Our unaudited consolidated financial statements included
in this Form 10-Q are as follows:
These interim consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information
and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the interim period ended May 31, 2021 are not necessarily indicative of the results that can be expected
for the full year.
The accompanying notes are an integral part of these
consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended May 31, 2021 and May 31,
2020
(Unaudited)
NOTE 1 - ORGANIZATION
AND BUSINESS OPERATIONS
AB International Group Corp. (the "Company",
"we" or "us") was incorporated under the laws of the State of Nevada on July 29, 2013 and originally intended to purchase
used cars in the United States and sell them in Krygyzstan. The Company's fiscal year end is August 31.
We are an intellectual
property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectual property. We are
engaged to acquisition and distribution of movies. We have a patent license to a video synthesis and release system for mobile communications
equipment, in which the technology is the subject of a utility model patent in the People's Republic of China. We had launched a business
application (Ai Bian Quan Qiu) through smartphones and official social media accounts based on WeChat platform in February 2019, utilizing
Artificial Intelligence, it is a matching platform for performers, advertiser merchants, and owners for more efficient services. We generate
revenues through an agency service fee from each matched performance.
On January 22, 2016, our former sole officer, who
owned 83% of our outstanding common shares, sold all of his common shares to unrelated investor Jianli Deng. After the stock sale, we
modified our business to focus on the creation of a mobile app marketing engine. The app was designed for movie trailer promotions and
we planned to generate a subscriber base of smartphone users primarily through pre-installed app smartphone makers, online app stores,
WeChat official accounts, Weibo and other social network media outlets and sell prepaid cards or coins to movie distributors or other
video advertisers in China. We created the app “Amoney” for the Android smartphone platform to develop a WeChat micro-shop
that was designed to display and deliver a variety of information and links for download or online watch prices in the China market.
On June 1, 2017, we entered into a Patent License
Agreement (the “Agreement”) pursuant to which Guangzhou Shengshituhua Film and Television Company Limited, a company incorporated
in China (“Licensor”), granted to us a worldwide license to a video synthesis and release system for mobile communications
equipment (the “Technology”). The Technology is the subject of a utility patent in the People’s Republic of China. Under
the Agreement, we are able to utilize, improve upon, and sub-license the technology for an initial period of one year from October 1,
2017 to September 30, 2018, subject to a right to renew for another five years. We were obligated to pay the Licensor $500,000 within
30 days of the date of the Agreement and a royalty fee in the amount of 20% of any proceeds resulting from our utilization of the Technology,
whether in the form of sub-licensing fees or sales of licensed products. Our Chief Executive Officer, Chiyuan Deng and former Chief Executive
Officer, Jianli Deng, jointly own and control Licensor. On October 10, 2017, we completed the payment of $500,000 initial payment amount
due under the Agreement. In October of 2019, the term of this sublicensing agreement was renewed and extended for another five years.
Our License to the Technology generates revenue through
sub-license monthly fees from a smartphone app on Android devices. This smartphone app was already existing and licensed at the time we
acquired the Technology of video synthesis. In January, 2021, our sublicensing agreement with Anyone Picture to generate revenues was
terminated. As such, there has been no revenues generated from sub-licensing the Technology since the end of December, 2020.
On March 10, 2018, we acquired intellectual property
for $200,000 from All In One Media Ltd, previously named as Aura Blocks Ltd. On March 19, 2018, we entered into consulting agreements
(the “Consulting Agreements”) with four consultants (the “Consultants”). The Consulting Agreements have terms
or either two or three years. Under the Consulting Agreements the Consultants will provide services to us in Hong Kong and China related
to blockchain technology and krypto kiosks. In consideration for the services provided by the Consultants, we have issued the Consultants
a total of 1,100,000 shares of our common stock. On November 10, 2018, the Company sold this intellectual property to China IPTV Industry
Park Holdings Ltd. for $80,000.
On March 21, 2018, we acquired the intellectual assets
of KryptoKiosk Limited, a crypto currencies kiosk company which has licenses and patent in Australia, which enable the operation of cryptocurrency
ATMs that allow buying and selling of Bitcoin, Litecoin, and Ethererum all in one terminal. The Company plans to generate revenue through
sub-licensing fees for the operation of cryptocurrency ATMs. Through the foregoing the Company proposes to bring a physical aspect to
something that is otherwise very abstract to people. We also issued to JPC Fintech Limited 2,400,000 common shares with a market value
of $72,000 exchange of KryptoKiosk Limited’s assets consist mostly of intellectual property, including, but not limited to, certain
domain names, copyrights, trademarks, and patents pending, but also include contract rights and personal property. We planned to generate
revenue through sub-licensing fees for the operation of cryptocurrency ATMs. Through the foregoing, we proposed to bring a physical aspect
to something that is otherwise very abstract to people. We planned to invest in machines and sell sub-licenses in the Asia Pacific region
with future world-wide expansion. We had promoted and marketed the ATM business for 6 months
or until around August 2018, because the BTC and cryptocurrencies price went down. The IP, however, was never transferred to us. We have
repeatedly requested from Messrs. Grounds, Vickery and Shakespare access to the domains and websites and other information concerning
the IP assets. As of the date of this annual report, no such information has been provided. In addition, the IP including domain names
were transferred to others while Messrs. Vickery and Shakespare were officers of our company. As a result, we ceased promotions and marketing
on the ATM business and relations cryptocurrencies business in September 2018. On November 21, 2018, we had sent the final notice that
JPC Fintech has materially breached the agreement. We requested that JPC Fintech Ltd. return its stock certificate received in the transaction
to our transfer agent for immediate cancellation. We have not yet received the certificate for termination. In February of 2020, 100%
of the intellectual assets of KryptoKiosk Limited’s carrying value $48,000 net of amortization is written off since the IP was never
transferred to us and no revenue was generated from this intellectual asset.
On May 9, 2018, we entered into an investor agreement
with iCrowdU Inc. We agreed to purchase 228,013 shares of iCrowdU Inc. at a share price of $1.228 for total consideration of $280,000.
iCrowdU Inc. offers an online platform and mobile app for crowd funding services targeting the global crowd funding market.
Furthermore, it was agreed to exchange 2,000,000 shares
of our common stock for 2,000,000 shares of common stock in iCrowdU Inc. This share exchange was made as collateral in advance of an investment
of $1,935,000 by us into iCrowdU Inc., which never occurred.
On or about May 9, 2018, we entered into consultancy
agreements with Alexander Holtermann, Ian Wright and Luis Hadic. Each of Messrs. Holtermann, Wright and Hadic received 200,000 shares
of our common stock under the consultancy agreements.
On or about July 26, 2018, we entered into an investment
agreement with iCrowdU Inc. for the purchase of 40% of iCrowdU in exchange for 8,000,000 shares of our common stock that would be split
between Messrs. Holtermann and Wright at 70% and 30%, respectively, and an investment of $10,000,000. The 8,000,000 shares were cut but
not delivered to Messrs. Holtermann and Wright and no part of the $10,000,000 was invested by us into iCrowdU Inc.
On or about July 31, 2018, we entered into employment
agreements with Messrs. Holtermann and Wright for the consideration provided for under the agreements.
On October 25, 2018, the above parties entered into
an Agreement for Termination and Release that terminated all outstanding agreements among the parties and released each party from the
other. We agreed to settle outstanding expenses and costs incurred by iCrowdU Inc., in the sum of $6,444.90. In addition, all parties
agreed to return any shares received from the above agreements, save we shall be permitted to retain the 228,013 shares purchased in iCrowdU
Inc. Finally, we agreed to amend our Current Report on Form 8-K concerning certain disclosures made therein. We amended the report as
per the agreement.
On September 5, 2018, the Company entered into an
agreement to acquire a movie copyright for $768,000 from All In One Media Ltd, which holds 200,000 common shares of the Company as of
August 31, 2019 and is previously named as Aura Blocks Limited. The remaining balance to Aura Blocks Limited is $153,600 as of August
31, 2019. The Company has obtained the exclusive permanent broadcasting right outside the mainland China and is expected to generate revenues
from showing the movie online, in theaters, and on TV outside the mainland China once this movie is completed in June, 2019. In August
of 2019, the Company sold this movie copyright to China IPTV Industry Park Holding Ltd for $857,600 with a gain of $89,538.
In December of 2018, we engaged StarEastnet, a software
developer that holds 171,000 common shares of the Company as of August 31, 2019, to start developing a performance matching platform (Ai
Bian Quan Qiu) and a WeChat official account to advertise the platform. The matching platform is to arrange performance events for celebrities
and performers. Performers can set their schedules and quotes on the platform. The platform will maximize their profits from performance
events by optimizing their schedules based upon quotes and event locations and save time from commuting among different events. “Ai
Bian Quan Qiu” utilizes the artificial intelligence (AI) matching technology to instantly and accurately match performers and advertisers
or merchants. The company charges agency service fees for each successful event matched through the platform. Since no large social gathering
is allowed as a result of COVID-19, there has been no revenue generated from the performance matching platform (Ai Bian Quan Qiu) since
the end of January, 2020. The Company decided to impair100% of the carrying amount of Ai Bian Quan Qiu platform and its Wechat official
account.
In June, 2019, the Company completed the development
of a video mix APP for social video sharing via iOS and Android smartphones. This app was originally planned to take advantage of the
core design philosophy of “My film anyone, anywhere, anytime be together” as similar and competitive innovative video and
community apps have been activated on over 2 million unique devices in China as of December 31, 2017 and precipitated the duet video synthesis
phenomenon in China. However, the Company decided to focus on the “Ai Bian Quan Qiu” platform as its main business and thus
sold the video mix APP to Anyone Pictures Limited, which holds 242,980 common shares of the Company, for $422,400 with a gain of $59,792
in August of 2019. Due to the quarantine and continuous control imposed by the state and local governments
in areas affected by COVID-19, merchant advertising events were suspended. The Company decided to shut down the Ai Bian Quan Qiu platform
and no revenue was generated after January 31, 2020. As a result, it has created an adverse impact on the business and financial condition
and hampered its ability to generate revenue and access sources of liquidity on reasonable terms.
In August of 2019, the Company entered into a one-year
loan agreement to lend $1,047,040 at an annual interest rate of 10% to All In One Media Ltd, previously named as Aura Blocks Limited,
for producing films and digital videos in Hong Kong. The term of note receivable is from August 1, 2019 to July 31, 2020. This loan principal
balance was paid off in full in July, 2020.
