UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
Post-Effective Amendment No. 1 to the Form S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933
AB INTERNATIONAL GROUP CORP.
(Exact name of registrant as specified in its charter)
Nevada
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37-1740351
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(State of Incorporation)
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(IRS Employer
Identification Number)
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48 Wall Street, Suite 1009,
New York, NY 10005
(852) 2622-2891
(Address, including zip code, and telephone number,
including area code,
of registrant’s principal executive offices)
Copies of all correspondence to:
The Doney Law Firm
4955 S. Durango Rd. Ste. 165
Las Vegas, NV 89113
Tel. No.: (702) 982-5686
(Address, including zip code, and telephone, including area code)
Approximate date of commencement of proposed sale
of the securities to the public:
From time to time after the effective date of this registration statement.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. ☒
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to rule 462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. ☐
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering. ☐
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
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Emerging Growth Company
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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 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this Registration
Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
Explanatory Note
On April 20, 2021, we filed with the Securities and Exchange
Commission a registration statement on Form S-1 (File No. 333-255370), to register the offer and sale of up 69,861,682 shares of common
stock.
The Registration Statement was declared effective by the
Commission on May 3, 2021. This Post-Effective Amendment No. 1 to the Form S-1 is being filed to include updated financial statements
for the years ended August 31, 2021 and 2020 and for the three months ended November 30, 2021. All securities offered hereby are being
offered on a delayed or continuous basis. We are not registering any additional securities under this Post-Effective Amendment. All filing
fees payable in connection with the registration of these securities were previously paid by us in connection with the filing of the
Form S-1
The information in this prospectus is not complete and may
be changed. The Selling Stockholders may not sell these securities until the registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer, solicitation or sale is not permitted.
PRELIMINARY PROSPECTUS, SUBJECT
TO COMPLETION, DATED FEBRUARY 10, 2022
AB INTERNATIONAL GROUP CORP.
Up to 69,861,682 Shares of Common Stock
Pursuant to this prospectus, Peak One Opportunity Fund,
L.P., a Delaware Limited Partnership (referred to herein as “Peak One”), is offering on a resale basis from time to time an
aggregate of up to 28,989,199 shares of common stock, par value $0.001 per share (the “Common Stock), of AB International Group
Corp. (“AB International,” “we,” “our” or the “Company”), a Nevada corporation. These
shares of Common Stock are purchasable by Peak One pursuant to the terms and conditions of an Equity Purchase Agreement that we entered
into with Peak One on July 30, 2020 (the “Financing Agreement”). Pursuant to the Financing Agreement, we have the right to
“put”,” or sell, at our discretion, up to $10,000,000 worth of shares of Common Stock to Peak One. This arrangement
is also sometimes referred to herein as the “Equity Line.”
As of January 26, 2022, the 2,319,199 shares of
Common Stock registered for resale herein would represent approximately 2.88% of the Company’s public float. In connection with
an Equity Line in prior registration statements on Form S-1, file numbers 333-249514 and 333-246252, and including this current registration
statement, Peak One sold 54,333,007 shares of Common Stock. Because the total amount of shares to be sold pursuant to the Financing Agreement
may not exceed one-third of our public float in a 12 month period, the 26,670,000 shares already sold must be added to the amount registered
in this offering, or 53,764,813 shares, for a total amount of 80,434,813 shares, which collectively amounts to 33% of our public float.
Also pursuant to this prospectus, GHS Investments,
LLC (referred to herein as “GHS Investments”) is offering on a resale basis from time to time an aggregate of up to
46,153,847 shares of Common Stock issuable upon conversion of the Company’s Series D Preferred Stock (“Series D Preferred”)
that GHS Investments may acquire pursuant to the terms and conditions of a Securities Purchase Agreement that we entered into with
GHS Investments on March 10, 2021 (the “Securities Purchase Agreement”).
We are not selling any shares of Common Stock
under this prospectus and will not receive any of the proceeds from the sale of the Common Stock by either Peak One or GHS Investments
(referred to herein together as the “Selling Stockholders”). However, we may receive up to an aggregate of $10 million
in proceeds from the sale of our Common Stock to Peak One pursuant to the Equity Line and up to $5 million in proceeds from the
sale of Series D Preferred Stock to GHS Investments pursuant to the Securities Purchase Agreement.
The Selling Stockholders may sell all or a portion
of the shares being offered pursuant to this Prospectus at fixed prices, at prevailing market prices at the time of sale, at varying
prices or at negotiated prices. For additional information regarding the methods of sale you should refer to the section entitled
“Plan of Distribution” in this Prospectus.
The Selling Stockholders may be considered underwriters
within the meaning of the Securities Act of 1933, and any broker-dealers or agents that are involved in selling the shares may
be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In such
event, any commissions received by such broker-dealers or agents, and any profit on the resale of the shares purchased by them,
may be deemed to be underwriting commissions or discounts under the Securities Act of 1933.
The Common Stock is quoted on the OTCQB, under
the symbol “ABQQ.” On February 10, 2022, the last reported sale price of the Common Stock on the OTCQB was $0.017 per share.
Investing in our common stock involves
a high degree of risk. Before deciding whether to invest in our securities, you should consider carefully the risks that we
have described on page 5 of this prospectus under the caption “Risk Factors” and in the documents incorporated by
reference into this prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful
or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus is February 10, 2022.
TABLE OF CONTENTS
We have not, and the Selling Stockholders have
not, authorized anyone to provide you with information other than that contained or incorporated by reference in this prospectus
and any applicable prospectus supplement or amendment. We have not, and the Selling Stockholders have not, authorized any person
to provide you with different information. This prospectus is not an offer to sell, nor is it an offer to buy, these securities
in any jurisdiction where the offer is not permitted. The information contained or incorporated by reference in this prospectus
and any applicable prospectus supplement or amendment is accurate only as of its date. Our business, financial condition, results
of operations, and prospects may have changed since that date.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement
that we have filed with the Securities and Exchange Commission (the “SEC”) pursuant to which the Selling Stockholder
named herein may, from time to time, offer and sell or otherwise dispose of the securities covered by this prospectus. You should
not assume that the information contained in this prospectus is accurate on any date subsequent to the date set forth on the front
cover of this prospectus or that any information we have incorporated by reference is correct on any date subsequent to the date
of the document incorporated by reference, even though this prospectus is delivered or securities are sold or otherwise disposed
of on a later date. It is important for you to read and consider all information contained in this prospectus, including the Information
Incorporated by Reference herein, in making your investment decision. You should also read and consider the information in the
documents to which we have referred you under the captions “Where You Can Find More Information” and “Incorporation
of Information by Reference” in this prospectus.
Neither we nor the Selling Stockholders have
authorized any dealer, salesman or other person to give any information or to make any representation other than those contained
or incorporated by reference in this prospectus. You must not rely upon any information or representation not contained or incorporated
by reference in this prospectus. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy any
of our securities other than the securities covered hereby, nor does this prospectus constitute an offer to sell or the solicitation
of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation in
such jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required
to inform themselves about, and to observe, any restrictions as to the offering and the distribution of this prospectus applicable
to those jurisdictions.
We further note that the representations, warranties
and covenants made in any agreement that is filed as an exhibit to any document that is incorporated by reference in the accompanying
prospectus were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating
risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover,
such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties
and covenants should not be relied on as accurately representing the current state of our affairs.
Unless the context otherwise requires, references
in this prospectus to “AB International,” the “Company,” “we,” “us,” and “our”
refer to AB International Group Corp.
PROSPECTUS SUMMARY
The following is a summary of what we believe
to be the most important aspects of our business and the offering of our securities under this prospectus. We urge you to read
this entire prospectus, including the more detailed financial statements, notes to the financial statements and other information
incorporated by reference from our other filings with the SEC. Each of the risk factors could adversely affect our business, operating
results and financial condition, as well as adversely affect the value of an investment in our securities.
Overview
AB International Group Corp. (the "Company",
"we" or "us") was incorporated under the laws of the State of Nevada on July 29, 2013 and originally intended
to purchase used cars in the United States and sell them in Krygyzstan. The Company's fiscal year end is August 31.
We are an intellectual property (IP) and movie
investment and licensing firm, focused on acquisitions and development of various intellectual property, including the acquisition and
distribution of movies. We have a Patent License to a video synthesis and release system for mobile communications equipment, in which
the technology is the subject of a utility model patent in the People's Republic of China. We had launched a business application (Ai
Bian Quan Qiu) through smartphones and official social media accounts based on WeChat platform in February 2019, utilizing Artificial
Intelligence, it is a matching platform for performers, advertiser merchants, and owners for more efficient services. We generate revenues
through an agency service fee from each matched performance. 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. Starting in January 2021, however, the Company started
generating movie box-office revenue from the movie “Ai Bian Quan Qiu” as a result in the easing of COVID-19 restrictions.
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 November 30, 2021, the Company acquired 59 movie broadcast
rights. The Company will continue marketing and promoting the ABQQ.tv website through GoogleAds and acquire additional broadcast rights
for movies and TV series, and plan to charge subscription fees once the Company has obtained at least 200 broadcast rights of movie and
TV series.
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. 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 Mills in “In Search
of the Castaways.” It was a replacement for the town’s other movie theatre that burned down. It was later twinned and further
divided into 5 screens. It was operated for years by Lesser Theaters, then bought by Clearview Cinemas. In June, 2013 it was taken over
by Bow-Tie Cinemas when they took most Clearview locations. It lasted until March, 2020 when it was closed by the Covid-19 pandemic.
It was announced in September 2020 that the closure would be permanent. The Company intends to continue to use the space as a theatre
with a total of 5 screens and 466 sets for screening films. It’s the first theatre of ABQQ Cinemas in America as the new business
line of the Company.
Covid-19
The full extent of the impact of the COVID-19
pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able to
accurately predict at the present time. In an effort to contain COVID-19 or slow its spread, governments around the world have
enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to their
homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actions
and the global health crisis caused by COVID-19 will
negatively impact business activity across the globe. The movie industry in
general has changed dramatically as a result of the pandemic restrictions. While movie theaters struggle to stay alive, online
streaming programming has increased. We have endeavored to stay with the trend for streaming services to remain competitive. We
have experienced the negative impact in our results of operations and in our financial condition for the year ended August, 2020,
especially with respect to the movie distribution end of our business. These impacts concern delays in delivering our movies and
IP because of health restrictions imposed on certain public events that concern our business, including, among other things, theaters,
indoor and outdoor performances, filming restrictions, music festivals, concerts and other such events, Some of these restrictions
include pandemic government mandated shutdowns and others restrictions on capacity gathered at these events, with some jurisdictions
imposing fines or revocation of business licensing, and other restrictions. As a result of these factors, our revenue was reduced
from March to May of 2020. With immediate closures, the resultant industry and business specific delays have negatively affected
our company.
We plan to focus on the video streaming and
other web based applications and expand our business into those areas that we believe we situate the company for continued and
increased revenues. As the pandemic is forecasted to worsen in the United States and other areas around the globe, we believe that
the demand for our IP, online products and services offerings increases. While we cannot guarantee that the negative effects of
the pandemic will not interfere with our ability to generate revenues, we intend to strengthen our position in this dynamic market
and position the company to best suit its shareholders.
Specific to our company operations, during the
pandemic period, we have enacted precautionary measures to protect the health and safety of our employees and partners. These measures
include closing our office, having employees work from home, and eliminating all travel. While having employees work from home
may have a negative impact on efficiency and may result in negligible increases in costs, it does have an impact on our ability
to execute on our agreements to deliver our core products.
We will continue to actively monitor the situation
and may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities,
or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what the
potential effects any such alterations or modifications may have on our business, including the effects on our customers, partners,
or vendors, or on our financial results.
Description of the Financing Agreement and the Securities Purchase
Agreement
Description of the Financing Agreement (Equity Line)
On July 30, 2020, we entered
into an Equity Purchase Agreement (the “Financing Agreement”) with Peak One. Although we are not mandated to sell shares
under the Financing Agreement, the Financing Agreement gives us the option to sell to Peak One, up to $10,000,000 worth of our
common stock over the period ending twenty-four (24) months after the date the Registration Statement of which this prospectus
forms a part is deemed effective. In consideration for Peak One’s execution and performance under the Financing Agreement,
the Company issued a warrant to purchase 750,000 shares of Common Stock, as Warrant Shares (as defined in the Financing Agreement),
to Peak One in July 2020.
On
July 30, 2020, we also entered into a registration rights agreement with Peak One (the
“Registration Rights Agreement”) whereby we are obligated to file a registration statement to register the resale of
the purchase shares. The Registration Statement of which this prospectus forms a part is
being filed to comply with the Registration Rights Agreement. We must our reasonable efforts to keep the registration statement
continuously effective under the Securities Act until all of the Warrant Shares and purchase shares have been sold there under
or pursuant to Rule 144.
Description of Securities Purchase Agreement (Series D Preferred
Stock Issuance)
On March 10, 2021, we entered a Securities Purchase
Agreement (the “Securities Purchase Agreement”) with GHS Investments, whereby GHS Investments agreed to purchase, in
tranches, up to Five Million Dollars ($5,000,000) of our Series D Preferred Stock in exchange for Five Thousand (5,000) shares
of Series D Preferred Stock. The first tranche, which was paid at execution of the Securities Purchase Agreement, was for the purchase
of Two Hundred and Fifty (250) shares of Series D Preferred Stock for Two Hundred and Fifty Thousand Dollars ($250,000). The remaining
tranches (each consisting of the sale of Five Hundred shares of Series D Preferred Stock for Five Hundred Thousand Dollars ($500,000))
shall occur so long as the Equity Conditions are met as defined in the Securities Purchase Agreement.
These Equity Conditions include items such as:
there are no uncured Events of Defaults under the Securities Purchase Agreement, the closing price of the Common Stock for each
of the thirty (30) Trading Days prior to the date of such additional Closing exceeds $0.01, (iii) the average daily trading volume
of the Company’s Common Stock for each of the thirty (30) Trading Days prior to the date of such additional Closing exceeds
$200,000 and (iv) there remains an effective Registration Statement available to the Purchaser for the resale of the shares of
Common Stock issuable upon conversion of the Preferred Stock. However, if the Equity Conditions are not met, GHS shall purchase
such number of shares of Series D Preferred Stock, at the per share price of $1,000, that equates to one hundred percent (100%)
of the average daily trading dollar volume for the ten (10) Trading Days preceding the relevant tranche.
The Company issued to GHS commitment shares
of 75 shares of Series D Preferred Stock. We have agreed to register the shares of Common Stock that may be issued upon conversion
of the Series D Preferred Stock.
THE OFFERING
Common stock to be offered by the Selling Stockholder
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Up to 69,861,682 Shares
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Shares of Common Stock outstanding before this offering
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248,319,173 shares, as of January 31, 2022
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Shares of Common Stock outstanding after this offering
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263,461,957 shares. This assumes that
the Company has fully committed on the Equity Line up to the maximum of shares allowable under this Prospectus and has converted
of all Series D Preferred Stock into shares of Common Stock.
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Use of Proceeds
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We will not receive any proceeds from the sale of Common Stock by the Selling Stockholder. We may receive up to an aggregate of $10 million in proceeds from the sale of our Common Stock to Peak One pursuant to the Equity Line and up to $5 million in proceeds from the sale of Series D Preferred Stock to GHS Investments pursuant to the Securities Purchase Agreement.
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Plan of Distribution
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The Selling Stockholder may, from time to time,
sell any or all of their shares of our Common Stock on the stock exchange, market or trading facility on which the shares
are traded or in private transactions. These sales may be fixed or negotiated prices. For further information, see “Plan
of Distribution” beginning on page 5.
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Risk Factors
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This investment involves a high degree of risk. See “Risk Factors” for a discussion of factors you should consider carefully before making an investment decision.
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OTCQB symbol
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“ABQQ.”
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RISK FACTORS
This investment has a high degree of risk. Before
you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus.
If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value
of our stock could go down. This means you could lose all or a part of your investment.
Risk Related to Covid 19
Our business and future operations may
be adversely affected by epidemics and pandemics, such as the recent COVID-19 outbreak.
We may face risks related to health epidemics
and pandemics or other outbreaks of communicable diseases, which could result in a widespread health crisis that could adversely
affect general commercial activity and the economies and financial markets of the country as a whole. For example, the recent outbreak
of COVID-19, which began in China, has been declared by the World Health Organization to be a “pandemic,” has spread
across the globe, including the United States of America.
A health epidemic or pandemic or other outbreak
of communicable diseases, such as the current COVID-19 pandemic, poses the risk that we, or potential business partners may be
disrupted or prevented from conducting business activities for certain periods of time, the durations of which are uncertain, and
may otherwise experience significant impairments of business activities, including due to, among other things, operational shutdowns
or suspensions that may be requested or mandated by national or local governmental authorities or self-imposed by us, our customers
or other business partners. While it is not possible at this time to estimate the impact that COVID-19 could have on our business,
potential customers, potential suppliers or other current or potential business partners, the continued spread of COVID-19, the
measures taken by the local and federal government, actions taken to protect employees, and the impact of the pandemic on various
business activities could adversely affect our results of operations and financial condition.
The COVID-19 pandemic has required our management
to focus their attention primarily on responding to the challenges presented by the pandemic, including ensuring continuous operations,
and adjusting our operations to address changes in the virtual payments industry. Due to measures imposed by the local governments
in areas affected by COVID-19, businesses have been suspended due to quarantine intended to contain this outbreak and many people
have been forced to work from home in those areas. As a result, advertiser merchants orders for event has been suspended, which
has had an adverse impact on our business and financial condition and has hampered our ability to generate revenue and access usual
sources of liquidity on reasonable terms.
Risks Associated With Doing Business in Hong Kong
Political consideration of Hong Kong
While we are planning to move our principal
business location to New York in the near future, our business operations are principally based in Hong Kong. Accordingly, our
business operation and financial conditions will be affected by the political and legal developments in Hong Kong. Any adverse
economic, social and/or political conditions, material social unrest, strike, riot, civil disturbance or disobedience, as well
as significant natural disasters, may affect the market may adversely affect our business operations. Hong Kong is a special administrative
region of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law, namely, Hong Kong’s
constitutional document, which provides
Hong Kong with a high degree of autonomy and executive, legislative and independent judicial
powers, including that of final adjudication under the principle of “one country, two systems”. However, there is no
assurance that there will not be any changes in the economic, political and legal environment in Hong Kong in the future. Since
a substantial part of our operations is based in Hong Kong, any change of such political arrangements may pose immediate threat
to the stability of the economy in Hong Kong, thereby directly and adversely affecting our results of operations and financial
positions.
The Hong Kong protests that begun in 2019 are
ongoing protests in Hong Kong (the “Hong Kong Protests”) triggered by the introduction of the Fugitive Offenders amendment
bill by the Hong Kong government. If enacted, the bill would have allowed the extradition of criminal fugitives who are wanted
in territories with which Hong Kong does not currently have extradition agreements, including mainland China. This led to concerns
that the bill would subject Hong Kong residents and visitors to the jurisdiction and legal system of mainland China, thereby undermining
the region’s autonomy and people’s civil liberties. Various sectors of the Hong Kong economy have been adversely affected
as the protests turned increasingly violent. Most notably, the airline, retail, and real estate sectors have seen their sales decline.
Under the Basic Law of the Hong Kong Special
Administrative Region of the People’s Republic of China, Hong Kong is exclusively in charge of its internal affairs and external
relations, while the government of the PRC is responsible for its foreign affairs and defense. As a separate customs territory,
Hong Kong maintains and develops relations with foreign states and regions. We cannot assure that the Hong Kong Protests will not
affect Hong Kong’s status as a Special Administrative Region of the People’s Republic of China and thereby affecting
its current relations with foreign states and regions.
Our revenue is susceptible to the ongoing Hong
Kong Protests as well as any other incidents or factors which affect the stability of the social, economic and political conditions
in Hong Kong. Any drastic events may adversely affect our business operations. Such adverse events may include changes in economic
conditions and regulatory environment, social and/or political conditions, civil disturbance or disobedience, as well as significant
natural disasters. Given the relatively small geographical size of Hong Kong, any of such incidents may have a widespread effect
on our business operations, which could in turn adversely and materially affect our business, results of operations and financial
condition.
We cannot assure that the Hong Kong Protests
will end in the near future and that there will be no other political or social unrest in the near future or that there will not
be other events that could lead to the disruption of the economic, political and social conditions in Hong Kong. If such events
persist for a prolonged period of time or that the economic, political and social conditions in Hong Kong are to be disrupted,
our overall business and results of operations may be adversely affected.
Costs of conducting business in Hong Kong
and globally
Because we operate our business in Hong Kong
and other countries, our business is subject to risks associated with doing business globally. Accordingly, our business and financial
results in the future could be adversely affected due to a variety of factors, including: changes in a specific country’s
or region’s political and cultural climate or economic condition; unexpected changes in laws and regulatory requirements
in local jurisdictions; difficulty of effective enforcement of contractual provisions in local jurisdictions; inadequate intellectual
property protection in certain countries; enforcement of anti-corruption and anti-bribery laws; trade-protection measures, import
or export licensing requirements and fines, penalties or suspension or revocation of export privileges; the effects of applicable
local tax regimes and potentially adverse tax consequences; and significant adverse changes in local currency exchange rates.
Risks Related to Our Financial Condition
Because we have a limited operating history,
you may not be able to accurately evaluate our operations.
We have had limited operations to date and have
generated limited revenues. Therefore, we have a limited operating history upon which to evaluate the merits of investing in our
company. Potential investors should be aware of the difficulties normally encountered by new companies and the high rate of failure
of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications
and delays encountered in connection with the operations that we plan to undertake. These potential problems include, but are not
limited to, unanticipated problems relating
to the ability to generate sufficient cash
flow to operate our business, and additional costs and expenses that may exceed current estimates. We expect to incur significant
losses into the foreseeable future. We recognize that if the effectiveness of our business plan is not forthcoming, we will not
be able to continue business operations. There is no history upon which to base any assumption as to the likelihood that we will
prove successful, and it is doubtful that we will continue to generate operating revenues or ever achieve profitable operations.
If we are unsuccessful in addressing these risks, our business will most likely fail.
We are dependent on outside financing for
continuation of our operations.
Because we have generated limited revenues and
currently operate at a loss, we are completely dependent on the continued availability of financing in order to continue our business.
There can be no assurance that financing sufficient to enable us to continue our operations will be available to us in the future.
We have sold several convertible promissory
notes with discount to market conversions that have the effect of driving down our stock price, from which we may never recover.
In 2020 and 2021, we have issued several convertible
promissory notes to accredited investors. These notes contain terms that allow for discounted conversions from the company’s stock
price, with most at a 40% discount. These notes also contain strict terms for compliance and penalty provisions that could cost us more
than the principal and accrued interest. They also have most favored nation clauses that force us to offer more favorable terms in subsequent
offerings. If we are unable to secure a better form of financing, or pay off the notes before they convert, we could experience a significant
drop in our stock price and face other negative consequences. Because we are penny stock, and there is a limited market for our shares,
investor may not be able to recoup their investment and noteholders may not be able to sell their converted shares into the market. We
may be forced to pay off the convertible debt, with existing or raised funds, which might not be available. We could be at risk of default
with the noteholders. If that happens, we may be forced to defend the lawsuits, liquidate assets, etc., which would be costly and turn
management’s attention away from the business. We could go out of business and you could lose your entire investment.
Risks Related to Legal Uncertainty
Compliance with changing regulation of
corporate governance and public disclosure may result in additional expenses.
Changing laws, regulations and standards relating
to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations, are creating uncertainty
for companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in many
cases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance is
provided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standards
of corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulations
and standards, and this investment may result in increased general and administrative expenses and a diversion of management time
and attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations
and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, our
reputation may be harmed.
If
we fail to comply with the new rules under the Sarbanes-Oxley Act related to accounting controls and procedures, or if material weaknesses
or other deficiencies are discovered in our internal accounting procedures, our stock price could decline significantly.
We
are exposed to potential risks from legislation requiring companies to evaluate internal controls under Section 404(a) of the Sarbanes-Oxley
Act of 2002. As a smaller reporting company and emerging growth company, we will not be required to provide a report on the effectiveness
of its internal controls over financial reporting until our second annual report, and we will be exempt from auditor attestation requirements
concerning any such report so long as we are an emerging growth company or a smaller reporting company. We have not yet evaluated whether
our internal control procedures are effective and therefore there is a greater likelihood of material weaknesses in our internal controls,
which could lead to misstatements or omissions in our reported financial statements as compared to issuers that have conducted such evaluations.
If
material weaknesses and deficiencies are detected, it could cause investors to lose confidence in our company and result in a decline
in our stock price and consequently affect our financial condition. In addition, if we fail to achieve and maintain the adequacy of our
internal controls, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over
financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those
related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial
fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors
could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly. In addition,
we cannot be certain that additional material weaknesses or significant deficiencies in our internal controls will not be discovered
in the future.
Risks Associated with Management and Control Persons
If we fail to attract and retain qualified
senior executive and key technical personnel, our business will not be able to expand.
We are dependent on the continued availability
of Chiyuan Deng, and the availability of new employees to implement our business plans. The market for skilled employees is highly
competitive, especially for employees in the service industry. Although we expect that our compensation programs will be intended
to attract and retain the employees required for us to be successful, there can be no assurance that we will be able to retain
the services of all our key employees or a sufficient number to execute our plans, nor can there be any assurance we will be able
to continue to attract new employees as required.
Our personnel may voluntarily terminate their
relationship with us at any time, and competition for qualified personnel is intense. The process of locating additional personnel
with the combination of skills and attributes required to carry out our strategy could be lengthy, costly and disruptive.
If we lose the services of key personnel, or
fail to replace the services of key personnel who depart, we could experience a severe negative effect on our financial results
and stock price. In addition, there is intense competition for highly qualified bilingual and “people friendly” personnel
in the locations where we principally operate. The loss of the services of any key personnel, marketing or other personnel or our
failure to attract, integrate, motivate and retain additional key employees could have a material adverse effect on our business,
operating and financial results and stock price.
Mr. Deng owns a significant percentage
of the voting power of our stock and will be able to exercise significant influence over the composition of our Board of Directors,
matters subject to stockholder approval and our operations.
As of the date of this filing, Chiyuan Deng
owns 100,000 shares of our Series A Preferred Stock, which has the voting power of 51% of the total vote of shareholders. As a
result of his equity ownership interest, voting power and the contractual rights described above, Mr. Deng currently is in a position
to influence, subject to our organizational documents and Nevada law, the composition of our Board of Directors and the outcome
of corporate actions requiring stockholder approval, such as mergers, business combinations and dispositions of assets, among other
corporate transactions. In addition, this concentration of voting power could discourage others from initiating a potential merger,
takeover or other change of control transaction that may otherwise be beneficial to us, which could adversely affect the market
price of our securities.
Risks Related to Our Legal Status
As an “emerging growth company”
under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements.
We qualify as an “emerging growth company”
under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. For
so long as we are an emerging growth company, we will not be required to:
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have an auditor report on our internal controls over
financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;
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comply with any requirement that may be adopted by
the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report
providing additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);
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submit certain executive compensation matters to
shareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and
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disclose certain executive compensation related items
such as the correlation between executive compensation and performance and comparisons of the Chief Executive’s compensation
to median employee compensation.
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In addition, Section 107 of the JOBS Act also
provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay
the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected
to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable
to those of companies that comply with such new or revised accounting standards.
We will remain an “emerging growth company”
for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenues
exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700
million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issued
more than $1 billion in non-convertible debt during the preceding three year period.
Even if we no longer qualify for the exemptions
for an emerging growth company, we may still be, in certain circumstances, subject to scaled disclosure requirements as a smaller
reporting company. For example, smaller reporting companies, like emerging growth companies, are not required to provide a compensation
discussion and analysis under Item 402(b) of Regulation S-K or auditor attestation of internal controls over financial reporting.
Until such time, however, we cannot predict
if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common
stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more
volatile.
Risks Related to Our Securities and the Over the Counter Market
If a market for our common stock does
not develop, shareholders may be unable to sell their shares.
Our common stock is quoted under the symbol
“ABQQ” on the OTCQB operated by OTC Markets Group, Inc, an electronic inter-dealer quotation medium for equity securities.
We do not currently have an active trading market. There can be no assurance that an active and liquid trading market will develop
or, if developed, that it will be sustained.
Our securities are very thinly traded. Accordingly,
it may be difficult to sell shares of our common stock without significantly depressing the value of the stock. Unless we are successful
in developing continued investor interest in our stock, sales of our stock could continue to result in major fluctuations in the
price of the stock.
Our common stock price may be volatile and could
fluctuate widely in price, which could result in substantial losses for investors.
The market price of our common stock is likely
to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control,
including:
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technological innovations or new products and services
by us or our competitors;
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government regulation of our products and services;
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the establishment of partnerships with other technology
companies;
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intellectual property disputes;
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additions or departures of key personnel;
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sales of our common stock
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our ability to integrate operations, technology,
products and services;
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our ability to execute our business plan;
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operating results below expectations;
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loss of any strategic relationship;
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economic and other external factors; and
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period to period fluctuations in our financial results.
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Because we have nominal revenues to date, you
should consider any one of these factors to be material. Our stock price may fluctuate widely as a result of any of the above.
In addition, the securities markets have from
time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
As a new investor, you will experience
substantial dilution as a result of future equity issuances.
In the event we are required to raise additional
capital we may do so by selling additional shares of common stock thereby diluting the shares and ownership interests of existing
shareholders.
Our stock is a penny stock. Trading of
our stock may be restricted by the SEC’s penny stock regulations and FINRA’s sales practice requirements, which may
limit a stockholder’s ability to buy and sell our stock.
Our stock is a penny stock. The Securities and
Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has
a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.
Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who
sell to persons other than established customers and “accredited investors”. The term “accredited investor”
refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to
a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form
prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market.
The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny
stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information,
must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing
before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure
requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject
to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities.
We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.
In addition to the “penny stock”
rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority has adopted rules that
require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment
is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives
and other information. Under interpretations of these rules, the Financial Industry Regulatory Authority believes that there is
a high probability that speculative low-priced securities will not be suitable for at least some customers. The Financial Industry
Regulatory Authority’ requirements make it more difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock.
Rule 144 sales in the future may have
a depressive effect on our stock price as an increase in supply of shares for sale, with no corresponding increase in demand will
cause prices to fall.
All of the outstanding shares of common stock
held by the present officers, directors, and affiliate stockholders are “restricted securities” within the meaning
of Rule 144 under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to an
effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the
Act and as required under applicable state securities laws. Rule 144 provides in essence that a person who is an affiliate or officer
or director who has held restricted securities for six months may, under certain conditions, sell every three months, in brokerage
transactions, a number of shares that does not exceed the greater of 1.0% of a company’s outstanding common stock. There
is no limit on the amount of restricted securities that may be sold by a non-affiliate after the owner has held the restricted
securities for a period of six months if the company is a current reporting company under the 1934 Act. A sale under Rule 144 or
under any other exemption from the Act, if available, or pursuant to subsequent registration of shares of common stock of present
stockholders, may have a depressive effect upon the price of the common stock in any market that may develop.
FINRA sales practice requirements may
also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock”
rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other
information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend
that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on
the market for our shares.
We do not intend to pay dividends.
We do not anticipate paying cash dividends on
our common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legally
available to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment and
amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things,
the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our board
of directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are rapid,
there is no assurance with respect to the amount of any such dividend.
We have the right to issue additional
common stock and preferred stock without consent of shareholders. This would have the effect of diluting investors’ ownership
and could decrease the value of their investment.
We are authorized to issue up to 1,000,000,000
shares of common stock, of which there were 248,319,173 shares issued and outstanding as of January 24, 2022. In addition, our articles
of incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock, the rights, preferences, designations and limitations
of which may be set by the Board of Directors. We have designated and authorized, one 100,000 share of Series A Preferred Stock, 20,000
shares of Series B Convertible Preferred Stock, 1,000,000 shares of Series C Preferred Stock, and 5,075 shares of Series D Preferred
Stock. As of January 24, 2022, there were issued and outstanding (i) 100,000 shares of our Series A Preferred Stock, (ii) 20,000 shares
of our Series B Preferred Stock, (iii) 422,115 shares of our Series C Preferred Stock, and (iv) 108 shares of our Series D Convertible
Preferred Stock.
The shares of authorized but undesignated preferred
stock may be issued upon filing of an amended certificate of incorporation and the payment of required fees; no further shareholder
action is required. If issued, the rights, preferences, designations and limitations of such preferred stock would be set by our
Board and could operate to the disadvantage of the outstanding common stock. Such terms could include, among others, preferences
as to dividends and distributions on liquidation. We have designated four series of preferred stock, four of which have shares
issued and outstanding. A description of the terms, rights and preferences of these series of preferred stock are described under
“Description of Securities” beginning on page 3.
Risks Related to the Offering
Our existing stockholders
may experience significant dilution from the sale of our common stock pursuant to the Peak One Financing Agreement.
The sale of our common
stock to Peak One in accordance with the Financing Agreement may have a dilutive impact on our shareholders. As a result, the market
price of our common stock could decline. In addition, the lower our stock price is at the time we exercise our put options, the
more shares of our common stock we will have to issue to Peak One in order to exercise a put under the Financing Agreement. If
our stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raised
through the offering.
The perceived risk of dilution
may cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceived
risk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of our
common stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute to
progressive price declines in our common stock.
The issuance of shares
pursuant to the Peak One Financing Agreement may have significant dilutive effect.
Depending on the number
of shares we issue pursuant to the Peak One Financing Agreement, it could have a significant dilutive effect upon our existing
shareholders. Although the number of shares that we may issue pursuant to the Financing Agreement will vary based on our stock
price (the higher our stock price, the less shares we have to issue), there may be a potential dilutive effect to our shareholders,
based on different potential future stock prices, if the full amount of the
Financing Agreement is
realized. Dilution is based upon common stock put to Peak One and the stock price discounted to the lesser of the lowest closing
bid price preceding the put date, or 88% of the lowest closing bid price of our common stock during the seven (7) Trading Days
immediately following the Clearing Date associated with the applicable Put Notice during which the Purchase Price of the Common
Stock is valued.
Peak One will pay
less than the then-prevailing market price of our common stock which could cause the price of our common stock to decline.
Our common stock to be
issued under the Peak One Financing Agreement will be purchased at the lesser of the lowest closing bid price preceding the put
date, or 88% of the lowest closing bid price of our common stock during the seven (7) Trading Days immediately following the Clearing
Date associated with the applicable Put Notice during which the Purchase Price of the Common Stock is valued.
Peak One has a financial
incentive to sell our shares immediately upon receiving them to realize the profit between the discounted price and the market
price. If Peak One sells our shares, the price of our common stock may decrease. If our stock price decreases, Peak One may have
further incentive to sell such shares. Accordingly, the discounted sales price in the Financing Agreement may cause the price of
our common stock to decline.
We may not have access
to the full amount under the Financing Agreement.
The
lowest closing bid price of the Company’s common stock during the seven (7) consecutive trading day period immediately preceding
the filing of this Registration Statement was approximately $0.0195. At that price we would be able to sell shares to Peak One under
the Financing Agreement at the discounted price of $0.017. At that discounted price, the 2,319,199 shares of Common Stock to be issued
in connection with the Financing Agreement would only represent approximately $39,426, which, combined with the $1,891,432
received by the Company from prior puts, is far below
$10,000,000 (the full amount of the Financing Agreement).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus and the documents incorporated
by reference into it contain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E
of the Securities Exchange Act of 1934, as amended, or the Exchange Act). We have made these statements in reliance on the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts
contained in or incorporated by reference into this prospectus, including statements regarding our future results of operations
and financial position, business strategy, prospective products, product approvals, research and development costs, commercialization
plans and timing, other plans and objectives of management for future operations, and future results of current and anticipated
products are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors
that may cause our actual results, performance or achievements to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements.
In some cases, you can identify forward-looking
statements by terms such as “may,” “will,” “should,” “expect,” “plan,”
“aim,” “anticipate,” “could,” “intend,” “target,” “project,”
“contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue”
or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial
trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements
speak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions including those
listed in the ‘‘Risk Factors’’ incorporated by reference into this prospectus from our Annual Report on
Form 10-K, as updated by subsequent reports. Forward-looking statements are subject to inherent risks and uncertainties, some
of which cannot be predicted or quantified and some of which are beyond our control. The events and circumstances reflected in
our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in
the forward-looking statements. Moreover, we operate in a dynamic industry and economy. New risk factors and uncertainties may
emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties that we may face.
Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein,
whether as a result of any new information, future events, changed circumstances or otherwise.
USE OF PROCEEDS
We will not receive any of the proceeds from
the sale of shares of our Common Stock in this offering. The Selling Stockholders will receive all of the proceeds from this offering.
However, we may receive up to an aggregate of $10 million in proceeds from the sale of our Common Stock to Peak One pursuant to
the Equity Line and up to $5 million in proceeds from the sale of Series D Preferred Stock to GHS Investments pursuant to the Securities
Purchase Agreement..
The Selling Stockholders will pay any underwriting
discounts and commissions and expenses incurred by the Selling Stockholders for brokerage, accounting, tax or legal services or
any other expenses incurred by the Selling Stockholders in disposing of the shares. We will bear all other costs, fees and expenses
incurred in effecting the registration of the shares covered by this prospectus, including, without limitation, all registration
and filing fees, fees and expenses of our counsel, certain expenses of counsel to the Selling Stockholder and our independent registered
public accountants.
DILUTION
The sale of our common stock to Peak One in
accordance with the Financing Agreement will have a dilutive impact on our stockholders. Also, the conversion of our Series D Preferred
Stock to common stock will have a dilutive impact on our stockholders. As a result, our net loss per share could increase in future
periods and the market price of our common stock could decline. In addition, the lower our stock price is at the time we exercise
our Purchase Notice, the more shares of our common stock we will have to issue to Peak One in order to drawdown pursuant to the
Financing Agreement. If our stock price decreases during the pricing period, then our existing stockholders would experience greater
dilution.
SELLING STOCKHOLDER
We are registering shares of Common Stock in
order to permit the Selling Stockholders to offer the shares for resale from time to time.
