, expected dividend yield of zero, remaining
contractual life of 4.53 years, and an average expected volatility of 60.60%.
The fair value of the stock warrants granted
to Crown Bridge was estimated at $13,834 on May 31,2020 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 0.28%, expected dividend yield of zero,
remaining contractual life of 4.61, and an average expected volatility of 60.90%.
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 0.29%, expected dividend yield of zero,
remaining contractual life of 4.78, and an average expected volatility of 61.54%.
A summary of the status of the Company’s
warrants as of May 31, 2020 is presented below:
|
|
Number
of warrants
|
Warrants
as at August 31,2019
|
|
|
—
|
Warrants
granted
|
|
|
49,060
|
Exercised,
forfeited or expired
|
|
|
—
|
Outstanding
at May 31,2020
|
|
|
49,060
|
Exercisable
at May 31, 2020
|
|
|
10,000
|
The
following table summarizes information about the Company’s warrants as of May 31,2020:
Warrants
outstanding
|
|
|
|
Warrants
exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
price
|
|
|
|
Number
outstanding
|
|
|
|
Weighted
average remaining contractual life (in years)
|
|
|
|
Weighted
average exercise price
|
|
|
|
Number
exercisable
|
|
|
|
Weighted
average exercise price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EMA Financial
|
|
$
|
12.50
|
|
|
|
30,000
|
|
|
|
2.83
|
|
|
$
|
8.39
|
|
|
|
—
|
|
|
$
|
—
|
Peak One
|
|
$
|
10.00
|
|
|
|
10,000
|
|
|
|
0.92
|
|
|
$
|
2.24
|
|
|
|
10,000
|
|
|
$
|
10.00
|
Crown Bridge
|
|
$
|
12.50
|
|
|
|
4,680
|
|
|
|
0.46
|
|
|
$
|
1.31
|
|
|
|
—
|
|
|
$
|
—
|
Armada Partners
|
|
$
|
12.50
|
|
|
|
4,200
|
|
|
|
0.41
|
|
|
|
1.07
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
49,060
|
|
|
|
4.62
|
|
|
$
|
11.99
|
|
|
|
10,000
|
|
|
$
|
10.00
|
NOTE 10 - 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.
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 May 31, 2020 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 May 31, 2020 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)
|
|
|
|
Fair
value at May 31, 2020
|
Derivative liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
54,316
|
|
|
$
|
54,316
|
|
|
Derivative
liabilities embedded in convertible notes
|
|
|
|
Fair
value at September 1, 2019
|
|
$
|
—
|
Increase
in liability
|
|
|
18,084
|
Fair
value at November 30, 2019
|
|
|
18,084
|
Increase
in liability
|
|
|
34,683
|
Changes
in the fair value
|
|
|
(2,441)
|
Fair
value at February 29, 2020
|
|
$
|
50,326
|
Increase
in liability
|
|
|
4,650
|
Changes
in the fair value
|
|
|
(660)
|
Fair
value at May 31, 2020
|
|
$
|
54,316
|
NOTE
11– 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. During the nine months ended May 31, 2020 and
2019, there are no such related party transactions.
The Company has entered into a patent license
agreement with a related party Guangzhou Shengshituhua Film and Television Company Limited (“Licensor”). 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 nine months ended May 31, 2020 and 2019 are $46,080 and
$45,568, respectively.
Youall Perform Services Ltd, owned by the Company’s
Board of Director Jianli Deng, has been collecting revenue on behalf of the Company from the performance matching platform “Ai
Bian Quan Qiu”. As of May 31, 2020, the Company has $87,581 related party receivable from Youall Perform Services Ltd for
the revenue collected from “Ai Bian Quan Qiu” on behalf of the Company.
In September 2019, the company entered
into an agreement with Youall Perform Services Ltd for two transactions. 1) 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. Since there was no revenue from “Ai Bian Quan Qiu” due to COVID-19 in Q2 and Q3 of
FY2020, $108,800 long-term prepayment is expensed as research and development expense in Q3, FY2020. 2) 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.