On September 4, 2019, the Company entered into another loan agreement to
lend $1,049,600 at an annual interest rate of 10% to All In One Media Ltd, previously named as Aura Blocks Limited. The term of note receivable
is from September 4, 2019 to March 3, 2020. This loan balance was paid off in full on May 4th, 2020 with two months’ extension.
On April 22, 2020, the Company announced the first
phase development of its video streaming service. The online service will be marketed and distributed in the world under the brand name
ABQQ.tv. The Company's professional team are sourcing such dramas and films to provide video streaming service on the ABQQ.tv. The video
streaming website www.ABQQ.tv was officially launched on December 29, 2020. As of May 31, 2021, the Company acquired 59 movie broadcast
rights. The Company will continue marketing and promoting the ABQQ.tv website through GoogleAds and acquire additional broadcast rights
for movies and TV series, and plan to charge subscription fees once the Company has obtained at least 200 broadcast rights of movie and
TV series.
Starting in January 2021, the Company started generating
movie box-office revenue from the movie “Ai Bian Quan Qiu”.
NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The financial statements of the Company have been
prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars.
The Company’s year-end is August 31. The financial statements have been prepared on a consolidated basis, with their fully owned
subsidiary App Board Limited.
Basis of Consolidation
The financial statements have been prepared on a consolidated
basis, with the Company’s fully owned subsidiary App Board Limited registered and located in Hong Kong. As of May 31, 2021 and August
31, 2020, there were net intercompany receivable balance of $2,300,460 and $9,060, respectively. The intercompany receivable and payable
balances are offset to zero in the consolidated financial statements.
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 arises from
the fluctuations in foreign exchange rates and the degrees of volatility in these rates. Currently the Company does not use derivative
instruments to reduce its exposure to foreign currency risk. Non-monetary assets and liabilities are translated at historical rates and
monetary assets and liabilities are translated at exchange rates in effect at the end of the year. Revenues and expenses are translated
at average rates for the year. Gains and losses from translation of foreign currency financial statements into U.S. dollars are included
in current results of operations.
Account Receivable
Account receivable consists of amounts due from Anyone
Pictures Limited for the sub-licensing fee revenue. Amount receivable balances are recorded at the invoiced amount and do not bear interest.
The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts
receivable. As the sublicensing agreement with Anyone Picture was terminated in January, 2021, there was no account receivable balance
as of May 31, 2021. No amount for bad debt expense was recorded by the Company during the nine months ended May 31, 2021 and May 31, 2020,
and no write-offs for bad debt were recorded for the nine months ended May 31, 2021 and May 31, 2020.
Prepaid Expenses
Prepaid expenses primarily consist of prepayments
of OTC market annual fee. The prepaid balances are amortized when the related expense is incurred.
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 outstanding periods.
Fixed Asset
Fixed asset consists of furniture and appliances acquired
for the office. The balance is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over
estimated useful lives listed below:
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Estimated Useful Life
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Furniture
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7 years
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Appliances
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5 years
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Leasehold Improvement
Leasehold improvement is related to the enhancements
paid by the Company to leased office and store. Leasehold improvement represents capital expenditures for direct costs of renovation or
acquisition and design fees incurred. The amortization of leasehold improvements commences once the renovation is completed and ready
for the Company’s intended use. Leasehold improvement is amortized over the lease term of 3 years.
Intangible Assets
Intangible assets are stated at cost and depreciated
as follows:
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Mobile application product: straight-line method over the estimated life of the asset, which has been determined by management to be 3 years
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Movie copyrights and broadcast rights: straight-line method over the estimated life of the asset, which has been determined by management to be 2 years
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Patent: straight-line method over the term of 5 years based on the patent license agreement
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Amortized costs of the intangible asset are recorded
as cost of sales, as the intangible asset is directly related to generation of revenues in the Company.
Lease property under operating lease
In February 2016, the Financial Accounting Standards
Board (“FASB”) issued updated guidance to improve financial reporting about leasing transactions. This guidance required organizations
that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The
original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the
FASB issued new guidance which included an option to not restate comparative periods in transition. Under this new guidance, a company
applies the standard to leases in place as of the date of initial application, records a cumulative-effect adjustment to retained
earnings as of the first day of the adoption year, and follows the new rules for all leases entered or modified going forward. The
Company adopted this new standard on June 1, 2020 with no retrospective adjustments to prior comparative periods. In accordance with
ASC 250-10-45-14, a change in accounting principle made in an interim period shall be reflected as if the entity had adopted the new principle
on the first day of the adoption year, which is September 1, 2019 for the Company. As such, the adoption of ASC 842 lease accounting standard
has resulted in $196,813 lease liabilities with corresponding $201,025 ROU assets net of amortization as of September
1, 2019 based on the present value of the remaining rental payments under current leasing standards for existing leases. The
remaining balance of lease liabilities are presented within the current portion of lease liabilities and the non-current portion of lease
liabilities on the Consolidated Balance Sheet.
Impairment of Long-lived asset
The Company evaluates its
long-lived assets or asset group, including intangible assets with indefinite and finite lives, for impairment. Intangible assets with
indefinite lives that are not subject to amortization are tested for impairment at least annually or more frequently if events or changes
in circumstances indicate that the assets might be impaired in accordance with ASC 350. Such impairment test compares the fair values
of assets with their carrying values with an impairment loss recognized when the carrying values exceed fair values. For long-lived assets
and intangible assets with finite lives that are subject to depreciation and amortization are tested for impairment whenever events or
changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate
that the carrying amount of an asset or a Group of long-lived assets may not be recoverable. When these events occur, the Company evaluates
impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the
assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets,
the Company would recognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value.
Impairment losses are included
in G&A expense. There was no impairment loss during the nine months ended May 31, 2021. For the nine months ended May 31, 2020, the
impairment loss of intangible assets was $111,115, including $48,000 for the intellectual assets acquired from KryptoKiosk Limited and
$63,115 for the performance matching platform “Ai Bian Quan Qiu” and its WeChat official account.
Revenue Recognition
The Company adopted ASC Topic 606, “Revenue
from Contracts with Customers”, applying the modified retrospective method.
In accordance with ASC Topic 606, revenues are recognized
when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company
expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate
amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
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the contract with a customer;
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identify the performance obligations in the contract;
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determine the transaction price;
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allocate the transaction price to performance obligations in the contract; and
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recognize revenue as the performance obligation is satisfied.
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The Company does not believe that significant management
judgements are involved in revenue recognition, but the amount and timing of the Company’s revenues could be different for any period
if management made different judgments or utilized different estimates. Generally, the Company recognizes revenue under ASC Topic 606
for its performance obligation.
The Company generates revenue from movie box office,
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. Both parties agreed to charge the sublicensing fee based upon a fixed number 2,000,000 users.
In January, 2021, our sublicensing agreement with Anyone Picture to generate revenues was terminated. As such, there has been no revenues
generated from sub-licensing the Technology since the end of December, 2020.
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.
Movie box office revenue is collected by the Company’s
related party in the mainland China, Guangzhou Shengshituhua Film and Television Company Limited. The Company recognizes net revenue based
upon 43% of the after-tax box office revenue deducting movie issuance costs.
Fair Value of Financial Instruments
ASC 820, “Fair Value Measurements” (ASC
820) and ASC 825, “Financial Instruments” (ASC 825), requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective
evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is
based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that
may be used to measure fair value:
Level 1 - Level 1 applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 - Level 2 applies to assets or liabilities
for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets
or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally
from, or corroborated by, observable market data.
Level 3 - Level 3 applies to assets or liabilities
for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the
assets or liabilities.
The carrying values of cash, accounts payable, and
accrued liabilities approximate fair value. Pursuant to ASC 820 and 825, the fair value of cash is determined based on "Level 1"
inputs, which consist of quoted prices in active markets for identical assets. The fair values of warrant liabilities and derivative
liabilities embedded in convertible notes are determined by level 3 inputs.
Accounting for Derivative Instruments
The Company accounts for
derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” (ASC 815) and all derivative instruments
are reflected as either assets or liabilities at fair value in the balance sheet.
The Company uses estimates
of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly
transaction between willing and able market participants. In general, the Company's policy in estimating fair values is to first look
at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other
inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates
and credit spreads (including for the Company's liabilities), relying first on observable data from active markets. Additional adjustments
may be made for factors including liquidity, credit, bid/offer spreads, etc., depending on current market conditions. Transaction costs
are not included in the determination of fair value. When possible, the Company seeks to validate the model's output to market transactions.
Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value
estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value
estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized
in measuring financial instruments at fair value as discussed above. Changes in fair value are recognized in the period incurred as either
gains or losses.
Warrants
Warrants are classified as
equity and the proceeds from issuing warrants in conjunction with convertible notes are allocated based on the relative fair values of
the base instrument of convertible notes and the warrants by following the guidance of ASC 470-20-25-2 as below:
Proceeds from the sale of
a debt instrument with stock purchase warrants (detachable call options) shall be allocated to the two elements based on the relative
fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds
so allocated to the warrants shall be accounted for as paid-in capital. The remainder of the proceeds shall be allocated to the debt instrument
portion of the transaction. This usually results in a discount (or, occasionally, a reduced premium), which shall be accounted for as
interest expense under Topic 835 Interest.
Income Taxes
The Company accounts for income taxes pursuant to
FASB ASC 740 “Income Taxes”. Under ASC 740 deferred income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The provision for income taxes represents the tax expense for
the period, if any, and the change during the period in deferred tax assets and liabilities. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of enactment.
ASC 740 also provides criteria for the recognition,
measurement, presentation and disclosure of uncertain tax positions. Under ASC 740, the impact of an uncertain tax position on the income
tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing
authority. At May 31, 2021, there was unrecognized tax benefits. Please see Note 14 for details.
Value-Added Taxes
The Company generates revenue in People's Republic
of China (PRC) via the “Ai Bian Quan Qiu” platform and is subject to a value-added tax at an effective rate of 6%. In accordance
with PRC law, the Company is also subject to surcharges, which includes urban maintenance and construction taxes and additional education
fees on VAT payable.
The Company’s revenue generated from the “Ai
Bian Quan Qiu” platform is subject to VAT at a rate of 6% and subject to surcharges at a rate of 12% of the VAT payable.
