AI Era Corp 10-Q for FY2022 Q3
AI Era Corp. (AERA)
About this 10-Q
AI Era Corp filed this 10-Q on July 15, 2022, covering the quarter ended May 31, 2022 (FY2022 Q3).
Headline figures
Quarter ended May 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $256K
- compared with -$51.2K a year earlier
- Net loss
- $1.17M
- compared with a net loss of $1.08M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly period ended
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Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from __________ to__________
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(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.) |
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(Address of principal executive offices)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[X]
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such fi les). [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☐ Large accelerated filer | ☐ Accelerated filer |
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| ☐ Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X]
State the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practicable date: common shares as of July 14, 2022.
| TABLE OF CONTENTS | ||
| Page | ||
PART I – FINANCIAL INFORMATION
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| Item 1: | Financial Statements (Unaudited) | 3 |
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 8 |
| Item 4: | Controls and Procedures | 8 |
PART II – OTHER INFORMATION
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| Item 1: | Legal Proceedings | 10 |
| Item 1A: | Risk Factors | 10 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 10 |
| Item 3: | Defaults Upon Senior Securities | 10 |
| Item 4: | Mine Safety Disclosures | 10 |
| Item 5: | Other Information | 10 |
| Item 6: | Exhibits | 10 |
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our unaudited consolidated financial statements included in this Form 10-Q are as follows:
| F-1 | Consolidated Balance Sheets as of May 31, 2022 and August 31, 2021 (unaudited); |
| F-2 | Consolidated Statements of Operations for the three and nine months ended May 31, 2022 and 2021 (unaudited); |
| F-3 | Consolidated Statements of Changes in Stockholders’ Equity for nine months ended May 31, 2022 and 2021 (unaudited). |
| F-4 | Consolidated Statements of Cash Flows for the nine months ended May 31, 2022 and 2021 (unaudited); and |
| F-5 | Notes to Consolidated Financial Statements (unaudited). |
| 3 |
AB INTERNATIONAL GROUP
Consolidated Balance Sheets
(Unaudited)
| May 31, | August 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expenses | ||||||||
| Related party receivable | ||||||||
| Subscription receivable | ||||||||
| Other receivable | ||||||||
| Total Current Assets | ||||||||
| Fixed assets and leasehold improvement, net | ||||||||
| Right of use operating lease assets, net | ||||||||
| Intangible assets, net | ||||||||
| Long-term prepayment | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Related party payable | ||||||||
| Current portion of obligations under operating leases | ||||||||
| Due to stockholders | ||||||||
| Other payable | ||||||||
| Dividend payable | ||||||||
| Total Current Liabilities | ||||||||
| Obligations under operating leases, non-current | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, par value, preferred shares authorized; | ||||||||
| Series A preferred stock, and shares issued and outstanding, as of May 31, 2022 and August 31, 2021, respectively | 100 | 100 | ||||||
| Series B preferred stock, and shares issued and outstanding, as of May 31, 2022 and August 31, 2021, respectively | 20 | 20 | ||||||
| Series C preferred stock, and shares issued and outstanding, as of May 31, 2022 and August 31, 2021, respectively | 284 | — | ||||||
| Series D preferred stock, and shares issued and outstanding, as of May 31, 2022 and August 31, 2021, respectively | — | — | ||||||
| Common stock, par value, shares authorized; and shares issued and outstanding, as of May 31, 2022 and August 31, 2021, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Unearned compensation | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
| F-1 |
AB INTERNATIONAL GROUP CORP.
