NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended August 31, 2019 and 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 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, 2018, the term of this sublicensing agreement was renewed
and extended until October 31, 2019.
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.
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.
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. The Company expects to have similar short term note receivables for the next few years.
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 August 31, 2019.
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 year period ended August 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 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 year ended August 31, 2019 and 2018, and no write-off
for bad debt were recorded for the year ended August 31, 2019, and 2018.
Prepaid Expenses
Prepaid expenses primarily consist of consulting
fees that have been paid in advance and prepayments of financial adviser fee, OTC market annual fee, and website and domain 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
Estimated and appliances acquired for the office. The balance is stated at cost less accumulated depreciation. Depreciation
is computed using the straight-line method over estimated useful lives listed below:
|
|
Estimated
Useful Life
|
Furniture
|
|
5 years
|
Appliances
|
|
7 years
|
Leasehold Improvement
Leasehold improvement is related to the enhancements
paid by the Company to leased office and store. Leasehold improvement represents capital expenditures for direct costs of renovation
or acquisition and design fees incurred. The amortization of leasehold improvements commences once the renovation is completed
and ready for the Company’s intended use. Leasehold improvement is amortized over the lease term of 3 years.
Intangible Assets
Intangible assets are stated at 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.
Revenue Recognition
The Company adopted ASC
Topic 606, “Revenue from Contracts with Customers”, applying the modified retrospective method.
In accordance with ASC
Topic 606, revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that
reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the
following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under
each of its agreements:
|
§
|
the contract with a customer;
|
|
§
|
identify the performance obligations in the contract;
|
|
§
|
determine the transaction price;
|
|
§
|
allocate the transaction price to performance obligations in the
contract; and
|
|
§
|
recognize revenue as the performance obligation is satisfied.
|
The Company does not
believe that significant management judgements are involved in revenue recognition, but the amount and timing of the Company’s
revenues could be different for any period if management made different judgments or utilized different estimates. Generally, the
Company recognizes revenue under ASC Topic 606 for its performance obligation.
The Company generates revenue from sub-licensing
a patent 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.
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 August 31, 2019, there was unrecognized tax benefits. Please see Notes 11 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 year ended August 31, 2019, the Company’s
revenue generated from the “Ai Bian Quan Qiu” platform is subject to VAT at a rate of 6% and subject to surcharges
at a rate of 12% of the VAT payable. The Company did not incur any VAT tax for the year ended August 31, 2018 as the “Ai
Bian Quan Qiu” platform did not start generating revenue until February, 2019.
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 as of August 31, 2019 and August 31, 2018.
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.
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.
NOTE 3 –PREPAID EXPENSES
On June 1, 2018, the Company entered into an
agreement with an outside phone apps designer to develop a VideoMix smartphone app for video synthesis and sharing. In June of
2019, the Company completed the VideoMix development and reclassified the previously recognized prepaid expense related to this
Videomix development as intangible asset. In August of 2019, the Company sold the video mix APP to Anyone Pictures Limited for
$422,400 with a gain of $59,792.
On September 5, 2018, the Company acquired
a movie copyright from Aura Blocks Limited at a purchase price of $768,000. As of August 31, 2019, the Company has one remaining
payment of $153,600 recorded in other payable. The Company sold this movie copyright to China IPTV Industry Park Holding Ltd for $857,600
with a gain of $89,538.
Prepaid expense as of August 31, 2019 includes
$6,667 prepaid consulting fees net of amortization, $3,500 prepayment of financial advisor fee, $11,000 prepayment of OTC market
annual fee, and $803 prepaid website and domain fee.
NOTE 4 –
RECEIVABLE ON ASSET DISPOSAL
Receivable on Asset Disposal is comprised of
$1,280,000 receivable from sales of two intangible assets, a Videomix APP and a movie copyright. The receivable amount from the
sales of the movie copyright and the Videomix APP are $857,600 and $422,400, respectively. Refer to NOTE 14 for the subsequent
collection of this receivable balance.
