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 November 30, 2018 are not necessarily indicative of the results
that can be expected for the full year.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
November
30, 2018
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 (“Inception”) and originally intended to purchase used cars in the United States
and sell them in Kyrgyzstan. 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 model 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 5 years, subject to a right to renew for an additional 5 year term.
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 all amounts due under the Agreement.
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.
We
are in the process of using the underlying Technology to create a smartphone video mix app and social video sharing platform.
We are developing this new apps for use with iOS and Android smartphones and we expect to launch the app sometime in the beginning
of next year. We expect that this new app will transform the way users create and share art talent and fun. The app is expected
to take advantage of the core design philosophy of “My film anyone, anywhere, anytime be together.” 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. Today, the word “Meitu” is used as a verb for “enhancing
images”, and TikTok is a short video sharing platform. Our Videomix app, yet to be released, is expected to be used as a
verb for “enhancing videos synthesis production,” but also as a brand that represents talent, trendiness, youthfulness
and funniness.
To
better meet our users’ demands for higher quality selfies, we are also planning to launch the Patent (Mobile communication
equipment video synthesis production and distribution system) License Program. The program markets our Technology to big brand
smartphones makers to highlight our patent apps integrate proprietary video synthesis production and distribution system processing
algorithms and specialized video processors, which generate high-quality selfies duet video synthesis. We have been in discussion
with these smartphone makers about our initiatives and selling points in an effort to increase sales. Revenue from this program
will be generated by license fees for each smartphone with this video synthesis production and distribution system function.
Fundamentally, we view ourselves as
a mobile Internet company with our core asset being our massive, active and fast-growing user base through registered patent--Mobile
communication equipment video synthesis production and distribution system.
We believe that the VideoMix app will
become an important part of users’ social lives online. We believe the provision of relevant products, content and services
will help us monetize our user base and enable us to create value for our users at the same time. We intend to continue to drive
our near-term revenue growth through patent--Mobile communication equipment video synthesis production and distribution system
license fees from smartphone makers, since China’s large smartphone market continues to present significant opportunities.
Our goal is that at least 10% of smartphones in China will eventually contain this integrated patent function. If we meet this
goal, which would equate to around 40 million smartphones, which in turn result in about 200 million RMB in revenue generated from
patent license fees. As we have not yet commercialized the app for sale, we do not expect to achieve any revenues until we launch
the app and make it available under our program, and we can provide no assurances that we will be able to achieve commercialization
or our revenue goals for the app. According to preliminary data of the IDC Quarterly Mobile Phone Tracker, the Chinese smartphone
market shipped 105 million units during the second quarter of 2018. Following our successful monetization through smartphones,
we have also identified three other major opportunities for monetization, including content use fees, advertising fees, KOL agency
fees.
On November 16, 2017, the Company sold
the copyright and all other rights in a film named “Gong Fu Nv Pai” copyright and the mobile application (Amoney).
Currently, the Company is focused on the acquisition and development of intellectual property.
On January 18, 2018 the Company
and Wellington Shields & Co.(“Wellington”) Entered into an Engagement agreement in connection with an offering
of $20,000,000. Effective on June 30, 2018, the Company and Wellington agree as follows to amend the engagement agreement.
|
·
|
A non-refundable consulting
fee in the amount of $25,000 to be payable and 100,000 restricted shares.
|
|
·
|
This engagement agreement
amendment shall terminate on November 30, 2018 or upon the earlier consummation of the placement.
|
On March 10, 2018, the Company acquired intellectual property from
Aura Blocks Limited for $200,000 in cash. 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 from Aura Blocks Limited to China
IPTV Industry Park Holdings Ltd. for $80,000.
On March 21, 2018, the Company acquired the intellectual assets
of KryptoKiosk Limited, a crypto currencies kiosk company which has licenses and patent in Australia. This intellectual assets
enable the operation of cryptocurrency ATMs that allow buying and selling of Bitcoin, Litecoin, and Ethererum all in one terminal.
The Company issued to JPC Fintech Limited (“JPC Fintech”) 2,400,000 common shares with a market value of $72,000 in
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.
On May 9, 2018, the Company entered into an Investor Agreement in
which the Company agreed to acquire 51% ownership of iCrowdU Inc (“iCrowdU”) for $10,000,000. iCrowdU offers an online
platform and mobile app for crowd funding services targeting the global crowd funding market. $280,000 has been paid to purchase
228,013 shares in iCrowdU, and 10,000,000 shares has been issued as the remaining consideration. 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 the Company into iCrowdU Inc., which never occurred. The Company also
entered into consultancy agreements with Alexander Holtermann, Ian Wright and Luis Hadic and each of them received 200,000 shares
of the Company’s common stocks under the consultancy agreements.
