Our unaudited consolidated financial statements included
in this Form 10-Q are as follows:
These interim consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information
and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the interim period ended November 30, 2021 are not necessarily indicative of the results that can
be expected for the full year.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
For the years ended August
31, 2021 and August 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. 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 a term of five
years commencing on the June 1, 2017 (Effective Date) and 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. The term of this sublicensing agreement was renewed and extended for another five
years in October of 2019.
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.
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 impair 100% 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 was from August 1, 2019 to July 31, 2020. This loan principal balance was paid off in full in July, 2020. All the interest income of $95,979 was received by August 31, 2020.
On September 4, 2019, the Company entered into another loan agreement
to lend $1,049,600
at an annual interest rate of 10%
to All In One Media Ltd, previously named as Aura Blocks Limited. The term of note receivable was from September 4, 2019 to March
3, 2020. This loan balance was paid off in full on May 4th, 2020 with two months’ extension. All the interest income
of $70,021
was received by November 13, 2020.
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 August 31, 2021, the Company
acquired 4 movie copyrights and 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.
NOTE 2 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and are
presented in US dollars. The Company’s year-end is August 31.
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. All intercompany balances and transactions have been eliminated in consolidation.
Going Concern Uncertainties
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization
of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of November 30,
2021, the Company had an accumulated deficit of approximately $7.63 million and a working capital deficit of $231,027. For the three
months ended November 30, 2021, the Company incurred a net loss of approximately $1 million and the net cash used in operations was
$629,550. Losses have principally occurred as a result of the substantial resources required for general and administrative expenses
associated with our operations. The continuation of the Company as a going concern through November 30, 2022 is dependent upon the
continued financial support from its stockholders or external financing. Management believes the existing stockholders will provide
the additional cash to meet the Company’s obligations as they become due. However, there is no assurance that the Company will
be successful in securing sufficient funds to sustain the operations.
These conditions raise
substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments
to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional
funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
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
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 consisted 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. As the sublicensing agreement with Anyone Picture was terminated in January, 2021, there
was no account receivable balance as of November 30, 2021 or August 31, 2021. The allowance for doubtful accounts is the Company’s
best estimate of the amount of probable credit losses in its existing accounts receivable. No amount for bad debt expense was recorded
by the Company during the three months ended November 30, 2021 and August 31, 2021, and no write-offs for bad debt were recorded for
the three months ended November 30, 2021 and November 30, 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.
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:
|
|
|
Estimated
Useful Life
|
Furniture
|
|
|
7 years
|
Appliances
|
|
|
5 years
|
Leasehold Improvement
Leasehold improvement
is related to the enhancements paid by the Company to leased office and store. Leasehold improvement represents capital expenditures
for direct costs of renovation or acquisition and design fees incurred. The amortization of leasehold improvements commences once the
renovation is completed and ready for the Company’s intended use. Leasehold improvement is amortized over the lease term of 3 years.
Intangible Assets
Intangible assets are
stated at the lower of cost or amortized cost or estimated fair value and amortized as follows:
|
●
|
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
|
|
●
|
Patent: straight-line
method over the term of 5 years based on the patent license agreement
|
Amortized costs of the
intangible asset are recorded as cost of sales, as the intangible assets are 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 the general and administrative expense. There was no impairment loss during the three months ended November 30,
2021 and the year ended August 31, 2021.
Revenue Recognition
The Company adopted ASC
Topic 606, “Revenue from Contracts with Customers”, applying the modified retrospective method.
In accordance with ASC
Topic 606, revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects
the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five
steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
|
●
|
the
contract with a customer;
|
|
●
|
identify
the performance obligations in the contract;
|
|
●
|
determine
the transaction price;
|
|
●
|
allocate
the transaction price to performance obligations in the contract; and
|
|
●
|
recognize
revenue as the performance obligation is satisfied.
|
The Company does not believe
that significant management judgements are involved in revenue recognition, but the amount and timing of the Company’s revenues
could be different for any period if management made different judgments or utilized different estimates. Generally, the Company recognizes
revenue under ASC Topic 606 for its performance obligation.
The Company generates
revenue from sub-licensing a patent. 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. Once the Company finds another company to sublicense the patent, it will generate royalty revenue again.
