AI Era Corp 10-Q for FY2023 Q1
AI Era Corp. (AERA)
About this 10-Q
AI Era Corp filed this 10-Q on January 17, 2023, covering the quarter ended November 30, 2022 (FY2023 Q1).
Headline figures
Quarter ended November 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $236.81K
- Net loss
- $1.2M
- compared with a net loss of $1.05M a year earlier
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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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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| _______________________________________________________ | |
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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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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 10, 2023.
| 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 | 9 |
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 November 30, 2022 and August 31, 2022 (unaudited); |
| F-2 | Consolidated Statements of Operations for the three months ended November 30, 2022 and 2021 (unaudited); |
| F-3 | Consolidated Statements of Changes in Stockholders’ Equity for the three months ended November 30, 2022 and 2021 (unaudited); |
| F-4 | Consolidated Statements of Cash Flows for the three months ended November 30, 2022 and 2021 (unaudited); and |
| F-5 | Notes to Consolidated Financial Statements (unaudited) |
| 3 |
AB INTERNATIONAL GROUP CORP.
Consolidated Balance Sheets
(Unaudited)
| November 30, | August 31, | |||||||
| 2022 | 2022 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Account receivable | ||||||||
| Subscription 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 | $ | $ | ||||||
| Related party payable | ||||||||
| Current portion of obligations under operating leases | ||||||||
| Due to stockholders | ||||||||
| 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, 2022 and August 31, 2022, respectively | ||||||||
| Series B preferred stock, and shares issued and outstanding, as of November 30, 2022 and August 31, 2022, respectively | ||||||||
| Series C preferred stock, and shares issued and outstanding, as of November 30, 2022 and August 31, 2022, respectively | ||||||||
| Series D preferred stock, and shares issued and outstanding, as of November 30, 2022 and August 31, 2022, respectively | ||||||||
| Common stock, par value, shares authorized; and shares issued and outstanding, as of November 30, 2022 and August 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Unearned stock 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)
| Three months ended | ||||||||
| November 30, | ||||||||
| 2022 | 2021 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue | ( | ) | ( | ) | ||||
| Gross Loss | ( | ) | ( | ) | ||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses | ( | ) | ( | ) | ||||
| Related party salary and wages | ( | ) | ( | ) | ||||
| Total Operating Expenses | ( | ) | ( | ) | ||||
| Loss From Operations | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSES) | ||||||||
| Interest income, net | ||||||||
| Total Other Income | ||||||||
| Loss Before Income Tax Benefit | ( | ) | ( | ) | ||||
| Income tax benefit | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| Preferred shares dividend expense | ( | ) | ( | ) | ||||
| NET LOSS AVAILABLE TO COMMON STOCKHOLDERS | $ | ( | ) | $ | ( | ) | ||
| 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 Stock Compensation | Total Equity | |||||||||||||||||||||||||
| Balance - August 31, 2021 | $ | 226,590 | $ | 120 | $ | 11,009,517 | $ | (6,578,978 | ) | $ | (7,473 | ) | $ | 4,649,776 | ||||||||||||||||||
| Put Shares issued for cash | 5,500 | — | 133,276 | — | — | 138,776 | ||||||||||||||||||||||||||
| Preferred shares series C issuance | — | 333 | 288,617 | — | — | 288,950 | ||||||||||||||||||||||||||
| Preferred shares series D issuance | — | — | 153,000 | — | — | 153,000 | ||||||||||||||||||||||||||
| Preferred shares and dividend shares converted into common shares | 3,147 | ( |
) | (0 | ) | (3,147 | ) | — | — | — | ||||||||||||||||||||||
| Common shares issued to officers for services | — | — | — | — | 3,750 | 3,750 | ||||||||||||||||||||||||||
| Net loss | — | — | — | (1,052,045 | ) | — | (1,052,045) | |||||||||||||||||||||||||
| Balance - November 30,, 2021 | $ | 235,237 | $ | 453 | $ | 11,581,264 | $ | (7,631,023 | ) | $ | (3,723 | ) | $ | 4,182,207 | ||||||||||||||||||
| Balance - August 31, 2022 | $ | 384,512 | $ | 456 | $ | 12,636,838 | $ | (8,789,901 | ) | $ | (209,957 | ) | $ | 4,021,948 | ||||||||||||||||||
| Issuance of common shares | 200,000 | — | (53,525 | ) | — | — | 146,475 | |||||||||||||||||||||||||
| Preferred shares series C issuance | — | 90 | 68,910 | — | — | 69,000 | ||||||||||||||||||||||||||
| Preferred shares series C converted into common shares | 75,038 | ( | ) | (96 | ) | (74,942 | ) | — | — | — | ||||||||||||||||||||||
