UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

[X]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended November 30, 2020
[  ]	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period from __________ to__________
	Commission File Number: 000-55979

 

AB International Group Corp.

(Exact name of registrant as specified in its charter)

Nevada	37-1740351
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
48 Wall Street, Suite 1009, New York, NY 10005
(Address of principal executive offices)
(212) 918-4519
(Registrant’s telephone number)
_______________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

[X] Yes [ ] No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such fi les). [X] Yes [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

[  ] Large accelerated filer	[  ] Accelerated filer
[  ] Non-accelerated filer	[X] Smaller reporting company
[X] Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

[  ] Yes [X] No

 

State the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practicable date: 129,485,097 common shares and 100, 000 preferred shares as of January 3, 2021 

 

TABLE OF CONTENTS
		Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	8
Item 4:	Controls and Procedures	8
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	9
Item 1A:	Risk Factors	9
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	9
Item 3:	Defaults Upon Senior Securities	9
Item 4:	Mine Safety Disclosures	9
Item 5:	Other Information	9
Item 6:	Exhibits	9

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our unaudited consolidated financial statements included in this Form 10-Q are as follows:

 

F-1	Condensed Consolidated Balance Sheets as of November 30, 2020 (unaudited) and August 31, 2020;
F-2	Condensed Consolidated Statements of Operations for the three months ended November 30, 2020 and November 30, 2019 (unaudited);
F-3	Condensed Consolidated Statements of Shareholders’ Equity for the three months ended November 30, 2020 and November 30, 2019 (unaudited);
F-4	Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 2020 and November 30, 2019 (unaudited); and
F-5	Notes to Condensed Consolidated Financial Statements (unaudited).

 

These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended November 30, 2020 are not necessarily indicative of the results that can be expected for the full year.

 

 

AB INTERNATIONAL GROUP

Consolidated Balance Sheets 

 

		November 30,  2020				August 31, 2020
			(Unaudited)				(Audited)
ASSETS
Current Assets
Cash and cash equivalents		$	1,018,974			$	2,455,061
Prepaid expenses			8,000				11,024
Accounts receivable			51,338				137,700
Related party receivable			1,439				87,581
Due from shareholders			—				61,500
Note receivable			—				—
Interest receivable			—				26,240
Receivable on asset disposal			—				—
Total Current Assets			1,079,751				2,779,106
Fixed assets, net			20,452				16,408
Leasehold improvement, net			73,153				85,345
Right of use lease assets, net			106,367				126,354
Intangible assets, net			1,442,274				175,000
Long-term prepayment			1,955,413				1,742,080
Other assets			14,894				18,427
TOTAL ASSETS		$	4,692,305			$	4,942,721
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued liabilities		$	127,635			$	364,979
Current portion of obligations under operating leases			79,074				73,664
Convertible note and derivative liability			677,477				438,921
Due to shareholder			—				476
Tax payable			56,750				56,750
Other payable			98,827				3,584
Total Current Liabilities			1,039,764				938,374
Obligations under operating leases, non-current			27,293				48,249
Total Liabilities			1,067,057				986,623
Stockholders’ Equity
Common stock, $0.001 par value, 1,000,000,000 shares authorized; 124,346,838 and 46,661,417 shares issued and outstanding, as of November 30, 2020 and August 31, 2020, respectively			124,347				46,661
Series A preferred stock, $0.001 par value, 10,000,000 preferred shares authorized; 100,000 and 0 shares issued and outstanding, as of November 30, 2020 and August 31, 2020, respectively			100				—
Additional paid-in capital			6,997,136				7,271,983
Accumulated deficit			(3,496,335	)			(2,970,881)
Unearned shareholders' compensation			—				(391,666)
Total Stockholders’ Equity			3,625,248				3,956,097
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	4,692,305			$	4,942,720

The accompanying notes are an integral part of these financial statements.

 

AB INTERNATIONAL GROUP

Consolidated Statements of Operations

(Unaudited) 

		Three Months Ended
		November 30,
		2020				2019
Revenue		$	76,800			$	156,405
Cost of revenue			(156,086	)			(52,046)
Gross profit (loss)			(79,286	)			104,359
OPERATING EXPENSES
General and administrative expenses			(231,146	)			(155,743)
Related party salary and wages			(6,350	)			(46,373)
Total Operating Expenses			(237,496	)			(202,116)
OTHER INCOME (EXPENSES)
Interest income			5				52,488
Interest expense			(81,755	)			—
Gain /(Loss) from change in fair value			(98,787	)			(18,084)
Gain/(Loss) from lease termination			(3,251	)			—
Gain/(Loss) from warrant termination			(12,343	)			—
Gain/(Loss) from warrant exercise			(12,540	)			—
Total other income (expenses)			(208,672	)			34,404
LOSS FROM OPERATIONS
Income tax provision			—				—
Net loss from operations			(525,454	)			(63,353)
NET INCOME (LOSS)		$	(525,454	)		$	(63,353)
NET INCOME (LOSS) PER SHARE: BASIC		$	(0.01	)		$	(0.01)
NET INCOME (LOSS) PER SHARE: DILUTED		$	(0.00	)		$	(0.01)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC			93,965,474				4,822,000
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: DILUTED			143,576,929				4,822,000

 

The accompanying notes are an integral part of these financial statements.