Fair Value of Financial
Instruments
ASC 820, “Fair Value
Measurements” (ASC 820) and ASC 825, “Financial Instruments” (ASC 825), requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level
of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within
the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the
inputs into three levels that may be used to measure fair value:
Level 1 – Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 – Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable market data.
Level 3 – Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.
The carrying values of
cash, accounts payable, and accrued liabilities approximate fair value due to their short-term nature. The fair values of warrant liabilities
and derivative liabilities embedded in convertible notes are determined by level 3 inputs.
Accounting for Derivative
Instruments
The
Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” (ASC 815) and all
derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet.
The
Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer
a liability in an orderly transaction between willing and able market participants. In general, the Company's policy in estimating fair
values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these
are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment
speeds, default rates and credit spreads (including for the Company's liabilities), relying first on observable data from active markets.
Additional adjustments may be made for factors including liquidity, credit, bid/offer spreads, etc., depending on current market conditions.
Transaction costs are not included in the determination of fair value. When possible, the Company seeks to validate the model's output
to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially
different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes
its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency
utilized in measuring financial instruments at fair value as discussed above. Changes in fair value are recognized in the period incurred
as either gains or losses.
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 November 30, 2021 and 2020, there were no 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 November 30, 2021. As such, 0 potentially diluted
shares were from convertible notes and warrants as of November 30, 2021, whereas 45,230,142 potentially diluted shares were from convertible
notes and 4,381,313 potentially diluted shares were from warrants as of November 30, 2020.
Diluted shares NOT included
in basic loss per share computation
|
|
As of November 30,
|
|
|
2021
|
|
2020
|
Warrants
|
|
|
—
|
|
|
|
4,381,313
|
|
Convertible notes
|
|
|
—
|
|
|
|
45,230,142
|
|
Recent Accounting Pronouncements
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 $24,478 and $13,566 as of November 30, 2021 and August 31, 2021, respectively. Prepaid expense as of November 30, 2021 primarily
includes $15,145 prepayment of rents.
NOTE 4 – SUBSCRIPTION
RECEIVABLE
Subscription receivable
is cash not yet collected from the shareholders for issuance of common stock. As of November 30, 2021, the company has no Subscription
receivable. As of August 31, 2021, the subscription receivable balance of $87,239 was cash to be collected from 3 million Put shares
to Peak One Opportunity Fund LP
NOTE 5 – FIXED
ASSETS AND LEASEHOLD IMPROVEMENT
The Company capitalized the renovation cost as leasehold
improvement and the cost of furniture and appliances as fixed asset. Leasehold improvement relates to renovation and upgrade of an office
and an offline display store. The leasehold improvement is depreciated over 3 years which equal the terms of the operating lease for renting
an office. The furniture and appliances are depreciated over 7 and 5 years, respectively.
The depreciation
expense was $13,300 and $13,148 for three months November 31, 2021 and November 30, 2020, respectively.
|
|
November 30, 2021
|
|
August 31, 2021
|
Leasehold improvement
|
|
$
|
146,304
|
|
|
$
|
146,304
|
|
Appliances and furniture
|
|
|
25,974
|
|
|
|
25,974
|
|
Total cost
|
|
|
172,278
|
|
|
|
172,278
|
|
Accumulated depreciation
|
|
|
(131,873
|
)
|
|
|
(118,573
|
)
|
Property and equipment, net
|
|
$
|
40,405
|
|
|
$
|
53,705
|
|
NOTE 6 – INTANGIBLE
ASSETS
As of November
30, 2021 and August 31, 2021, the balance of intangible assets are as follows;
|
|
November 30, 2021
|
|
August 31, 2021
|
Patent
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Movie copyrights - Love over the world
|
|
|
853,333
|
|
|
|
853,333
|
|
Sitcom copyrights - Chujian
|
|
|
640,000
|
|
|
|
640,000
|
|
Movie copyrights - Huafeng
|
|
|
422,400
|
|
|
|
422,400
|
|
Movie copyrights - Our treasures
|
|
|
936,960
|
|
|
|
936,960
|
|
Movie and TV series broadcast rights
|
|
|
2,439,840
|
|
|
|
2,439,840
|
|
Total cost
|
|
|
5,792,533
|
|
|
|
5,792,533
|
|
Less: Accumulated amortization
|
|
|
(2,480,295
|
)
|
|
|
(1,793,728
|
)
|
Intangible asset, net
|
|
$
|
3,312,238
|
|
|
$
|
3,998,805
|
|
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) copyrights for the movie “Love over the world”, “Huafeng”,
“Our treasures” and the sitcom “Chujian”, and 3) broadcast rights for fifty nine movie and TV series. The amortization
expense for three months ended November 30, 2021 and November 30, 2020 was $686,567 and $140,726, respectively.