The following table sets forth:
·
the Selling Stockholders and other information
regarding the beneficial ownership of the shares of Common Stock by the Selling Stockholders;
·
the number of shares of Common Stock beneficially
owned by the Selling Stockholders, based on their ownership of the shares of Common Stock, as of January 24, 2022, without regard to
any limitations on exercises prior to the sale of the shares covered by this prospectus;
·
the number of shares that may be offered by the
Selling Stockholders pursuant to this prospectus;
·
the number of shares to be beneficially owned
by the Selling Stockholders and their affiliates following the sale of any shares covered by this prospectus; and
·
the percentage of our issued and outstanding
Common Stock to be beneficially owned by the Selling Stockholders and their affiliates following the sale of all shares covered by this
prospectus, based on the Selling Stockholder’s ownership of Common Stock as of January 24, 2022.
This prospectus generally covers the (i) resale
of all shares received by the Selling Stockholders in connection with the transactions contemplated by the Financing Agreement
and (ii) resale of all shares of Common Stock that are issuable upon conversion by the Selling Stockholder of the Company’s
Series D Preferred Stock.
The Selling Stockholders may sell all, some
or none of its shares in this offering. See “Plan of Distribution.”
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Number of
shares of
Beneficially
Owned Prior to
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Maximum
Number
of shares of
Common Stock
to be Sold
Pursuant to this
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Number of shares
of Common Stock
Beneficially Owned After
Offering(1)(2)
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Name of Selling Stockholder
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Offering(1)
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Prospectus
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Number
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Percent
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GHS Investments, LLC(4)
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0
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46,153,847(5)
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0
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0%
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Peak One Opportunity Fund, L.P. (3)
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0
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28,989,199(6)
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0
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0%
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(1)
Beneficial ownership is determined in accordance with SEC rules and generally includes
voting or investment power with respect to shares of Common Stock. Shares of Common Stock subject to derivative securities exercisable,
or exercisable within 60 days, are counted as outstanding for computing the percentage of the person holding such options or warrants
but are not counted as outstanding for computing the percentage of any person.
(2)
Assumes that each Selling Stockholder sells all shares of Common Stock registered under this
prospectus held by such Selling Stockholder.
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(3)
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Jason Goldstein, Manager of Peak One Opportunity Fund, L.P. exercises voting and dispositive power with respect to the shares
of our common stock that are beneficially owned by Peak One Opportunity Fund, L.P.
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(4)
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Mark Grober exercises voting and dispositive power with respect to the shares of our common stock that are beneficially owned
by GHS Investments LLC.
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(5)
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Represents
the amount of Common Stock issuable upon conversion of shares of Series D Preferred Stock held by GHS Investments.
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(6)
Represents the amount of Common Stock issuable pursuant to the Financing Agreement.
PLAN OF DISTRIBUTION
The Selling Stockholders may, from
time to time, sell any or all of shares of our Common Stock covered hereby on the OTCQB or any other stock exchange, market or
trading facility on which the shares are traded or in private transactions. The Selling Stockholder may sell all or a portion
of the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying
prices or at negotiated prices. The Selling Stockholder may use any one or more of the following methods when selling shares:
·
on any national securities exchange or quotation
service on which the securities may be listed or quoted at the time of sale;
·
in the over-the-counter market;
·
in transactions otherwise than on these exchanges
or systems or in the over-the-counter market;
·
ordinary brokerage transactions and transactions
in which the broker-dealer solicits purchasers;
·
block trades in which the broker-dealer will attempt
to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
·
purchases by a broker-dealer as principal and
resale by the broker-dealer for its account;
·
an exchange distribution in accordance with the
rules of the applicable exchange;
·
privately negotiated transactions;
·
in transactions through broker-dealers that agree
with the selling stockholder to sell a specified number of such shares at a stipulated price per share;
·
through the writing or settlement of options or
other hedging transactions, whether through an options exchange or otherwise;
·
a combination of any such methods of sale; or
·
any other method permitted pursuant to applicable
law.
The Selling Stockholders may also
sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
Broker-dealers engaged by the Selling
Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts
from the Selling Stockholders (or, if any broker- dealer acts as agent for the purchaser of securities, from the purchaser) in
amounts to be negotiated, provided such amounts are in compliance with FINRA Rule 2121. Discounts, concessions, commissions
and similar selling expenses, if any, that can be attributed to the sale of Common Stock will be paid by the selling stockholders
and/or the purchasers.
The Selling Stockholders and any
broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning
of the Securities Act in connection with such sales. With respect to any shares of Common Stock issued pursuant to the Equity Line
are resold hereunder, the Selling Stockholder is deemed as an underwriter and any broker-dealers that are involved in selling such
shares is deemed as an underwriter. In such event, any commissions received by such broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act,
and such broker-dealers or agents will be subject to the prospectus delivery requirements of the Securities Act.
We are required to pay certain
fees and expenses incurred by us incident to the registration of the shares covered by this prospectus. We have agreed to indemnify
the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act
of 1933. We will not receive any proceeds from the resale of any of the shares of our common stock by the selling stockholders.
We may, however, receive proceeds from the sale of our common stock under the Financing Agreement with Peak One and sales of our
Series D Preferred Stock. We may also receive proceeds from the cash exercise of the warrant in favor of Peak One. Neither the
Financing Agreement with Peak One nor any rights of the parties under the Financing Agreement with Peak One may be assigned or
delegated to any other person.
We have entered into an agreement
with Peak One to keep this prospectus effective until Peak One has sold all of the common shares purchased by it under the Financing
Agreement and has no right to acquire any additional shares of common stock under the Financing Agreement.
Under applicable rules and regulations
under the Securities Exchange Act of 1934, any person engaged in the distribution of the resale shares may not simultaneously engage
in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M,
prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions of
the Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timing
of purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of this
prospectus available to the selling stockholders.
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue an aggregate of 1,000,000,000
shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock in one or more series and to fix the voting
powers, preferences and other rights and limitations of the preferred stock. As of January 24, 2022, there were issued and outstanding
(i) 248,319,173 shares of common stock, (ii) 100,000 shares of our Series A Preferred Stock, (iii) 20,000 shares of our Series B Preferred
Stock, (iv) 422,115 shares of our Series C Preferred Stock, and (v) 108 shares of our Series D Convertible Preferred Stock.
Each share of common stock shall have one (1)
vote per share. Our common stock does not provide a preemptive, subscription or conversion rights and there are no redemption or
sinking fund provisions or rights. Our common stock holders are not entitled to cumulative voting for election of Board of Directors.
Dividends
We have not paid any dividends on our common
stock since our inception and do not intend to pay any dividends in the foreseeable future.
The declaration of any future cash dividends
is at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position,
our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in the
foreseeable future, but rather to reinvest earnings, if any, in our business operations.
Warrants
Currently, we have no warrants outstanding to
purchase our common stock..
Options
Currently, we have no options outstanding to
purchase our common stock..
Securities Authorized for Issuance Under Equity Compensation
Plans
We have no equity compensation plans.
Preferred Stock
The Company has authorized 10,000,000 shares
of preferred stock. The board of directors has the authority to issue these shares and to set dividends, voting and conversion
rights, redemption provisions, liquidation preferences, and other rights and restrictions.
Series A Preferred Stock
On September 4, 2020, we filed a certificate
of designation for 100,000 shares of Series A Preferred Stock. The Series A Preferred Stock has the right to vote 51% of the total
vote of shareholders and concerts to common stock on a one for one conversion. Our Chief Executive Officer, Chiyuan Deng, owns
all 100,000 shares.
Series B Preferred Stock
On January 8, 2021, we filed a certificate of
destination for 20,000 shares of Series B Preferred Stock. The Series B Preferred Stock is entitled to a liquidation preference
of $16 per share, the stated value of the Series B Preferred Stock, over our common stock and Series A Preferred Stock in the event
of a dissolution, liquidation or winding up of the company. The Series B Preferred Stock does not have voting rights, but after
36 months the holders may convert each share of their preferred stock into 1,000 shares of common stock. The holders of shares
of Series B Preferred Stock have no dividend rights except as may be declared by the Board in its sole and absolute discretion,
out of funds legally available for that purpose. Our Chief Executive Officer, Chiyuan Deng, owns all 20,000 shares.
Series C Preferred Stock
On January 28, 2021, we filed a certificate of
designation for 1,000,000 shares of the Series C Preferred Stock. The shares of Series C Preferred Stock have a stated value of $1.00
per share, are convertible into Common Stock after one hundred and eighty (180) days at a price per share equal to 75% of the average
of the lowest three (3) VWAPs for the Common Stock during the ten (10) Trading Day (as defined in the Certificate of Designation) period
ending on the last complete Trading Day prior to the Conversion Date (as defined in the Certificate of Designation) (the “Conversion
Price”), and earn dividends at the rate of twelve percent (12%) per annum. Upon an Event of Default (as defined in the Certificate
of Designation), the Series C Preferred Stock earn dividends at the rate of twenty two percent (22%) per annum. The shares of Series
C Preferred Stock do not have voting rights, and rank: (a) senior with respect to dividend rights and rights of liquidation with the
Common Stock and Series A Preferred Stock; (b) junior with respect to dividends and right of liquidation with respect to our Series B
Preferred Stock; and (c) junior with respect to dividends and right of liquidation to all existing indebtedness of the Company. We may
redeem the Series C Preferred Stock in accordance with the terms of the Certificate of Designation prior to the one hundred eightieth
(180th) day following the date of issuance of the Series C Preferred Stock. We currently have 422,115 shares of Series C Preferred Stock
outstanding.
Series D Preferred Stock
On April 12, 2021, we filed a certificate of
designation for 5,075 shares of the Company’s Series D Preferred Stock. .
Below is a summary description of the material
rights, designations and preferences of the Series D Preferred Stock (all capitalized terms not otherwise defined herein shall
have that definition assigned to it as per the Certificate of Designation).
The Company has the right to redeem the Series
D Preferred Stock, in accordance with the following schedule:
|
§
|
If all of the Series D Preferred Stock are redeemed within ninety
(90) calendar days from the issuance date thereof, the Company shall have the right to redeem the Series D Preferred Stock upon
three (3) business days’ of written notice at a price equal to one hundred and fifteen percent (115%) of the Stated Value
together with any accrued but unpaid dividends.
|
|
§
|
If all of the Series D Preferred Stock are redeemed after ninety (90)
calendar days and within one hundred twenty (120) calendar days from the issuance date thereof, the Company shall have the right
to redeem the Series D Preferred Stock upon three (3) business days of written notice at a price equal to one hundred and twenty
percent (120%) of the Stated Value together with any accrued but unpaid dividends; and
|
|
§
|
If all of the Series D Preferred Stock are redeemed after one hundred
and twenty (120) calendar days and within one hundred eighty (180) calendar days from the issuance date thereof, the Company shall
have the right to redeem the Series D Preferred Stock upon three (3) business days of written notice at a price equal to one hundred
and twenty five percent (125%) of the Stated Value together with any accrued but unpaid dividends.
|
The Company shall pay a dividend of three percent
(8%) per annum on the Series D Preferred Stock. Dividends shall be paid quarterly, and at the Company’s discretion, in cash
or Series D Preferred Stock calculated at the purchase price. The Stated Value of the Series D Preferred Stock is $1,200 per share.
The Series D Preferred Stock will vote together
with the common stock on an as-converted basis subject to the Beneficial Ownership Limitations (as set forth in the Certificate
of Designation).
Each share of the Series D Preferred Stock is
convertible, at any time and from time to time from and after the issuance at the option of the Holder thereof, into that number
of shares of Common Stock (subject to Beneficial Ownership Limitations) determined by dividing the Stated Value of such share by
$0.149.
There are also Purchase Rights and Most Favored
Nation Provisions. We currently have 108 shares of Series D Preferred Stock outstanding.
Anti-Takeover Effects of Various Provisions of Nevada Law
Provisions of the Nevada Revised Statutes, our
articles of incorporation, as amended, and bylaws could make it more difficult to acquire us by means of a tender offer, a proxy
contest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, would be expected to discourage
certain types of takeover practices and takeover bids our Board may consider inadequate and to encourage persons seeking to acquire
control of us to first negotiate with us. We believe that the benefits of increased protection of our ability to negotiate with
the proponent of an unfriendly or unsolicited proposal to acquire or restructure us will outweigh the disadvantages of discouraging
takeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement of
their terms.
Blank Check Preferred
Our articles of incorporation permit our Board
to issue preferred stock with voting, conversion and exchange rights that could negatively affect the voting power or other rights
of our Common Stockholders. The issuance of our preferred stock could delay or prevent a change of control of our Company.
Amendments to our Articles of Incorporation and Bylaws
Under the Nevada Revised Statutes, our articles
of incorporation may not be amended by stockholder action alone.
Nevada Anti-Takeover Statute
We may be subject to Nevada’s Combination
with Interested Stockholders Statute (Nevada Corporation Law Sections 78.411-78.444) which prohibits an “interested stockholder”
from entering into a “combination” with the corporation, unless certain conditions are met. An “interested stockholder”
is a person who, together with affiliates and associates, beneficially owns (or within the prior two years, did beneficially own)
10% or more of the corporation’s capital stock entitled to vote.
Limitations on Liability and Indemnification of Officers
and Directors
The Nevada Revised Statutes limits or eliminates
the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’
fiduciary duties as directors.
The limitation of liability and indemnification provisions under
the Nevada Revised Statutes and in our articles of incorporation and bylaws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of
derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and
our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary
relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions
do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected
to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
Authorized but Unissued Shares
Our authorized but unissued shares of Common
Stock and preferred stock will be available for future issuance without stockholder approval, except as may be required under the
listing rules of any stock exchange on which our Common Stock is then listed. We may use additional shares for a variety of corporate
purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The
existence of authorized but unissued shares of Common Stock and preferred stock could render more difficult or discourage an attempt
to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Penny Stock Considerations
Our shares will be “penny stocks”
as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00
per share. Thus, our shares will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who
engage in certain transactions involving a penny stock. Under the penny stock regulations, a broker-dealer selling a penny stock
to anyone other than an established customer must make a special suitability determination regarding the purchaser and must receive
the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt.
In addition, under the penny stock regulations, the broker-dealer
is required to:
|
●
|
Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;
|
|
●
|
Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;
|
|
●
|
Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value, and information regarding the limited market in penny stocks; and
|
|
●
|
Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.
|
Because of these regulations, broker-dealers
may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders
or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in
the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if our
securities become publicly traded. In addition, the liquidity for our securities may be decreased, with a corresponding decrease
in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our shareholders will,
in all likelihood, find it difficult to sell their securities.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,
AND CONTROL PERSONS
Our current executive officer and director is
as follows:
Name
|
|
Age
|
|
Position
|
Chiyuan Deng
|
|
|
58
|
|
|
Chief Executive Officer, Principal Executive Officer and Director
|
Vella Deng
|
|
|
50
|
|
|
Chief Financial Officer, Appointed on December 31, 2021
|
Jimmy Chue
|
|
|
65
|
|
|
Chief Investment Officer
|
Ruiyu Guan
|
|
|
53
|
|
|
Director
|
Ho Fai Lam
|
|
|
65
|
|
|
Director
|
Chiyuan Deng
Mr. Deng is an investor, producer, and director
of Chinese films. He has worked as Vice Chairman of the Guangdong Province Film and TV Production Industry Association and Vice
Secretary General of the China City Image Project Advancement Committee. He has extensive investment and management experience
in China, including in the areas of corporate development and business investment activities. Mr. Deng graduated from Guangzhou
Broadcast TV University in 1987. Mr. Deng is Jianli Deng’s father.
Mr. Deng does not hold and has not held over
the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company
under the Investment Company Act of 1940.
We have chosen Mr. Deng as our director because
of his experience in the movie production business.
Vella Deng
Ms. Deng has approximately
20 years’ experiences in accounting and financial management, Ms. Deng was the Director of Accounting at Free Productions
Limited in Hong Kong and China before being appointed as the CFO of the Company.
Ms. Deng is the sister
of Chiyuan Deng, our Chief Executive Officer. Besides Ms Deng, there are no other family relationships between Ms. Deng and
any directors or executive officers of the Company.
Ms. Deng does not hold and has not had any
material direct or indirect interest in any of the Company’s transactions or proposed transactions over the last two years.
Ms. Deng does not hold
and has not held over the past five years any other directorships in any company with a class of securities registered pursuant to Section
12 of the Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment
company under the Investment Company Act of 1940.
Ho Fai Lam
From Jan 2014 to present, Mr. Lam is a director
of Gay Giano Company Limited, a company holding patent and trademarks in the fashion industry.
Mr. Lam has over 20 years’ experience in
treasury management in the banking industry and 10 years of corporate finance experience.
Mr. Lam does not hold and has not held over the
past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act
or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment
Company Act of 1940.
Ruiyu Guan
From May 2014 to present, Ms. Guan has served as
Secretary General of Guangdong Jin Shi Gold L.L.C. in China.
Ms. Guan does not hold and has not held over the
past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the Exchange Act
or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment
Company Act of 1940.
Jimmy Chue
Wall Street career spans for more than three
decades. Working with prestiges firms such as Merrill Lynch and Prudential Securities as a senior analysis of operations. Founding
Member and CIO of Healthier2gether, Senior Partner at Silver Bear Capital, and Cofounder of a new entity in formation named World
Global Partners Inc.
Mr. Chue does not hold and has not held over
the past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment company
under the Investment Company Act of 1940.
Other Significant Employees
Other than our executive officer, we do not
currently have any significant employees.
Term of Office
Our directors are appointed for a one-year term
to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws.
Our officers are appointed by our board of directors and hold office until removed by the board, subject to their respective employment
agreements.
Family Relationships
There are no family relationships between or among
the directors, executive officers or persons nominated or chosen by us to become directors or executive officers, aside from Jianli and
Chiyuan Deng, who are father and son, Vella and Chiyuan Deng who are sister and brother.
Involvement in Certain Legal Proceedings
During the past 10 years, none of our current
executive officers, nominees for directors, or current directors have been involved in any legal proceeding identified in Item
401(f) of Regulation S-K, including:
|
1.
|
Any petition under the Federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing;
|
|
2.
|
Any conviction in a criminal proceeding or being named a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
3.
|
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities:
|
|
i.
|
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
|
|
ii.
|
Engaging in any type of business practice; or
|
|
iii.
|
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
|
|
4.
|
Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any type of business regulated by the Commodity Futures Trading Commission, securities, investment, insurance or banking activities, or to be associated with persons engaged in any such activity;
|
|
5.
|
Being found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
|
|
6.
|
Being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
|
|
7.
|
Being subject to, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
|
i. Any Federal
or State securities or commodities law or regulation; or
|
ii.
|
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
|
|
iii.
|
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
8.
|
Being subject to, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
Audit Committee
The Board
of Directors has an audit committee to assist the Board of Directors in the execution of its responsibilities. Our audit committee
is comprised solely of non-employee, independent directors as defined by NYSE American market listing standards.
The Audit
Committee was established in October of 2019 and is comprised of Directors Ruiyu Guan and Ho Fai Lam, and is chaired by Director
Lam.
The Audit
Committee approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss
issues related to financial reporting. In addition, the Audit Committee reviews the scope and results of the audit with the independent
accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our
internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent
auditor and the performance of the independent auditor.
For the fiscal
year ending August 31, 2021, the Audit Committee:
1. Reviewed and discussed the
audited financial statements with management, and
2. Reviewed and discussed the
written disclosures and the letter from our independent auditors on the matters relating to the auditor's independence.
Based upon
the Audit Committee’s review and discussion of the matters above, the board of directors authorized inclusion of the audited financial
statements for the year ended August 31, 2020 to be included in this Annual Report.
The Board
has determined that Mr. Lam of the Audit Committee qualifies as an audit committee financial expert as defined under applicable
SEC rules and also meets the additional criteria for independence of audit committee members set forth in Rule 10A-3(b)(1) under
the Securities Exchange Act of 1934, as amended.
Compliance with Section 16(a) Of the Exchange Act
Section 16(a)
of the Exchange Act requires our directors and executive officers and persons who beneficially own more than ten percent of a registered
class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership
of common stock and other equity securities of the Company. Officers, directors and greater than ten percent beneficial shareholders
are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To the best of our knowledge based solely
on a review of Forms 3, 4, and 5 (and any amendments thereof) received by us during or with respect to the year ended August 31, 2021,
there have been no late reports, failures to file or transactions not timely reported, aside from one transaction not timely reported
for Mr. Chiyuan Deng.
Code of Ethics
We have adopted a Corporate Code of Business
Conduct and Ethics and Financial Code of Ethics. These are attached as exhibits to our Annual Report for the year ended August
31, 2019.
EXECUTIVE COMPENSATION
The table
below summarizes all compensation awarded to, earned by, or paid to our former or current executive officers for the fiscal years ended
August 31, 2021 and 2020.
|
SUMMARY
COMPENSATION TABLE
|
Name
and
principal
position
|
Year
|
Salary($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Nonqualified
Deferred
Compensation
Earnings ($)
|
All Other
Compensation
($)
|
Total
($)
|
Chiyuan Deng
President,
CEO, and Director
|
2021
2020
|
180,000
__
|
50,000
|
30,100
100,000
|
0
0
|
0
0
|
0
0
|
9,000
9,000
|
269,100
109,000
|
Brandy Gao
CFO, resigned in December 2021
|
2021
2020
|
25,000
15,000
|
0
0
|
0
145
|
0
0
|
0
0
|
0
0
|
0
0
|
25,000
15,145
|
Jimmy Chue
Chief Investment Officer
|
2021
|
55,685
|
0
|
7,527
|
0
|
0
|
0
|
0
|
63,212
|
Linqing Ye
Former COO
|
2021
2020
|
__
0
|
0
0
|
0
9,667
|
0
0
|
0
0
|
0
0
|
0
120,000
|
__
129,667
|
Jianli Deng
Former Secretary, Treasurer and Director
|
2021
2020
|
0
__
|
0
0
|
0
50,000
|
0
0
|
0
0
|
0
0
|
0
119,000
|
__
169,000
|
Lijun Yu
Former Chief Marketing Officer
|
2021
2020
|
0
0
|
0
0
|
0
9,667
|
0
0
|
0
0
|
0
0
|
0
110,000
|
__
119,667
|
On July 30, 2018, we entered into an employment
agreement with Chiyuan Deng to serve as our President. The agreement is for six years and we issued Mr. Deng 400,000 shares for
his services. Under the agreement, Mr. Deng is eligible for a bonus if provided by the board, vacation, medical, insurance and
other benefits.
On August 29, 2020, we entered into a Separation
Agreement and Release with each of Jianli Deng, Lijun Yu and Linqing Ye. Pursuant to the agreements, Mr. Deng resigned as Secretary and
Treasurer, Mr. Yu resigned as Chief Marketing Officer and Mr. Ye resigned as Chief Operating Officer. Mr. Deng will remain on as a member
of our board of directors. The Separation and Release Agreement cancelled the employment agreements for each of Messrs. Deng, Yu and
Ye, and provided them each an indebtedness payment within five (5) business days of the agreements. Mr. Deng will receive $110,000 USD,
Miss Yu will receive $110,000 USD and Mr. Ye will receive $120,000 USD. We received a release of all claims from these prior officers.
On September 11, 2020, we entered into an amended
employment agreement with Chiyuan Deng, our Chief Executive Officer. Pursuant the amended agreement, we amended the compensation to Mr.
Deng to include a salary of $180,000 annually, a reduction in common stock received under his initial employment agreement, a potential
for a bonus in cash or shares, and the issuance of 100,000 shares of our newly created Series A Preferred Stock.
On February 22, 2021, we entered into an employment
agreement with Jimmy Chue to serve as Chief Investment Officer (CIO). The CIO will be compensated with an annual base salary of $78,000,
and eligible for a bonus of at least 50% of the annual salary payable in a lump sum at such time as may be determined by the Board of
Directors. The Company also issued 500,000 restricted shares of the Company’s common stock, par value $0.001 per share, to the
CIO as Restricted Stock Award.
On December 31, 2021, Brandy Gao resigned as Chief Financial Officer
of the Company. The term of her contract with the Company ended on the last day of 2021.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
OPTION AWARDS
|
STOCK AWARDS
|
Name
|
Number of Securities Underlying Unexercised Options (#) Exercisable
|
Number of Securities Underlying Unexercised Options (#) Unexercisable
|
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
|
Option Exercise Price ($)
|
Option Expiration Date
|
Number of Shares or Units of Stock That Have Not Vested (#)
|
Market Value of Shares or Units
of Stock That Have Not Vested ($)
|
Equity Incentive Plan Awards: Number of Unearned Shares,
Units or Other Rights That Have
Not Vested (#)
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (#)
|
Chiyuan Deng
|
-
|
-
|
-
|
-
|
-
|
-
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Jimmy
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Director Compensation
On September
29, 2020, our board of directors approved a change in director compensation from shares to cash compensation.
For
the year 2019-2020, the Board of Directors hereby approves of the payment of US$9,000 as the fee for each Director.
For the
year 2020-2021, the Board of Directors hereby approves of the payment of US$9,000 as the fee for each Director.
BUSINESS
Company
Overview
AB International
Group Corp. (the "Company", "we" or "us") was incorporated under the laws of the State of Nevada
on July 29, 2013 and originally intended to purchase used cars in the United States and sell them in Krygyzstan. The Company's
fiscal year end is August 31.
We are
an intellectual property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectual
property. We are engaged to acquisition and distribution of movies. We have a patent license to a video synthesis and release system
for mobile communications equipment, in which the technology is the subject of a utility model patent in the People's Republic
of China. We had launched a business application (Ai Bian Quan Qiu) through smartphones and official social media accounts based
on WeChat platform in February 2019, utilizing Artificial Intelligence, it is a matching platform for performers, advertiser merchants,
and owners for more efficient services. We generate revenues through an agency service fee from each matched performance
On January
22, 2016, our former sole officer, who owned 83% of our outstanding common shares, sold all of his common shares to unrelated investor
Jianli Deng. After the stock sale, we modified our business to focus on the creation of a mobile app marketing engine. The app
was designed for movie trailer promotions and we planned to generate a subscriber base of smartphone users primarily through pre-installed
app smartphone makers, online app stores, WeChat official accounts, Weibo and other social network media outlets and sell prepaid
cards or coins to movie distributors or other video advertisers in China. We created the app “Amoney” for the Android
smartphone platform to develop a WeChat micro-shop that was designed to display and deliver a variety of information and links
for download or online watch prices in the China market.
On June 1, 2017 (the “Effective
Date”), we entered into a Patent License Agreement (the “Agreement”) pursuant to which Guangzhou Shengshituhua, Film
and Television Company Limited, a company incorporated in China (“Licensor”), granted to us a worldwide license to a video
synthesis and release system for mobile communications equipment (the “Technology”). The Technology is the subject of a utility
patent in the People’s Republic of China. Under the Agreement, we are able to utilize, improve upon, and sub-license the technology
for a term of five years commencing on the Effective Date and, subject to a right to renew for another five years. We were obligated
to pay the Licensor $500,000 within 30 days of the date of the Agreement and a royalty fee in the amount of 20% of any proceeds resulting
from our utilization of the Technology, whether in the form of sub-licensing fees or sales of licensed products. Our Chief Executive
Officer, Chiyuan Deng and former Chief Executive Officer, Jianli Deng, jointly own and control Licensor. On October 10, 2017, we completed
the payment of $500,000 initial payment amount due under the Agreement. The term of this sublicensing agreement was renewed and extended
for another five years in October of 2019.
Our
License to the Technology generates revenue through sub-license monthly fees from a smartphone app on Android devices. This smartphone
app was already existing and licensed at the time we acquired the Technology of video synthesis. In January, 2021, our sublicensing agreement
with Anyone Picture to generate revenues was terminated. As such, there has been no revenues generated from sub-licensing the Technology
since the end of December, 2020.
On
March 10, 2018, we acquired intellectual property for $200,000 from All In One Media Ltd, previously named as Aura Blocks Ltd. On March
19, 2018, we entered into consulting agreements (the “Consulting Agreements”) with four consultants (the “Consultants”).
The Consulting Agreements have terms or either two or three years. Under the Consulting Agreements the Consultants will provide services
to us in Hong Kong and China related to blockchain technology and krypto kiosks. In consideration for the services provided by the Consultants,
we have issued the Consultants a total of 1,100,000 shares of our common stock. On November 10, 2018, the Company sold this intellectual
property to China IPTV Industry Park Holdings Ltd. for $80,000.
On March 21,
2018, we acquired the intellectual assets of KryptoKiosk Limited, a crypto currencies kiosk company which has licenses and patent in
Australia, which enable the operation of cryptocurrency ATMs that allow buying and selling of Bitcoin, Litecoin, and Ethererum all in
one terminal. The Company planned to generate revenue through sub-licensing fees for the operation of cryptocurrency ATMs. Through the
foregoing the Company proposed to bring a physical aspect to something that is otherwise very abstract to people. We also issued to JPC
Fintech Limited 2,400,000 common shares with a market value of $72,000 exchange of KryptoKiosk Limited’s assets consist mostly
of intellectual property, including, but not limited to, certain domain names, copyrights, trademarks, and patents pending, but also
include contract rights and personal property. We planned to generate revenue through sub-licensing fees for the operation of cryptocurrency
ATMs. Through the foregoing, we proposed to bring a physical aspect to something that is otherwise very abstract to people. We planned
to invest in machines and sell sub-licenses in the Asia Pacific region with future world-wide expansion. We had promoted and marketed
the ATM business for 6 months or until around August 2018, because the BTC and cryptocurrencies price went down. The IP, however,
was never transferred to us. We have repeatedly requested from Messrs. Grounds, Vickery and Shakespare access to the domains and websites
and other information concerning the IP assets. As of the date of this annual report, no such information has been provided. In addition,
the IP including domain names were transferred to others while Messrs. Vickery and Shakespare were officers of our company. As a result,
we ceased promotions and marketing on the ATM business and relations cryptocurrencies business in September 2018. On November 21, 2018,
we had sent the final notice that JPC Fintech has materially breached the agreement. We requested that JPC Fintech Ltd. return its stock
certificate received in the transaction to our transfer agent for immediate cancellation. We have not yet received the certificate for
termination. In February of 2020, 100% of the intellectual assets of KryptoKiosk Limited’s carrying value $48,000 net of amortization
is written off since the IP was never transferred to us and no revenue was generated from this intellectual asset.
On May
9, 2018, we entered into an investor agreement with iCrowdU Inc. We agreed to purchase 228,013 shares of iCrowdU Inc. at a share
price of $1.228 for total consideration of $280,000. iCrowdU Inc. offers an online platform and mobile app for crowd funding services
targeting the global crowd funding market.
Furthermore,
it was agreed to exchange 2,000,000 shares of our common stock for 2,000,000 shares of common stock in iCrowdU Inc. This share
exchange was made as collateral in advance of an investment of $1,935,000 by us into iCrowdU Inc., which never occurred.
On or about
May 9, 2018, we entered into consultancy agreements with Alexander Holtermann, Ian Wright and Luis Hadic. Each of Messrs. Holtermann,
Wright and Hadic received 200,000 shares of our common stock under the consultancy agreements.
On or about
July 26, 2018, we entered into an investment agreement with iCrowdU Inc. for the purchase of 40% of iCrowdU in exchange for 8,000,000
shares of our common stock that would be split between Messrs. Holtermann and Wright at 70% and 30%, respectively, and an investment
of $10,000,000. The 8,000,000 shares were cut but not delivered to Messrs. Holtermann and Wright and no part of the $10,000,000
was invested by us into iCrowdU Inc.
On or about
July 31, 2018, we entered into employment agreements with Messrs. Holtermann and Wright for the consideration provided for under
the agreements.
On October
25, 2018, the above parties entered into an Agreement for Termination and Release that terminated all outstanding agreements among
the parties and released each party from the other. We agreed to settle outstanding expenses and costs incurred by iCrowdU Inc.,
in the sum of $6,444.90. In addition, all parties agreed to return any shares received from the above agreements, save we shall
be permitted to retain the 228,013 shares purchased in iCrowdU Inc. Finally, we agreed to amend our Current Report on Form 8-K
concerning certain disclosures made therein. We amended the report as per the agreement.
On September
5, 2018, the Company entered into an agreement to acquire a movie copyright for $768,000 from All In One Media Ltd, which holds
200,000 common shares of the Company as of August 31, 2019 and is previously named as Aura Blocks Limited. The remaining balance
to Aura Blocks Limited is $153,600 as of August 31, 2019. The Company has obtained the exclusive permanent broadcasting right outside
the mainland China and is expected to generate revenues from showing the movie online, in theaters, and on TV outside the mainland
China once this movie is completed in June, 2019. In August of 2019, the Company sold this movie copyright to China IPTV Industry
Park Holding Ltd for $857,600 with a gain of $89,538.
In December of 2018,
we engaged StarEastnet, a software developer that holds 171,000 common shares of the Company as of August 31, 2019, to start developing
a performance matching platform (Ai Bian Quan Qiu) and a WeChat official account to advertise the platform. The matching platform is
to arrange performance events for celebrities and performers. Performers can set their schedules and quotes on the platform. The platform
will maximize their profits from performance events by optimizing their schedules based upon quotes and event locations and save time
from commuting among different events. “Ai Bian Quan Qiu” utilizes the artificial intelligence (AI) matching technology to
instantly and accurately match performers and advertisers or merchants. The company charges agency service fees for each successful event
matched through the platform. Since no large social gathering is allowed as a result of COVID-19, there has been no revenue generated
from the performance matching platform (Ai Bian Quan Qiu) since the end of January, 2020. The Company decided to impair 100% of the carrying
amount of Ai Bian Quan Qiu platform and its Wechat official account.
In June, 2019, the Company completed the development
of a video mix APP for social video sharing via iOS and Android smartphones. This app was originally planned to take advantage of the
core design philosophy of “My film anyone, anywhere, anytime be together” as similar and competitive innovative video and
community apps have been activated on over 2 million unique devices in China as of December 31, 2017 and precipitated the duet video
synthesis phenomenon in China. However, the Company decided to focus on the “Ai Bian Quan Qiu” platform as its main business
and thus sold the video mix APP to Anyone Pictures Limited, which holds 242,980 common shares of the Company, for $422,400 with a gain
of $59,792 in August of 2019. Due to the quarantine and continuous control imposed by the
state and local governments in areas affected by COVID-19, merchant advertising events were suspended. The Company decided to shut down
the Ai Bian Quan Qiu platform and no revenue was generated after January 31, 2020. As a result, it has created an adverse impact on the
business and financial condition and hampered its ability to generate revenue and access sources of liquidity on reasonable terms.
In August
of 2019, the Company entered into a one-year loan agreement to lend $1,047,040 at an annual interest rate of 10% to All In One
Media Ltd, previously named as Aura Blocks Limited, for producing films and digital videos in Hong Kong. The term of note receivable
is from August 1, 2019 to July 31, 2020. This loan principal balance was paid off in full in July, 2020.
On
September 4, 2019, the Company entered into another loan agreement to lend $1,049,600 at an annual interest rate of 10% to All
In One Media Ltd, previously named as Aura Blocks Limited. The term of note receivable is from September 4, 2019 to March 3, 2020.
This loan balance was paid off in full on May 4th ,
2020 with two months’
extension.
On April 22, 2020, the Company
announced the first phase development of its video streaming service. The online service will be marketed and distributed in the world
under the brand name ABQQ.tv. The Company's professional team are sourcing such dramas and films to provide video streaming service on
the ABQQ.tv. The video streaming website www.ABQQ.tv was officially launched on December 29, 2020. As of August 31, 2021, the Company
acquired 4 movie copyrights and 59 movie broadcast rights. The Company will continue marketing and promoting the ABQQ.tv website through
GoogleAds and acquire additional broadcast rights for movies and TV series, and plan to charge subscription fees once the Company has
obtained at least 200 broadcast rights of movie and TV series.
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. 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 Mills
in “In Search of the Castaways.” It was a replacement for the town’s other movie theatre that burned down. It was later
twinned and further divided into 5 screens. It was operated for years by Lesser Theaters, then bought by Clearview Cinemas. In June,
2013 it was taken over by Bow-Tie Cinemas when they took most Clearview locations. It lasted until March, 2020 when it was closed by
the Covid-19 pandemic. It was announced in September 2020 that the closure would be permanent. The Company intends to continue to use
the space as a theatre with a total of 5 screens and 466 sets for screening films. It’s the first theatre of ABQQ Cinemas in America
as the new business line of the Company.
Competition
Our main business
is sub-license a patent of video synthesis and release system for mobile communications equipment to smartphone apps and smartphone makers.
We are in the process of using the underlying technology to create a smartphone video mix app as well as the social video sharing platform.
The main competitors are short video apps, we are going to discuss becoming a cooperation partner of them which generated sub-license
patent of video synthesis and release system monthly fee from them.
Employees
We currently
have 4 employees.
MARKET PRICE OF THE REGISTRANT’S COMMON
EQUITY AND RELATED STOCKHOLDERS MATTERS
Market Information
Our
common stock is quoted under the symbol “ABQQ” on the OTCQB operated by OTC Markets Group, Inc.
There
is currently no active trading market for our securities. There is no assurance that a regular trading market will develop, or if developed,
that it will be sustained. Therefore, a shareholder may be unable to resell his securities in our company.
Penny Stock
The
Securities Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks.
Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities
is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock,
to deliver a standardized risk disclosure document prepared by the Commission, that: (a) contains a description of the nature and level
of risk in the market for penny stocks in both public offerings and secondary trading;(b) contains a description of the broker's or dealer's
duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements
of Securities' laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks
and the significance of the spread between the bid and ask price;(d) contains a toll-free telephone number for inquiries on
disciplinary actions;(e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and;(f) contains
such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation.
The
broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with; (a) bid and offer quotations
for the penny stock;(b) the compensation of the broker-dealer and its salesperson in the transaction;(c) the number of shares to which
such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
(d) a monthly account statements showing the market value of each penny stock held in the customer's account.
In
addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer
must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's
written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and
a signed and dated copy of a written suitability statement.
These
disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock if it becomes subject
to these penny stock rules. Therefore, because our common stock is subject to the penny stock rules, stockholders may have difficulty
selling those securities.
