UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the quarterly
period ended
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Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from __________ to__________
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| Commission
File Number: |
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.) |
(Address of principal executive offices)
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| ( | |
| (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]
Indicate by check mark
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such fi les). [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| ☐ Large accelerated filer | ☐ Accelerated filer |
| ☒ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ] Yes [X]
State the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practicable date: common shares as of July 12, 2024.
| 1 |
| TABLE OF CONTENTS | ||
| Page | ||
PART I – FINANCIAL INFORMATION
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| Item 1: | Financial Statements (Unaudited) | 3 |
| Item 2: | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 4 |
| Item 3: | Quantitative and Qualitative Disclosures About Market Risk | 9 |
| Item 4: | Controls and Procedures | 9 |
PART II – OTHER INFORMATION
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| Item 1: | Legal Proceedings | 10 |
| Item 1A: | Risk Factors | 10 |
| Item 2: | Unregistered Sales of Equity Securities and Use of Proceeds | 10 |
| Item 3: | Defaults Upon Senior Securities | 10 |
| Item 4: | Mine Safety Disclosures | 10 |
| Item 5: | Other Information | 10 |
| Item 6: | Exhibits | 10 |
| 2 |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Our unaudited consolidated financial statements included in this Form 10-Q are as follows:
| F-1 | Consolidated Balance Sheets as of May 31, 2024 and August 31, 2023 (unaudited); |
| F-2 | Consolidated Statements of Operations for the three and nine months ended May 31, 2024 and 2023 (unaudited); |
| F-3 | Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended May 31, 2024 and 2023 (unaudited); |
| F-4 | Consolidated Statements of Cash Flows for the nine months ended May 31, 2024 and 2023 (unaudited); and |
| F-5 | Notes to Consolidated Financial Statements (unaudited) |
| 3 |
AB INTERNATIONAL GROUP CORP.
Consolidated Balance Sheets
(Unaudited)
| May 31, | August 31, | |||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use operating lease assets, net | ||||||||
| Intangible assets, net | ||||||||
| Purchase deposits for intangible assets, non-current | ||||||||
| Security deposit | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accounts payable and accrued liabilities - related party | ||||||||
| Loan from related parties | ||||||||
| Current portion of obligations under operating leases | ||||||||
| Deferred revenue | ||||||||
| Total Current Liabilities | ||||||||
| Obligations under operating leases, non-current | ||||||||
| Total Liabilities | ||||||||
| Stockholders’ Equity | ||||||||
| Preferred stock, par value, preferred shares authorized; | ||||||||
| Series A preferred stock, and shares issued and outstanding, as of May 31, 2024 and August 31, 2023, respectively | ||||||||
| Series B preferred stock, and shares issued and outstanding, as of May 31, 2024 and August 31, 2023, respectively | ||||||||
| Series C preferred stock, and shares issued and outstanding, as of May 31, 2024 and August 31, 2023, respectively | ||||||||
| Series D preferred stock, and shares issued and outstanding, as of May 31, 2024 and August 31, 2023, respectively | ||||||||
| Common stock, par value, shares authorized; and shares issued and outstanding, as of May 31, 2024 and August 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these financial statements.
| F-1 |
AB INTERNATIONAL GROUP CORP.
Consolidated Statements of Operations
(Unaudited)
| Nine Months Ended | Three Months Ended | |||||||||||||||
| May 31, | May 31, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| REVENUE | ||||||||||||||||
| Copyrights and license | $ | $ | $ | $ | ||||||||||||
| Theatre admissions and food and beverage sales | ||||||||||||||||
| Consulting services | ||||||||||||||||
| Total revenue | ||||||||||||||||
| OPERATING COSTS AND EXPENSES | ||||||||||||||||
| Amortization expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Theatre operating costs | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Related party salary and wages | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Operating Costs And Expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (Loss) From Operations | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense – related party | ( | ) | ( | ) | ||||||||||||
| Other income | 87,781 | — | 2,781 | — | ||||||||||||
| Total Other Income (Expenses) | ( | ) | ||||||||||||||
| Income (Loss) Before Income Tax Benefit | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax benefit | ||||||||||||||||
| NET INCOME (LOSS) | ( | ) | ( | ) | ( | ) | ||||||||||
| Preferred shares dividend | ( | ) | ( | ) | ||||||||||||
| Net income (loss) available to common stockholders | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| NET INCOME (LOSS) PER SHARE: BASIC | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| NET INCOME (LOSS) PER SHARE: DILUTED | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC | ||||||||||||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: DILUTED | ||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-2 |
AB INTERNATIONAL GROUP CORP.
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
| Common Stock | Preferred Stock | |||||||||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Unearned Compensation | Total Equity | |||||||||||||||||||||||||
| Balance – February 28, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ |
||||||||||||||||||||||
| Preferred Shares series C converted into common shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividend in connection with Preferred shares Series C | ||||||||||||||||||||||||||||||||
| Stock based compensation - consultants | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( |
|||||||||||||||||||||||||||||
| Balance – May 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Balance - August 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Issuance of common shares | ( | ) | ||||||||||||||||||||||||||||||
| Preferred shares Series C issuance | ||||||||||||||||||||||||||||||||
| Preferred
shares series C converted into common shares | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Dividend in connection with Preferred shares series C | ||||||||||||||||||||||||||||||||
| Stock based compensation - consultants | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( |
|||||||||||||||||||||||||||||
| Balance – May 31, 2023 | $ | $ | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance – February 29, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Imputed Interest | ||||||||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||||||||
| Balance – May 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Balance – August 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
| Issuance of restricted common shares to officer for service | ( | ) | ||||||||||||||||||||||||||||||
| Preferred
shares series C converted into common shares |
( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Preferred shares series B cancellation | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Common shares cancellation | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Imputed Interest | ||||||||||||||||||||||||||||||||
| Net loss | ( | ) | ( |
|||||||||||||||||||||||||||||
| Balance – May 31, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
| F-3 |
AB INTERNATIONAL GROUP CORP.