The estimated
amortization expense for each of the two succeeding years is as follows. The intangible assets as of November 30, 2021 will be fully
amortized in the fiscal year of 2023.
Year ending November 30,
|
|
Amortization expense
|
2022
|
|
|
$
|
2,580,541
|
|
2023
|
|
|
$
|
731,697
|
|
NOTE 7 – RIGHTS-TO-USE
OPERATING LEASE ASSETS, NET
Rights-to-use lease
assets, net consisted of the following:
|
|
November 30, 2021
|
|
August 31, 2021
|
Right-to-use gross asset
|
|
$
|
1,303,393
|
|
|
$
|
223,237
|
|
Less: accumulated amortization
|
|
|
(226,714
|
)
|
|
|
(175,410
|
)
|
Right-to-use asset, net
|
|
$
|
1,076,679
|
|
|
$
|
47,827
|
|
The estimated amortization expenses for
succeeding years is as follows:
Year ending November 30,
|
|
Amortization expense
|
|
2022
|
|
|
$
|
229,675
|
|
|
2023
|
|
|
|
200,970
|
|
|
2024
|
|
|
|
202,235
|
|
|
2025
|
|
|
|
203,854
|
|
|
2026
|
|
|
|
205,525
|
|
|
2027
|
|
|
|
34,420
|
|
|
Total
lease payments
|
|
|
$
|
1,076,679
|
|
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 in FY2020.
As
of November 30, 2021, the long-term prepayment balance of $883,200 relates to movie copyrights and broadcast rights for movies as below:
|
•
|
In November
2019, the Company acquired a broadcast right of “Lushang” (English name: “On the Way”) from All In One Media
Ltd for online streaming at a price of $256,000.
This broadcast right permits online streaming globally and has been fully paid. As “Lushang” has not yet been approved
for screening by the Chinese government, the payment of $256,000
was recorded as long-term prepayment
|
|
•
|
In November
2019, the Company acquired a broadcast right of “Qi Qing Kuai Che” (English name: “Confusion”) from All In
One Media Ltd for online streaming at a price of $115,200.
This broadcast right only allows online streaming outside China. In July 2021, the Company acquired the full movie copyright for
both domestic and overseas with an additional cost of $908,800,
and the total price is $1,024,000.
As of November 30, 2021, $627,200
has been paid. As this movie has not yet been fully paid or approved for screening by the Chinese government, the total payment of $627,200
was recorded as long-term prepayment.
|
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 9, 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 Power up 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 Power up with the remaining $8,061
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 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 1 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 9 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 1 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 1 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
|
|
|
$
|
3,763
|
|
|
$
|
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
|
|
|
$
|
75,849
|
|
|
$
|
592,651
|
The below table summarizes
all the convertible notes issued during the year ended August 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
|
|
June
1, 2021
|
|
|
75,000
|
|
|
|
71,250
|
|
|
|
3,750
|
|
|
|
9,752
|
|
|
|
61,498
|
Power Up Lending
|
|
October
8, 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
|
|
|
$
|
30,932
|
|
|
$
|
233,018
|
The following table summarizes
the convertible note and derivative liability in the balance sheet at August 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, August 31, 2021
|
|
$
|
—
|
The Company valued its derivatives liability using
Monte Carlo simulation. Assumptions used as of August 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 August 31, 2021.
The Company recognizes gain due to convertible feature
of $64,584 in the income statement for the year ended August 31, 2021.
The Company prepaid nine convertible notes during
the year ended August 31, 2021 as below:
Convertible Notes
|
Beginning Principal after Note Conversion
|
Total Interest Accrued
|
Paid Date
|
Paid Principal
|
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)
|
-
|
-
|
-
|
Crown Bridge (Tranche II)
|
40,500
|
1,545
|
12/9/20
|
(40,500)
|
(1,545)
|
-
|
72,5001
|
(26,732)1
|
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)
|
-
|
821,969
|
(232,796)
|
1.