| Dividend in connection with Preferred shares series C | — | — | 5,764 | — | — | 5,764 | ||||||||||||||||||||||||||
| Common shares issued to officers for services | — | — | — | — | 82,800 | 82,800 | ||||||||||||||||||||||||||
| Net loss | — | — | — | (1,209,790 | ) | — | (1,209,790 | ) | ||||||||||||||||||||||||
| Balance - November 30, 2022 | $ | 659,550 | $ | 450 | $ | 12,583,045 | $ | (9,999,691 | ) | $ | (127,157 | ) | $ | 3,116,197 | ||||||||||||||||||
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, | ||||||||
| 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 | ||||||||
| Non-cash dividend expense for preferred shares | ||||||||
| Non-cash lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ( | ) | ||||||
| Rent security & electricity deposit | ( | ) | ||||||
| Purchase of movie and TV series broadcast right and copyright | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ||||||||
| Related party payable | ( | ) | ( | ) | ||||
| Other payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from common stock issuances | ||||||||
| Proceeds from preferred share C issuances | ||||||||
| Proceeds from preferred share D issuances | ||||||||
| Due to stockholders | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) 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: | ||||||||
| Transfer from purchase deposit to intangible assets | $ | $ | ||||||
| Subscription receivable for common stock issuance | $ | $ | ||||||
| Additions to ROU assets | $ | $ | ||||||
| Preferred shares and dividend shares converted into common shares | $ | $ | ||||||
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, 2022 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, 2022.
The unaudited consolidated financial statements as of and for the three months ended November 30, 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 months ended November 30, 2022 and 2021 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 fully 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.
Accounts receivable
Accounts receivable are 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)
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, 2022 and 2021, respectively.
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 transactions of foreign currency into U.S. dollars are included in current results of operations.
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 three 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.
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.
| F-6 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition (continued)
Revenue from licensing NFT MMM platform and providing technical service fee:
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 one 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. Initial technical service fee comprises of installation, implementation and necessary training required by the customer. These services fees are recognized as the services are delivered at a point in time.
Revenue from movie theater admissions and food and beverage sales:
The Company recognizes admission revenues based on a gross transaction price. Admissions and food and beverage revenues 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.
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.
As of November 30, 2022 and August 31, 2022, other than accounts receivable and deferred revenue, the Company had no material contract assets, contract liabilities or deferred contract costs recorded on its consolidated balance sheets.
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.
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.
| F-7 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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, 2022, the total number of warrants outstanding was
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation.
Recent Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, “‘Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (“ASU 2021-08”). This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The amendments are effective for the Company beginning after December 15, 2023, and are applied prospectively to business combinations that occur after the effective date. The Company does not expect the adoption of ASU 2021-04 to have a material effect on the consolidated financial statements.
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.
NOTE 3 – GOING CONCERN
The accompanying unaudited 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, 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. These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
| F-8 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 – SUBSCRIPTION RECEIVABLE
Subscription receivable is cash not
yet collected from the stockholders for issuance of common stock. As of November 30, 2022, the subscription receivable balance was $
NOTE 5 – PROPERTY AND EQUIPMENT
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 the leased office.