Consolidated Statements of Cash Flows
(Unaudited)
| Nine Months Ended | ||||||||
| May 31, | ||||||||
| 2024 | 2023 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Executive salaries and consulting fees paid in stock | ||||||||
| Depreciation of fixed asset | ||||||||
| Amortization of intangible asset | ||||||||
| Gain from sales of software in progress | ( | ) | ||||||
| Imputed interest on officer loan | ||||||||
| Non-cash dividend expense for preferred shares | ||||||||
| Non-cash lease expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses | ||||||||
| Rent security & electricity deposit | ( | ) | ||||||
| Purchase deposits (paid) refunded | ( | ) | ||||||
| Purchase of movie and TV series
broadcast right and copyright | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Accounts payable and accrued liabilities – related party | ||||||||
| Deferred revenue | ( | ) | ||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Loan (repayment to) proceeds from related parties | ( | ) | ||||||
| Proceeds from common stock issuances | ||||||||
| Proceeds from preferred share C issuances | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents – beginning of period | ||||||||
| Cash and cash equivalents – end of period | $ | $ | ||||||
| Supplemental Cash Flow Disclosures | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income taxes | $ | $ | ||||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Settlement of accrued CEO salaries with common stock | $ | $ | ||||||
| Net off purchase deposit with loan from related parties for sales of software | $ | |||||||
| Transfer from purchase deposit to intangible assets | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of AB International Group Corp. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities Exchange Commission. Certain information and footnote disclosures normally included in consolidated financial statements have been omitted pursuant to such rules and regulations. The consolidated balance sheet as of August 31, 2023 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, 2023.
The unaudited consolidated financial statements as of and for the three and nine months ended May 31, 2024 and 2023, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition, results of operations and cash flows. The results of operations for the three and nine months ended May 31, 2024 and 2023 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 wholly 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.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.
Accounts receivable
Accounts receivable is presented at invoiced amount net of an allowance for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer’s payment history, its current credit-worthiness and current economic trends. Accounts are written off after efforts at collection prove unsuccessful. No allowance was recorded for the three and nine months ended May 31, 2024 and 2023, respectively.
| F-5 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currency Transactions
The financial risk arises from the fluctuations in foreign exchange rates and the degrees of volatility in these rates. Currently the Company does not use derivative instruments to reduce its exposure to foreign currency risk. Gains and losses from translation of foreign currency into U.S. dollars are included in current results of operations.
Prepayments
Prepayments primarily consist of payments made to acquire the copyrights and distribution rights of movies, TV shows and music, etc. Prepayments are classified as either current or non-current based on the nature and the terms of the respective agreements. These prepayments are unsecured and are reviewed periodically to determine whether their carrying value has become impaired. The allowance is also based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections and utilizations. Actual amounts received or utilized may differ from management’s estimate of credit worthiness and the economic environment. Prepayments are written off against the allowances only after exhaustive collection efforts. No allowance was recorded for the three and nine months ended May 31, 2024 and 2023, respectively.
Property and Equipment, net
Property, plant and equipment are stated at cost less accumulated depreciation and amortization. Leasehold improvement is related to the enhancements paid by the Company to leased offices. 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.
The straight-line depreciation method is used to compute depreciation over the estimated useful lives of the assets, as follows:
| Estimated Useful Life | ||
| Furniture | ||
| Appliances | ||
| Leasehold improvement | Lesser of useful life and lease term |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments that substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of operations in other income or expenses.
Intangible Assets
Intangible assets are recorded at the lower of cost or estimated fair value and amortized as follows:
| • | Movie copyrights
and broadcast rights: | |
| • | NFT MMM platform:
|
Amortized costs of the intangible asset are recorded as amortization expenses in the consolidated statements of operations.
| F-6 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Lease property under operating lease
The Company adopted ASU No. 2016-02—Leases (Topic 842) since June 1, 2019, using a modified retrospective transition method permitted under ASU No. 2018-11. This transition approach provides a method for recording existing leases only at the date of adoption and does not require previously reported balances to be adjusted. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed us to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of additional lease assets and lease liabilities on the consolidated balance sheets. The standard did not materially impact the Company’s consolidated net earnings and cash flows.
Impairment of Long-lived asset
The Company evaluates its long-lived assets or asset group, including intangible assets with indefinite and finite lives, for impairment. Intangible assets with indefinite lives that are not subject to amortization are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the assets might be impaired in accordance with ASC 350. Such impairment test compares the fair values of assets with their carrying values with an impairment loss recognized when the carrying values exceed fair values. For long-lived assets and intangible assets with finite lives that are subject to depreciation and amortization are tested for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of an asset or a group of long-lived assets may not be recoverable. When these events occur, the Company evaluates impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value. Impairment losses are included in the general and administrative expense. There was no impairment loss during the three and nine months ended May 31, 2024 and 2023, respectively.
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 five 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; (4) embedded marketing service; (5) consulting services.
| F-7 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
Revenue from selling copyrights of movies or TV shows:
The Company recognizes revenue when a master copy of a movie or TV show is delivered, the IP is authorized and transferred to customers. The Company’s contracts with customers are primarily on a fixed-price basis and do not contain cancelable and refund-type provisions.
