AERA 10-Q
AI Era Corp. (AERA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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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| Commission
File Number: |
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.) |
(Address of principal executive offices)
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| (Registrant’s telephone number) | |
| _______________________________________________________ | |
| (Former name, former address and former fiscal year, if changed since last report) | |
Securities registered pursuant to Section 12(b) of the Act: None.
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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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 January 13, 2025.
| 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 | 9 |
| Item 4: | Controls and Procedures | 9 |
PART II – OTHER INFORMATION
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| Item 1: | Legal Proceedings | 11 |
| Item 1A: | Risk Factors | 11 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 11 |
| Item 3: | Defaults Upon Senior Securities | 11 |
| Item 4: | Mine Safety Disclosures | 11 |
| Item 5: | Other Information | 11 |
| Item 6: | Exhibits | 11 |
| 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 November 30, 2024 and August 31, 2024 (unaudited); |
| F-2 | Consolidated Statements of Operations for the three months ended November 30, 2024 and 2023 (unaudited); |
| F-3 | Consolidated Statements of Changes in Stockholders’ Equity for the three months ended November 30, 2024 and 2023 (unaudited); |
| F-4 | Consolidated Statements of Cash Flows for the three months ended November 30, 2024 and 2023 (unaudited); and |
| F-5 | Notes to Consolidated Financial Statements (unaudited) |
| 3 |
AB INTERNATIONAL GROUP CORP.
Consolidated Balance Sheets
(Unaudited)
| November 30, | August 31, | |||||||
| 2024 | 2024 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use operating lease assets, net | ||||||||
| Intangible assets, net | ||||||||
| Purchase deposits for intangible assets, non-current | ||||||||
| Security deposit | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Loan from related party | ||||||||
| Current portion of obligations under operating leases | ||||||||
| Deferred revenue | ||||||||
| 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 November 30, 2024 and August 31, 2024, respectively | ||||||||
| Common stock, par value, shares authorized; and shares issued and outstanding, as of November 30, 2024 and August 31, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| 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)
| Three Months Ended | ||||||||
| November 30, | ||||||||
| 2024 | 2023 | |||||||
| REVENUE | ||||||||
| License | $ | $ | ||||||
| Copyrights sales | ||||||||
| Theatre
admissions, advertising and food and beverage sales | ||||||||
| Total revenue | ||||||||
| OPERATING COSTS AND EXPENSES | ||||||||
| Amortization expenses | ( | ) | ( | ) | ||||
| Costs of copyrights sold | ( | ) | ||||||
| Theatre operating costs | ( | ) | ( | ) | ||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Related party salary and wages | ( | ) | ||||||
| Total Operating Costs And Expenses | ( | ) | ( | ) | ||||
| Loss From Operations | ( | ) | ( | ) | ||||
| OTHER INCOME | ||||||||
| Interest income | ||||||||
| Interest expense – related party | ( | ) | ( | ) | ||||
| Other income | ||||||||
| Total Other Income | ||||||||
| (Loss) Income Before Income Tax Benefit | ( | ) | ||||||
| Income tax benefit | ||||||||
| NET (LOSS) INCOME | $ | ( | ) | $ | ||||
| NET (LOSS) INCOME PER SHARE: BASIC | $ | $ | ||||||
| NET (LOSS) INCOME 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 | Total Equity | ||||||||||||||||||||||
| Balance - August 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of restricted common shares to officer for service | ( | ) | ||||||||||||||||||||||||||
| Preferred
shares series C converted into common shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Imputed Interest | ||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||
| Balance – November 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Balance – August 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Imputed Interest | ||||||||||||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance – November 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
AB INTERNATIONAL GROUP CORP.
Consolidated Statements of Cash Flows
(Unaudited)
| Three Months Ended | ||||||||
| November 30, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income to net cash generated from operating activities: | ||||||||
| Depreciation of fixed asset | ||||||||
| Amortization of intangible asset | ||||||||
| Gain from sales of software in progress | ( | ) | ||||||
| Costs of copyrights sold | ||||||||
| Imputed interest on officer loan | ||||||||
| Non-cash lease expense | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Rent security & electricity deposit | ( | ) | ||||||
| Purchase deposits paid | ( | ) | ||||||
| Purchase
of movie and TV series broadcast right and copyright | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| (Repayment to) loan from related party | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents – beginning of period | ||||||||
| Cash and cash equivalents – end of period | $ | $ | ||||||
| Supplemental Cash Flow Disclosures | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Settlement of accrued CEO salaries with common stock | $ | $ | ||||||
| Net off purchase deposit with loan from related parties for sales of software | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – 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. 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, 2024, is derived 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, 2024.
