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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

   

Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

For the quarterly period ended November 30, 2021

 

Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

 

 

For the transition period from __________ to__________

 

  Commission File Number: 000-55979

 

AB International Group Corp.

(Exact name of registrant as specified in its charter)

 

Nevada 37-1740351

(State or other jurisdiction of incorporation or organization)

 

(IRS Employer Identification No.)

48 Wall Street, Suite 1009,

New York, NY 10005

(Address of principal executive offices)

 

(212) 918-4519
(Registrant’s telephone number)
_______________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

 

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

[X] Yes [ ] No

 

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

 

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

 

☐   Large accelerated filer ☐   Accelerated filer
  Non-accelerated Filer Smaller reporting company
    Emerging growth company

 

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

 

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

[  ] Yes [X] No

 

State the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practicable date: 245,819,173 common shares as of January 19, 2022  

 

 1 

 

TABLE OF CONTENTS
    Page

 

PART I – FINANCIAL INFORMATION

 

Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 8
Item 4: Controls and Procedures 8

 

PART II – OTHER INFORMATION

 

Item 1: Legal Proceedings 9
Item 1A: Risk Factors 9
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 9
Item 3: Defaults Upon Senior Securities 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 Condensed Consolidated Balance Sheets as of November 30, 2021 (unaudited) and August 31, 2021 (audited);
F-2 Condensed Consolidated Statements of Operations for the three months ended November 30, 2021 and November 30, 2020 (unaudited);
F-3 Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three months ended November 30, 2021 and November 30, 2020 (unaudited);
F-4 Condensed Consolidated Statements of Cash Flows for the three months ended November 30, 2021 and November 30, 2020 (unaudited); and
F-5 Notes to Condensed Consolidated Financial Statements (unaudited).

 

These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended November 30, 2021 are not necessarily indicative of the results that can be expected for the full year.

 3 

  

AB INTERNATIONAL GROUP

Condensed Consolidated Balance Sheets

 

   November 30,  August 31,
   2021  2021
    (Unaudited)      (Audited) 
 ASSETS          
 Current Assets          
    Cash and cash equivalents  $170,668   $132,253 
    Prepaid expenses   24,478    13,566 
    Account receivable            
    Related party receivable   1,439    1,439 
 Subscription receivable         87,239 
    Interest receivable            
Other receivable   1,184,385    644,785 
       Total Current Assets   1,380,971    879,282 
           
 Fixed assets, net   16,020    17,128 
 Leasehold improvement, net   24,385    36,577 
 Right of use operating lease assets, net   1,076,679    47,827 
 Intangible assets, net   3,312,238    3,998,805 
 Long-term prepayment   883,200    761,600 
 Other assets   45,240    16,508 
 TOTAL ASSETS  $6,738,733   $5,757,727 
           
 LIABILITIES AND STOCKHOLDERS’ EQUITY          
 Current Liabilities          
    Accounts payable and accrued liabilities  $129,080   $118,283 
Related party payable   916,922    933,434 
 Current portion of obligations under operating leases   166,834    48,226 
    Convertible note and derivative liability            
    Due to shareholder   2,870    2,347 
    Tax payable            
    Other payable   392,947    3,827 
 Dividend payable   3,345    1,834 
 Total Current Liabilities   1,611,998    1,107,951 
           
 Obligations under operating leases, non-current   944,527       
 Total Liabilities   2,556,525    1,107,951 
           
 Stockholders’ Equity          
 Preferred stock, $0.001 par value, 10,000,000 preferred shares authorized;            
 Series A preferred stock, 100,000 shares issued and outstanding, as of November 30, 2021 and August 31, 2021   100    100 
 Series B preferred stock, 20,000 shares issued and outstanding, as of November 30, 2021 and August 31, 2021   20    20 
 Series C preferred stock, 332,625 and 0 shares issued and outstanding, as of November 30, 2021 and August 31, 2021, respectively   333       
 Series D preferred stock, 78 and 0 shares issued and outstanding, as of November 30, 2021 and August 31, 2021, respectively            
Common stock, $0.001 par value, 1,000,000,000 shares authorized; 235,236,589 and 226,589,735 shares issued and outstanding, as of
November 30, 2021 and August 31, 2021, respectively
   235,237    226,590 
 Additional paid-in capital   11,581,264    11,009,517 
 Accumulated deficit   (7,631,023)   (6,578,978 
 Unearned shareholders’ compensation   (3,723)   (7,473)
 Total Stockholders’ Equity   4,182,207    4,649,776 
 TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY  $6,738,733   $5,757,727 


 

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

 F-1 

 

AB INTERNATIONAL GROUP CORP.