Revenue from licensing NFT MMM platform and providing technical service fee:
The Company derives revenue from NFTMM platform license fees, which includes accessing the NFTMM platform and platform data on both app and website. The Company's contract has a two-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 admissions and food and beverage revenues based on a gross transaction price, which 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.
Revenue from embedded marketing service:
The Company derives revenue from providing the services of embedded marketing through adding advertisement into movies and TV series. The Company recognizes revenue when the advertisement is added to the movies and TV series.
Revenue from consulting services:
The Company derives revenue from providing consulting services in connection with the sales of the software-in-progress and the restructuring of a company. The consulting service fees are recognized when the services are delivered.
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 May 31, 2024, other
than deferred revenue and accounts receivable, the Company had
As of August 31, 2023,
the Company had
| F-8 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
Disaggregation of revenue
The Company disaggregates its revenue from contracts by revenue streams, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors.
The following table presents sales by revenue streams for the three and nine months ended May 31, 2024 and 2023, respectively:
| Three months ended | ||||||||
May 31, 2024 | May 31, 2023 | |||||||
| Copyrights sales | $ | $ | ||||||
| Embedded marketing service | ||||||||
| Consulting services | ||||||||
| NFT licenses | ||||||||
| Theatre admissions | ||||||||
| Food and beverage sales | ||||||||
| Total revenue | $ | $ | ||||||
| Nine months ended | ||||||||
May 31, 2024 | May 31, 2023 | |||||||
| Copyrights sales | $ | $ | ||||||
| Embedded marketing service | ||||||||
| Consulting services | ||||||||
| NFT licenses | ||||||||
| Theatre admissions | ||||||||
| Food and beverage sales | ||||||||
| Total revenue | $ | $ | ||||||
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.
| F-9 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
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 May 31, 2024, the total number of warrants outstanding
was
Reclassification
Certain prior period amounts have been reclassified to conform to the current period presentation.
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.
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 current income taxes in accordance with the laws of the relevant tax authorities. Income taxes are accounted for using the asset and liability approach. Under this approach, income tax expense is recognized for the amount of taxes payable or refundable for the current year. Deferred income taxes assets and liabilities are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of operations in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
| F-10 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
Share-Based Compensation
The Company follows the provisions of ASC 718, “Compensation - Stock Compensation,” which establishes the accounting for employee share-based awards. For employee share-based awards, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense with graded vesting on a straight-line basis over the requisite service period for the entire award.
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 fiscal year 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.
In June 2022, the FASB issued ASU No. 2022-03, "Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions," which clarifies and amends the guidance of measuring the fair value of equity securities subject to contractual restrictions that prohibit the sale of the equity securities. The guidance will be effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. The Company does not expect the adoption to have a material impact 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 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 May 31, 2024, the
Company had an accumulated deficit of approximately $
These factors, among others, raise substantial doubt regarding the Company’s ability to continue as a going concern. These consolidated 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 provide the opportunity for the Company to continue as a going concern.
| F-11 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 – PROPERTY AND EQUIPMENT
The Company capitalized the renovation cost as leasehold improvement and the cost of furniture and appliances as fixed assets. Leasehold improvement relates to renovation and upgrade of the leased office.
The depreciation expense
was $
As of May 31, 2024 and August 31, 2023, the balance of property and equipment was as follows:
May 31, 2024 | August 31, 2023 | |||||||
| Leasehold improvement | $ | $ | ||||||
| Appliances and furniture | ||||||||
| Total cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
NOTE 5 – INTANGIBLE ASSETS
As of May 31, 2024 and August 31, 2023, the balance of intangible assets was as follows:
May 31, 2024 | August 31, 2023 | |||||||
| Movie copyrights - Love over the world | $ | $ | ||||||
| Sitcom copyrights - Chujian | ||||||||
| Movie copyrights - A story as a picture | ||||||||
| Movie copyrights - Our treasures | ||||||||
| Movie broadcast right- On the way | ||||||||
| Movie copyrights - Too simple | ||||||||
| Movie copyrights - Confusion | ||||||||
| Movie copyrights - Amazing Data | ||||||||
| Movie copyrights - Nice to meet you | ||||||||
| Movie copyrights – 6 movies | ||||||||
| TV drama copyright - 20 episodes | ||||||||
| Movie broadcast rights – 59 movies | ||||||||
| NFT MMM platform | ||||||||
| Total cost | ||||||||
| Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
| F-12 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – INTANGIBLE ASSETS (continued)
The amortization expense for the nine months ended May 31, 2024 and 2023 was $1,441,489 and $2,519,934, respectively. Estimated future amortization expense is as follows:
Twelve months ending May 31, |
Amortization expense | ||||
| 2024 | $ | ||||
| 2025 | |||||
| Total | $ | ||||
In March
2022, the Company signed a purchase agreement with All In One Media Ltd to acquire the copyrights and broadcast rights for five movies
at a price of $
In March 2022, the Company
signed a purchase agreement with Anyone Pictures Limited to acquire the copyright for broadcasting a 25-episode TV drama series outside
of mainland China, at a price of $
On
May 31, 2023, the Company entered into an agreement with Capitalive Holdings Limited to sell the offline broadcast
rights of total 59 movies for a price
of $
On September 10, 2023,
the Company entered into an agreement with All In One Media Ltd to acquire the copyrights for 4 movies at a price of $
