Our unaudited consolidated financial statements included
in this Form 10-Q are as follows:
The accompanying notes are an integral part of
these financial statements.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
For the six months ended
February 28, 2022 and 2021
(Unaudited)
NOTE
1 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The accompanying unaudited
consolidated financial statements of AB International Group Corp. (the “Company”) have been prepared in accordance with accounting
principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to
Form 10-Q and Article 8 of Regulation S-X of the Securities Exchange Commission. In accordance with those rules and regulations certain
information and footnote disclosures normally included in consolidated financial statements have been omitted pursuant to such rules
and regulations. The consolidated balance sheet as of August 31, 2021 derives from the audited consolidated financial statements at that
date, but does not include all the information and footnotes required by GAAP. These unaudited consolidated financial statements should
be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report
on Form 10-K for the year ended August 31, 2021.
The unaudited consolidated
financial statements as of and for the three and six months ended February 28, 2022 and 2021, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition,
results of operations and cash flows. The results of operations for the three and six months ended February 28, 2022 and 2021 are not
necessarily indicative of the results to be expected for any other interim period or for the entire year.
Foreign Currency
Transactions
Currently the Company
does not use derivative instruments to reduce its exposure to foreign currency risk. Non-monetary assets and liabilities are translated
at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the year. Revenues and
expenses are translated at average rates for the year. Gains and losses from translation of foreign currency financial statements into
U.S. dollars are included in current results of operations.
Fair Value of Financial
Instruments
ASC 820, “Fair
Value Measurements” (ASC 820) and ASC 825, “Financial Instruments” (ASC 825), requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based
on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes
the inputs into three levels that may be used to measure fair value:
Level 1 – Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 – Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable market data.
Level 3 – Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.
The carrying values
of cash, accounts payable, and accrued liabilities approximate fair value due to their short-term nature. The fair values of warrant
liabilities and derivative liabilities embedded in convertible notes are determined by level 3 inputs.
Accounting for Derivative
Instruments
The
Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” (ASC 815) and all
derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet.
The
Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer
a liability in an orderly transaction between willing and able market participants. In general, the Company's policy in estimating fair
values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these
are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment
speeds, default rates and credit spreads (including for the Company's liabilities), relying first on observable data from active markets.
Additional adjustments may be made for factors including liquidity, credit, bid/offer spreads, etc., depending on current market conditions.
Transaction costs are not included in the determination of fair value. When possible, the Company seeks to validate the model's output
to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially
different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes
its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency
utilized in measuring financial instruments at fair value as discussed above. Changes in fair value are recognized in the period incurred
as either gains or losses.
Basic and Diluted
Income (Loss) Per Share
The Company computes income (loss) per share in
accordance with FASB ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share
on the face of the statement of operations. The earnings per share after the reverse stock split is presented retrospectively as if the
reverse split had occurred at the very beginning of the business. Basic loss per share is computed by dividing net income (loss) available
to common stockholders by the weighted average number of outstanding common shares during the period. Diluted loss per share is computed
using the weighted average number of common shares and potential common shares outstanding during the period for warrants, options and
restricted shares under treasury stock method, and for convertible debts and convertible preferred stock under if-convertible method,
if dilutive. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period and excludes
all potential common shares if their effects are anti-dilutive.
The Company had
preferred shares and had no convertible notes and warrants as of February 28, 2022. As such, 49,977,583
potentially diluted shares from preferred
shares were included in the computation of diluted earing per share for the three months ended February 28, 2022. For the three months
ended February 28, 2021, and for the six months ended February 28, 2022 and 2021, no potentially diluted shares were included in the
diluted loss per share as they would be anti-dilutive.
NOTE 2 –
GOING CONCERN
The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets
and the discharge of liabilities in the normal course of business for the foreseeable future. As of February 28, 2022, the Company had
an accumulated deficit of approximately $7.18
million and a negative working capital of $58,183.
For the six months ended February 28, 2022, the Company incurred a net loss of approximately $0.6
million and had negative cash flows of approximately $0.9
million from its operations. Although, the Company generated net income of approximately
$0.45 million
as the result of selling the broadcast right for three movies (“Love over the world”, “Our
treasures” and “Confusion”) for the three months ended February 28, 2022, the future operations of the Company depend
on its ability to realize forecasted revenues, achieve profitable operations, and depend on whether or not the Company could obtain the
continued financial support from its stockholders or external financing. Management believes the existing stockholders will provide the
additional cash to meet the Company’s obligations as they become due. However, there is no assurance that the Company will be successful
in securing sufficient funds to sustain the operations.