 

AB INTERNATIONAL GROUP

Consolidated Statements of Stockholders’ Equity (Deficit)

(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,  2019			4,822,016			$	4,822				—			$	—			$	6,520,980			$	(1,452,020	)		$	(842,657	)		$	4,231,125
Common shares issued to officers for services			—				—				—				—				—				—				42,623				42,623
Net loss			—				—				—				—				—				(63,354	)			—				(63,354)
Balance - November 30,  2019			4,822,016			$	4,822				—			$	—			$	6,520,980			$	(1,515,375	)		$	(800,034	)		$	4,210,394
Balance - August 31,  2020			46,661,417			$	46,661				—			$	—			$	7,271,983			$	(2,970,881	)		$	(391,667	)		$	3,956,097
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
Common shares returned due to officer resignations			(261,111	)			(261	)			—				—				(391,405	)			—				391,667				—
Put Shares issued for cash at $0.015312 or $0.014256 per share			5,470,000				5,470				—				—				75,398				—				—				80,868
Series A Preferred Shares issued			—				—				100,000				100				—				—				—				100
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

 

The accompanying notes are an integral part of these financial statements.

AB INTERNATIONAL GROUP

Consolidated Statements of Cash Flows

(Unaudited) 

		Three Months Ended
		November 30,
		2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from operations		$	(525,454	)		$	(63,353)
Adjustments to reconcile net income (loss) to net cash from operating activities:
Executive salaries and consulting fees paid in stock			100				42,623
Depreciation of fixed asset			13,148				13,158
Amortization of intangible asset			140,726				36,899
Impairment of intangible asset			—				—
Loss/(gain) on sales of intangible assets			—				—
Gain /Loss from change in fair value of derivatives			98,787				—
Gain/(Loss) from lease termination			3,250				—
Gain/Loss from warrant termination			12,343				—
Gain/Loss from warrant exercise			12,540				—
Interest expense			81,755				—
Non-cash note conversion fees			8,750				—
Non-cash lease expense			1,190				—
Changes in operating assets and liabilities:
Accounts receivable			86,362				(25,600)
Receivable on asset disposal			—				1,280,000
Interest receivable			26,240				(26,240)
Related party receivable			86,142				12,878
Prepaid expenses			3,024				9,196
Rent security & electricity deposit			3,533				—
Long-term prepayment			(213,333	)			(428,800)
Accounts payable and accrued liabilities			(237,344	)			(11,582)
Accrued payroll			—				86,831
Due to / from shareholders			61,024				—
Tax payable			—				1,486
Other payable			243				(157,824)
Net cash used in operating activities			(336,973	)			769,672
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of movie and TV series broadcast rights			(1,408,000	)			—
Proceeds from note receivable collection			—				(1,049,600)
Purchase of furniture and equipment			(5,000	)			—
Net cash used in / (provided by) investing activities			(1,413,000	)			(1,049,600)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible notes			233,017				—
Proceeds from common stock issuances			80,868				—
Net cash provided by financing activities			313,885				—
Net increase (decrease) in cash and cash equivalents			(1,436,088	)			(279,928)
Cash and cash equivalents - beginning of the quarter			2,455,061				1,564,750
Cash and cash equivalents - end of the quarter		$	1,018,974			$	1,284,822
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			20,038				—
Common shares returned due to officer resignations		$	(391,666	)		$	—

 

The accompanying notes are an integral part of these financial statements.

 

AB INTERNATIONAL GROUP CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the three months ended November 30, 2020 and 2019

(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 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, 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 an initial period of one year from October 1, 2017 to September 30, 2018, subject to a right to renew. 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. In October of 2019, the term of this sublicensing agreement was renewed and extended until December 31, 2020. Our License to the Technology generates revenue through sub-license monthly fees from a smartphone app on Android devices. This app was already existing and licensed at the time we acquired the Technology.

 

Our License to the Technology generates revenue through sub-license monthly fees from a smartphone app on Android devices. This app was already existing and licensed at the time we acquired the Technology.

 

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 plans to generate revenue through sub-licensing fees for the operation of cryptocurrency ATMs. Through the foregoing the Company proposes 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 that 100% of the carrying amount of Ai Bian Quan Qiu platform and its Wechat official account should be impaired.

 

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, which 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 has announced the first phase development of it’s a video streaming service, the Company expects a full launch by December, 2020. The online service will be marketed and distributed in the world under the brand name ABQQ.tv. ABQQ.tv is expected to generate a new and profitable revenue stream immediately following its launch derived from its hybrid subscription and advertising business model. The Company is currently testing the website at the final stage, the Company's professional team are sourcing such dramas and films to prepare the ABQQ.tv official launch in December, 2020.