Holders
of Our Common Stock
As
of January 31, 2022, we had 248,119,173 shares of our common stock issued and outstanding, held by approximately 558 shareholders of
record, with others holding shares in street name.
Dividends
We
have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The payment
of cash dividends on our common stock will depend on earnings, financial condition and other business and economic factors at such time
as the board of directors may consider relevant. If we do not pay cash dividends, our common stock may be less valuable because a return
on your investment will only occur if its stock price appreciates.
Securities Authorized
for Issuance under Equity Compensation Plans
We
have no equity compensation plans.
Unregistered Sales
of Equity Securities
Common shares
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The
Company issued 19,000,000 shares of common stock for cash at $0.0140 per share and 4,000,000 shares of common stock for cash at $0.0715
per share.
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The
Company issued 25,406,238 shares of common stock from note conversion. Refer to Note 9 of the consolidated financial statements for
the year ended August 31, 2021 for further details.
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The
Company issued 56,407,922 shares of common stock from warrant exercises. Refer to Note 10 of the consolidated financial statements for
the year ended August 31, 2021 for further details.
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261,111
shares of common stock returned to the Company due to officer resignations.
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The
Company issued 31,646,633 shares of put shares for cash at $0.015312, $0.014256, $ 0.01452, $0.077528, $0.09856, $0.11, $0.0715,
$0.0563, $0.0528, $0.04875, $0.05764, and $0.0344 per share.
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As
stock-based compensation the Company issued 500,000 shares to the Chief Investment Offer and 1,000,000 shares to the Chief Executive
Officer.
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The
Company issued 24,528,637 of common shares from preferred shares series C & D conversion.
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The
Company issued 17,700,000 shares of stock for consulting services.
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The Company issued
5,500,000 shares of put shares for cash at $0.02288 and $0.02719 per share
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The Company issued
3,146,854 of common shares from preferred shares series D conversions
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Preferred shares
The
Company authorized 10,000,000 shares of preferred shares with a par value $0.001. During the year ended August 31, 2021, the Company
issued 100,000 shares of Series A Preferred shares at par value $0.001, and 20,000 shares of Series B Preferred shares at $16 per share,
280,025 shares of Series C Preferred shares and its dividend shares were converted to 7,140,360 common shares in August, 2021, and 798
shares of Series D Preferred shares were converted to 17,388,277 common shares in August, 2021.
Based
upon the Series C Preferred Share purchase agreement, each share of Series C Preferred Stock carries an annual dividend in the amount
of 12.0% of the Stated Value (the “Dividend Rate”). Which shall be cumulative, payable solely upon redemption, liquidation
or conversion. Upon the occurrence of an Event of Default, the Dividend Rate shall automatically increase to 22.0%. As of August 31,
2021, the Company has dividend expense of $16,801 and dividend payable of $0 on Series C Preferred Shares.
Based
upon the Series D Preferred Share purchase agreement, each share of Series D Preferred Stock shall be entitled to receive, and the Corporation
shall pay, cumulative dividends of 8.0% per annum, payable quarterly, beginning on the Original Issuance Date and ending on the date
that such share of Preferred Share has been converted or redeemed (the “Dividend End Date”). As of August 31, 2021, the Company
has dividend expense of $9,034 and dividend payable of $1,834 on Series D Preferred Shares and included in the accrued liabilities in
the balance sheet.
On
September 3, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby the investor purchased
from the Company 234,300 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $203,500.
On
October 21, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from
the Company 98,325 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $85,450.
On
January 27, 2022, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from
the Company 89,490 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $78,050.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
You should read the
following discussion of our financial condition and results of operations in conjunction with financial statements and notes thereto
included elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimates
and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could
cause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the section
labeled “Risk Factors.”
This section of the
prospectus includes a number of forward-looking statements that reflect our current views with respect to future events and financial
performance. Forward-looking statements are often identified by words like “believe,” “expect,” “estimate,”
“anticipate,” “intend,” “project,” and similar expressions, or words that, by their nature,
refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date
of this prospectus. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results
to differ materially from historical results or our predictions.
COVID-19
The full extent
of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolving factors that
we may not be able to accurately predict at the present time. In an effort to contain COVID-19 or slow its spread, governments around
the world have enacted various measures, including orders to close all businesses not deemed “essential,” isolate residents
to their homes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these
actions and the global health crisis caused by COVID-19 will negatively impact business activity across the globe. The movie industry
in general has changed dramatically as a result of the pandemic restrictions. While movie theaters struggle to stay alive, online streaming
programming has increased. We have endeavored to stay with the trend for streaming services to remain competitive. We have experienced
the negative impact in our results of operations and in our financial condition for the year ended August, 2020, especially with respect
to the movie distribution end of our business. These impacts concern delays in delivering our movies and IP because of health restrictions
imposed on certain public events that concern our business, including, among other things, theaters, indoor and outdoor performances,
filming restrictions, music festivals, concerts and other such events, Some of these restrictions include pandemic government mandated
shutdowns and others restrictions on capacity gathered at these events, with some jurisdictions imposing fines or revocation of business
licensing, and other restrictions. As a result of these factors, our revenue was reduced from March to May of 2020. With immediate closures,
the resultant industry and business specific delays have negatively affected our company.
We
plan to focus on the video streaming and other web-based applications and expand our business into those areas that we believe will situate
the company for continued and increased revenues. As the pandemic is forecasted to worsen in the United States and other areas around
the globe, we believe that the demand for our IP, online products and services offerings increases. While we cannot guarantee that the
negative effects of the pandemic will not interfere with our ability to generate revenues, we intend to strengthen our position in this
dynamic market and position the company to best suit its shareholders.
Specific
to our company operations, during the pandemic period, we have enacted precautionary measures to protect the health and safety of our
employees and partners. These measures include closing our office, having employees work from home, and eliminating all travel. While
having employees work from home may have a negative impact on efficiency and may result in negligible increases in costs, it does have
an impact on our ability to execute on our agreements to deliver our core products.
We will
continue to actively monitor the situation and may take further actions that alter our business operations as may be required by
federal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partners
and stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, including
the effects on our customers, partners, or vendors, or on our financial results.
Results of Operations for the Three Months
Ended November 30, 2021 and 2020
Revenues
Our total revenue reported
for the three months ended November 30, 2021 was $0, compared with $76,800 for the three months ended November 30, 2020.
The decrease in revenue for
the three months ended November 30, 2021 over the three months ended November 30, 2020 is mainly attributable to lack of any movie box-office
revenue for the current period, where in 2020, we achieved revenue of $76,800 from the movie “Ai Bian Quan Qiu.”
100% of revenue was generated
from one customer during the three months ended November 30, 2020.
Our cost of revenues was $686,567
for the three months ended November 30, 2021, as compared with $156,086 for the three months ended November 30, 2020. Most of the increase
in cost of revenues for the three months ended November 30, 2021 was the result of amortizing movie broadcast rights, not present in
the same period 2020.
As a result, we had a gross
loss of $686,567 for the three months ended November 30, 2021, as compared with a gross loss of $79,286 for the three months ended November
30, 2020. The decrease in gross profit margin for the three months ended November 30, 2021 is largely to the high cost of amortizing
movie broadcast rights combined with a lack of revenue.
We hope to generate increased
revenues for the balance of the fiscal year with continued box office revenue of Our Treasures, as well as achieving enough customers
to start subscriptions for ABQQ.tv
Operating Expenses
Operating expenses increased to $363,967 for the
three months ended November 30, 2021 from $237,496 for the three months ended November 30, 2020.
Our operating expenses for
three months ended November 30, 2021 consisted of general and administrative expenses of $308,966 and related party salary and wages
of $55,000. In contrast, our operating expenses for the three months ended November 30, 2020 consisted of general and administrative
expenses of $231,146 and related party salary and wages of $6,350.
We experienced an increase
in general and administrative expenses in 2021 over 2020, mainly as a result of increased rent, salaries, valuation fees, consulting
fees, transaction costs for issuing preferred shares, travel and entertainment, and depreciation expense, etc.
We anticipate our operating
expenses will increase as we undertake our plan of operations, including increased costs associated with marketing, personnel, and other
general and administrative expenses, along with increased professional fees associated with SEC and COVID compliance as our business
grows more complex and more expensive to maintain. On the COVID front, we expect that restrictions will ease moving forward, but there
may still be setbacks as variants to the virus emerge and governments take lockdown measures in response. These and other costs for COVID
expenditures may increase our operational costs in fiscal 2022 at various levels of operation.
Other Expenses
We had other expenses of $1,511
for the three months ended November 30, 2021, as compared with other expenses of $208,672 for the three months ended November 30, 2020.
Our other expenses in 2021 were mainly the result of preferred share dividend expense. Our other expenses in 2020 were mainly the result
of interest expense and loss from the change in fair value.
Net Loss
We incurred a net loss in
the amount of $1,052,045 for the three months ended November 30, 2021, as compared with a net loss of $525,453 for the three months ended
November 30, 2020.
Liquidity and Capital Resources
As of November 30, 2021, we
had $1,380,971 in current assets consisting of cash, prepaid expenses, related party receivables and amounts due from shareholders. Our
total current liabilities as of November 30, 2021 were $1,611,998. As a result, we have a working capital deficit of $231,027 as of November
30, 2021 as compared with $228,669 as of August 31, 2021.
Operating activities used
$629,550 in cash for the three months ended November 30, 2021, as compared with $1,744,973 used in cash for the same period ended November
30, 2020. Our negative operating cash flow in 2021 was mainly the result of our net loss for the quarter combined with operating changes
in receivables. Our negative operating cash flow in 2020 was mainly the result of our net loss for the quarter combined with operating
changes in accounts payable and accrued liabilities, and from related party payables.
Investing activities used
$0 in cash for the three months ended November 30, 2021, as compared with $5,000 used for the three months ended November 30, 2020. We
have zero investing cash flow for November 30, 2021. Our negative investing cash flow for November 30, 2020 was mainly the result of
the purchase of movie and TV series rights.
Financing activities provided
$667,965 for the three months ended November 30, 2021, as compared with $313,885 provided in financing activities for the three months
ended November 30, 2020. Our positive financing cash flow for November 30, 2021 was the result of proceeds from sales of our common stock
and preferred stock. Our positive financing cash flow for November 30, 2020 was the result of proceeds from convertible notes and sales
of our common stock.
The company has discussed
selling the mainland China broadcast right of 3 movies (“Love over the world”, “Our treasures”, “Confusion”)
(the Company is anticipating to sign a contract by the end of February 2022). The Company is also contemplating selling all other mainland
China broadcast rights of all films owned by the Company due to restrictions on the Company in accessing the royalties earned on mainland
China. The company plans to continue to own all other copyrights & broadcast rights.
Based upon our current financial
condition, we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund
operations through increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or other
cash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There can be no
assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, the implementation
of our business plan will be impaired. There can be no assurance that such additional financing will be available to us on acceptable
terms or at all.
Off Balance Sheet Arrangements
As of November 30, 2021, 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.
Results of operations for the years ended August
31, 2021 and 2020
Revenues
Our
total revenue reported for the year ended August 31, 2021 was $115,091, compared with $448,343 for the year ended August 31, 2020.
The
decrease in revenue for the years ended August 31, 2021 over the years ended August 31, 2020 is mainly attributable to the termination
of the sublicensing agreement with Anyone Picture in January, 2021. As such, there has been no revenues generated from sub-licensing
the patent since the end of December, 2020.
89%
and 69% of revenue was generated from one customer during the years ended August 31, 2021 and August 31, 2020, respectively.
Our
cost of revenues was $1,494,328 for the years ended August 31, 2021, as compared with $177,577 for the years ended August 31, 2020. Most
of the increase in cost of revenues for the years ended August 31, 2021 was the result of amortizing movie broadcast rights, not present
in the same period 2020.
As
a result, we had gross loss of $1,379,237 for the years ended August 31, 2021, as compared with gross profit of $270,766 for the years
ended August 31, 2020. The decrease in gross profit margin for the years ended August 31, 2021 is largely to the high cost of amortizing
movie broadcast rights.
We
hope to generate increased revenue in the future by achieving enough customers to start subscriptions for ABQQ.tv and generating movie
box office revenue from our new movie theatre in New York.
Operating Expenses
Operating
expenses increased to $1,844,670 for the years ended August 31, 2021 from $1,640,093 for the years ended August 31, 2020.
Our
operating expenses for year ended August 31, 2021 consisted of general and administrative expenses of $1,511,333 and related party salary
and wages of $333,337. In contrast, our operating expenses for the years ended August 31, 2020 consisted of general and administrative
expenses of $1,346,525, research and development expenses of $108,800 and related party salary and wages of $184,768.
We
experienced an increase in general and administrative expenses in 2021 over 2020, mainly as a result of increased consulting fees, transaction
costs for issuing preferred shares, rent, salaries, valuation fees, travel and entertainment, and depreciation expense, etc.
We
experienced an increase in related party salary and wages as the Chief Executive Officer started receiving cash salary in the fiscal
year of 2021 and received both cash bonus and stock-based compensation in February, 2021. During the years ended August 31, 2021, the
Company paid the Chief Executive Officer $180,000 salary, $50,000 bonus in cash, and $30,100 stock-based compensation. $25,000 salary
was paid in cash to Chief Financial Officer. In addition, the Company hired Chief Investment Officer on February 22, 2021 and $55,685
cash salary and $7,527 stock-based compensation were paid to Chief Investment Officer for the years ended August 31, 2021. During the
years ended August 31, 2020, $169,768 was paid to five executives in the form of stock-based compensation and $15,000 cash salary was
paid to the Chief Financial Officer.
We
anticipate our operating expenses will increase as we undertake our plan of operations, including increased costs associated with marketing,
personnel, and other general and administrative expenses, along with increased professional fees associated with SEC and COVID compliance
as our business grows more complex and more expensive to maintain. On the COVID front, we expect that restrictions will ease moving forward,
but there may still be setbacks as variants to the virus emerge and governments take lockdown measures in response. These and other costs
for COVID expenditures may increase our operational costs in fiscal 2022 at various levels of operation.
Other Expenses
We
had other expenses of $439,537 for the years ended August 31, 2021, as compared with other expenses of $153,744 for the year ended August
31, 2020. Our other expenses in 2021 were mainly the result of interest expense and the loss from prepaid convertible notes and warrant
exercises. Our other expenses for 2020 was the result of interest expenses and a loss from a change in fair value.
Net Loss
We
incurred a net loss in the amount of $3,608,097 for the years ended August 31, 2021, as compared with a net loss of $1,523,071 for the
years ended August 31, 2020.
Liquidity and Capital
Resources
As
of August 31, 2021, we had $879,282 in current assets consisting of cash, prepaid expenses, related party receivables, subscription receivable,
and other receivable. Our total current liabilities as of August 31, 2021 were $1,107,951. As a result, we have a negative working capital
of $228,669 as of August 31, 2021 as compared with a positive working capital of $1,840,732 as of August 31, 2020.
Operating
activities used $5,141,166 in cash for the years ended August 31, 2021, as compared with $1,263,370 used in cash for the same period
ended August 31, 2020. Our negative operating cash flow in 2021 was mainly the result of our net loss for the year combined with changes
in other receivable, accounts payable and accrued liabilities, prepayment and costs for acquiring movie and TV series broadcast right
and copyright, and offset by related party payable. Our negative operating cash flow in 2020 was mainly the result of our net loss for
the year combined with changes in account receivable, other payable, prepayment for acquiring movie and TV series broadcast right and
copyright, and offset by a receivable on disposed assets.
Investing
activities used $5,000 in cash for the years ended August 31, 2021, as compared with $1,047,040 provided for the years ended August 31,
2020.
Financing
activities provided $2,823,359 for the years ended August 31, 2021, as compared with $1,106,641 provided in financing activities for
the years ended August 31, 2020. Our positive financing cash flow for August 31, 2021 was the result of proceeds from convertible notes
and sales of our common stock and preferred stock, offset by payments for warrant termination and prepayments for convertible notes.
Our positive financing cash flow for August 31, 2020 was the result of proceeds from convertible notes and sales of our common stock.
Based
upon our current financial condition, we do not have sufficient cash to operate our business at the current level for the next twelve
months. We intend to fund operations through increased sales and debt and/or equity financing arrangements, which may be insufficient
to fund expenditures or other cash requirements. We plan to seek additional financing in a private equity offering to secure funding
for operations. There can be no assurance that we will be successful in raising additional funding. If we are not able to secure additional
funding, the implementation of our business plan will be impaired. There can be no assurance that such additional financing will be available
to us on acceptable terms or at all.
Off Balance Sheet Arrangements
As
of August 31, 2021, 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.
Certain
Relationships and Related Person Transactions
Except as provided in “Description of
Business” and “Executive Compensation” set forth above, for the past two fiscal years there have not been, and
there is not currently proposed, any transaction or series of similar transactions to which we were or will be a participant in
which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-end
for the last two completed fiscal years, and in which any director, executive officer, holder of 5% or more of any class of our
capital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material
interest.
Youall Perform Services Ltd, owned by the son of
the Company’s Chief Executive Offer and the Company’s former Secretary and Treasurer Jianli Deng, collects revenue from the
performance matching platform “Ai Bian Quan Qiu” via a Wechat official account on behalf of the Company. Due to the COVID-19
impact, the Company ceased operation of the “Ai Bian Quan Qiu” platform in January, 2020. For the years ended August 31,
2021 and 2020, the Company recognized revenue of $0 and $141,143 from this performance matching platform, respectively. The balance of
related party receivable from Youall Perform Services Ltd was $1,439 and $87,581 as of August 31, 2021 and 2020, respectively.
In
September 2019, the company entered into an agreement with Youall Perform Services Ltd for
two transactions. 1) The Company pays Youall Perform Services Ltd. 10% of the revenue generated
from the “Ai Bian Quan Qiu” platform every month to reimburse the valued-added
tax, tax surcharges, and foreign transaction fee Youall Perform Services Ltd. Has been paying
on behalf of the Company. 2) Youall Perform Services Ltd. will provide IT consulting service
for “Ai Bian Quan Qiu” platform upgrade and maintenance at a total cost of $128,000,
out of which $108,800 has been paid. As there has been no revenue from the “Ai Bian
Quan Qiu” platform due to COVID-19 since mid-January, 2020, $108,800 long-term prepayment
was expensed as research and development expense in FY2020. In July 2020, the Company changed
the service scope of this agreement and turned it into a website maintenance contract over
the next two years. The major website of this Company is ABQQ.tv for video streaming.
The contract amount remains to be $128,000, out of which $108,800 was previously paid and
$19,200 will be due on the twenty first month afterthe launch of the website www.abqq.tv.
The website maintenance service began on January 1, 2021 and will end on December 31, 2022.
The Company will pay Youall Perform Services Ltd the remaining balance of $19,200 in September,
2022.
The Company has entered into
a patent license agreement with a related party Guangzhou Shengshituhua Film and Television Company Limited (“Licensor”)
100% owned by the Chief Executive Officer Chiyuan Deng. The agreement is for a term of 5 years commencing on the effective date on June
1, 2017. The Company has already paid the licensor a non-refundable, up-from payment of $500,000 and shall pay a royalty of 20% of the
gross revenue realized from the sale of licensed products and sub-licensing of this patent every year. The royalty expenses during the
years ended August 31, 2021 and August 31, 2020 are $25,600 and $61,440, respectively. In January, 2021, the Company’s sublicensing
agreement to generate royalty revenues was terminated with Anyone Picture. As such, there has been no royalty expenses since the end
of December, 2020 given there has been no sublicensing royalty revenue generated from the patent. Once the Company finds another company
to sublicense the patent, it will generate royalty revenue and pay royalty expense again.
The Company rented an office
from ZESTV STUDIOS LIMITED, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng. On December 1, 2020, the Company
entered an agreement with ZESTV STUDIOS LIMITED to grant ZESTV STUIDIOS LIMITED the distribution right for the movie “Love over
the world” and charge ZESTV STUIDIOS LIMITED movie royalties. The Company’s royalties revenue is stipulated to equal 43%
of the after-tax movie box office revenue deducting movie issuance costs. The movie box office revenue is tracked by a movie distributor
Huaxia Film Distribution Co. Ltd (hereafter “Hua Xia”) in China as it connects with all movie theaters in China and can track
the total movie box office revenue online in real time. Although ZESTV STUDIOS LIMITED has paid royalties revenue to the Company, ZESTV
STUDIOS LIMITED failed to collect cash from Hua Xia. The Company will refund ZESTV STUDIOS LIMITED the movie royalties. As of August
31, 2021, the Company incurred related party payable of $16,512 for the office rent and $916,922 of refund for the movie royalites revenue
net of the movie distribution commission fee.
On August 29, 2020, the Company
entered into a Separation Agreement and Release with each of Jianli Deng, Lijun Yu and Linqing Ye. Pursuant to the agreements, Mr. Deng
resigned as Secretary and Treasurer, Ms. Yu resigned as Chief Marketing Officer and Mr. Ye resigned as Chief Operating Officer. Mr. Deng
will remain on as a member of our board of directors. The Separation and Release Agreement cancelled the employment agreements for each
of Messrs. Deng, Yu and Ye, and provided them each an indebtedness payment within five (5) business days of the agreements. Mr. Deng
will receive $110,000, Ms. Yu will receive $110,000 and Mr. Ye will receive $120,000. We received a release of all claims from these
prior officers. In addition, Mr. Deng, Ms. Yu, and Mr. Ye agreed to return to the Company their unvested restricted shares of 130,556,
147,222, and 147,222, respectively.
On September 11, 2020, we
entered into an amended employment agreement with Chiyuan Deng, our Chief Executive Officer. Pursuant the amended agreement, we amended
the compensation to Mr. Deng to include a salary of $180,000 annually, a reduction in common stock received under his initial employment
agreement, a potential for a bonus in cash or shares, and the issuance of 100,000 shares of our newly created Series A Preferred Stock
at par value $0.001.
During the year ended August
31, 2021, the Company paid the Chief Executive Officer $180,000 salary, $50,000 bonus in cash, and $30,100 stock-based compensation.
$25,000 salary was paid in cash to Chief Financial Officer. In addition, the Company hired Chief Investment Officer on February 22, 2021.
$55,685 cash salary and $7,527 stock-based compensation were paid to Chief Investment Officer for the year ended August 31, 2021. During
the year ended August 31, 2020, $169,768 was paid to five executives in the form of stock-based compensation and $15,000 cash salary
was paid to the Chief Financial Officer.
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth, as of January 24,
2022 information as to shares of our common stock owned by (i) each person known by us to beneficially own more than 5% of our outstanding
common stock, (ii) each of our directors, and (iii) all of our executive officers and directors as a group:
Name
and Address of
Beneficial Owner
|
|
Common
Stock
|
|
|
Series
A
Preferred Stock
|
Series
B
Preferred Stock
|
|
|
Number
of Shares Owned
|
|
|
Percent
of Class(1)(2)
|
|
|
Number
of Shares Owned
|
|
|
Percent
of Class(1)(2)
|
Number
of Shares Owned
|
Percent
of Class(1)(2)
|
Chiyuan Deng(3)
|
|
|
6,312,733
|
|
|
|
2.54%
|
|
|
|
100,000
|
|
|
|
100%
|
20,000
|
100%
|
Vella Deng
|
|
|
-
|
|
|
|
-
|
|
|
|
—
|
|
|
|
—
|
—
|
—
|
Jimmy Chue
|
|
|
500,000
|
|
|
|
*
|
|
|
|
—
|
|
|
|
—
|
—
|
—
|
Ho Fai Lam
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
—
|
—
|
Ruiyu Guan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
—
|
—
|
All Directors and Executive Officers as a Group
(5 persons)
|
|
|
6,812,733
|
|
|
|
2.74%
|
|
|
|
100,000
|
|
|
|
100%
|
20,000
|
100%
|
5% Holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
—
|
—
|
* Less than 1%
|
(1)
|
Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that person’s spouse) with respect to all shares of voting stock listed as owned by that person or entity.
|
|
(2)
|
Pursuant
to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared
voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon
exercise of common shares purchase options or warrants. The percent of class is based on 248,119,173 shares of common stock issued
and outstanding, 100,000 shares of Series A Preferred Stock, and 20,000 shares of Series A Preferred Stock as of January 24, 2022.
|
|
(3)
|
Includes 2,020,400 shares and
100,000 shares that may be acquired within 60 days on conversion of the 100,000 shares of Series A Preferred Stock
|
LEGAL MATTERS
The validity of the shares of Common Stock offered
by this prospectus will be passed upon for us by The Doney Law Firm, Las Vegas, Nevada.
EXPERTS
The consolidated financial statements for the Company
as of August 31, 2020 and for the year then ended included in this prospectus have been audited by Yu Certified Public Accountant PC.
The consolidated financial statements for the Company as of August 31, 2021 and for the year then ended included in this prospectus have
been audited by RotenbergMeril. Both are independent registered public accounting firms, to the extent and for the periods set forth
in our report and are incorporated herein in reliance upon such report given upon the authority of said firm as experts in auditing and
accounting.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended, and file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy these reports, proxy statements and other information at the SEC’s public
reference facilities at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can request copies of these documents by writing
to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation
of the public reference facilities. SEC filings are also available at the SEC’s web site at http://www.sec.gov.
This prospectus is only part of a registration
statement on Form S-1 that we have filed with the SEC under the Securities Act and therefore omits certain information contained
in the registration statement. We have also filed exhibits and schedules with the registration statement that are excluded from
this prospectus, and you should refer to the applicable exhibit or schedule for a complete description of any statement referring
to any contract or other document. You may inspect a copy of the registration statement, including the exhibits and schedules,
without charge, at the public reference room or obtain a copy from the SEC upon payment of the fees prescribed by the SEC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
Page
|
|
|
Consolidated Financial Statements of AB International Group Corp. and Subsidiaries
|
|
|
|
Reports of Independent Registered
Public Accounting Firm
|
F-1
|
Consolidated Balance Sheets as of August 31, 2021
and 2020
|
F-3
|
Consolidated Statements of Operations for the Years
Ended August 31, 2021 and 2020
|
F-4
|
Consolidated Statements of Changes
in Stockholders’ Equity for the Years Ended August 31, 2021 and 2020
|
F-5
|
Consolidated Statements of Cash Flows for the Years
Ended August 31, 2021 and 2020
|
F-6
|
Notes to Consolidated Financial Statements
|
F-7
|
|
Page
|
|
|
Consolidated Financial Statements of AB International Group Corp. and Subsidiaries
|
|
|
|
Consolidated Balance Sheets as of November 30, 2021
and August 31, 2021
|
F-38
|
Consolidated Statements of Operations for the Three
Months Ended November 30, 2021 and 2020
|
F-39
|
Consolidated Statements of Stockholders’ Equity
for Three Months Ended November 30, 2021 and 2020
|
F-40
|
Consolidated Statements of Cash Flows for
the Three Months Ended November 30, 2021 and 2020
|
F-41
|
Notes to Consolidated Financial Statements
|
F-42
|
Report of Independent Registered
Public Accounting Firm
To the Board of Directors and Stockholders of
AB International Group Corp.
Opinion on the Financial Statements
We have audited the accompanying
consolidated balance sheet of AB International Group Corp. (the “Company”) as of August 31, 2021, and the related consolidated
statements of operations, changes in stockholders’ equity and cash flows for the year then ended, and the related notes (collectively
referred to as the "financial statements"). In our opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of AB International Group Corp. as of August 31, 2021, and the results of their operations
and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial
statements have been prepared assuming that the Company will continue as a going concern. As disclosed in the financial statements, the
Company has limited operations and it has yet to attain profitability, has negative working capital, has an accumulated deficit at August
31, 2021, and is dependent on debt and equity financing to fund its operations, all of which raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans regarding these matters are disclosed in Note 2. The financial statements
do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are
the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements
based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required
to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Critical Audit Matter
The critical audit matter communicated
below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated
to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective, or complex judgements. The communication of critical audit matter does not alter in any way our
opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate
opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Intangible Assets/Impairments
Description of the Matter
As disclosed in Note 2 "Summary
of Significant Accounting Policies" - Intangible Assets, movie copyrights and broadcast rights are stated at the lower of cost or
amortized cost or estimated fair value. Auditing the Company’s impairment evaluation for movie copyrights and broadcast rights
is challenging and subjective as the key inputs into the analysis include estimates of future anticipated revenues and box office performance,
which may differ from future actual results. These estimates are based in part on the historical performance of similar films, test audience
results when available, information regarding competing film releases, and critic reviews.
How We Addressed the Matter in Our
Audit
We obtained an understanding over
the Company’s movie copyrights and broadcast rights impairment review process. To test the assessment of movie copyrights and broadcast
rights for impairment, we obtained management’s forecasts of revenue and our audit procedures included, among others, checking
mathematical accuracy, reviewing and testing the completeness and accuracy of any underlying data as well as the significant assumptions
mentioned above.
/s/ Rotenberg Meril Solomon Bertiger & Guttilla,
P.C.
We have served as the Company's auditor since 2021
Saddle Brook, New Jersey
January 11, 2022
Yu Certified Public Accountant
PC
Professionalism, Expertise, Integrity
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of
AB International Group Corp
Opinion on the Financial
Statements
We have audited the
accompanying consolidated balance sheet of AB International Group Corp (the “Company”) as of August 31, 2020, and the related
consolidated statements of operations, statements of changes in stockholders’ equity and consolidated statements of cash flows
for the year then ended, and the related notes (collectively referred to as the financial statements). In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial position of AB International Group Corp as of August
31, 2020, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
Emphasis of Matter
- Going Concern
The accompanying financial
statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements,
although the Company has limited operations it has yet to attain profitability. This raises substantial doubt about its ability to continue
as a going concern. Management’s plan in regard to these matters is also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Emphasis
of Matter - Adoption of New Accounting Standards
As discussed in Note
2 to the consolidated financial statements, the Company has adopted Accounting Standards Codification Topic 842, Leases, effective September
1, 2019.
Basis for Opinion
These financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of internal control over financial reporting. As part of our audits, we are required
to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
/s/ Yu Certified Public Accountant PC
We have served as the Company's auditor from
2018 to 2021.
New York, New York
December 9, 2020
Certified Public Accountants
99 Madison Avenue, Suite 601,
New York NY 10016
Email: info@yucpa.net
AB INTERNATIONAL GROUP
Consolidated Balance Sheets
|
|
August 31,
|
|
August 31,
|
|
|
2021
|
|
2020
|
|
|
|
(Audited)
|
|
|
|
(Audited)
|
ASSETS
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
132,253
|
|
|
$
|
2,455,061
|
Prepaid expenses
|
|
|
13,566
|
|
|
|
11,024
|
Account receivable
|
|
|
—
|
|
|
|
137,700
|
Related party receivable
|
|
|
1,439
|
|
|
|
87,581
|
Subscription receivable
|
|
|
87,239
|
|
|
|
61,500
|
Interest receivable
|
|
|
—
|
|
|
|
26,240
|
Other receivable
|
|
|
644,785
|
|
|
|
—
|
Total Current
Assets
|
|
|
879,282
|
|
|
|
2,779,106
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
17,128
|
|
|
|
16,408
|
Leasehold improvement, net
|
|
|
36,577
|
|
|
|
85,345
|
Right of use operating lease assets, net
|
|
|
47,827
|
|
|
|
126,354
|
Intangible assets, net
|
|
|
3,998,805
|
|
|
|
175,000
|
Long-term prepayment
|
|
|
761,600
|
|
|
|
1,742,080
|
Other assets
|
|
|
16,508
|
|
|
|
18,427
|
TOTAL ASSETS
|
|
$
|
5,757,727
|
|
|
$
|
4,942,720
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
118,283
|
|
|
$
|
359,475
|
Related party payable
|
|
|
933,434
|
|
|
|
5,504
|
Current portion of obligations under
operating leases
|
|
|
48,226
|
|
|
|
73,664
|
Convertible note and derivative
liability
|
|
|
—
|
|
|
|
438,921
|
Due to shareholder
|
|
|
2,347
|
|
|
|
476
|
Tax payable
|
|
|
—
|
|
|
|
56,750
|
Other payable
|
|
|
3,827
|
|
|
|
3,584
|
Dividend payable
|
|
|
1,834
|
|
|
|
—
|
Total Current Liabilities
|
|
|
1,107,951
|
|
|
|
938,374
|
|
|
|
|
|
|
|
|
Obligations under operating leases,
non-current
|
|
|
—
|
|
|
|
48,249
|
Total Liabilities
|
|
|
1,107,951
|
|
|
|
986,623
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
Preferred
stock, $0.001 par value, 10,000,000 preferred shares authorized;
|
|
|
—
|
|
|
|
—
|
Series A preferred
stock, 100,000 and 0 shares issued and outstanding, as of August 31, 2021 and August 31, 2020, respectively
|
|
|
100
|
|
|
|
—
|
Series B preferred stock, 20,000 and 0 shares
issued and outstanding, as of August 31, 2021 and August 31, 2020, respectively
|
|
|
20
|
|
|
|
—
|
Series C preferred stock, 0 and 0 shares issued
and outstanding, as of August 31, 2021 and August 31, 2020, respectively
|
|
|
—
|
|
|
|
—
|
Series D preferred stock, 0 and 0 shares issued
and outstanding, as of August 31, 2021 and August 31, 2020, respectively
|
|
|
—
|
|
|
|
—
|
Common stock, $0.001 par value, 1,000,000,000 shares authorized;
226,589,735 and 46,661,417 shares issued and outstanding, as of
August 31, 2021 and August 31, 2020, respectively
|
|
|
226,590
|
|
|
|
46,661
|
Additional paid-in capital
|
|
|
11,009,517
|
|
|
|
7,271,983
|
Accumulated deficit
|
|
|
(6,578,978
|
)
|
|
|
(2,970,881)
|
Unearned shareholders’
compensation
|
|
|
(7,473
|
)
|
|
|
(391,666)
|
Total Stockholders’ Equity
|
|
|
4,649,776
|
|
|
|
3,956,097
|
TOTAL LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
$
|
5,757,727
|
|
|
$
|
4,942,720
|
The accompanying notes are an integral
part of these financial statements.
AB INTERNATIONAL GROUP CORP.
Consolidated Statements of Operations
(Audited)
|
|
|
|
|
|
|
|
|
|
Years ended
|
|
|
August 31,
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Revenue
|
|
$
|
115,091
|
|
|
$
|
448,343
|
Cost of revenue
|
|
|
(1,494,328
|
)
|
|
|
(177,577)
|
Gross Profit (Loss)
|
|
|
(1,379,237
|
)
|
|
|
270,766
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(1,511,333
|
)
|
|
|
(1,346,525)
|
Research and development expenses
|
|
|
—
|
|
|
|
(108,800)
|
Related party salary and wages
|
|
|
(333,337
|
)
|
|
|
(184,768)
|
Total Operating Expenses
|
|
|
(1,844,670
|
)
|
|
|
(1,640,093)
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
|
(3,223,907
|
)
|
|
|
(1,369,327)
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES)
|
|
|
|
|
|
|
|
Rent income
|
|
|
1,920
|
|
|
|
—
|
Interest expense
|
|
|
(156,822
|
)
|
|
|
(255,512)
|
Interest income
|
|
|
7
|
|
|
|
166,352
|
Preferred shares dividend expense
|
|
|
(25,835
|
)
|
|
|
—
|
Gain (Loss) from change in fair value
|
|
|
64,584
|
|
|
|
(64,584)
|
Loss from lease termination
|
|
|
(3,251
|
)
|
|
|
—
|
Loss from prepaid convertible note
|
|
|
(232,797
|
)
|
|
|
—
|
Loss from warrant termination
|
|
|
(12,343
|
)
|
|
|
—
|
Loss from warrant exercise
|
|
|
(75,000
|
)
|
|
|
—
|
Total Other Expenses
|
|
|
(439,537
|
)
|
|
|
(153,744)
|
|
|
|
|
|
|
|
|
Loss
Before Income Tax Provision
|
|
|
(3,663,444
|
)
|
|
|
(1,523,071)
|
|
|
|
|
|
|
|
|
Income tax benefit
|
|
|
55,347
|
|
|
|
—
|
NET LOSS
|
|
$
|
(3,608,097
|
)
|
|
$
|
(1,523,071)
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE: BASIC
|
|
$
|
(0.02
|
)
|
|
$
|
(0.21)
|
NET LOSS PER SHARE: DILUTED
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02)
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC
|
|
|
194,571,251
|
|
|
|
7,186,259
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
DILUTED
|
|
|
194,571,251
|
|
|
|
81,964,690
|
The accompanying notes are an integral
part of these financial statements.
AB INTERNATIONAL GROUP CORP.