The Company rented an office from Zestv Studios
Ltd., owned by the Chief Executive Officer Chiyuan Deng, and incurred a total related party payable of $5,504 as there is a one-month
lag in payment of the office rent.
During the nine months ended May 31, 2020,
$127,435 was paid to five executives in the form of stock-based compensation and $11,250 cash salary was paid to the Chief Financial
Officer.
NOTE 12– EQUITY
Effective as of June 6, 2018, AB International
Group Corporation amended its Articles of Incorporation to increase its authorized common stock to One Billion (1,000,000,000)
shares, par value $0.001 per share.
During the year ended August 31, 2019, the
following 40,600,000 common shares were returned to the Company due to the termination of the Investor Agreement to acquire 51%
ownership of iCrowdU Inc:
|
●
|
2,000,000 shares for acquisition of shares of iCrowdU as collateral and 8,000,000 shares as consideration.
|
|
●
|
20,200,000 issued to Alexander Holtermann for employment as Chief Executive Officer, 10,200,000 to Ian Wright for employment as Chief Operational Officer, and 200,000 to Eichbaum Financial Reporting Services Inc. for consulting fees.
|
In June, 2019, the Company incurred a 50:1
common reverse stock split. Prior to approval of the reverse split the Company had a total of 177,100,000 issued and outstanding
shares of common stock, par value $0.001. On the effective date of the reverse split, the Company has a total of 3,602,016 issued
and outstanding shares of common stock, par value $0.001.
Upon the Reverse Split becoming effective,
the par value per share of common stock will remain unchanged at $0.001 per share. As a result, on the effective date of the Reverse
Split, the stated capital on the Company’s balance sheet attributable to our common stock will be reduced proportionally,
based on the exchange ratio of the Reverse Split, from its present amount, and the additional paid-in capital account will be credited
with the amount by which the stated capital is reduced. The net income or loss and net book value per share of common stock will
be increased, because there will be fewer shares of common stock outstanding.
The Company issued the following common shares
during year ended August 31, 2019:
|
●
|
1,975,000 shares issued for consulting services of $59,250 to two third-party consultants during Q1, FY2019 and 3,300,000 common shares for consulting services of $99,000 to nine third-party consultants during Q3, FY2019
|
|
●
|
20,100,000 shares for services of the Chief Operational Officer, the Chief Marketing Officer, and the Chief Financial Officer.
|
|
●
|
18,000,000 common shares issued at $0.02 per share to five unrelated parties for proceeds of $360,000 during Q2, FY2019. The five unrelated parties include Anyone Pictures Limited, Kangdi Liu, Lijun Yu, Zestv Features Limited, and All In One Media Limited.
|
|
●
|
13,000,000 common shares issued at $0.02 per share to three unrelated parties, including 3,000,000 to Kangdi Liu and 10,000,000 Bonus Media Investment Limited during Q3, 2019 for total proceeds of $260,000 during Q3, FY2019.
|
|
●
|
3,000,000 common shares issued at $0.02 per share to an unrelated third party Zestv Features Limited in Q4, FY2019 before the 50:1 reverse stock split for a total proceed of $60,000.
|
|
●
|
20,000,000 common shares to the Chief Executive Officer Chiyuan Deng with 14,000,000 issued at $0.02 per share in Q3, FY2019 and 600,000 shares issued at $2 per share in Q4, FY2019 after the 50:1 reverse stock split for total cash proceeds of $1,480,000.
|
|
●
|
620,000 common shares issued at $2 per share after the reverse stock split to five unrelated party, including 100,000 to All In One Media Limited, 60,000 to KangDi Liu, 130,000 to Anyone Pictures Limited, 165,000 to StarEastNet, and 165,000 to Baoyu Chen, for total proceeds of $1,240,000
|
There are no common shares issued during the
nine months ended May 31, 2020. The Company has 4,822,016 issued and outstanding shares of common stock as of May 31, 2020 and
August 31, 2019. These common shares were held by approximately 513 shareholders of record at May 31, 2020 and August 31, 2019.