The unaudited consolidated financial statements as of and for the three months ended November 30, 2024 and 2023, 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 months ended November 30, 2024 and 2023 are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The financial statements have been prepared on a consolidated basis, with the Company’s wholly owned subsidiary App Board Limited and AB Cinemas NY, Inc. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts
receivable is presented at invoiced amount net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful
accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances
when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the balance, customer’s payment history, its current credit-worthiness
and current economic trends. Accounts are written off after efforts at collection prove unsuccessful.
| F-5 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currency Transactions
The financial risk arises from the fluctuations in foreign exchange rates and the degrees of volatility in these rates. Currently the Company does not use derivative instruments to reduce its exposure to foreign currency risk. Gains and losses from translation of foreign currency into U.S. dollars are included in current results of operations.
Prepayments
Prepayments primarily consist of payments made to acquire the copyrights and distribution rights of movies and TV shows, etc. Prepayments are classified as either current or non-current based on the nature and the terms of the respective agreements. These prepayments are unsecured and are reviewed periodically to determine whether their carrying value has become impaired. The allowance is also based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections and utilizations. Actual amounts received or utilized may differ from management’s estimate of credit worthiness and the economic environment. Prepayments are written off against the allowances only after exhaustive collection efforts. No allowance was recorded for the three months ended November 30, 2024 and 2023, respectively.
Property and Equipment, net
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Leasehold improvement is related to the enhancements paid by the Company to leased offices. Leasehold improvement represents capital expenditures for direct costs of renovation or acquisition and design fees incurred. The amortization of leasehold improvements commences once the renovation is completed and ready for the Company’s intended use. The straight-line depreciation method is used to compute depreciation over the estimated useful lives of the assets, as follows:
| Estimated Useful Life | ||
| Furniture | ||
| Appliances | ||
| Leasehold improvement | Lesser of useful life and lease term |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments that substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations in other income or expenses.
Intangible Assets
Intangible assets are recorded at the lower of cost or estimated fair value and amortized as follows:
| • | Movie copyrights
and broadcast rights: | |
| • | NFT MMM platform:
|
Amortized costs of the intangible asset are recorded as amortization expenses in the consolidated statements of operations.
| F-6 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Lease property under operating lease
The Company adopted ASU No. 2016-02—Leases (Topic 842) since June 1, 2019, using a modified retrospective transition method permitted under ASU No. 2018-11. This transition approach provides a method for recording existing leases only at the date of adoption and does not require previously reported balances to be adjusted. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of additional lease assets and lease liabilities on the consolidated balance sheets. The standard did not materially impact the Company’s consolidated net earnings and cash flows.
Impairment of Long-lived asset
The Company evaluates its long-lived assets or asset group, including intangible assets with indefinite and finite lives, for impairment. Intangible assets with indefinite lives that are not subject to amortization are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the assets might be impaired in accordance with ASC 350. Such impairment test compares the fair values of assets with their carrying values with an impairment loss recognized when the carrying values exceed fair values. For long-lived assets and intangible assets with finite lives that are subject to depreciation and amortization are tested for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of an asset or a group of long-lived assets may not be recoverable. When these events occur, the Company evaluates impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value. Impairment losses are included in the general and administrative expense. There was no impairment loss during the three months ended November 30, 2024 and 2023, respectively.
Revenue Recognition
The Company adopted ASC Topic 606, “Revenue from Contracts with Customers”, using the modified retrospective approach. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company derives its revenues primarily from six sources: (1) selling copyrights of movies or TV shows; (2) licensing NFT MMM platform and providing technical service; (3) movie theater admissions and food and beverage sales; (4) embedded marketing service; (5) advertising services in movie theatre.
| F-7 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
Revenue from selling copyrights of movies or TV shows:
The Company recognizes revenue when a master copy of a movie or TV show is delivered, the IP is authorized and transferred to customers. The Company’s contracts with customers are primarily on a fixed-price basis and do not contain cancelable and refund-type provisions.
Revenue from licensing NFT MMM platform:
The Company derives revenue from NFTMM platform license fees, which includes accessing the NFTMM platform and platform data on both app and website. The Company's contract has a two-year term and is non-cancelable and non-refundable. In accordance with ASC 606, a 'right to access' license is recognized over the license period.
Revenue from movie theater admissions and food and beverage sales:
The Company recognizes admissions and food and beverage revenues based on a gross transaction price, which are recorded at a point in time when a film is exhibited to a customer and when a customer takes possession of food and beverage offerings. The Company defers 100% of the revenue associated with the sales of gift cards and exchange tickets until such time as the items are redeemed or estimated income from non-redemption is recorded.
