Our unaudited consolidated financial statements included
in this Form 10-Q are as follows:
The accompanying notes are an integral
part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE
1 – BASIS OF PRESENTATION
The accompanying unaudited consolidated financial
statements of AB International Group Corp. (the “Company”) have been prepared in accordance with accounting principles generally
accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article
8 of Regulation S-X of the Securities Exchange Commission. Certain information and footnote disclosures normally included in consolidated
financial statements have been omitted pursuant to such rules and regulations. The consolidated balance sheet as of August 31, 2022 derived
from the audited consolidated financial statements at that date, but does not include all the information and footnotes required by GAAP.
These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2022.
The unaudited consolidated financial statements as
of and for the three months ended November 30, 2022 and 2021, in the opinion of management, include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition, results of operations
and cash flows. The results of operations for the three months ended November 30, 2022 and 2021 are not necessarily indicative of the
results to be expected for any other interim period or for the entire year.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The financial statements have been
prepared on a consolidated basis, with the Company’s fully owned subsidiary App Board Limited and AB Cinemas NY, Inc. All intercompany
balances and transactions have been eliminated in consolidation.
Use
of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial
statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Accounts
receivable
Accounts receivable are presented at invoiced
amount net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The
Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability
of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including
the age of the balance, customer’s payment history, its current credit-worthiness and current economic trends. Accounts are written
off after efforts at collection prove unsuccessful. No
allowance was recorded for the three months ended November 30, 2022 and 2021.
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Impairment
of Long-lived asset
The Company
evaluates its long-lived assets or asset group, including intangible assets with indefinite and finite lives, for impairment. Intangible
assets with indefinite lives that are not subject to amortization are tested for impairment at least annually or more frequently if events
or changes in circumstances indicate that the assets might be impaired in accordance with ASC 350. Such impairment test compares the
fair values of assets with their carrying values with an impairment loss recognized when the carrying values exceed fair values. For
long-lived assets and intangible assets with finite lives that are subject to depreciation and amortization are tested for impairment
whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use
of the assets) indicate that the carrying amount of an asset or a group of long-lived assets may not be recoverable. When these events
occur, the Company evaluates impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected
to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than
the carrying amount of the assets, the Company would recognize an impairment loss based on the excess of the carrying amount of the asset
group over its fair value. Impairment losses are included in the general and administrative expense. There was no
impairment loss during the three months ended November 30, 2022 and 2021, respectively.
Foreign
Currency Transactions
The financial risk arises from the
fluctuations in foreign exchange rates and the degrees of volatility in these rates. Currently the Company does not use derivative instruments
to reduce its exposure to foreign currency risk. Gains and losses from transactions of foreign currency into U.S. dollars are included
in current results of operations.
Revenue
Recognition
The Company adopted
ASC Topic 606, “Revenue from Contracts with Customers”, using the modified retrospective approach. ASC 606 establishes
principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s
contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer
of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange
for those goods or services recognized as performance obligations are satisfied.
To determine revenue recognition for contracts with
customers, the Company performs the following five steps: (i) identify the contract with the customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable
that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations
in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company derives its revenues primarily from
three sources: (1) selling copyrights of movies or TV shows; (2) licensing NFT MMM platform and providing technical service; (3) movie
theater admissions and food and beverage sales.
Revenue
from selling copyrights of movies or TV shows:
The Company recognizes revenue when master copy of
movie or TV show is delivered, the IP is authorized and transferred to customers. The Company’s contracts with customer are primarily
on a fixed-price basis and do not contain cancelable and refund-type provisions.
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Revenue Recognition (continued)
Revenue
from licensing NFT MMM platform and providing technical service fee:
The Company derives revenue from
NFTMM platform license fees, which includes accessing the NFTMM platform and platform data on both app and website. The Company's contract
has one year term, and is non-cancelable and non-refundable. In accordance with ASC 606, a 'right to access' license is recognized over
the license period. Initial technical service fee comprises of installation, implementation and necessary training required by the customer.
These services fees are recognized as the services are delivered at a point in time.