The balance is the total of Crown Bridge Tranche I and Tranche II
The Holders converted convertible notes to common
shares during the year ended August 31, 2021 as detailed 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
|
|
|
|
5,285
|
|
|
|
5,154
|
|
|
|
—
|
|
|
|
10,439
|
|
|
|
1,000
|
|
|
|
—
|
|
|
$
|
0.00812
|
|
|
|
1,408,800
|
Total
|
|
|
|
|
|
|
5,285
|
|
|
|
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
|
|
|
|
|
|
|
33,295
|
|
|
|
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
|
|
|
|
250
|
|
|
|
—
|
|
|
|
13,550
|
|
|
|
—
|
|
|
|
13,300
|
|
|
$
|
0.01020
|
|
|
|
1,328,431
|
September 25, 2020
|
|
|
13,300
|
|
|
|
13,300
|
|
|
|
129
|
|
|
|
—
|
|
|
|
13,429
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
0.00960
|
|
|
|
1,398,854
|
Total
|
|
|
|
|
|
|
26,600
|
|
|
|
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
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,671
|
|
|
|
—
|
|
|
|
15,329
|
|
|
$
|
0.01218
|
|
|
|
2,107,648
|
September 9, 2020
|
|
|
15,329
|
|
|
|
15,329
|
|
|
|
2,605
|
|
|
|
—
|
|
|
|
17,934
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
0.01020
|
|
|
|
1,758,257
|
Total
|
|
|
|
|
|
|
41,000
|
|
|
|
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
|
|
|
|
213
|
|
|
|
—
|
|
|
|
13,213
|
|
|
|
500
|
|
|
|
12,500
|
|
|
$
|
0.01020
|
|
|
|
1,344,363
|
October 6, 2020
|
|
|
12,500
|
|
|
|
12,500
|
|
|
|
38
|
|
|
|
—
|
|
|
|
12,538
|
|
|
|
500
|
|
|
|
—
|
|
|
$
|
0.00960
|
|
|
|
1,358,145
|
Total
|
|
|
|
|
|
|
25,500
|
|
|
|
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
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,400
|
|
|
|
1,250
|
|
|
|
14,467
|
|
|
$
|
0.00765
|
|
|
|
1,000,000
|
September 22, 2020
|
|
|
14,467
|
|
|
|
5,635
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,635
|
|
|
|
1,250
|
|
|
|
8,832
|
|
|
$
|
0.00765
|
|
|
|
900,000
|
October 1, 2020
|
|
|
8,832
|
|
|
|
7,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,750
|
|
|
|
1,250
|
|
|
|
1,082
|
|
|
$
|
0.00720
|
|
|
|
1,250,000
|
Total
|
|
|
|
|
|
|
19,785
|
|
|
|
|
|
|
|
—
|
|
|
|
19,785
|
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
3,150,000
|
In summary, the Company
has either converted or prepaid all the outstanding convertible notes as of August 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 8/31/2021
|
Principal balance Outstanding as of 8/31/2021
|
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 0, 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 0, 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 0, remaining contractual life
of 4.86 years, 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 0, remaining contractual life
of 4.78 years, 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 0,
remaining contractual life of 4.90 years, 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 0, remaining contractual life of 4.92 years, and an average expected volatility of 55.29%.
As of November 30,
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
|
|
|
|
3,724,984
|
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
|
45,851,222
|
$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 November 30, 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 November 30, 2021
|
|
|
—
|
|
|
|
—
|
|
Exercisable
as of November 30, 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 November
30, 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 November 30, 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 November 30, 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
|
|
$
|
163,371
|
|
Increase from note issuances
|
|
|
—
|
|
Decrease from note prepayment
|
|
|
(136,321
|
)
|
Changes in the fair value
|
|
|
18,439
|
|
Decrease from note prepayment
|
|
|
(45,490
|
)
|
Fair value at November 30, 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 November 30, 2021 and August
31, 2021, there are no such related party transactions.
Youall Perform Services
Ltd, owned by the son of the Company’s Chief Executive Offer and the Company’s former Secretary and Treasurer Jianli Deng,
collects revenue from the performance matching platform “Ai Bian Quan Qiu” via a Wechat official account on behalf of the
Company. Due to the COVID-19 impact, the Company ceased operation of the “Ai Bian Quan Qiu” platform in January, 2020. For
the three months ended November 30, 2021 and 2020, the Company recognized revenue of $0 and $0 from this performance matching platform,
respectively. The balance of related party receivable from Youall Perform Services Ltd was $1,439 and $1,439 as of the three months ended
November 30, 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 launch of the website www.abqq.tv. The website maintenance
service began on January 1, 2021 and will end on December 31, 2022. The Company will pay Youall Perform Services Ltd the remaining balance
of $19,200 in September, 2022.