Revenue from embedded marketing service:
The Company derives revenue from providing the services of embedded marketing through adding advertisement into movies and TV series. The Company recognizes revenue when the advertisement is added to the movies and TV series.
Revenue from advertisement:
The Company derives revenue from playing the advertisements on the theater screen. The Company recognizes revenue when the advertisements are shown on the theater screen.
Contract Assets and Liabilities
Payment terms are established on the Company’s pre-established credit requirements based upon an evaluation of customers’ credit quality. Contact assets are recognized for in related accounts receivable. Contract liabilities are recognized for contracts where payment has been received in advance of delivery. The contract liability balance can vary significantly depending on the timing of when an order is placed and when shipment or delivery occurs.
| F-8 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
Contract Assets and Liabilities (continued)
As
of November 30, 2024 and August 31, 2024, other than deferred revenue and accounts receivable, the Company had
Disaggregation of revenue
The Company disaggregates its revenue from contracts by revenue streams, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors.
The following table presents sales by revenue streams for the three months ended November 30, 2024 and 2023, respectively:
| Three months ended | ||||||||
| November 30, 2024 | November 30, 2023 | |||||||
| Copyrights sales | $ | $ | ||||||
| Embedded marketing service | ||||||||
| NFT licenses | ||||||||
| Theatre admissions | ||||||||
| Food and beverage sales | ||||||||
| Advertisement | ||||||||
| Total revenue | $ | $ | ||||||
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.
| F-9 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments (continued)
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.
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.
The
Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”).
ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss)
divided by the weighted average common shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis
of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the
periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income
per share or decrease loss per share) are excluded from the calculation of diluted EPS. As of November 30, 2024, the total number of
warrants outstanding was
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation.
Warrants
Warrants are classified as equity and the proceeds from issuing warrants in conjunction with convertible notes are allocated based on the relative fair values of the base instrument of convertible notes and the warrants by following the guidance of ASC 470-20-25-2.
Proceeds from the sale of a debt instrument with stock purchase warrants (detachable call options) shall be allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants shall be accounted for as paid-in capital. The remainder of the proceeds shall be allocated to the debt instrument portion of the transaction. This usually results in a discount (or, occasionally, a reduced premium), which shall be accounted for as interest expense under Topic 835 Interest.
| F-10 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Income taxes are accounted for using the asset and liability approach. Under this approach, income tax expense is recognized for the amount of taxes payable or refundable for the current year. Deferred income taxes assets and liabilities are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of operations in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Share-Based Compensation
The Company follows the provisions of ASC 718, “Compensation - Stock Compensation,” which establishes the accounting for employee share-based awards. For employee share-based awards, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense with graded vesting on a straight-line basis over the requisite service period for the entire award.
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280)”, which improves the disclosures about a public entity’s reportable segments and address requests from investors for more detailed information about a reportable segment’s expenses. The amendments in this accounting standard update will become effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The amendments should be applied to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption.
In December 2023, the FASB issued ASU No. 2023-09, “Improvements to Income Tax Disclosures” (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income tax paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will likely result in the required additional disclosures being included in the Company’s consolidated financial statements, once adopted.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of operations and statements of cash flows.
| F-11 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 – 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 November 30,
2024, the Company had an accumulated deficit of approximately $
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 continue to provide the additional cash to meet the Company’s obligations as they become due. The Company also intends to fund operations through cash flow generated from the operations, including the expected ticket sales from Mt. Kisco movie theatre, equity financing, debt borrowings, and additional equity financing from outside investors, to ensure sufficient working capital. However, no assurance can be given that additional financing, if required, would be available on favorable terms or at all. If we are not able to secure additional funding, the implementation of our business plan will be impaired.
Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provide the opportunity for the Company to continue as a going concern.
NOTE 4 – PROPERTY AND EQUIPMENT
The Company capitalized the renovation cost as leasehold improvement and the cost of furniture and appliances as fixed assets. Leasehold improvement relates to renovation and upgrade of the leased office.