Basic and Diluted Income (Loss) Per Share
The Company computes income (loss) per share in accordance
with FASB ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face
of the statement of operations. The earnings per share after the reverse stock split is presented retrospectively as if the reverse split
had occurred at the very beginning of the business. Basic loss per share is computed by dividing net income (loss) available to common
shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share is computed using the
weighted average number of common shares and potential common shares outstanding during the period for warrants, options and restricted
shares under treasury stock method, and for convertible debts under if-convertible method, if dilutive. Diluted income (loss) per share
gives effect to all dilutive potential common shares outstanding during the period and excludes all potential common shares if their effects
are anti-dilutive.
In accordance with the Company’s convertible
note agreements, the Note Holders have the option to convert all or any lesser portion of the outstanding principal amount and accrued
but unpaid interest into common stock at a conversion price equal to a price which is 55% or 60% of the lowest trading price during the
10 or 20 days prior to the day that the Holder requests conversion. 55% is applicable to EMA Financial whereas 60% applies for the other
counterparties. The lowest trading price during 10 days prior to conversion is applicable to East Capital and Fidelis Capital, whereas
the other counterparties utilize the lowest trading price during the preceding 20 days. The number of diluted shares from convertible
notes is calculated with the assumption of converting all the outstanding principal balance and unpaid interest expense to common shares
at the beginning of the period or at the time of issuance, if later.
The number of diluted shares from warrants is the
upper limit to which warrants can be converted into common shares and adjusted for anti-dilution clauses.
The Company has prepaid
all the remaining convertible notes and exercised all the warrants as of May 31, 2021. As such, 0 potentially diluted shares were from
convertible notes and warrants as of May 31, 2021, whereas 101,716 potentially diluted shares were
from convertible notes and 49,060 potentially diluted shares were from warrants as of May 31, 2020.
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As of May 31,
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Diluted shares not included in basic loss per share computation
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2021
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2020
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Warrants
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49,060
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Convertible notes
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—
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101,716
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Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases.
The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in
its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the
underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election
by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize
and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02
is effective for annual and interim reporting periods beginning after December 15, 2018.
In September 2017, the FASB has issued ASU No. 2017-13,
Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments
to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements
and Observer
Comments.” The amendments in ASU No. 2017-13
amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. Both of the
below entities may still adopt using the public company adoption guidance in the related ASUs, as amended. The effective date is the same
as the effective date and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02.
In February 2018, the FASB issued guidance to address
the income tax accounting treatment of the tax effects within other comprehensive income due to the enactment of the Tax Cuts and Jobs
Act (the “Act”). This guidance allows entities to elect to reclassify the tax effects of the change in the income tax rates
from other comprehensive income to retained earnings. The guidance is effective for periods beginning after December 15, 2018 although
early adoption is permitted. The Company has evaluated and concluded that there was no impact on its consolidated financial position and
results of operations.
In March 2018, the FASB issued ASU 2018-05: “Income
Taxes (Topic 740)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”. The amendments in this ASU add
various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding
application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 – the date on which the Tax Cuts
and Jobs Act was signed into law. The Company has evaluated and concluded that there was no impact on its consolidated financial position
and results of operations.
In June 2018, the FASB issued ASU 2018-07: “Compensation
– Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting”. This ASU expands the
scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include
share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees
and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity—Equity-Based Payments to Nonemployees.
The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods
within that fiscal year. For all other companies, the amendments are effective for fiscal years beginning after December 15, 2019, and
interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than a company’s
adoption date of Topic 606, Revenue from Contracts with Customers. The Company does not currently expect the adoption of the amendment
to have a material impact on its consolidated financial position and results of operations.
In July 2018, the FASB issued ASU 2018-10 ASC Topic
842: “Codification Improvements to Leases” The amendments are to address stakeholders’ questions about how to apply
certain aspects of the new guidance in Accounting Standards Codification (ASC) 842, Leases. The clarifications address the rate implicit
in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease
term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. The amendments in ASC
Topic 842 are effective for EGC for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning
after December 15, 2020. While early application is permitted, including adoption in an interim period, the Company has not elected to
early adopt. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
In July 2018, the FASB issued ASU 2018-11, Leases
(Topic 842). This update provides entities with an additional (and optional) transition method to adopt the new leases standard. Under
this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to
the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative period’s financials will
remain the same as those previously presented. Entities that elect this optional transition method must provide the disclosures that were
previously required. The Company is evaluating the effect this new guidance will have on our consolidated financial statements and related
disclosures.
In August 2018, the FASB issued ASU 2018-13, “Fair
Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,”
to improve the effectiveness of disclosures in the notes to financial statements related to recurring or nonrecurring fair value measurements
by removing amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers
between levels, and the valuation processes for Level 3 fair value measurements. The new standard requires disclosure of the range and
weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are
effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
In December 2019, the FASB issued ASU 2019-12,
“Simplifying the Accounting for Income Taxes” to remove specific exceptions to the general principles in Topic 740 and to
simplify accounting for income taxes. The standard is effective for public companies for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of this
accounting standard update on its consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01,
“Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging
(Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815,” which clarifies the interaction of the accounting
for equity investments under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting
for certain forward contracts and purchased options accounted for under Topic 815. The standard is effective for public companies for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The
Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
NOTE 3 –PREPAID EXPENSES
Prepaid expense was $2,000 and $11,024 as of May 31,
2021 and August 31, 2020, respectively. Prepaid expense as of May 31, 2021 primarily includes $2,000 prepayment of OTC market annual fee.
NOTE 4 – DUE FROM SHAREHOLDERS
Due from shareholders are proceeds not yet collected
from the shareholders for issuance of common stocks. As of May 31, 2021, the due from shareholders balance of $319,020 includes $77,856
for the issuance of 2 million shares to Kangdi Liu and $241,164 for the issuance of 2.7 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 total original cost was $172,278, including $146,304
for renovation of the office and the store and $25,974 office furniture and appliances. The accumulated depreciation was $105,273 and
$65,525 as of May 31, 2021 and August 31, 2020, respectively.
|
|
May 31, 2021
|
|
August 31, 2020
|
Leasehold improvement
|
|
$
|
146,304
|
|
|
$
|
146,304
|
Appliances and furniture
|
|
|
25,974
|
|
|
|
20,974
|
Total cost
|
|
|
172,278
|
|
|
|
167,278
|
Accumulated depreciation
|
|
|
(105,273
|
)
|
|
|
(65,525)
|
Property and equipment, net
|
|
$
|
67,005
|
|
|
$
|
101,753
|
NOTE 6 – INTANGIBLE ASSETS
As of May 31, 2021 and August 31, 2020, the balance
of intangible assets are as follows;
|
|
May
31, 2021
|
|
August 31, 2020
|
Patent
|
|
$
|
500,000
|
|
|
$
|
500,000
|
Movie copyrights
|
|
|
1,612,809
|
|
|
|
—
|
Movie and TV series broadcast rights
|
|
|
2,439,840
|
|
|
|
—
|
Total cost
|
|
|
4,552,649
|
|
|
|
500,000
|
Accumulated amortization
|
|
|
(1,178,001
|
)
|
|
|
(325,000)
|
Intangible assets, net
|
|
$
|
3,374,648
|
|
|
$
|
175,000
|
Intangible assets include 1) a patent obtained from
Guangzhou Shengshituhua Film and Television Company Limited as a worldwide license to a video synthesis and release system for mobile
communications equipment, 2) movie copyrights for the movie “Ai Bian Quan Qiu” and “Kaishieryi”, and 3) broadcast
rights for fifty-nine movie and TV series. The amortization expense for nine months ended May 31, 2021 and May 31, 2020 was $853,001 and
$88,731, respectively.
NOTE 7 – RIGHTS-TO-USE LEASE ASSETS, NET
Rights-to-use lease assets, net
consisted of the following:
|
|
May 31, 2021
|
|
August 31, 2020
|
Right-to-use gross asset
|
|
$
|
223,237
|
|
|
$
|
228,510
|
Less: accumulated amortization
|
|
|
(152,445
|
)
|
|
|
(102,156)
|
Right-to-use asset, net
|
|
$
|
70,792
|
|
|
$
|
126,354
|
The estimated amortization expenses for each of
the two succeeding years is as follows:
Year ending May 31,
|
|
Amortization expense
|
|
2021
|
|
|
$
|
70,792
|
|
|
Total
|
|
|
$
|
70,792
|
|
NOTE 8 – LONG-TERM
PREPAYMENT
In September 2019, the Company
entered into an agreement with Guangzhou Yuezhi Computer Ltd. For upgrading software of the “Ai Bian Quan Qiu” platform
at a cost of $128,000. $108,800 was paid upon signing the agreement and recorded as long-term prepayment in Q1, FY2020. As COVID-19 restricted
crowd-gathering, “Ai Bian Quan Qiu” platform has not generated any revenue since mid-January,2020, the Company impaired 80%
of the “Ai Bian Quan Qiu” platform intangible asset value in Q2 FY2020 and the remaining 20% intangible asset in Q4 FY2020.
As such, $108,800 prepayment was expensed as research and development expense from the previously recognized long-term prepayment asset.
As of May 31, 2021, the long-term
prepayment balance of $1,228,800 relates to four copyrights for movies and TV series as below:
|
•
|
In November 2019, the Company acquired two broadcast rights for online streaming at a price of $256,000 for “Lushang” (English name: “On the Way”) and $115,200 for “Qi Qing Kuai Che” (English name: “Confusion”). “Lushang” broadcast right permits online streaming globally, whereas “Qi Qing kuai Che” only allows online streaming outside China. Both of them have been fully paid. As these two movies have not yet been approved for screening by the Chinese government, the balances were recorded as long-term prepayment.
|
|
•
|
In June 2020, the Company acquired broadcast rights for a TV series of “If time could stop at the moment when we first met” and a movie of “Huafeng” at a price of $640,000 and $422,420, respectively. These broadcast rights are both for online streaming globally. As of May 31, 2021, $435,200 and $422,400 has been paid and recorded as long-term prepayment for “If time could stop at the moment when we first met” and “Huafeng”, respectively.
|
NOTE 9 – CONVERTIBLE
NOTES
On November 18, 2019, the Company closed a private
financing with EMA Financial, LLC (“EMA Financial” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $250,000, and upon issuance, the Company is expected to receive net proceeds of $228,333
after subtracting an original issue discount of $21,667 per the Note agreement. This Note carries a prorated original issue discount
of up to $21,667 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note,
which is included in the principal balance of this Note.