The Company has entered
into a patent license agreement with a related party Guangzhou Shengshituhua Film and Television Company Limited (“Licensor”)
100% owned by the Chief Executive Officer Chiyuan Deng. The agreement is for a term of 5 years commencing on the effective date on June
1, 2017. 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
three months ended November 30, 2021 and November 30, 2020 are $0 and $15,360, respectively. In January, 2021, the Company’s sublicensing
agreement to generate royalty revenues was terminated with Anyone Picture. As such, there has been no royalty expenses since the end
of December, 2020 given there has been no sublicensing royalty revenue generated from the patent. Once the Company finds another company
to sublicense the patent, it will generate royalty revenue and pay royalty expense again.
The Company rented an
office from ZESTV STUDIOS LIMITED, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng. On December 1, 2020, the
Company entered an agreement with ZESTV STUDIOS LIMITED to grant ZESTV STUIDIOS LIMITED the distribution right for the movie “Love
over the world” and charge ZESTV STUIDIOS LIMITED movie royalties. The Company’s royalties revenue is stipulated to equal
43% of the after-tax movie box office revenue deducting movie issuance costs. The movie box office revenue is tracked by a movie distributor
Huaxia Film Distribution Co. Ltd (hereafter “Hua Xia”) in China as it connects with all movie theaters in China and can track
the total movie box office revenue online in real time. Although ZESTV STUDIOS LIMITED has paid royalties revenue to the Company, ZESTV
STUDIOS LIMITED failed to collect cash from Hua Xia. The Company will refund ZESTV STUDIOS LIMITED the movie royalties. As of November
30, 2021, the Company incurred related party payable of $916,922 of refund for the movie royalties revenue
net of the movie distribution commission fee to ZESTV STUDIOS LIMITED.
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,
Ms. Yu will receive $110,000
and Mr. Ye will receive $120,000.
We received a release of all claims from these prior officers. In addition, Mr. Deng, Ms. Yu, and Mr. Ye 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 three months
ended November, 2021, the Company paid the total salary of $51,250 in cash and $3,750 in stock-based compensation.
NOTE 13 – STOCKHOLDERS’
EQUITY
The
Company has 235,236,589 and 226,589,735 common shares issued and outstanding as of November 30, 2021 and August 31, 2021,
respectively. These common shares were held by approximately 537 and 559 shareholders of record at November 30, 2021 and August 31,
2021, respectively. The Company has 100,000 series A preferred shares issued and outstanding as of both November 30, 2021 and August
31, 2021. The Company has 20,000 series B preferred shares issued and outstanding as of both November 30, 2021 and August 31,
2021. The Company has 332,625 and 0 series C
preferred shares issued and outstanding as of November 30, 2021 and August 31, 2021, respectively. The Company has 78 and 0 series D
preferred shares issued and outstanding as of November 30, 2021 and August 31, 2021, respectively.
The Company has the following
equity activities during the three months ended November 30, 2021:
Common shares
|
•
|
The Company issued 5,500,000 shares
of put shares for cash at $0.02288,
and $0.02719 per share.
|
|
|
|
|
•
|
The Company issued 3,146,854 of common
shares from preferred shares series D conversion.
|
Preferred
shares
On September
3, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby the investor purchased from the
Company 234,300 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $203,500. The closing occurred
on September 3, 2021. After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance of the Series
C Preferred Stock totaled $184,000.
On October
21, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company
98,325 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $85,450. The closing occurred on October
21, 2021. After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance of the Series C Preferred
Stock totaled $75,368.
For the
Securities Purchase Agreement dated March 10, 2021 entered between the Company and the accredited investor GHS Investments, LLC (the
“Investor”), the Company will issue up to 5,075 shares of Series D Convertible Preferred Stock of the Company (the “Series
D Preferred Stock”) to GHS Investments, LLC with a purchase price of $1,000 per share. During the quarter ended November 30, 2021,
the Company issued 153 shares of series D preferred stock to the investor for the purchase price of $153,000. After the payment of transaction-related
expenses, net proceeds to the Company from the issuance of the Series D Preferred Stock was $140,760.
