Our unaudited consolidated financial statements included
in this Form 10-Q are as follows:
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
For the nine months
ended May 31, 2022 and 2021
(Unaudited)
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The accompanying unaudited consolidated financial
statements of AB International Group Corp. (the “Company”) have been prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article
8 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain information and footnote
disclosures normally included in consolidated financial statements have been omitted pursuant to such rules and regulations. The consolidated
balance sheet as of August 31, 2021 derives from the audited consolidated financial statements at that date, but does not include all
the information and footnotes required by GAAP. These unaudited consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
August 31, 2021.
The unaudited consolidated financial statements as
of and for the three and nine months ended May 31, 2022 and 2021, in the opinion of management, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition, results of operations and
cash flows. The results of operations for the three and nine months ended May 31, 2022 and 2021 are not necessarily indicative of the
results to be expected for any other interim period or for the entire year.
Foreign Currency Transactions
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.
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.
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
stockholders 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 and convertible preferred stock 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.
The
Company had preferred shares and had no convertible notes and warrants as of May 31, 2022. For the three months ended May 31, 2022 and
2021, and for the nine months ended May 31, 2022 and 2021, no potentially diluted shares were included in the diluted loss per share as
they would be anti-dilutive.
NOTE 2 – GOING CONCERN
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 May 31, 2022, the Company had an accumulated deficit
of approximately $8.37
million and a negative working capital of $1.26 million.
For the nine months ended May 31, 2022, the Company incurred a net loss of approximately $1.77
million. Although, the Company generated revenue of approximately $2.06
million as the result of selling the mainland China copyrights and broadcast rights for five movies (“Love over the world”,
“Our treasures”, “Confusion”, “Huafeng” and “Lushang”) for the nine months ended May
31, 2022, the future operations of the Company depend on its ability to realize forecasted revenues, achieve profitable operations, and
depend on whether or not the Company could obtain 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 factors, among others, raise the substantial
doubt regarding the Company’s ability to continue as a going concern. The 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.
NOTE 3 –PREPAID EXPENSES
Prepaid expense was $2,333 and $13,566 as of May 31,
2022 and August 31, 2021, respectively. Prepaid expense as of May 31, 2022 primarily includes prepayment of the OTC market annual fee.
NOTE 4 – SUBSCRIPTION RECEIVABLE
Subscription receivable is cash not yet collected
from the stockholders for issuance of common stock. As of May 31, 2022, the company had no subscription receivable. As of August 31, 2021,
the subscription receivable balance of $87,239 was the result of 3 million 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 $39,902 and $39,748 for
nine months ended May 31, 2022 and 2021, respectively.
| | |
May 31, 2022 | |
August 31, 2021 |
| Leasehold improvement | |
$ | 146,304 | | |
$ | 146,304 | |
| Appliances and furniture | |
| 25,974 | | |
| 25,974 | |
| Total cost | |
| 172,278 | | |
| 172,278 | |
| Accumulated depreciation | |
| (158,475 | ) | |
| (118,573 | ) |
| Property and equipment, net | |
$ | 13,803 | | |
$ | 53,705 | |
NOTE 6 – INTANGIBLE ASSETS
As of May 31, 2022 and August 31, 2021, the balance
of intangible assets are as follows;
| | |
May 31, 2022 | |
August 31, 2021 |
| Patent license right | |
$ | 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 copyrights - LuShang | |
| 256,000 | | |
| — | |
| Movie copyrights - QiQingKuaiChe | |
| 1,024,000 | | |
| — | |
| TV drama copyright – 15 episodes | |
| 190,000 | | |
| — | |
| Movie and TV series broadcast rights | |
| 2,439,840 | | |
| 2,439,840 | |
| NFT MMM platform | |
| 280,000 | | |
| — | |
| Total cost | |
| 7,542,533 | | |
| 5,792,533 | |
| Less: Accumulated amortization | |
| (4,029,261 | ) | |
| (1,793,728 | ) |
| Intangible asset, net | |
$ | 3,513,272 | | |
$ | 3,998,805 | |
Intangible assets include: 1) a patent license right
obtained from Guangzhou Shengshituhua Film and Television Company Limited as a worldwide license to a video synthesis and release system
for mobile communications equipment (See Note 10); 2) copyrights for the movie “Love over the world”, “Huafeng”,
“Our treasures”, “LuShang”, “QiQingKuaiChe”, the sitcom “Chujian”, copyright for one TV
drama series, and 3) broadcast rights for fifty-nine movie and TV series; 3) On April 27, 2022, the Company purchased a unique Non-Fungible
Token movie and music marketplace, named as the NFT MMM, from Stareastnet Portal Limited, which including an APP “NFT MMM”
on Google Play, and full right to the website: starestnet.io.
