Our unaudited consolidated financial statements included
in this Form 10-Q are as follows:
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – BASIS OF PRESENTATION
The
accompanying unaudited consolidated financial statements of AB International Group Corp. (the “Company”) have been prepared
in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information
and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities Exchange Commission. Certain information and
footnote disclosures normally included in consolidated financial statements have been omitted pursuant to such rules and regulations.
The consolidated balance sheet as of August 31, 2022 derived from the audited consolidated financial statements at that date, but does
not include all the information and footnotes required by GAAP. These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the
year ended August 31, 2022.
The
unaudited consolidated financial statements as of and for the three and six months ended February 28, 2023 and 2022, in the opinion of
management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s
financial condition, results of operations and cash flows. The results of operations for the three and six months ended February 28,
2023 and 2022 are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The financial statements have been
prepared on a consolidated basis, with the Company’s fully owned subsidiaries App Board Limited and AB Cinemas NY, Inc. All intercompany
balances and transactions have been eliminated in consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Accounts
receivable
Accounts
receivable are presented at invoiced amount net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful
accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances
when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances,
the Company considers many factors, including the age of the balance, customer’s payment history, its current credit-worthiness
and current economic trends. Accounts are written off after efforts at collection prove unsuccessful. No
allowance was recorded for the three and six months ended February 28, 2023 and 2022.
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 and six months ended February 28, 2023 and
2022, respectively.
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Foreign
Currency Transactions
The
financial risk arises from the fluctuations in foreign exchange rates and the degrees of volatility in these rates. Currently the Company
does not use derivative instruments to reduce its exposure to foreign currency risk. Gains and losses from transactions of foreign currency
into U.S. dollars are included in current results of operations.
Revenue
Recognition
The
Company adopted ASC Topic 606, “Revenue from Contracts with Customers”, using
the modified retrospective approach. ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty
of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires
an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration
that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
To
determine revenue recognition for contracts with customers, the Company performs the following five steps: (i) identify the contract
with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable
consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction
price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance
obligation.
The
Company derives its revenues primarily from three sources: (1) selling copyrights of movies or TV shows; (2) licensing NFT MMM platform
and providing technical service; (3) movie theater admissions and food and beverage sales.
Revenue
from selling copyrights of movies or TV shows:
The
Company recognizes revenue when master copy of movie or TV show is delivered, the IP is authorized and transferred to customers. The
Company’s contracts with customer are primarily on a fixed-price basis and do not contain cancelable and refund-type provisions.
Revenue
from licensing NFT MMM platform and providing technical service fee:
The
Company derives revenue from NFTMM platform license fees, which includes accessing the NFTMM platform and platform data on both app and
website. The Company's contract has one year term, and is non-cancelable and non-refundable. In accordance with ASC 606, a 'right to
access' license is recognized over the license period. Initial technical service fee comprises of installation, implementation and necessary
training required by the customer. These services fees are recognized as the services are delivered at a point in time.
Revenue
from movie theater admissions and food and beverage sales:
The
Company recognizes admission revenues based on a gross transaction price. Admissions and food and beverage revenues are recorded at a
point in time when a film is exhibited to a customer and when a customer takes possession of food and beverage offerings. The Company
defers 100% of the revenue associated with the sales of gift cards and exchange tickets until such time as the items are redeemed
or estimated income from non-redemption is recorded.
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue
Recognition (continued)
Contract
Assets and Liabilities
Payment
terms are established on the Company’s pre-established credit requirements based upon an evaluation of customers’ credit
quality. Contact assets are recognized for in related accounts receivable. Contract liabilities are recognized for contracts where payment
has been received in advance of delivery. The contract liability balance can vary significantly depending on the timing of when an order
is placed and when shipment or delivery occurs.
As
of February 28, 2023 and August 31, 2022, other than accounts receivable and deferred revenue, the Company had no material contract assets,
contract liabilities or deferred contract costs recorded on its consolidated balance sheets.