Revenue
from movie theater admissions and food and beverage sales:
The Company recognizes admission
revenues based on a gross transaction price. Admissions and food and beverage revenues are recorded at a point in time when a film is
exhibited to a customer and when a customer takes possession of food and beverage offerings. The Company defers 100% of the revenue
associated with the sales of gift cards and exchange tickets until such time as the items are redeemed or estimated income from non-redemption
is recorded.
Contract Assets and Liabilities
Payment terms are established on the Company’s
pre-established credit requirements based upon an evaluation of customers’ credit quality. Contact assets are recognized for in
related accounts receivable. Contract liabilities are recognized for contracts where payment has been received in advance of delivery.
The contract liability balance can vary significantly depending on the timing of when an order is placed and when shipment or delivery
occurs.
As of November 30, 2022 and August 31, 2022, other
than accounts receivable and deferred revenue, the Company had no material contract assets, contract liabilities or deferred contract
costs recorded on its consolidated balance sheets.
Fair
Value of Financial Instruments
ASC 820, “Fair Value Measurements”
(ASC 820) and ASC 825, “Financial Instruments” (ASC 825), requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent,
objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value
hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three
levels that may be used to measure fair value:
Level 1 – Level 1 applies to
assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 – Level 2 applies to
assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted
prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient
volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can
be derived principally from, or corroborated by, observable market data.
Level 3 – Level 3 applies to
assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of
the fair value of the assets or liabilities.
ASC 820 describes three main approaches
to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach. The market approach
uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities.
The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on
the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently
be required to replace an asset.
The carrying values of cash, accounts
payable, and accrued liabilities approximate fair value due to their short-term nature. The fair values of warrant liabilities and derivative
liabilities embedded in convertible notes are determined by level 3 inputs.
No
liabilities measured at fair value on a recurring basis as of November 30, 2022 and August 31, 2022.
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (Continued)
Basic
and Diluted Earnings (Loss) Per Share
The Company computes earnings per share (“EPS”)
in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital
structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average common shares
outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares (e.g., convertible
securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later.
Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are
excluded from the calculation of diluted EPS. As of November 30, 2022, the total number of warrants outstanding was 50,000,000.
No warrants were included in the diluted loss per share as they would be anti-dilutive.
Reclassification
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Recent
Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08,
“‘Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”
(“ASU 2021-08”). This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities
in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and
measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not
acquired in a business combination. The amendments are effective for the Company beginning after December 15, 2023, and are applied prospectively
to business combinations that occur after the effective date. The Company does not expect the adoption of ASU 2021-04 to have a material
effect on the consolidated financial statements.
The
Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material
effect on the Company’s consolidated balance sheets, statements of operations and statements of cash flows.
NOTE
3 – GOING CONCERN
The accompanying unaudited consolidated
financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization
of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of November 30, 2022, the Company
had an accumulated deficit of approximately $10.0
million and a working capital deficit of approximately $1.1
million. For the three months ended November 30, 2022, the Company incurred a net loss of approximately $1.2
million and the net cash used in operations was approximately $0.2
million. Losses have principally occurred as a result of the substantial resources required for general and administrative expenses
associated with our operations. The continuation of the Company as a going concern is dependent upon the continued financial support
from its stockholders or external financing. Management believes the existing stockholders will provide the additional cash to meet the
Company’s obligations as they become due. However, there is no assurance that the Company will be successful in securing sufficient
funds to sustain the operations.
These factors, among others, raise
the substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include
any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications
of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to
obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE
4 – SUBSCRIPTION RECEIVABLE
Subscription receivable is cash not
yet collected from the stockholders for issuance of common stock. As of November 30, 2022, the subscription receivable balance was $58,500.
The amount was subsequently received in December 2022.
NOTE
5 – PROPERTY AND EQUIPMENT
The Company capitalized the renovation
cost as leasehold improvement and the cost of furniture and appliances as fixed asset. Leasehold improvement relates to renovation and
upgrade of the leased office.
The depreciation expense was $1,116 and $13,300 for
the three months ended November 30, 2022 and 2021, respectively.