These factors, among others, raise the substantial
doubt regarding the Company’s ability to continued as a going concern. The financial statements do not include any adjustments
to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional
funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
NOTE 3 –PREPAID
EXPENSES
Prepaid expense was $24,478
and $13,566 as of February
28, 2022 and August 31, 2021, respectively. Prepaid expense as of February 28, 2022 primarily includes prepayment of the OTC market annual
fee and rent.
NOTE 4 – SUBSCRIPTION RECEIVABLE
Subscription receivable is cash not yet collected
from the stockholders for issuance of common stock. As of February 28, 2022, the company had $25,300
subscription receivable balance forecast to be collected from 2.3
million Put shares to Peak One Opportunity Fund LP. 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 $26,600 and $26,448 for six months February 28, 2022 and February 28, 2021, respectively.
| |
February 28, 2022 | |
August 31, 2021 |
Leasehold improvement | |
$ | 146,304 | | |
$ | 146,304 | |
Appliances and furniture | |
| 25,974 | | |
| 25,974 | |
Total cost | |
| 172,278 | | |
| 172,278 | |
Accumulated depreciation | |
| (145,173 | ) | |
| (118,573 | ) |
Property and equipment, net | |
$ | 27,105 | | |
$ | 53,705 | |
NOTE 6 – INTANGIBLE
ASSETS
As of February 28,
2022 and August 31, 2021, the balance of intangible assets are as follows;
| |
February 28, 2022 | |
August 31, 2021 |
Patent license right | |
$ | 500,000 | | |
$ | 500,000 | |
Movie copyrights - Love over the world | |
| 853,333 | | |
| 853,333 | |
Sitcom copyrights - Chujian | |
| 640,000 | | |
| 640,000 | |
Movie copyrights - Huafeng | |
| 422,400 | | |
| 422,400 | |
Movie copyrights - Our treasures | |
| 936,960 | | |
| 936,960 | |
Movie and TV series broadcast rights | |
| 2,439,840 | | |
| 2,439,840 | |
Total cost | |
| 5,792,533 | | |
| 5,792,533 | |
Less: Accumulated amortization | |
| (3,166,862 | ) | |
| (1,793,728 | ) |
Intangible asset, net | |
$ | 2,625,671 | | |
$ | 3,998,805 | |
Intangible
assets include 1) a patent license right obtained from Guangzhou Shengshituhua Film and Television Company Limited as a worldwide
license to a video synthesis and release system for mobile communications equipment (See Note 10), 2) copyrights for the movie
“Love over the world”, “Huafeng”, “Our treasures” and the sitcom “Chujian”, and 3)
broadcast rights for fifty-nine movie and TV series. The amortization expense for three months ended February 28, 2022, and February
28, 2021 was $686,567 and $283,481 respectively.
The amortization expense for six months ended February 28, 2022, and February 28, 2021 was $1,373,134 and $424,207 respectively.
On January 24, 2022, the company sold the mainland
China copyright and broadcast right of the movie “Love over the world”, “Our treasures” and “Confusion”
received $1,800,000. The
Company remains to have all copyright of outside of mainland China.
The estimated amortization
expense for each of the two succeeding years is as follows. The intangible assets as of February 28, 2022 will be fully amortized in
the fiscal year of 2023.