On September 30, 2023,
the Company entered into another agreement with All In One Media Ltd to acquire the copy rights and broadcast rights for 2 movies for
a price of $
| F-13 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 5 – INTANGIBLE ASSETS (continued)
In November 2023, the
Company entered into an agreement with Anyone Pictures Limited to sell the Mainland China copyrights of 1 movie for a price of $
On November 21, 2023,
the Company entered into an agreement with Capitalive Holdings Limited to sell offline broadcast rights of 1 movie for a price of $
NOTE 6 – LEASES
The Company leased
certain office space in Hong Kong from Zestv Studios Limited, a Hong Kong entity 100% owned by the Chief Executive Officer Chiyuan Deng,
under operating lease for
In September 2023,
the Company entered into a
On October 21, 2021, the
Company signed a lease agreement to lease “the Mt. Kisco Theatre”, a movie theater, for
Total lease expense for
the nine months ended May 31, 2024 and 2023 was $
The following is a schedule of maturities of lease liabilities:
| Twelve months ending May 31, | |||||
| 2025 | $ | ||||
| 2026 | |||||
| 2027 | |||||
| Total future minimum lease payments | |||||
| Less: imputed interest | ( |
) | |||
| Total | $ | ||||
| F-14 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 7 – PURCHASE DEPOSITS FOR INTANGIBLE ASSETS
The balance of purchase deposits for intangible assets which relates to the acquisition of copyrights and broadcast rights for movies and TV dramas and software was as follows:
May 31, 2024 | August 31, 2023 | |||||||
| Purchase deposit for software | $ | $ | ||||||
| Purchase deposit for copyright and broadcast right for a movie | ||||||||
| Total purchase deposits for intangible assets | $ | $ | ||||||
On February
23, 2024, the Company entered into an agreement to acquire the copyright and broadcast right of a movie. As of May 31, 2024, the Company
has paid a purchase deposit of $
NOTE 8 – RELATED PARTY TRANSACTIONS
Loan from related parties
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. On June 1, 2023, Chiyuan Deng, the Chief Executive
Officer, as the Company stockholders, entered into a line of credit agreement with the Company. Chiyuan Deng agreed to provide a line
of credit to the Company for a total amount of no more than $
Accounts payable and accrued liabilities - related party - Youall Perform Services Ltd.
Youall
Perform Services Ltd is owned by Jianli Deng, the former 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.
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 ended on December 31, 2022. The contract amount remains at $
| F-15 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – RELATED PARTY TRANSACTIONS (continued)
Accounts payable and accrued liabilities – 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 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 a refund payable of $
On June 23, 2022, the
Company sold the mainland China copyright and broadcast right of the movie “Too Simple” to Zestv Studios Limited for a price
of $
On
November 28, 2023, the Company sold the software-in-progress to the Developer for $
The Company also rented
office space from Zestv Studios Limited. The lease was early terminated on
During
the three months ended May 31, 2024, Zestv Studios Limited further loaned a total amount of $
As
of May 31, 2024 and August 31, 2023, the Company had $
Executives’ salaries
On September 11, 2020 and May 24, 2022, the Company entered into two amended employment agreements with Chiyuan Deng, the Chief Executive Officer.
Pursuant the amended agreements,
the Company amended the compensation to Mr. Deng to include a salary of $
During the nine months
ended May 31, 2024, the Company incurred total compensation of $
| F-16 |
NOTE 9 – STOCKHOLDERS’ EQUITY
Common shares
The Company had the following activities for the nine months ended May 31, 2024:
Issuance of restricted common shares
On October 5, 2023, the
Board of Directors resolved to issue shares of the Company’s restricted common stock, par value per share, to
Chiyuan Deng, the Chief Executive Officer, to pay off his accrued executive salaries of $
Conversion of Series C preferred shares to common shares
During the nine months ended May 31, 2024, the Company issued a total of common shares as the result of the conversion of total Series C preferred shares.
Reverse Stock split
As previously disclosed in the Company’s
Form 10-Q for the quarter ended May 31, 2023,
Cancellation of Common shares
On February 5, 2024, our majority shareholder, officer and director, Chiyuan Deng, cancelled shares of his common stock in the Company.
The Company had the following activities for the nine months ended May 31, 2023:
Increasing authorized number of common shares
On October 11, 2022, the Company filed amendment to Articles of Incorporation to increase the authorized number of common shares from shares to shares. This increasing of authorized number of common shares has been retroactively reflected in the consolidated financial statements and notes thereto.
Conversion of Series C preferred shares to common shares
During the three months ended November 30, 2022, the Company issued a total of common shares as the result of the conversion of total Series C preferred shares.
During the three months ended February 28, 2023, the Company issued a total of common shares as the result of the conversion of total Series C preferred shares.
During the three months ended May 31, 2023, the Company issued a total of common shares as the result of the conversion of total Series C preferred shares.
| F-17 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
Common shares (continued)
Subscription of Common shares
On August 2, 2022, the Company entered into a common stock purchase agreement with Alumni Capital LP, a Delaware limited partnership.
Pursuant to the agreement, Alumni Capital LP shall purchase $
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 nine months ended May 31, 2023, Alumni Capital LP subscribed for a total of common shares for total proceeds
of $
As of May 31, 2024 and August 31, 2023, the Company had and common shares issued and outstanding, respectively.
A summary of the status of the Company’s warrants as of May 31, 2024 and August 31, 2023 is presented below.
| Number of warrants | ||||||||
| Original shares issued | Anti-dilution Adjusted | |||||||
| Warrants as of August 31, 2022 | ||||||||
| Warrants granted during the year | ||||||||
| Warrants as of August 31, 2023 | ||||||||
| Warrants granted during the nine months | ||||||||
| Exercisable as of May 31, 2024 | ||||||||
Preferred shares
The Company had the following activities for the nine months ended May 31, 2024:
During the nine months ended May 31, 2024, the Company converted a total Series C preferred shares into common shares.