As of November 30, 2022 and August
31, 2022, the balance of property and equipment was as follows:
| | |
November
30, 2022 | |
August
31, 2022 |
| Leasehold improvement | |
$ | 146,304 | | |
$ | 146,304 | |
| Appliances and furniture | |
| 25,974 | | |
| 25,974 | |
| Total cost | |
| 172,278 | | |
| 172,278 | |
| Accumulated depreciation | |
| (160,699 | ) | |
| (159,583 | ) |
| Property and equipment,
net | |
$ | 11,579 | | |
$ | 12,695 | |
NOTE
6 – INTANGIBLE ASSETS
As of November 30, 2022 and August
31, 2022, the balance of intangible assets was as follows:
| | |
November
30, 2022 | |
August
31, 2022 |
| Movie copyrights - Love over the
world | |
$ | 853,333 | | |
$ | 853,333 | |
| Sitcom copyrights - Chujian | |
| 640,000 | | |
| 640,000 | |
| Movie copyrights - A story as a picture | |
| 422,400 | | |
| 422,400 | |
| Movie copyrights - Our treasures | |
| 936,960 | | |
| 936,960 | |
| Movie broadcast right- On the way | |
| 256,000 | | |
| 256,000 | |
| Movie copyrights - Too simple | |
| 1,271,265 | | |
| 1,271,265 | |
| Movie copyrights - Confusion | |
| 1,024,000 | | |
| 1,024,000 | |
| Movie copyrights - Amazing Data | |
| 300,000 | | |
| — | |
| Movie copyrights - Nice to meet you | |
| 300,000 | | |
| — | |
| TV drama copyright - 15 episodes | |
| 190,000 | | |
| 190,000 | |
| Movie and TV series broadcast rights | |
| 2,439,840 | | |
| 2,439,840 | |
| NFT MMM platform | |
| 280,000 | | |
| 280,000 | |
| Total cost | |
| 8,913,798 | | |
| 8,313,798 | |
| Accumulated amortization | |
| (5,439,015 | ) | |
| (4,515,516 | ) |
| Intangible assets,
net | |
$ | 3,474,783 | | |
$ | 3,798,282 | |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 6 – INTANGIBLE ASSETS
(Continued)
The amortization expense
for the three months ended November 30, 2022 and 2021 was $923,499
and $686,567,
respectively. Estimated future amortization expense is as follows:
| Twelve
months ending November 30, |
|
Amortization
expense |
| 2023 |
|
|
$ |
2,542,331 |
|
| 2024 |
|
|
|
932,452 |
|
| Total |
|
|
$ |
3,474,783 |
|
In
March 2022, the Company signed a purchase agreement with All In One Media Ltd to acquire the copyrights and broadcast rights for five
movies at a price of $1,500,000.
These copyrights and broadcast rights allow the Company to broadcast these movies outside the mainland China. On November 29, 2022, both
parties entered into an amended agreement to deliver the copyrights and broadcast rights of two movies (Amazing data and Nice to meet
you) to the Company on November 30, 2022 for a total price of $600,000.
As of August 31, 2022, $356,724
was paid and recorded as purchase deposit for
intangible asset. On November 30, 2022, the company received the copies of two movies. The purchase deposit of $356,724
was transferred to intangible assets and the
unpaid balance of $243,276
was recorded as accounts payable and was paid
in December 2022. Per amended agreement, the remaining three movies will be delivered upon receiving the payment of minimum $300,000
per movie from the Company before December 31, 2022. The agreement was terminated on December 31, 2022 due to the fact that the Company
did not make the payments for the remaining movies.
On August 6, 2022, the Company licensed NFT MMM platform
to a third party to allow the access of NFTMM platform and platform data on both app and website for one year starting from August 20,
2022 for a monthly license fee of $60,000.
The Company remains the ownership and copyright of the NFT MMM platform, including the APP “NFT MMM” on Google Play, and
the website: starestnet.io. For the three months ended November 30, 2022, the Company recognized license revenue of $180,000.
NOTE
7 – LEASES
The Company leased certain office space in Hong Kong
from Zestv Studios Limited, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng, under operating lease for three
years from May 1, 2019 to April 30, 2022 with annual rental of $66,048
(HKD 516,000). On May 1, 2022, the Company signed a new operating lease agreement with Zestv Studios Limited to lease its Hong
Kong office premise for two
years from May 1, 2022 to April 2024 with annual rental of $66,048
(HKD 516,000).