As part of initial closing the outstanding principal
amount shall be $75,000 and the Holder shall pay $68,500 of the consideration (the “First Tranche”). Out of $68,500
consideration, the Company has received $64,737 cash from EMA Financial with the remaining $3,763 spent as legal expense for note issuance
and due diligence fees.
The term of this convertible note is 9 months with
the maturity date on August 18, 2020. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be
equal to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest
complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 55.0% of the lowest traded price for
the common stock on the principal market during the 20 consecutive trading Days on which at least 100 shares of common stock were traded
including and immediately preceding the Conversion Date.
In connection with the issuance of the Note, the Company
granted EMA Financial a five-year cashless warrant (the “Warrant”) to purchase 30,000 shares of common stock at an exercise
price of $12.5 per share. As of November 30, 2020, EMA Financial exercised 100% of the total warrant shares to acquire 45,851,221 common
shares through cashless exercises.
On December 13, 2019, the Company entered into a Securities Purchase Agreement
with Peak One Opportunity Fund, L.P., a Delaware limited partnership (“Peak One” or the “Holder”), pursuant to
which we issued and sold to the Peak One a convertible promissory note. The Note has an original principal amount of $235,000, and upon
issuance, the Company is expected to receive net proceeds of $211,500 after subtracting an original issue discount of $23,500 per the
Note agreement. This Note carries a prorated original issue discount of up to $23,500 (the “OID”), to cover the Holder’s
monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.
As part of initial closing the outstanding principal
amount shall be $85,000 and the Holder shall pay $76,500 of the consideration (the “First Tranche”). Out of $76,500 consideration,
the Company has received $65,312 cash from Peak One with the remaining $11,188 spent as legal expense for note issuance and due diligence
fees. Peak One has converted all the convertible notes into 1,096,846 common shares by July 16th, 2020.
The term of this convertible note is 1 year with the
maturity date on December 09, 2020. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal to the lesser of (a) $10.00 or (b) Sixty percent (60%) of the lowest closing bid price (as reported by
Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion of the Debentures
(provided, further, that if either the Company is not DWAC Operational at the time of conversion or the Conversion Price is less than
$0.01 per share, then Sixty percent (60%) shall automatically adjust to Fifty percent (50%) of the lowest closing bid price (as reported
by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of conversion of the Debenture),
subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events.
In connection with the issuance of the Note, the Company
granted Peak One a five-year cashless warrant (the “Warrant”) to purchase 10,000 shares of common stock at an exercise price
of $10 per share. As of November 30, 2020, Peak One exercised 100% of the total warrant shares to acquire 3,720,326 common shares through
cashless exercises.
On January 8, 2020, the Company entered into a Securities
Purchase Agreement with Crown Bridge Partners, LLC, a New York limited company (“Crown Bridge”), pursuant to which the Company
issued and sold to Crown a convertible promissory note, dated January 8, 2020, in the principal amount of $121,500. Upon issuance, the
Company is expected to receive net proceeds of $109,500 after subtracting an original issue discount of $12,000 per the Note agreement.
This Note carries a prorated original issue discount of up to $12,000 (the “OID”), to cover the Holder’s monitoring
costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.
As part of initial first tranche closing on January
8th, 2020 the outstanding principal amount shall be $40,500 and the Holder shall pay $36,500 of the consideration (the “First
Tranche”). Out of $36,500 consideration, the Company has received $34,992 cash from Crown Bridge with the remaining $1,508 spent
as legal expense for note issuance and due diligence fees.
As part of the second tranche closing on July 23rd,
2020 the outstanding principal amount shall be $50,000 and the Holder shall pay $47,500 of the consideration (the “Second Tranche”).
Out of $47,500 consideration, the Company has received $42,987 cash from Crown Bridge with the remaining $ 4,513 spent as legal expense
for note issuance and due diligence fees.
The term of this convertible note is 1 year with the
maturity date on January 8, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal lesser
(i) fifteen percent (15%) per annum or (ii) the maximum amount permitted by law from the due date thereof until the same is paid. The
convertible note has prepayment and conversion features. The Conversion Price shall be the lesser of (i) the lowest closing price of the
Common Stock during the previous twenty (20) Trading Day period ending on the latest complete Trading Day prior to the date of this Note
or (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights
offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations,
recapitalization, reclassifications, extraordinary distributions and similar events) (also subject to adjustment as further described
herein). The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein) (representing a
discount rate of 40%). “Market Price” means the lowest one (1) Trading Price (as defined below) for the Common Stock during
the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date. “Trading Price” means,
for any security as of any date, the lesser of the (i) lowest traded price and (ii) lowest closing bid price on the Over-the-Counter Pink
Marketplace, OTCQB, or applicable trading market (the “Principal Market”) as reported by a reliable reporting service (“Reporting
Service”) designated by the Holder (i.e. Bloomberg) or, if the Principal Market is not the principal trading market for such security,
on the principal securities exchange or trading market where such security is listed or traded or, if the lowest intraday trading price
of such security is not available in any of the foregoing manners, the lowest intraday price of any market makers for such security that
are quoted on the OTC Markets.
In connection with the issuance of each tranche of
the Note, the Company granted Crown Bridge a five-year cashless warrant (the “Warrant”) to purchase 4,680 shares of common
stock at an exercise price of $12.5 per share.
On December 31, 2019, the Company closed a private
financing with Auctus Capital Partners, LLC, (“Auctus” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $75,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $75,000 and the Holder shall pay $75,000 of the consideration (the “First Tranche”). Out of $75,000 consideration,
the Company has received $59,342 cash from Auctus with the remaining $15,658 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 9 months with
the maturity date on September 30, 2020. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
the lesser of (i) twenty-four percent (24%) per annum and (ii) the maximum amount permitted under law from the due date thereof until
the same is paid. The convertible note has prepayment and conversion features. The conversion price is the lesser of: (i) the lowest closing
price of the Common Stock during the previous twenty (20) Trading Day period ending on the latest complete Trading Day prior to the date
of this Note, and (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends
or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations,
recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall
mean 60% multiplied by the Market Price (as defined herein) (representing a discount rate of 40%). “Market Price” means the
lowest Trading Price (as defined below) for the Common Stock during the twenty (20) Trading Days on which at least 100 shares of Common
Stock were traded including and immediately preceding the Conversion Date. “Trading Price” means, for any security as of any
date, the lowest trade price on the OTC Pink, OTCQB or applicable trading market as reported by a reliable reporting service (“Reporting
Service”) designated by the Holder or, if the OTC Pink is not the principal trading market for such security, the trading price
of such security on the principal securities exchange or trading market where such security is listed or traded or, if no trading price
of such security is available in any of the foregoing manners, the average of the trading prices of any market makers for such security
that are listed in the “pink sheets” by the National Quotation Bureau, Inc.
On February 13, 2020, the Company closed a private
financing with East Capital Investment Corporation (“East Capital” or the “Holder”) by issuing a convertible note
(the “Note”). The Note has an original principal amount of $50,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $50,000 and the Holder shall pay $50,000 of the consideration (the “First Tranche”). Out of $50,000 consideration,
the Company has received $43,492 cash from EMA Financial with the remaining $6,508 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with the
maturity date on February 13, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day
that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties.
On February 19, 2020, the Company closed a private
financing with Fidelis Capital, LLC, (“Fidelis” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $50,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $50,000 and the Holder shall pay $50,000 of the consideration (the “First Tranche”). Out of $50,000 consideration,
the Company has received $43,487 cash from Fidelis with the remaining $6,513 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with the
maturity date on February 19, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day
that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties.
On March 12, 2020, the Company closed a private financing
with Armada Capital Partners, LLC, (“Armada” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $38,500 and an original issue discount of $3,500 per the Note agreement.
As part of initial closing the outstanding principal
amount shall be $38,500 and the Holder shall pay $35,000 of the consideration (the “First Tranche”). Out of $35,000 consideration,
the Company has received $32,992 cash from Fidelis with the remaining $2,008 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with the
maturity date on March 12, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features. The
conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day that
the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties. In connection with the issuance of
the Armada Note, the Company granted Armada a five-year cashless warrant (the “Warrant”) to purchase 4,200 shares of the Company’s
common stock at an exercise price of $12.50 per share.
On July 17, 2020, the Company closed a private financing
with EMA Financial, LLC (“EMA Financial” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $50,000, and upon issuance, carries a prorated original issue discount of up to $2,500 (the
“OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included
in the principal balance of this Note.
As part of initial closing the outstanding principal
amount shall be $50,000 and the Holder shall pay $47,500 of the consideration. Out of $47,500 consideration, the Company has received
$42,987 cash from EMA Financial with the remaining $4,513 spent as legal expense for note issuance and due diligence fees.
The term of the convertible note is 1 year with the
maturity date on July 17, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the
24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion
price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete
trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common
stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On July 24, 2020, the Company closed a private financing
with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $130,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $130,000 and the Holder shall pay $130,000 of the consideration (the “First Tranche”). Out of $130,000 consideration,
the Company has received $116,079 cash from EMA Financial with the remaining $13,921 spent as legal expense for note issuance and due
diligence fees.
The term of this convertible note is 1 year with the
maturity date on July 24, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the
22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion
price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete
trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common
stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On August 18, 2020, the Company closed another private
financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $63,000 with no original discount upon issuance.
As part of closing the outstanding principal amount
shall be $63,000 and the Holder shall pay $63,000 of the consideration (the “Second Tranche”). Out of $63,000 consideration,
the Company has received $54,939 cash from EMA Financial with the remaining $8,061 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is one year with
the maturity date on August 18, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest
complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for
the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date .
On September 1, 2020, the Company closed another private
financing with Jefferson Street Capital LLC, (“Jefferson Street Capital” or the “Holder”) by issuing a convertible
note (the “Note”). The Note has an original principal amount of $82,500 with $7,500 discount upon issuance.
As part of closing the outstanding principal amount
shall be $82,500 and the Holder shall pay $75,000 of the consideration. Out of $75,000 consideration, the Company has received $68,949
cash from Jefferson Street Capital with the remaining $6,051 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is one year with
the maturity date on September 1, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest
complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for
the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date
On September 1, 2020, the Company closed another private
financing with FirstFire Global Opportunities Fund, LLC, (“FirstFire Global” or the “Holder”) by issuing a convertible
note (the “Note”). The Note has an original principal amount of $75,000 with $3,750 discount upon issuance.