On October 18, 2018, the Company entered
into an agreement for termination and release with iCrowdU. The 10,000,000 shares have been returned to and cancelled by the Company
by the date of this report. The interests retained by the Company in iCrowdU is limited to the 228,013 shares acquired, equivalent
to a 1.14% ownership of iCrowdU.
On September 5, 2018, the Company entered
into an agreement with Aura Blocks Limited to acquire a movie copy right for $768,000 and paid $153,600 of the total balance. The
Company has obtained the exclusive permanent broadcasting right outside the mainland China and will generate revenues from showing
the movie online, in theaters, and on TV outside the mainland China once this movie is completed in 2019. This movie will also
be included in the video library for the Company’s VideoMix app.
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. No intercompany balances or transactions exist during the period ended November
30, 2018.
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 three-month period ended November 30, 2018.
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 promotional services provided. 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 three months ended November 30, 2018 and 2017, and no
write-off for bad debt were recorded for the three months ended November 30, 2018, and 2017.
Prepaid Expenses
Prepaid expenses consist of consulting
fees that have been paid in advance, installments to acquire a movie copy right, and payments to a designer to develop a mobile
app. The prepaid balances are amortized when the related expense is incurred.
Intangible Assets
Intangible assets are stated at cost
and depreciated as follows:
|
·
|
Mobile application product:
straight-line method over the estimated life of the asset, which has been determined by management to be 3 years
|
|
·
|
Movie copyrights: income
forecast method for a period not to exceed 10 years
|
|
·
|
Patent: straight-line
method over the term of 5 years based on the patent license agreement
|
Amortized costs of the intangible asset
are recorded as cost of sales, as the intangible asset is directly related to generation of revenues in the Company.
Income Taxes
The Company accounts for income taxes
pursuant to FASB ASC 740 “
Income Taxes
”. Under ASC 740 deferred income taxes are provided on a liability method
whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax
liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The provision
for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and
liabilities. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
ASC 740 also provides criteria for the
recognition, measurement, presentation and disclosure of uncertain tax positions. Under ASC 740, the impact of an uncertain tax
position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon
audit by the relevant taxing authority. At November 30, 2018, there was unrecognized tax benefits. Please see Notes 8 for details.
Revenue Recognition
Revenues are recognized when control
of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company
expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine
the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
|
·
|
the contract with a customer;
|
|
·
|
identify the performance
obligations in the contract;
|
|
·
|
determine the transaction
price;
|
|
·
|
allocate the transaction
price to performance obligations in the contract; and
|
|
·
|
recognize revenue as
the performance obligation is satisfied.
|
The Company has recognized the revenues
associated with mobile app sales once the criteria has been met, the product has been delivered, and the Company has received payment
from the vendor.
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. 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 income (loss) per
share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes all
potential common shares if their effect is anti-dilutive.
No potentially dilutive debt or equity
instruments were issued or outstanding during the periods ended November 30, 2018 and August 31, 2018.
NOTE 3 – GOING CONCERN UNCERTAINTIES
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of
assets and the discharge of liabilities in the normal course of business for the foreseeable future.
The Company had an accumulated deficit
of $1,275,939 As of November 30, 2018 and net loss of $228,554 and net cash used in operations of $199,500 for the three months
ended November 30, 2018. Losses have principally occurred as a result of the substantial resources required for general and administrative
expenses associated with our operations. The continuation of the Company as a going concern is dependent upon the continued financial
support from its stockholders or external financing. Management believes the existing stockholders will provide the additional
cash to meet with the Company’s obligations as they become due. However, there is no assurance that the Company will be successful
in securing sufficient funds to sustain the operations.
These conditions raise substantial doubt
about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to
reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional
funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
NOTE 4 – PREPAID
EXPENSES
On June 1, 2018, the Company
entered into an agreement with an outside phone apps designer. A smartphone apps was designed and its ownership belongs to the
Company. Its main use is smartphone video synthesis and sharing. The first payment paid to designer was $307,200. As of November
30, 2018, the app was under development.
On September 5, 2018, the
Company acquired a movie copy right from Aura Blocks Limited. The first payment was $153,600, which was one fifth of the total
purchase price.
Prepaid expense as of November
30, 2018 includes $307,200 payment to the designer to develop phone apps, $153,600 payment to acquire the movie copy right, and
$14,167 prepaid consulting fees net of amortization.