The depreciation expense was $
As of November 30, 2022 and August 31, 2022, the balance of property and equipment was as follows:
| November 30, 2022 | August 31, 2022 | |||||||
| Leasehold improvement | $ | $ | ||||||
| Appliances and furniture | ||||||||
| Total cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
NOTE 6 – INTANGIBLE ASSETS
As of November 30, 2022 and August 31, 2022, the balance of intangible assets was as follows:
| November 30, 2022 | August 31, 2022 | |||||||
| 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 | ||||||||
| TV drama copyright - 15 episodes | ||||||||
| Movie and TV series broadcast rights | ||||||||
| NFT MMM platform | ||||||||
| Total cost | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
| F-9 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 6 – INTANGIBLE ASSETS (Continued)
The amortization expense
for the three months ended November 30, 2022 and 2021 was $
| Twelve months ending November 30, | Amortization expense | ||||
| 2023 | $ | ||||
| 2024 | |||||
| Total | $ | ||||
In
March 2022, the Company signed a purchase agreement with All In One Media Ltd to acquire the copyrights and broadcast rights for five
movies at a price of $
On August 6, 2022, the Company licensed NFT MMM platform
to a third party to allow the access of NFTMM platform and platform data on both app and website for one year starting from August 20,
2022 for a monthly license fee of $
NOTE 7 – LEASES
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 also leased an office space in Singapore
under operating lease from April 13, 2021 to March 31, 2022 with monthly rental of $
On October 21, 2021, the Company signed a lease agreement
to lease “the Mt. Kisco Theatre”, a movie theater, for
| F-10 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – LEASES (Continued)
Total lease expense for the three months ended November
30, 2022 and 2021 was $
| November 30, 2022 | August 31, 2022 | |||||||
| Right-of-use assets, net | $ | $ | ||||||
| Operating lease liabilities - current | $ | $ | ||||||
| Operating lease liabilities - non-current | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The weighted average remaining lease terms was as of November 30, 2022.
The following is a schedule of maturities of lease liabilities are as follows:
| Twelve months ending November 30, | |||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Total future minimum lease payments | |||||
| Less: imputed interest | ( |
) | |||
| Total | $ | ||||
NOTE 8 – 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 drama was as follows:
| November 30, 2022 | August 31, 2022 | |||||||
| Purchase deposit for 25-episode TV drama | $ | $ | ||||||
| Purchase deposit for movies | ||||||||
| Total purchase deposits for intangible assets | $ | $ | ||||||
| • | In March
2022, the Company signed a purchase agreement with Anyone Pictures Limited to acquire the copyright to broadcast a 25-episode TV
drama series outside of mainland China at a price of $ |
| • | In March
2022, the Company signed a purchase agreement with All In One Media Ltd to acquire the copyrights and broadcast right for five movies
at a price of $ |
| F-11 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9– RELATED PARTY TRANSACTIONS
Due to stockholders
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. There is no formal written commitment for continued support by stockholders. Amounts due to stockholders 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.
Chiyuan Deng, the Chief Executive Offer, and Jianli Deng, the Chief Financial Officer, as the Company’s stockholders, make advances periodically to the Company for working capital purpose. These loans are non-interest bearing and due on demand.
As of November 30, 2022
and August 31, 2022, the Company had due to stockholders’ balance of $
Due to related party - Youall Perform Services Ltd.
Youall Perform Services
Ltd is owned by Jianli Deng, the 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.
Due to related party - Zestv Studios Limited
On December 1, 2020, the
Company entered an agreement with Zestv Studios Limited, a Hong Kong entity 100% owned by the Chiyuan Deng, the Chief Executive Officer,
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.