Consolidated Statements
of Changes in Stockholders' Equity
(Audited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
|
Preferred
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
|
|
Amount
|
|
|
|
Number
of Shares
|
|
|
|
Amount
|
|
|
|
Additional
Paid-in Capital
|
|
|
|
Accumulated
Deficit
|
|
|
|
Unearned
Shareholders' Compensation
|
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - August 31, 2019
|
|
|
4,822,016
|
|
|
$
|
4,822
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
6,520,980
|
|
|
$
|
(1,452,020
|
)
|
|
$
|
(842,657
|
)
|
|
$
|
4,231,125
|
Common shares issued for cash at $0.0350 or $0.0205
per share
|
|
|
21,000,000
|
|
|
|
21,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
554,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
575,500
|
Common shares issued from note conversions
|
|
|
18,014,401
|
|
|
|
18,014
|
|
|
|
—
|
|
|
|
—
|
|
|
|
291,880
|
|
|
|
—
|
|
|
|
—
|
|
|
|
309,894
|
Common shares issued from warrant exercises
|
|
|
3,250,000
|
|
|
|
3,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,997
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,247
|
Common shares issued to officers for services
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
169,768
|
|
|
|
169,768
|
Common shares returned due to officer resignations
|
|
|
(425,000
|
)
|
|
|
(425
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(280,797
|
)
|
|
|
—
|
|
|
|
281,222
|
|
|
|
—
|
Warrant shares issued in conjunction with convertible notes
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
145,423
|
|
|
|
—
|
|
|
|
—
|
|
|
|
145,423
|
Adjustment due to ASC 842 adoption for lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
4,211
|
|
|
|
—
|
|
|
|
4,211
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,523,071
|
)
|
|
|
—
|
|
|
|
(1,523,071)
|
Balance - August 31, 2020
|
|
|
46,661,417
|
|
|
$
|
46,661
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
7,271,983
|
|
|
$
|
(2,970,880
|
)
|
|
$
|
(391,667
|
)
|
|
$
|
3,956,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for cash
|
|
|
23,000,000
|
|
|
|
23,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
529,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
552,000
|
Common shares issued from note conversions
|
|
|
25,406,238
|
|
|
|
25,406
|
|
|
|
—
|
|
|
|
—
|
|
|
|
158,347
|
|
|
|
—
|
|
|
|
—
|
|
|
|
183,753
|
Common shares issued from warrant exercises
|
|
|
56,407,922
|
|
|
|
56,408
|
|
|
|
—
|
|
|
|
—
|
|
|
|
81,358
|
|
|
|
—
|
|
|
|
—
|
|
|
|
137,766
|
Common shares returned due to officer resignations
|
|
|
(261,111
|
)
|
|
|
(261
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(391,405
|
)
|
|
|
—
|
|
|
|
391,667
|
|
|
|
—
|
Put Shares issued for cash
|
|
|
31,646,633
|
|
|
|
31,647
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,662,904
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,694,551
|
Common shares issued to officers for services
|
|
|
1,500,000
|
|
|
|
1,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,500
|
|
|
|
—
|
|
|
|
(7,473
|
)
|
|
|
37,527
|
Common shares issued for consulting services
|
|
|
17,700,000
|
|
|
|
17,700
|
|
|
|
—
|
|
|
|
—
|
|
|
|
513,300
|
|
|
|
—
|
|
|
|
—
|
|
|
|
531,000
|
Preferred shares series A issuance
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
Preferred shares series B issuance
|
|
|
—
|
|
|
|
—
|
|
|
|
20,000
|
|
|
|
20
|
|
|
|
319,980
|
|
|
|
—
|
|
|
|
—
|
|
|
|
320,000
|
Preferred shares series C issuance
|
|
|
—
|
|
|
|
—
|
|
|
|
280,025
|
|
|
|
280
|
|
|
|
243,220
|
|
|
|
—
|
|
|
|
—
|
|
|
|
243,500
|
Preferred shares series D issuance
|
|
|
—
|
|
|
|
—
|
|
|
|
798
|
|
|
|
1
|
|
|
|
722,999
|
|
|
|
—
|
|
|
|
—
|
|
|
|
723,000
|
Preferred shares series C dividend shares
|
|
|
—
|
|
|
|
—
|
|
|
|
19,322
|
|
|
|
19
|
|
|
|
16,782
|
|
|
|
—
|
|
|
|
—
|
|
|
|
16,802
|
Preferred shares series D dividend shares
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
0
|
|
|
|
7,200
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,200
|
Preferred shares and dividend shares converted into common
shares
|
|
|
24,528,637
|
|
|
|
24,529
|
|
|
|
(300,151
|
)
|
|
|
(300
|
)
|
|
|
(24,228
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
Termination of issued warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(145,423
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(145,423)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,608,097
|
)
|
|
|
—
|
|
|
|
(3,608,097)
|
Balance
- August 31, 2021
|
|
|
226,589,735
|
|
|
$
|
226,590
|
|
|
|
120,000
|
|
|
$
|
120
|
|
|
$
|
11,009,517
|
|
|
$
|
(6,578,978
|
)
|
|
$
|
(7,473
|
)
|
|
$
|
4,649,776
|
The accompanying
notes are an integral part of these financial statements.
AB INTERNATIONAL GROUP CORP.
Consolidated Statements of Cash Flows
(Audited)
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
August 31,
|
|
|
2021
|
|
2020
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,608,097
|
)
|
|
$
|
(1,523,071)
|
Adjustments to reconcile net income
(loss) to net cash from operating activities:
|
|
|
|
|
|
|
|
Executive salaries
and consulting fees paid in stock
|
|
|
568,627
|
|
|
|
169,768
|
Depreciation of
fixed asset
|
|
|
53,048
|
|
|
|
52,446
|
Amortization of
intangible asset
|
|
|
1,468,728
|
|
|
|
113,731
|
Impairment of intangible
asset
|
|
|
—
|
|
|
|
125,062
|
Loss/(gain) from
change in fair value of derivatives
|
|
|
(64,584
|
)
|
|
|
64,584
|
Loss/(gain) from
lease termination
|
|
|
3,251
|
|
|
|
—
|
Loss/(gain) from
warrant termination
|
|
|
12,343
|
|
|
|
—
|
Loss/(gain) from
warrant exercise
|
|
|
75,000
|
|
|
|
—
|
Loss/(gain) prepaid
convertible notes
|
|
|
232,797
|
|
|
|
—
|
Non-cash interest
for convertible notes
|
|
|
156,822
|
|
|
|
255,512
|
Non-cash note conversion
fees
|
|
|
8,750
|
|
|
|
24,750
|
Non-cash
dividend expense for preferred shares
|
|
|
25,835
|
|
|
|
—
|
Non-cash lease
expense
|
|
|
1,590
|
|
|
|
(230)
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
137,700
|
|
|
|
(102,400)
|
Receivable on asset
disposal
|
|
|
—
|
|
|
|
1,280,000
|
Interest receivable
|
|
|
26,240
|
|
|
|
(17,515)
|
Related party receivable
|
|
|
86,142
|
|
|
|
(52,588)
|
Other receivable
|
|
|
(644,785
|
)
|
|
|
—
|
Prepaid expenses
|
|
|
(2,542
|
)
|
|
|
10,946
|
Rent security &
electricity deposit
|
|
|
1,920
|
|
|
|
(3,400)
|
Purchase of movie
and TV series broadcast right and copyright
|
|
|
(4,312,053
|
)
|
|
|
(1,742,080)
|
Accounts payable
and accrued liabilities
|
|
|
(241,192
|
)
|
|
|
248,314
|
Related party payable
|
|
|
927,930
|
|
|
|
—
|
Due to / from shareholders
|
|
|
1,871
|
|
|
|
(1,561)
|
Tax payable
|
|
|
(56,750
|
)
|
|
|
(7,814)
|
Other payable
|
|
|
243
|
|
|
|
(157,824)
|
Net cash used in
operating activities
|
|
|
(5,141,166
|
)
|
|
|
(1,263,370)
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds collected
from note receivable
|
|
|
—
|
|
|
|
1,047,040
|
Purchase of furniture
and equipment
|
|
|
(5,000
|
)
|
|
|
—
|
Net cash provided by /(used in) investing
activities
|
|
|
(5,000
|
)
|
|
|
1,047,040
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds from issuance
of convertible notes
|
|
|
233,017
|
|
|
|
592,641
|
Proceeds from common
stock issuances
|
|
|
2,220,812
|
|
|
|
514,000
|
Proceeds from preferred
share B issuances
|
|
|
320,000
|
|
|
|
—
|
Proceeds from preferred
share C issuances
|
|
|
243,500
|
|
|
|
—
|
Proceeds from preferred
share D issuances
|
|
|
723,000
|
|
|
|
—
|
Payments for warrant
termination
|
|
|
(95,000
|
)
|
|
|
—
|
Prepayments of
convertible notes
|
|
|
(821,970
|
)
|
|
|
—
|
Net cash provided by financing activities
|
|
|
2,823,359
|
|
|
|
1,106,641
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and
cash equivalents
|
|
|
(2,322,808
|
)
|
|
|
890,311
|
Cash and cash equivalents –
beginning of the year
|
|
|
2,455,061
|
|
|
|
1,564,750
|
Cash and cash equivalents –
end of the year
|
|
|
132,253
|
|
|
|
2,455,061
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures
|
|
|
|
|
|
|
|
Cash paid for
interest
|
|
|
—
|
|
|
|
—
|
Cash paid for
income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Non-Cash Investing and Financing
Activities:
|
|
|
|
|
|
|
|
Cashless warrant exercises
|
|
$
|
137,766
|
|
|
$
|
(43,247)
|
Issuance of warrants in conjunction
with convertible notes
|
|
$
|
—
|
|
|
$
|
145,423
|
Convertible notes converted to common
shares
|
|
$
|
(183,752
|
)
|
|
$
|
(309,894)
|
Additions to ROU assets from operating
lease liabilities
|
|
$
|
27,421
|
|
|
$
|
228,510
|
Common shares returned due to officer
resignations
|
|
$
|
(391,667
|
)
|
|
$
|
(228,222)
|
Preferred shares series C dividend
paid in shares
|
|
$
|
16,802
|
|
|
$
|
—
|
Preferred shares series D dividend
paid in shares
|
|
$
|
7,200
|
|
|
$
|
—
|
Preferred shares and dividend shares
converted into common shares
|
|
$
|
990,502
|
|
|
$
|
—
|
The accompanying notes are an integral part of
these consolidated financial statements.
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended August 31, 2021 and August
31, 2020
(Audited)
NOTE 1 – ORGANIZATION
AND BUSINESS OPERATIONS
AB International Group Corp. (the “Company”,
“we” or “us”) was incorporated under the laws of the State of Nevada on July 29, 2013. The Company's fiscal year
end is August 31.
We are an
intellectual property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectual property.
We are engaged to acquisition and distribution of movies. We have a patent license to a video synthesis and release system for mobile
communications equipment, in which the technology is the subject of a utility model patent in the People’s Republic of China. We
had launched a business application (Ai Bian Quan Qiu) through smartphones and official social media accounts based on WeChat platform
in February 2019, utilizing Artificial Intelligence, it is a matching platform for performers, advertiser merchants, and owners for more
efficient services. We generate revenues through an agency service fee from each matched performance.
On January 22, 2016, our former sole officer,
who owned 83% of our outstanding common shares, sold all of his common shares to unrelated investor Jianli Deng. After the stock sale,
we modified our business to focus on the creation of a mobile app marketing engine. The app was designed for movie trailer promotions
and we planned to generate a subscriber base of smartphone users primarily through pre-installed app smartphone makers, online app stores,
WeChat official accounts, Weibo and other social network media outlets and sell prepaid cards or coins to movie distributors or other
video advertisers in China. We created the app “Amoney” for the Android smartphone platform to develop a WeChat micro-shop
that was designed to display and deliver a variety of information and links for download or online watch prices in the China market.
On June 1, 2017 we entered into a Patent License
Agreement (the “Agreement”) pursuant to which Guangzhou Shengshituhua Film and Television Company Limited, a company incorporated
in China (“Licensor”), granted to us a worldwide license to a video synthesis and release system for mobile communications
equipment (the “Technology”). The Technology is the subject of a utility patent in the People’s Republic of China.
Under the Agreement, we are able to utilize, improve upon, and sub-license the technology a term of five years commencing on the June
1, 2017 (Effective Date) and subject to a right to renew for another five years. We were obligated to pay the Licensor $500,000 within
30 days of the date of the Agreement and a royalty fee in the amount of 20% of any proceeds resulting from our utilization of the Technology,
whether in the form of sub-licensing fees or sales of licensed products. Our Chief Executive Officer, Chiyuan Deng and former Chief Executive
Officer, Jianli Deng, jointly own and control Licensor. On October 10, 2017, we completed the payment of $500,000 initial payment amount
due under the Agreement. The term of this sublicensing agreement was renewed and extended for another five years in October of 2019.
Our License to the Technology generates revenue
through sub-license monthly fees from a smartphone app on Android devices. This smartphone app was already existing and licensed at the
time we acquired the Technology of video synthesis. In January, 2021, our sublicensing agreement with Anyone Picture to generate revenues
was terminated. As such, there has been no revenues generated from sub-licensing the Technology since the end of December, 2020.
On March 21, 2018, we acquired the intellectual
assets of KryptoKiosk Limited, a crypto currencies kiosk company which has licenses and patent in Australia, which enable the operation
of cryptocurrency ATMs that allow buying and selling of Bitcoin, Litecoin, and Ethererum all in one terminal. The Company planned to
generate revenue through sub-licensing fees for the operation of cryptocurrency ATMs. Through the foregoing the Company proposed to bring
a physical aspect to something that is otherwise very abstract to people. We also issued to JPC Fintech Limited 2,400,000 common shares
with a market value of $72,000 exchange of KryptoKiosk Limited’s assets consist mostly of intellectual property, including, but
not limited to, certain domain names, copyrights, trademarks, and patents pending, but also include contract rights and personal property.
We planned to generate revenue through sub-licensing fees for the operation of cryptocurrency ATMs. Through the foregoing, we proposed
to bring a physical aspect to something that is otherwise very abstract to people. We planned to invest in machines and sell sub-licenses
in the Asia Pacific region with future world-wide expansion. We had promoted and marketed the ATM
business for 6 months or until around August 2018, because the BTC and cryptocurrencies price went down. The IP, however, was
never transferred to us. We have repeatedly requested from Messrs. Grounds, Vickery and Shakespare access to the domains and websites
and other information concerning the IP assets. As of the date of this annual report, no such information has been provided. In addition,
the IP including domain names were transferred to others while Messrs. Vickery and Shakespare were officers of our company. As a result,
we ceased promotions and marketing on the ATM business and relations cryptocurrencies business in September 2018. On November 21, 2018,
we had sent the final notice that JPC Fintech has materially breached the agreement. We requested that JPC Fintech Ltd. return its stock
certificate received in the transaction to our transfer agent for immediate cancellation. We have not yet received the certificate for
termination. In February of 2020, 100% of the intellectual assets of KryptoKiosk Limited’s carrying value $48,000 net of amortization
is written off since the IP was never transferred to us and no revenue was generated from this intellectual asset.
On September 5, 2018, the Company entered into
an agreement to acquire a movie copyright for $768,000 from All In One Media Ltd, which holds 200,000 common shares of the Company as
of August 31, 2019 and is previously named as Aura Blocks Limited. The remaining balance to Aura Blocks Limited is $153,600 as of August
31, 2019. The Company has obtained the exclusive permanent broadcasting right outside the mainland China and is expected to generate
revenues from showing the movie online, in theaters, and on TV outside the mainland China once this movie is completed in June, 2019.
In August of 2019, the Company sold this movie copyright to China IPTV Industry Park Holding Ltd for $857,600 with a gain of $89,538.
In December of 2018, we engaged StarEastnet, a
software developer that holds 171,000 common shares of the Company as of August 31, 2019, to start developing a performance matching
platform (Ai Bian Quan Qiu) and a WeChat official account to advertise the platform. The matching platform is to arrange performance
events for celebrities and performers. Performers can set their schedules and quotes on the platform. The platform will maximize their
profits from performance events by optimizing their schedules based upon quotes and event locations and save time from commuting among
different events. “Ai Bian Quan Qiu” utilizes the artificial intelligence (AI) matching technology to instantly and accurately
match performers and advertisers or merchants. The company charges agency service fees for each successful event matched through the
platform. Since no large social gathering is allowed as a result of COVID-19, there has been no revenue generated from the performance
matching platform (Ai Bian Quan Qiu) since the end of January, 2020. The Company decided to impair 100% of the carrying amount of Ai
Bian Quan Qiu platform and its Wechat official account.
In June, 2019, the Company completed the development
of a video mix APP for social video sharing via iOS and Android smartphones. This app was originally planned to take advantage of the
core design philosophy of “My film anyone, anywhere, anytime be together” as similar and competitive innovative video and
community apps have been activated on over 2 million unique devices in China as of December 31, 2017 and precipitated the duet video
synthesis phenomenon in China. However, the Company decided to focus on the “Ai Bian Quan Qiu” platform as its main business
and thus sold the video mix APP to Anyone Pictures Limited, which holds 242,980 common shares of the Company, for $422,400 with a gain
of $59,792 in August of 2019. Due to the quarantine and continuous control imposed by the state
and local governments in areas affected by COVID-19, merchant advertising events were suspended. The Company decided to shut down the
Ai Bian Quan Qiu platform and no revenue was generated after January 31, 2020. As a result, it has created an adverse impact on the business
and financial condition and hampered its ability to generate revenue and access sources of liquidity on reasonable terms.
In August of 2019, the Company entered into a
one year loan agreement to lend $1,047,040 at an annual interest rate of 10% to All In One Media Ltd, previously named as Aura Blocks
Limited, for producing films and digital videos in Hong Kong. The term of note receivable was from August 1, 2019 to July 31, 2020. This
loan principal balance was paid off in full in July, 2020. All the interest income of $95,979 was received by August 31, 2020.
On September 4, 2019, the Company entered into another loan agreement
to lend $1,049,600 at an annual interest rate of 10% to All In One Media Ltd, previously named as Aura Blocks Limited. The term of note
receivable was from September 4, 2019 to March 3, 2020. This loan balance was paid off in full on May 4th, 2020 with
two months’ extension. All the interest income of $70,021 was received by November 13, 2020.
On April 22, 2020, the Company announced the first
phase development of its video streaming service. The online service will be marketed and distributed in the world under the brand name
ABQQ.tv. The Company’s professional team are sourcing such dramas and films to provide video streaming service on the ABQQ.tv.
The video streaming website www.ABQQ.tv was officially launched on December 29, 2020. As of August 31, 2021, the Company acquired 4 movie
copyrights and 59 movie broadcast rights. The Company will continue marketing and promoting the ABQQ.tv website through GoogleAds and
acquire additional broadcast rights for movies and TV series, and plan to charge subscription fees once the Company has obtained at least
200 broadcast rights of movie and TV series.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The financial statements of the Company have been
prepared in accordance with accounting principles generally accepted in the United States of America and are presented in US dollars.
The Company’s year-end is August 31.
Basis of Consolidation
The financial statements have been prepared on
a consolidated basis, with the Company’s fully owned subsidiary App Board Limited registered and located in Hong Kong. All intercompany
balances and transactions have been eliminated in consolidation.
Going Concern Uncertainties
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge
of liabilities in the normal course of business for the foreseeable future.
As of August 31, 2021, the Company had an accumulated
deficit of approximately $6.6 million and a working capital deficit of $228,669. For the year ended August 31, 2021, the Company incurred
a net loss of approximately $3.6 million and the net cash used in operations was $5,141,166. Losses have principally occurred as a result
of the substantial resources required for general and administrative expenses associated with our operations. The continuation of the
Company as a going concern through August 31, 2022 is dependent upon the continued financial support from its stockholders or external
financing. Management believes the existing stockholders will provide the additional cash to meet the Company’s obligations as
they become due. However, there is no assurance that the Company will be successful in securing sufficient funds to sustain the operations.
These conditions raise substantial doubt about
the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect the
possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may
result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding
and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements
and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid instruments
purchased with an original maturity of three months or less to be cash equivalents.
Foreign Currency Transactions
The Company’s planned operations are outside
of the United States, which results in exposure to market risks from changes in foreign currency rates. The financial risk arises from
the fluctuations in foreign exchange rates and the degrees of volatility in these rates. Currently the Company does not use derivative
instruments to reduce its exposure to foreign currency risk. Non-monetary assets and liabilities are translated at historical rates and
monetary assets and liabilities are translated at exchange rates in effect at the end of the year. Revenues and expenses are translated
at average rates for the year. Gains and losses from translation of foreign currency financial statements into U.S. dollars are included
in current results of operations.
Account Receivable
Account receivable consisted of amounts due from
Anyone Pictures Limited for the sub-licensing fee revenue. Amount receivable balances are recorded at the invoiced amount and do not
bear interest. As the sublicensing agreement with Anyone Picture was terminated in January, 2021, there was no account receivable balance
as of August 31, 2021. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses
in its existing accounts receivable. No amount for bad debt expense was recorded by the Company during the years ended August 31, 2021
and August 31, 2020, and no write-offs for bad debt were recorded for the years ended August 31, 2021 and August 31, 2020.
Prepaid Expenses
Prepaid expenses primarily consist of prepayments
of OTC market annual fee. The prepaid balances are amortized when the related expense is incurred.
Fixed Asset
Fixed asset consists of furniture and appliances
acquired for the office. The balance is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line
method over estimated useful lives listed below:
|
|
|
|
Estimated
Useful Life
|
|
Furniture
|
|
|
7
years
|
|
Appliances
|
|
|
5
years
|
Leasehold Improvement
Leasehold improvement is related to the enhancements
paid by the Company to leased office and store. Leasehold improvement represents capital expenditures for direct costs of renovation
or acquisition and design fees incurred. The amortization of leasehold improvements commences once the renovation is completed and ready
for the Company’s intended use. Leasehold improvement is amortized over the lease term of 3 years.
Intangible Assets
Intangible assets are stated at the lower of cost
or amortized cost or estimated fair value and amortized as follows:
|
●
|
Movie
copyrights and broadcast rights: straight-line method over the estimated life of the asset, which has been determined by management
to be 2 years
|
|
●
|
Patent:
straight-line method over the term of 5 years based on the patent license agreement
|
Amortized costs of the intangible asset are recorded
as cost of sales, as the intangible assets are directly related to generation of revenues in the Company.
Lease property under operating lease
In February 2016, the Financial Accounting Standards
Board (“FASB”) issued updated guidance to improve financial reporting about leasing transactions. This guidance required
organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by
those leases. The original guidance required application on a modified retrospective basis with the earliest period presented.
In August 2018, the FASB issued new guidance which included an option to not restate comparative periods in transition. Under this
new guidance, a company applies the standard to leases in place as of the date of initial application, records a cumulative-effect
adjustment to retained earnings as of the first day of the adoption year, and follows the new rules for all leases entered or modified
going forward. The Company adopted this new standard on June 1, 2020 with no retrospective adjustments to prior comparative
periods. In accordance with ASC 250-10-45-14, a change in accounting principle made in an interim period shall be reflected as if the
entity had adopted the new principle on the first day of the adoption year, which is September 1, 2019 for the Company. As such, the
adoption of ASC 842 lease accounting standard has resulted in $196,813 lease liabilities with corresponding $201,025 ROU
assets net of amortization as of September 1, 2019 based on the present value of the remaining rental payments under current
leasing standards for existing leases. The remaining balance of lease liabilities are presented within the current portion of lease
liabilities and the non-current portion of lease liabilities on the Consolidated Balance Sheet.
Impairment of Long-lived asset
The Company evaluates
its long-lived assets or asset group, including intangible assets with indefinite and finite lives, for impairment. Intangible assets
with indefinite lives that are not subject to amortization are tested for impairment at least annually or more frequently if events or
changes in circumstances indicate that the assets might be impaired in accordance with ASC 350. Such impairment test compares the fair
values of assets with their carrying values with an impairment loss recognized when the carrying values exceed fair values. For long-lived
assets and intangible assets with finite lives that are
subject to depreciation
and amortization are tested for impairment whenever events or changes in circumstances (such as a significant adverse change to market
conditions that will impact the future use of the assets) indicate that the carrying amount of an asset or a Group of long-lived assets
may not be recoverable. When these events occur, the Company evaluates impairment by comparing the carrying amount of the assets to future
undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected
undiscounted cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the excess
of the carrying amount of the asset group over its fair value.
Impairment losses are
included in the general and administrative expense. There was no impairment loss during the year ended August 31, 2021. For the year
ended August 31, 2020, the impairment loss of intangible assets was $125,062, including $48,000 for the intellectual assets acquired
from KryptoKiosk Limited and $77,062 for the performance matching platform “Ai Bian Quan Qiu” and its WeChat official account.
Revenue Recognition
The Company adopted ASC Topic 606, “Revenue
from Contracts with Customers”, applying the modified retrospective method.
In accordance with ASC Topic 606, revenues are
recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration
that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to
determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:
|
●
|
the
contract with a customer;
|
|
●
|
identify
the performance obligations in the contract;
|
|
●
|
determine
the transaction price;
|
|
●
|
allocate
the transaction price to performance obligations in the contract; and
|
|
●
|
recognize
revenue as the performance obligation is satisfied.
|
The Company does not believe that significant
management judgements are involved in revenue recognition, but the amount and timing of the Company’s revenues could be different
for any period if management made different judgments or utilized different estimates. Generally, the Company recognizes revenue under
ASC Topic 606 for its performance obligation.
The Company generates revenue from sub-licensing
a patent. The sub-licensing revenue is recognized monthly based upon the number of users who download the APP that utilizes the Company’s
patent. The monthly royalty the Company charges Anyone Pictures Limited is $12.8 per 1000 APP users. Both parties agreed to charge the
sublicensing fee based upon a fixed number 2,000,000 users. In January, 2021, our sublicensing agreement with Anyone Picture to generate
revenues was terminated. As such, there has been no revenues generated from sub-licensing the Technology since the end of December, 2020.
Once the Company finds another company to sublicense the patent, it will generate royalty revenue again.
Fair Value of Financial Instruments
ASC 820, “Fair Value Measurements”
(ASC 820) and ASC 825, “Financial Instruments” (ASC 825), requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value
hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three
levels that may be used to measure fair value:
Level 1 – Level 1 applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 – Level 2 applies to assets or liabilities
for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar
assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally
from, or corroborated by, observable market data.
Level 3 – Level 3 applies to assets or liabilities
for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the
assets or liabilities.
The carrying values of cash, accounts payable,
and accrued liabilities approximate fair value due to their short-term nature. The fair values of warrant liabilities and derivative
liabilities embedded in convertible notes are determined by level 3 inputs.
Accounting for Derivative Instruments
The Company accounts
for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” (ASC 815) and all derivative instruments
are reflected as either assets or liabilities at fair value in the balance sheet.
The Company uses estimates
of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an
orderly transaction between willing and able market participants. In general, the Company's policy in estimating fair values is to first
look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available,
other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default
rates and credit spreads (including for the Company's liabilities), relying first on observable data from active markets. Additional
adjustments may be made for factors including liquidity, credit, bid/offer spreads, etc., depending on current market conditions. Transaction
costs are not included in the determination of fair value. When possible, the Company seeks to validate the model's output to market
transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different
fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its
fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency
utilized in measuring financial instruments at fair value as discussed above. Changes in fair value are recognized in the period incurred
as either gains or losses.
Warrants
Warrants are classified
as equity and the proceeds from issuing warrants in conjunction with convertible notes are allocated based on the relative fair values
of the base instrument of convertible notes and the warrants by following the guidance of ASC 470-20-25-2 as below:
Proceeds from the sale
of a debt instrument with stock purchase warrants (detachable call options) shall be allocated to the two elements based on the relative
fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds
so allocated to the warrants shall be accounted for as paid-in capital. The remainder of the proceeds shall be allocated to the debt
instrument portion of the transaction. This usually results in a discount (or, occasionally, a reduced premium), which shall be accounted
for as interest expense under Topic 835 Interest.
Income Taxes
The Company accounts for income taxes pursuant
to FASB ASC 740 “Income Taxes”. Under ASC 740 deferred income taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and
their tax bases. Deferred tax assets
are reduced by a valuation allowance when, in
the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The provision
for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities.
Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
ASC 740 also provides criteria for the recognition,
measurement, presentation and disclosure of uncertain tax positions. Under ASC 740, the impact of an uncertain tax position on the income
tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing
authority. At August 31, 2021 and 2020, there were no unrecognized tax benefits. Please see Note 14 for details.
Value-Added Taxes
The Company generates revenue in People's Republic
of China (PRC) via the “Ai Bian Quan Qiu” platform and is subject to a value-added tax at an effective rate of 6%. In accordance
with PRC law, the Company is also subject to surcharges, which includes urban maintenance and construction taxes and additional education
fees on VAT payable.
The Company’s revenue generated from the
“Ai Bian Quan Qiu” platform is subject to VAT at a rate of 6% and subject to surcharges at a rate of 12% of the VAT payable.
Basic and Diluted Income (Loss) Per Share
The Company computes income (loss) per share in
accordance with FASB ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share
on the face of the statement of operations. The earnings per share after the reverse stock split is presented retrospectively as if the
reverse split had occurred at the very beginning of the business. Basic loss per share is computed by dividing net income (loss) available
to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share is computed
using the weighted average number of common shares and potential common shares outstanding during the period for warrants, options and
restricted shares under treasury stock method, and for convertible debts under if-convertible method, if dilutive. Diluted income (loss)
per share gives effect to all dilutive potential common shares outstanding during the period and excludes all potential common shares
if their effects are anti-dilutive.
In accordance with the Company’s convertible
note agreements, the Note Holders have the option to convert all or any lesser portion of the outstanding principal amount and accrued
but unpaid interest into common stock at a conversion price equal to a price which is 55% or 60% of the lowest trading price during the
10 or 20 days prior to the day that the Holder requests conversion. 55% is applicable to EMA Financial whereas 60% applies for the other
counterparties. The lowest trading price during 10 days prior to conversion is applicable to East Capital and Fidelis Capital, whereas
the other counterparties utilize the lowest trading price during the preceding 20 days. The number of diluted shares from convertible
notes is calculated with the assumption of converting all the outstanding principal balance and unpaid interest expense to common shares
at the beginning of the period or at the time of issuance, if later.
The number of diluted shares from warrants is
the upper limit to which warrants can be converted into common shares and adjusted for anti-dilution clauses.
The Company has prepaid all the remaining convertible
notes and exercised all the warrants as of August 31, 2021. As such, 0 potentially diluted shares were from convertible notes and warrants
as of August 31, 2021, whereas 6,614,769 potentially diluted shares were from convertible notes and 68,163,661 potentially diluted shares
were from warrants as of August 31, 2020.
|
|
As of
August 31,
|
Diluted shares NOT included in basic
loss per share computation
|
|
2021
|
|
2020
|
Warrants
|
|
|
—
|
|
|
|
68,163,661
|
Convertible notes
|
|
|
—
|
|
|
|
6,614,769
|
Recent Accounting Pronouncements
In February 2018, the FASB issued guidance to
address the income tax accounting treatment of the tax effects within other comprehensive income due to the enactment of the Tax Cuts
and Jobs Act (the “Act”). This guidance allows entities to elect to reclassify the tax effects of the change in the income
tax rates from other comprehensive income to retained earnings. The guidance is effective for periods beginning after December 15, 2018
although early adoption is permitted. The Company has evaluated and concluded that there was no impact on its consolidated financial
position and results of operations.
In March 2018, the FASB issued ASU 2018-05: “Income
Taxes (Topic 740)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”. The amendments in this ASU add
various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118, which expresses the view of the staff regarding
application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 – the date on which the Tax Cuts
and Jobs Act was signed into law. The Company has evaluated and concluded that there was no impact on its consolidated financial position
and results of operations.
Effective September 1, 2019, the Company adopted
ASU 2018-07: “Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting”.
This ASU expands the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to
employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based
payments to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity—Equity-Based
Payments to Nonemployees. The Company has evaluated and concluded that there was no impact on its consolidated financial position and
results of operations.
In August 2018, the FASB issued ASU 2018-13, “Fair
Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,”
to improve the effectiveness of disclosures in the notes to financial statements related to recurring or nonrecurring fair value measurements
by removing amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers
between levels, and the valuation processes for Level 3 fair value measurements. The new standard requires disclosure of the range and
weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are
effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.
In December 2019, the FASB issued ASU 2019-12,
“Simplifying the Accounting for Income Taxes” to remove specific exceptions to the general principles in Topic 740 and to
simplify accounting for income taxes. The standard is effective for public companies for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of
this accounting standard update on its consolidated financial statements.
In January 2020, the FASB issued ASU 2020-01,
“Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and
Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815,” which clarifies the interaction
of the accounting for equity investments under Topic 321 and investments accounted for under the equity method of accounting in Topic
323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The standard is effective for
public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption
is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.
NOTE 3 –PREPAID EXPENSES
Prepaid expense was $13,566 and $11,024 as of
August 31, 2021 and August 31, 2020, respectively. Prepaid expense as of August 31, 2021 primarily includes $12,833 prepayment of OTC
market annual fee.
NOTE 4 – SUBSCRIPTION RECEIVABLE
Subscription receivable is cash not yet collected
from the shareholders for issuance of common stock. As of August 31, 2021, the subscription receivable balance of $87,239 was the remaining
cash to be collected from the issuance of 3 million Put shares to Peak One Opportunity Fund LP. As of August 31, 2020, the subscription
receivable balance of $61,500 was cash to be collected from Mingpeng Ou for issuing 3,000,000 shares of common stocks at a price of $0.0205
per share. All the subscription receivables have been collected as of the date of issuance of these consolidated financial statements.
NOTE 5 – FIXED ASSETS AND LEASEHOLD IMPROVEMENT
The Company capitalized the renovation cost as
leasehold improvement and the cost of furniture and appliances as fixed asset. Leasehold improvement relates to renovation and upgrade
of an office and an offline display store. The leasehold improvement is depreciated over 3 years which equal the terms of the operating
lease for renting an office. The furniture and appliances are depreciated over 7 and 5 years, respectively.
The depreciation expense was $53,048 and $52,446
for the years ended August 31, 2021 and August 31, 2020, respectively.
|
|
August
31, 2021
|
|
August
31, 2020
|
Leasehold improvement
|
|
$
|
146,304
|
|
|
$
|
146,304
|
Appliances and furniture
|
|
|
25,974
|
|
|
|
20,974
|
Total cost
|
|
|
172,278
|
|
|
|
167,278
|
Accumulated depreciation
|
|
|
(118,573
|
)
|
|
|
(65,525)
|
Property and equipment, net
|
|
$
|
53,705
|
|
|
$
|
101,753
|
NOTE 6 – INTANGIBLE ASSETS
As of August 31, 2021 and August 31, 2020, the
balance of intangible assets are as follows;
|
August
31,
|
|
|
August
31,
|
|
2021
|
|
2020
|
Patent
|
$
|
500,000
|
|
$
|
500,000
|
Movie copyrights - Love
over the world
|
|
853,333
|
|
|
-
|
Sitcom copyrights -
Chujian
|
|
640,000
|
|
|
-
|
Movie copyrights - Huafeng
|
|
422,400
|
|
|
-
|
Movie copyrights - Our
treasures
|
|
936,960
|
|
|
-
|
Movie and TV series
broadcast rights
|
|
2,439,840
|
|
|
-
|
Total cost
|
|
5,792,533
|
|
|
500,000
|
Less: Accumulated amortization
|
|
(1,793,728)
|
|
|
(325,000)
|
Intangible asset, net
|
$
|
3,998,805
|
|
$
|
175,000
|
Intangible assets include 1) a patent obtained
from Guangzhou Shengshituhua Film and Television Company Limited as a worldwide license to a video synthesis and release system for mobile
communications equipment, 2) copyrights for the movie “Love over the world”, “Huafeng”, “Our treasures”
and the sitcom “Chujian”, and 3) broadcast rights for fifty nine movie and TV series. The amortization expense for years
ended August 31, 2021 and August 31, 2020 was $1,468,728 and $113,731, respectively.
The estimated amortization expense for each
of the three succeeding years is as follows. The intangible assets as of August 31, 2021 will be fully amortized in the fiscal year of
2023.
Year ending
August 31,
|
|
Amortization
expense
|
2022
|
|
|
$
|
2,721,267
|
|
2023
|
|
|
$
|
1,277,538
|
|
NOTE 7 – RIGHTS-TO-USE OPERATING LEASE
ASSETS, NET
Rights-to-use lease assets, net consisted
of the following:
|
|
August
31, 2021
|
|
August
31, 2020
|
Right-to-use gross asset
|
|
$
|
223,237
|
|
|
$
|
228,510
|
Less: accumulated amortization
|
|
|
(175,410
|
)
|
|
|
(102,156)
|
Right-to-use asset, net
|
|
$
|
47,827
|
|
|
$
|
126,354
|
The right-of-use assets will be fully amortized
in the fiscal year 2022.
NOTE 8 – LONG-TERM
PREPAYMENT
In September 2019, the
Company entered into an agreement with Guangzhou Yuezhi Computer Ltd. For upgrading software of the “Ai Bian Quan Qiu”
platform at a cost of $128,000. $108,800 was paid upon signing the agreement and recorded as long-term prepayment in Q1, FY2020. As COVID-19
restricted crowd-gathering, “Ai Bian Quan Qiu” platform has not generated any revenue since mid-January, 2020, the Company
impaired 80% of the “Ai Bian Quan Qiu” platform intangible asset value in Q2 FY2020 and the remaining 20% intangible asset
in Q4 FY2020. As such, $108,800 prepayment was expensed as research and development expense from the previously recognized long-term
prepayment asset in FY2020.
As of August 31, 2021,
the long-term prepayment balance of $761,600 relates to movie copyrights and broadcast rights for movies as below:
|
•
|
In November 2019, the
Company acquired a broadcast right of “Lushang” (English name: “On the Way”) from All In One Media Ltd for
online streaming at a price of $256,000. This broadcast right permits online streaming globally and has been fully paid. As “Lushang”
has not yet been approved for screening by the Chinese government, the payment of $256,000 was recorded as long-term prepayment
|
|
•
|
In November 2019, the Company acquired a broadcast
right of “Qi Qing Kuai Che” (English name: “Confusion”) from All In One Media Ltd for online streaming at
a price of $115,200. This broadcast right only allows online streaming outside China. In July 2021, the Company acquired the full
movie copyright for both domestic and overseas with an additional cost of $908,800, and the total price is $1,024,000. As of August
31, 2021, $505,600 has been paid. As this movie has not yet been fully paid or approved for screening by the Chinese government,
the total payment of $505,600 was recorded as long-term prepayment.
|
NOTE 9 – CONVERTIBLE
NOTES
On November 18, 2019, the Company closed a private
financing with EMA Financial, LLC (“EMA Financial” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $250,000, and upon issuance, the Company is expected to receive net proceeds of $228,333
after subtracting an original issue discount of $21,667 per the Note agreement. This Note carries a prorated original issue discount
of up to $21,667 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note,
which is included in the principal balance of this Note.
As part of initial closing the outstanding principal
amount shall be $75,000 and the Holder shall pay $68,500 of the consideration (the “First Tranche”). Out of $68,500
consideration, the Company has received $64,737 cash from EMA Financial with the remaining $3,763 spent as legal expense for note issuance
and due diligence fees.
The term of this convertible note is 9 months
with the maturity date on August 18, 2020. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will
be equal to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion
features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending
on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 55.0% of the lowest
traded price for the common stock on the principal market during the 20 consecutive trading Days on which at least 100 shares of common
stock were traded including and immediately preceding the Conversion Date.