NOTE 5 – NOTE RECEIVABLE
Note receivable relates to the one-year loan
of $1,280,000 the Company lends to All In One Media Ltd at an annual interest rate of 10%. The loan principal is due at the end
of the term on July 31, 2020. The Company has generated an interest income and an interest income receivable of $8,725 for the
month of August, 2019.
NOTE 6 –
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 year ended August 31, 2019 and 2018 which are included in the gain from discontinued operations:
|
|
Years ended
|
|
|
August 31,
|
|
|
2019
|
|
2018
|
Revenue
|
|
$
|
—
|
|
|
$
|
49,920
|
Cost of revenue
|
|
|
—
|
|
|
|
(11,912)
|
Income Tax Provision
|
|
|
—
|
|
|
|
—
|
Gain from discontinued operations
|
|
$
|
—
|
|
|
$
|
38,008
|
NOTE 7 – LEASEHOLD IMPROVEMENT
Leasehold improvement relates to renovation
and upgrade of an office and an offline display store. There is a total cost of $165,760 due to the construction company, including
$146,752 for renovation of the office and the store and $19,008 related to office furniture and appliances the construction company
purchased on behalf of the Company. As of August 31, 2019, the Company has paid $161,088 to the construction company with a remaining
unpaid balance of $4,672 recorded in other payable. As the renovation is completed as of August 31, 2019, the Company capitalized
the renovation cost as leasehold improvement and the cost of furniture and appliances as fixed asset. The leasehold improvement
is depreciated over 3 years which equal the terms of the operating lease for renting an office.
NOTE 8 – INTANGIBLE ASSETS
As of August 31, 2019, and August 31, 2018,
the balance of intangible assets are as follows;
|
|
August 31,
|
|
|
2019
|
|
2018
|
Patent
|
|
$
|
500,000
|
|
|
$
|
500,000
|
Intellectual property: Aura
|
|
|
—
|
|
|
|
200,000
|
Intellectual property: Kryptokiosk
|
|
|
72,000
|
|
|
|
72,000
|
Wechat official account
|
|
|
99,584
|
|
|
|
—
|
Total cost
|
|
|
671,584
|
|
|
|
772,000
|
Accumulated amortization
|
|
|
(257,791
|
)
|
|
|
(131,000)
|
Intangible asset,
net
|
|
$
|
413,793
|
|
|
$
|
641,000
|
Amortization expenses for year ended August
31, 2019 and 2018 was $126,791 and $106,000 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. In August of 2019, the Company
sold the movie copyright to China IPTV Industry Park Holding Ltd for $857,600 with a gain of $89,538 and the Videomix APP to Anyone
Pictures Limited for $422,400 with a gain of $59,792.
NOTE 9 –
OTHER PAYABLE
Other payable primarily consists of the last
installment of $153,600 to Aura Blocks Limited for purchasing the movie copyright, $3,584 payable for a cloud hosting service,
and $4,672 remaining payment for the office renovation.
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 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 year ended August 31, 2018, a shareholder
paid an invoice of $74 on behalf of the Company. During the year ended August 31, 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 year ended August 31, 2019 and 2018 are $60,928 and $50,022,
respectively.
In December, 2018, the Company appointed Brandy
Gao as Chief Financial Officer and issued 100,000 shares as compensation. In February 2019, the Company appointed Linqing Yeas
Chief Operational Officer and Lijun Yu as Chief Marketing Officer, and issued 10,000,000 shares to each of them as compensation.
During the year ended August 31, 2019, $162,003 was paid to six executives in the form of stock-based compensation and $14,976
cash salary was paid to the Chief Operational Officer.
As of August 31, 2019, the company has $35,348
related party receivable from Youall Perform Services Ltd, owned by the Company’s Board of Director Jianli Deng. Youall Perform
Services Ltd collected revenue from the performance matching platform (Ai Bian Quan Qiu) 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.