Consolidated Statements of Operations
(Unaudited)
| Nine Months Ended | Three Months Ended | |||||||||||||||
| May 31, | May 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ( | ) | ||||||||||
| Cost of revenue | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross Profit (Loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OPERATING EXPENSES | ||||||||||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Related party salary and wages | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total Operating Expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss From Operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||
| Rent income | ||||||||||||||||
| Interest expense, net | ( | ) | ( | ) | ||||||||||||
| Penalty expenses | ( | ) | ( | ) | ||||||||||||
| Gain /(Loss) from change in fair value | ||||||||||||||||
| Gain/(Loss) from lease termination | ( | ) | ||||||||||||||
| Gain/(Loss) from prepaid convertible note | ( | ) | ( | ) | ||||||||||||
| Gain/(Loss) from warrant termination | ( | ) | ||||||||||||||
| Gain/(Loss) from warrant exercise | ( | ) | ||||||||||||||
| Total Other Expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss Before Income Tax Provision | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax provision | ||||||||||||||||
| NET LOSS | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred shares dividend expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss available to common stock holders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER SHARE: BASIC | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| NET LOSS PER SHARE: DILUTED | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC | ||||||||||||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: DILUTED | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-2 |
AB INTERNATIONAL GROUP CORP.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Unearned Compensation | Total Equity | |||||||||||||||||||||||||
| Balance – February 28, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Common shares issued for cash | ||||||||||||||||||||||||||||||||
| Put Shares issued for cash | ||||||||||||||||||||||||||||||||
| Common shares issued to officers for services | ||||||||||||||||||||||||||||||||
| Common shares issued for consulting services | ||||||||||||||||||||||||||||||||
| Preferred shares converted into common shares | ||||||||||||||||||||||||||||||||
| Preferred shares series D issuance | ||||||||||||||||||||||||||||||||
| Warrants termination and exercised | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance - May 31,2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Balance - February 28, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Preferred shares series C issuance | ||||||||||||||||||||||||||||||||
| Preferred shares series C converted into common shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Penalty and dividend in connection with Preferred shares series C | ||||||||||||||||||||||||||||||||
| Preferred shares series D converted into common shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Stock based compensation - consultants | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance - May 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Balance - August 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||
| Common shares issued for cash | ||||||||||||||||||||||||||||||||
| Common shares issued from note conversions | ||||||||||||||||||||||||||||||||
| Common shares issued from warrant exercises | ||||||||||||||||||||||||||||||||
| Common shares returned due to officer resignations | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Put Shares issued for cash | ||||||||||||||||||||||||||||||||
| Common shares issued to officers for services | ( | ) | ||||||||||||||||||||||||||||||
| Common shares issued for consulting services | ||||||||||||||||||||||||||||||||
| Preferred shares converted into common shares | ||||||||||||||||||||||||||||||||
| Preferred shares series A issuance | ||||||||||||||||||||||||||||||||
| Preferred shares series B issuance | ||||||||||||||||||||||||||||||||
| Preferred shares series C issuance | ||||||||||||||||||||||||||||||||
| Preferred shares series D issuance | ||||||||||||||||||||||||||||||||
| Warrants termination and exercised | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance - May 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Balance - August 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Put Shares issued for cash | ||||||||||||||||||||||||||||||||
| Preferred shares series C issuance | ||||||||||||||||||||||||||||||||
| Preferred shares series C converted into common shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Penalty and dividend in connection with Preferred shares series C | ||||||||||||||||||||||||||||||||
| Preferred shares series D issuance | ||||||||||||||||||||||||||||||||
| Preferred shares series D and dividend shares converted into common shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Common shares issued to officers for services | ( | ) | ||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Balance - May 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
AB INTERNATIONAL GROUP CORP.
Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||
| May 31, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash from operating activities: | ||||||||
| Executive salaries and consulting fees paid in stock | ||||||||
| Depreciation of fixed asset | ||||||||
| Amortization of intangible asset | ||||||||
| Loss/(gain) from change in fair value of derivatives | ( | ) | ||||||
| Loss/(gain) from lease termination | ||||||||
| Loss/(gain) from warrant termination | ||||||||
| Loss/(gain) from warrant exercise | ||||||||
| Loss/(gain) prepaid convertible note | ||||||||
| Interest expense | ||||||||
| Non-cash note conversion fees | ||||||||
| Non-cash dividend expense for preferred shares | ||||||||
| Non-cash penalty expense | ||||||||
| Non -cash lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Interest receivable | ||||||||
| Related party receivable | ||||||||
| Prepaid expenses | ||||||||
| Rent security & electricity deposit | ( | ) | ||||||
| Long-term prepayment | ( | ) | ||||||
| Purchase of movie and TV series broadcast right and copyright | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Related party payable | ||||||||
| Due to / from stockholders | ( | ) | ||||||
| Tax payable | ( | ) | ||||||
| Other payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of furniture and equipment | ( | ) | ||||||
| Purchase of intangible assets | (280,000 | ) | — | |||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of convertible notes | ||||||||
| Proceeds from common stock issuances | ||||||||
| Proceeds from preferred share B issuances | ||||||||
| Proceeds from preferred share C issuances | ||||||||
| Proceeds from preferred share D issuances | ||||||||
| Payments for warrant termination | ( | ) | ||||||
| Prepayments of convertible notes | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents –beginning of the period | ||||||||
| Cash and cash equivalents – end of the period | $ | $ | ||||||
| Supplemental Cash Flow Disclosures | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Cashless warrant exercises | $ | $ | ||||||
| Convertible notes converted to common shares | $ | $ | ( | ) | ||||
| Transfer from other receivable to long term prepayment | $ | |||||||
| Transfer from long term prepayment to intangible assets | $ | |||||||
| Additions to ROU assets from operating lease liabilities | $ | $ | ||||||
| Common shares returned due to officer resignations | $ | $ | ( | ) | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended May 31, 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 nine months ended May 31, 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 nine months ended May 31, 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.
| F-5 |
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.