In connection with the issuance of the Note, the
Company granted EMA Financial a five-year cashless warrant (the “Warrant”) to purchase 30,000 shares of common stock at an
exercise price of $12.5 per share. As of November 30, 2020, EMA Financial exercised 100% of the total warrant shares to acquire 45,851,221
common shares through cashless exercises.
On December 13, 2019, the Company entered into
a Securities Purchase Agreement with Peak One Opportunity Fund, L.P., a Delaware limited partnership (“Peak One” or the “Holder”),
pursuant to which we issued and sold to the Peak One a convertible promissory note. The Note has an original principal amount of $235,000,
and upon issuance, the Company is expected to receive net proceeds of $211,500 after subtracting an original issue discount of $23,500
per the Note agreement. This Note carries a prorated original issue discount of up to $23,500 (the “OID”), to cover the Holder’s
monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.
As part of initial closing the outstanding principal
amount shall be $85,000 and the Holder shall pay $76,500 of the consideration (the “First Tranche”). Out of $76,500 consideration,
the Company has received $65,312 cash from Peak One with the remaining $11,188 spent as legal expense for note issuance and due diligence
fees. Peak One has converted all the convertible notes into 1,096,846 common shares by July 16th, 2020.
The term of this convertible note is 1 year with
the maturity date on December 9, 2020. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal to the lesser of (a) $10.00 or (b) Sixty percent (60%) of the lowest closing bid price (as reported
by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion of the
Debentures (provided, further, that if either the Company is not DWAC Operational at the time of conversion or the Conversion Price is
less than $0.01 per share, then sixty percent (60%) shall automatically adjust to Fifty percent (50%) of the lowest closing bid price
(as reported by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of conversion of the
Debenture), subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar
events.
In connection with the issuance of the Note, the
Company granted Peak One a five-year cashless warrant (the “Warrant”) to purchase 10,000 shares of common stock at an exercise
price of $10 per share. As of November 30, 2020, Peak One exercised 100% of the total warrant shares to acquire 3,720,326 common shares
through cashless exercises.
On January 8, 2020, the Company entered into a
Securities Purchase Agreement with Crown Bridge Partners, LLC, a New York limited company (“Crown Bridge”), pursuant to which
the Company issued and sold to Crown a convertible promissory note, dated January 8, 2020, in the principal amount of $121,500. Upon
issuance, the Company is expected to receive net proceeds of $109,500 after subtracting an original issue discount of $12,000 per the
Note agreement. This Note carries a prorated original issue discount of up to $12,000 (the “OID”), to cover the Holder’s
monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.
As part of initial first tranche closing on January
8th, 2020 the outstanding principal amount shall be $40,500 and the Holder shall pay $36,500 of the consideration (the “First
Tranche”). Out of $36,500 consideration, the Company has received $34,992 cash from Crown Bridge with the remaining $1,508 spent
as legal expense for note issuance and due diligence fees.
As part of the second tranche closing on July
23rd, 2020 the outstanding principal amount shall be $50,000 and the Holder shall pay $47,500 of the consideration (the “Second
Tranche”). Out of $47,500 consideration, the Company has received $42,987 cash from Crown Bridge with the remaining $4,513 spent
as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with
the maturity date on January 8, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
lesser (i) fifteen percent (15%) per annum or (ii) the maximum amount permitted by law from the due date thereof until the same is paid.
The convertible note has prepayment and conversion features. The Conversion Price shall be the lesser of (i) the lowest closing price
of the Common Stock during the previous twenty (20) Trading Day period ending on the latest complete Trading Day prior to the date of
this Note or (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends
or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower,
combinations, recapitalization, reclassifications, extraordinary distributions and similar events) (also subject to adjustment as further
described herein). The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein) (representing
a discount rate of 40%). “Market Price” means the lowest one (1) Trading Price (as defined below) for the Common Stock during
the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date.
“Trading Price” means, for any security
as of any date, the lesser of the (i) lowest traded price and (ii) lowest closing bid price on the Over-the-Counter Pink Marketplace,
OTCQB, or applicable trading market (the “Principal Market”) as reported by a reliable reporting service (“Reporting
Service”) designated by the Holder (i.e. Bloomberg) or, if the Principal Market is not the principal trading market for such security,
on the principal securities exchange or trading market where such security is listed or traded or, if the lowest intraday trading price
of such security is not available in any of the foregoing manners, the lowest intraday price of any market makers for such security that
are quoted on the OTC Markets
In connection with the issuance of each
tranche of the Note, the Company granted Crown Bridge a five-year cashless warrant (the “Warrant”) to purchase 4,680 shares
of common stock at an exercise price of $12.5 per share.
On December 31, 2019, the Company closed a private
financing with Auctus Capital Partners, LLC, (“Auctus” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $75,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $75,000 and the Holder shall pay $75,000 of the consideration (the “First Tranche”). Out of $75,000 consideration,
the Company has received $59,342 cash from Auctus with the remaining $15,658 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 9 months
with the maturity date on September 30, 2020. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will
be equal the lesser of (i) twenty-four percent (24%) per annum and (ii) the maximum amount permitted under law from the due date thereof
until the same is paid. The convertible note has prepayment and conversion features. The conversion price is the lesser of: (i) the lowest
closing price of the Common Stock during the previous twenty (20) Trading Day period ending on the latest complete Trading Day prior
to the date of this Note, and (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits,
stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of
the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable
Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein) (representing a discount rate of 40%). “Market
Price” means the lowest Trading Price (as defined below) for the Common Stock during the twenty (20) Trading Days on which at least
100 shares of Common Stock were traded including and immediately preceding the Conversion Date. “Trading Price” means, for
any security as of any date, the lowest trade price on the OTC Pink, OTCQB or applicable trading market as reported by a reliable reporting
service (“Reporting Service”) designated by the Holder or, if the OTC Pink is not the principal trading market for such security,
the trading price of such security on the principal securities exchange or trading market where such security is listed or traded or,
if no trading price of such security is available in any of the foregoing manners, the average of the trading prices of any market makers
for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.
On February 13, 2020, the Company closed a private
financing with East Capital Investment Corporation (“East Capital” or the “Holder”) by issuing a convertible
note (the “Note”). The Note has an original principal amount of $50,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $50,000 and the Holder shall pay $50,000 of the consideration (the “First Tranche”). Out of $50,000 consideration,
the Company has received $43,492 cash from EMA Financial with the remaining $6,508 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with
the maturity date on February 13, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day
that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties.
On February 19, 2020, the Company closed a private
financing with Fidelis Capital, LLC, (“Fidelis” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $50,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $50,000 and the Holder shall pay $50,000 of the consideration (the “First Tranche”). Out of $50,000 consideration,
the Company has received $43,487 cash from Fidelis with the remaining $6,513 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with
the maturity date on February 19, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day
that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties.
On March 12, 2020, the Company closed a
private financing with Armada Capital Partners, LLC, (“Armada” or the “Holder”) by issuing a convertible note
(the “Note”). The Note has an original principal amount of $38,500 and an original issue discount of $3,500 per the Note
agreement.
As part of initial closing the outstanding principal
amount shall be $38,500 and the Holder shall pay $35,000 of the consideration (the “First Tranche”). Out of $35,000 consideration,
the Company has received $32,992 cash from Fidelis with the remaining $2,008 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with
the maturity date on March 12, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day
that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties. In connection with the issuance
of the Armada Note, the Company granted Armada a five-year cashless warrant (the “Warrant”) to purchase 4,200 shares of the
Company’s common stock at an exercise price of $12.50 per share.
On July 17, 2020, the Company closed a private
financing with EMA Financial, LLC (“EMA Financial” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $50,000, and upon issuance, carries a prorated original issue discount of up to $2,500 (the
“OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included
in the principal balance of this Note.
As part of initial closing the outstanding principal
amount shall be $50,000 and the Holder shall pay $47,500 of the consideration. Out of $47,500 consideration, the Company has received
$42,987 cash from EMA Financial with the remaining $4,513 spent as legal expense for note issuance and due diligence fees.
The term of the convertible note is 1 year with
the maturity date on July 17, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to
the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The
conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest
complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price
for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On July 24, 2020, the Company closed a private
financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $130,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $130,000 and the Holder shall pay $130,000 of the consideration (the “First Tranche”). Out of $130,000 consideration,
the Company has received $116,079 cash from Power up with the remaining $13,921 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with
the maturity date on July 24, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to
the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The
conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest
complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price
for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On August 18, 2020, the Company closed another
private financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note
(the “Note”). The Note has an original principal amount of $63,000 with no original discount upon issuance.
As part of closing the outstanding principal amount
shall be $63,000 and the Holder shall pay $63,000 of the consideration (the “Second Tranche”). Out of $63,000 consideration,
the Company has received $54,939 cash from Power up with the remaining $8,061 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with
the maturity date on August 18, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the
latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded
price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On September 1, 2020, the Company closed another
private financing with Jefferson Street Capital LLC, (“Jefferson Street Capital” or the “Holder”) by issuing
a convertible note (the “Note”). The Note has an original principal amount of $82,500 with $7,500 discount upon issuance.
As part of closing the outstanding principal amount
shall be $82,500 and the Holder shall pay $75,000 of the consideration. Out of $75,000 consideration, the Company has received $68,949
cash from Jefferson Street Capital with the remaining $6,051 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with
the maturity date on September 1, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the
latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded
price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On September 1, 2020, the Company closed another
private financing with FirstFire Global Opportunities Fund, LLC, (“FirstFire Global” or the “Holder”) by issuing
a convertible note (the “Note”). The Note has an original principal amount of $75,000 with $3,750 discount upon issuance.
As part of closing the outstanding principal amount
shall be $75,000 and the Holder shall pay $71,250 of the consideration. Out of $71,250 consideration, the Company has received $61,498
cash from FirstFire Global with the remaining $9,752 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 9 months
with the maturity date on June 1, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the
latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded
price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On October 8, 2020, the Company closed another
private financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note
(the “Note”). The Note has an original principal amount of $55,000 with no original discount upon issuance.
As part of closing the outstanding principal amount
shall be $55,000 and the Holder shall pay $55,000 of the consideration. Out of $55,000 consideration, the Company has received $47,579
cash from Power up with the remaining $7,421 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with
the maturity date on October 8, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the
latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded
price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On October 9, 2020, the Company closed another
private financing with East Capital Investment Corp., (“East Capital” or the “Holder”) by issuing a convertible
note (the “Note”). The Note has an original principal amount of $62,700 with no original discount upon issuance.
As part of closing the outstanding principal amount
shall be $62,700 and the Holder shall pay $62,700 of the consideration. Out of $62,700 consideration, the Company has received $54,992
cash from Power up with the remaining $7,708 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with
the maturity date on October 9, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the
latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded
price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
The below table summarizes all the convertible
notes issued during the year ended August 31, 2020.
Counterparties
|
|
Issuance
date
|
|
Maturity date
|
|
Principal
Amount
|
|
Purchase
Price
|
|
Discount
on Note issuance
|
|
Note
issuance costs
|
|
Proceeds
Received (USD)
|
EMA
Financial
|
|
November
18, 2019
|
|
August
18, 2020
|
|
$
|
75,000
|
|
|
$
|
68,500
|
|
|
$
|
6,500
|
|
|
$
|
3,763
|
|
|
$
|
64,737
|
Peak
One Opportunity
|
|
December
9, 2019
|
|
December
9, 2022
|
|
$
|
85,000
|
|
|
$
|
76,500
|
|
|
$
|
8,500
|
|
|
$
|
11,188
|
|
|
$
|
65,312
|
Crown
Bridge (Tranche I)
|
|
January
8, 2020
|
|
January
8, 2021
|
|
$
|
40,500
|
|
|
$
|
36,500
|
|
|
$
|
4,000
|
|
|
$
|
1,508
|
|
|
$
|
34,992
|
Auctus
Fund Note
|
|
December
31, 2019
|
|
September
30, 2020
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
$
|
-
|
|
|
$
|
15,658
|
|
|
$
|
59,342
|
East
Capital
|
|
February
13, 2020
|
|
February
13, 2021
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
6,508
|
|
|
$
|
43,492
|
Fidelis
Capital
|
|
February
19, 2020
|
|
February
19, 2021
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
6,513
|
|
|
$
|
43,487
|
Armada
Partners
|
|
March
12, 2020
|
|
March
12, 2021
|
|
$
|
38,500
|
|
|
$
|
35,000
|
|
|
$
|
3,500
|
|
|
$
|
2,008
|
|
|
$
|
32,992
|
EMA
Financial
|
|
July
17, 2020
|
|
July
17, 2021
|
|
$
|
50,000
|
|
|
$
|
47,500
|
|
|
$
|
2,500
|
|
|
$
|
4,513
|
|
|
$
|
42,987
|
Crown
Bridge (Tranche II)
|
|
July
23, 2020
|
|
July
23, 2021
|
|
$
|
40,500
|
|
|
$
|
36,500
|
|
|
$
|
4,000
|
|
|
$
|
2,208
|
|
|
$
|
34,292
|
Power
Up Lending (Tranche I)
|
|
July
24, 2020
|
|
July
24, 2021
|
|
$
|
130,000
|
|
|
$
|
130,000
|
|
|
$
|
-
|
|
|
$
|
13,921
|
|
|
$
|
116,079
|
Power
Up Lending (Tranche II)
|
|
August
18, 2020
|
|
August
18, 2021
|
|
$
|
63,000
|
|
|
$
|
63,000
|
|
|
$
|
-
|
|
|
$
|
8,061
|
|
|
$
|
54,939
|
|
|
|
|
|
|
$
|
697,500
|
|
|
$
|
668,500
|
|
|
$
|
29,000
|
|
|
$
|
75,849
|
|
|
$
|
592,651
|
The below table summarizes all the convertible
notes issued during the year ended August 31, 2021.
Counterparties
|
|
Issuance
date
|
|
Maturity
Date
|
|
Principal
Amount
|
|
Purchase
Price
|
|
Discount
on Note issuance
|
|
Note
issuance costs
|
|
Proceeds
Received (USD)
|
Jefferson
Street Capital
|
|
September
1,2020
|
|
September
1, 2021
|
|
|
82,500
|
|
|
|
75,000
|
|
|
|
7,500
|
|
|
|
6,051
|
|
|
|
68,949
|
FirstFire
Global
|
|
September
1,2020
|
|
June
1, 2021
|
|
|
75,000
|
|
|
|
71,250
|
|
|
|
3,750
|
|
|
|
9,752
|
|
|
|
61,498
|
Power
Up Lending
|
|
October
8, 2020
|
|
October
8, 2021
|
|
|
55,000
|
|
|
|
55,000
|
|
|
|
-
|
|
|
|
7,421
|
|
|
|
47,579
|
East
Capital
|
|
October
9, 2020
|
|
October
9, 2021
|
|
|
62,700
|
|
|
|
62,700
|
|
|
|
-
|
|
|
|
7,708
|
|
|
|
54,992
|
|
|
|
|
|
|
$
|
275,200
|
|
|
$
|
263,950
|
|
|
$
|
11,250
|
|
|
$
|
30,932
|
|
|
$
|
233,018
|
The following table summarizes the convertible
note and derivative liability in the balance sheet at August 31, 2021:
|
|
|
|
Balance, August
31, 2020
|
|
$
|
438,921
|
Issuance of Convertible Note Principal
|
|
$
|
275,200
|
Issuance of MFN Principal
|
|
$
|
15,000
|
Discount on Note issuance, net of amortization
|
|
$
|
75,075
|
Accrued interest expense
|
|
$
|
24,562
|
Converted Note Principal
|
|
$
|
(166,464)
|
Converted accrued and unpaid interest
|
|
$
|
(8,538)
|
Prepayment of Note Principal
|
|
$
|
(559,782)
|
Paid interest expense
|
|
$
|
(29,390)
|
Change in fair value of Derivative liability
|
|
$
|
(64,584)
|
Balance, August 31, 2021
|
|
$
|
—
|
The Company valued its derivatives liability using
Monte Carlo simulation. Assumptions used as of August 31, 2021 include (1) risk-free interest rates of 0.06%, (2) expected equity volatility
of 66.25% - 66.3%, (3) zero dividends, (4) discount for lack of marketability of 30% (5) remaining terms and conversion prices as set
forth in the convertible note agreement, and (6) the common stock price of the underlying share on the valuation date of August 31, 2021.
The Company recognizes gain due to convertible
feature of $64,584 in the income statement for the year ended August 31, 2021.
The Company prepaid nine convertible notes during
the year ended August 31, 2021 as below:
Convertible
Notes
|
Beginning Principal
after Note Conversion
|
Total Interest Accrued
|
Paid Date
|
Paid Principal
|
Paid Interest
|
Principal balance
Outstanding
|
Payment amount
|
Loss from prepaid
convertible note
|
Crown
Bridge (Tranche I)
|
1,082
|
2,641
|
12/9/20
|
(1,082)
|
(2,641)
|
-
|
-
|
-
|
Crown
Bridge (Tranche II)
|
40,500
|
1,545
|
12/9/20
|
(40,500)
|
(1,545)
|
-
|
72,5001
|
(26,732)1
|
EMA
Financial
|
50,000
|
1,990
|
12/9/20
|
(50,000)
|
(1,990)
|
-
|
72,800
|
(20,810)
|
Power
Up Lending
|
130,000
|
6,491
|
1/22/21
|
(130,000)
|
(6,491)
|
-
|
190,925
|
(54,434)
|
Power
Up Lending
|
63,000
|
3,042
|
2/10/21
|
(63,000)
|
(3,042)
|
-
|
92,380
|
(26,338)
|
East
Capital
|
62,700
|
3,114
|
4/7/21
|
(62,700)
|
(3,114)
|
-
|
87,467
|
(21,652)
|
Power
Up Lending
|
55,000
|
2,746
|
4/7/21
|
(55,000)
|
(2,746)
|
-
|
80,797
|
(23,051)
|
Jefferson
Street
|
82,500
|
4,097
|
3/1/21
|
(82,500)
|
(4,097)
|
-
|
116,975
|
(30,378)
|
FirstFire
Global
|
75,000
|
3,724
|
3/1/21
|
(75,000)
|
(3,724)
|
-
|
108,125
|
(29,401)
|
Total
|
559,782
|
29,390
|
-
|
(559,782)
|
(29,390)
|
-
|
821,969
|
(232,796)
|
1. The balance is
the total of Crown Bridge Tranche I and Tranche II
The Holders converted convertible notes to common
shares during the year ended August 31, 2021 as below:
EMA Financial:
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
1, 2020
|
|
|
5,285
|
|
|
|
5,285
|
|
|
|
5,154
|
|
|
|
—
|
|
|
|
10,439
|
|
|
|
1,000
|
|
|
|
—
|
|
|
$
|
0.00812
|
|
|
|
1,408,800
|
Total
|
|
|
|
|
|
|
5,285
|
|
|
|
5,154
|
|
|
|
—
|
|
|
|
10,439
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
1,408,800
|
Auctus Capital Partners:
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
8, 2020
|
|
|
33,295
|
|
|
|
12,055
|
|
|
|
73
|
|
|
|
—
|
|
|
|
12,128
|
|
|
|
750
|
|
|
|
21,240
|
|
|
$
|
0.00510
|
|
|
|
2,525,000
|
September
18, 2020
|
|
|
21,240
|
|
|
|
15,233
|
|
|
|
58
|
|
|
|
—
|
|
|
|
15,291
|
|
|
|
750
|
|
|
|
6,007
|
|
|
$
|
0.00510
|
|
|
|
3,145,300
|
September
29, 2020
|
|
|
6,007
|
|
|
|
6,007
|
|
|
|
18
|
|
|
|
11,082
|
|
|
|
17,107
|
|
|
|
750
|
|
|
|
—
|
|
|
$
|
0.00480
|
|
|
|
3,720,200
|
October
22, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,918
|
|
|
|
3,918
|
|
|
|
750
|
|
|
|
—
|
|
|
$
|
0.00216
|
|
|
|
2,161,240
|
Total
|
|
|
|
|
|
|
33,295
|
|
|
|
149
|
|
|
|
15,000
|
|
|
|
48,444
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
11,551,740
|
*On September 29, 2020, $6,007 of the Auctus Capital
convertible note was converted to 17,107 shares of common stock at a conversion price $0.0048, 60% of the lowest trading price in the
20 days prior to the conversion dates. Additional most-favored-nation (MFN) principal of $15,000 was triggered when the conversion price
is lower than $0.1. The remaining Auctus Capital convertible note principal balance was $0, including $15,000 MFN principal
East Capital:
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
8, 2020
|
|
|
26,600
|
|
|
|
13,300
|
|
|
|
250
|
|
|
|
—
|
|
|
|
13,550
|
|
|
|
—
|
|
|
|
13,300
|
|
|
$
|
0.01020
|
|
|
|
1,328,431
|
September
25, 2020
|
|
|
13,300
|
|
|
|
13,300
|
|
|
|
129
|
|
|
|
—
|
|
|
|
13,429
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
0.00960
|
|
|
|
1,398,854
|
Total
|
|
|
|
|
|
|
26,600
|
|
|
|
379
|
|
|
|
—
|
|
|
|
26,979
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
2,727,285
|
Fidelis Capital:
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
1, 2020
|
|
|
41,000
|
|
|
|
25,671
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,671
|
|
|
|
—
|
|
|
|
15,329
|
|
|
$
|
0.01218
|
|
|
|
2,107,648
|
September
9, 2020
|
|
|
15,329
|
|
|
|
15,329
|
|
|
|
2,605
|
|
|
|
—
|
|
|
|
17,934
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
0.01020
|
|
|
|
1,758,257
|
Total
|
|
|
|
|
|
|
41,000
|
|
|
|
2,605
|
|
|
|
—
|
|
|
|
43,605
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
3,865,905
|
Armada Partners:
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
25, 2020
|
|
|
25,500
|
|
|
|
13,000
|
|
|
|
213
|
|
|
|
—
|
|
|
|
13,213
|
|
|
|
500
|
|
|
|
12,500
|
|
|
$
|
0.01020
|
|
|
|
1,344,363
|
October
6, 2020
|
|
|
12,500
|
|
|
|
12,500
|
|
|
|
38
|
|
|
|
—
|
|
|
|
12,538
|
|
|
|
500
|
|
|
|
—
|
|
|
$
|
0.00960
|
|
|
|
1,358,145
|
Total
|
|
|
|
|
|
|
25,500
|
|
|
|
251
|
|
|
|
—
|
|
|
|
25,751
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
2,702,508
|
Crown Bridge (Tranche I):
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
8, 2020
|
|
|
20,867
|
|
|
|
6,400
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,400
|
|
|
|
1,250
|
|
|
|
14,467
|
|
|
$
|
0.00765
|
|
|
|
1,000,000
|
September
22, 2020
|
|
|
14,467
|
|
|
|
5,635
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,635
|
|
|
|
1,250
|
|
|
|
8,832
|
|
|
$
|
0.00765
|
|
|
|
900,000
|
October
1, 2020
|
|
|
8,832
|
|
|
|
7,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,750
|
|
|
|
1,250
|
|
|
|
1,082
|
|
|
$
|
0.00720
|
|
|
|
1,250,000
|
Total
|
|
|
|
|
|
|
19,785
|
|
|
|
|
|
|
|
—
|
|
|
|
19,785
|
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
3,150,000
|
In summary, the Company has either converted or
prepaid all the outstanding convertible notes as of August 31, 2021. The below table lists conversions and prepayments during each quarter
in FY2021.
Sr.
No.
|
Note
|
Total
convertible note issued
|
Total
principal converted as of 08/31/2020
|
Total
principal converted as of 11/30/2020
|
Total
principal paid off as of 2/28/2021
|
Total
principal paid off as of 8/31/2021
|
Principal
balance Outstanding as of 8/31/2021
|
1
|
EMA
Financial
|
90,000
|
(84,716)
|
(5,285)
|
-
|
-
|
-
|
2
|
Peak
One Opportunity
|
85,000
|
(85,000)
|
-
|
-
|
-
|
-
|
3
|
Auctus
Fund Note
|
90,000
|
(41,705)
|
(48,295)
|
-
|
-
|
-
|
4
|
Crown
Bridge (Tranche I)
|
40,500
|
(19,633)
|
(19,785)
|
(1,082)
|
-
|
-
|
5
|
East
Capital
|
50,000
|
(23,400)
|
(26,600)
|
-
|
-
|
-
|
6
|
Fidelis
Capital
|
50,000
|
(9,000)
|
(41,000)
|
-
|
-
|
-
|
7
|
Armada
Partners
|
38,500
|
(13,000)
|
(25,500)
|
-
|
-
|
-
|
8
|
Crown
Bridge (Tranche II)
|
40,500
|
-
|
-
|
(40,500)
|
-
|
-
|
9
|
EMA
Financial (Issue Date: 7.17.2020)
|
50,000
|
-
|
-
|
(50,000)
|
-
|
-
|
10
|
Power
Up Lending (Issue Date: 07.24.2020)
|
130,000
|
-
|
-
|
(130,000)
|
-
|
-
|
11
|
Power
Up Lending (Issue Date: 08.18.2020)
|
63,000
|
-
|
-
|
(63,000)
|
-
|
-
|
12
|
East
Capital (Issue Date: 10.09.2020)
|
62,700
|
-
|
-
|
-
|
(62,700)
|
-
|
13
|
Power
Up Lending (Issue Date: 10.08.2020)
|
55,000
|
-
|
-
|
-
|
(55,000)
|
-
|
14
|
Jefferson
Street (Issue Date: 09.01.2020)
|
82,500
|
-
|
-
|
-
|
(82,500)
|
-
|
15
|
FirstFire
Global (Issue Date: 09.01.2020)
|
75,000
|
-
|
-
|
-
|
(75,000)
|
-
|
|
Total
|
1,002,700
|
(276,454)
|
(166,464)
|
(284,582)
|
(275,200)
|
-
|
NOTE 10 – WARRANTS
On December 9, 2019, January 8, 2020, January
17, 2020, March 12, 2020, and July 23, 2020 the Company issued warrants to EMA Financial, Peak One Opportunity, Crown Bridge, and Armada
Partners in conjunction with their convertible notes (see Note 9). Classified as equity, these detachable warrants issued in a bundled
transaction with convertible notes are accounted for separately as additional paid-in capital for the portion of the proceeds allocated
to them. The allocation of the sales proceeds between the base instrument of convertible notes and the warrants are allocated based on
the relative fair values of the base instrument of convertible notes and the warrants following the guidance in ASC 470-20-25-2.
On July 30, 2020, the Company issued $750,000
warrant shares to Peak One Opportunity in connection with the Equity Purchase Agreement, which is the “Financing Agreement”
signed on July 30, 2020 to sell to Peak One up to $10,000,000 worth of the Company’s common stock over the period ending twenty-four
(24) months after the date the Registration Statement.
The fair value of the stock warrants granted to
EMA Financial was estimated at $106,540 on the date granted using the Black-Scholes pricing model, with the following assumption used
for the valuation: exercise price of $12 per share, average risk-free interest rate of 0.89%, expected dividend yield of 0, remaining
contractual life of 4.89 years, and an average expected volatility of 58.11%.
The fair value of the stock warrants granted to
Peak One was estimated at $39,515 on the date granted using the Black-Scholes pricing model, with the following assumption used for the
valuation: exercise price of $10 per share, average risk-free interest rate of 0.89%, expected dividend yield of 0, remaining contractual
life of 4.78 years, and an average expected volatility of 57.51%. The fair value of the stock warrants granted to Crown Bridge (Tranche
I) was estimated at $17,443 on the date granted using the Black-Scholes pricing model, with the following assumption used for the valuation:
exercise price of $12.5 per share, average risk-free interest rate of 0.89%, expected dividend yield of 0, remaining contractual life
of 4.86 years, and an average expected volatility of 57.97%.
The fair value of the stock warrants granted to
Armada was estimated at $12,341 on the date granted using the Black-Scholes pricing model, with the following assumption used for the
valuation: exercise price of $12.5 per share, average risk-free interest rate of 0.29%, expected dividend yield of 0, remaining contractual
life of 4.78 years, and an average expected volatility of 61.54%.
The fair value of the stock warrants granted to
Crown Bridge (Tranche II), issued on July 23, 2020 was estimated at $126,112 on August 31, 2020 using the Black-Scholes pricing model,
with the following assumption used for the valuation: exercise price of $0.00905 per share, average risk-free interest rate of 0.28%,
expected dividend yield of 0, remaining contractual life of 4.90 years, and an average expected volatility of 55.33%.
The fair value of the stock warrants granted to
Peak One, a standalone warrant issued on July 30, 2020 was estimated at $45,722 on August 31, 2020 using the Black-Scholes pricing model,
with the following assumption used for the valuation: exercise price of $0.1 per share, average risk-free interest rate of 0.27%, expected
dividend yield of 0, remaining contractual life of 4.92 years, and an average expected volatility of 55.29%.
As of August 31, 2021, the Company exercised the
following warrant shares to acquire common shares via cashless exercises as below:
Peak One warrant issued on December 9, 2019:
Date
of Exercise
|
Anti
Dilution Value of Warrant Shares
|
Anti
Dilution Base (Exercise) Price (B)
|
Mkt
Price (90 Day High Preceding Exercise date) (A)
|
#
of WTS Shares Elected for purchase (Y)
|
Common
Shares to be issued upon exercise (X) = Y(A-B)/A
|
Cashless
Payment
|
July
20, 2020
|
$100,000
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
July
21, 2020
|
$92,489
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
July
23, 2020
|
$84,979
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
July
29, 2020
|
$77,468
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
August
4, 2020
|
$69,957
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
August
11, 2020
|
$62,446
|
$ 0.0300
|
$ 21.00
|
500,715
|
500,000
|
$15,021
|
August
21, 2020
|
$47,425
|
$ 0.0300
|
$ 21.00
|
500,715
|
500,000
|
$15,021
|
August
25, 2020
|
$32,403
|
$ 0.0205
|
$ 21.00
|
500,489
|
500,000
|
$10,260
|
August
31, 2020
|
$22,143
|
$ 0.0205
|
$ 21.00
|
500,489
|
500,000
|
$10,260
|
September
9, 2020
|
$11,883
|
$ 0.0205
|
$ 21.00
|
470,786
|
470,326
|
$9,651
|
Total
|
|
|
|
3,724,984
|
3,720,326
|
$
97,768
|
Peak One warrant issued on July 30, 2020
Date
of Exercise
|
Anti
Dilution Value of Warrant Shares
|
Anti
Dilution Base (Exercise) Price (B)
|
Market
Price (90 Day High Preceding Exercise date) (A)
|
#
of WTS Shares Elected for purchase (Y)
|
Common
Shares to be issued upon exercise (X) = Y(A-B)/A
|
Cashless
Payment
|
October
8, 2020
|
$75,000
|
0.01672
|
$10.00
|
750,000
|
748,746
|
$12,540
|
December
21, 2020
|
$62,460
|
0.00609
|
$0.068
|
2,564,039
|
2,344,407
|
$15,615
|
December
28, 2020
|
$46,845
|
0.00609
|
$0.068
|
2,564,039
|
2,344,407
|
$15,615
|
January
6, 2021
|
$31,230
|
0.00609
|
$0.068
|
5,128,079
|
4,668,814
|
$31,230
|
Total
|
|
|
|
11,006,157
|
10,086,374
|
$75,000
|
EMA Financial warrant issued on January 17, 2020:
Date
of Exercise
|
Anti
Dilution Value of Warrant Shares
|
Anti
Dilution Base (Exercise) Price (B)
|
Market
Price (90 Day High Preceding Exercise date) (A)
|
#
of WTS Shares Elected for purchase (Y)
|
Common
Shares to be issued upon exercise (X) = Y(A-B)/A
|
Cashless
Payment
|
September
8, 2020
|
$375,000
|
0.00812
|
$17.00
|
2,400,002
|
2,398,856
|
$19,488
|
September
14, 2020
|
$355,512
|
0.00812
|
$17.00
|
2,950,000
|
2,948,951
|
$23,954
|
September
22, 2020
|
$331,558
|
0.00812
|
$10.00
|
3,400,000
|
3,397,239
|
$27,608
|
September
25, 2020
|
$303,950
|
0.00812
|
$10.00
|
3,600,000
|
3,597,077
|
$29,232
|
October
1, 2020
|
$274,718
|
0.00812
|
$10.00
|
4,150,000
|
4,146,630
|
$33,698
|
October
12, 2020
|
$241,020
|
0.00812
|
$6.50
|
4,600,000
|
4,594,254
|
$37,352
|
October
19, 2020
|
$203,668
|
0.00812
|
$6.50
|
4,800,000
|
4,794,004
|
$38,976
|
October
29, 2020
|
$164,692
|
0.00812
|
$2.02
|
5,200,000
|
5,179,097
|
$42,224
|
November
5, 2020
|
$122,468
|
0.00812
|
$0.60
|
5,500,000
|
5,425,567
|
$44,660
|
November
11, 2020
|
$77,808
|
0.00812
|
$0.43
|
5,700,000
|
5,592,363
|
$46,284
|
November
20, 2020
|
$31,524
|
0.00812
|
$0.30
|
3,882,264
|
3,777,184
|
$31,524
|
Total
|
|
|
|
46,182,266
|
45,851,222
|
$375,000
|
If the Market Price of one share of Common Stock
is greater than the Exercise Price, the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash
exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised)
by surrender of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder a number of Common Stock computed
using the formula of X = Y (A-B)/A, where X, Y, A, B are as below.
X = the number of Warrant Shares to be issued to Holder.
Y = the number of Warrant Shares that the Holder elects to
purchase under this
Warrant (at the date of such calculation).
A = the Market Price (at the date of such calculation).
B = Exercise Price (as adjusted to the date of such calculation).
The exercise prices for all the warrants are subject
to anti-dilution adjustments. If the Company issues common stocks under a purchase agreement, issue options, or convert notes to common
stocks at a lower price than the warrant exercise prices while the warrants are still outstanding, such lower price is the base price
that the warrant exercise price can be reduced to. As such, the Holder will receive additional warrant shares to keep the same warrant
value as the original issuance before the exercise price is adjusted down.
A summary of the status of the Company’s
warrants as of August 31, 2021 is presented below. The number of shares is adjusted in accordance with the anti-dilution adjustment and
equals the original number of warrant shares times the original exercise prices divided by based prices. Base price is either the note
conversion price or the share issuance price used by the Company while the warrants are outstanding.
|
|
Number
of warrants
|
|
|
Original
shares issued
|
|
Anti-dilution
Adjusted
|
Warrants as of August 31, 2020
|
|
|
793,920
|
|
|
|
68,163,661
|
Warrants granted
|
|
|
—
|
|
|
|
—
|
Exercised, forfeited or expired
|
|
|
(793,920
|
)
|
|
|
(68,163,661)
|
Outstanding as of August 31, 2021
|
|
|
—
|
|
|
|
—
|
Exercisable as of August 31, 2021
|
|
|
—
|
|
|
|
—
|
(1). Exercise price is reduced to the latest base
price. Base price is either the note conversion price or the share issuance price, which the Company used while the warrants were outstanding.
(2). The number of shares is adjusted in accordance
with the anti-dilution clause per the warrant agreement and equals the original number of warrant shares times the original exercise
prices divided by base price.
NOTE 11 – FAIR VALUE MEASUREMENTS
The Company applies ASC 820, Fair Value Measurements
and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair
value measurements. ASC 820 requires disclosures to be provided on fair value measurement.
ASC 820 establishes a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value as follows:
Level 1 — Observable inputs that reflect
quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Include other inputs that are
directly or indirectly observable in the marketplace.
Level 3 — Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three main approaches to measuring
the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach. The market approach uses prices
and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income
approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value
indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be
required to replace an asset.
Derivative liabilities of conversion features
in convertible notes are classified within Level 3. We estimate the fair values of these liabilities at August 31, 2021 by using Monte
Carlo simulation based on the remaining contractual terms, risk-free interest rates, and expected volatility of the stock prices, etc.
The assumptions used, including the market value of stock prices in the future and the expected volatilities, were subjective unobservable
inputs.
Liabilities measured at fair value on a recurring
basis as of August 31, 2021 are summarized below:
|
|
|
Fair
value measurement using:
|
|
|
|
|
|
|
|
Quoted
prices in active markets for identical assets (Level 1)
|
|
|
|
Significant other observable inputs
( Level 2)
|
|
|
|
Unobservable inputs
( Level 3)
|
|
|
|
Total
Fair value at August 31, 2021
|
Derivative
liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivative liabilities embedded
in convertible notes
|
|
|
|
Fair value at August 31, 2020
|
|
$
|
64,584
|
Increase from note issuances
|
|
|
74,187
|
Decrease from note conversions
|
|
|
(33,490)
|
Changes in the fair value
|
|
|
58,090
|
Fair value at November 30, 2020
|
|
$
|
163,371
|
Increase from note issuances
|
|
|
—
|
Decrease from note prepayment
|
|
|
(136,321)
|
Changes in the fair value
|
|
|
18,439
|
Fair value at February 28, 2021
|
|
$
|
45,490
|
Decrease from note prepayment
|
|
|
(45,490)
|
Fair value at August 31, 2021
|
|
|
—
|
NOTE 12– RELATED
PARTY TRANSACTIONS
In support of the Company’s efforts and
cash requirements, it may rely on advances from related parties until such time that the Company can support its operations or attains
adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support
by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary in
nature and have not been formalized by a promissory note. As of August 31, 2021 and August 31, 2020, there are no such related party
transactions.
Youall Perform Services Ltd, owned by the son
of the Company’s Chief Executive Offer and the Company’s former Secretary and Treasurer Jianli Deng, collects revenue from
the performance matching platform “Ai Bian Quan Qiu” via a Wechat official account on behalf of the Company. Due to the COVID-19
impact, the Company ceased operation of the “Ai Bian Quan Qiu” platform in January, 2020. For the years ended August 31,
2021 and 2020, the Company recognized revenue of $0 and $141,143 from this performance matching platform, respectively. The balance of
related party receivable from Youall Perform Services Ltd was $1,439 and $87,581 as of August 31, 2021 and 2020, respectively.