Year ending February 28, | |
Amortization expense |
| 2022 | | |
$ | 1,348,133 | |
| 2023 | | |
$ | 1,277,539 | |
NOTE 7 – RIGHTS-TO-USE
OPERATING LEASE ASSETS, NET
Rights-to-use lease
assets, net consisted of the following:
| |
February 28, 2022 | |
August 31, 2021 |
Right-to-use gross asset | |
$ | 1,303,392 | | |
$ | 223,237 | |
Less: accumulated amortization | |
| (294,797 | ) | |
| (175,410 | ) |
Right-to-use asset, net | |
$ | 1,008,595 | | |
$ | 47,827 | |
NOTE
8 – LONG-TERM PREPAYMENT
The long-term prepayment
balance relates to movie copyrights and broadcast rights for movies as below:
Name of movie |
February 28, 2022 |
|
August 31, 2021 |
Prepayment
of Movie LuShang |
$ |
256,000 |
|
$ |
256,000 |
Prepayment of Movie
QiQingKuaiChe |
|
838,400 |
|
|
505,600 |
Prepayment of Movie
Too Simple |
|
1,271,265 |
|
|
— |
Total long-term prepayment |
$ |
2,365,665 |
|
$ |
761,600 |
|
• |
In October
2019, the Company acquired a broadcast right of “Lushang” (English name: “On the Way”) from All In One Media
Ltd for online streaming at a price of $256,000
This broadcast right
permits online streaming globally and has been fully paid. “Lushang” has been approved for screening by the Chinese government
in February 2022. Prepayment of $256,000
will be recognized as
intangible assets upon available for online broadcasting after one month it’s released in mainland China cinemas. |
|
• |
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 February 28, 2022, the Company made payment of $838,400
had the remaining balance paid in March 2022. This movie copyright will be recognized as intangible asset when released for online
broadcast in March 2022. The Company sold the mainland China copyright and broadcast right of this movie in January 2022 (See Note
6). |
|
|
|
|
• |
The Company acquired
a movie copyright of “Too Simple” from Guang Dong Honor Pictures Ltd in July 2021 at a price of $1,271,265,
which was to be paid in installments. As of February 28, 2022 and August 31, 2021, $1,271,265
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. The Company
negotiated with Guang Dong Honor Pictures and orally agreed to resume the purchase transaction. The Company received the copy of
the movie in May 2022 and will recognize this into intangible assets once the copyright received. The Company reclassified the amount
paid to long-term prepayment account. |
NOTE 9 – FAIR
VALUE MEASUREMENTS
The Company applies
ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.
ASC 820 establishes
a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 — Observable
inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Include
other inputs that are directly or indirectly observable in the marketplace.
Level 3 — Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three
main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach.
The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets
or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement
is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that
would currently be required to replace an asset.
Derivative liabilities of conversion features in convertible
notes are classified within Level 3. We estimate the fair values of these liabilities at February 28, 2021 by using Monte Carlo simulation
based on the remaining contractual terms, risk-free interest rates, and expected volatility of the stock prices, etc. The assumptions
used, including the market value of stock prices in the future and the expected volatilities, were subjective unobservable inputs.
Liabilities measured at fair value on a recurring
basis are summarized below:
|
|
|
Fair
value measurement using: |
|
|
|
|
|
|
|
Quoted
prices in active markets for identical assets (Level 1) |
|
|
|
Significant
other observable inputs
(
Level 2) |
|
|
|
Unobservable
inputs
( Level 3) |
|
|
|
Total
Fair value at February 28, 2022 |
Derivative
liabilities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Derivative
liabilities embedded in convertible notes |
|
|
|
|
|
Fair value at August 31,
2020 |
|
$ |
64,584 |
|
Increase from note issuances |
|
|
74,187 |
|
Decrease from note conversions |
|
|
(33,490 |
) |
Changes in the fair value |
|
|
58,090 |
|
Fair value at November 30, 2020 |
|
$ |
163,371 |
|
Increase from note issuances |
|
|
— |
|
Decrease from note prepayment |
|
|
(136,320 |
) |
Changes in the fair value |
|
|
18,439 |
|
Fair value at February 28, 2021 |
|
$ |
45,490 |
|
NOTE
10– RELATED PARTY TRANSACTIONS
In
support of the Company’s efforts and cash requirements, it may rely on advances from related parties until such time that the Company
can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal
written commitment for continued support by stockholders. Amounts represent advances or amounts paid in satisfaction of liabilities.
The advances are considered temporary in nature and have not been formalized by a promissory note. As of February 28, 2022 and August
31, 2021, the Company had due to stockholders of $18,795 and $2,347, respectively.
Youall Perform Services Ltd, owned by the son
of the Company’s Chief Executive Offer and the Company’s former Secretary and Treasurer Jianli Deng, collects revenue from
the performance matching platform “Ai Bian Quan Qiu” via a Wechat official account on behalf of the Company. Due to the COVID-19
impact, the Company ceased operation of the “Ai Bian Quan Qiu” platform in January 2020. For the three and six months ended
February 28, 2022 and 2021, the Company didn’t recognize any revenue from this performance matching platform, respectively. The
balance of related party receivable from Youall Perform Services Ltd was $0 and $1,439 as of February 28, 2022 and August 31, 2021, respectively.