As of August 31, 2021, the Company had refund payable of $
On June 23, 2022, the Company sold the mainland China
copyright and broadcast right of the movie “Too Simple” to Zestv Studios Limited for a price of $
| F-12 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9– RELATED PARTY TRANSACTIONS (Continued)
Due to related party - Zestv Studios Limited (continued)
As of November 30, 2022 and August 31, 2022, the
Company had balance of $
The Company also rented an office space from Zestv
Studios Limited (See Note 7). For the three months ended November 30, 2022 and 2021, the Company incurred related party office rent expense
of $
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, 2022 and 2021, the Company incurred total compensation of $
NOTE 10 – STOCKHOLDERS’ EQUITY
Common shares
The Company had the following activities during the three months ended November 30, 2022:
Increasing authorized number of common shares
On October 11, 2022, the Company filed amendment to Articles of Incorporation to increase the authorized number of common shares from shares to shares. This increasing of authorized number of common shares has been retroactively reflected in the consolidated financial statements and notes thereto.
Conversion of Series C preferred shares to common shares
During the three months ended November 30, 2022, the Company issued total common shares as the result of the conversion of total Series C preferred shares.
| F-13 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – STOCKHOLDERS’ EQUITY (Continued)
Common shares (continued)
Subscription of Common shares
On August 2, 2022, the Company entered into a common
stock purchase agreement with Alumni Capital LP, a Delaware limited partnership. Pursuant to the agreement, Alumni Capital LP shall purchase
$
The Company plans to use the proceeds from the sale of the common stocks for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in good faith deem to be in the best interest of the Company. The registration of these securities was effective on September 13, 2022.
Pursuant
to this agreement, during the
three months ended November 30, 2022, Alumni Capital LP subscribed total of common shares for total proceeds of $
As of November 30, 2022 and August 31, 2022, the Company had and common shares issued and outstanding, respectively.
Preferred shares
The Company had the following activities during the three months ended November 30, 2022:
On September 6, 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 gross proceed of . After deduction of transaction-related expenses,
net proceed to the Company was $
The Company recorded dividend expenses
of $
| F-14 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11 – 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, 2022 and August 31, 2022, the components of net deferred tax assets, including a valuation allowance, were as follows:
| November 30, 2022 | August 31, 2022 | |||||||
| 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 $
Reconciliation between the statutory rate and the effective tax rate is as follows for the three months ended November 30, 2022 and 2021:
| Three months ended | ||||||||
| November 30, | ||||||||
| 2022 | 2021 | |||||||
| Federal statutory tax rate | % | % | ||||||
| Change in valuation allowance | ( | %) | ( | %) | ||||
| Effective tax rate | % | % | ||||||
During the three months ended November 30, 2022 and 2021, the Company and its subsidiaries incurred net losses. As a result, the Company and its subsidiaries did not incur any income tax during the three months ended November 30, 2022 and 2021.
| F-15 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 12 – CONCENTRATION RISK
Concentration
For the three months ended November
30, 2022,
As of November 30, 2022, one customer
accounted for
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 $
NOTE 13 – 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 several lease agreements to rent office spaces and movie theatre with its related party and third-party vendors. (See Note 7)
| F-16 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14 – 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, 2022 and 2021, respectively.
NOTE 14 - SEGMENT INFORMATION - Schedule of Operating Activities by Segment (Details)
| IP Segment | Cinema Segment | Total | ||||||||||||||||
| Three months ended | Three months ended | Three months ended | ||||||||||||||||
| November 30 | November 30 | November 30 | ||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | |
$ | $ | $ | $ | |
$ | ||||||||||
| Cost of revenue | |
|||||||||||||||||
| Gross income (loss) | ( |
( |
( |
( | ||||||||||||||
| Interest Expenses | |
|
||||||||||||||||
| Depreciation | |
|||||||||||||||||
| Capital expenditure | ||||||||||||||||||
| Segment assets | |
|
|
| ||||||||||||||
| Segment income (loss) | $ | ( |
$ | ( |
$ | ( |
$ | $ | ( |
$ | ( | |||||||
NOTE 15 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to the date these financial statements were issued.
Conversion of Series C preferred shares to common shares
On December 16, 2022, the Company issued 32,900,000 common shares for the conversion of 16,450 Series C preferred shares.