In September 2019, the Company entered into an
agreement with Youall Perform Services Ltd for two transactions. 1) The Company pays Youall Perform Services Ltd. 10% of the revenue
generated from the “Ai Bian Quan Qiu” platform every month to reimburse the valued-added tax, tax surcharges, and foreign
transaction fee Youall Perform Services Ltd. has been paying on behalf of the Company. 2) Youall Perform Services Ltd. will provide IT
consulting service for “Ai Bian Quan Qiu” platform upgrade and maintenance at a total cost of $128,000, out of which $108,800
has been paid. As there has been no revenue from the “Ai Bian Quan Qiu” platform due to COVID-19 since mid-January, 2020,
$108,800 long-term prepayment was expensed as research and development expense in FY2020. In July 2020, the Company changed the service
scope of this agreement and turned it into a website maintenance contract over the next two years. The major website of this Company
is ABQQ.tv for video streaming. The contract amount remains to be $128,000, out of which $108,800 was previously paid and $19,200
will be due on the twenty first month after the launch of the website www.abqq.tv. The website maintenance service began on
January 1, 2021 and will end on December 31, 2022. The Company will pay Youall Perform Services Ltd the remaining balance of $19,200
in September, 2022.
The Company has entered into a patent license
agreement with a related party Guangzhou Shengshituhua Film and Television Company Limited (“Licensor”) 100% owned by the
Chief Executive Officer Chiyuan Deng. The agreement is for a term of 5 years commencing on the effective date on June 1, 2017. The Company
has already paid the licensor a non-refundable, up-from payment of $500,000 and shall pay a royalty of 20% of the gross revenue realized
from the sale of licensed products and sub-licensing of this patent every year. The royalty expenses during the years ended August 31,
2021 and August 31, 2020 are $25,600 and $61,440, respectively. In January, 2021, the Company’s sublicensing agreement to generate
royalty revenues was terminated with Anyone Picture. As such, there has been no royalty expenses since the end of December, 2020 given
there has been no sublicensing royalty revenue generated from the patent. Once the Company finds another company to sublicense the patent,
it will generate royalty revenue and pay royalty expense again.
The Company rented an office from ZESTV STUDIOS
LIMITED, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng. On December 1, 2020, the Company entered an agreement
with ZESTV STUDIOS LIMITED to grant ZESTV STUIDIOS LIMITED the distribution right for the movie “Love over the world” and
charge ZESTV STUIDIOS LIMITED movie royalties. The Company’s royalties revenue is stipulated to equal 43% of the after-tax movie
box office revenue deducting movie issuance costs. The movie box office revenue is tracked by a movie distributor Huaxia Film Distribution
Co. Ltd (hereafter “Hua Xia”) in China as it connects with all movie theaters in China and can track the total movie box
office revenue online in real time. Although ZESTV STUDIOS LIMITED has paid royalties revenue to the Company, ZESTV STUDIOS LIMITED failed
to collect cash from Hua Xia. The Company will refund ZESTV STUDIOS LIMITED the movie royalties. As of August 31, 2021, the Company incurred
related party payable of $16,512 for the office rent and $916,922 of refund for the movie royalties revenue net of the movie distribution
commission fee to ZESTV STUDIOS LIMITED.
On August 29, 2020, the Company entered into a
Separation Agreement and Release with each of Jianli Deng, Lijun Yu and Linqing Ye. Pursuant to the agreements, Mr. Deng resigned as
Secretary and Treasurer, Ms. Yu resigned as Chief Marketing Officer and Mr. Ye resigned as Chief Operating Officer. Mr. Deng will remain
on as a member of our board of directors. The Separation and Release Agreement cancelled the employment agreements for each of Messrs.
Deng, Yu and Ye, and provided them each an indebtedness payment within five (5) business days of the agreements. Mr. Deng will receive
$110,000, Ms. Yu will receive $110,000 and Mr. Ye will receive $120,000. We received a release of all claims from these prior officers.
In addition, Mr. Deng, Ms. Yu, and Mr. Ye agreed to return to the Company their unvested restricted shares of 130,556, 147,222, and 147,222,
respectively.
On September 11, 2020, we entered into an amended
employment agreement with Chiyuan Deng, our Chief Executive Officer. Pursuant the amended agreement, we amended the compensation to Mr.
Deng to include a salary of $180,000 annually, a reduction in common stock received under his initial employment agreement, a potential
for a bonus in cash or shares, and the issuance of 100,000 shares of our newly created Series A Preferred Stock at par value $0.001.
During the year ended August 31, 2021, the Company
paid the Chief Executive Officer $180,000 salary, $50,000 bonus in cash, and $30,100 stock-based compensation. $25,000 salary was paid
in cash to Chief Financial Officer. In addition, the Company hired Chief Investment Officer on February 22, 2021. $55,685 cash salary
and $7,527 stock-based compensation were paid to Chief Investment Officer for the year ended August 31, 2021. During the year ended August
31, 2020, $169,768 was paid to five executives in the form of stock-based compensation and $15,000 cash salary was paid to the Chief
Financial Officer.
NOTE 13 – STOCKHOLDERS’ EQUITY
The Company has 226,589,735 and 46,661,417 common shares issued and
outstanding as of August 31, 2021 and August 31, 2020, respectively. These common shares were held by approximately 559 and 520 shareholders
of record at August 31, 2021 and August 31, 2020, respectively. The Company has 100,000 and 0 series A preferred shares issued and outstanding
as of August 31, 2021 and August 31, 2020, respectively. The Company has 20,000 and 0 series B preferred shares issued and outstanding
as of August 31, 2021 and August 31, 2020, respectively
The Company has the following equity activities
during the year ended August 31, 2021:
Common shares
|
•
|
The Company issued 19,000,000
shares of common stock for cash at $0.0140 per share and 4,000,000 shares of common stock for cash at $0.0715 per share.
|
|
•
|
The Company issued 25,406,238
shares of common stock from note conversion. Refer to Note 9 for further details.
|
|
•
|
The Company issued 56,407,922
shares of common stock from warrant exercises. Refer to Note 10 for further details.
|
|
•
|
261,111 shares of common
stock returned to the Company due to officer resignations.
|
|
•
|
The Company issued 31,646,633 shares of put shares
for cash at $0.015312, $0.014256, $0.01452, $0.077528, $0.09856, $0.11, $0.0715, $0.0563, $0.0528, $0.04875, $0.05764, and $0.0344
per share.
|
|
|
|
|
•
|
As stock-based compensation the Company issued 500,000
shares to the Chief Investment Offer and 1,000,000 shares to the Chief Executive Officer.
|
|
|
|
|
•
|
The Company issued 24,528,637 of common shares from
preferred shares series C & D conversion.
|
|
|
|
|
•
|
The Company issued 17,700,000 shares of stock for
consulting services.
|
Preferred shares
The Company authorized 10,000,000 shares of preferred
shares with a par value $0.001. During the year ended August 31, 2021, the Company issued 100,000 shares of Series A Preferred shares
at par value $0.001, and 20,000 shares of Series B Preferred shares at $16 per share, 280,025 shares of Series C Preferred shares and
its dividend shares were converted to 7,140,360 common shares in August, 2021, and 798 shares of Series D Preferred shares were converted
to 17,388,277 common shares in August, 2021.
Based upon the Series C Preferred Share purchase
agreement, each share of Series C Preferred Stock carries an annual dividend in the amount of 12.0% of the Stated Value (the “Dividend
Rate”). Which shall be cumulative, payable solely upon redemption, liquidation or conversion. Upon the occurrence of an Event of
Default, the Dividend Rate shall automatically increase to 22.0%. As of August 31, 2021, the Company has dividend expense of $16,801
and dividend payable of $0 on Series C Preferred Shares.
Based upon the Series D Preferred Share purchase
agreement, each share of Series D Preferred Stock shall be entitled to receive, and the Corporation shall pay, cumulative dividends of
8.0% per annum, payable quarterly, beginning on the Original Issuance Date and ending on the date that such share of Preferred Share
has been converted or redeemed (the “Dividend End Date”). As of August 31, 2021, the Company has dividend expense of $9,034
and dividend payable of $1,834 on Series D Preferred Shares and included in the accrued liabilities in the balance sheet.
Warrant shares
|
•
|
The
Company canceled 9,720 warrant shares with Crown Bridge and 4,200 warrant shares with Armanda Partners in November, 2020.
|
|
|
•
|
Peak
One Opportunities exercised the remaining 10% of the 10,000 warrant shares issued on December 9, 2019 and 100% 750,000 warrant shares
issued on July 30, 2020.
|
|
•
|
EMA
Financial exercised all 30,000 warrant shares issued on January 17, 2020.
|
NOTE 14 – INCOME TAXES
On December 22, 2017, the United States enacted
the Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications to existing law. The Company has completed the
accounting for the effects of the Act. The Company’s financial statements for the year ended August 31, 2019 reflect certain effects
of the Act which includes a reduction in the corporate tax rate from 35% to 21% as well as other changes.
Components of net deferred tax assets, including
a valuation allowance, are as follows as of August 31, 2021 and August 31, 2020:
|
|
August 31,
2021
|
|
August
31, 2020
|
Deferred tax asset attributable
to:
|
|
|
|
|
|
|
|
Net operating
loss carry over
|
|
$
|
871,681
|
|
|
$
|
447,765
|
Less: valuation allowance
|
|
|
(871,681
|
)
|
|
|
(447,765)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
The valuation allowance for deferred tax assets
was $871,681 as of August 31, 2021 and $447,765 as of August 31, 2020. In assessing the recovery of the deferred tax assets, management
considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences
become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax
planning strategies in making this assessment. As a result, management determined it was more likely than not the deferred tax assets
would not be realized as of August 31, 2021 and August 31, 2020.
Reconciliation between the statutory rate and the effective
tax rate is as follows for the years ended August 31, 2021 and August 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
Years
ended
|
|
|
|
August
31,
|
|
|
|
2021
|
|
2020
|
|
Federal
statutory tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Change in valuation
allowance
|
|
|
(21
|
%)
|
|
|
(21
|
%)
|
Effective tax rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The Company’s fully owned subsidiary App
Board Limited registered and located in Hong Kong. It is governed by the income tax law of the Hong Kong and is subject to a tax rate
of 16.5%.
During the years ended August 31, 2021 and August
31, 2020, the Company and its subsidiary have incurred a consolidated loss of $(3,608,097) and $(1,523,071), respectively. As a result,
the Company and its subsidiary did not incur any income tax during the years ended August 31, 2021 and August 31, 2020.
NOTE 15 – CONCENTRATION RISK
89% and 69% of revenue was generated from one
customer during the years ended August 31, 2021 and August 31, 2020, respectively.
100% of the account receivable balance was due
from one customer as of August 31, 2021 and August 31, 2020.
NOTE 16 – COMMITMENTS AND CONTINGENCIES
Operating lease
As of August 31, 2021, the Company leases office
premises in Hong Kong, an office in New York city, and an office in Singapore under non-cancelable operating lease agreements with an
option to renew these leases. On November 22, 2020, the Company closed down a display store and terminated its lease, which has an original
term from February 23, 2019 to February 22, 2022, as a result of the COVID-19 impact and uncertainties of the economy in Hong Kong. The
cash lease expense for the years ended August 31, 2021 and August 31, 2020 was $92,981 and $79,488, respectively. All leases are on a
fixed payment basis. None of the leases include contingent rentals. The Company had lease commitment of $48,822 as of August 31, 2021,
of which $48,822 is within one year.
In accordance with ASC 250-10-45-14, the adoption
of ASC 842 lease accounting standard has resulted in $94,570 lease expenses for the year ended August 31, 2021, including both cash
and non-cash lease expenses.
As of
August 31,
|
|
Commitments
|
2021
|
|
$
|
48,822
|
Total Lease Payments
|
|
$
|
48,822
|
Less: imputed interest
|
|
$
|
(596)
|
Present value of lease liabilities
|
|
$
|
48,226
|
Current portion of obligations under operating leases
|
|
$
|
48,226
|
Obligations under operating leases, non-current
|
|
$
|
0
|
NOTE 17 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has
analyzed its operations subsequent to August 31, 2021 to the date these financial statements were issued.
Covid-19 impact:
In December 2019, a novel strain of coronavirus
(COVID-19) surfaced. The spread of COVID-19 around the world in the first quarter of 2020 has caused significant volatility in the U.S.
and international markets. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material
adverse impact on the Company’s financial position, operations and cash flows. It is too early to quantify the impact this situation
will have on company revenue and profits at this time. Possible areas that may be affected include, but are not limited to, disruption
to the Company’s customers and revenue, labor workforce, unavailability of supplies used in operations, etc. Accordingly, Management
is evaluating the Company’s liquidity position, reduction in revenues, and reviewing the analysis of the Company’s financial
performance as the Company seeks to withstand the uncertainty related to the coronavirus. As no large-crowd gathering has been allowed
since the outbreak of COVID-19, the Company has not generated any revenue from the Ai Bian Quan Qiu performance matching platform. Consequently,
the Company has decided to impair all of the intangible asset carrying value related to the Ai Bian Quan Qiu performance matching platform
and its Wechat official account, given that it is uncertain whether this platform will continue generating any revenue.
Subsequent cash receipt for Put share issuance:
On September 4, 2021, the Company received the
subscription receivable from Peak One Opportunity Fund LP for issuing 3,000,000 Put shares at $0.0344 per share on August 16, 2021.
Issue of Series C Preferred Stock:
On September 3, the Company entered into a Securities
Purchase Agreement (the “Purchase Agreement”) with an accredited investor Geneva Roth Remark Holdings, Inc. (the “Investor”),
whereby Investor purchased from the Company 234,300 shares of Series C Convertible Preferred Stock of the Company (the “Series
C Preferred Stock”) for a purchase price of $203,500 (the “Purchase Price”). The closing occurred on September 3, 2021.
After the payment of transaction-related expenses, net proceeds to the Company from the issuance of the Series C Preferred Stock totaled
$184,000. The Company intends to use the proceeds from the Preferred Stock for general working capital purposes.
On October 21, under another Purchase Agreement
with the Investor, whereby Investor purchased from the Company 98,325 shares of Series C Convertible Preferred Stock of the Company (the
“Series C Preferred Stock”) for a purchase price of $85,450 (the “Purchase Price”). The closing occurred on October
22, 2021. After the payment of transaction-related expenses, net proceeds to the Company from the issuance of the Series C Preferred
Stock totaled $75,390. The Company intends to use the proceeds from the Preferred Stock for general working capital purposes.
Issue of Series D Preferred Stock:
For the Securities Purchase Agreement dated March
10, 2021 entered between the Company and the accredited investor GHS Investments, LLC (the “Investor”), the Company will
issue up to 5,075 shares of Series D Convertible Preferred Stock of the Company (the “Series D Preferred Stock”) to GHS Investments,
LLC with a purchase price of $1,000 per share. On September 6, 2021 and October 5, 2021, the Company issued 73 and 37 shares of series
D preferred stock to the investor, respectively. After the payment of transaction-related expenses, net proceeds to the Company from
the issuance of the Series D Preferred Stock was $67,160 and $34,040, respectively. The Company intends to use the proceeds from the
Preferred Stock for general working capital purposes.
Open a Movie Theater in New York City:
In October 2021, the Company entered into a five-
year lease with Martabano Realty Corp (hereinafter referred to as "Landlord") for the "The Mt. Kisco Theatre” located
at 144 Main Street, Mount Kisco, New York. The property under the lease consists of approximately 8,375 squares to be used and occupied
by the Company as a movie theater. The fixed minimum annual base rent for each year of the five-year lease term is $83,750, $83,750,
$159,125, $163,899, and $168,816.
NFT Film and Music Market (NFT MMM) Development
and Maintenance Contract:
The Company has entered into a contract with STAREASTnet
to develop a decentralized application based on the NFT (Non-Fungible Token) for a movie and music marketplace with the option to buy
physical, digital download or both, in one place. The digital copyrights of movies and music are generalized through NFTs, whose smart
contracts facilitate the verifications of digital copyrights saved on the blockchain. The Company will hold 100% stake of STAREASTnet
NFT Movies and Music Marketplace (NFT MMM).
Officer Resignation:
Brandy Gao resigned as Chief Financial Officer
of the Company since the term of her contract with the Company ended on December 31, 2021.
Cancellation of Acquiring a Movie Copyright:
The Company acquired a movie copyright of “Too
Simple” from Guang Dong Honor Pictures Ltd in July 2021 at a price of $1,271,680, which was to be paid in installments. As of August
31, 2021, $644,785 was paid and recorded in long-term prepayment. On December 31, 2021, the Company entered into a termination contract
with Guang Dong Honor Pictures Ltd to cancel the purchase of this movie copyright and will receive a full refund before May 31, 2022.
Therefore, the Company has reclassified $644,785 from long-term prepayment to other receivable on the balance sheet.
Change in Outstanding Common Shares:
As of December 31, 2021, the Company had
237,297,700 shares of common stock outstanding. The approximate 10.7 million increase from 226,589,735
shares outstanding at August 31, 2021 is primarily attributed to 7.3 million Put shares issued to Peak One Opportunity Fund LP and 3.2
million common shares converted from preferred shares series D.
AB INTERNATIONAL
GROUP
Condensed Consolidated
Balance Sheets
|
|
November 30,
|
|
August 31,
|
|
|
2021
|
|
2021
|
|
|
|
(Unaudited)
|
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
170,668
|
|
|
$
|
132,253
|
|
Prepaid expenses
|
|
|
24,478
|
|
|
|
13,566
|
|
Account receivable
|
|
|
—
|
|
|
|
—
|
|
Related party receivable
|
|
|
1,439
|
|
|
|
1,439
|
|
Subscription receivable
|
|
|
—
|
|
|
|
87,239
|
|
Interest receivable
|
|
|
—
|
|
|
|
—
|
|
Other receivable
|
|
|
1,184,385
|
|
|
|
644,785
|
|
Total Current Assets
|
|
|
1,380,971
|
|
|
|
879,282
|
|
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
16,020
|
|
|
|
17,128
|
|
Leasehold improvement, net
|
|
|
24,385
|
|
|
|
36,577
|
|
Right of use operating lease assets, net
|
|
|
1,076,679
|
|
|
|
47,827
|
|
Intangible assets, net
|
|
|
3,312,238
|
|
|
|
3,998,805
|
|
Long-term prepayment
|
|
|
883,200
|
|
|
|
761,600
|
|
Other assets
|
|
|
45,240
|
|
|
|
16,508
|
|
TOTAL ASSETS
|
|
$
|
6,738,733
|
|
|
$
|
5,757,727
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
129,080
|
|
|
$
|
118,283
|
|
Related party payable
|
|
|
916,922
|
|
|
|
933,434
|
|
Current portion of obligations under operating leases
|
|
|
166,834
|
|
|
|
48,226
|
|
Convertible note and derivative liability
|
|
|
—
|
|
|
|
—
|
|
Due to shareholder
|
|
|
2,870
|
|
|
|
2,347
|
|
Tax payable
|
|
|
—
|
|
|
|
—
|
|
Other payable
|
|
|
392,947
|
|
|
|
3,827
|
|
Dividend payable
|
|
|
3,345
|
|
|
|
1,834
|
|
Total Current Liabilities
|
|
|
1,611,998
|
|
|
|
1,107,951
|
|
|
|
|
|
|
|
|
|
|
Obligations under operating leases, non-current
|
|
|
944,527
|
|
|
|
—
|
|
Total Liabilities
|
|
|
2,556,525
|
|
|
|
1,107,951
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 preferred shares authorized;
|
|
|
—
|
|
|
|
—
|
|
Series A preferred stock, 100,000 shares issued and outstanding, as of November
30, 2021 and August 31, 2021
|
|
|
100
|
|
|
|
100
|
|
Series B preferred stock, 20,000 shares issued and outstanding, as of November
30, 2021 and August 31, 2021
|
|
|
20
|
|
|
|
20
|
|
Series C preferred stock, 332,625 and 0 shares issued and outstanding, as of
November 30, 2021 and August 31, 2021, respectively
|
|
|
333
|
|
|
|
—
|
|
Series D preferred stock, 78 and 0 shares issued and outstanding, as of November
30, 2021 and August 31, 2021, respectively
|
|
|
—
|
|
|
|
—
|
|
Common stock, $0.001 par value, 1,000,000,000 shares authorized; 235,236,589 and 226,589,735
shares issued and outstanding, as of
November 30, 2021 and August 31, 2021, respectively
|
|
|
235,237
|
|
|
|
226,590
|
|
Additional paid-in capital
|
|
|
11,581,264
|
|
|
|
11,009,517
|
|
Accumulated deficit
|
|
|
(7,631,023
|
)
|
|
|
(6,578,978
|
|
Unearned shareholders’ compensation
|
|
|
(3,723
|
)
|
|
|
(7,473
|
)
|
Total Stockholders’ Equity
|
|
|
4,182,207
|
|
|
|
4,649,776
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
$
|
6,738,733
|
|
|
$
|
5,757,727
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
AB INTERNATIONAL
GROUP CORP.
Condensed Consolidated
Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
Three Months Ended
|
|
|
November 30,
|
|
|
2021
|
|
2020
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
76,800
|
|
Cost of revenue
|
|
|
(686,567
|
)
|
|
|
(156,086
|
)
|
Gross Profit (Loss)
|
|
|
(686,567
|
)
|
|
|
(79,286
|
)
|
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(308,966
|
)
|
|
|
(231,146
|
)
|
Research and development expenses
|
|
|
—
|
|
|
|
—
|
|
Related party salary
and wages
|
|
|
(55,000
|
)
|
|
|
(6,350
|
)
|
Total Operating
Expenses
|
|
|
(363,967
|
)
|
|
|
(237,496
|
)
|
|
|
|
|
|
|
|
|
|
Loss From Operations
|
|
|
(1,050,534
|
)
|
|
|
(316,782
|
)
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSES)
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
—
|
|
|
|
(81,750
|
)
|
Preferred shares dividend expense
|
|
|
(1,511
|
)
|
|
|
—
|
|
Gain (Loss) from change in fair value
|
|
|
—
|
|
|
|
(98,787
|
)
|
Loss from lease termination
|
|
|
—
|
|
|
|
(3,251
|
)
|
Loss from warrant termination
|
|
|
—
|
|
|
|
(12,343
|
)
|
Loss from warrant exercise
|
|
|
—
|
|
|
|
(12,540
|
)
|
Total Other Expenses
|
|
|
(1,511
|
)
|
|
|
(208,672
|
)
|
|
|
|
|
|
|
|
|
|
Loss Before Income
Tax Provision
|
|
|
(1,052,045
|
)
|
|
|
(525,454
|
)
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
—
|
|
|
|
—
|
|
NET LOSS
|
|
$
|
(1,052,045
|
)
|
|
$
|
(525,454
|
)
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE: BASIC
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
NET LOSS PER SHARE: DILUTED
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING: BASIC
|
|
|
231,884,710
|
|
|
|
93,965,474
|
|
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING: DILUTED
|
|
|
231,884,710
|
|
|
|
143,576,929
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
AB INTERNATIONAL
GROUP CORP.
Condensed
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
Shareholders' Compensation
|
|
|
|
Total
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - August 31, 2020
|
|
|
46,661,417
|
|
|
$
|
46,661
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
7,271,983
|
|
|
$
|
( 2,970,880
|
)
|
|
$
|
(391,667
|
)
|
|
$
|
3,956,097
|
Common shares issued for cash at$0.015312
or $0.014256 per share
|
|
|
5,470,000
|
|
|
|
5,470
|
|
|
|
—
|
|
|
|
—
|
|
|
|
75,398
|
|
|
|
—
|
|
|
|
—
|
|
|
|
80,868
|
Common shares issued from note conversions
|
|
|
25,406,238
|
|
|
|
25,406
|
|
|
|
—
|
|
|
|
—
|
|
|
|
158,347
|
|
|
|
—
|
|
|
|
—
|
|
|
|
183,753
|
Common shares issued from warrant exercises
|
|
|
47,070,294
|
|
|
|
47,070
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28,236
|
|
|
|
—
|
|
|
|
—
|
|
|
|
75,306
|
Series A Preferred Shares issued
|
|
|
—
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
Common shares returned due to officer
resignations
|
|
|
(261,111
|
)
|
|
|
(261
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(391,405
|
)
|
|
|
—
|
|
|
|
391,667
|
|
|
|
—
|
Warrants termination and Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(145,423)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(145,423)
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(525,454
|
)
|
|
|
—
|
|
|
|
(525,454)
|
Balance - November 30, 2020
|
|
|
124,346,838
|
|
|
$
|
124,347
|
|
|
|
100,000
|
|
|
$
|
100
|
|
|
$
|
6,997,136
|
|
|
$
|
(3,496,335
|
)
|
|
$
|
—
|
|
|
$
|
3,625,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - August 31, 2021
|
|
|
226,589,735
|
|
|
$
|
226,590
|
|
|
|
120,000
|
|
|
$
|
120
|
|
|
$
|
11,009,517
|
|
|
$
|
(6,578,978
|
)
|
|
$
|
(7,473
|
)
|
|
$
|
4,649,776
|
Put Shares issued for cash
|
|
|
5,500,000
|
|
|
|
5,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
133,276
|
|
|
|
—
|
|
|
|
—
|
|
|
|
138,776
|
Preferred shares series C issuance
|
|
|
—
|
|
|
|
—
|
|
|
|
332,625
|
|
|
|
333
|
|
|
|
288,617
|
|
|
|
—
|
|
|
|
—
|
|
|
|
288,950
|
Preferred shares series D issuance
|
|
|
—
|
|
|
|
—
|
|
|
|
153
|
|
|
|
—
|
|
|
|
153,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
153,000
|
Preferred shares and dividend shares
converted into common shares
|
|
|
3,146,854
|
|
|
|
3,147
|
|
|
|
(75
|
)
|
|
|
(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
|
|
|
235,236,589
|
|
|
$
|
235,237
|
|
|
|
452,703
|
|
|
$
|
453
|
|
|
$
|
11,581,264
|
|
|
$
|
(7,631,023
|
)
|
|
$
|
(3,723
|
)
|
|
$
|
4,182,207
|
The
accompanying notes are an integral part of these consolidated financial statements.
AB INTERNATIONAL
GROUP CORP.
Condensed Consolidated
Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
Three Months Ended
|
|
|
November 30,
|
|
|
2021
|
|
2020
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,052,045
|
)
|
|
$
|
(525,454
|
)
|
Adjustments to reconcile net income (loss)
to net cash from operating activities:
|
|
|
|
|
|
|
|
|
Executive salaries and
consulting fees paid in stock
|
|
|
3,750
|
|
|
|
100
|
|
Depreciation of fixed
asset
|
|
|
13,300
|
|
|
|
13,148
|
|
Amortization of intangible
asset
|
|
|
686,567
|
|
|
|
140,726
|
|
Loss/(gain) from change
in fair value of derivatives
|
|
|
—
|
|
|
|
98,787
|
|
Loss/(gain) from lease
termination
|
|
|
—
|
|
|
|
3,251
|
|
Loss/(gain) from warrant
termination
|
|
|
—
|
|
|
|
12,343
|
|
Loss/(gain) from warrant
exercise
|
|
|
—
|
|
|
|
12,540
|
|
Non-cash interest for
convertible notes
|
|
|
—
|
|
|
|
81,755
|
|
Non-cash note conversion
fees
|
|
|
—
|
|
|
|
8,750
|
|
Non-cash dividend expense
for preferred shares
|
|
|
1,511
|
|
|
|
—
|
|
Non-cash lease expense
|
|
|
34,284
|
|
|
|
1,190
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
—
|
|
|
|
86,362
|
|
Receivable on asset disposal
|
|
|
—
|
|
|
|
—
|
|
Interest receivable
|
|
|
—
|
|
|
|
26,240
|
|
Related party receivable
|
|
|
—
|
|
|
|
86,142
|
|
Other receivable
|
|
|
(539,600
|
)
|
|
|
—
|
|
Prepaid expenses
|
|
|
(10,912
|
)
|
|
|
3,024
|
|
Rent security & electricity
deposit
|
|
|
(28,733
|
)
|
|
|
3,533
|
|
Purchase of movie and
TV series broadcast right and copyright
|
|
|
(121,600
|
)
|
|
|
(1,621,333
|
)
|
Accounts payable and accrued
liabilities
|
|
|
10,797
|
|
|
|
(237,344
|
)
|
Related party payable
|
|
|
(16,512
|
)
|
|
|
—
|
|
Due to / from shareholders
|
|
|
523
|
|
|
|
61,024
|
|
Other
payable
|
|
|
389,120
|
|
|
|
243
|
|
Net cash used in operating
activities
|
|
|
(629,550
|
)
|
|
|
(1,744,973
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Purchase
of furniture and equipment
|
|
|
—
|
|
|
|
(5,000
|
)
|
Net cash provided by /(used in) investing
activities
|
|
|
—
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance
of convertible notes
|
|
|
—
|
|
|
|
233,017
|
|
Proceeds from common stock
issuances
|
|
|
226,015
|
|
|
|
80,868
|
|
Proceeds from preferred
share C issuances
|
|
|
288,950
|
|
|
|
—
|
|
Proceeds from preferred
share D issuances
|
|
|
153,000
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
667,965
|
|
|
|
313,885
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
|
38,415
|
|
|
|
(1,436,088
|
)
|
Cash and cash equivalents
–beginning of the quarter
|
|
|
132,253
|
|
|
|
2,455,061
|
|
Cash and cash equivalents
– end of the quarter
|
|
|
170,668
|
|
|
|
1,018,974
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Disclosures
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
|
—
|
|
|
|
—
|
|
Cash
paid for income taxes
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Cashless warrant exercises
|
|
$
|
—
|
|
|
$
|
(75,306
|
)
|
Convertible notes
converted to common shares
|
|
$
|
—
|
|
|
$
|
(183,752
|
)
|
Additions to ROU assets
from operating lease liabilities
|
|
$
|
1,080,156
|
|
|
$
|
20,038
|
|
Common shares returned
due to officer resignations
|
|
$
|
—
|
|
|
$
|
(391,666
|
)
|
Preferred shares converted
into common shares
|
|
$
|
75,000
|
|
|
$
|
—
|
|
The accompanying
notes are an integral part of these consolidated financial statements.
AB INTERNATIONAL
GROUP CORP.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
November 30, 2021
(Unaudited)
NOTE
1 – ORGANIZATION AND BUSINESS OPERATIONS
AB International Group
Corp. (the “Company”, “we” or “us”) was incorporated under the laws of the State of Nevada on July
29, 2013. The Company's fiscal year end is August 31.
We
are an intellectual property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectual
property. We are engaged to acquisition and distribution of movies. We have a patent license to a video synthesis and release system
for mobile communications equipment, in which the technology is the subject of a utility model patent in the People’s Republic
of China. We had launched a business application (Ai Bian Quan Qiu) through smartphones and official social media accounts based on WeChat
platform in February 2019, utilizing Artificial Intelligence, it is a matching platform for performers, advertiser merchants, and owners
for more efficient services. We generate revenues through an agency service fee from each matched performance.
On January 22, 2016,
our former sole officer, who owned 83% of our outstanding common shares, sold all of his common shares to unrelated investor Jianli Deng.
After the stock sale, we modified our business to focus on the creation of a mobile app marketing engine. The app was designed for movie
trailer promotions and we planned to generate a subscriber base of smartphone users primarily through pre-installed app smartphone makers,
online app stores, WeChat official accounts, Weibo and other social network media outlets and sell prepaid cards or coins to movie distributors
or other video advertisers in China. We created the app “Amoney” for the Android smartphone platform to develop a WeChat
micro-shop that was designed to display and deliver a variety of information and links for download or online watch prices in the China
market.
On June 1, 2017 we entered into a Patent License
Agreement (the “Agreement”) pursuant to which Guangzhou Shengshituhua Film and Television Company Limited, a company incorporated
in China (“Licensor”), granted to us a worldwide license to a video synthesis and release system for mobile communications
equipment (the “Technology”). The Technology is the subject of a utility patent in the People’s Republic of China.
Under the Agreement, we are able to utilize, improve upon, and sub-license the technology a term of five years commencing on the June
1, 2017 (Effective Date) and subject to a right to renew for another five years. We were obligated to pay the Licensor $500,000 within
30 days of the date of the Agreement and a royalty fee in the amount of 20% of any proceeds resulting from our utilization of the Technology,
whether in the form of sub-licensing fees or sales of licensed products. Our Chief Executive Officer, Chiyuan Deng and former Chief Executive
Officer, Jianli Deng, jointly own and control Licensor. On October 10, 2017, we completed the payment of $500,000 initial payment amount
due under the Agreement. The term of this sublicensing agreement was renewed and extended for another five years in October of 2019.
Our License to the
Technology generates revenue through sub-license monthly fees from a smartphone app on Android devices. This smartphone app was already
existing and licensed at the time we acquired the Technology of video synthesis. In January, 2021, our sublicensing agreement with Anyone
Picture to generate revenues was terminated. As such, there has been no revenues generated from sub-licensing the Technology since the
end of December, 2020.
In December of 2018, we engaged StarEastnet, a
software developer that holds 171,000 common shares of the Company as of August 31, 2019, to start developing a performance matching
platform (Ai Bian Quan Qiu) and a WeChat official account to advertise the platform. The matching platform is to arrange performance
events for celebrities and performers. Performers can set their schedules and quotes on the platform. The platform will maximize their
profits from performance events by optimizing their schedules based upon quotes and event locations and save time from commuting among
different events. “Ai Bian Quan Qiu” utilizes the artificial intelligence (AI) matching technology to instantly and accurately
match performers and advertisers or merchants. The company charges agency service fees for each successful event matched through the
platform. Since no large social gathering is allowed as a result of COVID-19, there has been no revenue generated from the performance
matching platform (Ai Bian Quan Qiu) since the end of January, 2020. The Company decided to impair 100% of the carrying amount of Ai
Bian Quan Qiu platform and its Wechat official account.
In June, 2019, the Company completed the development
of a video mix APP for social video sharing via iOS and Android smartphones. This app was originally planned to take advantage of the
core design philosophy of “My film anyone, anywhere, anytime be together” as similar and competitive innovative video and
community apps have been activated on over 2 million unique devices in China as of December 31, 2017 and precipitated the duet video
synthesis phenomenon in China. However, the Company decided to focus on the “Ai Bian Quan Qiu” platform as its main business
and thus sold the video mix APP to Anyone Pictures Limited, which holds 242,980 common shares of the Company, for $422,400 with a gain
of $59,792 in August of 2019. Due to the quarantine and continuous control imposed by the state
and local governments in areas affected by COVID-19, merchant advertising events were suspended. The Company decided to shut down the
Ai Bian Quan Qiu platform and no revenue was generated after January 31, 2020. As a result, it has created an adverse impact on the business
and financial condition and hampered its ability to generate revenue and access sources of liquidity on reasonable terms.
In August of 2019, the Company entered into a
one year loan agreement to lend $1,047,040 at an annual interest rate of 10% to All In One Media Ltd, previously named as Aura Blocks
Limited, for producing films and digital videos in Hong Kong. The term of note receivable was from August 1, 2019 to July 31, 2020. This
loan principal balance was paid off in full in July, 2020. All the interest income of $95,979 was received by August 31, 2020.
On September 4, 2019, the Company entered into another loan agreement
to lend $1,049,600 at an annual interest rate of 10% to All In One Media Ltd, previously named as Aura Blocks Limited. The term of note
receivable was from September 4, 2019 to March 3, 2020. This loan balance was paid off in full on May 4th, 2020 with
two months’ extension. All the interest income of $70,021 was received by November 13, 2020.
On April 22, 2020, the Company announced the first
phase development of its video streaming service. The online service will be marketed and distributed in the world under the brand name
ABQQ.tv. The Company’s professional team are sourcing such dramas and films to provide video streaming service on the ABQQ.tv.
The video streaming website www.ABQQ.tv was officially launched on December 29, 2020. As of August 31, 2021, the Company acquired 4 movie
copyrights and 59 movie broadcast rights. The Company will continue marketing and promoting the ABQQ.tv website through GoogleAds and
acquire additional broadcast rights for movies and TV series, and plan to charge subscription fees once the Company has obtained at least
200 broadcast rights of movie and TV series.
NOTE 2 – SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and are
presented in US dollars. The Company’s year-end is August 31.
Basis of Consolidation
The financial statements
have been prepared on a consolidated basis, with the Company’s fully owned subsidiary App Board Limited registered and located
in Hong Kong. All intercompany balances and transactions have been eliminated in consolidation.
Going Concern Uncertainties
The accompanying consolidated
financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization
of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of November 30,
2021, the Company had an accumulated deficit of approximately $7.63 million and a working capital deficit of $231,027. For the three
months ended November 30, 2021, the Company incurred a net loss of approximately $1 million and the net cash used in operations was $629,550.
Losses have principally occurred as a result of the substantial resources required for general and administrative expenses associated
with our operations. The continuation of the Company as a going concern through November 30, 2022 is dependent upon the continued financial
support from its stockholders or external financing. Management believes the existing stockholders will provide the additional cash to
meet the Company’s obligations as they become due. However, there is no assurance that the Company will be successful in securing
sufficient funds to sustain the operations.
These conditions raise
substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments
to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities
that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional
funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
Use of Estimates
The preparation of
financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company considers
all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Foreign Currency
Transactions
The Company’s
planned operations are outside of the United States, which results in exposure to market risks from changes in foreign currency rates.
The financial risk arises from the fluctuations in foreign exchange rates and the degrees of volatility in these rates. Currently the
Company does not use derivative instruments to reduce its exposure to foreign currency risk. Non-monetary assets and liabilities are
translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the year.
Revenues and expenses are translated at average rates for the year. Gains and losses from translation of foreign currency financial statements
into U.S. dollars are included in current results of operations.
Account Receivable
Account
receivable consisted of amounts due from Anyone Pictures Limited for the sub-licensing fee revenue. Amount receivable balances are recorded
at the invoiced amount and do not bear interest. As the sublicensing agreement with Anyone Picture was terminated in January, 2021, there
was no account receivable balance as of November 30, 2021 or August 31, 2021. The allowance for doubtful accounts is the Company’s
best estimate of the amount of probable credit losses in its existing accounts receivable. No amount for bad debt expense was recorded
by the Company during the three months ended November 30, 2021 and August 31, 2021, and no write-offs for bad debt were recorded for
the three months ended November 30, 2021 and November 30, 2020.