The Company also leased an office space in Singapore
under operating lease from April 13, 2021 to March 31, 2022 with monthly rental of $716
(SGD 974), and an office space at 48 Wall Street, New York, under operating lease for one
year from September 1, 2021 to August 31, 2022 with annual rental of $20,400.
The Company has renewed the lease of its New York office space for one
year from September 1, 2022 to August 31, 2023 with renewed annual rental of $22,440.
On October 21, 2021, the Company signed a lease agreement
to lease “the Mt. Kisco Theatre”, a movie theater, for five
years plus the free rent period which commences four months from the lease commencement date. The theatre consists of approximately
8,375 square feet, and the total monthly rent is $14,366
for the first year, including real estate related taxes and landlord’s insurance.
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 7 – LEASES (Continued)
Total lease expense for the three months ended November
30, 2022 and 2021 was $68,771
and $58,093, respectively. All
leases are on a fixed payment basis. The Company’s lease agreements do not contain any material residual value guarantees or material
restrictive covenants. Supplemental balance sheet information related to operating leases was as follows:
| | |
November
30, 2022 | |
August
31, 2022 |
| | |
| |
|
| Right-of-use assets, net | |
$ | 938,281 | | |
$ | 1,004,018 | |
| | |
| | | |
| | |
| Operating lease liabilities - current | |
$ | 230,618 | | |
$ | 229,813 | |
| Operating lease liabilities - non-current | |
| 805,187 | | |
| 863,145 | |
| Total operating lease liabilities | |
$ | 1,035,805 | | |
$ | 1,092,958 | |
The weighted average remaining lease terms was 3.90
years as of November 30, 2022.
The following is a schedule of maturities of lease liabilities are as
follows:
| Twelve months ending November 30, |
|
|
| 2023 |
|
|
$ |
238,444 |
|
| 2024 |
|
|
|
262,728 |
|
| 2025 |
|
|
|
251,748 |
|
| 2026 |
|
|
|
256,642 |
|
| 2027 |
|
|
|
42,910 |
|
| Total future minimum lease payments |
|
|
|
1,052,472 |
|
| Less: imputed interest |
|
|
|
(16,667 |
) |
| Total |
|
|
$ |
1,035,805 |
|
NOTE
8 – PURCHASE DEPOSITS FOR INTANGIBLE ASSETS
The balance of purchase
deposits for intangible assets which relates to the acquisition of copyrights and broadcast rights for movies and TV drama was as follows:
| | |
November
30, 2022 | |
August
31, 2022 |
| | |
| |
|
| Purchase deposit for 25-episode TV drama | |
$ | 525,000 | | |
$ | 525,000 | |
| Purchase deposit for movies | |
| — | | |
| 356,724 | |
| Total purchase deposits for intangible
assets | |
$ | 525,000 | | |
$ | 881,724 | |
| |
• |
In March
2022, the Company signed a purchase agreement with Anyone Pictures Limited to acquire the copyright to broadcast a 25-episode TV
drama series outside of mainland China at a price of $525,000.
The full episode is
expected to be delivered to the Company at the end of March 2023. |
| |
• |
In March
2022, the Company signed a purchase agreement with All In One Media Ltd to acquire the copyrights and broadcast right for five movies
at a price of $1,500,000.
These copyrights and broadcast rights allow the Company to broadcast these movies outside the mainland China. As of August 31, 2022,
the Company made total payments of $356,724. The
balance was transferred to intangible asset on November 30, 2022 upon receiving the copyrights. (See
Note 6) |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 9– RELATED PARTY
TRANSACTIONS
Due to stockholders
In support of the Company’s
efforts and cash requirements, it may rely on advances from stockholders until such time that the Company can support its operations
or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued
support by stockholders. Amounts due to stockholders represent advances or amounts paid in satisfaction of liabilities. The advances
are considered temporary in nature and have not been formalized by a promissory note.
Chiyuan Deng, the Chief
Executive Offer, and Jianli Deng, the Chief Financial Officer, as the Company’s stockholders, make advances periodically to the
Company for working capital purpose. These loans are non-interest bearing and due on demand.
As of November 30, 2022
and August 31, 2022, the Company had due to stockholders’ balance of $378,582
and $377,398, respectively.