 

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. The Company’s year-end is August 31. The financial statements have been prepared on a consolidated basis, with their fully owned subsidiary App Board Limited.

 

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. As of November 30, 2020 and August 31, 2020, there were intercompany receivable and payables balance of $384,000 and $9,060, respectively. The intercompany receivable and payable balances are offset to zero in the consolidated financial statements.

 

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

 

For purposes of the statement of cash flows, 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.

 

Accounts Receivable

 

Accounts receivable consist of amounts due from Anyone Pictures Limited for the sub-licensing fee revenue. Amounts receivable are recorded at the invoiced amount and do not bear interest. 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 has been recorded by the Company during the three months ended November 30, 2020 and 2019, and no write-off for bad debt were recorded for the three months ended November 30, 2020 and 2019.

 

Prepaid Expenses

 

Prepaid expenses primarily consist of consulting fees that have been paid in advance and prepayments of OTC market annual fee, website domain fee, TV promotion fee, and investor relation fee.

 

The prepaid balances are amortized when the related expense is incurred.

 

Note Receivable

 

Note receivable is a one-year note bearing annual interest of 10% with the principal payable annually at the end of the term. Interest is due and payable, at the election of the Company, in cash on the Maturity Date, as applicable, or if the note receivable is prepaid earlier, on such prepayment date. Therefore, interest income is recorded along with interest receivable throughout the note outstanding periods.

 

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 cost and depreciated as follows:

 

●

Mobile application product: straight-line method over the estimated life of the asset, which has been determined by management to be 3 years

 

●

Movie copyrights: income forecast method for a period not to exceed 10 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 asset is 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 G&A expense. 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 and charging a service fee from the “Ai Bian Quan Qiu” platform for actors and commercial events matching.

 

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.

 

The “Ai Bian Quan Qiu” platform service revenue is derived principally from providing matching service to merchants who are looking for actors to perform at their advertising events. The Company recognizes revenue upon a matching event is accepted by actors with a service fee of 10% of the actors’ quote for performing at the events. For the service fee revenue from the “Ai Bian Quan Qiu” platform, the Company does not control the specified goods or services before that is transferred to the customers and thus the Company is an agent. Therefore, this service revenue is recognized at a net basis.

 

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. Pursuant to ASC 820 and 825, the fair value of cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. 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, 2020, there was unrecognized tax benefits. Please see Note 13 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 East 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.

 

As of November 30, 2020, 45,230,142 potentially diluted shares were from convertible notes and 4,381.313 potentially diluted shares were from warrants. 4,381.313 diluted shares are the maximum number of common shares these warrants can be converted into. No potentially dilutive debt or equity instruments were issued or outstanding as of November 30, 2019.

 

		As of November 30,
Diluted shares not included in basic loss per share computation		2020				2019
Warrants			4,381,313				—
Convertible notes			45,230,142				—

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases. The standard requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in its balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The guidance in ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2018.

 

In September 2017, the FASB has issued ASU No. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer

 

 

Comments.” The amendments in ASU No. 2017-13 amends the early adoption date option for certain companies related to the adoption of ASU No. 2014-09 and ASU No. 2016-02. Both of the below entities may still adopt using the public company adoption guidance in the related ASUs, as amended. The effective date is the same as the effective date and transition requirements for the amendments for ASU 2014-09 and ASU 2016-02.

 

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.

 

In June 2018, the FASB issued 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 amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other companies, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Company does not currently expect the adoption of the amendment to have a material impact on its consolidated financial position and results of operations.

 

In July 2018, the FSAB issued ASU 2018-10 ASC Topic 842: “Codification Improvements to Leases” The amendments are to address stakeholders’ questions about how to apply certain aspects of the new guidance in Accounting Standards Codification (ASC) 842, Leases. The clarifications address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments. The amendments in ASC Topic 842 are effective for EGC for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. While early application is permitted, including adoption in an interim period, the Company has not elected to early adopt. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

 

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842). This update provides entities with an additional (and optional) transition method to adopt the new leases standard. Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative period’s financials will remain the same as those previously presented. Entities that elect this optional transition method must provide the disclosures that were previously required. The Company is evaluating the effect this new guidance will have on our consolidated financial statements and related disclosures.

 

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 $8,000 and $11,024 as of November 30, 2020 and August 31, 2020, respectively. Prepaid expense at November 30, 2020 primarily included $8,000 prepayment of OTC market annual fee.

 

NOTE 4 – 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 total original cost was $172,278, including $146,304 for renovation of the office and the store and $25,974 office furniture and appliances. The accumulated depreciation was $78,673 and $65,525 at November 30, 2020 and August 31, 2020, respectively.