Prepaid Expenses
Prepaid expenses primarily
consist of prepayments of OTC market annual fee. The prepaid balances are amortized when the related expense is incurred.
Fixed Asset
Fixed asset consists
of furniture and appliances acquired for the office. The balance is stated at cost less accumulated depreciation. Depreciation is computed
using the straight-line method over estimated useful lives listed below:
|
|
|
Estimated
Useful Life
|
Furniture
|
|
|
7 years
|
Appliances
|
|
|
5 years
|
Leasehold Improvement
Leasehold improvement
is related to the enhancements paid by the Company to leased office and store. Leasehold improvement represents capital expenditures
for direct costs of renovation or acquisition and design fees incurred. The amortization of leasehold improvements commences once the
renovation is completed and ready for the Company’s intended use. Leasehold improvement is amortized over the lease term of 3 years.
Intangible Assets
Intangible assets are
stated at the lower of cost or amortized cost or estimated fair value and amortized as follows:
|
●
|
Movie
copyrights and broadcast rights: straight-line method over the estimated life of the asset, which has been determined by management
to be 2 years
|
|
●
|
Patent:
straight-line method over the term of 5 years based on the patent license agreement
|
Amortized costs of
the intangible asset are recorded as cost of sales, as the intangible assets are directly related to generation of revenues in the Company.
Lease property under
operating lease
In February 2016, the
Financial Accounting Standards Board (“FASB”) issued updated guidance to improve financial reporting about leasing transactions.
This guidance required organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and
obligations created by those leases. The original guidance required application on a modified retrospective basis with the
earliest period presented. In August 2018, the FASB issued new guidance which included an option to not restate comparative periods in
transition. Under this new guidance, a company applies the standard to leases in place as of the date of initial application,
records a cumulative-effect adjustment to retained earnings as of the first day of the adoption year, and follows the new rules for all
leases entered or modified going forward. The Company adopted this new standard on June 1, 2020 with no retrospective
adjustments to prior comparative periods. In accordance with ASC 250-10-45-14, a change in accounting principle made in an interim period
shall be reflected as if the entity had adopted the new principle on the first day of the adoption year, which is September 1, 2019 for
the Company. As such, the adoption of ASC 842 lease accounting standard has resulted in $196,813 lease liabilities with corresponding $201,025
ROU assets net of amortization as of September 1, 2019 based on the present value of the remaining rental payments under current
leasing standards for existing leases. The remaining balance of lease liabilities are presented within the current portion of lease
liabilities and the non-current portion of lease liabilities on the Consolidated Balance Sheet.
Impairment of Long-lived
asset
The
Company evaluates its long-lived assets or asset group, including intangible assets with indefinite and finite lives, for impairment.
Intangible assets with indefinite lives that are not subject to amortization are tested for impairment at least annually or more frequently
if events or changes in circumstances indicate that the assets might be impaired in accordance with ASC 350. Such impairment test compares
the fair values of assets with their carrying values with an impairment loss recognized when the carrying values exceed fair values.
For long-lived assets and intangible assets with finite lives that are subject to depreciation and amortization are tested for
impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the
future use of the assets) indicate that the carrying amount of an asset or a Group of long-lived assets may not be recoverable. When
these events occur, the Company evaluates impairment by comparing the carrying amount of the assets to future undiscounted net cash flows
expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less
than the carrying amount of the assets, the Company would recognize an impairment loss based on the excess of the carrying amount of
the asset group over its fair value.
Impairment
losses are included in the general and administrative expense. There was no impairment loss during the three months ended November 30,
2021 and the year ended August 31, 2021.
Revenue Recognition
The Company adopted
ASC Topic 606, “Revenue from Contracts with Customers”, applying the modified retrospective method.
In accordance with
ASC Topic 606, revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that
reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following
five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its
agreements:
|
●
|
the
contract with a customer;
|
|
●
|
identify
the performance obligations in the contract;
|
|
●
|
determine
the transaction price;
|
|
●
|
allocate
the transaction price to performance obligations in the contract; and
|
|
●
|
recognize
revenue as the performance obligation is satisfied.
|
The Company does not
believe that significant management judgements are involved in revenue recognition, but the amount and timing of the Company’s
revenues could be different for any period if management made different judgments or utilized different estimates. Generally, the Company
recognizes revenue under ASC Topic 606 for its performance obligation.
The Company generates
revenue from sub-licensing a patent. The sub-licensing revenue is recognized monthly based upon the number of users who download the
APP that utilizes the Company’s patent. The monthly royalty the Company charges Anyone Pictures Limited is $12.8 per 1000 APP users.
Both parties agreed to charge the sublicensing fee based upon a fixed number 2,000,000 users. In January, 2021, our sublicensing agreement
with Anyone Picture to generate revenues was terminated. As such, there has been no revenues generated from sub-licensing the Technology
since the end of December, 2020. Once the Company finds another company to sublicense the patent, it will generate royalty revenue again.
Fair Value of Financial
Instruments
ASC 820, “Fair
Value Measurements” (ASC 820) and ASC 825, “Financial Instruments” (ASC 825), requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based
on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization
within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes
the inputs into three levels that may be used to measure fair value:
Level 1 – Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 – Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable market data.
Level 3 – Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement
of the fair value of the assets or liabilities.
The carrying values
of cash, accounts payable, and accrued liabilities approximate fair value due to their short-term nature. The fair values of warrant
liabilities and derivative liabilities embedded in convertible notes are determined by level 3 inputs.
Accounting for Derivative
Instruments
The
Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” (ASC 815) and all
derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet.
The
Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer
a liability in an orderly transaction between willing and able market participants. In general, the Company's policy in estimating fair
values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these
are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment
speeds, default rates and credit spreads (including for the Company's liabilities), relying first on observable data from active markets.
Additional adjustments may be made for factors including liquidity, credit, bid/offer spreads, etc., depending on current market conditions.
Transaction costs are not included in the determination of fair value. When possible, the Company seeks to validate the model's output
to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially
different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes
its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency
utilized in measuring financial instruments at fair value as discussed above. Changes in fair value are recognized in the period incurred
as either gains or losses.
Warrants
Warrants
are classified as equity and the proceeds from issuing warrants in conjunction with convertible notes are allocated based on the relative
fair values of the base instrument of convertible notes and the warrants by following the guidance of ASC 470-20-25-2 as below:
Proceeds
from the sale of a debt instrument with stock purchase warrants (detachable call options) shall be allocated to the two elements based
on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion
of the proceeds so allocated to the warrants shall be accounted for as paid-in capital. The remainder of the proceeds shall be allocated
to the debt instrument portion of the transaction. This usually results in a discount (or, occasionally, a reduced premium), which shall
be accounted for as interest expense under Topic 835 Interest.
Income Taxes
The Company accounts
for income taxes pursuant to FASB ASC 740 “Income Taxes”. Under ASC 740 deferred income taxes are provided on a liability
method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred
tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts
of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The provision for income
taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. Deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
ASC 740 also provides
criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under ASC 740, the impact of an uncertain
tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon
audit by the relevant taxing authority. At November 30, 2021 and 2020, there were no unrecognized tax benefits. Please see Note 14 for
details.
Value-Added Taxes
The Company generates revenue in People's Republic
of China (PRC) via the “Ai Bian Quan Qiu” platform and is subject to a value-added tax at an effective rate of 6%. In accordance
with PRC law, the Company is also subject to surcharges, which includes urban maintenance and construction taxes and additional education
fees on VAT payable.
The Company’s revenue generated from the
“Ai Bian Quan Qiu” platform is subject to VAT at a rate of 6% and subject to surcharges at a rate of 12% of the VAT payable.
Basic and Diluted
Income (Loss) Per Share
The Company computes
income (loss) per share in accordance with FASB ASC 260, “Earnings per Share” which requires presentation of both basic and
diluted earnings per share on the face of the statement of operations. The earnings per share after the reverse stock split is presented
retrospectively as if the reverse split had occurred at the very beginning of the business. Basic loss per share is computed by dividing
net income (loss) available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted
loss per share is computed using the weighted average number of common shares and potential common shares outstanding during the period
for warrants, options and restricted shares under treasury stock method, and for convertible debts under if-convertible method, if dilutive.
Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period and excludes all potential
common shares if their effects are anti-dilutive.
In accordance with
the Company’s convertible note agreements, the Note Holders have the option to convert all or any lesser portion of the outstanding
principal amount and accrued but unpaid interest into common stock at a conversion price equal to a price which is 55% or 60% of the
lowest trading price during the 10 or 20 days prior to the day that the Holder requests conversion. 55% is applicable to EMA Financial
whereas 60% applies for the other counterparties. The lowest trading price during 10 days prior to conversion is applicable to East Capital
and Fidelis Capital, whereas the other counterparties utilize the lowest trading price during the preceding 20 days. The number of diluted
shares from convertible notes is calculated with the assumption of converting all the outstanding principal balance and unpaid interest
expense to common shares at the beginning of the period or at the time of issuance, if later.
The number of diluted
shares from warrants is the upper limit to which warrants can be converted into common shares and adjusted for anti-dilution clauses.
The Company
has prepaid all the remaining convertible notes and exercised all the warrants as of November 30, 2021. As such, 0 potentially diluted
shares were from convertible notes and warrants as of November 30, 2021, whereas 45,230,142 potentially diluted shares were from convertible
notes and 4,381,313 potentially diluted shares were from warrants as of November 30, 2020.
Diluted shares NOT included
in basic loss per share computation
|
|
As
of November 30,
|
|
|
2021
|
|
2020
|
Warrants
|
|
|
—
|
|
|
|
4,381,313
|
|
Convertible notes
|
|
|
—
|
|
|
|
45,230,142
|
|
Recent Accounting
Pronouncements
In August 2018, the
FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements
for Fair Value Measurement,” to improve the effectiveness of disclosures in the notes to financial statements related to recurring
or nonrecurring fair value measurements by removing amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy,
the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The new standard
requires disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements.
The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2019.
In December 2019,
the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” to remove specific exceptions to the general principles
in Topic 740 and to simplify accounting for income taxes. The standard is effective for public companies for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating
the impact of this accounting standard update on its consolidated financial statements.
In January 2020,
the FASB issued ASU 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic
323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815,” which
clarifies the interaction of the accounting for equity investments under Topic 321 and investments accounted for under the equity method
of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The
standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15,
2020. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated
financial statements.
NOTE 3 –PREPAID
EXPENSES
Prepaid
expense was $24,478 and $13,566 as of November 30, 2021 and August 31, 2021, respectively. Prepaid expense as of November 30, 2021 primarily
includes $15,145 prepayment of rents.
NOTE 4 – SUBSCRIPTION
RECEIVABLE
Subscription receivable
is cash not yet collected from the shareholders for issuance of common stock. As of November 30, 2021, the company has no Subscription
receivable. As of August 31, 2021, the subscription receivable balance of $87,239 was cash to be collected from 3 million Put shares
to Peak One Opportunity Fund LP
NOTE 5 – FIXED
ASSETS AND LEASEHOLD IMPROVEMENT
The Company capitalized the renovation cost as
leasehold improvement and the cost of furniture and appliances as fixed asset. Leasehold improvement relates to renovation and upgrade
of an office and an offline display store. The leasehold improvement is depreciated over 3 years which equal the terms of the operating
lease for renting an office. The furniture and appliances are depreciated over 7 and 5 years, respectively.
The depreciation
expense was $13,300 and $13,148 for three months November 31, 2021 and November 30, 2020, respectively.
|
|
November
30, 2021
|
|
August
31, 2021
|
Leasehold improvement
|
|
$
|
146,304
|
|
|
$
|
146,304
|
|
Appliances and furniture
|
|
|
25,974
|
|
|
|
25,974
|
|
Total cost
|
|
|
172,278
|
|
|
|
172,278
|
|
Accumulated depreciation
|
|
|
(131,873
|
)
|
|
|
(118,573
|
)
|
Property
and equipment, net
|
|
$
|
40,405
|
|
|
$
|
53,705
|
|
NOTE 6 – INTANGIBLE
ASSETS
As of November
30, 2021 and August 31, 2021, the balance of intangible assets are as follows;
|
|
November 30, 2021
|
|
August 31, 2021
|
Patent
|
|
$
|
500,000
|
|
|
$
|
500,000
|
|
Movie copyrights - Love over the world
|
|
|
853,333
|
|
|
|
853,333
|
|
Sitcom copyrights - Chujian
|
|
|
640,000
|
|
|
|
640,000
|
|
Movie copyrights - Huafeng
|
|
|
422,400
|
|
|
|
422,400
|
|
Movie copyrights - Our treasures
|
|
|
936,960
|
|
|
|
936,960
|
|
Movie and TV series broadcast rights
|
|
|
2,439,840
|
|
|
|
2,439,840
|
|
Total cost
|
|
|
5,792,533
|
|
|
|
5,792,533
|
|
Less: Accumulated amortization
|
|
|
(2,480,295
|
)
|
|
|
(1,793,728
|
)
|
Intangible asset, net
|
|
$
|
3,312,238
|
|
|
$
|
3,998,805
|
|
Intangible assets include
1) a patent obtained from Guangzhou Shengshituhua Film and Television Company Limited as a worldwide license to a video synthesis and
release system for mobile communications equipment, 2) copyrights for the movie “Love over the world”, “Huafeng”,
“Our treasures” and the sitcom “Chujian”, and 3) broadcast rights for fifty nine movie and TV series. The amortization
expense for three months ended November 30, 2021 and November 30, 2020 was $686,567 and $140,726, respectively.
The
estimated amortization expense for each of the two succeeding years is as follows. The intangible assets as of November 30, 2021 will
be fully amortized in the fiscal year of 2023.
Year ending November
30,
|
|
Amortization expense
|
2022
|
|
|
$
|
2,580,541
|
|
2023
|
|
|
$
|
731,697
|
|
NOTE 7 – RIGHTS-TO-USE
OPERATING LEASE ASSETS, NET
Rights-to-use lease
assets, net consisted of the following:
|
|
November 30, 2021
|
|
August 31, 2021
|
Right-to-use gross asset
|
|
$
|
1,303,393
|
|
|
$
|
223,237
|
|
Less: accumulated amortization
|
|
|
(226,714
|
)
|
|
|
(175,410
|
)
|
Right-to-use asset, net
|
|
$
|
1,076,679
|
|
|
$
|
47,827
|
|
The estimated amortization expenses for succeeding
years is as follows:
Year ending November 30,
|
|
Amortization expense
|
|
2022
|
|
|
$
|
229,675
|
|
|
2023
|
|
|
|
200,970
|
|
|
2024
|
|
|
|
202,235
|
|
|
2025
|
|
|
|
203,854
|
|
|
2026
|
|
|
|
205,525
|
|
|
2027
|
|
|
|
34,420
|
|
|
Total
lease payments
|
|
|
$
|
1,076,679
|
|
NOTE
8 – LONG-TERM PREPAYMENT
In September 2019, the
Company entered into an agreement with Guangzhou Yuezhi Computer Ltd. For upgrading software of the “Ai Bian Quan Qiu”
platform at a cost of $128,000. $108,800 was paid upon signing the agreement and recorded as long-term prepayment in Q1, FY2020. As COVID-19
restricted crowd-gathering, “Ai Bian Quan Qiu” platform has not generated any revenue since mid-January, 2020, the Company
impaired 80% of the “Ai Bian Quan Qiu” platform intangible asset value in Q2 FY2020 and the remaining 20% intangible asset
in Q4 FY2020. As such, $108,800 prepayment was expensed as research and development expense from the previously recognized long-term
prepayment asset in FY2020.
As
of November 30, 2021, the long-term prepayment balance of $883,200 relates to movie copyrights and broadcast rights for movies as below:
|
•
|
In November
2019, the Company acquired a broadcast right of “Lushang” (English name: “On the Way”) from All In One Media
Ltd for online streaming at a price of $256,000. This broadcast right permits online streaming globally and has been fully paid.
As “Lushang” has not yet been approved for screening by the Chinese government, the payment of $256,000 was recorded
as long-term prepayment
|
|
•
|
In November
2019, the Company acquired a broadcast right of “Qi Qing Kuai Che” (English name: “Confusion”) from All In
One Media Ltd for online streaming at a price of $115,200. This broadcast right only allows online streaming outside China. In July
2021, the Company acquired the full movie copyright for both domestic and overseas with an additional cost of $908,800, and the total
price is $1,024,000. As of November 30, 2021, $627,200 has been paid. As this movie has not yet been fully paid or approved for screening
by the Chinese government, the total payment of $627,200 was recorded as long-term prepayment.
|
NOTE
9 – CONVERTIBLE NOTES
On November 18, 2019, the Company closed a private
financing with EMA Financial, LLC (“EMA Financial” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $250,000, and upon issuance, the Company is expected to receive net proceeds of $228,333
after subtracting an original issue discount of $21,667 per the Note agreement. This Note carries a prorated original issue discount
of up to $21,667 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note,
which is included in the principal balance of this Note.
As
part of initial closing the outstanding principal amount shall be $75,000 and the Holder
shall pay $68,500 of the consideration (the “First Tranche”). Out of $68,500
consideration, the Company has received $64,737 cash from EMA Financial with the remaining
$3,763 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 9 months
with the maturity date on August 18, 2020. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will
be equal to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion
features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending
on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 55.0% of the lowest
traded price for the common stock on the principal market during the 20 consecutive trading Days on which at least 100 shares of common
stock were traded including and immediately preceding the Conversion Date.
In connection with the issuance of the Note, the
Company granted EMA Financial a five-year cashless warrant (the “Warrant”) to purchase 30,000 shares of common stock at an
exercise price of $12.5 per share. As of November 30, 2020, EMA Financial exercised 100% of the total warrant shares to acquire 45,851,221
common shares through cashless exercises.
On December 13, 2019, the Company entered into
a Securities Purchase Agreement with Peak One Opportunity Fund, L.P., a Delaware limited partnership (“Peak One” or the “Holder”),
pursuant to which we issued and sold to the Peak One a convertible promissory note. The Note has an original principal amount of $235,000,
and upon issuance, the Company is expected to receive net proceeds of $211,500 after subtracting an original issue discount of $23,500
per the Note agreement. This Note carries a prorated original issue discount of up to $23,500 (the “OID”), to cover the Holder’s
monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.
As part of initial closing the outstanding principal
amount shall be $85,000 and the Holder shall pay $76,500 of the consideration (the “First Tranche”). Out of $76,500 consideration,
the Company has received $65,312 cash from Peak One with the remaining $11,188 spent as legal expense for note issuance and due diligence
fees. Peak One has converted all the convertible notes into 1,096,846 common shares by July 16th, 2020.
The term of this convertible note is 1 year with
the maturity date on December 9, 2020. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal to the lesser of (a) $10.00 or (b) Sixty percent (60%) of the lowest closing bid price (as reported
by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion of the
Debentures (provided, further, that if either the Company is not DWAC Operational at the time of conversion or the Conversion Price is
less than $0.01 per share, then sixty percent (60%) shall automatically adjust to Fifty percent (50%) of the lowest closing bid price
(as reported by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of conversion of the
Debenture), subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar
events.
In connection with the issuance of the Note, the
Company granted Peak One a five-year cashless warrant (the “Warrant”) to purchase 10,000 shares of common stock at an exercise
price of $10 per share. As of November 30, 2020, Peak One exercised 100% of the total warrant shares to acquire 3,720,326 common shares
through cashless exercises.
On January 8, 2020, the Company entered into a
Securities Purchase Agreement with Crown Bridge Partners, LLC, a New York limited company (“Crown Bridge”), pursuant to which
the Company issued and sold to Crown a convertible promissory note, dated January 8, 2020, in the principal amount of $121,500. Upon
issuance, the Company is expected to receive net proceeds of $109,500 after subtracting an original issue discount of $12,000 per the
Note agreement. This Note carries a prorated original issue discount of up to $12,000 (the “OID”), to cover the Holder’s
monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.
As part of initial first tranche closing on January
8th, 2020 the outstanding principal amount shall be $40,500 and the Holder shall pay $36,500 of the consideration (the “First
Tranche”). Out of $36,500 consideration, the Company has received $34,992 cash from Crown Bridge with the remaining $1,508 spent
as legal expense for note issuance and due diligence fees.
As part of the second tranche closing on July
23rd, 2020 the outstanding principal amount shall be $50,000 and the Holder shall pay $47,500 of the consideration (the “Second
Tranche”). Out of $47,500 consideration, the Company has received $42,987 cash from Crown Bridge with the remaining $4,513 spent
as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with
the maturity date on January 8, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
lesser (i) fifteen percent (15%) per annum or (ii) the maximum amount permitted by law from the due date thereof until the same is paid.
The convertible note has prepayment and conversion features. The Conversion Price shall be the lesser of (i) the lowest closing price
of the Common Stock during the previous twenty (20) Trading Day period ending on the latest complete Trading Day prior to the date of
this Note or (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends
or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower,
combinations, recapitalization, reclassifications, extraordinary distributions and similar events) (also subject to adjustment as further
described herein). The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein) (representing
a discount rate of 40%). “Market Price” means the lowest one (1) Trading Price (as defined below) for the Common Stock during
the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date.
“Trading Price” means, for any security
as of any date, the lesser of the (i) lowest traded price and (ii) lowest closing bid price on the Over-the-Counter Pink Marketplace,
OTCQB, or applicable trading market (the “Principal Market”) as reported by a reliable reporting service (“Reporting
Service”) designated by the Holder (i.e. Bloomberg) or, if the Principal Market is not the principal trading market for such security,
on the principal securities exchange or trading market where such security is listed or traded or, if the lowest intraday trading price
of such security is not available in any of the foregoing manners, the lowest intraday price of any market makers for such security that
are quoted on the OTC Markets
In connection with the issuance of each
tranche of the Note, the Company granted Crown Bridge a five-year cashless warrant (the “Warrant”) to purchase 4,680 shares
of common stock at an exercise price of $12.5 per share.
On December 31, 2019, the Company closed a private
financing with Auctus Capital Partners, LLC, (“Auctus” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $75,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $75,000 and the Holder shall pay $75,000 of the consideration (the “First Tranche”). Out of $75,000 consideration,
the Company has received $59,342 cash from Auctus with the remaining $15,658 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 9 months
with the maturity date on September 30, 2020. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will
be equal the lesser of (i) twenty-four percent (24%) per annum and (ii) the maximum amount permitted under law from the due date thereof
until the same is paid. The convertible note has prepayment and conversion features. The conversion price is the lesser of: (i) the lowest
closing price of the Common Stock during the previous twenty (20) Trading Day period ending on the latest complete Trading Day prior
to the date of this Note, and (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits,
stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of
the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable
Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein) (representing a discount rate of 40%). “Market
Price” means the lowest Trading Price (as defined below) for the Common Stock during the twenty (20) Trading Days on which at least
100 shares of Common Stock were traded including and immediately preceding the Conversion Date. “Trading Price” means, for
any security as of any date, the lowest trade price on the OTC Pink, OTCQB or applicable trading market as reported by a reliable reporting
service (“Reporting Service”) designated by the Holder or, if the OTC Pink is not the principal trading market for such security,
the trading price of such security on the principal securities exchange or trading market where such security is listed or traded or,
if no trading price of such security is available in any of the foregoing manners, the average of the trading prices of any market makers
for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.
On February 13, 2020, the Company closed a private
financing with East Capital Investment Corporation (“East Capital” or the “Holder”) by issuing a convertible
note (the “Note”). The Note has an original principal amount of $50,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $50,000 and the Holder shall pay $50,000 of the consideration (the “First Tranche”). Out of $50,000 consideration,
the Company has received $43,492 cash from EMA Financial with the remaining $6,508 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with
the maturity date on February 13, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day
that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties.
On
February 19, 2020, the Company closed a private financing with Fidelis Capital, LLC, (“Fidelis”
or the “Holder”) by issuing a convertible note (the “Note”). The
Note has an original principal amount of $50,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $50,000 and the Holder shall pay $50,000 of the consideration (the “First Tranche”). Out of $50,000 consideration,
the Company has received $43,487 cash from Fidelis with the remaining $6,513 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with
the maturity date on February 19, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day
that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties.
On March 12, 2020, the Company closed a
private financing with Armada Capital Partners, LLC, (“Armada” or the “Holder”) by issuing a convertible note
(the “Note”). The Note has an original principal amount of $38,500 and an original issue discount of $3,500 per the Note
agreement.
As part of initial closing the outstanding principal
amount shall be $38,500 and the Holder shall pay $35,000 of the consideration (the “First Tranche”). Out of $35,000 consideration,
the Company has received $32,992 cash from Fidelis with the remaining $2,008 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with
the maturity date on March 12, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day
that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties. In connection with the issuance
of the Armada Note, the Company granted Armada a five-year cashless warrant (the “Warrant”) to purchase 4,200 shares of the
Company’s common stock at an exercise price of $12.50 per share.
On July 17, 2020, the Company closed a private
financing with EMA Financial, LLC (“EMA Financial” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $50,000, and upon issuance, carries a prorated original issue discount of up to $2,500 (the
“OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included
in the principal balance of this Note.
As part of initial closing the outstanding principal
amount shall be $50,000 and the Holder shall pay $47,500 of the consideration. Out of $47,500 consideration, the Company has received
$42,987 cash from EMA Financial with the remaining $4,513 spent as legal expense for note issuance and due diligence fees.
The term of the convertible note is 1 year with
the maturity date on July 17, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to
the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The
conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest
complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price
for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On July 24, 2020, the Company closed a private
financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note (the “Note”).
The Note has an original principal amount of $130,000 with no original discount upon issuance.
As part of initial closing the outstanding principal
amount shall be $130,000 and the Holder shall pay $130,000 of the consideration (the “First Tranche”). Out of $130,000 consideration,
the Company has received $116,079 cash from Power up with the remaining $13,921 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with
the maturity date on July 24, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to
the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The
conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest
complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price
for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On August 18, 2020, the Company closed another
private financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note
(the “Note”). The Note has an original principal amount of $63,000 with no original discount upon issuance.
As part of closing the outstanding principal amount
shall be $63,000 and the Holder shall pay $63,000 of the consideration (the “Second Tranche”). Out of $63,000 consideration,
the Company has received $54,939 cash from Power up with the remaining $8,061 spent as legal expense for note issuance and due diligence
fees.
The term of this convertible note is 1 year with
the maturity date on August 18, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the
latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded
price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On September 1, 2020, the Company closed another
private financing with Jefferson Street Capital LLC, (“Jefferson Street Capital” or the “Holder”) by issuing
a convertible note (the “Note”). The Note has an original principal amount of $82,500 with $7,500 discount upon issuance.
As part of closing the outstanding principal amount
shall be $82,500 and the Holder shall pay $75,000 of the consideration. Out of $75,000 consideration, the Company has received $68,949
cash from Jefferson Street Capital with the remaining $6,051 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with
the maturity date on September 1, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the
latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded
price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On September 1, 2020, the Company closed another
private financing with FirstFire Global Opportunities Fund, LLC, (“FirstFire Global” or the “Holder”) by issuing
a convertible note (the “Note”). The Note has an original principal amount of $75,000 with $3,750 discount upon issuance.
As part of closing the outstanding principal amount
shall be $75,000 and the Holder shall pay $71,250 of the consideration. Out of $71,250 consideration, the Company has received $61,498
cash from FirstFire Global with the remaining $9,752 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 9 months
with the maturity date on June 1, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the
latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded
price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On October 8, 2020, the Company closed another
private financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note
(the “Note”). The Note has an original principal amount of $55,000 with no original discount upon issuance.
As part of closing the outstanding principal amount
shall be $55,000 and the Holder shall pay $55,000 of the consideration. Out of $55,000 consideration, the Company has received $47,579
cash from Power up with the remaining $7,421 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with
the maturity date on October 8, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal
to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the
latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded
price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
On October 9, 2020, the Company closed another
private financing with East Capital Investment Corp., (“East Capital” or the “Holder”) by issuing a convertible
note (the “Note”). The Note has an original principal amount of $62,700 with no original discount upon issuance.
As part of closing the outstanding principal amount
shall be $62,700 and the Holder shall pay $62,700 of the consideration. Out of $62,700 consideration, the Company has received $54,992
cash from Power up with the remaining $7,708 spent as legal expense for note issuance and due diligence fees.
The term of this convertible note is 1 year with
the maturity date on October 9, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features.
The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the
latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded
price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.
The below table summarizes
all the convertible notes issued during the year ended August 31, 2020.
Counterparties
|
|
Issuance
date
|
|
Maturity date
|
|
Principal
Amount
|
|
Purchase
Price
|
|
Discount
on Note issuance
|
|
Note
issuance costs
|
|
Proceeds
Received (USD)
|
EMA
Financial
|
|
November
18, 2019
|
|
August
18, 2020
|
|
$
|
75,000
|
|
|
$
|
68,500
|
|
|
$
|
6,500
|
|
|
$
|
3,763
|
|
|
$
|
64,737
|
Peak
One Opportunity
|
|
December
9, 2019
|
|
December
9, 2022
|
|
$
|
85,000
|
|
|
$
|
76,500
|
|
|
$
|
8,500
|
|
|
$
|
11,188
|
|
|
$
|
65,312
|
Crown
Bridge (Tranche I)
|
|
January
8, 2020
|
|
January
8, 2021
|
|
$
|
40,500
|
|
|
$
|
36,500
|
|
|
$
|
4,000
|
|
|
$
|
1,508
|
|
|
$
|
34,992
|
Auctus
Fund Note
|
|
December
31, 2019
|
|
September
30, 2020
|
|
$
|
75,000
|
|
|
$
|
75,000
|
|
|
$
|
-
|
|
|
$
|
15,658
|
|
|
$
|
59,342
|
East
Capital
|
|
February
13, 2020
|
|
February
13, 2021
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
6,508
|
|
|
$
|
43,492
|
Fidelis
Capital
|
|
February
19, 2020
|
|
February
19, 2021
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
$
|
6,513
|
|
|
$
|
43,487
|
Armada
Partners
|
|
March
12, 2020
|
|
March
12, 2021
|
|
$
|
38,500
|
|
|
$
|
35,000
|
|
|
$
|
3,500
|
|
|
$
|
2,008
|
|
|
$
|
32,992
|
EMA
Financial
|
|
July
17, 2020
|
|
July
17, 2021
|
|
$
|
50,000
|
|
|
$
|
47,500
|
|
|
$
|
2,500
|
|
|
$
|
4,513
|
|
|
$
|
42,987
|
Crown
Bridge (Tranche II)
|
|
July
23, 2020
|
|
July
23, 2021
|
|
$
|
40,500
|
|
|
$
|
36,500
|
|
|
$
|
4,000
|
|
|
$
|
2,208
|
|
|
$
|
34,292
|
Power
Up Lending (Tranche I)
|
|
July
24, 2020
|
|
July
24, 2021
|
|
$
|
130,000
|
|
|
$
|
130,000
|
|
|
$
|
-
|
|
|
$
|
13,921
|
|
|
$
|
116,079
|
Power
Up Lending (Tranche II)
|
|
August
18, 2020
|
|
August
18, 2021
|
|
$
|
63,000
|
|
|
$
|
63,000
|
|
|
$
|
-
|
|
|
$
|
8,061
|
|
|
$
|
54,939
|
|
|
|
|
|
|
$
|
697,500
|
|
|
$
|
668,500
|
|
|
$
|
29,000
|
|
|
$
|
75,849
|
|
|
$
|
592,651
|
The below table summarizes
all the convertible notes issued during the year ended August 31, 2021.
Counterparties
|
|
Issuance
date
|
|
Maturity
Date
|
|
Principal
Amount
|
|
Purchase
Price
|
|
Discount
on Note issuance
|
|
Note
issuance costs
|
|
Proceeds
Received (USD)
|
Jefferson
Street Capital
|
|
September
1,2020
|
|
September
1, 2021
|
|
|
82,500
|
|
|
|
75,000
|
|
|
|
7,500
|
|
|
|
6,051
|
|
|
|
68,949
|
FirstFire
Global
|
|
September
1,2020
|
|
June
1, 2021
|
|
|
75,000
|
|
|
|
71,250
|
|
|
|
3,750
|
|
|
|
9,752
|
|
|
|
61,498
|
Power
Up Lending
|
|
October
8, 2020
|
|
October
8, 2021
|
|
|
55,000
|
|
|
|
55,000
|
|
|
|
-
|
|
|
|
7,421
|
|
|
|
47,579
|
East
Capital
|
|
October
9, 2020
|
|
October
9, 2021
|
|
|
62,700
|
|
|
|
62,700
|
|
|
|
-
|
|
|
|
7,708
|
|
|
|
54,992
|
|
|
|
|
|
|
$
|
275,200
|
|
|
$
|
263,950
|
|
|
$
|
11,250
|
|
|
$
|
30,932
|
|
|
$
|
233,018
|
The following table
summarizes the convertible note and derivative liability in the balance sheet at August 31, 2021:
|
|
|
|
Balance, August
31, 2020
|
|
$
|
438,921
|
Issuance of Convertible Note Principal
|
|
$
|
275,200
|
Issuance of MFN Principal
|
|
$
|
15,000
|
Discount on Note issuance, net of amortization
|
|
$
|
75,075
|
Accrued interest expense
|
|
$
|
24,562
|
Converted Note Principal
|
|
$
|
(166,464)
|
Converted accrued and unpaid interest
|
|
$
|
(8,538)
|
Prepayment of Note Principal
|
|
$
|
(559,782)
|
Paid interest expense
|
|
$
|
(29,390)
|
Change in fair value of Derivative liability
|
|
$
|
(64,584)
|
Balance, August 31, 2021
|
|
$
|
—
|
The Company valued its derivatives liability using
Monte Carlo simulation. Assumptions used as of August 31, 2021 include (1) risk-free interest rates of 0.06%, (2) expected equity volatility
of 66.25% - 66.3%, (3) zero dividends, (4) discount for lack of marketability of 30% (5) remaining terms and conversion prices as set
forth in the convertible note agreement, and (6) the common stock price of the underlying share on the valuation date of August 31, 2021.
The Company recognizes gain due to convertible
feature of $64,584 in the income statement for the year ended August 31, 2021.
The Company prepaid nine convertible notes during
the year ended August 31, 2021 as below:
Convertible
Notes
|
Beginning Principal
after Note Conversion
|
Total Interest Accrued
|
Paid Date
|
Paid Principal
|
Paid Interest
|
Principal balance
Outstanding
|
Payment amount
|
Loss from prepaid
convertible note
|
Crown
Bridge (Tranche I)
|
1,082
|
2,641
|
12/9/20
|
(1,082)
|
(2,641)
|
-
|
-
|
-
|
Crown
Bridge (Tranche II)
|
40,500
|
1,545
|
12/9/20
|
(40,500)
|
(1,545)
|
-
|
72,5001
|
(26,732)1
|
EMA
Financial
|
50,000
|
1,990
|
12/9/20
|
(50,000)
|
(1,990)
|
-
|
72,800
|
(20,810)
|
Power
Up Lending
|
130,000
|
6,491
|
1/22/21
|
(130,000)
|
(6,491)
|
-
|
190,925
|
(54,434)
|
Power
Up Lending
|
63,000
|
3,042
|
2/10/21
|
(63,000)
|
(3,042)
|
-
|
92,380
|
(26,338)
|
East
Capital
|
62,700
|
3,114
|
4/7/21
|
(62,700)
|
(3,114)
|
-
|
87,467
|
(21,652)
|
Power
Up Lending
|
55,000
|
2,746
|
4/7/21
|
(55,000)
|
(2,746)
|
-
|
80,797
|
(23,051)
|
Jefferson
Street
|
82,500
|
4,097
|
3/1/21
|
(82,500)
|
(4,097)
|
-
|
116,975
|
(30,378)
|
FirstFire
Global
|
75,000
|
3,724
|
3/1/21
|
(75,000)
|
(3,724)
|
-
|
108,125
|
(29,401)
|
Total
|
559,782
|
29,390
|
-
|
(559,782)
|
(29,390)
|
-
|
821,969
|
(232,796)
|
1.
The balance is the total of Crown Bridge Tranche I and Tranche II
The Holders converted convertible notes to common
shares during the year ended August 31, 2021 as detailed below:
EMA Financial:
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
1, 2020
|
|
|
5,285
|
|
|
|
5,285
|
|
|
|
5,154
|
|
|
|
—
|
|
|
|
10,439
|
|
|
|
1,000
|
|
|
|
—
|
|
|
$
|
0.00812
|
|
|
|
1,408,800
|
Total
|
|
|
|
|
|
|
5,285
|
|
|
|
5,154
|
|
|
|
—
|
|
|
|
10,439
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
1,408,800
|
Auctus Capital Partners:
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
8, 2020
|
|
|
33,295
|
|
|
|
12,055
|
|
|
|
73
|
|
|
|
—
|
|
|
|
12,128
|
|
|
|
750
|
|
|
|
21,240
|
|
|
$
|
0.00510
|
|
|
|
2,525,000
|
September
18, 2020
|
|
|
21,240
|
|
|
|
15,233
|
|
|
|
58
|
|
|
|
—
|
|
|
|
15,291
|
|
|
|
750
|
|
|
|
6,007
|
|
|
$
|
0.00510
|
|
|
|
3,145,300
|
September
29, 2020
|
|
|
6,007
|
|
|
|
6,007
|
|
|
|
18
|
|
|
|
11,082
|
|
|
|
17,107
|
|
|
|
750
|
|
|
|
—
|
|
|
$
|
0.00480
|
|
|
|
3,720,200
|
October
22, 2020
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,918
|
|
|
|
3,918
|
|
|
|
750
|
|
|
|
—
|
|
|
$
|
0.00216
|
|
|
|
2,161,240
|
Total
|
|
|
|
|
|
|
33,295
|
|
|
|
149
|
|
|
|
15,000
|
|
|
|
48,444
|
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
11,551,740
|
*On September 29, 2020,
$6,007 of the Auctus Capital convertible note was converted to 17,107 shares of common stock at a conversion price $0.0048, 60% of the
lowest trading price in the 20 days prior to the conversion dates. Additional most-favored-nation (MFN) principal of $15,000 was triggered
when the conversion price is lower than $0.1. The remaining Auctus Capital convertible note principal balance was $0, including $15,000
MFN principal.