Due to related party - Youall
Perform Services Ltd.
Youall Perform Services
Ltd is owned by Jianli Deng, the Chief Financial Officer. In September 2019, the Company entered into an agreement with Youall Perform
Services Ltd for two transactions. 1) The Company pays Youall Perform Services Ltd. 10% of
the revenue generated from the “Ai Bian Quan Qiu” platform every month to reimburse the valued-added tax, tax surcharges,
and foreign transaction fee Youall Perform Services Ltd. has been paying on behalf of the Company. 2) Youall Perform Services Ltd. will
provide IT consulting service for “Ai Bian Quan Qiu” platform upgrade and maintenance at a total cost of $128,000,
out of which $108,800
has been paid. As there has been no revenue from the “Ai Bian Quan Qiu” platform
due to COVID-19 since mid-January, 2020, $108,800 prepayment
was expensed as research and development expense in FY2020. In July 2020, the Company changed the service scope of this agreement and
turned it into a two-year website maintenance contract to maintain the website ABQQ.TV which was launched on December 29, 2020. The website
maintenance service began on January 1, 2021 and will end on December 31, 2022. The contract amount remains to be $128,000,
out of which $108,800 was
previously paid and $19,200 was
scheduled to be due on the twenty
first month of service term. During the three months ended November 30, 2022, the Company
made payment of $12,812
with the payable balance to Youall Perform Services Ltd of $6,388
included in accounts payable and accrued liabilities in consolidated balance sheet
as of November 30, 2022.
Due to related party
- Zestv Studios Limited
On December 1, 2020, the
Company entered an agreement with Zestv Studios Limited, a Hong Kong entity 100% owned by the Chiyuan Deng, the Chief Executive Officer,
to grant Zestv Studios Limited the distribution right for the movie “Love over the world” and charge Zestv Studios Limited
movie royalties. The Company’s royalty revenue is stipulated to equal 43% of the after-tax movie box office revenue deducting movie
issuance costs. The movie box office revenue is tracked by a movie distributor Huaxia Film Distribution Co. Ltd (hereafter “Hua
Xia”) in China as it connects with all movie theaters in China and can track the total movie box office revenue online in real
time. Although Zestv Studios Limited has paid royalty revenue to the Company, Zestv Studios Limited failed to collect cash from Hua Xia.
As of August 31, 2021, the Company had refund payable of $916,922 for the movie royalty revenue net of the movie distribution commission
fee to Zestv Studios Limited.
On June 23, 2022, the Company sold the mainland China
copyright and broadcast right of the movie “Too Simple” to Zestv Studios Limited for a price of $750,000. The Company remains
to have all copyright of outside of mainland China. The Company used this proceed to off-set the refund payable balance to Zestv Studios
Limited with additional payment of $151,795 during the year ended August 31, 2022. The Company further paid $5,127 during the three months
ended November 30, 2022.
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 9– RELATED PARTY TRANSACTIONS (Continued)
Due to related party
- Zestv Studios Limited (continued)
As of November 30, 2022 and August 31, 2022, the
Company had balance of $10,000 and $15,127 payable to Zestv Studios Limited, respectively.
The Company also rented an office space from Zestv
Studios Limited (See Note 7). For the three months ended November 30, 2022 and 2021, the Company incurred related party office rent expense
of $16,512 and $16,512, respectively.
Executives’ salaries
On September 11, 2020
and May 24, 2022, the Company entered into two amended employment agreements with Chiyuan Deng, the Chief Executive Officer. Pursuant
the amended agreements, the Company amended the compensation to Mr. Deng to include a salary of $180,000 annually, a reduction
in common stock received under his initial employment agreement, a potential for a bonus in cash or shares, and the issuance of 100,000 shares
of Series A Preferred Stock at par value $0.001. Mr. Deng returned 266,667 shares common
stock to the Company received under his initial employment agreement.
During the three months ended November
30, 2022 and 2021, the Company incurred total compensation of $51,000 and $51,250, respectively, for Chief Executive Offer and Chief
Financial Officer. The Company also incurred total compensation of $19,500 and $23,250, respectively, for Chief Investment Officer during
the three months ended November 30, 2022 and 2021.