 

		November 30, 2020				August 31, 2020
Appliances and furniture		$	25,974			$	20,974
Leasehold improvement			146,304				146,304
Total cost			172,278				167,278
Accumulated depreciation			(78,673	)			(65,525)
Property and equipment, net		$	93,605			$	101,753

 

NOTE 5 – INTANGIBLE ASSETS

 

As of November 30, 2020 and August 31, 2020, the balance of intangible assets are as follows;

 

		November 30, 2020				August 31, 2020
Patent		$	500,000			$	500,000
Movie and TV series broadcast rights			1,408,000				—
Total cost			1,908,000				500,000
Accumulated amortization			(465,726	)			(325,000)
Intangible assets, net		$	1,442,274			$	175,000

 

The two intangible assets of Krypotokiosk and Ai Bian Quan Qiu platform are both impaired to zero values because they cease in operations and do not generate revenues for the Company any more. Amortization expenses for three months ended November 30, 2020 and 2019 was $140,726 and $36,899, respectively.

 

 

NOTE 6 – RIGHTS-TO-USE LEASE ASSETS, NET 

 

Rights-to-use lease assets, net consisted of the following:

 

		November 30, 2020				August 31, 2020
Right-to-use gross asset		$	215,853			$	228,510
Less: accumulated amortization			(109,486	)			(102,156)
Right-to-use asset, net		$	106,367			$	126,354

 

The estimated amortization expenses for each of the two succeeding years is as follows: 

 

Year ending November 30,				Amortization expense
	2021			$	79,075
	2022			$	27,293
	Total			$	106,368

 

NOTE 7 - 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.

 

As of November 30, 2020, the long-term prepayment balance of $1,955,413 relates to three movie copyrights and twenty-seven broadcast rights for movies and TV series as below:

 

	•	In November 2019, the Company acquired two movie copyrights at a price of $256,000 for “Lushang” (English name: “On The Way”) and $115,200 for “Qi Qing Kuai Che” (English name: “Confusion”). Both of them have been fully paid and recorded as long-term prepayment.

	•	In January 2020, the Company acquired a movie copyright “Ai Bian Quan Qiu” (English name: “Love Over The World”) at a price of $870,978. As of November 30,2020, $853,333 has been paid and recorded as long-term prepayment for this movie copyright.

•

In June 2020, the Company acquired broadcast rights for a TV series of “If time could stop at the moment when we first met” and a movie of “Huafeng” at a price of $640,000 and $422,420, respectively. As of November 30, 2020, $435,200 and $295,680 has been paid and recorded as long-term prepayment for “If time could stop at the moment when we first met” and “Huafeng”, respectively. “If time could stop at the moment when we first met” and “Huafeng” can be both exclusively broadcasted on the video streaming website of abqq.tv after the website is officially launched.

 

NOTE 8 - 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 09, 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 EMA Financial 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 EMA Financial with the remaining $8,061 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is one 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 one 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 nine 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 one 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 one 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			$	18,763			$	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			$	90,853			$	592,647

 

 

The below table summarizes all the convertible notes issued during the three months ended November 30, 2020.

 

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		June1, 2021			75,000				71,250				3,750				9,752				61,498
Power Up Lending		October8, 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			$	30,933			$	233,017

 

The following table summarizes the convertible note and derivative liability in the balance sheet at November 30, 2020:

 

Balance, August 31, 2020		$	438,921
Principal		$	123,736
Discount on Note issuance		$	11,472
Accrued interest expense		$	4,562
Derivative liability		$	98,787
Balance, November 30, 2020		$	677,478

 

The Company valued its derivatives liability using Monte Carlo simulation. Assumptions used as of November 30, 2020 include (1) risk-free interest rates of 0.08% - 0.10%, (2) expected equity volatility of 68.6% - 88.6%, (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 November 30, 2020.

 

The Company recognizes loss due to convertible feature of $163,372 in the income statement for the three months ended November 30, 2020.

 

The Holders converted convertible notes to common shares throughout Q1 of FY2021 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				5,284.50				5,154				—				10,439				1,000				—			$	0.00812				1,408,800
Total							5,284.50				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							33,294.51				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 principle 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				13,300.00				250				—				13,550				—				13,300			$	0.01020				1,328,431
September 25, 2020			13,300				13,300.00				129				—				13,429				—				—			$	0.00960				1,398,854
Total							26,600.00				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				25,671.15				—				—				25,671				—				15,329			$	0.01218				2,107,648
September 9, 2020			15,329				15,328.85				2,605				—				17,934				—				—			$	0.01020				1,758,257
Total							41,000.00				2,605				—				43,605				—				15,329								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				13,000.00				213				—				13,213				500				12,500			$	0.01020				1,344,363
October 6, 2020			12,500				12,500.00				38				—				12,538				500				—			$	0.00960				1,358,145
Total							25,500.00				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				6,400.00				—				—				6,400				1,250				14,467			$	0.00765				1,000,000
September 22, 2020			14,467				5,635.00				—				—				5,635				1,250				8,832			$	0.00765				900,000
October 1, 2020			8,832				7,750.00				—				—				7,750				1,250				1,082			$	0.00720				1,250,000
Total							19,785.00												19,785				3,750												3,150,000

 

NOTE 9 - 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 8). 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 zero, 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 zero, 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 zero, remaining contractual life of 4.86, 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 zero, remaining contractual life of 4.78, 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 zero, remaining contractual life of 4.90, 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 zero, remaining contractual life of 4.92, and an average expected volatility of 55.29%.