Condensed Consolidated Statements of Operations

(Unaudited)

       
   Three Months Ended
   November 30,
   2021  2020
       
Revenue  $     $76,800 
Cost of revenue   (686,567)   (156,086)
Gross Profit (Loss)   (686,567)   (79,286)
           
OPERATING EXPENSES          
General and administrative expenses   (308,966)   (231,146)
Research and development expenses            
Related party salary and wages   (55,000)   (6,350)
Total Operating Expenses   (363,967)   (237,496)
           
Loss From Operations   (1,050,534)   (316,782)
           
OTHER INCOME (EXPENSES)          
Interest expense, net         (81,750)
Preferred shares dividend expense   (1,511)      
Gain (Loss) from change in fair value         (98,787)
Loss from lease termination         (3,251)
Loss from warrant termination         (12,343)
Loss from warrant exercise         (12,540)
Total Other Expenses   (1,511)   (208,672)
           
Loss Before Income Tax Provision   (1,052,045)   (525,454)
           
Income tax provision            
NET LOSS  $(1,052,045)  $(525,454)
           
NET LOSS PER SHARE: BASIC  $(0.00)  $(0.01)
NET LOSS PER SHARE: DILUTED  $(0.00)  $(0.00)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC   231,884,710    93,965,474 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: DILUTED   231,884,710    143,576,929 

     

 

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

  

 F-2 

 

AB INTERNATIONAL GROUP CORP.

Condensed Consolidated Statements of Changes in Stockholders' Equity

(Unaudited)

                                                               
      Common Stock       Preferred Stock                                
      Number of Shares       Amount       Number of Shares       Amount       Additional Paid-in Capital       Accumulated Deficit       Unearned Shareholders' Compensation       Total Equity
                                                               
Balance - August 31,  2020     46,661,417     $ 46,661              $         $  7,271,983     $ ( 2,970,880 )   $ (391,667 )   $ 3,956,097
Common shares issued for cash at$0.015312 or $0.014256 per share     5,470,000       5,470                         75,398                         80,868
Common shares issued from note conversions      25,406,238       25,406                         158,347                         183,753
Common shares issued from warrant exercises     47,070,294       47,070                         28,236                         75,306
Series A Preferred Shares issued                       100,000       100                                100
Common shares returned due to officer resignations     (261,111 )     (261 )                       (391,405 )              391,667         
Warrants termination and Exercised                                             (145,423)                         (145,423) 
Net loss                                                  (525,454 )              (525,454)
Balance - November 30,  2020     124,346,838     $ 124,347       100,000       $ 100       $ 6,997,136     $ (3,496,335 )   $         $ 3,625,248

 

 

                                                             
Balance - August 31,  2021     226,589,735     $ 226,590       120,000       $ 120        $  11,009,517     $ (6,578,978 )   $ (7,473 )   $ 4,649,776
Put Shares issued for cash     5,500,000       5,500                         133,276                         138,776
Preferred shares series C issuance                       332,625       333       288,617                         288,950
Preferred shares series D issuance                       153             153,000                         153,000
Preferred shares and dividend shares converted into common shares     3,146,854       3,147       (75 )     (0 )     (3,147 )                         
Common shares issued to officers for services                                                        3,750          3,750
Net loss                                                  (1,052,045 )              (1,052,045)
Balance - November 30,  2021     235,236,589     $ 235,237       452,703     $ 453     $ 11,581,264     $ (7,631,023 )   $ (3,723 )   $ 4,182,207

          

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

 F-3 

 

AB INTERNATIONAL GROUP CORP.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