Fair
Value of Financial Instruments
ASC
820, “Fair Value Measurements” (ASC 820) and ASC 825, “Financial Instruments” (ASC 825), requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value
hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s
categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
It prioritizes the inputs into three levels that may be used to measure fair value:
Level
1 – Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2 – Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset
or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities
in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level
3 – Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant
to the measurement of the fair value of the assets or liabilities.
ASC
820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach;
and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical
or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value
amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach
is based on the amount that would currently be required to replace an asset.
The
carrying values of cash, accounts payable, and accrued liabilities approximate fair value due to their short-term nature. The fair values
of warrant liabilities and derivative liabilities embedded in convertible notes are determined by level 3 inputs.
No
liabilities measured at fair value on a recurring basis as of February
28, 2023 and August 31, 2022.
Basic
and Diluted Earnings (Loss) Per Share
The
Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”).
ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss)
divided by the weighted average common shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis
of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the
periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income
per share or decrease loss per share) are excluded from the calculation of diluted EPS. As of February 28, 2023, the total number of
warrants outstanding was 50,000,000. No warrants were included in the diluted loss per share as they would be anti-dilutive.
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Reclassification
Certain
prior period amounts have been reclassified to conform to the current period presentation.
Recent
Accounting Pronouncements
In
October 2021, the FASB issued ASU No. 2021-08, “‘Business Combinations (Topic 805): Accounting for Contract Assets and Contract
Liabilities from Contracts with Customers” (“ASU 2021-08”). This ASU requires entities to apply Topic 606 to recognize
and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business
combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business
combination and revenue contracts with customers not acquired in a business combination. The amendments are effective for the Company
beginning after December 15, 2023, and are applied prospectively to business combinations that occur after the effective date. The Company
does not expect the adoption of ASU 2021-04 to have a material effect on the consolidated financial statements.
The
Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material
effect on the Company’s consolidated balance sheets, statements of operations and statements of cash flows.
NOTE
3 – GOING CONCERN
The
accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern,
which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As
of February 28, 2023, the
Company had an accumulated deficit of approximately $11.1 million and a working capital deficit of approximately $0.8 million. For the
six months ended February 28, 2023, the Company incurred a net loss of approximately $2.3 million
and the net cash used in operations was approximately $0.7 million. 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 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
factors, among others, raise the substantial doubt regarding the Company’s ability to continue as a going concern. These financial
statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or
the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the
actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company
to continue as a going concern.
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
4 – PROPERTY AND EQUIPMENT
The
Company capitalized the renovation cost as leasehold improvement and the cost of furniture and appliances as fixed asset. Leasehold improvement
relates to renovation and upgrade of the leased office.
The
depreciation expense was $2,224 and $26,600 for the six months ended February
28, 2023 and 2022, respectively.
As
of February 28, 2023 and August 31, 2022,
the balance of property and equipment was as follows:
| |
February
28, 2023 | |
August
31, 2022 |
Leasehold
improvement | |
$ | 146,304 | | |
$ | 146,304 | |
Appliances
and furniture | |
| 25,974 | | |
| 25,974 | |
Total
cost | |