NOTE
10 – STOCKHOLDERS’ EQUITY
Common shares
The Company had the following activities
during the three months ended November 30, 2022:
Increasing authorized number of common shares
On October 11, 2022, the Company filed amendment
to Articles of Incorporation to increase the authorized number of common shares from 1,000,000,000
shares to 10,000,000,000 shares. This
increasing of authorized number of common shares has been retroactively reflected in the consolidated financial statements and notes
thereto.
Conversion of Series C preferred shares to common
shares
During the three months ended November 30, 2022,
the Company issued total 75,037,786
common shares as the result of the conversion of total 96,075
Series C preferred shares.
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 10 – STOCKHOLDERS’
EQUITY (Continued)
Common shares (continued)
Subscription of Common shares
On August 2, 2022, the Company entered into a common
stock purchase agreement with Alumni Capital LP, a Delaware limited partnership. Pursuant to the agreement, Alumni Capital LP shall purchase
$1.0
million of common stocks as per the Company’s discretions after a Registration Statement is declared effective by the Securities
and Exchange Commission. The
purchase price is number of common stocks in a Purchase Notice issued by the Company multiplied by 75% of the lowest traded price of
the Common Stock five Business Days prior to the Closing, which is no later than five business days after the Purchase Notice Date.
The Company plans to use the proceeds from the sale
of the common stocks for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other
purposes that the Board of Directors, in good faith deem to be in the best interest of the Company. The registration of these securities
was effective on September 13, 2022.
Pursuant
to this agreement, during the
three months ended November 30, 2022, Alumni Capital LP subscribed total of 200,000,000 common shares for total proceeds of $146,475,
of which $87,975 was received in the three months ended November 30, 2022 and $58,500 was received by the Company in December 2022.
As of November 30, 2022 and August
31, 2022, the Company had 659,550,369 and 384,512,583 common shares issued and outstanding, respectively.
Preferred shares
The Company had the following activities
during the three months ended November 30, 2022:
On September 6, 2022, the Company
entered into a securities purchase agreement with an accredited investor, whereby investor purchased from the Company 90,275 shares of
Series C Convertible Preferred Stock of the Company for a gross proceed of $78,500. After deduction of transaction-related expenses,
net proceed to the Company was $69,000. The Company intends to use the proceeds from the Preferred Stock for general working capital
purposes.
The Company recorded dividend expenses
of $5,765 and $1,511 on Series C and D Preferred shares for the three months ended November 30, 2022 and 2021, respectively.
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 11 – INCOME TAXES
The
Company and its fully owned subsidiary, AB Cinemas NY, Inc, were incorporated in the United States and are subject to a statutory income
tax rate at 21%.
The Company’s fully owned subsidiary, App Board
Limited, was registered in Hong Kong and is subject to a statutory income tax rate at 16.5%.
As
of November 30, 2022 and August 31, 2022, the components of net deferred tax assets, including a valuation allowance, were as follows:
| | |
November
30, 2022 | |
August
31, 2022 |
| Deferred tax asset attributable to: | |
| | | |
| | |
| Net operating loss carry over | |
$ | 1,581,049 | | |
$ | 1,328,204 | |
| Less: valuation allowance | |
| (1,581,049 | ) | |
| (1,328,204 | ) |
| Net deferred tax asset | |
$ | — | | |
$ | — | |
The valuation allowance
for deferred tax assets was $1,581,049
and $1,328,204 as
of November 30, 2022 and August 31, 2022, respectively. In assessing the recovery of the deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible.
Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies
in making this assessment. As a result, management determined it was more likely than not the deferred tax assets would not be realized
as of November 30, 2022 and August 31, 2022.
Reconciliation between the statutory rate and
the effective tax rate is as follows for the three months ended November 30, 2022 and 2021:
| |
|
|
|
|
|
|
|
|
| | |
Three months ended |
| | |
November
30, |
| | |
2022 | |
2021 |
| Federal statutory tax rate | |
| 21 | % | |
| 21 | % |
| Change in valuation
allowance | |
| (21 | %) | |
| (21 | %) |
| Effective tax rate | |
| 0 | % | |
| 0 | % |
During the three months ended November
30, 2022 and 2021, the Company and its subsidiaries incurred net losses. As a result, the Company and its subsidiaries did not incur
any income tax during the three months ended November 30, 2022 and 2021.