As part of closing the outstanding principal amount
shall be $75,000 and the Holder shall pay $71,250 of the consideration. Out of $71,250 consideration, the Company has received $61,498
cash from FirstFire Global with the remaining $9,752 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is nine months with
the maturity date on June 1, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to
the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The
conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest
complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for
the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date
On October 8, 2020, the Company closed another private
financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $55,000 with no original discount upon issuance.
As part of closing the outstanding principal amount
shall be $55,000 and the Holder shall pay $55,000 of the consideration. Out of $55,000 consideration, the Company has received $47,579
cash from Power up with the remaining $7,421 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is one year with
the maturity date on October 8, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest
complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for
the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On October 9, 2020, the Company closed another private
financing with East Capital Investment Corp., (“East Capital” or the “Holder”) by issuing a convertible note (the
“Note”). The Note has an original principal amount of $62,700 with no original discount upon issuance.
As part of closing the outstanding principal amount
shall be $62,700 and the Holder shall pay $62,700 of the consideration. Out of $62,700 consideration, the Company has received $54,992
cash from Power up with the remaining $7,708 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is one year with
the maturity date on October 9, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest
complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for
the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
The below table summarizes all the convertible notes
issued during the year ended August 31, 2020.
Counterparties
|
|
Issuance date
|
|
Maturity date
|
|
Principal Amount
|
|
Purchase Price
|
|
Discount on Note issuance
|
|
Note issuance costs
|
|
Proceeds Received (USD)
|
EMA Financial
|
|
November 18, 2019
|
|
August 18, 2020
|
|
$
|
75,000
|
|
|
$
|
68,500
|
|
|
$
|
6,500
|
|
|
$
|
18,763
|
|
|
$
|
64,737
|
Peak One Opportunity
|
|
December 9, 2019
|
|
December 9, 2022
|
|
$
|
85,000
|
|
|
$
|
76,500
|
|
|
$
|
8,500
|
|
|
$
|
11,188
|
|
|
$
|
65,312
|
Crown Bridge (Tranche I)
|
|
January 8, 2020
|
|
January 8, 2021
|
|
$
|
40,500
|
|
|
$
|
36,500
|
|
|
$
|
4,000
|
|
|
$
|
1,508
|
|
|
$
|
34,992
|
Auctus Fund Note
|
|
December 31, 2019
|
|
September 30, 2020
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
$
|
-
|
|
|
$
|
15,658
|
|
|
$
|
59,342
|
East Capital
|
|
February 13, 2020
|
|
February 13, 2021
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
6,508
|
|
|
$
|
43,492
|
Fidelis Capital
|
|
February 19, 2020
|
|
February 19, 2021
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
6,513
|
|
|
$
|
43,487
|
Armada Partners
|
|
March 12, 2020
|
|
March 12, 2021
|
|
$
|
38,500
|
|
|
$
|
35,000
|
|
|
$
|
3,500
|
|
|
$
|
2,008
|
|
|
$
|
32,992
|
EMA Financial
|
|
July 17, 2020
|
|
July 17, 2021
|
|
$
|
50,000
|
|
|
$
|
47,500
|
|
|
$
|
2,500
|
|
|
$
|
4,513
|
|
|
$
|
42,987
|
Crown Bridge (Tranche II)
|
|
July 23, 2020
|
|
July 23, 2021
|
|
$
|
40,500
|
|
|
$
|
36,500
|
|
|
$
|
4,000
|
|
|
$
|
2,208
|
|
|
$
|
34,292
|
Power Up Lending (Tranche I)
|
|
July 24, 2020
|
|
July 24, 2021
|
|
$
|
130,000
|
|
|
$
|
130,000
|
|
|
$
|
-
|
|
|
$
|
13,921
|
|
|
$
|
116,079
|
Power Up Lending (Tranche II)
|
|
August 18, 2020
|
|
August 18, 2021
|
|
$
|
63,000
|
|
|
$
|
63,000
|
|
|
$
|
-
|
|
|
$
|
8,061
|
|
|
$
|
54,939
|
|
|
|
|
|
|
$
|
697,500
|
|
|
$
|
668,500
|
|
|
$
|
29,000
|
|
|
$
|
90,853
|
|
|
$
|
592,647
|
The below table summarizes all the convertible notes
issued during the nine months ended May 31, 2021.
Counterparties
|
|
Issuance date
|
|
Maturity
Date
|
|
Principal Amount
|
|
Purchase Price
|
|
Discount on Note issuance
|
|
Note issuance costs
|
|
Proceeds Received (USD)
|
Jefferson Street Capital
|
|
September 1,2020
|
|
September 1, 2021
|
|
|
82,500
|
|
|
|
75,000
|
|
|
|
7,500
|
|
|
|
6,051
|
|
|
|
68,949
|
FirstFire Global
|
|
September 1,2020
|
|
June1, 2021
|
|
|
75,000
|
|
|
|
71,250
|
|
|
|
3,750
|
|
|
|
9,752
|
|
|
|
61,498
|
Power Up Lending
|
|
October8, 2020
|
|
October 8, 2021
|
|
|
55,000
|
|
|
|
55,000
|
|
|
|
-
|
|
|
|
7,421
|
|
|
|
47,579
|
East Capital
|
|
October 9, 2020
|
|
October 9, 2021
|
|
|
62,700
|
|
|
|
62,700
|
|
|
|
-
|
|
|
|
7,708
|
|
|
|
54,992
|
|
|
|
|
|
|
$
|
275,200
|
|
|
$
|
263,950
|
|
|
$
|
11,250
|
|
|
$
|
30,933
|
|
|
$
|
233,017
|
The following table summarizes the convertible note
and derivative liability in the balance sheet at May 31, 2021:
Balance, August 31, 2020
|
|
$
|
438,921
|
Issuance of Convertible Note Principal
|
|
$
|
275,200
|
Issuance of MFN Principal
|
|
$
|
15,000
|
Discount on Note issuance, net of amortization
|
|
$
|
75,075
|
Accrued interest expense
|
|
$
|
24,562
|
Converted Note Principal
|
|
$
|
(166,464)
|
Converted accrued and unpaid interest
|
|
$
|
(8,538)
|
Prepayment of Note Principal
|
|
$
|
(559,782)
|
Paid interest expense
|
|
$
|
(29,390)
|
Change in fair value of Derivative liability
|
|
$
|
(64,584)
|
Balance, May 31, 2021
|
|
$
|
0
|
The Company valued its derivatives liability using
Monte Carlo simulation. Assumptions used as of May 31, 2021 include (1) risk-free interest rates of 0.06%, (2) expected equity volatility
of 66.25% - 66.3%, (3) zero dividends, (4) discount for lack of marketability of 30% (5) remaining terms and conversion prices as set
forth in the convertible note agreement, and (6) the common stock price of the underlying share on the valuation date of May 31, 2021.
The Company recognizes gain due to convertible feature
of $64,584 in the income statement for the nine months ended May 31, 2021.
The Company prepaid nine convertible notes during
the nine months ended May 31, 2021 as below:
Convertible
Notes
|
Beginning Principle after
Note Conversion
|
Total Interest Accrued
|
Paid Date
|
Paid Principle
|
Paid Interest
|
Principal balance Outstanding
|
Payment amount
|
Loss from
prepaid convertible note
|
Crown
Bridge (Tranche I)
|
1,082
|
2,641
|
12/9/20
|
(1,082)
|
(2,641)
|
-
|
72,500
|
(26,732)
|
Crown
Bridge (Tranche II)
|
40,500
|
1,545
|
12/9/20
|
(40,500)
|
(1,545)
|
-
|
EMA
Financial
|
50,000
|
1,990
|
12/9/20
|
(50,000)
|
(1,990)
|
-
|
72,800
|
(20,810)
|
Power
Up Lending
|
130,000
|
6,491
|
1/22/21
|
(130,000)
|
(6,491)
|
-
|
190,925
|
(54,434)
|
Power
Up Lending
|
63,000
|
3,042
|
2/10/21
|
(63,000)
|
(3,042)
|
-
|
92,380
|
(26,338)
|
East
Capital
|
62,700
|
3,114
|
4/7/21
|
(62,700)
|
(3,114)
|
-
|
87,467
|
(21,652)
|
Power
Up Lending
|
55,000
|
2,746
|
4/7/21
|
(55,000)
|
(2,746)
|
-
|
80,797
|
(23,051)
|
Jefferson
Street
|
82,500
|
4,097
|
3/1/21
|
(82,500)
|
(4,097)
|
-
|
116,975
|
(30,378)
|
FirstFire
Global
|
75,000
|
3,724
|
3/1/21
|
(75,000)
|
(3,724)
|
-
|
108,125
|
(29,401)
|
Total
|
559,782
|
29,390
|
-
|
(559,782)
|
(29,390)
|
-
|
821,970
|
(232,797)
|
|
|
|
|
|
|
|
|
|
|
|
The Holders converted convertible notes to common
shares during the nine months ended May 31, 2021 as below:
EMA Financial:
Conversion date
|
|
Beginning principal balance
|
|
Principal Amount Converted
|
|
Interest Amount Converted
|
|
MFN Principal
|
|
Total converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending principal balance
|
|
Conversion Price
|
|
Converted
Shares
|
September 1, 2020
|
|
|
5,285
|
|
|
|
5,284.50
|
|
|
|
5,154
|
|
|
|
—
|
|
|
|
10,439
|
|
|
|
1,000
|
|
|
|
—
|
|
|
$
|
0.00812
|
|
|
|
1,408,800
|
Total
|
|
|
|
|
|
|
5,284.50
|
|
|
|
5,154
|
|
|
|
—
|
|
|
|
10,439
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
1,408,800
|
Auctus Capital Partners:
Conversion date
|
|
Beginning principal balance
|
|
Principal Amount Converted
|
|
Interest Amount Converted
|
|
MFN Principal
|
|
Total converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending principal balance
|
|
Conversion Price
|
|
Converted
Shares
|
September 8, 2020
|
|
|
33,295
|
|
|
|
12,055
|
|
|
|
73
|
|
|
|
—
|
|
|
|
12,128
|
|
|
|
750
|
|
|
|
21,240
|
|
|
$
|
0.00510
|
|
|
|
2,525,000
|
September 18, 2020
|
|
|
21,240
|
|
|
|
15,233
|
|
|
|
58
|
|
|
|
—
|
|
|
|
15,291
|
|
|
|
750
|
|
|
|
6,007
|
|
|
$
|
0.00510
|
|
|
|
3,145,300
|
September 29, 2020
|
|
|
6,007
|
|
|
|
6,007
|
|
|
|
18
|
|