| 172,278 | | |
| 172,278 | |
Accumulated
depreciation | |
| (161,807 | ) | |
| (159,583 | ) |
Property
and equipment, net | |
$ | 10,471 | | |
$ | 12,695 | |
NOTE
5 – INTANGIBLE ASSETS
As
of February 28, 2023 and August 31, 2022,
the balance of intangible assets was as follows:
|
February
28, 2023 | |
August
31, 2022 |
Movie
copyrights - Love over the world |
$ | 853,333 | | |
$ | 853,333 | |
Sitcom
copyrights - Chujian |
| 640,000 | | |
| 640,000 | |
Movie
copyrights - A story as a picture |
| 422,400 | | |
| 422,400 | |
Movie
copyrights - Our treasures |
| 936,960 | | |
| 936,960 | |
Movie
broadcast right- On the way |
| 256,000 | | |
| 256,000 | |
Movie
copyrights - Too simple |
| 1,271,265 | | |
| 1,271,265 | |
Movie
copyrights - Confusion |
| 1,024,000 | | |
| 1,024,000 | |
Movie
copyrights - Amazing Data |
| 300,000 | | |
| — | |
Movie
copyrights - Nice to meet you |
| 300,000 | | |
| — | |
TV
drama copyright - 20 episodes |
| 295,000 | | |
| 190,000 | |
Movie
and TV series broadcast rights |
| 2,439,840 | | |
| 2,439,840 | |
NFT
MMM platform |
| 280,000 | | |
| 280,000 | |
Total
cost |
| 9,018,798 | | |
| 8,313,798 | |
Accumulated
amortization |
| (6,294,759 | ) | |
| (4,515,516 | ) |
Intangible
assets, net |
$ | 2,724,039 | | |
$ | 3,798,282 | |
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
5 – INTANGIBLE ASSETS (Continued)
The
amortization expense for the six months ended February
28, 2023 and 2022 was $1,779,243 and $1,373,134, respectively. Estimated future amortization expense
is as follows:
Twelve
months ending February 28 |
|
Amortization
expense |
2024 |
|
|
$ |
2,191,745 |
|
2025 |
|
|
|
532,294 |
|
Total |
|
|
$ |
2,724,039 |
|
In
March 2022, the Company signed a purchase agreement with All In One Media Ltd to acquire the copyrights and broadcast rights for five
movies at a price of $1,500,000. These copyrights and broadcast rights allow the Company to broadcast these movies outside the mainland
China. On November 29, 2022, both parties entered into an amended agreement to deliver the copyrights and broadcast rights of two movies
(Amazing data and Nice to meet you) to the Company on November 30, 2022 for a total price of $600,000. As of August 31, 2022, $356,724
was paid and recorded as purchase deposit for intangible asset. On November 30, 2022, the company received the copies of two movies.
The purchase deposit of $356,724 was transferred to intangible assets and the unpaid balance of $243,276 was recorded as accounts payable
and was paid in December 2022. Per amended agreement, the remaining three movies will be delivered upon receiving the payment of minimum
$300,000 per movie from the Company before December 31, 2022. The agreement was terminated on December 31, 2022 due to the fact that
the Company did not make the payments for the remaining movies.
In March 2022, the Company signed a purchase agreement
with Anyone Pictures Limited to acquire the copyright for broadcasting a 25-episode TV drama series outside of mainland China, at a price
of $525,000. Five standalone episodes were delivered in December 2022. On February 21, 2023, both parties entered into a supplementary
agreement to determine the delivery of the remaining 20 standalone episodes. As a result, Anyone Pictures Limited agreed to refund $420,000
to the Company and the Company had received $120,000 as of February 28, 2023.
On
August 6, 2022, the Company licensed NFT MMM platform to a third party to allow the access of NFTMM platform and platform data on both
app and website for one year starting from August 20, 2022 for a monthly license fee of $60,000. The Company remains the ownership and
copyright of the NFT MMM platform, including the APP “NFT MMM” on Google Play, and the website: starestnet.io. For
the six months ended February 28, 2023, the Company recognized license revenue of $357,286.
NOTE
6 – LEASES
The
Company leased certain office space in Hong Kong from Zestv Studios Limited, a Hong Kong entity 100% owned by the Chief Executive Officer
Chiyuan Deng, under operating lease for three years from May 1, 2019 to April 30, 2022 with annual rental of $66,048 (HKD 516,000). On
May 1, 2022, the Company signed a new operating lease agreement with Zestv Studios Limited to lease its Hong Kong office premise for
two years from May 1, 2022 to April 2024 with annual rental of $66,048 (HKD 516,000).
The
Company also leased an office space in Singapore under operating lease from April 13, 2021 to March 31, 2022 with monthly rental of $716
(SGD 974), and an office space at 48 Wall Street, New York, under operating lease for one year from September 1, 2021 to August 31, 2022
with annual rental of $20,400. The Company has renewed the lease of its New York office space for one year from September 1, 2022 to
August 31, 2023 with renewed annual rental of $22,440.