On November 30, 2023, the Board of Directors of the Company resolved to withdraw the Amended Certificate of Designation for the Company’s Series C and Series D Preferred shares.
| F-18 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 9 – STOCKHOLDERS’ EQUITY (continued)
Preferred shares (continued)
On December 1, 2023, the Board of Directors of the Company resolved to withdraw the Certificate of Designation for the Company’s Series B Preferred Stock. The Company’s Series B Preferred Stock was cancelled during the three months ended February 29, 2024.
The Company had the following activities for the nine months ended May 31, 2023:
On
September 6, 2022, the Company entered into a securities purchase agreement with an accredited investor, whereby investor purchased from
the Company shares of Series C Convertible Preferred Stock of the Company for a gross proceed of . After
deduction of transaction-related expenses, net proceed to the Company was $
The Company recorded dividend expenses of on Series C and D Preferred shares for the nine months ended May 31, 2023.
NOTE 10 – INCOME TAXES
The Company and its fully
owned subsidiary, AB Cinemas NY, Inc, were incorporated in the United States and are subject to a statutory income tax rate at
As of May 31, 2024 and August 31, 2023, the components of net deferred tax assets, including a valuation allowance, were as follows:
May 31, 2024 |
August 31, 2023 | |||||||
| Deferred tax asset attributable to: | ||||||||
| Net operating loss carry over | $ | $ | ||||||
| Less: valuation allowance | ( |
) | ( |
) | ||||
| Net deferred tax asset | $ | $ | ||||||
The valuation allowance
for deferred tax assets was $
| F-19 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 10 – INCOME TAXES (continued)
Reconciliation between the statutory rate and the effective tax rate is as follows for the nine months ended May 31, 2024 and 2023, respectively:
| Nine months ended | ||||||||
| May 31, | ||||||||
| 2024 | 2023 | |||||||
| Federal statutory tax rate | % | % | ||||||
| Change in valuation allowance | ( | %) | ( | %) | ||||
| Effective tax rate | % | % | ||||||
During the nine months ended May 31, 2024 and 2023, the Company and its subsidiaries generated net losses. As a result, the Company and its subsidiaries did not incur any income tax for the nine months ended May 31, 2024 and 2023, respectively.
NOTE 11 – CONCENTRATION RISK
Concentration
For the nine months ended May
31, 2024,
For the three months
ended May 31, 2024,
As of May 31, 2024,
Credit risk
Financial instruments
that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. The Hong Kong Deposit Protection
Board pays compensation up to a limit of HKD 500,000 (approximately $
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Contingencies
From time to time, the Company may be involved in litigation relating to claims arising out of its operations in the normal course of business. There is no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of its operations and there are no proceedings in which any of the Company’s directors, officers, or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to the Company’s interest.
Operating leases
The Company has several lease agreements to rent office spaces and movie theatre with third-party vendors. (See Note 6)
| F-20 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 13 – SEGMENT INFORMATION
The Company reports information about operating segments in accordance with ASC 280-10, Segment Reporting, which requires financial information to be reported based on the way management organizes segments within a company for making operating decisions and evaluating performance. As the result of business strategic changes, the Company has identified two reportable segments: Copyrights and license (“IP’) segment and cinema segment.
The following table presents summary information by segment for the nine months ended May 31, 2024 and 2023, respectively.
| IP Segment | Cinema Segment | Total | ||||||||||||||||
| Nine months ended | Nine months ended | Nine months ended | ||||||||||||||||
| May 31, | May 31, | May 31, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | ||||||||||||
| Operating costs | ||||||||||||||||||
| Depreciation and Amortization | ||||||||||||||||||
| Interest expense (income) | ( |
( | ||||||||||||||||
| Segment assets | ||||||||||||||||||
| Segment income (loss) | $ | ( |
$ | ( |
$ | $ | $ | ( |
$ | ( | ||||||||
The following table presents summary information by segment for the three months ended May 31, 2024 and 2023, respectively.
| IP Segment | Cinema Segment | Total | ||||||||||||||||
| Three months ended | Three months ended | Three months ended | ||||||||||||||||
| May 31, | May 31, | May 31, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | ||||||||||||
| Operating costs | ||||||||||||||||||
| Depreciation and Amortization | ||||||||||||||||||
| Interest expense (income) | ( |
( | ||||||||||||||||
| Segment assets | ||||||||||||||||||
| Segment income (loss) | $ | $ | ( |
$ | $ | $ | $ | ( | ||||||||||
| F-21 |
AB INTERNATIONAL GROUP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 14 – SUBSEQUENT EVENTS
Stock Purchase Agreement
On June 13, 2024, the Company entered into a Common Stock Purchase Agreement with Alumni Capital LP (“Alumni Capital”), a Delaware limited partnership. Pursuant to the Purchase Agreement, the Company has the right, but not the obligation to cause Alumni Capital to purchase up to $5 million of our common stock at the Investment Amount during the period beginning on the execution date of the Purchase Agreement and ending on the earlier of (i) the date on which Alumni Capital has purchased $5 million of our common stock shares pursuant to the Purchase Agreement or (ii) June 30, 2025.