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 12
– CONCENTRATION RISK
Concentration
For the three months ended November
30, 2022, 76% of
the total revenue was generated from one customer. No
revenue was generated for the three months ended November 30, 2021.
As of November 30, 2022, one customer
accounted for 100%
of the Company’s accounts receivable balance. There was no
accounts receivable balance as of August 31, 2022.
Credit risk
Financial instruments that potentially subject the
Company to significant concentrations of credit risk consist primarily of cash. The Hong Kong Deposit Protection Board pays compensation
up to a limit of HKD 500,000 (approximately $64,000)
if the bank with which an individual/a company hold its eligible deposit fails. As of November 30, 2022 and August 31, 2022, cash balance
of $1,615 and $70,602,
respectively, were maintained at financial institutions in Hong Kong, and were subject to credit risk. In the US, the insurance coverage
of each bank is $250,000. As of November 30, 2022
and August 31, 2022, cash balance of $17,977
and $13,621,
respectively, were maintained at financial institutions in the US, and were subject to credit risk. While management believes that these
financial institutions are of high credit quality, it also continually monitors their creditworthiness.
NOTE 13
– COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company may be involved in
litigation relating to claims arising out of its operations in the normal course of business. There is no pending or threatened lawsuits
that could reasonably be expected to have a material effect on the results of its operations and there are no proceedings in which any
of the Company’s directors, officers, or affiliates, or any registered or beneficial stockholder, is an adverse party or has a
material interest adverse to the Company’s interest.
Operating leases
The Company has several lease agreements to rent
office spaces and movie theatre with its related party and third-party vendors. (See Note 7)
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 14 – SEGMENT INFORMATION
The Company reports information about operating segments
in accordance with ASC 280-10, Segment Reporting, which requires financial information to be reported based on the way management organizes
segments within a company for making operating decisions and evaluating performance. As the result of business strategic changes, the
Company has identified two reportable segments: Copyrights and license (“IP’) segment and cinema segment.
The following table presents summary information
by segment for the three months ended November 30, 2022 and 2021, respectively.
NOTE 14 - SEGMENT INFORMATION - Schedule of Operating Activities by Segment (Details)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
IP
Segment |
|
Cinema
Segment |
|
Total |
| |
|
Three
months ended |
|
Three
months ended |
|
Three
months ended |
| |
|
November
30 |
|
November
30 |
|
November
30 |
| |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
2022 |
|
2021 |
| Revenue |
|
$ |
180,000 |
|
$ |
— |
|
$ |
56,812 |
|
$ |
— |
|
$ |
236,812 |
|
$ |
— |
| Cost of revenue |
|
|
923,499 |
|
|
686,567 |
|
|
22,404 |
|
|
— |
|
|
945,903 |
|
|
686,567 |
| Gross income (loss) |
|
|
(743,499) |
|
|
(686,567) |
|
|
34,408 |
|
|
— |
|
|
(709,091) |
|
|
(686,567) |
| Interest Expenses |
|
|
79 |
|
|
— |
|
|
— |
|
|
— |
|
|
79 |
|
|
— |
| Depreciation |
|
|
1,116 |
|
|
13,300 |
|
|
— |
|
|
— |
|
|
1,116 |
|
|
13,300 |
| Capital expenditure |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
| Segment assets |
|
|
4,279,487 |
|
|
6,738,733 |
|
|
863,616 |
|
|
— |
|
|
5,143,103 |
|
|
6,738,733 |
| Segment income (loss) |
|
$ |
(1,174,772) |
|
$ |
(1,052,045) |
|
$ |
(35,018) |
|
$ |
— |
|
$ |
(1,209,790) |
|
$ |
(1,052,045) |
NOTE 15 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed
its operations subsequent to the date these financial statements were issued.
Conversion of Series C preferred shares to
common shares
On December 16, 2022, the Company issued 32,900,000
common shares for the conversion of 16,450 Series C preferred shares.
Loan provided by the shareholder
On December 21, 2022 and January 13, 2023, Chiyuan
Deng, the Chief Executive Offer, provided loans of $384,000 and $128,000, respectively, to the Company for working capital purpose. These
loans are non-interest bearing and due on demand.