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
6 – LEASES (Continued)
On
October 21, 2021, the Company signed a lease agreement to lease “the Mt. Kisco Theatre”, a movie theater, for five years
plus the free rent period which commences four months from the lease commencement date. The theatre consists of approximately 8,375 square
feet, and the total monthly rent is $14,366 for the first year, including real estate related taxes and landlord’s insurance.
Total
lease expense for the six months ended February 28, 2023 and 2022 was $142,936 and $124,551, respectively. All leases are on a fixed
payment basis. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Supplemental balance sheet information related to operating leases was as follows:
| |
February
28, 2023 | |
August
31, 2022 |
| |
| |
|
Right-of-use
assets, net | |
$ | 872,345 | | |
$ | 1,004,018 | |
| |
| | | |
| | |
Operating
lease liabilities - current | |
$ | 237,708 | | |
$ | 229,813 | |
Operating
lease liabilities - non-current | |
| 740,744 | | |
| 863,145 | |
Total
operating lease liabilities | |
$ | 978,452 | | |
$ | 1,092,958 | |
The
weighted average remaining lease terms was 3.68 years as of February 28, 2023.
The
following is a schedule of maturities of lease liabilities are as follows:
Twelve months ending February 28, |
|
|
2024 |
|
|
$ |
244,725 |
|
2025 |
|
|
|
259,176 |
|
2026 |
|
|
|
252,954 |
|
2027 |
|
|
|
236,005 |
|
Total future minimum lease payments |
|
|
|
992,860 |
|
Less: imputed interest |
|
|
|
(14,408 |
) |
Total |
|
|
$ |
978,452 |
|
NOTE
7 – PURCHASE DEPOSITS FOR INTANGIBLE ASSETS
The
balance of purchase deposits for intangible assets which relates to the acquisition of copyrights and broadcast rights for movies and
TV drama was as follows:
| |
February
28, 2023 | |
August
31, 2022 |
| |
| |
|
Purchase
deposit for 25-episode TV drama | |
$ | — | | |
$ | 525,000 | |
Purchase
deposit for movies | |
| — | | |
| 356,724 | |
Total
purchase deposits for intangible assets | |
$ | — | | |
$ | 881,724 | |
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
8– RELATED PARTY TRANSACTIONS
Due
to stockholders
In
support of the Company’s efforts and cash requirements, it may rely on advances from stockholders until such time that the Company
can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal
written commitment for continued support by stockholders. Amounts due to stockholders represent advances or amounts paid in satisfaction
of liabilities. The advances are considered temporary in nature and have not been formalized by a promissory note.
Chiyuan
Deng, the Chief Executive Offer, and Jianli Deng, the Chief Financial Officer, as the Company’s stockholders, make advances periodically
to the Company for working capital purpose. These loans
are non-interest bearing and due on demand.
As
of February 28, 2023 and
August 31, 2022, the Company had due to stockholders’ balance of $908,321 and $377,398, respectively.
Due
to related party - Youall Perform Services Ltd.
Youall
Perform Services Ltd is owned by Jianli Deng, the Chief Financial Officer. In September 2019, the Company entered into an agreement with
Youall Perform Services Ltd for two transactions. 1) The Company pays Youall Perform Services Ltd. 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 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 two-year website maintenance contract to maintain the website ABQQ.TV which was launched on December 29, 2020. The website
maintenance service began on January 1, 2021 and will end on December 31, 2022. The contract amount remains to be $128,000, out
of which $108,800 was previously paid and $19,200 was scheduled to be due on the twenty first month of
service term. During the six months ended February 28,
2023, the Company made payment of $12,812 with the payable balance to Youall Perform Services Ltd of $6,388
included in accounts payable and accrued liabilities in consolidated balance sheet as of February
28, 2023.