 

The Company exercised the following warrant shares to acquire common shares via cashless exercises throughout Q4 of FY2020 and Q1 FY 2021 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)	# of WTS Shares Elected for purchase (Y)	Common Shares to be issued upon exercise (X) = Y(A-B)/A
July 20, 2020	$   100,000	$  0.0300	250,358	250,000
July 21, 2020	92,489	$  0.0300	250,358	250,000
July 23, 2020	84,979	$  0.0300	250,358	250,000
July 29, 2020	77,468	$  0.0300	250,358	250,000
August 4, 2020	69,957	$  0.0300	250,358	250,000
August 11, 2020	62,446	$  0.0300	500,715	500,000
August 21, 2020	47,425	$  0.0300	500,715	500,000
August 25, 2020	32,403	$  0.0205	500,489	500,000
August 31, 2020	22,143	$  0.0205	500,489	500,000
September 9, 2020	11,883	$  0.0205	470,786	470,326
Total			3,724,982	3,720,326

 

 

Peak One warrant issued on July 30, 2020

 

Date of Exercise	Anti Dilution Value of Warrant Shares	Anti Dilution Base (Exercise) Price (B)	# of WTS Shares Elected for purchase (Y)	Common Shares to be issued upon exercise (X) = Y(A-B)/A
October 8, 2020	$75,000	0.01672	750,000	748,746
Total			750,000	748,746

 

 

 

EMA Financial warrant issued on January 17, 2020:

 

Date of Exercise	Anti Dilution Value of Warrant Shares	Anti Dilution Base (Exercise) Price (B)	# of WTS Shares Elected for purchase (Y)	Common Shares to be issued upon exercise (X) = Y(A-B)/A
September 8, 2020	$375,000	0.00812	2,400,002	2,398,856
September 14, 2020	355,512	0.00812	2,950,000	2,948,951
September 22, 2020	331,558	0.00812	3,400,000	3,397,239
September 25, 2020	303,950	0.00812	3,600,000	3,597,077
October 1, 2020	274,718	0.00812	4,150,000	4,146,630
October 12, 2020	241,020	0.00812	4,600,000	4,594,254
October 19, 2020	203,668	0.00812	4,800,000	4,794,004
October 29, 2020	164,692	0.00812	5,200,000	5,179,097
November 5, 2020	122,468	0.00812	5,500,000	5,425,567
November 11, 2020	77,808	0.00812	5,700,000	5,592,363
November 20, 2020	31,524	0.00812	3,882,264	3,777,184
Total			46,182,266	45,851,221

 

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, 2020 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 at August 31, 2020			793,920				68,163,661
Warrants granted			—				—
Exercised, forfeited or expired			(169,320	)			(63,782,348)
Outstanding at November 30,2020			624,600				4,381,313
Exercisable at November 30, 2020			624,600				4,381,313

 

 

 

The following table summarizes information about the Company’s warrants as of November 30, 2020:

 

Warrants outstanding																			Warrants exercisable
			Exercise price(1)				Anti-dilution Adjusted Number outstanding(2)				Weighted average remaining contractual life (in years)				Weighted average exercise price				Number exercisable				Weighted average exercise price
Peak One Opportunity		$	0.01426				4,381,313				4.67			$	0.01426				4,381,313			$	0.01426
Total							4,381,313				4.67			$	0.01426				4,381,313			$	0.01426

 

(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 10 - 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, 2020 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, 2020 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)				Fair value at November 30, 2020
Derivative liabilities		$	—			$	—			$	163,372			$	163,372

 

 

		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		$	163,372

 

NOTE 11– 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, 2020 and August 31, 2020, there are no such related party transactions.

 

The Company has entered into a patent license agreement with a related party Guangzhou Shengshituhua Film and Television Company Limited (“Licensor”). 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, 2020 and 2019 are $15,360 and $14,848, respectively.

 

Youall Perform Services Ltd, owned by the Company’s Board of Director Jianli Deng, has been collecting revenue on behalf of the Company from the performance matching platform “Ai Bian Quan Qiu”. As of November 30, 2020, the Company has $1,439 related party receivable from Youall Perform Services Ltd for the revenue collected from “Ai Bian Quan Qiu” on behalf of the Company.

 

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 “Ai Bian Quan Qiu” 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 contract related signing date of July 31, 2020.

 

The Company rented an office from Zestv Studios Ltd., owned by the Chief Executive Officer Chiyuan Deng, and incurred a total related party payable of $5,504 as there is a one-month lag in payment of the office rent.