The amortization expense for three months ended May 31, 2022 and 2021
was $862,399 and $428,794, respectively. The amortization expense for nine months ended May 31, 2022 and 2021 was $2,235,533 and $853,001,
respectively.
On January 24, 2022, the Company sold the mainland
China copyrights and broadcast rights of the movie “Love over the world”, “Our treasures” and “QiQingKuaiChe”
received $1,800,000. On May 2, 2022, the Company sold the mainland China copyright and broadcast right of the movie “Huafeng”
to a third party at a price of $128,000. The Company remains to have all copyright of outside of mainland China. On May 3, 2022, the Company
sold the mainland China copyright and broadcast right of the movie “LuShang” to a third party at a price of $128,000. The
Company remains to have all copyright of outside of mainland China.
The estimated amortization expense for each of the
two succeeding years is as follows. The intangible assets as of May 31, 2022 will be fully amortized in the fiscal year of 2024.
| Period ending May 31 |
|
Amortization expense |
| |
2023 |
|
|
$ |
2,760,402 |
|
| |
2024 |
|
|
$ |
752,870 |
|
NOTE 7 – RIGHTS-TO-USE OPERATING LEASE ASSETS,
NET
Rights-to-use lease assets, net consisted of the
following:
| | |
May 31, 2022 | |
August 31, 2021 |
| Right-to-use gross asset | |
$ | 1,431,026 | | |
$ | 223,237 | |
| Less: accumulated amortization | |
| (361,469 | ) | |
| (175,410 | ) |
| Right-to-use asset, net | |
$ | 1,069,557 | | |
$ | 47,827 | |
NOTE 8 – LONG-TERM
PREPAYMENT
The long-term prepayment
balance relates to movie copyrights and broadcast rights for movies as below:
| Name of movie | |
May 31, 2022 | |
August 31, 2021 |
| Prepayment of Movie - LuShang | |
$ | — | | |
$ | 256,000 | |
| Prepayment of Movie - QiQingKuaiChe | |
| — | | |
| 505,600 | |
| Prepayment of TV drama
series | |
| 525,000 | | |
| — | |
| Prepayment of Movie - Too Simple | |
| 1,271,265 | | |
| — | |
| Total long-term prepayment | |
$ | 1,796,265 | | |
$ | 761,600 | |
| |
• |
In October 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. “LuShang” has been approved for screening by the Chinese government in February 2022. The Company recognized an intangible asset of $256,000 in March 2022 when the movie is available for online broadcasting after one month it’s released in mainland China cinemas. The Company sold the mainland China copyright and broadcast right of this movie in May 2022 (See Note 6). |
| |
• |
In November 2019, the
Company acquired a broadcast right of “QiQingKuaiChe” (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.