The
depreciation expense was $
As of November 30, 2024 and August 31, 2024, the balance of property and equipment was as follows:
| November 30, 2024 | August 31, 2024 | |||||||
| Leasehold improvement | $ | $ | ||||||
| Appliances and furniture | ||||||||
| Total cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
| F-12 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – INTANGIBLE ASSETS
As of November 30, 2024 and August 31, 2024, the balance of intangible assets was as follows:
| November 30, 2024 | August 31, 2024 | |||||||
| Movie copyrights - Love over the world | $ | $ | ||||||
| Sitcom copyrights - Chujian | ||||||||
| Movie copyrights - A story as a picture | ||||||||
| Movie copyrights - Our treasures | ||||||||
| Movie broadcast right- On the way | ||||||||
| Movie copyrights - Too simple | ||||||||
| Movie copyrights - Confusion | ||||||||
| Movie copyrights - Amazing Data | ||||||||
| Movie copyrights - Nice to meet you | ||||||||
| Movie copyrights – 6 movies | ||||||||
| TV drama copyright - 20 episodes | ||||||||
| Movie broadcast rights – 59 movies | ||||||||
| Movie copyrights – Amazing data 2 | ||||||||
| NFT MMM platform | ||||||||
| Total cost | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
The
amortization expense for the three months ended November 30, 2024 and 2023 was $
Twelve months ending November 30, |
Amortization expense | ||||
| 2025 | $ | ||||
| 2026 | |||||
| Total | $ | ||||
On
August 6, 2022, the Company licensed NFT MMM platform to a third party to allow the access of NFT MMM platform and platform data on both
app and website for one year starting from August 20, 2022 for a monthly license fee of $
| F-13 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – INTANGIBLE ASSETS (continued)
On
September 10, 2023, the Company entered into an agreement with All In One Media Ltd to acquire the copyrights for 4 movies at a price
of $
On
September 30, 2023, the Company entered into another agreement with All In One Media Ltd to acquire the copy rights and broadcast rights
for 2 movies for a price of $
In
November 2023, the Company entered into an agreement with Anyone Pictures Limited to sell the Mainland China copyrights of 1 movie for
a price of $
On
November 21, 2023, the Company entered into an agreement with Capitalive Holdings Limited to sell offline broadcast rights of 1 movie
for a price of $
On September 30, 2024,
the Company entered into an agreement with Capitalive Holdings Limited to sell the offline broadcast rights of 2 movies for $
On September 30, 2024,
the Company entered into an agreement with All In One Media Ltd to acquire the copyrights and broadcast rights for 1 movie for a price
of $
On October 21, 2024, the Company entered into an
agreement with Anyone Pictures Limited to sell the broadcast rights of the movie for $
NOTE 6 – LEASES
In
September 2023, the Company entered into a
On
October 21, 2021, the Company signed a lease agreement to lease “the Mt. Kisco Theatre”, a movie theater, for
On
January 31, 2024, the end of the first two years of rental period, the landlord agreed to continue to receive $
Total
lease expense for the three months ended November 30, 2024 and 2023 was $
| F-14 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – LEASES (continued)
The following is a schedule of maturities of lease liabilities:
| Twelve months ending November 30, | |||||
| 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| Total future minimum lease payments | |||||
| Less: imputed interest | ( |
) | |||
| Total | $ | ||||
NOTE 7 – PURCHASE DEPOSITS FOR INTANGIBLE ASSETS
The balance of purchase deposits for intangible assets which relates to the acquisition of copyrights and broadcast rights for movies and TV dramas and software was as follows:
| November 30, 2024 | August 31, 2024 | |||||||
| Purchase deposit for copyright and broadcast right for movies and series | ||||||||
| Total purchase deposits for intangible assets | $ | $ | ||||||
On
February 23, 2024, the Company entered into an agreement to acquire the copyright and broadcast right of a movie. As of November 30,
2024 and August 31, 2024, the purchase deposit was $
On
June 5, 2024, the Company entered into an agreement to acquire the copyright and broadcast right of a TV drama series. As of August 30,
2024, the Company has paid a purchase deposit of $
On
August 13, 2024, the Company entered into an agreement to acquire the copyright and broadcast right of two movies. As of November 30,
2024 and August 30, 2024, the purchase deposit was $
On
October 18, 2024, the Company entered into an agreement to acquire the copyright and broadcast right of a TV drama series. As of November
30, 2024, the Company has paid a purchase deposit of $
| F-15 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – RELATED PARTY TRANSACTIONS
Loan from related party
In
support of the Company’s efforts and cash requirements, it may rely on advances from stockholders until such time that the Company
can support its operations or attains adequate financing through sales of its equity or traditional debt financing. On June 1, 2023,
Chiyuan Deng, the Chief Executive Officer, as the Company stockholder, entered into a line of credit agreement with the Company. Chiyuan
Deng agreed to provide a line of credit to the Company for a total amount of no more than $
For the three months
ended November 30, 2024, Chiyuan Deng has further loaned a total of for its working capital needs. As of November 30, 2024, the
Company has repaid . The loan is non-interest bearing and due on demand. The Company has recognized an imputed interest at
Accounts payable and accrued liabilities - related party - Youall Perform Services Ltd.