Loan provided by the shareholder
On December 21, 2022 and January 13, 2023, Chiyuan Deng, the Chief Executive Offer, provided loans of $384,000 and $128,000, respectively, to the Company for working capital purpose. These loans are non-interest bearing and due on demand.
| F-17 |
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 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.
Overview
The Company was incorporated under the laws of the State of Nevada on July 29, 2013. The Company's fiscal year end is August 31.
We are an intellectual property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectual property, including the acquisition and distribution of movies. On June 1, 2017 we have a patent license to a video synthesis and release system for mobile communications equipment, in which the technology is the subject of a utility model patent in the People's Republic of China. Our License to the Technology generates revenue through sub-license monthly fees from a smartphone app on Android devices. This smartphone app was already existing and licensed at the time we acquired the Technology of video synthesis. In January, 2021, our sublicensing agreement with Licensee to generate revenues was terminated. As such, there has been no revenues generated from sub-licensing the Technology since the end of December, 2020. On 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.
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.
| 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 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.
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, the Company incorporated AB Cinemas NY, Inc. in New York, NY, for the purpose of operating Mt. Kisco Theatre located in Mount Kisco, NY. The theatre has started operations in October 2022. After a rough two years for movie theatres due to the pandemic, movie theaters are starting to show signs of life again. The Company is intending to shift the business strategy from online only to the combination of online and offline business. The Company expects to generate considerable revenue from its movie theater business line in the following years.
On April 27, 2022, the Company purchased a unique Non-Fungible Token (“NFT”) movie and music marketplace, named as the NFT MMM from Stareastnet Portal Limited, an unrelated party, which including 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 the access of NFTMM platform and platform data on both app and website for one year starting from August 20, 2022 for a monthly license fee of $60,000. Pursuant to the agreement, the Company also charged one time implementation service and consulting fee of $100,000. 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 .
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.
| 5 |
During the COVID-19 pandemic, movie theatres have been subject to various governmental orders requiring theatres to take or refrain from certain activities including, but not limited to, suspending operations, reduction in seating capacities, enforcement of social distancing, establishment of enhanced cleaning protocols, restrictions on food and beverage sales, tracking the identity of guests, employee protection protocols, and limitation on operating hours. Although the orders have been modified frequently, we believe our theatre has maintained material compliance with such orders. We currently cannot predict when or if COVID-19 related governmental orders will be fully terminated and whether similar orders will be utilized more frequently during future public health outbreaks.
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. Itis 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.
Results of Operations
Revenues
Our total revenue reported for the three months ended November 30, 2022 was $236,812. We had no revenue generated for the three months ended November 30, 2021.
The increase in revenue for the three months ended November 30, 2022 was mainly attributable to the license fee in connection with the licensing our NFT MMM platform to a third party, as well as the movie tickets and related revenues from our newly operated movie theatre.
Our cost of revenues was $945,903 for the three months ended November 30, 2022, as compared with $686,567 for the three months ended November 30, 2021. The increase of cost of revenues for the three months ended November 30, 2022 was mainly attributable to the amortizing of movie broadcast rights and MFT MMM platform.
We have started the operation of our movie theatre since October 2022. We generated total revenue of $56,812, including $36,162 from ticket sales, and $20,650 from food and beverage sales. Total cost for our movie theater segment was $22,404, which resulted in gross profit margin of 61%. We expect to have continued growth in our movie theater segment with the recovery of movie industry from the impact of the pandemic.
As a result, we had a gross loss of $709,091 for the three months ended November 30, 2022, as compared with a gross loss of $686,567 for the three months ended November 30, 2021. The decrease in gross profit for the three months ended November 30, 2022 was largely to the higher cost of amortizing movie broadcast rights and MFT MMM platform.
We expect to generate increased 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.
| 6 |
Operating Expenses
Operating expenses increased to $495,013 for the three months ended November 30, 2022 from $363,967 for the three months ended November 30, 2021.
Our operating expenses for three months ended November 30, 2022 consisted of general and administrative expenses of $424,513 and related party salary and wages of $70,500. In contrast, our operating expenses for the three months ended November 30, 2021 consisted of general and administrative expenses of $289,467 and related party salary and wages of $74,500.