East Capital:
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
8, 2020
|
|
|
26,600
|
|
|
|
13,300
|
|
|
|
250
|
|
|
|
—
|
|
|
|
13,550
|
|
|
|
—
|
|
|
|
13,300
|
|
|
$
|
0.01020
|
|
|
|
1,328,431
|
September
25, 2020
|
|
|
13,300
|
|
|
|
13,300
|
|
|
|
129
|
|
|
|
—
|
|
|
|
13,429
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
0.00960
|
|
|
|
1,398,854
|
Total
|
|
|
|
|
|
|
26,600
|
|
|
|
379
|
|
|
|
—
|
|
|
|
26,979
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
2,727,285
|
Fidelis Capital:
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
1, 2020
|
|
|
41,000
|
|
|
|
25,671
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,671
|
|
|
|
—
|
|
|
|
15,329
|
|
|
$
|
0.01218
|
|
|
|
2,107,648
|
September
9, 2020
|
|
|
15,329
|
|
|
|
15,329
|
|
|
|
2,605
|
|
|
|
—
|
|
|
|
17,934
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
0.01020
|
|
|
|
1,758,257
|
Total
|
|
|
|
|
|
|
41,000
|
|
|
|
2,605
|
|
|
|
—
|
|
|
|
43,605
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
3,865,905
|
Armada Partners:
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
25, 2020
|
|
|
25,500
|
|
|
|
13,000
|
|
|
|
213
|
|
|
|
—
|
|
|
|
13,213
|
|
|
|
500
|
|
|
|
12,500
|
|
|
$
|
0.01020
|
|
|
|
1,344,363
|
October
6, 2020
|
|
|
12,500
|
|
|
|
12,500
|
|
|
|
38
|
|
|
|
—
|
|
|
|
12,538
|
|
|
|
500
|
|
|
|
—
|
|
|
$
|
0.00960
|
|
|
|
1,358,145
|
Total
|
|
|
|
|
|
|
25,500
|
|
|
|
251
|
|
|
|
—
|
|
|
|
25,751
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
2,702,508
|
Crown Bridge (Tranche
I):
Conversion
date
|
|
Beginning
principal balance
|
|
Principal
Amount Converted
|
|
Interest
Amount Converted
|
|
MFN
Principal
|
|
Total
converted principals and unpaid interest
|
|
Closing
Fee
|
|
Ending
principal balance
|
|
Conversion
Price
|
|
Converted
Shares
|
September
8, 2020
|
|
|
20,867
|
|
|
|
6,400
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,400
|
|
|
|
1,250
|
|
|
|
14,467
|
|
|
$
|
0.00765
|
|
|
|
1,000,000
|
September
22, 2020
|
|
|
14,467
|
|
|
|
5,635
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,635
|
|
|
|
1,250
|
|
|
|
8,832
|
|
|
$
|
0.00765
|
|
|
|
900,000
|
October
1, 2020
|
|
|
8,832
|
|
|
|
7,750
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,750
|
|
|
|
1,250
|
|
|
|
1,082
|
|
|
$
|
0.00720
|
|
|
|
1,250,000
|
Total
|
|
|
|
|
|
|
19,785
|
|
|
|
|
|
|
|
—
|
|
|
|
19,785
|
|
|
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
3,150,000
|
In summary, the Company
has either converted or prepaid all the outstanding convertible notes as of August 31, 2021. The below table lists conversions and prepayments
during each quarter in FY2021.
Sr.
No.
|
Note
|
Total
convertible note issued
|
Total
principal converted as of 08/31/2020
|
Total
principal converted as of 11/30/2020
|
Total
principal paid off as of 2/28/2021
|
Total
principal paid off as of 8/31/2021
|
Principal
balance Outstanding as of 8/31/2021
|
1
|
EMA
Financial
|
90,000
|
(84,716)
|
(5,285)
|
-
|
-
|
-
|
2
|
Peak
One Opportunity
|
85,000
|
(85,000)
|
-
|
-
|
-
|
-
|
3
|
Auctus
Fund Note
|
90,000
|
(41,705)
|
(48,295)
|
-
|
-
|
-
|
4
|
Crown
Bridge (Tranche I)
|
40,500
|
(19,633)
|
(19,785)
|
(1,082)
|
-
|
-
|
5
|
East
Capital
|
50,000
|
(23,400)
|
(26,600)
|
-
|
-
|
-
|
6
|
Fidelis
Capital
|
50,000
|
(9,000)
|
(41,000)
|
-
|
-
|
-
|
7
|
Armada
Partners
|
38,500
|
(13,000)
|
(25,500)
|
-
|
-
|
-
|
8
|
Crown
Bridge (Tranche II)
|
40,500
|
-
|
-
|
(40,500)
|
-
|
-
|
9
|
EMA
Financial (Issue Date: 7.17.2020)
|
50,000
|
-
|
-
|
(50,000)
|
-
|
-
|
10
|
Power
Up Lending (Issue Date: 07.24.2020)
|
130,000
|
-
|
-
|
(130,000)
|
-
|
-
|
11
|
Power
Up Lending (Issue Date: 08.18.2020)
|
63,000
|
-
|
-
|
(63,000)
|
-
|
-
|
12
|
East
Capital (Issue Date: 10.09.2020)
|
62,700
|
-
|
-
|
-
|
(62,700)
|
-
|
13
|
Power
Up Lending (Issue Date: 10.08.2020)
|
55,000
|
-
|
-
|
-
|
(55,000)
|
-
|
14
|
Jefferson
Street (Issue Date: 09.01.2020)
|
82,500
|
-
|
-
|
-
|
(82,500)
|
-
|
15
|
FirstFire
Global (Issue Date: 09.01.2020)
|
75,000
|
-
|
-
|
-
|
(75,000)
|
-
|
|
Total
|
1,002,700
|
(276,454)
|
(166,464)
|
(284,582)
|
(275,200)
|
-
|
NOTE 10 –
WARRANTS
On December 9, 2019,
January 8, 2020, January 17, 2020, March 12, 2020, and July 23, 2020 the Company issued warrants to EMA Financial, Peak One Opportunity,
Crown Bridge, and Armada Partners in conjunction with their convertible notes (see Note 9). Classified as equity, these detachable warrants
issued in a bundled transaction with convertible notes are accounted for separately as additional paid-in capital for the portion of
the proceeds allocated to them. The allocation of the sales proceeds between the base instrument of convertible notes and the warrants
are allocated based on the relative fair values of the base instrument of convertible notes and the warrants following the guidance in
ASC 470-20-25-2.
On July 30, 2020, the Company issued $750,000
warrant shares to Peak One Opportunity in connection with the Equity Purchase Agreement, which is the “Financing Agreement”
signed on July 30, 2020 to sell to Peak One up to $10,000,000 worth of the Company’s common stock over the period ending twenty-four
(24) months after the date the Registration Statement.
The fair value of the stock warrants granted to
EMA Financial was estimated at $106,540 on the date granted using the Black-Scholes pricing model, with the following assumption used
for the valuation: exercise price of $12 per share, average risk-free interest rate of 0.89%, expected dividend yield of 0, remaining
contractual life of 4.89 years, and an average expected volatility of 58.11%.
The fair value of the stock warrants granted to
Peak One was estimated at $39,515 on the date granted using the Black-Scholes pricing model, with the following assumption used for the
valuation: exercise price of $10 per share, average risk-free interest rate of 0.89%, expected dividend yield of 0, remaining contractual
life of 4.78 years, and an average expected volatility of 57.51%. The fair value of the stock warrants granted to Crown Bridge (Tranche
I) was estimated at $17,443 on the date granted using the Black-Scholes pricing model, with the following assumption used for the valuation:
exercise price of $12.5 per share, average risk-free interest rate of 0.89%, expected dividend yield of 0, remaining contractual life
of 4.86 years, and an average expected volatility of 57.97%.
The fair value of the stock warrants granted to
Armada was estimated at $12,341 on the date granted using the Black-Scholes pricing model, with the following assumption used for the
valuation: exercise price of $12.5 per share, average risk-free interest rate of 0.29%, expected dividend yield of 0, remaining contractual
life of 4.78 years, and an average expected volatility of 61.54%.
The fair value of the stock warrants granted to
Crown Bridge (Tranche II), issued on July 23, 2020 was estimated at $126,112 on August 31, 2020 using the Black-Scholes pricing model,
with the following assumption used for the valuation: exercise price of $0.00905 per share, average risk-free interest rate of 0.28%,
expected dividend yield of 0, remaining contractual life of 4.90 years, and an average expected volatility of 55.33%.
The fair value of the stock warrants granted to
Peak One, a standalone warrant issued on July 30, 2020 was estimated at $45,722 on August 31, 2020 using the Black-Scholes pricing model,
with the following assumption used for the valuation: exercise price of $0.1 per share, average risk-free interest rate of 0.27%, expected
dividend yield of 0, remaining contractual life of 4.92 years, and an average expected volatility of 55.29%.
As of November 30,
2021, the Company exercised the following warrant shares to acquire common shares via cashless exercises as below:
Peak One warrant
issued on December 9, 2019:
Date
of Exercise
|
Anti
Dilution Value of Warrant Shares
|
Anti
Dilution Base (Exercise) Price (B)
|
Mkt
Price (90 Day High Preceding Exercise date) (A)
|
#
of WTS Shares Elected for purchase (Y)
|
Common
Shares to be issued upon exercise (X) = Y(A-B)/A
|
Cashless
Payment
|
July
20, 2020
|
$100,000
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
July
21, 2020
|
$92,489
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
July
23, 2020
|
$84,979
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
July
29, 2020
|
$77,468
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
August
4, 2020
|
$69,957
|
$ 0.0300
|
$ 21.00
|
250,358
|
250,000
|
$7,511
|
August
11, 2020
|
$62,446
|
$ 0.0300
|
$ 21.00
|
500,715
|
500,000
|
$15,021
|
August
21, 2020
|
$47,425
|
$ 0.0300
|
$ 21.00
|
500,715
|
500,000
|
$15,021
|
August
25, 2020
|
$32,403
|
$ 0.0205
|
$ 21.00
|
500,489
|
500,000
|
$10,260
|
August
31, 2020
|
$22,143
|
$ 0.0205
|
$ 21.00
|
500,489
|
500,000
|
$10,260
|
September
9, 2020
|
$11,883
|
$ 0.0205
|
$ 21.00
|
470,786
|
470,326
|
$9,651
|
Total
|
|
|
|
3,724,984
|
3,720,326
|
$
97,768
|
Peak One warrant
issued on July 30, 2020
Date
of Exercise
|
Anti
Dilution Value of Warrant Shares
|
Anti
Dilution Base (Exercise) Price (B)
|
Market
Price (90 Day High Preceding Exercise date) (A)
|
#
of WTS Shares Elected for purchase (Y)
|
Common
Shares to be issued upon exercise (X) = Y(A-B)/A
|
Cashless
Payment
|
October
8, 2020
|
$75,000
|
0.01672
|
$10.00
|
750,000
|
748,746
|
$12,540
|
December
21, 2020
|
$62,460
|
0.00609
|
$0.068
|
2,564,039
|
2,344,407
|
$15,615
|
December
28, 2020
|
$46,845
|
0.00609
|
$0.068
|
2,564,039
|
2,344,407
|
$15,615
|
January
6, 2021
|
$31,230
|
0.00609
|
$0.068
|
5,128,079
|
4,668,814
|
$31,230
|
Total
|
|
|
|
11,006,157
|
10,086,374
|
$75,000
|
EMA Financial warrant
issued on January 17, 2020:
Date
of Exercise
|
Anti
Dilution Value of Warrant Shares
|
Anti
Dilution Base (Exercise) Price (B)
|
Market
Price (90 Day High Preceding Exercise date) (A)
|
#
of WTS Shares Elected for purchase (Y)
|
Common
Shares to be issued upon exercise (X) = Y(A-B)/A
|
Cashless
Payment
|
September
8, 2020
|
$375,000
|
0.00812
|
$17.00
|
2,400,002
|
2,398,856
|
$19,488
|
September
14, 2020
|
$355,512
|
0.00812
|
$17.00
|
2,950,000
|
2,948,951
|
$23,954
|
September
22, 2020
|
$331,558
|
0.00812
|
$10.00
|
3,400,000
|
3,397,239
|
$27,608
|
September
25, 2020
|
$303,950
|
0.00812
|
$10.00
|
3,600,000
|
3,597,077
|
$29,232
|
October
1, 2020
|
$274,718
|
0.00812
|
$10.00
|
4,150,000
|
4,146,630
|
$33,698
|
October
12, 2020
|
$241,020
|
0.00812
|
$6.50
|
4,600,000
|
4,594,254
|
$37,352
|
October
19, 2020
|
$203,668
|
0.00812
|
$6.50
|
4,800,000
|
4,794,004
|
$38,976
|
October
29, 2020
|
$164,692
|
0.00812
|
$2.02
|
5,200,000
|
5,179,097
|
$42,224
|
November
5, 2020
|
$122,468
|
0.00812
|
$0.60
|
5,500,000
|
5,425,567
|
$44,660
|
November
11, 2020
|
$77,808
|
0.00812
|
$0.43
|
5,700,000
|
5,592,363
|
$46,284
|
November
20, 2020
|
$31,524
|
0.00812
|
$0.30
|
3,882,264
|
3,777,184
|
$31,524
|
Total
|
|
|
|
46,182,266
|
45,851,222
|
$375,000
|
If the Market Price
of one share of Common Stock is greater than the Exercise Price, the Holder may elect to receive Warrant Shares pursuant to a cashless
exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion
thereof remaining unexercised) by surrender of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder
a number of Common Stock computed using the formula of X = Y (A-B)/A, where X, Y, A, B are as below.
X = the number of Warrant Shares
to be issued to Holder.
Y = the number of Warrant Shares
that the Holder elects to purchase under this
Warrant (at the date of such calculation).
A = the Market Price (at the date
of such calculation).
B = Exercise Price (as adjusted
to the date of such calculation).
The exercise prices
for all the warrants are subject to anti-dilution adjustments. If the Company issues common stocks under a purchase agreement, issue
options, or convert notes to common stocks at a lower price than the warrant exercise prices while the warrants are still outstanding,
such lower price is the base price that the warrant exercise price can be reduced to. As such, the Holder will receive additional warrant
shares to keep the same warrant value as the original issuance before the exercise price is adjusted down.
A
summary of the status of the Company’s warrants as of November 30, 2021 is presented below. The number of shares is adjusted in
accordance with the anti-dilution adjustment and equals the original number of warrant shares times the original exercise prices divided
by based prices. Base price is either the note conversion price or the share issuance price used by the Company while the warrants are
outstanding.
|
|
Number
of warrants
|
|
|
Original
shares issued
|
|
Anti-dilution
Adjusted
|
Warrants
as of August 31, 2020
|
|
|
793,920
|
|
|
|
68,163,661
|
|
Warrants
granted
|
|
|
—
|
|
|
|
—
|
|
Exercised,
forfeited or expired
|
|
|
(793,920
|
)
|
|
|
(68,163,661
|
)
|
Outstanding
as of November 30, 2021
|
|
|
—
|
|
|
|
—
|
|
Exercisable
as of November 30, 2021
|
|
|
—
|
|
|
|
—
|
|
(1). Exercise price
is reduced to the latest base price. Base price is either the note conversion price or the share issuance price, which the Company used
while the warrants were outstanding.
(2). The number of
shares is adjusted in accordance with the anti-dilution clause per the warrant agreement and equals the original number of warrant shares
times the original exercise prices divided by base price.
NOTE 11 –
FAIR VALUE MEASUREMENTS
The Company applies
ASC 820, Fair Value Measurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value
and expands disclosures about fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.
ASC 820 establishes
a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 — Observable
inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — Include
other inputs that are directly or indirectly observable in the marketplace.
Level 3 — Unobservable inputs which are supported by little or no market activity.
ASC 820 describes three
main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach.
The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets
or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement
is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that
would currently be required to replace an asset.
Derivative liabilities
of conversion features in convertible notes are classified within Level 3. We estimate the fair values of these liabilities at November
30, 2021 by using Monte Carlo simulation based on the remaining contractual terms, risk-free interest rates, and expected volatility
of the stock prices, etc. The assumptions used, including the market value of stock prices in the future and the expected volatilities,
were subjective unobservable inputs.
Liabilities measured
at fair value on a recurring basis as of November 30, 2021 are summarized below:
|
|
|
Fair
value measurement using:
|
|
|
|
|
|
|
|
Quoted
prices in active markets for identical assets (Level 1)
|
|
|
|
Significant other observable inputs
( Level 2)
|
|
|
|
Unobservable inputs
( Level 3)
|
|
|
|
Total
Fair value at November 30, 2021
|
Derivative
liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Derivative liabilities
embedded in convertible notes
|
|
|
|
|
|
Fair value at August 31, 2020
|
|
$
|
64,584
|
|
Increase from note issuances
|
|
|
74,187
|
|
Decrease from note conversions
|
|
|
(33,490
|
)
|
Changes in the fair value
|
|
|
58,090
|
|
Fair value at November 30, 2020
|
|
$
|
163,371
|
|
Increase from note issuances
|
|
|
—
|
|
Decrease from note prepayment
|
|
|
(136,321
|
)
|
Changes in the fair value
|
|
|
18,439
|
|
Decrease from note prepayment
|
|
|
(45,490
|
)
|
Fair value at November 30, 2021
|
|
$
|
—
|
|
NOTE
12– RELATED PARTY TRANSACTIONS
In support of the Company’s
efforts and cash requirements, it may rely on advances from related parties until such time that the Company can support its operations
or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued
support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances are considered temporary
in nature and have not been formalized by a promissory note. As of November 30, 2021 and August 31, 2021, there are no such related party
transactions.
Youall Perform Services
Ltd, owned by the son of the Company’s Chief Executive Offer and the Company’s former Secretary and Treasurer Jianli Deng,
collects revenue from the performance matching platform “Ai Bian Quan Qiu” via a Wechat official account on behalf of the
Company. Due to the COVID-19 impact, the Company ceased operation of the “Ai Bian Quan Qiu” platform in January, 2020. For
the three months ended November 30, 2021 and 2020, the Company recognized revenue of $0 and $0 from this performance matching platform,
respectively. The balance of related party receivable from Youall Perform Services Ltd was $1,439 and $1,439 as of the three months ended
November 30, 2021 and 2020, respectively.
In September 2019,
the Company entered into an agreement with Youall Perform Services Ltd for two transactions. 1) The Company pays Youall Perform Services
Ltd. 10% of the revenue generated from the “Ai Bian Quan Qiu” platform every month to reimburse the valued-added tax, tax
surcharges, and foreign transaction fee Youall Perform Services Ltd. has been paying on behalf of the Company. 2) Youall Perform Services
Ltd. will provide IT consulting service for “Ai Bian Quan Qiu” platform upgrade and maintenance at a total cost of $128,000,
out of which $108,800 has been paid. As there has been no revenue from the “Ai Bian Quan Qiu” platform due to COVID-19 since
mid-January, 2020, $108,800 long-term prepayment was expensed as research and development expense in FY2020. In July 2020, the Company
changed the service scope of this agreement and turned it into a website maintenance contract over the next two years. The major website
of this Company is ABQQ.tv for video streaming. The contract amount remains to be $128,000, out of which $108,800 was previously
paid and $19,200 will be due on the twenty first month after the launch of the website www.abqq.tv. The website maintenance
service began on January 1, 2021 and will end on December 31, 2022. The Company will pay Youall Perform Services Ltd the remaining balance
of $19,200 in September, 2022.
The Company has entered
into a patent license agreement with a related party Guangzhou Shengshituhua Film and Television Company Limited (“Licensor”)
100% owned by the Chief Executive Officer Chiyuan Deng. The agreement is for a term of 5 years commencing on the effective date on June
1, 2017. The Company has already paid the licensor a non-refundable, up-from payment of $500,000 and shall pay a royalty of 20% of the
gross revenue realized from the sale of licensed products and sub-licensing of this patent every year. The royalty expenses during the
three months ended November 30, 2021 and November 30, 2020 are $0 and $15,360, respectively. In January, 2021, the Company’s sublicensing
agreement to generate royalty revenues was terminated with Anyone Picture. As such, there has been no royalty expenses since the end
of December, 2020 given there has been no sublicensing royalty revenue generated from the patent. Once the Company finds another company
to sublicense the patent, it will generate royalty revenue and pay royalty expense again.
The Company rented
an office from ZESTV STUDIOS LIMITED, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng. On December 1, 2020,
the Company entered an agreement with ZESTV STUDIOS LIMITED to grant ZESTV STUIDIOS LIMITED the distribution right for the movie “Love
over the world” and charge ZESTV STUIDIOS LIMITED movie royalties. The Company’s royalties revenue is stipulated to equal
43% of the after-tax movie box office revenue deducting movie issuance costs. The movie box office revenue is tracked by a movie distributor
Huaxia Film Distribution Co. Ltd (hereafter “Hua Xia”) in China as it connects with all movie theaters in China and can track
the total movie box office revenue online in real time. Although ZESTV STUDIOS LIMITED has paid royalties revenue to the Company, ZESTV
STUDIOS LIMITED failed to collect cash from Hua Xia. The Company will refund ZESTV STUDIOS LIMITED the movie royalties. As of November
30, 2021, the Company incurred related party payable of $916,922 of refund for the movie royalties revenue net of the movie distribution
commission fee to ZESTV STUDIOS LIMITED.
On
August 29, 2020, the Company entered into a Separation Agreement and Release with each of
Jianli Deng, Lijun Yu and Linqing Ye. Pursuant to the agreements, Mr. Deng resigned as Secretary
and Treasurer, Ms. Yu resigned as Chief Marketing Officer and Mr. Ye resigned as Chief Operating
Officer. Mr. Deng will remain on as a member of our board of directors. The Separation and
Release Agreement cancelled the employment agreements for each of Messrs. Deng, Yu and Ye,
and provided them each an indebtedness payment within five (5) business days of the agreements.
Mr. Deng will receive $110,000, Ms. Yu will receive $110,000 and Mr. Ye will receive $120,000.
We received a release of all claims from these prior officers. In addition, Mr. Deng, Ms.
Yu, and Mr. Ye agreed to return to the Company their unvested restricted shares of 130,556,
147,222, and 147,222, respectively.
On September 11, 2020, we entered into an amended
employment agreement with Chiyuan Deng, our Chief Executive Officer. Pursuant the amended agreement, we amended the compensation to Mr.
Deng to include a salary of $180,000 annually, a reduction in common stock received under his initial employment agreement, a potential
for a bonus in cash or shares, and the issuance of 100,000 shares of our newly created Series A Preferred Stock at par value $0.001.
During the three months
ended November, 2021, the Company paid the total salary of $51,250 in cash and $3,750 in stock-based compensation.
NOTE 13 – STOCKHOLDERS’
EQUITY
The
Company has 235,236,589 and 226,589,735 common shares issued and outstanding as of November 30, 2021 and August 31, 2021, respectively.
These common shares were held by approximately 537 and 559 shareholders of record at November 30, 2021 and August 31, 2021, respectively.
The Company has 100,000 series A preferred shares issued and outstanding as of both November 30, 2021 and August 31, 2021. The Company
has 20,000 series B preferred shares issued and outstanding as of both November 30, 2021 and August 31, 2021.
The Company has 332,625 and 0 series C preferred shares issued and outstanding as of November 30,
2021 and August 31, 2021, respectively. The Company has 78 and 0 series D preferred shares issued and outstanding as of November 30,
2021 and August 31, 2021, respectively.
The Company has the
following equity activities during the three months ended November 30, 2021:
Common shares
|
•
|
The Company issued 5,500,000 shares
of put shares for cash at $0.02288, and $0.02719 per share.
|
|
|
|
|
•
|
The Company issued 3,146,854 of common
shares from preferred shares series D conversion.
|
Preferred
shares
On
September 3, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby the investor purchased
from the Company 234,300 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $203,500. The closing
occurred on September 3, 2021. After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance
of the Series C Preferred Stock totaled $184,000.
On
October 21, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from
the Company 98,325 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $85,450. The closing occurred
on October 21, 2021. After payment of transaction-related expenses, net proceeds to the Company from the sale and issuance of the Series
C Preferred Stock totaled $75,368.
For
the Securities Purchase Agreement dated March 10, 2021 entered between the Company and the accredited investor GHS Investments, LLC (the
“Investor”), the Company will issue up to 5,075 shares of Series D Convertible Preferred Stock of the Company (the “Series
D Preferred Stock”) to GHS Investments, LLC with a purchase price of $1,000 per share. During the quarter ended November 30, 2021,
the Company issued 153 shares of series D preferred stock to the investor for the purchase price of $153,000. After the payment of transaction-related
expenses, net proceeds to the Company from the issuance of the Series D Preferred Stock was $140,760.
Warrant shares
|
•
|
The
Company canceled 9,720 warrant shares with Crown Bridge and 4,200 warrant shares with Armanda Partners in November, 2020.
|
NOTE 14 –
INCOME TAXES
Components of net deferred
tax assets, including a valuation allowance, are as follows as of November 30, 2021 and August 31, 2021
|
|
November
30,
2021
|
|
August
31, 2021
|
Deferred tax asset attributable to:
|
|
|
|
|
|
|
|
|
Net operating loss carry over
|
|
$
|
945,638
|
|
|
$
|
871,681
|
|
Less: valuation allowance
|
|
|
(945,638
|
)
|
|
|
(871,681
|
)
|
Net deferred tax
asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The valuation allowance
for deferred tax assets was $945,638 as of November 30, 2021 and $871,681 as of August 31, 2021. In assessing the recovery of the deferred
tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those
temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future
taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not
the deferred tax assets would not be realized as of November 30, 2021 and August 31, 2021
Reconciliation between the statutory
rate and the effective tax rate is as follows for the three months ended November 30, 2021 and November 30, 2020:
|
|
|
|
|
|
|
Three months ended
|
|
|
November
30, 2021,
|
|
|
2021
|
|
2020
|
Federal statutory tax rate
|
|
|
21
|
%
|
|
|
21
|
%
|
Change in valuation
allowance
|
|
|
(21
|
%)
|
|
|
(21
|
%)
|
Effective tax rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The Company’s
fully owned subsidiary App Board Limited is registered and located in Hong Kong. It is governed by the income tax law of the Hong Kong
and is subject to a tax rate of 16.5%.
During the three months
ended November, 2021 and November 30, 2020, the Company and its subsidiary have incurred a consolidated loss of $(1,052,045) and $(525,454),
respectively. As a result, the Company and its subsidiary did not incur any income tax during the three months ended November 30, 2021
and November 30, 2020.
NOTE 15 –
CONCENTRATION RISK
100% of revenue was
generated from one customer during the three months ended November 30, 2020.
NOTE 16 –
COMMITMENTS AND CONTINGENCIES
Operating lease
As of November 30,
2021, the Company leases office premises in Hong Kong, an office in New York city, and an office in Singapore under non-cancelable operating
lease agreements with an option to renew these leases. On November 22, 2020, the Company closed down a display store and terminated its
lease, which has an original term from February 23, 2019 to February 22, 2022, as a result of the COVID-19 impact and uncertainties of
the economy in Hong Kong. The cash lease expense for the years ended November 30, 2021 and November 30, 2020 was $23,808 and $26,681,
respectively. All leases are on a fixed payment basis. None of the leases include contingent rentals. The Company had lease commitment
of $1,111,363 as of November 30, 2021.
In accordance with
ASC 250-10-45-14, the adoption of ASC 842 lease accounting standard has resulted in $1,111,361 lease expenses for the year ended
November 30, 2021, including both cash and non-cash lease expenses.
|
|
|
As of November 30, 2021
|
As of August 31, 2021
|
Total Lease Payments
|
|
$
|
1,132,824
|
|
$
|
48,822
|
|
Less: imputed interest
|
|
$
|
(21,463)
|
|
$
|
(596)
|
|
Present value of lease liabilities
|
|
$
|
1,111,361
|
|
$
|
48,226
|
|
Current portion of obligations under operating leases
|
|
$
|
166,834
|
|
$
|
48,226
|
|
Obligations under operating leases, non-current
|
|
$
|
944,527
|
|
$
|
0
|
|
NOTE 17 –
SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has
analyzed its operations subsequent to November 30, 2021 to the date these financial statements were issued.
Covid-19 impact:
In December 2019, a novel strain of coronavirus
(COVID-19) surfaced. The spread of COVID-19 around the world in the first quarter of 2020 has caused significant volatility in the U.S.
and international markets. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may result in a material
adverse impact on the Company’s financial position, operations and cash flows. It is too early to quantify the impact this situation
will have on company revenue and profits at this time. Possible areas that may be affected include, but are not limited to, disruption
to the Company’s customers and revenue, labor workforce, unavailability of supplies used in operations, etc. Accordingly, Management
is evaluating the Company’s liquidity position, reduction in revenues, and reviewing the analysis of the Company’s financial
performance as the Company seeks to withstand the uncertainty related to the coronavirus. As no large-crowd gathering has been allowed
since the outbreak of COVID-19, the Company has not generated any revenue from the Ai Bian Quan Qiu performance matching platform. Consequently,
the Company has decided to impair all of the intangible asset carrying value related to the Ai Bian Quan Qiu performance matching platform
and its Wechat official account, given that it is uncertain whether this platform will continue generating any revenue.
Issuance of Common Stock:
On December 14, 2021, the Company received $21,840
for the issuance of 1,800,000 shares. On January 18, 2022, the Company received $41,558 for the issuance of 3,000,000 shares. Also on
January 18, 2022, the Company issued 5,521,473 shares for the conversion of Series D preferred stock.
NFT Movie and Music Market (NFT MMM) Development
and Maintenance Contract:
The Company has entered into a contract with STAREASTnet
to develop a decentralized application based on the NFT (Non-Fungible Token) for a movie and music marketplace with the option to buy
physical, digital download or both, in one place. The digital copyrights of movies and music are generalized through NFTs, whose smart
contracts facilitate the verifications of digital copyrights saved on the blockchain. The Company will hold 100% stake of STAREASTnet
NFT Movies and Music Marketplace (NFT MMM).
Officer Resignation:
Brandy Gao resigned as Chief Financial Officer
of the Company since the term of her contract with the Company ended on December 31, 2021.
Cancellation of Acquiring a Movie Copyright:
The Company acquired a movie copyright of “Too
Simple” from Guang Dong Honor Pictures Ltd in July 2021 at a price of $1,271,680, which was to be paid in installments. As of November
30, 2021 and August 31, 2021, $1,184,385 and $644,785 was paid and recorded in long-term prepayment. On December 31, 2021, the Company
entered into a termination contract with Guang Dong Honor Pictures Ltd to cancel the purchase of this movie copyright and will receive
a full refund before May 31, 2022. Therefore, the Company has reclassified these amounts from long-term prepayment to other receivable
on the balance sheet.
AB INTERNATIONAL GROUP CORP.
69,861,682 Shares of Common Stock
PROSPECTUS
February 10, 2022
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth an itemization
of the various expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered.
All of the amounts shown are estimated except the SEC Registration Fee.
SEC Registration Fee
|
|
$
|
1,080.00
|
|
Legal Fees and Expenses
|
|
$
|
10,000
|
|
Accounting Fees and Expenses
|
|
$
|
10,000
|
|
Miscellaneous
|
|
$
|
0
|
|
Total
|
|
$
|
21,080
|
|
Item 14. Indemnification of Directors and Officers
The Nevada Revised Statutes
limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches
of directors’ fiduciary duties as directors. Our bylaws include provisions that require the company to indemnify our directors
or officers against monetary damages for actions taken as a director or officer of our Company. We are also expressly authorized
to carry directors’ and officers’ insurance to protect our directors, officers, employees and agents for certain liabilities.
Our articles of incorporation do not contain any limiting language regarding director immunity from liability.
The limitation of liability
and indemnification provisions under the Nevada Revise Statutes and our bylaws may discourage stockholders from bringing a lawsuit
against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of
derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and
our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary
relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions
do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected
to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
Item 15. Recent Sales of Unregistered Securities
The sales and issuances
of the securities described below were made pursuant to the exemptions from registration contained in to Section 4(a)(2) of the
Securities Act and Regulation D under the Securities Act. Each purchaser represented that such purchaser’s intention to acquire
the shares for investment only and not with a view toward distribution. We requested our stock transfer agent to affix appropriate
legends to the stock certificate issued to each purchaser and the transfer agent affixed the appropriate legends. Each purchaser
was given adequate access to sufficient information about us to make an informed investment decision. Except as described in this
prospectus, none of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions
involved.
Common shares
|
•
|
The
Company issued 19,000,000 shares of common stock for cash at $0.0140 per share and 4,000,000 shares of common stock for cash at $0.0715
per share.
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|
•
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The
Company issued 25,406,238 shares of common stock from note conversion. Refer to Note 9 of the consolidated financial statements for
the year ended August 31, 2021 for further details.
|
|
•
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The
Company issued 56,407,922 shares of common stock from warrant exercises. Refer to Note 10 of the consolidated financial statements for
the year ended August 31, 2021 for further details.
|
|
•
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261,111
shares of common stock returned to the Company due to officer resignations.
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|
•
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The
Company issued 31,646,633 shares of put shares for cash at $0.015312, $0.014256, $ 0.01452, $0.077528, $0.09856, $0.11, $0.0715,
$0.0563, $0.0528, $0.04875, $0.05764, and $0.0344 per share.
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|
•
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As
stock-based compensation the Company issued 500,000 shares to the Chief Investment Offer and 1,000,000 shares to the Chief Executive
Officer.
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|
•
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The
Company issued 24,528,637 of common shares from preferred shares series C & D conversion.
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|
•
|
The
Company issued 17,700,000 shares of stock for consulting services.
|
|
•
|
The Company issued
5,500,000 shares of put shares for cash at $0.02288 and $0.02719 per share
|
|
•
|
The Company issued
3,146,854 of common shares from preferred shares series D conversions
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Preferred shares
The
Company authorized 10,000,000 shares of preferred shares with a par value $0.001. During the year ended August 31, 2021, the Company
issued 100,000 shares of Series A Preferred shares at par value $0.001, and 20,000 shares of Series B Preferred shares at $16 per share,
280,025 shares of Series C Preferred shares and its dividend shares were converted to 7,140,360 common shares in August, 2021, and 798
shares of Series D Preferred shares were converted to 17,388,277 common shares in August, 2021.
Based
upon the Series C Preferred Share purchase agreement, each share of Series C Preferred Stock carries an annual dividend in the amount
of 12.0% of the Stated Value (the “Dividend Rate”). Which shall be cumulative, payable solely upon redemption, liquidation
or conversion. Upon the occurrence of an Event of Default, the Dividend Rate shall automatically increase to 22.0%. As of August 31,
2021, the Company has dividend expense of $16,801 and dividend payable of $0 on Series C Preferred Shares.
Based
upon the Series D Preferred Share purchase agreement, each share of Series D Preferred Stock shall be entitled to receive, and the Corporation
shall pay, cumulative dividends of 8.0% per annum, payable quarterly, beginning on the Original Issuance Date and ending on the date
that such share of Preferred Share has been converted or redeemed (the “Dividend End Date”). As of August 31, 2021, the Company
has dividend expense of $9,034 and dividend payable of $1,834 on Series D Preferred Shares and included in the accrued liabilities in
the balance sheet.
On
September 3, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby the investor purchased
from the Company 234,300 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $203,500.
On
October 21, 2021, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from
the Company 98,325 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $85,450.
On
January 27, 2022, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from
the Company 89,490 shares of Series C Convertible Preferred Stock of the Company for a purchase price of $78,050.
Item 16. Exhibits and Financial Statement Schedules
Item 17. Undertakings
(a)
The undersigned registrant hereby undertakes:
(1) To
file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) To
reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set
forth in the ‘‘Calculation of Registration Fee’’ table in the effective registration statement; and
(iii) To include
any material information with respect to the plan of distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and
(a)(1)(iii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained
in reports filed with or furnished to the SEC by the registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus
filed pursuant to Rule 424(b) that is part of the registration statement.
(2) That,
for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove
from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination
of the offering.
(4) That,
for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as
part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other
than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement
or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus
that was part of the registration statement or made in any such document immediately prior to such date of first use; and
(5) That,
for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution
of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant
pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if
the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to
Rule 424;
(ii) Any
free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to
by the undersigned registrant;
(iii) The portion
of any other free writing prospectus relating to the offering containing material information about the undersigned registrant
or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other
communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6) The undersigned
registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the
registrant’s annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan’s annual report pursuant to section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(7) Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933
and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed
in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized on February 10, 2022.
DATE
|
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SIGNATURE
|
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TITLE
|
|
|
|
|
|
February 10, 2022
|
|
/s/
Chiyuan Deng
|
|
Chief Executive Officer and Director
|
|
|
Chiyuan Deng
|
|
(Principal Executive Officer)
|
DATE
|
|
SIGNATURE
|
|
TITLE
|
|
|
|
|
|
February 10, 2022
|
|
/s/
Vella Deng
|
|
Chief Financial Officer
|
|
|
Vella Deng
|
|
(Principal Financial Officer and Principal Accounting
Officer)
|
In
accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the
capacities and on the dates stated:
DATE
|
|
SIGNATURE
|
|
TITLE
|
|
|
|
|
|
February 10, 2022
|
|
/s/
Chiyuan Deng
|
|
Chief Executive Officer and Director
|
|
|
Chiyuan Deng
|
|
(Principal Executive Officer)
|
DATE
|
|
SIGNATURE
|
|
TITLE
|
|
|
|
|
|
February 10, 2022
|
|
/s/
Vella Deng
|
|
Chief Financial Officer
|
|
|
Vella Deng
|
|
(Principal Financial Officer and Principal Accounting
Officer)
|
DATE
|
|
SIGNATURE
|
|
TITLE
|
|
|
|
|
|
February 10, 2022
|
|
/s/
Ho Fai Lam
|
|
Director
|
|
|
Ho Fai Lam
|
|
|
DATE
|
|
SIGNATURE
|
|
TITLE
|
|
|
|
|
|
February 10, 2022
|
|
/s/
Ruiyu Guan
|
|
Director
|
|
|
Ruiyu Guan
|
|
|
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