Youall
Perform Services Ltd is owned by Jianli Deng, the former Chief Financial Officer. 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.
| F-16 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – RELATED PARTY TRANSACTIONS (continued)
Accounts payable and accrued liabilities – related party - Zestv Studios Limited
On
November 28, 2023, the Company sold the software-in-progress of $
As
of November 30, 2024 and August 31, 2024, the Company had $
Executives’ salaries
On
September 11, 2020 and May 24, 2022, the Company entered into two amended employment agreements with Chiyuan Deng, the Chief Executive
Officer. Pursuant the amended agreements, the Company amended the compensation to Mr. Deng to include a salary of $
During
the three months ended November 30, 2024, the Company incurred total compensation of $
NOTE 9 – STOCKHOLDERS’ EQUITY
Common shares
The Company had no activities for the three months ended November 30, 2024.
The Company had the following activities for the three months ended November 30, 2023:
Issuance of restricted common shares
On
October 5, 2023, the Board of Directors resolved to issue shares of the Company’s restricted common stock, par value
per share, to Chiyuan Deng, the Chief Executive Officer, to pay off his accrued executive salaries of $
Conversion of Series C preferred shares to common shares
During the three months ended November 30, 2023, the Company issued a total of common shares as the result of the conversion of total Series C preferred shares.
As of November 30, 2024 and August 31, 2024, the Company had and common shares issued and outstanding, respectively.
| F-17 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
Warrants
In
consideration for the Common Stock Purchase Agreement signed with Alumni on June 13, 2024, the Company issued to Alumni Capital a Common
Stock Purchase Warrant dated June 13, 2024 to purchase
Management determined that these warrants meet the requirements for equity classification under ASC 815-40 because they are indexed to its own shares. The warrants were recorded at their fair value on the date of grant as a component of shareholders’ equity. As of November 30, 2024, warrants in connection with two equity financings were outstanding, with weighted average remaining life of years.
A summary of the status of the Company’s warrants as of November 30, 2024 and August 31, 2024 is presented below.
| Number of warrants | |||||||
| Original shares issued | Anti-dilution Adjusted | ||||||
| Warrants as of August 31, 2023 | |||||||
| Warrants granted during the year | |||||||
| Warrants as of August 31, 2024 | |||||||
| Warrants granted during the three months | |||||||
| Exercisable as of November 30, 2024 | |||||||
| F-18 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
Preferred shares
The Company had no activities for the three months ended November 30, 2024.
The Company had the following activities for the three months ended November 30, 2023:
During the three months ended November 30, 2023, the Company converted a total of Series C preferred shares into common shares.
On November 30, 2023, the Board of Directors of the Company resolved to withdraw and subsequently cancelled the Amended Certificate of Designation for the Company’s Series C and Series D Preferred shares.
NOTE 10 – INCOME TAXES
The
Company and its fully owned subsidiary, AB Cinemas NY, Inc, were incorporated in the United States and are subject to a statutory income
tax rate at
As of November 30, 2024 and August 31, 2024, the components of net deferred tax assets, including a valuation allowance, were as follows:
November 30, 2024 | August 31, 2024 | |||||||
| 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-19 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – INCOME TAXES (continued)
Reconciliation between the statutory rate and the effective tax rate is as follows for the three months ended November 30, 2024 and 2023, respectively:
| Three months ended | ||||||||
| November 30, | ||||||||
| 2024 | 2023 | |||||||
| Federal statutory tax rate | % | % | ||||||
| Change in valuation allowance | ( |
%) | ( |
%) | ||||
| Effective tax rate | % | % | ||||||
During the three months ended November 30, 2024, the Company and its subsidiaries incurred net losses. As a result, the Company and its subsidiaries did not incur any income tax for the three months ended November 30, 2024.
During the three months ended November 30, 2023, the Company and its subsidiaries generated net income. As a result, the Company and its subsidiaries utilized the tax losses for the three months ended November 30, 2023.
NOTE 11 – CONCENTRATION RISK
Concentration
For
the three months ended November 30, 2024 and 2023,
As
of November 30, 2024,
Credit risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. In the US, the
insurance coverage of each bank is $
| F-20 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – 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 is 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 leases
The Company has one lease agreement to rent a movie theatre with third-party vendor as of November 30, 2024. (See Note 6)
NOTE 13 – SEGMENT INFORMATION
The Company reports information about operating segments in accordance with ASC 280-10, Segment Reporting, which requires financial information to be reported based on the way management organizes segments within a company for making operating decisions and evaluating performance. As the result of business strategic changes, the Company has identified two reportable segments: Copyrights and license (“IP’) segment and cinema segment.