 

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 USD, Ms. 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. In addition, Mr. Deng, Ms. Yu, and Mr. Deng 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 30, 2020, $45,000 was paid to Chief Executive Officer and $ 6,250 was paid to Chief Financial Officer. 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. 

 

NOTE 12– EQUITY

 

The Company has 124,346,838 and 46,661,417 shares issued and outstanding as of November 30, 2020 and August 31, 2020, respectively. These common shares were held by approximately 522 and 520 shareholders of record at November 30, 2020 and August 31, 2020, respectively. The Company has 100,000 and 0 series A preferred shares issued and outstanding as of November 30, 2020 and August 31, 2020, respectively.

 

 The Company has the following equity activities during the year ended August 31, 2020:

 

Common shares

 

•

10,000,000 common shares issued at $0.035 per share to five unrelated parties for proceeds of $350,000 during Q4, FY2020. The five unrelated parties include All In One Media Limited, Capitalive Holdings Limited,KangDi Liu, Yilin Liu, and Zestv Features Limited.

 

•

11,000,000 common shares issued at $0.0205 per share to five unrelated parties for proceeds of $225,500 during Q4, FY2020. The five unrelated parties include All In One Media Limited, KangDi Liu, Mingpeng Ou , Weishan Jian , Xinyang Liu.

 

•

18,014,401 common shares issued from note conversions for total proceeds of $309,894. Please refer to Note 8 for detailed conversion price.

 

•

3,250,000 common shares issued from warrant exercise at $0.03 and $0.0205 per share for total proceeds of $43,247 during Q4, FY 2020.

 

•

425,000 restricted common shares cancelled due to the resignations of Secretary and Treasurer, Chief Marketing Officer, and Chief Operating Officer, who received these shares from the upfront issuances of restricted shares as stock-based compensation upon inauguration.

 

 Put shares (common shares)

 

•

On July 30, 2020, the Company entered into an Equity Purchase Agreement (the “Financing Agreement”) with Peak One. Although the Company is not mandated to sell shares under the Financing Agreement, the Financing Agreement gives the Company the option to sell to Peak One, up to $10,000,000 worth of its 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.

 

•

The Company will not receive any proceeds from the sale of the shares of our common stock by Peak One. However, the Company will receive proceeds from our initial sale of shares to Peak One pursuant to the Financing Agreement. The Company will sell shares to Peak One at a price equal to 88% of the Market price. The Market price is the lesser of the lowest closing bid price immediately preceding the put date, or the lowest closing bid price of our common stock during the ten (10) consecutive trading day period beginning on the date on which we deliver a put notice to Peak One.

 

 

Warrant shares

 

•

During FY2020 the Company issued six five-year warrants to purchase up to 803,920 shares of common stock at an exercise price of $10.00 per share, $12.50 per share, or $0.1 per share. The exercise prices for all the warrants are subject to anti-dilution adjustments. Refer to Note 9 for further details.

•

Peak One Opportunities exercised approximately 90% of the 10,000 warrant shares issued on December 9, 2019.

 

The Company has the following equity activities during the three months ended November 30, 2020:

 

Common shares

 

	•	The Company issued 25,406,238 shares of common stock from note conversion. Refer to Note 8 for further details.
	•	The Company issued 47,070,294 shares of common stock from warrant exercises. Refer to Note 9 for further details.
	•	261,111 shares of common stock returned to the Company due to officer resignations.
	•	The Company issued 5,470,000 shares of put shares for cash at $0.015312 or $0.014256 per share.

 

Warrant shares

 

•

The Company canceled 13,920 warrant shares with Crown Bridge and Armanda Partners. .

•

Peak One Opportunities exercised the remaining 10% of the 10,000 warrant shares issued on December 9, 2019 and 17% of the 750,000 warrant shares issued on July 30, 2020.

•

EMA Financial exercised all 30,000 warrant shares issued on January 17, 2020. .

 

Preferred shares

 

The Company authorized 10,000,000 shares of preferred shares and issued 100,000 shares of Series A Preferred shares at par value $0.001 during the three months ended November 30, 2020.

 

NOTE 13– 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 November 30, 2020 and August 31, 2020:

 

		November 30, 2020				August 31, 2020
Deferred tax asset attributable to:
Net operating loss carry over		$	514,936			$	447,765
Less: valuation allowance			(514,936	)			(447,765)
Net deferred tax asset		$	—			$	—

 

The valuation allowance for deferred tax assets was $514,936 as of November 30, 2020 and $447,765 as of November 30, 2019. 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, 2020 and August 31, 2020.

 

 

Reconciliation between the statutory rate and the effective tax rate is as follows for the three months ended November 30, 2020 and November 30, 2019:

 

		Three months ended
		November 30,
		2020				2019
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 three months ended November 30, 2020 and November 30, 2019, the Company and its subsidiary have incurred a loss of (525,454) and ($63,354), respectively. As a result, the Company and its subsidiary did not incur any income tax during the three months ended November 30, 2020 and November 30, 2019.