|
|
11,082
|
|
|
|
17,107
|
|
|
|
750
|
|
|
|
—
|
|
|
$
|
0.00480
|
|
|
|
3,720,200
|
October 22, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,918
|
|
|
|
3,918
|
|
|
|
750
|
|
|
|
—
|
|
|
$
|
0.00216
|
|
|
|
2,161,240
|
Total
|
|
|
|
|
|
|
33,294.51
|
|
|
|
149
|
|
|
|
15,000
|
|
|
|
48,444
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
11,551,740
|
*On September 29, 2020, $6,007 of the Auctus Capital
convertible note was converted to 17,107 shares of common stock at a conversion price $ 0.0048, 60% of the lowest trading price in the
20 days prior to the conversion dates. Additional most-favored-nation (MFN) principal of $15,000 was triggered when the conversion price
is lower than $0.1. The remaining Auctus Capital convertible note principal balance was $0, including $15,000 MFN principal
East Capital:
Conversion date
|
|
Beginning principal balance
|
|
Principal Amount Converted
|
|
Interest Amount Converted
|
|
MFN Principal
|
|
Total converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending principal balance
|
|
Conversion Price
|
|
Converted
Shares
|
September 8, 2020
|
|
|
26,600
|
|
|
|
13,300.00
|
|
|
|
250
|
|
|
|
—
|
|
|
|
13,550
|
|
|
|
—
|
|
|
|
13,300
|
|
|
$
|
0.01020
|
|
|
|
1,328,431
|
September 25, 2020
|
|
|
13,300
|
|
|
|
13,300.00
|
|
|
|
129
|
|
|
|
—
|
|
|
|
13,429
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
0.00960
|
|
|
|
1,398,854
|
Total
|
|
|
|
|
|
|
26,600.00
|
|
|
|
379
|
|
|
|
—
|
|
|
|
26,979
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
2,727,285
|
Fidelis Capital:
Conversion date
|
|
Beginning principal balance
|
|
Principal Amount Converted
|
|
Interest Amount Converted
|
|
MFN Principal
|
|
Total converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending principal balance
|
|
Conversion Price
|
|
Converted
Shares
|
September 1, 2020
|
|
|
41,000
|
|
|
|
25,671.15
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,671
|
|
|
|
—
|
|
|
|
15,329
|
|
|
$
|
0.01218
|
|
|
|
2,107,648
|
September 9, 2020
|
|
|
15,329
|
|
|
|
15,328.85
|
|
|
|
2,605
|
|
|
|
—
|
|
|
|
17,934
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
0.01020
|
|
|
|
1,758,257
|
Total
|
|
|
|
|
|
|
41,000.00
|
|
|
|
2,605
|
|
|
|
—
|
|
|
|
43,605
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
3,865,905
|
Armada Partners:
Conversion date
|
|
Beginning principal balance
|
|
Principal Amount Converted
|
|
Interest Amount Converted
|
|
MFN Principal
|
|
Total converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending principal balance
|
|
Conversion Price
|
|
Converted
Shares
|
September 25, 2020
|
|
|
25,500
|
|
|
|
13,000.00
|
|
|
|
213
|
|
|
|
—
|
|
|
|
13,213
|
|
|
|
500
|
|
|
|
12,500
|
|
|
$
|
0.01020
|
|
|
|
1,344,363
|
October 6, 2020
|
|
|
12,500
|
|
|
|
12,500.00
|
|
|
|
38
|
|
|
|
—
|
|
|
|
12,538
|
|
|
|
500
|
|
|
|
—
|
|
|
$
|
0.00960
|
|
|
|
1,358,145
|
Total
|
|
|
|
|
|
|
25,500.00
|
|
|
|
251
|
|
|
|
—
|
|
|
|
25,751
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
2,702,508
|
Crown Bridge (Tranche I):
Conversion date
|
|
Beginning principal balance
|
|
Principal Amount Converted
|
|
Interest Amount Converted
|
|
MFN Principal
|
|
Total converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending principal balance
|
|
Conversion Price
|
|
Converted
Shares
|
September 8, 2020
|
|
|
20,867
|
|
|
|
6,400.00
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,400
|
|
|
|
1,250
|
|
|
|
14,467
|
|
|
$
|
0.00765
|
|
|
|
1,000,000
|
September 22, 2020
|
|
|
14,467
|
|
|
|
5,635.00
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,635
|
|
|
|
1,250
|
|
|
|
8,832
|
|
|
$
|
0.00765
|
|
|
|
900,000
|
October 1, 2020
|
|
|
8,832
|
|
|
|
7,750.00
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,750
|
|
|
|
1,250
|
|
|
|
1,082
|
|
|
$
|
0.00720
|
|
|
|
1,250,000
|
Total
|
|
|
|
|
|
|
19,785.00
|
|
|
|
|
|
|
|
—
|
|
|
|
19,785
|
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
3,150,000
|
In summary, the Company has either converted or prepaid
all the outstanding convertible notes as of May 31, 2021. The below table lists conversions and prepayments during each quarter in FY2021.
Sr. No.
|
Note
|
Total convertible note issued
|
Total principal converted as of 08/31/2020
|
Total principal converted as of 11/30/2020
|
Total principal paid off as of 2/28/2021
|
Total principal paid off as of 5/31/2021
|
Principal balance Outstanding as of 5/31/2021
|
1
|
EMA Financial
|
90,000
|
(84,716)
|
(5,285)
|
-
|
-
|
-
|
2
|
Peak One Opportunity
|
85,000
|
(85,000)
|
-
|
-
|
-
|
-
|
3
|
Auctus Fund Note
|
90,000
|
(41,705)
|
(48,295)
|
-
|
-
|
-
|
4
|
Crown Bridge (Tranche I)
|
40,500
|
(19,633)
|
(19,785)
|
(1,082)
|
-
|
-
|
5
|
East Capital
|
50,000
|
(23,400)
|
(26,600)
|
-
|
-
|
-
|
6
|
Fidelis Capital
|
50,000
|
(9,000)
|
(41,000)
|
-
|
-
|
-
|
7
|
Armada Partners
|
38,500
|
(13,000)
|
(25,500)
|
-
|
-
|
-
|
8
|
Crown Bridge (Tranche II)
|
40,500
|
-
|
-
|
(40,500)
|
-
|
-
|
9
|
EMA Financial (Issue Date: 7.17.2020)
|
50,000
|
-
|
-
|
(50,000)
|
-
|
-
|
10
|
Power Up Lending (Issue Date: 07.24.2020)
|
130,000
|
-
|
-
|
(130,000)
|
-
|
-
|
11
|
Power Up Lending (Issue Date: 08.18.2020)
|
63,000
|
-
|
-
|
(63,000)
|
-
|
-
|
12
|
East Capital (Issue Date: 10.09.2020)
|
62,700
|
-
|
-
|
-
|
(62,700)
|
-
|
13
|
Power Up Lending (Issue Date: 10.08.2020)
|
55,000
|
-
|
-
|
-
|
(55,000)
|
-
|
14
|
Jefferson Street (Issue Date: 09.01.2020)
|
82,500
|
-
|
-
|
-
|
(82,500)
|
-
|
15
|
FirstFire Global (Issue Date: 09.01.2020)
|
75,000
|
-
|
-
|
-
|
(75,000)
|
-
|
|
Total
|
1,002,700
|
(276,454)
|
(166,464)
|
(284,582)
|
(275,200)
|
-
|
NOTE 10 – WARRANTS
On December 9, 2019, January 8, 2020, January 17,
2020, March 12, 2020, and July 23, 2020 the Company issued warrants to EMA Financial, Peak One Opportunity, Crown Bridge, and Armada Partners
in conjunction with their convertible notes (see Note 9). Classified as equity, these detachable warrants issued in a bundled transaction
with convertible notes are accounted for separately as additional paid-in capital for the portion of the proceeds allocated to them. The
allocation of the sales proceeds between the base instrument of convertible notes and the warrants are allocated based on the relative
fair values of the base instrument of convertible notes and the warrants following the guidance in ASC 470-20-25-2.
On July 30, 2020, the Company issued $750,000 warrant
shares to Peak One Opportunity in connection with the Equity Purchase Agreement, which is the “Financing Agreement” signed
on July 30, 2020 to sell to Peak One up to $10,000,000 worth of the Company’s common stock over the period ending twenty-four (24)
months after the date the Registration Statement.
The fair value of the stock warrants granted to EMA
Financial was estimated at $106,540 on the date granted using the Black-Scholes pricing model, with the following assumption used for
the valuation: exercise price of $12 per share, average risk-free interest rate of 0.89%, expected dividend yield of zero, remaining contractual
life of 4.89 years, and an average expected volatility of 58.11%.
The fair value of the stock warrants granted to Peak
One was estimated at $39,515 on the date granted using the Black-Scholes pricing model, with the following assumption used for the valuation:
exercise price of $10 per share, average risk-free interest rate of 0.89%, expected dividend yield of zero, remaining contractual life
of 4.78 years, and an average expected volatility of 57.51%. The fair value of the stock warrants granted to Crown Bridge (Tranche
I) was estimated at $17,443 on the date granted using the Black-Scholes pricing model, with the following assumption used for the valuation:
exercise price of $12.5 per share, average risk-free interest rate of 0.89%, expected dividend yield of zero, remaining contractual life
of 4.86, and an average expected volatility of 57.97%.
The fair value of the stock warrants granted to Armada
was estimated at $12,341 on the date granted using the Black-Scholes pricing model, with the following assumption used for the valuation:
exercise price of $12.5 per share, average risk-free interest rate of 0.29%, expected dividend yield of zero, remaining contractual life
of 4.78, and an average expected volatility of 61.54%.
The fair value of the stock warrants granted to Crown
Bridge (Tranche II), issued on July 23, 2020 was estimated at $126,112 on August 31, 2020 using the Black-Scholes pricing model, with
the following assumption used for the valuation: exercise price of $0.00905 per share, average risk-free interest rate of 0.28%, expected
dividend yield of zero, remaining contractual life of 4.90, and an average expected volatility of 55.33%.