The following table presents summary information by segment for the three months ended November 30, 2024 and 2023, respectively.
| IP Segment | Cinema Segment | Total | |||||||||||||||||||||
| Three months ended | Three months ended | Three months ended | |||||||||||||||||||||
| November 30, | November 30, | November 30, | |||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Costs of copyrights sold | |||||||||||||||||||||||
| Theatre operating costs | |||||||||||||||||||||||
| Depreciation and Amortization | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Segment assets | |||||||||||||||||||||||
| Segment income (loss) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||
NOTE 14 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, we have analyzed events and transactions that occurred subsequent to November 30, 2024 through the date these financial statements were issued and have determined that we do not have any other material subsequent events to disclose or recognize in these financial statements.
| F-21 |
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.” 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. 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.
Other factors, which could have a material adverse effect on our operations and future prospects on a consolidated basis, include but are not limited to:
| • | risks related to failure to obtain adequate financing on a timely basis and on acceptable terms to continue as going concern; | |
| • | the uncertainty of profitability based upon our history of losses; | |
| • | legislative or regulatory changes; | |
| • | risks related to our operations and uncertainties related to our business plan and business strategy; | |
| • | changes in economic conditions; | |
| • | uncertainty with respect to intellectual property rights, protecting those rights and claims of infringement of other’s intellectual property; | |
| • | competition; and | |
| • | cybersecurity concerns. |
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 any forward-looking 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, including the risks and uncertainties identified under the heading “Risk Factors” in the Company’s most recent Annual Report on Form 10-K.
Overview
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 and TV shows.
In addition to licensing and selling rights to movies and TV shows, we are also engaged in licensing our NFT MMM platform and providing technical service; running our physical movie theater in New York; and providing marketing and consulting services in the media industry.
On April 22, 2020, we announced the first phase development of our video streaming service. The online service will be marketed and distributed internationally under the brand name ABQQ.tv. Our team sources dramas and films to provide video streaming service on ABQQ.tv. Our video streaming website (www.ABQQ.tv) was officially launched on December 29, 2020, and management has been sourcing dramas and films to provide video streaming service on ABQQ.tv.
As of November 30, 2024, we have acquired 74 movie copyrights and broadcast rights and a 75-episode TV drama and sitcom. We plan to continue marketing and promoting ABQQ.tv through Google Ads to acquire additional broadcast rights for movies and TV series and plan to charge subscription fees once we have obtained at least 200 broadcast rights of movies and TV programs.
| 4 |
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 a free rent period. The total monthly rent was $14,366 for the first two years, and $20,648 for the third year including real estate related taxes and landlord’s insurance. 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.
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.
On May 5, 2022, we incorporated AB Cinemas NY, Inc. in New York, NY, for the purpose of operating the Mt. Kisco Theatre. The theatre started operations in October 2022. We still intend to follow the strategy of having both an online presence and physical locations for movies and other media. We expect to generate increased revenue from our movie theater business line in the coming years.
On April 27, 2022, we purchased a unique Non-Fungible Token (“NFT”) movie and music marketplace, named the NFT MMM from Stareastnet Portal Limited, an unrelated party, which included an APP “NFTMMM” 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. On August 6, 2022, the Company licensed NFT MMM platform to a third party to allow access of NFTMM platform and platform data on both our app and website for one year starting from August 20, 2022 to August 19, 2023 for a monthly license fee of $60,000. Pursuant to the agreement, we also charged a one time implementation service and consulting fee of $100,000. Subsequent to the license renewal on November 1, 2023, we continued licensing the NFT MM platform to the same third party from November 1, 2023 until October 31, 2025 for a monthly license fee of $57,000. The Company retained the ownership and copyright of the NFT MMM platform, including the APP “NFT MMM” on Google Play, and the website: stareastnet.io.
The information on or accessible through our websites is not part of and is not incorporated by reference into this Quarterly Report on Form 10-Q, and the inclusion of our website addresses in this Quarterly Report on Form 10-Q is only for reference. We were incorporated under the laws of the State of Nevada on July 29, 2013. Our fiscal year end is August 31.
Results of Operations
Revenues
Our total revenue reported for the three months ended November 30, 2024 and 2023 was $626,350 and $801,747, respectively.