Due
to related party - Zestv Studios Limited
On
December 1, 2020, the Company entered an agreement with Zestv Studios Limited, a Hong Kong entity 100% owned by the Chiyuan Deng, the
Chief Executive Officer, to grant Zestv Studios Limited the distribution right for the movie “Love over the world” and charge
Zestv Studios Limited movie royalties. The Company’s royalty revenue is stipulated to equal 43% of the after-tax movie box office
revenue deducting movie issuance costs. The movie box office revenue is tracked by a movie distributor Huaxia Film Distribution Co. Ltd
(hereafter “Hua Xia”) in China as it connects with all movie theaters in China and can track the total movie box office revenue
online in real time. Although Zestv Studios Limited has paid royalty revenue to the Company, Zestv Studios Limited failed to collect
cash from Hua Xia. As of August 31, 2021, the Company had refund payable of $916,922 for the movie royalty revenue net of the movie distribution
commission fee to Zestv Studios Limited.
On
June 23, 2022, the Company sold the mainland China copyright and broadcast right of the movie “Too Simple” to Zestv Studios
Limited for a price of $750,000. The Company remains to have all copyright of outside of mainland China. The Company used this proceed
to off-set the refund payable balance to Zestv Studios Limited with additional payment of $151,795 during the year ended August 31, 2022.
The Company further paid $15,127 during the six months ended February 28, 2023.
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
8– RELATED PARTY TRANSACTIONS (Continued)
Due
to related party - Zestv Studios Limited (continued)
As
of February 28, 2023 and August 31, 2022, the Company had balance of $0 and $15,127 payable to Zestv Studios Limited, respectively.
The
Company also rented an office space from Zestv Studios Limited (See Note 6). For the six months ended February 28, 2023 and 2022, the
Company incurred related party office rent expense of $33,024 and $33,024, respectively.
Executives’
salaries
On
September 11, 2020 and May 24, 2022, the Company entered into two amended employment agreements with Chiyuan Deng, the Chief Executive
Officer. Pursuant the amended agreements, the Company amended the compensation to Mr. Deng to include a salary of $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 Series A Preferred Stock at par value $0.001. Mr.
Deng returned 266,667 shares common stock to the Company received under his initial employment agreement.
During
the six months ended February 28, 2023 and 2022, the
Company incurred total compensation of $102,000 and $290,917, respectively, for Chief Executive Offer and Chief Financial Officer. The
Company also incurred total compensation of $39,000 and $38,999, respectively, for Chief Investment Officer during the six months ended
February 28, 2023 and 2022.
NOTE
9 – STOCKHOLDERS’ EQUITY
Common
shares
The
Company had the following activities during the six months ended February
28, 2023:
Increasing
authorized number of common shares
On
October 11, 2022, the Company filed amendment to Articles of Incorporation to increase the authorized number of common shares from 1,000,000,000
shares to 10,000,000,000 shares. This increasing of authorized number of common shares has been retroactively reflected in the consolidated
financial statements and notes thereto.
Conversion
of Series C preferred shares to common shares
During
the three months ended November 30, 2022, the Company issued total 75,037,786 common shares as the result of the conversion of total
96,075 Series C preferred shares.
During
the three months ended February 28, 2023, the Company issued total 221,354,447 common shares as the result of the conversion of total
81,075 Series C preferred shares.
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
9 – STOCKHOLDERS’ EQUITY (Continued)
Common
shares (continued)
Subscription
of Common shares
On
August 2, 2022, the Company entered into a common stock purchase agreement with Alumni Capital LP, a Delaware limited partnership. Pursuant
to the agreement, Alumni Capital LP shall purchase $1.0 million of common stocks as per the Company’s discretions after a Registration
Statement is declared effective by the Securities and Exchange Commission. The purchase price is number of common stocks in a Purchase
Notice issued by the Company multiplied by 75% of the lowest traded price of the Common Stock five Business Days prior to the Closing,
which is no later than five business days after the Purchase Notice Date.
The
Company plans to use the proceeds from the sale of the common stocks for general corporate and working capital purposes and acquisitions
or assets, businesses or operations or for other purposes that the Board of Directors, in good faith deem to be in the best interest
of the Company. The registration of these securities was effective on September 13, 2022.