In March 2022, the Company made the full payment and the movie copyright is recognized as an intangible asset. The Company sold the
mainland China copyright and broadcast right of this movie in January 2022 (See Note 6). |
| |
|
|
| |
• |
The Company acquired a movie copyright of “Too Simple” from Guang Dong Honor Pictures Ltd in July 2021 at a price of $1,271,265, which was to be paid in installments. As of May 31, 2022 and August 31, 2021, $1,271,265 and $644,785 was paid and recorded in long-term prepayment and other receivable, respectively. On December 31, 2021, the Company entered into a termination contract with Guang Dong Honor Pictures Ltd to cancel the purchase of copyright and to receive a full refund before May 31, 2022. The Company further negotiated with Guang Dong Honor Pictures and on June 23, 2022, both parties agreed to resume the purchase transaction. |
| |
|
|
| |
• |
On March 2, 2022, the Company signed a purchase agreement to acquire the copyright to broadcast a 25-episode TV drama series outside of mainland China. The fill episode is expected to deliver to the Company by the end of October 2022. |
NOTE 9 – 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, 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 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 May 31, 2022 |
| 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 | |
| (136,320 | ) |
| Changes in the fair value | |
| 18,439 | |
| Fair value at February 28, 2021 | |
$ | 45,490 | |
| Increase from note issuances | |
| — | |
| Decrease from note prepayment | |
| (45,490 | ) |
| Fair value at May 31, 2021 | |
$ | — | |
NOTE 10– 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 stockholders. 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 May 31, 2022 and August 31, 2021,
the Company had due to stockholders of $25,088 and $2,347, respectively.
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 and nine months ended May 31, 2022
and 2021, the Company didn’t recognize any revenue from this performance matching platform, respectively. The balance of related
party receivable from Youall Perform Services Ltd was $0 and $1,439 as of May 31, 2022 and August 31, 2021, 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 and may
be renewed at the Company’s written election conveyed to Licensor before the end of the term for a further term of five years.
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, 2022
and 2021 were $0 and $30,720, respectively, during the three months ended May 31, 2022 and 2021 were $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.
The Company rented an office from Zestv Studios Limited,
a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng (See Note 14). On December 1, 2020, the Company entered an agreement
with Zestv Studios Limited to grant Zestv Studios Limited the distribution right for the movie “Love over the world” and charge
Zestv Studios Limited movie royalties. The Company’s royalty 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 royalty 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 May 31, 2022 and August 31, 2021, the Company had
refund of movie royalties revenue net of movie distribution commission fee payable to Zestv Studios Limited of $763,770 and $933,434,
respectively. During the three months ended May 31, 2022, Zestv Studios Limited also loaned total of $285,571 to the Company as the working
capital. The loan is non-interest bearing and due on demand.
As of May 31, 2022 and August 31, 2021, the Company
had total related party payable to Zestv Studios Limited of $1,049,341 and $933,434, respectively.
On September 11, 2020, the Company entered into an
amended employment agreement with Chiyuan Deng, our Chief Executive Officer. Pursuant the amended agreement, the Company amended the compensation
to Mr. Deng to include a salary of $180,000
annually, a reduction in common stock issued to Mr. Deng, a potential for a bonus in cash
or shares, and the issuance of
100,000
shares of our newly created Series A Preferred Stock at par value $0.001..
Mr. Deng returned 261,111
shares
common stock to the Company received under his initial employment agreement.
During the nine months ended May 31, 2022 and 2021,
the Company paid CEO and CFO total salary of $342,167 and $258,837, respectively. During the three months ended May 31, 2022 and 2021,
the Company paid CEO and CFO total salary of $51,250 and $74,500, respectively.
NOTE 11 – STOCKHOLDERS’ EQUITY
The Company has the following equity activities during the nine months
ended May 31, 2022:
Common shares
| |
• |
The Company issued 2,500,000
and 3,000,000 shares of put shares to Peak One for cash at $0.02288, and $0.02719, respectively, per share during Q1 2022. |
| |
• |
The Company issued 3,146,854
of common shares to GHS Investments, LLC, from preferred shares series D conversion during Q1 2022. |
| |
• |
The Company issued 1,800,000
shares of common stock for cash at $0.01548 per share, and 3,000,000 shares of common stock for cash at $0.01716 per share, and 2,300,000
shares of common stock for cash at $0.01729 per share, and 2,300,000 shares of common stock for cash at $0.0110 per share to Peak
One during Q2 2022. |
| |
• |
As stock-based compensation
for annual bonus for calendar year of 2021, the Company issued 5,000,000 shares restricted common stock to the Chief Investment Officer
and 10,000,000 shares restricted common stock to the Chief Executive Officer all at market price $0.0138 per share Q2 2022. |
| |
• |
The Company issued 5,521,473
of common shares to GHS Investments, LLC from preferred shares series D conversion Q2 2022. |
| |
• |
The Company issued 30,000,000
shares of restricted stock at market price $0.0138 per share to seven consultants for 6 months to 18 months consulting services of
movies and NFT related business in Q2 2022. |
| |
• |
On March 10, 2022, the Company issued 5,638,298 shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. |
| |
• |
On March 11, 2022, the Company issued 3,639,345 shares to GHS Investments, LLC for the conversion of Series D preferred stock. |
| |
• |
On March 15, 2022, the Company issued 2,819,149 shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. |
| |
• |
On March 16, 2022, the Company issued 2,329,670 shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. |
| |
• |
On March 21, 2022, the Company issued 4,764,045 shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. |
| |
• |
On March 24, 2022, the Company issued 6,235,294 shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. |
| |
• |
On March 30, 2022, the Company issued 4,416,667 shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. |
| |
• |
On April 7, 2022, the Company issued 2,841,389 shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. |
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. 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 98,325
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.