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 May 31, 2022. For the three months ended May 31, 2022 and 2021, and for the nine months ended May 31, 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 May 31, 2022, the Company had an accumulated deficit
of approximately $
These factors, among others, raise the substantial doubt regarding the Company’s ability to continue 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.
| F-6 |
NOTE 3 –PREPAID EXPENSES
Prepaid expense was $
NOTE 4 – SUBSCRIPTION RECEIVABLE
Subscription receivable is cash not yet collected
from the stockholders for issuance of common stock. As of May 31, 2022, the company had no subscription receivable. As of August 31, 2021,
the subscription receivable balance of $
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
The depreciation expense was $
| May 31, 2022 | August 31, 2021 | |||||||
| Leasehold improvement | $ | $ | ||||||
| Appliances and furniture | ||||||||
| Total cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
NOTE 6 – INTANGIBLE ASSETS
As of May 31, 2022 and August 31, 2021, the balance of intangible assets are as follows;
| May 31, 2022 | August 31, 2021 | |||||||
| Patent license right | $ | $ | ||||||
| Movie copyrights - Love over the world | ||||||||
| Sitcom copyrights - Chujian | ||||||||
| Movie copyrights - Huafeng | ||||||||
| Movie copyrights - Our treasures | ||||||||
| Movie copyrights - LuShang | ||||||||
| Movie copyrights - QiQingKuaiChe | ||||||||
| TV drama copyright – 15 episodes | ||||||||
| Movie and TV series broadcast rights | ||||||||
| NFT MMM platform | 280,000 | — | ||||||
| Total cost | ||||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible asset, net | $ | $ | ||||||
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”, “LuShang”, “QiQingKuaiChe”, the sitcom “Chujian”, copyright for one TV drama series, and 3) broadcast rights for fifty-nine movie and TV series; 3) On April 27, 2022, the Company purchased a unique Non-Fungible Token movie and music marketplace, named as the NFT MMM, from Stareastnet Portal Limited, which including an APP “NFT MMM” on Google Play, and full right to the website: starestnet.io.
The amortization expense for three months ended May 31, 2022 and 2021
was $
On January 24, 2022, the Company sold the mainland
China copyrights and broadcast rights of the movie “Love over the world”, “Our treasures” and “QiQingKuaiChe”
received $
| F-7 |
The estimated amortization expense for each of the two succeeding years is as follows. The intangible assets as of May 31, 2022 will be fully amortized in the fiscal year of 2024.
| Period ending May 31 | Amortization expense | |||||
| 2023 | $ | |||||
| 2024 | $ | |||||
NOTE 7 – RIGHTS-TO-USE OPERATING LEASE ASSETS, NET
Rights-to-use lease assets, net consisted of the following:
| May 31, 2022 | August 31, 2021 | |||||||
| Right-to-use gross asset | $ | $ | ||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Right-to-use asset, net | $ | $ | ||||||
NOTE 8 – LONG-TERM PREPAYMENT
The long-term prepayment balance relates to movie copyrights and broadcast rights for movies as below:
| Name of movie | May 31, 2022 | August 31, 2021 | ||||||
| Prepayment of Movie - LuShang | $ | $ | ||||||
| Prepayment of Movie - QiQingKuaiChe | ||||||||
| Prepayment of TV drama series | ||||||||
| Prepayment of Movie - Too Simple | ||||||||
| Total long-term prepayment | $ | $ | ||||||
| • | 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 $ |
| • | In November 2019, the
Company acquired a broadcast right of “QiQingKuaiChe” (English name: “Confusion”) from All In One Media Ltd
for online streaming at a price of $ | |
| • | The Company acquired a movie copyright of “Too Simple” from Guang Dong Honor Pictures Ltd in July 2021 at a price of $ | |
| • | On March 2, 2022, the Company signed a purchase agreement to acquire the copyright to broadcast a 25-episode TV drama series outside of mainland China. The fill episode is expected to deliver to the Company by the end of October 2022. |
| F-8 |
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 May 31, 2021 by using Monte Carlo simulation based on the remaining contractual terms, risk-free interest rates, and expected volatility of the stock prices, etc. The assumptions used, including the market value of stock prices in the future and the expected volatilities, were subjective unobservable inputs.