Pursuant to the Purchase Agreement, the Investment Amount means seventy percent (70%) of the lowest daily Volume Weighted Average Price (“VWAP”) of the Common Stock five business days prior to the Closing of a Purchase Notice. No Purchase Notice will be made without an effective registration statement and no Purchase Notice will be in an amount greater than (i) $250,000 or (ii) three hundred percent (300%) of the Average Daily Trading Volume during the five business days prior to a Purchase Notice.
In consideration for Alumni Capital’s execution and performance under the Purchase Agreement, the Company issued to Alumni Capital a Common Stock Purchase Warrant dated June 13, 2024 to purchase shares of Common Stock representing (50%) of the commitment amount of $5 million. The number of shares under the Common Stock Purchase Warrant is subject to adjustment based on the following formula: (i) fifty percent (50%) of the Commitment Amount, less the exercise value of all partial exercises prior to the Exercise Date, divided by (ii) the Exercise Price on the Exercise Date. The exercise price per was calculated by dividing $3,000,000 by the total number of issued and outstanding shares of common stock as of the Exercise Date.
| F-22 |
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.” 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. 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.
Other factors, which could have a material adverse effect on our operations and future prospects on a consolidated basis, include but are not limited to our ability to implement and achieve success with our business plan, 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, including the risks and uncertainties identified under the heading “Risk Factors” in the Company’s most recent Annual Report on Form 10-K.
Overview
The Company was incorporated under the laws of the State of Nevada on July 29, 2013. The Company's fiscal year end is August 31.
We are an intellectual property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectual property, including the acquisition and distribution of movies. On June 1, 2017 we have a patent license to a video synthesis and release system for mobile communications equipment, in which the technology is the subject of a utility model patent in the People's Republic of China. Our License to the Technology generates revenue through sub-license monthly fees from a smartphone app on Android devices. This smartphone app was already existing and licensed at the time we acquired the Technology of video synthesis. In January, 2021, our sublicensing agreement with Licensee to generate revenues was terminated. As such, there has been no revenues generated from sub-licensing the Technology since the end of December, 2020. On February 2019, we launched a business application (Ai Bian Quan Qiu) through smartphones and official social media accounts utilizing Artificial Intelligence. It is a matching platform for performers, advertiser merchants, and owners for more efficient services. We previously generated revenues through an agency service fee from each matched performance. Due to the quarantine and continuous control imposed by the state and local governments in areas affected by COVID-19, merchant advertising events have been suspended for 7 months. The Company decided to suspend the Ai Bian Quan Qiu platform, which, at the time, created an adverse impact on the business and financial condition and hampered its ability to generate revenue and access sources of liquidity on reasonable terms. As a result, we decide to focus mainly the IP transactions and online video streaming.
On April 22, 2020, the Company announced the first phase development of its video streaming service. The online service will be marketed and distributed in the world under the brand name ABQQ.tv. The Company's professional team are sourcing such dramas and films to provide video streaming service on the ABQQ.tv. The video streaming website www.ABQQ.tv was officially launched on December 29, 2020. As of May 31, 2024, the Company acquired 73 movie copyrights and broadcast rights and a 75-episode TV drama series. The Company will continue marketing and promoting the ABQQ.tv website through Google Ads and acquire additional broadcast rights for movies and TV series, and plan to charge subscription fees once the Company has obtained at least 200 broadcast rights of movie and TV series.
| 4 |
On October 21, 2021, the Company entered into a Lease Agreement (the “Lease”) with Martabano Realty Corp. (the “Landlord”), pursuant to which the Company agreed to lease approximately 8,375 square feet of in what is known as the Mt. Kisco Theatre at 144 Main Street, Mount Kisco, New York. The term of the Lease is five years plus free rent period. Commencing in month four, the Company's monthly base rent obligation will be approximately $6,979, which amount will increase in year three to $13,260, year four at $13,658 and the final year at $14,067 in accordance with the terms of the Lease. The Lease contains customary provisions for real property leases of this type, including provisions allowing the Landlord to terminate the Lease upon a default by the Company.
The space was formerly used as a theatre with a total of 5 screens and 466 sets for screening films. The former theatre opened on December 21, 1962 with Hayley Millsin “In Search of the Castaways.” It was a replacement for the town’s other movie theatre that burned down. It was later twinned and further divided into 5 screens. It was operated for years by Lesser Theaters, then bought by Clearview Cinemas. In June 2013, it was taken over by Bow-Tie Cinemas when they took most Clearview locations. It lasted until March 2020 when it was closed by the Covid-19 pandemic. It was announced in September 2020 that the closure would be permanent.
On May 5, 2022, the Company incorporated AB Cinemas NY, Inc. in New York, NY, for the purpose of operating Mt. Kisco Theatre located in Mount Kisco, NY. The theatre has started operations in October 2022. After a rough two years for movie theatres due to the pandemic, movie theaters are starting to show signs of life again. The Company is intending to shift the business strategy from online only to the combination of online and offline business. The Company expects to generate considerable revenue from its movie theater business line in the following years.
On April 27, 2022, the Company purchased a unique Non-Fungible Token (“NFT”) movie and music marketplace, named as the NFT MMM from Stareastnet Portal Limited, an unrelated party, which including an APP “NFTMMM” on Google Play, and full right to the website: stareastnet.io. NFTs are digital assets with a unique identifier that is stored on a blockchain, and NFTs are tradable rights of digital assets (pictures, music, films, and virtual creations) where ownership is recorded in blockchain smart contracts. On August 6, 2022, the Company licensed NFT MMM platform to a third party to allow the access of NFTMMM platform and platform data on both app and website for one year starting from August 20, 2022 to August 19, 2023 for a monthly license fee of $60,000. Pursuant to the agreement, the Company also charged one time implementation service and consulting fee of $100,000. Subsequent to the license renewal on November 1, 2023, the Company would continue licensing the NFT MMM platform to the same third party from November 1, 2023 until October 31, 2025. The Company retained the ownership and copyright of the NFT MMM platform, including the APP “NFT MMM” on Google Play, and the website: stareastnet.io.