NOTE 5 –
DISCONTINUED OPERATIONS
On November 16, 2017, the Company sold
the copyright and all other rights in a film named “Gong Fu Nv Pai” copyright and the mobile application (Amoney) assets
to an unrelated party for $253,000 cash.
The sales of intangible assets qualified
as a discontinued operation of the Company and accordingly, the Company has excluded results of the operations from its Consolidated
Statements of Operations to present this revenue and expenses from these intangible assets in discontinued operations.
The following table shows the results
of operations of mobile application and copyright for three months ended November 30, 2018 and 2017 which are included in the gain
from discontinued operations:
|
|
Three months Ended
|
|
|
November
30,
|
|
|
2018
|
|
2017
|
Revenue
|
|
$
|
—
|
|
|
$
|
49,920
|
Cost of revenue
|
|
|
—
|
|
|
|
11,912
|
Income Tax Provision
|
|
|
—
|
|
|
|
27,011
|
Gain from discontinued operations
|
|
$
|
—
|
|
|
$
|
10,997
|
NOTE 6 – INTANGIBLE ASSETS
As of November 30, 2018, and August
31, 2018, the balance of intangible assets are as follows;
|
|
November 30,
|
|
August 31,
|
|
|
2018
|
|
2018
|
Patent
|
|
$
|
500,000
|
|
|
$
|
500,000
|
Intellectual property: Aura
|
|
|
—
|
|
|
|
200,000
|
Intellectual property: Kryptokiosk
|
|
|
72,000
|
|
|
|
72,000
|
Total cost
|
|
|
572,000
|
|
|
|
772,000
|
Accumulated amortization
|
|
|
(159,600
|
)
|
|
|
(131,000)
|
Intangible asset, net
|
|
$
|
412,400
|
|
|
$
|
641,000
|
Amortization expenses for three months
ended November 30, 2018, and 2017, was $28,600 and $36,912, respectively.
On November 10, 2018, the Company sold the
$200,000 intellectual property from Aura Blocks Limited for $80,000 with a realized loss of $120,000.
NOTE 7 –
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 three months ended November 30,
2018, there are no such related party transactions.
During the three month ended November
30, 2018 and 2017, $66,484 was paid to four related parties and $6,300 was paid to two related parties as salaries and wages, respectively.
Among the $66,484, $28,984 was paid to two executives and two former directors of the Company, and $37,500 was paid to two related
parties in the form of stock compensation.
NOTE 8 – 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 three months ended November
30, 2018, 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.
|
As of November 30, 2018 and August 31,
2018, 106,725,000 and 147,325,000 issued and outstanding shares of common stock were held by approximately 525 and 32 shareholders
of record, respectively.
NOTE 9 – INCOME TAXES
As of November 30, 2018, the Company
had no net operating loss carry forwards. Due to the change in control during the year, the Company determined there are no loss
carry forward amounts.
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 during the three months ended November 30, 2018. The Company’s financial
statements for the three months ended November 30, 2018 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 at August 31, 2018 and 2017:
|
|
Period Ended
|
|
|
November
30,
|
|
August
31,
|
|
|
2018
|
|
2018
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
Net operating loss carry over
|
|
$
|
41,990
|
|
|
$
|
149,948
|
Less: valuation allowance
|
|
|
(41,990
|
)
|
|
|
(149,948)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
The valuation allowance for deferred
tax assets was $41,990 as of November 30, 2018 and $149,948 as of August 31, 2018. In assessing the recovery of the deferred tax
assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods
in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets,
projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was
more likely than not the deferred tax assets would not be realized as of November 30, 2018 and August 31, 2018.
Reconciliation between the statutory
rate and the effective tax rate is as follows at November 30, 2018 and August 31, 2018:
|
|
2018
|
|
2017
|
Federal statutory tax rate
|
|
|
(21%
|
)
|
|
|
35%
|
Change in valuation allowance
|
|
|
21%
|
|
|
|
0%
|
Effective tax rate
|
|
|
0%
|
|
|
|
35%
|
NOTE 10 – CONCENTRATION
RISK
100% and 55% of revenue was generated
from one customer during the three month period ended November 30, 2018 and 2017, respectively.
100% of account receivables was due
from one customer as of November 30, 2018 and August 31, 2018.
NOTE 11
– SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company
has analyzed its operations subsequent to November 30, 2018 to the date these financial statements were issued and has determined
that it does not have any material subsequent events to disclose in these financial statements.