Liabilities measured at fair value on a recurring basis are summarized below:
| Fair value measurement using: | |||||||||||||||
| Quoted prices in active markets for identical assets (Level 1) |
Significant other observable inputs ( Level 2) |
Unobservable inputs ( Level 3) |
Total Fair value at May 31, 2022 | ||||||||||||
| Derivative liabilities | $ | $ | $ | $ | — | ||||||||||
| Derivative liabilities embedded in convertible notes | ||||
| Fair value at August 31, 2020 | $ | |||
| Increase from note issuances | ||||
| Decrease from note conversions | ( | ) | ||
| Changes in the fair value | ||||
| Fair value at November 30, 2020 | $ | |||
| Increase from note issuances | ||||
| Decrease from note prepayment | ( | ) | ||
| Changes in the fair value | ||||
| Fair value at February 28, 2021 | $ | |||
| Increase from note issuances | ||||
| Decrease from note prepayment | ( | ) | ||
| Fair value at May 31, 2021 | $ |
| F-9 |
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 May 31, 2022 and August 31, 2021,
the Company had due to stockholders of $
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 nine months ended May 31, 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 $
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.
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
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 Studios Limited the distribution right for the movie “Love over the world” and charge
Zestv Studios Limited movie royalties. The Company’s royalty 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 royalty 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 May 31, 2022 and August 31, 2021, the Company had
refund of movie royalties revenue net of movie distribution commission fee payable to Zestv Studios Limited of $
As of May 31, 2022 and August 31, 2021, the Company
had total related party payable to Zestv Studios Limited of $
| F-10 |
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 $
During the nine months ended May 31, 2022 and 2021,
the Company paid CEO and CFO total salary of $
NOTE 11 – STOCKHOLDERS’ EQUITY
The Company has the following equity activities during the nine months ended May 31, 2022:
Common shares
| • | The Company issued and shares of put shares to Peak One for cash at , and , respectively, per share during Q1 2022. | |
| • | The Company issued of common shares to GHS Investments, LLC, from preferred shares series D conversion during Q1 2022. | |
| • | The Company issued shares of common stock for cash at per share, and shares of common stock for cash at per share, and shares of common stock for cash at per share, and shares of common stock for cash at per share to Peak One during Q2 2022. | |
| • | As stock-based compensation for annual bonus for calendar year of 2021, the Company issued shares restricted common stock to the Chief Investment Officer and shares restricted common stock to the Chief Executive Officer all at market price per share Q2 2022. | |
| • | The Company issued of common shares to GHS Investments, LLC from preferred shares series D conversion Q2 2022. | |
| • | The Company issued shares of restricted stock at market price per share to seven consultants for 6 months to 18 months consulting services of movies and NFT related business in Q2 2022. | |
| • | On March 10, 2022, the Company issued shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. | |
| • | On March 11, 2022, the Company issued shares to GHS Investments, LLC for the conversion of Series D preferred stock. | |
| • | On March 15, 2022, the Company issued shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. | |
| • | On March 16, 2022, the Company issued shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. | |
| • | On March 21, 2022, the Company issued shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. | |
| • | On March 24, 2022, the Company issued shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. | |
| • | On March 30, 2022, the Company issued shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. | |
| • | On April 7, 2022, the Company issued shares to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock. |
| F-11 |
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 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $
On October 21, 2021,
the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company
shares of Series C Convertible Preferred Stock of the Company for a purchase price of $
During the quarter
ended November 30, 2021, the Company issued
shares of series D preferred stock to the investor for the purchase price of .
After the payment of transaction-related expenses, net proceeds to the Company from the issuance of the Series D Preferred Stock was
$
On December 20,
2021, the Company issued shares
of series D preferred stock to the investor for the purchase price of .