 

NOTE 14 – CONCENTRATION RISK

 

100% and 49% of revenue was generated from one customer during the three months ended November 30, 2020 and 2019, respectively.

 

100% of the account receivable balance was due from one customer as of November 30, 2020 and August 31, 2020.

 

NOTE 15 – COMMITMENTS AND CONTINGENCIES

 

Operating lease 

 

The Company leases office premises in Hong Kong, a display store in Hong Kong and another office in New York city under non-cancelable operating lease agreements with an option to renew the lease. The Company closed down the display store due to the COVID-19 impact and uncertainties of the economy in Hong Kong. The lease agreement for the display store, which has the original term of February 23, 2019 to February 22, 2022, was terminated on November 22, 2020. The cash lease expense for the three months ended November 30, 2020 and 2019 was $26,681 and $20,045, respectively. All leases are on a fixed payment basis. None of the leases include contingent rentals. The Company had lease commitment of $108,868 as of November 30, 2020, of which $81,348 was within one year.

 

In accordance with ASC 250-10-45-14, the adoption of ASC 842 lease accounting standard has resulted in $27,871 lease expenses for the three months ended November 30, 2020. 

 

As of November 30,		Commitments
2021		$	81,348
2022		$	27,520
Total Lease Payments		$	108,868
Less: imputed interest		$	(2,500	)
Present value of lease liabilities		$	106,368
Current portion of obligations under operating leases		$	79,075
Obligations under operating leases, non-current		$	27,293

 

 

NOTE 16 – SUBSEQUENT EVENTS  

 

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to November 30, 2020 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 payment for terminated warrants:

 

On December 1, 2020, AB International paid Crown Bridge $75,000 to cancel the 9,720 warrants with Crown Bridge Partners LLC (“Crown Bridge”).

 

Video streaming website launch:

 

The video streaming website www. ABQQ.tv is officially launched on December 29, 2020. The website will generate revenue from subscriptions and advertisements,

 

Prepayments for convertible notes:

 

On December 9, 2020, the Company prepaid two convertible promissory notes held by accredited investors, including a January 8, 2020 convertible note with Crown Bridge Partners LLC (“Crown Bridge”) for a total principal amount of $121,500 and a July 17, 2020 convertible note with EMA Financial for a total principal amount of $50,000. Crown Bridge had already converted the initial first tranche principal tranche of $40,500 into common shares and the Company prepaid $72,500 to pay off the remaining second tranche principal balance of $40,500 plus accrued but unpaid interest. For the EMA Financial convertible note, the Company prepaid $72,800 for all the principal of $50,000 plus accrued but unpaid interest.

 

The prepayments allowed the Company to remove and return to treasury 313,659,990 shares of our common stock that were previously under reserve with our transfer agent for note conversions. 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

 

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

 

Overview 

 

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.  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 shut down the Ai Bian Quan Qiu platform, which 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.

 

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 for an initial period of one year from October 1, 2017 to September 30, 2018, subject to a right to renew. 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. In October of 2019, the term of this sublicensing agreement was renewed and extended until December 31, 2021. 

 

 

Our License to the Technology generates revenue through sub-license monthly fees from a smartphone app on Android devices. This app was already existing and licensed at the time we acquired the Technology.

 

On April 22, 2020, the Company has announced the first phase development of a video streaming service. The online service will be marketed and distributed in the world under the brand name ABQQ.tv. ABQQ.tv is expected to generate a new and profitable revenue stream derived from its hybrid subscription and advertising business model. We launched the video streaming service at the end of 2020 and the service now feature Chinese movies, television shows and drama series with unique content and exclusive to the company. We expect to have a channel called “ABQQTV” running on the YouTube platform in near future and Netflix as well.

 

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.

 

Results of Operations

 

Revenues 

 

Our total revenue reported for the three months ended November 30, 2020 was $76,800, compared with $156,405 for the three months ended November 30, 2019.

 

100% and 49% of revenue was generated from one customer during the three months ended November 30, 2020 and November 30, 2019, respectively.

 

 

The decrease in revenue for the three months ended November 30, 2020 over the three months ended November 30, 2019 is attributable to the cease in operation of the Ai Bian Quan Qiu platform caused by COVID 19.

 

We expect to achieve increasing revenues within the coming months especially with respect to our streaming products. However, we have limited operating history to rely upon and in the face of a worldwide pandemic, we cannot guarantee that our business plan will be successful. Management notes that its decision to accelerate the development and launch date of its video streaming service was largely also in part to the mandatory quarantines being implemented due to the COVID-19 pandemic, which has increased viewership of video streaming services and the Internet by as much as 70% over the course of the past several weeks. We launched our streaming service at the end of 2020.

 

Our cost of revenues was $156,086 for the three months ended November 30, 2020, as compared with $52,046 for the three months ended November 30, 2019.