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.
On December 20,
2021, the Company issued 34 shares
of series D preferred stock to the investor for the purchase price of $34,000.
After the payment of transaction-related expenses, net proceeds to the Company from the issuance of the Series D Preferred Stock was $31,267.
On January 21, 2022,
the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company 89,490
shares of Series C Convertible Preferred Stock of the Company for a purchase price of $78,035. The
closing occurred on January 21, 2022. After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance
of the Series C Preferred Stock totaled $68,529.
On March 16, 2022, the Company entered into a securities
purchase agreement with an accredited investor, whereby investor purchased from the Company 96
075 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $83,500.
After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance of the Series C Preferred
Stock totaled $73,600.
The Company also recorded a penalty expense of $141,945
which was in connection with the conversion of Series C preferred stocks due to the fact that the Company was late filing the
Form 10-Q for the period ended February 28, 2022.
NOTE 12 – INCOME TAXES
Components of net deferred tax assets, including a
valuation allowance, are as follows:
| | |
May 31, 2022 | |
August 31, 2021 |
| Deferred tax asset attributable to: | |
| | | |
| | |
| Net operating loss carry over | |
$ | 1,246,974 | | |
$ | 871,681 | |
| Less: valuation allowance | |
| (1,246,974 | ) | |
| (871,681 | ) |
| Net deferred tax asset | |
$ | — | | |
$ | — | |
The valuation allowance for deferred tax assets was
$1,246,974 as of May 31, 2022 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 May 31, 2022 and August 31, 2021
Reconciliation between the statutory rate and the
effective tax rate is as follows:
| | |
| |
|
| | |
Nine months ended |
| | |
May 31, |
| | |
2022 | |
2021 |
| Federal statutory tax rate | |
| 21 | % | |
| 21 | % |
| Change in valuation allowance | |
| (21 | %) | |
| (21 | %) |
| Effective tax rate | |
| 0 | % | |
| 0 | % |
The Company's future business will focus on
local cinemas and websites in the United States. During the nine months ended May 31, 2022 and 2021, the Company and its subsidiary
have incurred a consolidated net loss of $1,769,767 and $2,601,535, respectively and had net loss carryforward from prior years. As
a result, the Company and its subsidiary did not incur any income tax during the three and nine months ended May 31, 2022 and
2021.
NOTE 13 – CONCENTRATION OF RISK
Credit risk
Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of cash. The Hong Kong Deposit Protection Board pays
compensation up to a limit of HKD 500,000 (approximately $64,000) if the bank with which an individual/a company hold its eligible
deposit fails. As of May 31, 2022 and August 31, 2021, cash balance of $371,762 and $131,796, respectively, were maintained at
financial institutions in Hong Kong, and were subject to credit risk. In the US, the insurance coverage of each bank is $250,000.
The Company didn’t deposit with financial institutions located in US and were not subject to credit risk. While management
believes that these financial institutions and third-party fund holders are of high credit quality, it also continually monitors
their creditworthiness.
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company may be involved in
litigation relating to claims arising out of its operations in the normal course of business. There are no pending or threatened lawsuits
that could reasonably be expected to have a material effect on the results of its operations and there are no proceedings in which any
of the Company’s directors, officers, or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material
interest adverse to the Company’s interest.