The revenue for the three months ended November 30, 2024, was mainly attributable to the license fee received in connection with the licensing of our NFT MMM platform, movie copyrights sales to two third parties, fees charged for embedded marketing service, advertising services as well as the revenue generated from movie tickets and food and beverage sales from our operated movie theatre. On the other hand, for the three months ended November 30, 2023, was mainly attributable to the license fee received in connection with the licensing of our NFT MMM platform, movie copyrights sales to two third parties, fees charged for embedded marketing service as well as the revenue generated from movie tickets and food and beverage sales from our operated movie theatre. The decrease in revenue was mainly due to the decrease in sales of copyrights and broadcast rights during the three months ended November 30, 2024 as compared to the three months ended November 30, 2023.
| 5 |
Operation of our movie theatre started in October of 2022. For the three months ended November 30, 2024, we generated total revenue of $78,150, including $49,501 from ticket sales, and $23,934 from food and beverage sales and $4,715 from advertisement. For the three months ended November 30, 2023, we generated total revenue of $87,459, including $57,824 from ticket sales, and $29,635 from food and beverage sales. The decrease in revenue was mainly due to less renowned and popular movies on screen compared to the corresponding period in 2023.
We anticipate an increase in revenue in the future by selling movie and TV drama copyrights and broadcast rights, achieving enough customers to start subscriptions for ABQQ.tv and generating movie tickets and related revenues from our Mt. Kisco movie theatre in New York. We also hope to generate more license revenue from our NFT MMM platform.
Operating Costs and Expenses
Operating costs and expenses were $679,091 for the three months ended November 30, 2024, as compared to $829,905 for the three months ended November 30, 2023. Our operating costs and expenses for the three months ended November 30, 2024 consisted of theatre operating costs of $44,960, amortization expenses of $154,722, costs of copyrights sold of $279,884 and general and administrative expenses of $199,525. In contrast, our operating costs and expenses for the three months ended November 30, 2023 consisted of theatre operating costs of $41,355, amortization expenses of $511,809, general and administrative expenses of $261,692 and related party salary and wages of $15,049.
The theatre operating costs were comparable for the three months ended November 30, 2024 and 2023. The theatre operating costs increased to $44,960 for the three months ended November 30, 2024 from $41,355 for the three months ended November 30, 2023, mainly due to the increase in movie exhibition costs.
We experienced a decrease in amortization expenses for the three months ended November 30, 2024 as compared to the corresponding period in 2023, mainly due to more fully amortized intangible assets for the three months ended November 30, 2024.
The costs of copyrights sold represented the remaining costs of the 2 globally exclusive offline copyrights , with the exception of mainland China and 1 Mainland China exclusive broadcast rights when they were sold.
We experienced a decrease in general and administrative expenses for the three months ended November 30, 2024 as compared to the corresponding period in 2023, mainly as a result of decreased non-related party salaries, lease expenses, and cleaning expenses for the three months ended November 30, 2024 in contrast to the corresponding period in 2023.
We experienced a decrease in related party salary and wages for the three months ended November 30, 2024 as compared to corresponding period in 2023. During the three months ended November 30, 2024, the Company incurred total compensation of $nil for the Chief Executive Officer. During the three months ended November 30, 2023, the Company incurred total compensation of $15,049 for Chief Executive Officer.
We anticipate our operating expenses will increase as we undertake our plan of operations, including the streamline of costs associated with marketing, personnel, and other general and administrative expenses, along with increased professional fees associated with SEC. These costs may increase our operational costs in fiscal 2025 at various levels of operation.
Other Income
We had other income of $2,705 for the three months ended November 30, 2024, as compared with other income of $71,758 for the corresponding period in 2023. Our other income for the three months ended November 30, 2024 was the net amount of the other income generated from the advertising agency services and the interest expense – related party. Our other income for the corresponding period in 2023 was the net amount of the other income generated from the sales of software in progress, bank interest income, and the interest expense – related party.
| 6 |
Net Loss/ Net Income
We incurred a net loss in the amount of $50,036 for the three months ended November 30, 2024, as compared with a net income of $43,600 for the three months ended November 30, 2023.
Liquidity and Capital Resources
As of November 30, 2024, we had $492,937 in current assets consisting of cash and accounts receivable. Our total current liabilities as of November 30, 2024 were $511,841. As a result, we have a working capital deficit of $18,904 as of November 30, 2024 as compared with $160,617 as of August 31, 2024.
Operating activities generated $241,109 in cash for the three months ended November 30, 2024, as compared with $35,990 used in cash for the three months ended November 30, 2023.
Our positive operating cash flow for the three months ended November 30, 2024 was mainly the result of our net loss combined with the operating changes in the purchase of movie and TV series broadcast right and copyright, and purchase deposit, offset by the amortization of intangible assets, sales of copyrights, the decrease in accounts receivable, and the increase in accounts payable and accrued liabilities.