Warrant shares
|
•
|
The
Company canceled 9,720 warrant shares with Crown Bridge and 4,200 warrant shares with Armanda Partners in November, 2020.
|
NOTE 14 –
INCOME TAXES
Components of net deferred
tax assets, including a valuation allowance, are as follows as of November 30, 2021 and August 31, 2021
|
|
November 30,
2021
|
|
August 31, 2021
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net operating loss carry over
|
|
$
|
945,638
|
|
|
$
|
871,681
|
|
Less: valuation allowance
|
|
|
(945,638
|
)
|
|
|
(871,681
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The valuation allowance
for deferred tax assets was $945,638 as of November 30, 2021 and $871,681 as of August 31, 2021. In assessing the recovery of the deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those
temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future
taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not
the deferred tax assets would not be realized as of November 30, 2021 and August 31, 2021
Reconciliation between the statutory
rate and the effective tax rate is as follows for the three months ended November 30, 2021 and November 30, 2020:
|
|
|
|
|
|
|
Three months ended
|
|
|
November 30, 2021,
|
|
|
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 is 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 three months
ended November, 2021 and November 30, 2020, the Company and its subsidiary have incurred a consolidated loss of $(1,052,045) and $(525,454),
respectively. As a result, the Company and its subsidiary did not incur any income tax during the three months ended November 30, 2021
and November 30, 2020.
NOTE 15 –
CONCENTRATION RISK
100% of revenue
was generated from one customer during the three months ended November 30, 2020.
NOTE 16 –
COMMITMENTS AND CONTINGENCIES
Operating lease
As of November 30,
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 years ended November 30, 2021 and November 30, 2020 was
$23,808 and $26,681, respectively. All leases are on a fixed payment basis. None of the leases include contingent rentals. The
Company had lease commitment of $1,111,363 as of November 30, 2021.
In accordance with ASC
250-10-45-14, the adoption of ASC 842 lease accounting standard has resulted in $1,111,361 lease expenses for the year ended November
30, 2021, including both cash and non-cash lease expenses.
|
|
|
As of November 30, 2021
|
As of August 31, 2021
|
Total Lease Payments
|
|
$
|
1,132,824
|
|
$
|
48,822
|
|
Less: imputed interest
|
|
$
|
(21,463)
|
|
$
|
(596)
|
|
Present value of lease liabilities
|
|
$
|
1,111,361
|
|
$
|
48,226
|
|
Current portion of obligations under operating leases
|
|
$
|
166,834
|
|
$
|
48,226
|
|
Obligations under operating leases, non-current
|
|
$
|
944,527
|
|
$
|
0
|
|
NOTE 17 – SUBSEQUENT
EVENTS
In accordance with ASC 855-10, the Company has analyzed
its operations subsequent to November 30, 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.
Issuance of Common Stock:
On December 14, 2021, the Company received $21,840 for the issuance of 1,800,000 shares. On January 18, 2022,
the Company received $41,558 for the issuance of 3,000,000 shares. Also on January 18, 2022, the Company issued 5,521,473 shares for the
conversion of Series D preferred stock.
NFT Movie and Music Market (NFT MMM) Development
and Maintenance Contract:
The Company has entered into a contract with STAREASTnet to develop a decentralized application based on the NFT (Non-Fungible Token)
for a movie and music marketplace with the option to buy physical, digital download or both, in one place. The digital copyrights of movies
and music are generalized through NFTs, whose smart contracts facilitate the verifications of digital copyrights saved on the blockchain.
The Company will hold 100% stake of STAREASTnet NFT Movies and Music Marketplace (NFT MMM).
Officer Resignation:
Brandy Gao resigned as Chief Financial Officer of the Company since the term of her contract with the Company
ended on December 31, 2021.
Cancellation of Acquiring a Movie Copyright:
The Company acquired a movie copyright of “Too Simple” from Guang Dong Honor Pictures Ltd in July 2021 at a price of $1,271,680,
which was to be paid in installments. As of November 30, 2021 and August 31, 2021, $1,184,385 and $644,785 was paid and recorded in long-term
prepayment. On December 31, 2021, the Company entered into a termination contract with Guang Dong Honor Pictures Ltd to cancel the purchase
of this movie copyright and will receive a full refund before May 31, 2022. Therefore, the Company has reclassified these amounts from
long-term prepayment to other receivable on the balance sheet.