After the payment of transaction-related expenses, net proceeds to the Company from the issuance of the Series D Preferred Stock was $
On January 21, 2022,
the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company shares of Series C Convertible Preferred Stock of the Company for a purchase price of . 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 $
On March 16, 2022, the Company entered into a securities
purchase agreement with an accredited investor, whereby investor purchased from the Company After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance of the Series C Preferred
Stock totaled $
The Company also recorded a penalty expense of $
NOTE 12 – INCOME TAXES
Components of net deferred tax assets, including a valuation allowance, are as follows:
| May 31, 2022 | August 31, 2021 | |||||||
| Deferred tax asset attributable to: | ||||||||
| Net operating loss carry over | $ | $ | ||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
The valuation allowance for deferred tax assets was
$
| F-12 |
Reconciliation between the statutory rate and the effective tax rate is as follows:
| Nine months ended | ||||||||
| May 31, | ||||||||
| 2022 | 2021 | |||||||
| Federal statutory tax rate | % | % | ||||||
| Change in valuation allowance | ( | %) | ( | %) | ||||
| Effective tax rate | % | % | ||||||
The Company's future business will focus on
local cinemas and websites in the United States. During the nine months ended May 31, 2022 and 2021, the Company and its subsidiary
have incurred a consolidated net loss of $
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 May 31, 2022 and August 31, 2021, cash balance of $
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
The Company lease office space in Singapore under
operating lease from April 13, 2021 to March 31, 2022 with monthly rental of $
The Company leases office space at 48 Wall Street,
New York, under operating lease for
On October 21, 2021, the Company signed a lease agreement
to lease “the Mt. Kisco Theatre”, a movie theater, for
| F-13 |
The cash lease expense for the nine months ended May
31, 2022 and 2021 was $
In accordance with ASC 250-10-45-14, the adoption
of ASC 842 lease accounting standard has resulted in $
| May 31, 2022 | August 31, 2021 | |||||||
| Total Lease Payments | $ | $ | ||||||
| Less: imputed interest | $ | ( | ) | $ | ( | ) | ||
| Present value of lease liabilities | $ | $ | ||||||
| Current portion of obligations under operating leases | $ | $ | ||||||
| Obligations under operating leases, non-current | $ | $ | ||||||
For future lease payment for next five years as follow
| May 31, | Amount | |||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | $ | |||
NOTE 15 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to July 10, 2022 to the date these financial statements were issued.
Issuance of Common Stock
On June 13, 2022, the Company issued 5,672,727 common shares for the conversion of Series C preferred stock.
On June 21, 2022, the Company issued 7,090,909 common shares for the conversion of Series C preferred stock.
On June 27, 2022, the Company issued 7,428,571 common shares for the conversion of Series C preferred stock.
On July 5, 2022, the Company issued 9,069,767 common shares for the conversion of Series C preferred stock.
On July 7, 2022, the Company issued 4,724,318 common shares for the conversion of Series C preferred stock.
Issuance of Series C preferred stock
On June 1, 2022, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company 147,775 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $128,500. The closing occurred on June 16, 2022. After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance of the Series C Preferred Stock totaled $115,000. The Company intends to use the proceeds from the Preferred Stock for general working capital purposes.
Copyright Transfer Agreement
On June 22, 2022, the Company entered an agreement with Zestv Studios Limited, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng, to transfer the mainland China copyright and broadcast right for the movie “Too Simple” to Zestv Studios Limited. The total transfer price is $750,000.
| F-14 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Actof 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly anyforwardlooking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.
Overview
AB International Group Corp. (the "Company", "we" or "us") was incorporated under the laws of the State of Nevada on July 29, 2013 and originally intended to purchase used cars in the United States and sell them in Krygyzstan. The Company's fiscal year end is August 31.
We are an intellectual property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectual property, including the acquisition and distribution of movies. In February 2019, we launched a business application (Ai Bian Quan Qiu) through smartphones and official social media accounts utilizing Artificial Intelligence. It is a matching platform for performers, advertiser merchants, and owners for more efficient services. We previously generated revenues through an agency service fee from each matched performance. Due to the quarantine and continuous control imposed by the state and local governments in areas affected by COVID-19, merchant advertising events have been suspended for 7 months. The Company decided to suspend the Ai Bian Quan Qiu platform, which, at the time, 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. As a result, we decide to focus mainly the IP transactions and online video streaming. Our management and operations are from the New York City, the international media center.
On April 22, 2020, the Company announced the first phase development of its video streaming service. The online service will be marketed and distributed in the world under the brand name ABQQ.tv. The Company's professional team are sourcing such dramas and films to provide video streaming service on the ABQQ.tv. The video streaming website www.ABQQ.tv was officially launched on December 29, 2020. As of May 31, 2022, the Company acquired 59 movie broadcast rights and a 15-episode TV drama series. The Company will continue marketing and promoting the ABQQ.tv website through Google Ads 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.