Pursuant
to this agreement, during the six months ended February 28, 2023, Alumni Capital LP subscribed total of 200,000,000 common shares for
total proceeds of $146,475.
As
of February 28, 2023 and
August 31, 2022, the Company had 880,904,816 and 384,512,583 common shares issued and outstanding, respectively.
Preferred
shares
The
Company had the following activities during the six months ended February
28, 2023:
On
September 6, 2022, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from
the Company 90,275 shares of Series C Convertible Preferred Stock of the Company for a gross proceed of $78,500. After deduction
of transaction-related expenses, net proceed to the Company was $69,000. The Company intends to use the proceeds from the Preferred Stock
for general working capital purposes.
The
Company recorded dividend expenses of $10,629 and $2,839 on Series C and D Preferred shares for the six months ended February
28, 2023 and 2022, respectively.
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10
– INCOME TAXES
The
Company and its fully owned subsidiary, AB Cinemas NY, Inc, were incorporated in the United States and are subject to a statutory income
tax rate at 21%. The Company’s fully owned subsidiary,
App Board Limited, was registered in Hong Kong and is subject to a statutory income tax rate at 16.5%.
As
of February 28, 2023 and
August 31, 2022, the components of net deferred tax assets, including a valuation allowance, were as follows:
| |
February
28, 2023 | |
August
31, 2022 |
Deferred
tax asset attributable to: | |
| | | |
| | |
Net
operating loss carry over | |
$ | 1,804,421 | | |
$ | 1,328,204 | |
Less:
valuation allowance | |
| (1,804,421 | ) | |
| (1,328,204 | ) |
Net
deferred tax asset | |
$ | — | | |
$ | — | |
The
valuation allowance for deferred tax assets was $1,804,421
and $1,328,204 as of February 28, 2023, 2022 and August 31, 2022,
respectively. In assessing the recovery of the deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled
reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a
result, management determined it was more likely than not the deferred tax assets would not be realized as of February 28, 2023
and August 31, 2022.
Reconciliation
between the statutory rate and the effective tax rate is as follows for the six months ended February
28, 2023 and 2022:
|
|
|
|
|
|
|
|
|
| |
Six
months ended |
| |
February
28, |
| |
2023 | |
2022 |
Federal
statutory tax rate | |
| 21 | % | |
| 21 | % |
Change
in valuation allowance | |
| (21 | %) | |
| (21 | %) |
Effective
tax rate | |
| 0 | % | |
| 0 | % |
During
the six months ended February 28, 2023 and
2022, the Company and its subsidiaries incurred net losses. As a result, the Company and its subsidiaries did not incur any income tax
during the six months ended February 28, 2023 and 2022.
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 11
– CONCENTRATION RISK
Concentration
For
the six months ended February 28, 2023 and 2022,
67% and 100% of the total revenue was generated from one customer, respectively.
As
of February 28, 2023, one
customer accounted for 100% of the Company’s accounts receivable balance. There was no accounts receivable balance as of August
31, 2022.
Credit
risk
Financial
instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. The Hong Kong
Deposit Protection Board pays compensation up to a limit of HKD 500,000 (approximately $64,000) if the bank with which an individual/a
company hold its eligible deposit fails. As of February 28, 2023 and August 31, 2022, cash balance of $139,804 and $70,602, respectively,
were maintained at financial institutions in Hong Kong, and were subject to credit risk. In the US, the insurance coverage of each bank
is $250,000. As of February 28, 2023 and August 31, 2022, cash balance of $26,080 and $13,621, respectively, were maintained at financial
institutions in the US, and were subject to credit risk. While management believes that these financial institutions are of high credit
quality, it also continually monitors their creditworthiness.
NOTE 12
– COMMITMENTS AND CONTINGENCIES
Contingencies
From
time to time, the Company may be involved in litigation relating to claims arising out of its operations in the normal course of business.
There is no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of its operations
and there are no proceedings in which any of the Company’s directors, officers, or affiliates, or any registered or beneficial
stockholder, is an adverse party or has a material interest adverse to the Company’s interest.