Our negative operating cash flow for the three months ended November 30, 2023 was mainly the result of cash used in the purchase of movie broadcast right and copyright, offset by our net income combined with the amortization of intangible assets, and the increase in accounts payable.
Investing activities was $Nil for the three months ended November 30, 2024 and 2023, respectively.
Financing activities used $38,813 for the three months ended November 30, 2024, as compared with $179,981 provided by financing activities for the three months ended November 30, 2023. Our negative financing cash flow for the three months ended November 30, 2024 was due to the settlement of loans due to a related party. Our positive financing cash flow for the three months ended November 30, 2023 was due to the loans from related party.
Going Concern
Our consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. As of November 30, 2024, the Company had an accumulated deficit of approximately $12 million and a working capital deficit of $18,904. For the three months ended November 30, 2024, the Company incurred a net loss of $50,036. 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.
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 continue to provide the additional cash to meet the Company’s obligations as they become due. The Company also intends to fund operations through cash flow generated from the operations, including the expected ticket sales from Mt. Kisco movie theatre, equity financing, debt borrowings, and additional equity financing from outside investors, to ensure sufficient working capital. However, no assurance can be given that additional financing, if required, would be available on favorable terms or at all. If we are not able to secure additional funding, the implementation of our business plan will be impaired.
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.
| 7 |
Off Balance Sheet Arrangements
As of November 30, 2024, 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 disclosed below:
Revenue Recognition
The Company adopted ASC Topic 606, “Revenue from Contracts with Customers”, using the modified retrospective approach. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
To determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company derives its revenues primarily from six sources: (1) selling copyrights of movies or TV shows; (2) licensing NFT MMM platform and providing technical service; (3) movie theater admissions and food and beverage sales; (4) embedded marketing service; (5) advertising services in movie theatre.
Revenue from selling copyrights of movies or TV shows:
The Company recognizes revenue when master copy of movie or TV show is delivered, the IP is authorized and transferred to customers. The Company’s contracts with customer are primarily on a fixed-price basis and do not contain cancelable and refund-type provisions.
Revenue from licensing NFT MMM platform:
The Company derives revenue from NFTMM platform license fees, which includes accessing the NFTMM platform and platform data on both app and website. The Company's contract has a two-year term, and is non-cancelable and non-refundable. In accordance with ASC 606, a 'right to access' license is recognized over the license period.
Revenue from movie theater admissions and food and beverage sales:
The Company recognizes admissions and food and beverage revenues based on a gross transaction price which are recorded at a point in time when a film is exhibited to a customer and when a customer takes possession of food and beverage offerings. The Company defers 100% of the revenue associated with the sales of gift cards and exchange tickets until such time as the items are redeemed or estimated income from non-redemption is recorded.
Revenue from embedded marketing service:
The Company derives revenue from providing the services of embedded marketing through adding advertisement into movies and TV series. The Company recognizes revenue when the advertisement is added to the movies and TV series.
| 8 |
Revenue from advertisement:
The Company derives revenue from playing the advertisements on the theater screen. The Company recognizes revenue when the advertisements are shown on the theater screen.
Contract Assets and Liabilities
Payment terms are established on the Company’s pre-established credit requirements based upon an evaluation of customers’ credit quality. Contact assets are recognized for in related accounts receivable. Contract liabilities are recognized for contracts where payment has been received in advance of delivery. The contract liability balance can vary significantly depending on the timing of when an order is placed and when shipment or delivery occurs.
Disaggregation of revenue
The Company disaggregates its revenue from contracts by revenue streams, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors.
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 November 30, 2024. 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 November 30, 2024, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.
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 November 30, 2024, 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.
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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, 2025: (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 three months ended November 30, 2024, 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
Our business faces many risks, a number of which are described in the section captioned “Risk Factors” in our Annual Report for the year ended August 31, 2024, filed with the SEC on November 26, 2024. The risks described may not be the only risks we face. Other risks of which we are not yet aware, or that we currently believe are not material, may also materially and adversely impact our business operations or financial results. If any of the events or circumstances described in the risk factors contained in our Annual Report occur, our business, financial condition or results of operations could be adversely impacted and the value of an investment in our securities could decline. Investors and prospective investors should consider the risks described in our Annual Report, and the information contained in the section captioned “Forward-Looking Statements” and elsewhere in this Quarterly Report before deciding whether to invest in our securities.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None
Item 4. Mine Safety Disclosures
N/A
Item 5. Other Information
None
Item 6. Exhibits
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| Exhibit Number | Description of Exhibit
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| 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 November 30, 2024 formatted in Extensible Business Reporting Language (XBRL). |
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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, Chief Financial Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Director | |
| January 14, 2025 |
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