In September 2019, the
Company entered into an agreement with Youall Perform Services Ltd for two transactions. 1) The Company pays Youall Perform Services
Ltd. 10%
of the revenue generated from the “Ai Bian Quan Qiu” platform every month to reimburse
the valued-added tax, tax surcharges, and foreign transaction fee Youall Perform Services Ltd. has been paying on behalf of the Company.
2) Youall Perform Services Ltd. will provide IT consulting service for “Ai Bian Quan Qiu” platform upgrade and maintenance
at a total cost of $128,000,
out of which $108,800 has been paid. As there has been no revenue from the “Ai Bian Quan Qiu” platform due to COVID-19 since
mid-January, 2020, $108,800
long-term prepayment was expensed as research and development expense in FY2020. In July 2020,
the Company changed the service scope of this agreement and turned it into a website maintenance contract over the next two years. The
major website of this Company is ABQQ.tv for video streaming. The contract amount remains to be $128,000,
out of which $108,800
was previously paid and $19,200
will be due on the twenty first month after the launch of the website www.abqq.tv.
The website maintenance service began on January 1, 2021 and will end on December 31, 2022. The Company will pay Youall Perform Services
Ltd the remaining balance of $19,200
in September, 2022.
The Company has entered into a patent license
agreement with a related party Guangzhou Shengshituhua Film and Television Company Limited (“Licensor”) 100% owned by the
Chief Executive Officer Chiyuan Deng. The agreement is for a term of 5 years commencing on the effective date on June 1, 2017 and may
be renewed at the Company’s written election conveyed to Licensor before the end of the term for a further term of five years.
The Company has already paid the licensor a non-refundable, up-from payment of $500,000 and shall pay a royalty of 20% of the gross revenue
realized from the sale of licensed products and sub-licensing of this patent every year. The royalty expenses during the six months ended
February 28, 2022 and 2021 are $0 and $30,720, respectively, during the three months ended February 28, 2022 and 2021 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.
The Company rented an office from ZESTV STUDIOS
LIMITED, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng (See Note 14). On December 1, 2020, the Company entered
an agreement with ZESTV STUDIOS LIMITED to grant ZESTV 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 February 28, 2022 and August 31,
2021, the Company had related party payable to ZESTV STUDIOS LIMITED of $878,466 and $933,434, respectively, for refund of the movie
royalties revenue net of the movie distribution commission fee to ZESTV STUDIOS LIMITED.
On September 11, 2020, the Company entered into
an amended employment agreement with Chiyuan Deng, our Chief Executive Officer. Pursuant the amended agreement, the Company amended the
compensation to Mr. Deng to include a salary of $180,000
annually, a reduction in common stock issued to Mr. Deng, a potential for a bonus in cash or shares, and the issuance of
100,000
shares of our newly created Series A Preferred Stock at par value $0.001..
Mr. Deng returned 261,111
shares
common stock to the Company received under his initial employment agreement.
During the six months ended February 28, 2022
and February 2021, the Company paid CEO and CFO total salary of $290,917 and $184,337, respectively. During the three months ended February
28, 2022 and February 2021, the Company paid CEO and CFO total salary of $239,667 and $132,987, respectively.
NOTE 11 – STOCKHOLDERS’
EQUITY
The Company has the following equity activities
during the six months ended February 28, 2022:
Common shares
|
• |
The Company issued 2,500,000
and 3,000,000 shares of put shares to Peak One for cash at $0.02288, and $0.02719, respectively, per share during Q1 2022. |
|
• |
The Company issued 3,146,854
of common shares to GHS Investments, LLC, from preferred shares series D conversion during Q1 2022. |
|
• |
The Company issued 1,800,000
shares of common stock for cash at $0.01548 per share, and 3,000,000 shares of common stock for cash at $0.01716 per share, and 2,300,000
shares of common stock for cash at $0.01729 per share, and 2,300,000 shares of common stock for cash at $0.0110 per share to Peak
One during Q2 2022. |
|
• |
As stock-based compensation
for annual bonus for calendar year of 2021, the Company issued 5,000,000 shares restricted common stock to the Chief Investment Officer
and 10,000,000 shares restricted common stock to the Chief Executive Officer all at market price $0.0138 per share Q2 2022. |
|
• |
The Company issued 5,521,473
of common shares to GHS Investments, LLC from preferred shares series D conversion Q2 2022. |
|
• |
The Company issued 30,000,000
shares of restricted stock at market price $0.0138 per share to seven consultants for 6 months to 18 months consulting services of
movies and NFT related business in Q2 2022. |
Preferred shares
On September
3, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby the investor purchased from the
Company 234,300 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $203,500. The closing occurred
on September 3, 2021. After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance of the Series
C Preferred Stock totaled $184,000.