We experienced an increase in general and administrative expenses, mainly as a result of increased salaries and professional fees.
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 2023 at various levels of operation.
Net Loss
We incurred a net loss in the amount of $1,204,025 for the three months ended November 30, 2022, as compared with a net loss of $1,050,534 for the three months ended November 30, 2021.
Liquidity and Capital Resources
As of November 30, 2022, we had $148,220 in current assets consisting of cash, prepaid expenses, accounts receivable and subscription receivables. Our total current liabilities as of November 30, 2022 were $1,221,719. As a result, we have a working capital deficit of $1,073,499 as of November 30, 2022 as compared with $856,866 as of August 31, 2022.
Operating activities used $222,142 in cash for the three months ended November 30, 2022, as compared with $630,073 used in cash for the same period last year.
Our negative operating cash flow for Q1 of fiscal 2023 was mainly the result of our net loss for the quarter combined with operating changes in receivables, offset by the amortization of intangible assets and stock-based compensation paid to consultants. Our negative operating cash flow for Q1 of fiscal 2022 was mainly the result of our net loss for the quarter combined with purchase of movie and TV series broadcast right and copyright, offset by the amortization of intangible assets and increase in other payable.
We had no investing activities for three months ended November 30, 2022 and 2021.
Financing activities provided $158,159 for the three months ended November 30, 2022, as compared with $668,488 provided in financing activities for the three months ended November 30, 2021. Our positive financing cash flow for the three months ended November 30, 2022 and 2021 was mainly the result of proceeds from issuance of our common shares and preferred shares.
| 7 |
Going Concern
Our unaudited 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, 2022, the Company had an accumulated deficit of approximately $10.0 million and a working capital deficit of approximately $1.1 million. For the three months ended November 30, 2022, the Company incurred a net loss of approximately $1.2 million and the net cash used in operations was approximately $0.2 million. Losses have principally occurred as a result of the substantial resources required for general and administrative expenses associated with our operations.
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.
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.
Off Balance Sheet Arrangements
As of November 30, 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 2 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.
| 8 |
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, 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 November 30, 2022, 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, 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 November 30, 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.
| 9 |
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 December 8, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company had the following equity activities during the three months ended November 30, 2022:
Common shares
Increasing authorized number of common shares
On October 11, 2022, the Company filed amendment to Articles of Incorporation to increase the authorized number of common shares from 1,000,000,000 shares to 10,000,000,000 shares. This increasing of authorized number of common shares has been retroactively reflected in the consolidated financial statements and notes thereto.
Conversion of Series C preferred shares to common shares
During the three months ended November 30, 2022, the Company issued total 75,037,786 common shares as the result of the conversion of total 96,075 Series C preferred shares.
Subscription of Common shares
During the three months ended November 30, 2022, Alumni Capital LP subscribed total of 200,000,000 common shares for total proceeds of $146,475, of which $87,975 was received in the three months ended November 30, 2022 and $58,500 was received by the Company in December 2022.
Preferred shares
On September 6, 2022, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company 90,275 shares of Series C Convertible Preferred Stock of the Company for a gross proceed of $78,500. After deduction of transaction-related expenses, net proceed to the Company was $69,000. The Company intends to use the proceeds from the Preferred Stock for general working capital purposes.
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
| 10 |
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 November 30, 2022 formatted in Extensible Business Reporting Language (XBRL). |
| 11 |
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, and Director | |
| January 17, 2023 |
| By: | /s/ Jianli Deng |
Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer | |
| January 17, 2023 |
| 12 |
| CERTIFICATIONS |
I, Chiyuan Deng, certify that;
| 1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended November 30, 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: January 17, 2023
/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 November 30, 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: January 17, 2023
/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 November 30, 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: | January 17, 2023 |
| By: | /s/ Jianli Deng |
| Name: | Jianli Deng |
| Title: | Principal Financial Officer |
| Date: | January 17, 2023 |
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.