The fair value of the stock warrants granted to Peak
One, a standalone warrant issued on July 30, 2020 was estimated at $45,722 on August 31, 2020 using the Black-Scholes pricing model, with
the following assumption used for the valuation: exercise price of $0.1 per share, average risk-free interest rate of 0.27%, expected
dividend yield of zero, remaining contractual life of 4.92, and an average expected volatility of 55.29%.
As of May 31, 2021, the Company exercised the following
warrant shares to acquire common shares via cashless exercises as below:
Peak One warrant issued on December 9, 2019:
Date of Exercise
|
Anti Dilution Value of Warrant Shares
|
Anti Dilution Base (Exercise) Price (B)
|
Mkt Price (90 Day High Preceding Exercise date) (A)
|
# of WTS Shares Elected for purchase (Y)
|
Common Shares to be issued upon exercise (X) = Y(A-B)/A
|
Cashless
Payment
|
July 20, 2020
|
$100,000
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
July 21, 2020
|
$92,489
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
July 23, 2020
|
$84,979
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
July 29, 2020
|
$77,468
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
August 4, 2020
|
$69,957
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
August 11, 2020
|
$62,446
|
$ 0.0300
|
$ 21.00
|
500,715
|
500,000
|
$15,021
|
August 21, 2020
|
$47,425
|
$ 0.0300
|
$ 21.00
|
500,715
|
500,000
|
$15,021
|
August 25, 2020
|
$32,403
|
$ 0.0205
|
$ 21.00
|
500,489
|
500,000
|
$10,260
|
August 31, 2020
|
$22,143
|
$ 0.0205
|
$ 21.00
|
500,489
|
500,000
|
$10,260
|
September 9, 2020
|
$11,883
|
$ 0.0205
|
$ 21.00
|
470,786
|
470,326
|
$9,651
|
Total
|
|
|
|
3,724,982
|
3,720,326
|
$ 97,768
|
Peak One warrant issued on July 30, 2020
Date of Exercise
|
Anti Dilution Value of Warrant Shares
|
Anti Dilution Base (Exercise) Price (B)
|
Market Price (90 Day High Preceding Exercise date) (A)
|
# of WTS Shares Elected for purchase (Y)
|
Common Shares to be issued upon exercise (X) = Y(A-B)/A
|
Cashless Payment
|
October 8, 2020
|
$75,000
|
0.01672
|
$10.00
|
750,000
|
748,746
|
$12,540
|
December 21, 2020
|
$62,460
|
0.00609
|
$0.068
|
2,564,039
|
2,344,407
|
$15,615
|
December 28, 2020
|
$46,845
|
0.00609
|
$0.068
|
2,564,039
|
2,344,407
|
$15,615
|
January 6, 2021
|
$31,230
|
0.00609
|
$0.068
|
5,128,079
|
4,668,814
|
$31,230
|
Total
|
|
|
|
11,006,157
|
10,086,374
|
$75,000
|
EMA Financial warrant issued on January 17, 2020:
Date of Exercise
|
Anti Dilution Value of Warrant Shares
|
Anti Dilution Base (Exercise) Price (B)
|
Market Price (90 Day High Preceding Exercise date) (A)
|
# of WTS Shares Elected for purchase (Y)
|
Common Shares to be issued upon exercise (X) = Y(A-B)/A
|
Cashless Payment
|
September 8, 2020
|
$375,000
|
0.00812
|
$17.00
|
2,400,002
|
2,398,856
|
$19,488
|
September 14, 2020
|
$355,512
|
0.00812
|
$17.00
|
2,950,000
|
2,948,951
|
$23,954
|
September 22, 2020
|
$331,558
|
0.00812
|
$10.00
|
3,400,000
|
3,397,239
|
$27,608
|
September 25, 2020
|
$303,950
|
0.00812
|
$10.00
|
3,600,000
|
3,597,077
|
$29,232
|
October 1, 2020
|
$274,718
|
0.00812
|
$10.00
|
4,150,000
|
4,146,630
|
$33,698
|
October 12, 2020
|
$241,020
|
0.00812
|
$6.50
|
4,600,000
|
4,594,254
|
$37,352
|
October 19, 2020
|
$203,668
|
0.00812
|
$6.50
|
4,800,000
|
4,794,004
|
$38,976
|
October 29, 2020
|
$164,692
|
0.00812
|
$2.02
|
5,200,000
|
5,179,097
|
$42,224
|
November 5, 2020
|
$122,468
|
0.00812
|
$0.60
|
5,500,000
|
5,425,567
|
$44,660
|
November 11, 2020
|
$77,808
|
0.00812
|
$0.43
|
5,700,000
|
5,592,363
|
$46,284
|
November 20, 2020
|
$31,524
|
0.00812
|
$0.30
|
3,882,264
|
3,777,184
|
$31,524
|
Total
|
|
|
|
46,182,266
|
45,851,221
|
$375,000
|
If the Market Price of one share of Common Stock is
greater than the Exercise Price, the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise,
equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender
of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder a number of Common Stock computed using the
formula of X = Y (A-B)/A, where X, Y, A, B are as below.
X = the number of Warrant Shares to be issued to Holder.
Y = the number of Warrant Shares that the Holder elects to purchase
under this
Warrant (at the date of such calculation).
A = the Market Price (at the date of such calculation).
B = Exercise Price (as adjusted to the date of such calculation).
The exercise prices for all the warrants are subject
to anti-dilution adjustments. If the Company issues common stocks under a purchase agreement, issue options, or convert notes to common
stocks at a lower price than the warrant exercise prices while the warrants are still outstanding, such lower price is the base price
that the warrant exercise price can be reduced to. As such, the Holder will receive additional warrant shares to keep the same warrant
value as the original issuance before the exercise price is adjusted down.
A summary of the status of the Company’s warrants
as of May 31, 2021 is presented below. The number of shares is adjusted in accordance with the anti-dilution adjustment and equals the
original number of warrant shares times the original exercise prices divided by based prices. Base price is either the note conversion
price or the share issuance price used by the Company while the warrants are outstanding.
|
|
Number of warrants
|
|
|
Original shares issued
|
|
Anti-dilution Adjusted
|
Warrants as of August 31, 2020
|
|
|
793,920
|
|
|
|
68,163,661
|
Warrants granted
|
|
|
—
|
|
|
|
—
|
Exercised, forfeited or expired
|
|
|
(793,920
|
)
|
|
|
(68,163,661)
|
Outstanding as of May 31, 2021
|
|
|
—
|
|
|
|
—
|
Exercisable as of May 31, 2021
|
|
|
—
|
|
|
|
—
|
(1). Exercise price is reduced to the latest base
price. Base price is either the note conversion price or the share issuance price, which the Company used while the warrants were outstanding.
(2). The number of shares is adjusted in accordance
with the anti-dilution clause per the warrant agreement and equals the original number of warrant shares times the original exercise prices
divided by base price.
NOTE 11 – FAIR VALUE MEASUREMENTS
The Company applies ASC 820, Fair Value Measurements
and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. ASC 820 requires disclosures to be provided on fair value measurement.
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 as of May 31, 2021 are summarized below:
|
|
|
Fair value measurement using:
|
|
|
|
|
|
|
|
Quoted prices in active markets for identical assets (Level 1)
|
|
|
|
Significant other observable inputs
( Level 2)
|
|
|
|
Unobservable inputs
( Level 3)
|
|
|
|
Total Fair value at May 31, 2021
|
Derivative liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Derivative liabilities embedded in convertible notes
|
|
|
|
Fair value at August 31, 2020
|
|
$
|
64,584
|
Increase from note issuances
|
|
|
74,187
|
Decrease from note conversions
|
|
|
(33,490)
|
Changes in the fair value
|
|
|
58,090
|
Fair value at November 30, 2020
|
|
$
|
163,372
|
Increase from note issuances
|
|
|
—
|
Decrease from note prepayment
|
|
|
(136,321)
|
Changes in the fair value
|
|
|
18,439
|
Fair value at February 28, 2021
|
|
$
|
45,490
|
Decrease from note prepayment
|
|
|
(45,490)
|
Fair value at May 31, 2021
|
|
|
—
|
NOTE 12– RELATED
PARTY TRANSACTIONS
In support of the Company’s efforts and cash
requirements, it may rely on advances from related parties until such time that the Company can support its operations or attains adequate
financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders.
Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary in nature and have not
been formalized by a promissory note. As of May 31, 2021 and August 31, 2020, there are no such related party transactions.
The Company has entered into a patent license agreement
with a related party Guangzhou Shengshituhua Film and Television Company Limited (“Licensor”). The agreement is for a term
of 5 years commencing on the effective date on June 1, 2017. The Company has already paid the licensor a non-refundable, up-from payment
of $500,000 and shall pay a royalty of 20% of the gross revenue realized from the sale of licensed products and sub-licensing of this
patent every year. The royalty expenses during the nine months ended May 31, 2021 and May 31, 2020 are $25,600 and $46,080, respectively.
In January, 2021, the Company’s sublicensing agreement to generate 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 subleasing revenue generated from the patent.
Guangzhou Shengshituhua Film and Television Company
Limited (“Guangzhou Shengshituhua”) also collects movie box-office revenues in mainland China on behalf of the Company for
the movie “Ai Bian Quan Qiu”. As of May 31, 2021, the Company has $658,961 related party receivable from Guangzhou Shengshituhua
for the uncollected movie box-office revenue. The settlement process between Guangzhou Shengshituhua and Huaxia Film Distribution in mainland
China takes approximately 90 days. There is also a further delay in currency exchanges from RMB to USD.
Youall Perform Services Ltd, owned by the Company’s
Board of Director 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 nine months ended May 31, 2021 and 2020, the Company recognized revenue of $0 and $141,143 from this performance
matching platform, respectively. The balance of related party receivable from Youall Perform Services Ltd was $0 and $87,581 as of May
31, 2021 and 2020, respectively.
In September 2019, the company entered into an agreement
with Youall Perform Services Ltd for two transactions. 1) The Company pays Youall Perform Services Ltd. 10% of the revenue generated from
the “Ai Bian Quan Qiu” platform every month to reimburse the valued-added tax, tax surcharges, and foreign transaction fee
Youall Perform Services Ltd. Has been paying on behalf of the Company. 2) Youall Perform Services Ltd. Will provide IT consulting service
for “Ai Bian Quan Qiu” platform upgrade and maintenance at a total cost of $128,000, out of which $108,800 has been paid.