On October 21, 2021, the Company entered into a Lease Agreement (the “Lease”) with Martabano Realty Corp. (the “Landlord”), pursuant to which the Company agreed to lease approximately 8,375 square feet of in what is known as the Mt. Kisco Theatre at 144 Main Street, Mount Kisco, New York. The term of the Lease is five years plus free rent period. Commencing in month four, the Company's monthly base rent obligation will be approximately $6,979, which amount will increase in year three to $13,260, year four at $13,658 and the final year at $14,067 in accordance with the terms of the Lease. The Lease contains customary provisions for real property leases of this type, including provisions allowing the Landlord to terminate the Lease upon a default by the Company.
| 4 |
The space was formerly used as a theatre with a total of 5 screens and 466 sets for screening films. The former theatre opened on December 21, 1962 with Hayley Millsin “In Search of the Castaways.” It was a replacement for the town’s other movie theatre that burned down. It was later twinned and further divided into 5 screens. It was operated for years by Lesser Theaters, then bought by Clearview Cinemas. In June, 2013 it was taken over by Bow-Tie Cinemas when they took most Clearview locations. It lasted until March, 2020 when it was closed by the Covid-19 pandemic. It was announced in September 2020 that the closure would be permanent. The Company intends to continue to use the space as a theatre with a total of 5 screens and 466 sets for screening films. It’s the first theatre of ABQQ Cinemas in America as the new business line of the Company.
On April 27, 2022, we purchased a unique Non-Fungible Token (“NFT”) movie and music marketplace, named as the NFT MMM, from Stareastnet Portal Limited, which including an APP “NFT MMM” on Google Play, and full right to the website: stareastnet.io. NFTs are digital assets with a unique identifier that is stored on a blockchain, and NFTs are tradable rights of digital assets (pictures, music, films, and virtual creations) where ownership is recorded in blockchain smart contracts. As the expert of IP transactions specialized in the media industry, we believe that NFTs provide great potential in the intellectual property protection domain. It can promote transparency and liquidity and open the market to innovators who aim to commercialize their IP efficiently. We are actively launching movie and TV drama copyrights NFTs to buyers on the NFT MMM, and expect to generate revenues from the transactions incurred on the platform.
Subsequent to quarter end, on June 22, 2022, we entered an agreement with Zestv Studios Limited, a Hong Kong entity 100% owned by our Chief Executive Officer Chiyuan Deng, to transfer the mainland China copyright and broadcast right for the movie “Too Simple” to Zestv Studios Limited. The total transfer price was $750,000.
COVID-19
The full extent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict at the present time. In an effort to contain COVID-19 or slow its spread, governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actions and the global health crisis caused by COVID-19 will negatively impact business activity across the globe. The movie industry in general has changed dramatically as a result of the pandemic restrictions. While movie theaters struggle to stay alive, online streaming programming has increased. We have endeavored to stay with the trend for streaming services to remain competitive. We have experienced the negative impact in our results of operations and in our financial condition for the year ended August, 2020, especially with respect to the movie distribution end of our business. These impacts concern delays in delivering our movies and IP because of health restrictions imposed on certain public events that concern our business, including, among other things, theaters, indoor and outdoor performances, filming restrictions, music festivals, concerts and other such events, Some of these restrictions include pandemic government mandated shutdowns and others restrictions on capacity gathered at these events, with some jurisdictions imposing fines or revocation of business licensing, and other restrictions. As a result of these factors, our revenue was reduced from March to May of 2020. With immediate closures, the resultant industry and business specific delays have negatively affected our company.
We plan to focus on the video streaming and other web-based applications and expand our business into those areas that we believe we situate the company for continued and increased revenues. As the pandemic is forecasted to worsen in the United States and other areas around the globe, we believe that the demand for our IP, online products and services offerings increases. While we cannot guarantee that the negative effects of the pandemic will not interfere with our ability to generate revenues, we intend to strengthen our position in this dynamic market and position the company to best suit its stockholders.
Specific to our company operations, during the pandemic period, we have enacted precautionary measures to protect the health and safety of our employees and partners. These measures include closing our office, having employees work from home, and eliminating all travel. While having employees work from home may have a negative impact on efficiency and may result in negligible increases in costs, it does have an impact on our ability to execute on our agreements to deliver our core products.
We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including the effects on our customers, partners, or vendors, or on our financial results.
| 5 |
Results of Operations
Revenues
Our total revenue reported for the nine months ended May 31, 2022 was $2,056,000, compared with $102,400 for the nine months ended May 31, 2021. The increase in revenue for the nine months ended May 31, 2022 over the same period last year was mainly attributable to the Company sold the mainland China copyright and broadcast right of the movie “Love over the world”, “Our treasures” and “QiQingKuaiChe” for $1,800,000, and sold the mainland China copyrights and broadcast rights of the movie “LuShang” and “Huafeng” for total $256,000. For the same period last year, we had to shutdown of the performance matching platform (Ai Bian Quan Qiu). 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.