During Q2 and Q3, FY2020 the Company issued four five-year warrants
to purchase 49,060 shares of common stock at an exercise price of either $10.00 per share or $12.50 per share.
NOTE 13– INCOME TAXES
On December 22, 2017, the United States enacted
the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications to existing law. The Company has completed
the accounting for the effects of the Act. The Company’s financial statements for the year ended August 31, 2019 reflect
certain effects of the Act which includes a reduction in the corporate tax rate from 35% to 21% as well as other changes.
Components of net deferred tax assets, including
a valuation allowance, are as follows as of May 31, 2020 and August 31, 2019:
|
|
May 31,
|
|
August 31,
|
|
|
2020
|
|
2019
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
Net operating loss carry over
|
|
$
|
288,740
|
|
|
$
|
201,056
|
Less: valuation allowance
|
|
|
(288,740
|
)
|
|
|
(201,056)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
The valuation allowance for deferred tax assets
was $288,740 as of May 31, 2020 and $201,056 as of August 31, 2019. 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 May 31, 2020 and August 31, 2019.
Reconciliation between the statutory rate and
the effective tax rate is as follows for the nine months ended May 31, 2020 and May 31, 2019:
|
|
Nine months ended
|
|
|
May 31,
|
|
|
2020
|
|
2019
|
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 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 nine months ended May 31, 2020 and
May 31, 2019, the Company and its subsidiary have incurred a loss of (731,205) and ($599,444), respectively. As a result, the Company
and its subsidiary did not incur any income tax during the nine months ended May 31, 2020 and May 31, 2019.
NOTE 14 – CONCENTRATION RISK
62% and 84% of revenue was generated from one
customer during the nine months ended May 31, 2020 and May 31, 2019, respectively.
100% of account receivables was due from one
customer as of May 31, 2020 and May 31, 2019.
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Operating lease
The Company leases office premises and a display
store under non-cancelable operating lease agreements with an option to renew the lease. On February 21, 2020, the display store
lease for a monthly rent of $1,766 was updated with a lower monthly rent of $768 per month from 02/23/2020 to 02/22/2021and $968
from 02/23/2021 to 02/22/2022. The rent expense for the nine months ended May 31, 2020 and 2019 was $61,440 and $12,570, respectively.
All leases are on a fixed payment basis. None of the leases include contingent rentals. The Company had lease commitment of $168,205
as of May 31, 2020, of which $45,069 was within one year.
Future lease commitments
|
|
|
|
|
|
|
|
FY 2020
|
|
$
|
45,069
|
FY 2021
|
|
$
|
77,184
|
FY 2022
|
|
$
|
45,952
|
Total
|
|
$
|
168,205
|
NOTE
16 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company
has analyzed its operations subsequent to May 31, 2020 to the date these financial statements were issued.
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 80% 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.
On July 1, 2020, the Company’s CEO Chiyuan Deng acquired
9,000 shares of common stock at a price of $0.9389 per share.
Until July 7, 2020, $29,908 of the EMA Financial
convertible note was converted to 231,500 shares of common stock at 55% of the lowest trading price in the 20 days prior to the
conversion dates. As the conversion fee of $5,000 has deducted the converted note value and the additional MFN principal of $15,000
has been triggered when the conversion price is lower than $0.1, the remaining EMA Financial convertible note principal balance
was $65,092.5.
Until July 7, 2020, $50,000 of the Peak One
Investments, LLC convertible note was converted to 224,752 shares of common stock at 60% of the lowest trading price in the 20
days prior to the conversion dates. The remaining Peak One convertible note principal balance was $35,000.