As there has been no revenue from the “Ai Bian Quan Qiu” platform due to COVID-19 since mid-January, 2020, $108,800 long-term
prepayment was expensed as research and development expense in FY2020. In July 2020, the Company changed the service scope of this agreement
and turned it into a website maintenance contract over the next two years. The major website of this Company is ABQQ.tv for
video streaming. The contract amount remains to be $128,000, out of which $108,800 was previously paid and $19,200 will be due on the twenty
first month after the contract related signing date of July 31, 2020.
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.
On August 29, 2020, the Company entered into a Separation Agreement and
Release with each of Jianli Deng, Lijun Yu and Linqing Ye. Pursuant to the agreements, Mr. Deng resigned as Secretary and Treasurer, Ms.
Yu resigned as Chief Marketing Officer and Mr. Ye resigned as Chief Operating Officer. Mr. Deng will remain on as a member of our board
of directors. The Separation and Release Agreement cancelled the employment agreements for each of Messrs. Deng, Yu and Ye, and provided
them each an indebtedness payment within five (5) business days of the agreements. Mr. Deng will receive $110,000 USD, Ms. Yu will receive
$110,000 USD and Mr. Ye will receive $120,000 USD. We received a release of all claims from these prior officers. In addition, Mr. Deng,
Ms. Yu, and Mr. Deng agreed to return to the Company their unvested restricted shares of 130,556, 147,222, and 147,222, respectively.
On September 11, 2020, we entered into an amended employment agreement
with Chiyuan Deng, our Chief Executive Officer. Pursuant the amended agreement, we amended the compensation to Mr. Deng to include a salary
of $180,000 annually, a reduction in common stock received under his initial employment agreement, a potential for a bonus in cash or
shares, and the issuance of 100,000 shares of our newly created Series A Preferred Stock at par value $0.001.
During the nine months ended May 31, 2021, the Company
paid the Chief Executive Officer $135,000 salary, $50,000 bonus in cash, and $30,100 stock-based compensation. $18,750 salary was paid
in cash to Chief Financial Officer. In addition, the Company hired Chief Investment Officer on February 22, 2021 and $36,185 cash salary
and $3,777 stock-based compensation were paid to Chief Investment Officer for the nine months ended May 31, 2021. During the nine months
ended May 31, 2020, $127,435 was paid to five executives in the form of stock-based compensation and $11,250 cash salary was paid to the
Chief Financial Officer.
NOTE 13– EQUITY
The Company has 194,571,251 and 46,661,417 common shares issued and outstanding
as of May 31, 2021 and August 31, 2020, respectively. These common shares were held by approximately 541 and 520 shareholders of record
at May 31, 2021 and August 31, 2020, respectively. The Company has 100,000 and 0 series A preferred shares issued and outstanding as of
May 31, 2021 and August 31, 2020, respectively. The Company has 20,000 and 0 series B preferred shares issued and outstanding as of May
31, 2021 and August 31, 2020, respectively. The Company has 280,025 and 0 series C preferred shares issued and outstanding as of May 31,
2021 and August 31, 2020, respectively. The Company has 95 and 0 series D preferred shares issued and outstanding as of May 31, 2021 and
August 31, 2020, respectively.
The Company has the following equity activities during
the nine months ended May 31, 2021:
Common shares
|
•
|
The Company issued 19,000,000 shares of common stock for cash at $0.0140 per share and 4,000,000 shares of common stock for cash at $0.0715 per share.
|
|
•
|
The Company issued 25,406,238 shares of common stock from note conversion. Refer to Note 9 for further details.
|
|
•
|
The Company issued 56,407,922 shares of common stock from warrant exercises. Refer to Note 10 for further details.
|
|
•
|
261,111 shares of common stock returned to the Company due to officer resignations.
|
|
•
|
The Company issued 20,276,633 shares of put shares for cash at $0.015312, $0.014256, $ 0.01452, $0.077528, $0.09856, $0.11, $0.0715, or $0.0893 per share.
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|
|
|
|
•
|
As stock-based compensation the Company issued 500,000 shares to the Chief
Investment Offer and 1,000,000 shares to the Chief Executive Officer.
|
|
|
|
|
•
|
The
Company issued 3,880,152 of common shares from preferred shares series D conversion.
|
|
|
|
|
•
|
The Company issued 17,700,000 shares of stock for consulting services.
|
Preferred shares
The Company authorized 10,000,000 shares of preferred
shares with a par value $0.001. During the nine months ended May 31, 2021, the Company issued 100,000 shares of Series A Preferred shares
at par value $0.001, 20,000 shares of Series B Preferred shares at $16 per share, and 280,025 shares of Series C Preferred shares at $0.8696
per share and 325 shares of Series D Preferred shares at a par value $0.001, 230 shares of Series D Preferred shares were converted to
3,880,152 common shares in May, 2021
Based upon the Series D Preferred Share purchase agreement,
each share of Series D Preferred Stock shall be entitled to receive, and the Corporation shall pay, cumulative dividends of 8.0% per annum,
payable quarterly, beginning on the Original Issuance Date and ending on the date that such share of Preferred Share has been converted
or redeemed (the “Dividend End Date”). As of May 31, 2021, the Company has dividend payable of $7,009 on Series D Preferred
Shares and included in the accrued liabilities in the balance sheet.
Warrant shares
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•
|
The Company canceled 9,720 warrant shares with Crown Bridge and 4,200
warrant shares with Armanda Partners in November, 2020.
|
|
•
|
Peak One Opportunities exercised the remaining 10% of the 10,000 warrant shares issued on December 9, 2019 and 100% 750,000 warrant shares issued on July 30, 2020.
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|
•
|
EMA Financial exercised all 30,000 warrant shares issued on January 17, 2020.
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NOTE 14– INCOME TAXES
On December 22, 2017, the United States enacted the
Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications to existing law. The Company has completed the accounting
for the effects of the Act. The Company’s financial statements for the year ended August 31, 2019 reflect certain effects of the
Act which includes a reduction in the corporate tax rate from 35% to 21% as well as other changes.
Components of net deferred tax assets, including a
valuation allowance, are as follows as of May 31, 2021 and August 31, 2020:
|
|
May 31,
2021
|
|
August 31, 2020
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
Net operating loss carry over
|
|
$
|
607,796
|
|
|
$
|
447,765
|
Less: valuation allowance
|
|
|
(607,796
|
)
|
|
|
(447,765)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
The valuation allowance for deferred tax assets was
$607,796 as of May 31, 2021 and $447,765 as of August 31, 2020. 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, 2021 and August 31, 2020.
Reconciliation between the statutory rate and the effective
tax rate is as follows for the nine months ended May 31, 2021 and May 31, 2020:
|
|
Nine months ended
|
|
|
May 31,
|
|
|
2021
|
|
2020
|
Federal statutory tax rate
|
|
|
21
|
%
|
|
|
21%
|
Change in valuation allowance
|
|
|
(21
|
%)
|
|
|
(21%)
|
Effective tax rate
|
|
|
0
|
%
|
|
|
0%
|
The Company’s fully owned subsidiary App Board
Limited registered and located in Hong Kong. It is governed by the income tax law of the Hong Kong and is subject to a tax rate of 16.5%.
During the nine months ended May 31, 2021 and May
31, 2020, the Company and its subsidiary have incurred a loss of (1,722,474) and ($731,204), respectively. As a result, the Company and
its subsidiary did not incur any income tax during the nine months ended May 31, 2021 and May 31, 2020.
NOTE 15 – CONCENTRATION RISK
10% and 62% of revenue was generated from one customer
during the nine months ended May 31, 2021 and May 31, 2020, respectively.
100% of the account receivable balance was due from
one customer as of May 31, 2021 and August 31, 2020.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Operating lease
As of May 31, 2021, the Company leases office premises
in Hong Kong, an office in New York city, and an office in Singapore under non-cancelable operating lease agreements with an option to
renew these leases. On November 22, 2020, the Company closed down a display store and terminated its lease, which has an original term
from February 23, 2019 to February 22, 2022, as a result of the COVID-19 impact and uncertainties of the economy in Hong Kong. The cash
lease expense for the nine months ended May 31, 2021 and May 31, 2020 was $69,905 and $36,557, respectively. All leases are on a fixed
payment basis. None of the leases include contingent rentals. The Company had lease commitment of $72,487 as of May 31, 2021, of which
$72,487 is within one year.
In accordance with ASC 250-10-45-14, the adoption
of ASC 842 lease accounting standard has resulted in $71,665 lease expenses for the nine months ended May 31, 2021, including both
cash and non-cash lease expenses.
As of May 31,
|
|
Commitments
|
2021
|
|
$
|
72,487
|
Total Lease Payments
|
|
$
|
72,487
|
Less: imputed interest
|
|
$
|
(1,125)
|
Present value of lease liabilities
|
|
$
|
71,362
|
Current portion of obligations under operating leases
|
|
$
|
71,362
|
Obligations under operating leases, non-current
|
|
$
|
0
|
NOTE 17 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed
its operations subsequent to May 31, 2021 to the date these financial statements were issued.
Covid-19 impact:
In December 2019, a novel strain of coronavirus (COVID-19)
surfaced. The spread of COVID-19 around the world in the first quarter of 2020 has caused significant volatility in the U.S. and international
markets. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material adverse impact
on the Company’s financial position, operations and cash flows. It is too early to quantify the impact this situation will have
on company revenue and profits at this time. Possible areas that may be affected include, but are not limited to, disruption to the Company’s
customers and revenue, labor workforce, unavailability of supplies used in operations, etc. Accordingly, Management is evaluating the
Company’s liquidity position, reduction in revenues, and reviewing the analysis of the Company’s financial performance as
the Company seeks to withstand the uncertainty related to the coronavirus. As no large-crowd gathering has been allowed since the outbreak
of COVID-19, the Company has not generated any revenue from the Ai Bian Quan Qiu performance matching platform. Consequently, the Company
has decided to impair all of the intangible asset carrying value related to the Ai Bian Quan Qiu performance matching platform and its
Wechat official account, given that it is uncertain whether this platform will continue generating any revenue.
The remaining proceeds from issuance of common
stocks are fully collected in June, 2021:
On June 1 and June 2, 2021, the company received $64,000,
and $13,856 respectively for the issuance of 2 million shares to Kangdi Liu.
On June 4 and June 15, 2021, the company received
$110,387 and $129,806 from Peak One Opportunity Fund LP for equity purchase agreement.