On May 31, 2023, the Company entered into an agreement with Capitalive Holdings Limited to sell the offline broadcast rights of total 59 movies for a price of $250,000. The granted broadcast rights are globally exclusive, with the exception of Mainland China.
On September 10, 2023, the Company entered into an agreement with All In One Media Ltd to acquire the copyrights for 4 movies at a price of $104,714. These copyrights allow the Company to transfer these movies to other parties outside the mainland China. On November 27, 2023, the Company further acquired mainland China copyrights of these 4 movies from All In One Media Ltd. at a price of $378,513.
On September 30, 2023, the Company entered into another agreement with All In One Media Ltd to acquire the copy rights and broadcast rights for 2 movies for a price of $212,562. These copyrights allow the Company to broadcast these movies globally.
In November 2023, the Company entered into an agreement with Anyone Pictures Limited to sell the Mainland China copyrights of 1 movie for a price of $180,000 and the offline broadcast rights of another movie for a price of $211,800. The granted broadcast rights are globally exclusive, with the exception of Mainland China.
On November 21, 2023, the Company entered into an agreement with Capitalive Holdings Limited to sell offline broadcast rights of 1 movie for a price of $140,000. The granted broadcast rights are globally exclusive, with the exception of Mainland China.
| 5 |
Results of Operations
Revenues
Our total revenue reported for the three and nine months ended May 31, 2024 was $698,311 and $1,885,311, respectively. Our total revenue reported for the three and nine months ended May 31, 2023 was $573,389 and $1,108,640, respectively.
The revenue for the three and nine months ended May 31, 2024, was mainly attributable to the license fee received in connection with the licensing of our NFT MMM platform, movie copyrights sales to two third parties, fees charged for embedded marketing service, consulting service fees in connection with the sales of the software-in-progress and restructuring of a company as well as the revenue generated from movie tickets and food and beverage sales from our operated movie theatre. On the other hand, for the three and nine months ended May 31, 2023, we generated revenue from licensing our NFT MM platform, the sales of movie tickets and food and beverage in our operated movie theatre. The increase in revenue was mainly due to the combined impact of: (i) the increase in sales of copyrights and broadcast rights during the three and nine months ended May 31, 2024 as compared to the three and nine months ended May 31, 2023; and (ii) the increase in type of services provided ranging from consulting services to the embedded marketing services during the three and nine months ended May 31, 2024.
We have started the operation of our movie theatre since October 2022. For the nine months ended May 31, 2024, we generated total revenue of $267,856, including $182,353 from ticket sales, and $85,503 from food and beverage sales. For the nine months ended May 31, 2023, we generated total revenue of $317,415, including $206,303 from ticket sales, and $111,112 from food and beverage sales. The decrease in revenue was mainly due to less renowned and popular movies on screen compared to the corresponding period in 2023.
For the three months ended May 31, 2024, we generated total revenue of $68,492, including $47,011 from ticket sales, and $21,481 from food and beverage sales. For the three months ended May 31, 2023, we generated total revenue of $139,450, including $90,385 from ticket sales, and $49,065 from food and beverage sales. The decrease in revenue was mainly due to the combined impact of: (i) the shortening of opening hours from 6 to 4 days per week in May 2024; and (ii) less renowned and popular movies are on screen compared to the corresponding period in 2023.
We anticipate an increase in revenue in the future by selling movie and TV drama copyrights and broadcast rights, achieving enough customers to start subscriptions for ABQQ.tv and generating movie tickets and related revenues from our Mt. Kisco movie theatre in New York. We also hope to generate more license revenue from our NFT MMM platform.
Operating Costs and Expenses
Operating costs and expenses were $2,266,117 for the nine months ended May 31, 2024, as compared to $4,020,662 for the nine months ended May 31, 2023. Our operating costs and expenses for the nine months ended May 31, 2024 consisted of theatre operating costs of $136,397, amortization expenses of $1,441,489, general and administrative expenses of $673,182 and related party salary and wages of $15,049. In contrast, our operating costs and expenses for the nine months ended May 31, 2023 consisted of theatre operating costs of $139,567, amortization expenses of $2,530,435, general and administrative expenses of $1,165,160 and related party salary and wages of $185,500.
Operating expenses decreased to $562,888 for the three months ended May 31, 2024 from $1,217,553 for the three months ended May 31, 2023. Our operating expenses for three months ended May 31, 2024 consisted of theatre operating costs of $32,316, amortization expenses of $369,006 and general and administrative expenses of $161,566. In contrast, our operating expenses for the three months ended May 31, 2023 consisted of theatre operating costs of $60,859, amortization expenses of $751,192, general and administrative expenses of $361,002 and related party salary and wages of $44,500.
The theatre operating costs were comparable for the nine months ended May 31, 2024 and 2023. The theatre operating costs decreased to $32,316 for the three months ended May 31, 2024 from $60,859 for the three months ended May 31, 2023. The decrease was mainly due to the decrease in admission revenues and the decrease in movie exhibition costs as a percentage of admission revenue.
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We experienced a decrease in amortization expenses for the three and nine months ended May 31, 2024 as compared to the corresponding period in 2023, mainly due to more fully amortized intangible assets for the three and nine months ended May 31, 2024.