NOTE 11– 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, 2019 and 3,300,000 common shares for consulting services of $99,000 to nine third-party consultants
during Q3, 2019
|
|
§
|
20,100,000 shares for services from officers: 10,000,000 issued to
Linqing Ye for employment as Chief Operational Officer, 10,000,000 issued to Lijun Yu for employment as Chief Marketing Officer,
100,000 to Brandy Gao for employment as 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, 2019. 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, 2019.
|
|
§
|
3,000,000 common shares issued at $0.02 per share to an unrelated
third party Zestv Features Limited in Q4, 2019 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, 2019 and 600,000 shares issued at $2 per share in Q4, 2019 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
|
The Company has 4,822,016 issued and outstanding
shares of common stock as of August 31, 2019 and 147,325,000 issued and outstanding shares of common stock as of August 31, 2018,
prior to the stock reverse split. These common shares were held by approximately 513 and 32 shareholders of record at August 31,
2019 and 2018, respectively.
NOTE 12– 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 August 31, 2019 and August 31, 2018:
|
|
August 31,
|
|
|
2019
|
|
2018
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
Net operating loss carry over
|
|
$
|
201,056
|
|
|
$
|
149,948
|
Less: valuation allowance
|
|
|
(201,056
|
)
|
|
|
(149,948)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
The valuation allowance for deferred tax assets
was $201,056 as of August 31, 2019 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 August 31, 2019 and August 31, 2018.
Reconciliation between the statutory rate and
the effective tax rate is as follows at August 31, 2019 and August 31, 2018:
|
|
2019
|
|
2018
|
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 years ended August 31, 2019 and
2018, the Company and its subsidiary have incurred a loss of ($404,635) and ($1,111,950), respectively. As a result, the Company
and its subsidiary did not incur any income tax during the years ended August 31, 2019 and 2018.
NOTE 13 – CONCENTRATION RISK
45% and 100% of revenue was generated from
one customer during the year ended August 31, 2019 and 2018, respectively.
100% of account receivables was due from one
customer as of August 31, 2019 and August 31, 2018.
NOTE 14 – 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. The rental expense for the year ended
August 31, 2019 and 2018 was $34,381 and $19,456 respectively. All leases are on a fixed payment basis. None of the leases include
contingent rentals. The Company had lease commitment of $229,120 as of August 31, 2019, of which $87,245 was within one year.
Future lease commitments
FY 2020
|
|
|
$
|
87,245
|
|
FY 2021
|
|
|
$
|
87,245
|
|
FY 2022
|
|
|
$
|
54,630
|
|
Total
|
|
|
$
|
229,120
|
|
NOTE 15 –
SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed its operations
subsequent to August 31, 2019 to the date these financial statements were issued.
On September 2, 2019, the Company paid off the balance of $153,600
to Aura Blocks Limited to acquire the movie copyright. On September 3, 2019, the Company collected the sales proceeds of $857,600
from selling the movie copyright. On September 24 and October 16, 2019, the Company collected $422,400 from Anyone Pictures Limited
for the sales of the Videomix APP. Therefore, $1,280,000 receivable from sales of two intangible assets has been collected.
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, for producing
films and digital videos in Hong Kong. The term of note receivable is from September 4, 2019 to March 3, 2020.
Effective October 17, 2019, the Company has appointed Mr. Ho Fai
Lam and Ms. Gigi Ruiyu Guan as members of Board of Directors. As non-employee directors, Mr. Lam and Ms. Guan will be entitled
to participate in our Director Compensation Plan. Under Plan, independent directors will receive $1,000 for each meeting of the
Board of Directors attended in person and $1,000 for each two meetings of the Board of Directors in which they participate by telephone
or video conference. Additionally, they will receive an annual payment of (i) 2,000 shares of the Company’s common stock,
par value $0.001, which shall be paid in quarterly grants of 500 shares, and (ii) an option to purchase 2,000 shares of the Company’s
common stock, a quarter of which shall vest each quarter. This Plan is based on three-year term of office.