 

As a result, we had gross loss of $(79,286) for the three months ended November 30, 2020, as compared with gross profit of $104,359 for the three months ended November 30, 2019.

The reason for the decrease in our gross profit margin in 2020 over 2019 is attributable to the cease in operation of the Ai Bian Quan Qiu platform, which 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.

 

Operating Expenses 

 

Operating expenses increased to $237,496 for the three months ended November 30, 2020 from $202,116 for the three months ended November 30, 2019.

 

Our operating expenses for three months ended November 30, 2020 consisted of general and administrative expenses of $231,146 and related party salary and wages of $6,350. In contrast, our operating expenses for the three months ended November 30, 2019 consisted of general and administrative expenses of $155,743 and related party salary and wages of $46,373.

 

We experienced an increase in general and administrative expenses in 2020 over 2019, mainly as a result of increased rent, salaries, valuation fees, consulting fees, issuance expense for convertible notes, 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 our online operations will increase, as we use online working systems to monitor and communicate with employees, consultants and suppliers. These and other costs for COVID expenditures will increase our operational costs in 2021 at various levels of operation.

 

Other Income (Expenses)

 

We had other expenses of $208,672 for the three months ended November 30, 2020, as compared with other income of $34,404 for the three months ended November 30, 2019. Our other expenses in 2020 were mainly the result of interest expense and loss from the change in fair value. Our other income for 2019 was the result of interest income from the note receivables.

 

 

Net (Loss) Income

 

We incurred a net loss in the amount of $525,454 for the three months ended November 30, 2020, as compared with a net loss of $63,353 for the three months ended November 30, 2019. 

 

Liquidity and Capital Resources

 

As of November 30, 2020, we had $1,079,751 in current assets consisting of cash, prepaid expenses, accounts receivable and related party receivables. Our total current liabilities as of November 30, 2020 were $1,039,764. As a result, we have working capital of $39,987 as of November 30, 2020.

 

Operating activities used $336,973 in cash for the three months ended November 30, 2020, as compared with $769,672 provided in cash for the same period ended November 30, 2019. Our negative operating cash flow in 2020 was mainly the result of our long-term prepayment of $ 213,333 and our net loss of $ 525,454. Our positive operating cash flow in 2019 was mainly the result of a $1,280,000 receivable on asset disposal.

 

Investing activities used $1,413,000 in cash for the three months ended November 30, 2020, as compared with $1,049,600 used for the three months ended November 30, 2019. Our negative investing cash flow for November 30, 2020 was the result of the purchase of furniture and equipment. Our negative investing cash flow for November 30, 2019 was the result of proceeds from a note receivable.

 

Financing activities provided $313,885 for the three months ended November 30, 2020, as compared with $0 used in financing activities for the nine months ended November 30, 2019. Our positive financing cash flow for November 30, 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 November 30, 2020, there were no off-balance sheet arrangements.

 

Critical Accounting Policies

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 

Our critical accounting policies are set forth in Note 2 to the financial statements.

  

 

Recently Issued Accounting Pronouncements

 

We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

We are a smaller reporting company and are not required to provide the information under this item pursuant to Regulation S-K.

  

Item 4.  Controls and Procedures

 

Disclosure Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of October 31, 2018. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of November 30, 2020, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of November 30, 2020, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

 

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

 

Our company plans to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending August 31, 2021: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the three months ended November 30, 2020 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

Limitations on the Effectiveness of Internal Controls

 

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error.   Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any material pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A: Risk Factors

 

See Risk Factors contained in our Form 10-K filed with the SEC on December 9, 2020.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Common shares

 

	•	The Company issued 25,406,238 shares of common stock from note conversion during the three months ended November 30, 2020.
	•	The Company issued 47,070,294 shares of common stock from warrant exercises during the three months ended November 30, 2020
	•	The Company issued 5,470,000 shares of put shares for cash at $0.015312 or $0.014256 per share under an Equity Purchase Agreement during the three months ended November 30, 2020.

 

Preferred shares

 

The Company authorized 10,000,000 shares of preferred shares and issued 100,000 shares of Series A Preferred shares at par value $0.001 during the three months ended November 30, 2020.

 

These securities were issued pursuant to Section 4(2) of the Securities Act and/or Rule 506 promulgated thereunder. The holders represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising. We directed our transfer agent to issue the stock certificates with the appropriate restrictive legend affixed to the restricted stock.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

N/A

 

Item 5. Other Information

 

None

 

Item 6. Exhibits
Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended November 30, 2020 formatted in Extensible Business Reporting Language (XBRL).
	**Provided herewith

  

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on the dates below on its behalf by the undersigned thereunto duly authorized.

 

AB INTERNATIONAL GROUP CORP.

 

 

By:	/s/ Chiyuan Deng
	Chief Executive Officer, Principal Executive Officer, and Director
	January 15, 2021

 

By:	/s/ Brandy Gao
	Chief Financial Officer, Principal Financial Officer, Principal Accounting Officer and Director
	January 15, 2021