Operating lease
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 Company leased certain office space in Hong Kong
from Zestv Studios Limited, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng, under operating lease for
three years from May 1, 2019 to April 30, 2022 with annual rental of $66,048 (HK$ 516,000). On May 1, 2022, the Company signed a new
operating lease agreement with Zestv Studios Limited to lease its Hong Kong office premise for two years from May 1, 2022 to April 2024
with annual rental of $66,048 (HK$ 516,000).
The Company lease office space in Singapore under
operating lease from April 13, 2021 to March 31, 2022 with monthly rental of $716 (SGD 974).
The Company leases office space at 48 Wall Street,
New York, under operating lease for one year from September 1, 2021 to August 31, 2022 with annual rental of $20,400.
On October 21, 2021, the Company signed a lease agreement
to lease “the Mt. Kisco Theatre”, a movie theater, for five years plus the free rent period which commences four months from
the lease commencement date. The theatre consists of approximately 8,375 square feet, and the total monthly rent is $14,366 for the first
year, including real estate related taxes and landlord’s insurance.
The cash lease expense for the nine months ended May
31, 2022 and 2021 was $135,648 and $69,905, respectively. The cash lease expense for the three months ended May 31, 2022 and 2021 was
$82,527 and $21,612, respectively. All leases are on a fixed payment basis. None of the leases include contingent rentals. The Company
had lease commitment of $1,171,693 as of May 31, 2022.
In accordance with ASC 250-10-45-14, the adoption
of ASC 842 lease accounting standard has resulted in $215,604 and $71,665 lease expenses for the nine months ended May 31, 2022 and 2021,
respectively, including both cash and non-cash lease expenses.
| | |
| |
|
| | |
May 31, 2022 | |
August 31, 2021 |
| Total Lease Payments | |
$ | 1,171,694 | | |
$ | 48,822 | |
| Less: imputed interest | |
$ | (21,780 | ) | |
$ | (596 | ) |
| Present value of lease liabilities | |
$ | 1,149,914 | | |
$ | 48,226 | |
| Current portion of obligations under operating leases | |
$ | 229,014 | | |
$ | 48,226 | |
| Obligations under operating leases, non-current | |
$ | 920,900 | | |
$ | — | |
For future lease payment for next five years as follow
| May 31, |
|
Amount |
| 2023 |
|
$ |
238,443 |
|
| 2024 |
|
|
258,064 |
|
| 2025 |
|
|
249,362 |
|
| 2026 |
|
|
254,183 |
|
| 2027 |
|
|
171,642 |
|
| Total lease payments |
|
$ |
1,171,694 |
|
NOTE 15 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed
its operations subsequent to July 10, 2022 to the date these financial statements were issued.
Issuance of Common Stock
On June 13, 2022, the Company issued 5,672,727 common
shares for the conversion of Series C preferred stock.
On June 21, 2022, the Company issued 7,090,909 common
shares for the conversion of Series C preferred stock.
On June 27, 2022, the Company issued 7,428,571 common
shares for the conversion of Series C preferred stock.
On July 5, 2022, the Company issued 9,069,767 common
shares for the conversion of Series C preferred stock.
On July 7, 2022, the Company issued 4,724,318 common
shares for the conversion of Series C preferred stock.
Issuance of Series C preferred stock
On June 1, 2022, the Company entered into a securities
purchase agreement with an accredited investor, whereby investor purchased from the Company 147,775 shares of Series C Convertible Preferred
Stock of the Company for a purchase price of $128,500. The closing occurred on June 16, 2022. After payment of transaction-related
expenses, net proceeds to the Company from the sale and issuance of the Series C Preferred Stock totaled $115,000. The Company intends
to use the proceeds from the Preferred Stock for general working capital purposes.
Copyright Transfer Agreement
On June 22, 2022, the Company entered an agreement
with Zestv Studios Limited, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng, to transfer the mainland China
copyright and broadcast right for the movie “Too Simple” to Zestv Studios Limited. The total transfer price is $750,000.