We experienced a decrease in general and administrative expenses for the three and nine months ended May 31, 2024 as compared to the corresponding period in 2023, mainly as a result of decreased non-related party salaries and contractors, stock-based compensations, professional fees, office expenses and repair and maintenance expenses for the three and nine months ended May 31, 2024 in contrast to the corresponding period in 2023.
We experienced a decrease in related party salary and wages for the three and nine months ended May 31, 2024 as compared to corresponding period in 2023, mainly due to the resignation of the Chief Financial Officer and Chief Investment Officer as well as the opt out of salary by the Chief Executive Officer effective since October 2023. During the nine months ended May 31, 2024, the Company incurred total compensation of $15,049 for the Chief Executive Officer. During the nine months ended May 31, 2023, the Company incurred total compensation of $153,000 for Chief Executive Officer and Chief Financial Officer. The Company also incurred total compensation of $nil and $32,500, respectively, for Chief Investment Officer during the nine months ended May 31, 2024 and 2023, respectively.
We anticipate our operating expenses will increase as we undertake our plan of operations, including the streamline of costs associated with marketing, personnel, and other general and administrative expenses, along with increased professional fees associated with SEC. These costs may increase our operational costs in fiscal 2024 at various levels of operation.
Other Income
We had other income of $62,521 for the nine months ended May 31, 2024, as compared with other income of $495 for the corresponding period in 2023. Our other income for the nine months ended May 31, 2024 was the net amount of the other income generated from the sales of software in progress, bank interest income, and the interest expense – related party. Our other income for the corresponding period in 2023 was bank interest income.
We had other expenses of $2,389 for the three months ended May 31, 2024 as compared with other income of $337 for the corresponding period in 2023. Our other expenses for the three months ended May 31, 2024 mainly represented the interest expense – related party. Our other income for the corresponding period in 2023 was bank interest income.
Net Loss
We incurred a net loss in the amount of $318,285 for the nine months ended May 31, 2024, as compared with a net loss of $2,911,527 for the nine months ended May 31, 2023.
We incurred a net income in the amount of $133,034 for the three months ended May 31, 2024, as compared with a net loss of $643,827 for the three months ended May 31, 2023.
Liquidity and Capital Resources
As of May 31, 2024, we had $420,148 in current assets consisting of cash and accounts receivable. Our total current liabilities as of May 31, 2024 were $688,600. As a result, we have a working capital deficit of $268,452 as of May 31, 2024 as compared with $1,005,847 as of August 31, 2023.
Operating activities generated $124,938 in cash for the nine months ended May 31, 2024, as compared with $467,009 used in cash for the nine months ended May 31, 2023.
Our positive operating cash flow for the nine months ended May 31, 2024 was mainly the result of net loss combined with cash used in the purchase of movie and TV series broadcast right and copyright and the increase in accounts receivable, offset by the amortization of intangible assets, and the increase in deferred revenue and accounts payable and accrued liabilities.
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Our negative operating cash flow for the nine months ended May 31, 2023 was mainly the result of our net loss combined with operating changes in receivables, offset by the amortization of intangible assets, purchase deposit refund and consulting fee paid in stock.
Investing activities was $Nil for the nine months ended May 31, 2024 and 2023, respectively.
Financing activities used $76,606 for the nine months ended May 31, 2024, as compared with $517,631 provided by financing activities for the nine months ended May 31, 2023. Our negative financing cash flow for the nine months ended May 31, 2024 was due to the settlement of loans due to a related party. Our positive financing cash flow for the nine months ended May 31, 2023 was mainly the result of proceeds from issuance of our common shares, preferred shares, and the loans from related parties.
Going Concern
Our 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 May 31, 2024, the Company had an accumulated deficit of approximately $12.7 million and a working capital deficit of approximately $0.3 million. For the nine months ended May 31, 2024, the Company incurred a net loss of approximately $0.3 million.
The future operations of the Company depend on its ability to realize forecasted revenues, achieve profitable operations, and depend on whether or not the Company could obtain the continued financial support from its stockholders or external financing. Management believes the existing stockholders will continue to provide the additional cash to meet the Company’s obligations as they become due. The Company also intends to fund operations through cash flow generated from the operations, including the expected ticket sales from Mt. Kisco movie theatre, equity financing, debt borrowings, and additional equity financing from outside investors, to ensure sufficient working capital. However, no assurance can be given that additional financing, if required, would be available on favorable terms or at all. If we are not able to secure additional funding, the implementation of our business plan will be impaired.
These factors, among others, raise the substantial doubt regarding the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.
Off Balance Sheet Arrangements
As of May 31, 2024, 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.
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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 May 31, 2024. 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 May 31, 2024, 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 May 31, 2024, 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, 2024: (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 May 31, 2024, 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.
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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 November 29, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Company issued the following unregistered securities during the nine months ended May 31, 2024:
Issuance of restricted common shares
On October 5, 2023, the Board of Directors resolved to issue 225,000,000 shares of the Company’s restricted common stock, par value $0.001 per share, to Chiyuan Deng, the Chief Executive Officer, to pay off his accrued executive salaries of $45,000.
Conversion of Series C preferred shares to common shares
During the nine months ended May 31, 2024, the Company issued a total of 1,056,681,936 common shares as the result of the conversion of total 174,421 Series C preferred shares.
These securities were issued pursuant to Section 3(a)(9), 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
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| Exhibit Number | Description of Exhibit
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| 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 May 31, 2024 formatted in Extensible Business Reporting Language (XBRL). |
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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, Chief Financial Officer, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and Director | |
| July 15, 2024 |
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