On October 21, 2021,
the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company 98,325
shares of Series C Convertible Preferred Stock of the Company for a purchase price of $85,450. The closing occurred on October 21,
2021. After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance of the Series C Preferred
Stock totaled $75,368.
During the quarter
ended November 30, 2021, the Company issued 153
shares of series D preferred stock to the investor for the purchase price of $153,000.
After the payment of transaction-related expenses, net proceeds to the Company from the issuance of the Series D Preferred Stock was
$140,760.
On December 20,
2021, the Company issued 34 shares
of series D preferred stock to the investor for the purchase price of $34,000.
After the payment of transaction-related expenses, net proceeds to the Company from the issuance of the Series D Preferred Stock was $31,267.
On January 21, 2022,
the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company 89,490
shares of Series C Convertible Preferred Stock of the Company for a purchase price of $78,035. The closing occurred on January 21,
2022. After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance of the Series C Preferred
Stock totaled $68,529.
NOTE 12 –
INCOME TAXES
Components of net deferred tax assets, including a
valuation allowance, are as follows:
| |
February 28,2022 | |
August 31, 2021 |
Deferred tax asset attributable to: | |
| | | |
| | |
Net operating loss carry over | |
$ | 998,118 | | |
$ | 871,681 | |
Less: valuation allowance | |
| (998,118 | ) | |
| (871,681 | ) |
Net deferred tax asset | |
$ | — | | |
$ | — | |
The valuation allowance for deferred tax assets
was $998,118 as of February 28, 2022 and $871,681 as of August 31, 2021. In assessing the recovery of the deferred tax assets, management
considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences
become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax
planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets
would not be realized as of February 28, 2022 and August 31, 2021
Reconciliation between the statutory rate and the
effective tax rate is as follows:
| |
| |
|
| |
Six months ended |
| |
| February
28, |
| |
| 2022 | | |
| 2021 |
Federal statutory tax rate | |
| 21 | % | |
| 21% |
Change in valuation allowance | |
| (21 | %) | |
| (21%) |
Effective tax rate | |
| 0 | % | |
| 0% |
The
Company's future business will focus on local cinemas and websites in the United States. During the six months ended February 28, 2022
and February 28, 2021, the Company and its subsidiary have incurred a consolidated net loss of $600,105 and
$1,521,663, respectively and had net loss carryforward from prior years. As a result, the Company and its subsidiary did not incur any
income tax during the three and six months ended February 28, 2022 and February 28, 2021.
NOTE 13 – CONCENTRATION OF RISK
Credit risk
Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of cash. The Hong Kong Deposit Protection Board pays compensation
up to a limit of HKD 500,000 (approximately $64,000) if the bank with which an individual/a company hold its eligible deposit fails.
As of February 28, 2022 and August 31, 2021, cash balance of $114,747 and $131,796, respectively, were maintained at financial institutions
in Hong Kong, and were subject to credit risk. In the US, the insurance coverage of each bank is $250,000. The Company didn’t deposit
with financial institutions located in US and were not subject to credit risk. While management believes that these financial institutions
and third-party fund holders are of high credit quality, it also continually monitors their creditworthiness.
NOTE 14
– COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company may be involved
in litigation relating to claims arising out of its operations in the normal course of business. There are no pending or threatened lawsuits
that could reasonably be expected to have a material effect on the results of its operations and there are no proceedings in which any
of the Company’s directors, officers, or affiliates, or any registered or beneficial stockholder, is an adverse party or has a
material interest adverse to the Company’s interest.
Operating lease
On November 22, 2020, the Company closed down a display
store and terminated its lease, which has an original term from February 23, 2019 to February 22, 2022, as a result of the COVID-19 impact
and uncertainties of the economy in Hong Kong.