Total revenue for the three months ended May 31, 2022 was $256,000, compared with negative revenue of $51,200 for the three months ended May 31, 2021. The increase was mainly due to we sold the mainland China copyrights and broadcast rights of the movie “LuShang” and “Huafeng” for total $256,000.
Our cost of revenues was $2,235,534 for the nine months ended May 31, 2022, as compared with $878,601 for the nine months ended May 31, 2021. Most of the increase in cost of revenues for the nine months ended May 31, 2022 was the result of amortizing movie copyrights and broadcast rights due to the Company obtained more movie copyrights and broadcast rights.
Our cost of revenues was $862,400 for the three months ended May 31, 2022, as compared with $423,674 for the three months ended May 31, 2021. Most of the increase in cost of revenues for the three months ended May 31, 2022 was the result of amortizing movie copyrights and broadcast rights due to the Company obtained more movie copyrights and broadcast rights.
As a result, we had a gross loss of $179,534 for the nine months ended May 31, 2022, as compared with a gross loss of $776,201 for the nine months ended May 31, 2021. The negative gross profit for the nine months ended May 31, 2022 was attributable to the amortization of movie broadcast rights exceeded the revenue from the copyright sales of films.
As a result, we had a gross loss of $606,400 for the three months ended May 31, 2022, as compared with a gross loss of $474,874 for the three months ended May 31, 2021. The increase in gross loss for the three months ended May 31, 2022 was attributable to the amortization of movie broadcast rights exceeded the revenue from the copyright sales of films.
On April 27, 2022, we purchased a unique Non-Fungible Token movie and music marketplace, named as the NFT MMM, from Stareastnet Portal Limited, which including an APP “NFT MMM” on Google Play, and full right to the website: starestnet.io. We are actively launching movie NFT to buyers on the NFT MMM, and expect to generate transaction revenues from the platform.
In addition, we are increasing the marketing activities to achieve enough customers to start subscriptions for ABQQ.tv. and as well as generating revenue from the NYC cinema box office sales.
Operating Expenses
Operating expenses decreased to $1,448,288 for the nine months ended May 31, 2022 from $1,466,979 for the nine months ended May 31, 2021. Our operating expenses for nine months ended May 31, 2022 consisted of general and administrative expenses of $1,106,121 and related party salary and wages of $342,167. In contrast, our operating expenses for the nine months ended May 31, 2021 consisted of general and administrative expenses of $1,208,142 and related party salary and wages of $258,837.
Operating expenses decreased to $421,317 for the three months ended May 31, 2022 from $517,845 for the three months ended May 31, 2021. Our operating expenses for three months ended May 31, 2022 consisted of general and administrative expenses of $370,067 and related party salary and wages of $51,250. In contrast, our operating expenses for the three months ended May 31, 2021 consisted of general and administrative expenses of $443,345 and related party salary and wages of $74,500.
We anticipate our operating expenses will increase as we undertake our plan of operations, including increased costs associated with marketing, personnel, and other general and administrative expenses, along with increased professional fees associated with SEC and COVID compliance as our business grows more complex and more expensive to maintain. On the COVID front, we expect that restrictions will ease moving forward, but there may still be setbacks as variants to the virus emerge and governments take lockdown measures in response. These and other costs for COVID expenditures may increase our operational costs in fiscal 2022 at various levels of operation.
| 6 |
Other Income/Expenses
We had other expense of $141,945 for the nine months ended May 31, 2022, as compared with other expenses of $413,702 for the nine months ended May 31, 2021.
We had other expense of $141,945 for the three months ended May 31, 2022, as compared with other expenses of $87,153 for the three months ended May 31, 2021.
Our other expenses for the nine and three months ended May 31, 2022 were the penalty expense recorded in connection with the conversion of its Series C preferred stocks due to the fact that the Company was late filing the Form 10-Q for the period ended February 28, 2022.
Our other expenses for the nine and three months ended May 31, 2021 were mainly the result of interest expense and the loss from prepaid convertible notes and warrant exercises.
Net Loss
We incurred a net loss in the amount of $1,769,767 for the nine months ended May 31, 2022, as compared with a net loss of $2,601,535 for the nine months ended May 31, 2021.
We incurred a net loss in the amount of $1,169,662 for the three months ended May 31, 2022, as compared with a net loss of $1,079,872 for the three months ended May 31, 2021.
Liquidity and Capital Resources
As of May 31, 2022, we had $382,215 in current assets consisting of cash, accounts receivable and prepaid expenses. Our total current liabilities as of May 31, 2022 were $1,646,294. As a result, we have a working deficit of $1,264,079 as of May 31, 2022 as compared with a working deficit of $228,669 as of August 31, 2021.