Operating
leases
The
Company has several lease agreements to rent office spaces and movie theatre with its related party and third-party vendors. (See Note
6)
AB
INTERNATIONAL GROUP CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
13 – SEGMENT INFORMATION
The
Company reports information about operating segments in accordance with ASC 280-10, Segment Reporting, which requires financial information
to be reported based on the way management organizes segments within a company for making operating decisions and evaluating performance.
As the result of business strategic changes, the Company has identified two reportable segments: Copyrights and license (“IP’)
segment and cinema segment.
The
following table presents summary information by segment for the six months ended February 28, 2023 and 2022, respectively.
NOTE
13 - SEGMENT INFORMATION - Schedule of Operating Activities by Segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IP
Segment |
|
Cinema
Segment |
|
Total |
|
|
Six
months ended |
|
Six
months ended |
|
Six
months ended |
|
|
February
28 |
|
February
28 |
|
February
28 |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Revenue |
|
$ |
357,286 |
|
$ |
1,800,000 |
|
$ |
177,965 |
|
$ |
— |
|
$ |
535,251 |
|
$ |
1,800,000 |
Cost of revenue |
|
|
1,779,243 |
|
|
1,373,134 |
|
|
78,708 |
|
|
— |
|
|
1,857,951 |
|
|
1,373,134 |
Gross income (loss) |
|
|
(1,421,957) |
|
|
426,866 |
|
|
99,257 |
|
|
— |
|
|
(1,322,700) |
|
|
426,866 |
Interest income |
|
|
158 |
|
|
— |
|
|
— |
|
|
— |
|
|
158 |
|
|
— |
Depreciation |
|
|
2,224 |
|
|
26,600 |
|
|
— |
|
|
— |
|
|
2,224 |
|
|
26,600 |
Capital expenditure |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Segment assets |
|
|
4,161,840 |
|
|
7,244,749 |
|
|
25,619 |
|
|
— |
|
|
4,187,459 |
|
|
7,244,749 |
Segment income (loss) |
|
$ |
(2,340,126) |
|
$ |
(602,944) |
|
$ |
61,797 |
|
$ |
— |
|
$ |
(2,278,329) |
|
$ |
(602,944) |
The
following table presents summary information by segment for the three months ended February 28, 2023 and 2022, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IP
Segment |
|
Cinema
Segment |
|
Total |
|
|
Three
months ended |
|
Three
months ended |
|
Three
months ended |
|
|
February
28 |
|
February
28 |
|
February
28 |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Revenue |
|
$ |
177,286 |
|
$ |
1,800,000 |
|
$ |
121,153 |
|
$ |
— |
|
$ |
298,439 |
|
$ |
1,800,000 |
Cost of revenue |
|
|
855,744 |
|
|
686,567 |
|
|
56,304 |
|
|
— |
|
|
912,048 |
|
|
686,567 |
Gross income (loss) |
|
|
(678,458) |
|
|
1,113,433 |
|
|
64,849 |
|
|
— |
|
|
(613,609) |
|
|
1,113,433 |
Interest income |
|
|
79 |
|
|
— |
|
|
— |
|
|
— |
|
|
79 |
|
|
— |
Depreciation |
|
|
1,108 |
|
|
13,300 |
|
|
— |
|
|
— |
|
|
1,108 |
|
|
13,300 |
Capital expenditure |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Segment assets |
|
|
4,161,840 |
|
|
7,244,749 |
|
|
25,619 |
|
|
— |
|
|
4,187,459 |
|
|
7,244,749 |
Segment income (loss) |
|
$ |
(1,165,354) |
|
$ |
449,101 |
|
$ |
96,815 |
|
$ |
— |
|
$ |
(1,068,539) |
|
$ |
449,101 |
NOTE
14 – SUBSEQUENT EVENTS
In
accordance with ASC 855-10, the Company has analyzed its operations subsequent to the date these financial statements were issued.
Conversion
of Series C preferred shares to common shares
Subsequent to the period ended February 28,
2023, the Company issued total of 184,626,969
common shares for the conversion of 50,230
Series C preferred shares.