The Company leased certain office space in Hong
Kong from ZESTV STUDIOS LIMITED, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng, under operating lease for
three years from May 1, 2019 to April 30, 2022 with annual rental of $66,048 (HK$ 516,000). On May 1, 2022, the Company signed a new
operating lease agreement with ZESTV STUDIOS LIMITED to lease its Hong Kong office premise for two years from May 1, 2022 to April 2024
with annual rental of $66,048 (HK$ 516,000).
The Company lease office space in Singapore under
operating lease from April 13, 2021 to March 31, 2022 with monthly rental of $716 (SGD 974).
The Company leases office space at 48 Wall Street,
New York, under operating lease for one year from September 1, 2021 to August 31, 2022 with annual rental of $20,400.
On October 21, 2021, the Company signed a lease
agreement to lease “the Mt. Kisco Theatre”, a movie theater, for five years plus the free rent period which commences four
months from the lease commencement date. The theatre consists of approximately 8,375 square feet, and the total monthly rent is $14,366
for the first year, including real estate related taxes and landlord’s insurance.
The cash lease expense for the six months ended
February 28, 2022 and 2021 was $53,121 and $48,293, respectively. The cash lease expense for the three months ended February 28, 2022
and 2021 was $29,313 and $21,612, respectively. All leases are on a fixed payment basis. None of the leases include contingent rentals.
The Company had lease commitment of $ 1,099,892 as of February 28, 2022.
In accordance with ASC 250-10-45-14, the adoption of ASC 842 lease
accounting standard has resulted in $124,551
and $49,483 lease expenses for the six months
ended February 28, 2022 and 2021, respectively, including both cash and non-cash lease expenses.
|
|
|
|
|
|
|
|
|
| |
February 28, 2022 | |
August 31, 2021 |
Total Lease Payments | |
$ | 1,099,892 | | |
$ | 48,822 | |
Less: imputed interest | |
$ | (19,468 | ) | |
$ | (596 | ) |
Present value of lease liabilities | |
$ | 1,080,424 | | |
$ | 48,226 | |
Current portion of obligations under operating leases | |
$ | 177,451 | | |
$ | 48,226 | |
Obligations under operating leases, non-current | |
$ | 902,973 | | |
$ | 0 | |
For future lease payment for next five years
as follow
Year | |
Amount |
FY2023 | |
$ | 184,088 | |
FY2023 | |
| 178,677 | |
FY2024 | |
| 248,168 | |
FY2025 | |
| 252,954 | |
FY2026 | |
| 236,005 | |
Total lease payments | |
$ | 1,099,892 | |
NOTE
15 – SUBSEQUENT EVENTS
In accordance with
ASC 855-10, the Company has analyzed its operations subsequent to February 28, 2022 to the date these financial statements were issued.
On March 1, 2022, the Company acquired 5 movies
copyright at a price of $1,500,000 from All In One Media Limited. The Company acquired 15 parts sitcom web series copyright at a price
of $190,000 from All In One Media Limited.
On March 2, 2022, the Company acquired 25 parts
web drama series copyright at a price of $525,000 from Anyone Pictures Ltd.
On April 27, 2022, the Company acquired NFT MMM from
Stareastnet Portal Ltd, at a price of $280,000. The Company hold STAREASTnet NFT Movies and Music Marketplace (NFT MMM), 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.
On May 3, 2022, the Company sold the mainland China
copyright and broadcast right of the movie “Lushang” to a third party at a price of $128,000.
Subsequent cash receipt for Put share issuance:
On March 3, 2022, the Company received $19,560
for the issuance of 2,300,000 shares. On March 19, 2022, the Company received $73,579 for the issuance of 96,075 shares of Series C Convertible
Preferred Stock.
Issuance of Common
Stock:
On March 10, 2022,
the Company issued 5,638,298 shares for the conversion of Series C preferred stock.
On March 11, 2022, the Company
issued 3,639,345 shares for the conversion of Series D preferred stock.
On March 15, 2022,
the Company issued 2,819,149 shares for the conversion of Series C preferred stock.
On March 16, 2022, the Company issued 2,329,670
shares for the conversion of Series C preferred stock.
On March 21, 2022, the Company issued 4,764,045
shares for the conversion of Series C preferred stock.
On March 24, 2022, the Company issued 6,235,294
shares for the conversion of Series C preferred stock.
On March 30, 2022, the Company issued 4,416,667
shares for the conversion of Series C preferred stock.
On April 7, 2022, the
Company issued 2,841,389 shares for the conversion of Series C preferred stock.