Operating activities used $478,498 in cash for the nine months ended May 31, 2022, as compared with $4,043,032 used in cash for the same period ended May 31, 2021. Our negative operating cash flow in nine months ended May 31, 2022 was mainly the result of our net loss for the nine months combined with operating changes in purchase of copyrights and broadcast rights and changes in the long-term prepayments, offset by the amortization of intangible assets and increased account payable and accrued liabilities. Our negative operating cash flow in the same period in 2021 was mainly the result of our net loss for the nine months combined with operating changes in purchase of copyrights and broadcast rights, offset by the amortization of intangible assets..
Investing activities used $280,000 for the nine months ended May 31, 2022, as compared with $5,000 used for the nine months ended May 31, 2021. Our negative investing cash flow for May 31, 2022 was mainly the result of the purchase of NFT MMM, a unique Non-Fungible Token movie and music marketplace.
Financing activities provided $998,007 for the nine months ended May 31, 2022, as compared with $1,660,166 provided in financing activities for the nine months ended May 31, 2021. Our positive financing cash flow for the period ended May 31, 2022 was the result of proceeds from issuance of our common stock and preferred stock. Our positive financing cash flow for the period ended May 31, 2021 was the result of proceeds from issuance of convertible notes and convertible notes and sales of our common stock and preferred stock.
Based upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.
| 7 |
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 May 31, 2022, the Company had an accumulated deficit of approximately $8.37 million and a negative working capital of $1.26 million. For the nine months ended May 31, 2022, the Company incurred a net loss of approximately $1.77 million and had negative cash flows of approximately $0.48 million from its operations. Although, the Company generated revenue of approximately $2.06 million as the result of selling the mainland China copyrights and broadcast rights for five movies (“Love over the world”, “Our treasures”, “Confusion”, “Huafeng” and “Lushang”) for the nine months ended May 31, 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.
Off Balance Sheet Arrangements
As of May 31, 2022, there were no off-balance sheet arrangements.
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
Our critical accounting policies are set forth in Note 1 to the financial statements.
Recently Issued Accounting Pronouncements
We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of May 31, 2022. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of May 31, 2022, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.
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A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of May 31, 2022, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting
Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending August 31, 2023: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the nine months ended May 31, 2022 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Internal Controls
Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 1A: Risk Factors
See Risk Factors contained in our Form 10-K filed with the SEC on January 12, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company had the following equity activities during the three months ended May 31, 2022:
On April 7, 2022, the Company issued 2,841,389 shares of common stock to Geneva Roth Remark Holding Inc. for the conversion of Series C preferred stock.
Subsequent to the reporting period, the Company had the following equity activities:
From June 13, 2022 to July 7, 2022, the Company issued 33,986,292 common shares for the conversion of Series C preferred stock.
On June 1, 2022, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company 147,775 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $128,500. The closing occurred on June 16, 2022.
These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
None
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Item 6. Exhibits
|
|
| Exhibit Number |
Description of Exhibit
|
| 31.1 | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 101** | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2022 formatted in Extensible Business Reporting Language (XBRL). |
| 10 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on the dates below on its behalf by the undersigned thereunto duly authorized.
| AB INTERNATIONAL GROUP CORP. |
| By: | /s/ Chiyuan Deng |
| Chief Executive Officer, Principal Executive Officer | |
| July 15, 2022 |
| By: | /s/ Jianli Deng |
|
Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer | |
| July 15, 2022 |
| 11 |
| CERTIFICATIONS |
I, Chiyuan Deng, certify that;
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended May 31, 2022 of AB International Group Corp. (the “registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 15, 2022
/s/ Chiyuan Deng
By: Chiyuan Deng
Title: Chief Executive Officer
| CERTIFICATIONS |
I, Jianli Deng, certify that;
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended May 31, 2022 of AB International Group Corp. (the “registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: July 15, 2022
/s/ Jianli Deng
By: Jianli Deng
Title: Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of AB Intetnational Group Corp. (the “Company”) on Form 10-Q for the quarter ended May 31, 2022 filed with the Securities and Exchange Commission (the “Report”), I, Chiyuan Deng, Chief Executive Officer, and I, Jianli Deng, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented. |
| By: | /s/ Chiyuan Deng |
| Name: | Chiyuan Deng |
| Title: | Principal Executive Officer |
| Date: | July 15, 2022 |
| By: | /s/ Jianli Deng |
| Name: | Jianli Deng |
| Title: | Principal Financial Officer |
| Date: | July 15, 2022 |
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.