       
   Three Months Ended
   November 30,
   2021  2020
       
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(1,052,045)  $(525,454)
Adjustments to reconcile net income (loss) to net cash from operating activities:          
Executive salaries and consulting fees paid in stock   3,750    100 
Depreciation of fixed asset   13,300    13,148 
Amortization of intangible asset   686,567    140,726 
Loss/(gain) from change in fair value of derivatives         98,787 
Loss/(gain) from lease termination         3,251 
Loss/(gain) from warrant termination         12,343 
Loss/(gain) from warrant exercise         12,540 
Non-cash interest for convertible notes         81,755 
Non-cash note conversion fees         8,750 
Non-cash dividend expense for preferred shares   1,511       
Non-cash lease expense   34,284    1,190 
Changes in operating assets and liabilities:          
Accounts receivable         86,362 
Receivable on asset disposal            
Interest receivable         26,240 
Related party receivable         86,142 
Other receivable   (539,600)      
Prepaid expenses   (10,912)   3,024 
Rent security & electricity deposit   (28,733)   3,533 
Purchase of movie and TV series broadcast right and copyright   (121,600)   (1,621,333)
Accounts payable and accrued liabilities   10,797    (237,344)
Related party payable   (16,512)      
Due to / from shareholders   523    61,024 
Other payable   389,120    243 
Net cash used in operating activities   (629,550)   (1,744,973)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Purchase of furniture and equipment         (5,000)
Net cash provided by /(used in) investing activities         (5,000)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from issuance of convertible notes         233,017 
Proceeds from common stock issuances   226,015    80,868 
Proceeds from preferred share C issuances   288,950       
Proceeds from preferred share D issuances   153,000       
Net cash provided by financing activities   667,965    313,885 
           
Net increase (decrease) in cash and cash equivalents   38,415    (1,436,088)
Cash and cash equivalents –beginning of the quarter   132,253    2,455,061 
Cash and cash equivalents – end of the quarter   170,668    1,018,974 
           
Supplemental Cash Flow Disclosures          
   Cash paid for interest            
   Cash paid for income taxes            
           
Non-Cash Investing and Financing Activities:          
Cashless warrant exercises  $     $(75,306)
Convertible notes converted to common shares  $     $(183,752)
Additions to ROU assets from operating lease liabilities  $1,080,156   $20,038 
Common shares returned due to officer resignations  $     $(391,666)
Preferred shares converted into common shares  $75,000   $   

 

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

 

 F-4 

 

AB INTERNATIONAL GROUP CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended August 31, 2021 and August 31, 2020

(Unaudited)

 

NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS

 

AB International Group Corp. (the “Company”, “we” or “us”) was incorporated under the laws of the State of Nevada on July 29, 2013. The Company's fiscal year end is August 31.

 

We are an intellectual property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectual property. We are engaged to acquisition and distribution of movies. We have a patent license to a video synthesis and release system for mobile communications equipment, in which the technology is the subject of a utility model patent in the People’s Republic of China. We had launched a business application (Ai Bian Quan Qiu) through smartphones and official social media accounts based on WeChat platform in February 2019, utilizing Artificial Intelligence, it is a matching platform for performers, advertiser merchants, and owners for more efficient services. We generate revenues through an agency service fee from each matched performance.

 

On January 22, 2016, our former sole officer, who owned 83% of our outstanding common shares, sold all of his common shares to unrelated investor Jianli Deng. After the stock sale, we modified our business to focus on the creation of a mobile app marketing engine. The app was designed for movie trailer promotions and we planned to generate a subscriber base of smartphone users primarily through pre-installed app smartphone makers, online app stores, WeChat official accounts, Weibo and other social network media outlets and sell prepaid cards or coins to movie distributors or other video advertisers in China. We created the app “Amoney” for the Android smartphone platform to develop a WeChat micro-shop that was designed to display and deliver a variety of information and links for download or online watch prices in the China market.

 

On June 1, 2017 we entered into a Patent License Agreement (the “Agreement”) pursuant to which Guangzhou Shengshituhua Film and Television Company Limited, a company incorporated in China (“Licensor”), granted to us a worldwide license to a video synthesis and release system for mobile communications equipment (the “Technology”). The Technology is the subject of a utility patent in the People’s Republic of China. Under the Agreement, we are able to utilize, improve upon, and sub-license the technology a term of five years commencing on the June 1, 2017 (Effective Date) and subject to a right to renew for another five years. We were obligated to pay the Licensor $500,000 within 30 days of the date of the Agreement and a royalty fee in the amount of 20% of any proceeds resulting from our utilization of the Technology, whether in the form of sub-licensing fees or sales of licensed products. Our Chief Executive Officer, Chiyuan Deng and former Chief Executive Officer, Jianli Deng, jointly own and control Licensor. On October 10, 2017, we completed the payment of $500,000 initial payment amount due under the Agreement. The term of this sublicensing agreement was renewed and extended for another five years in October of 2019. 

 

Our License to the Technology generates revenue through sub-license monthly fees from a smartphone app on Android devices. This smartphone app was already existing and licensed at the time we acquired the Technology of video synthesis. In January, 2021, our sublicensing agreement with Anyone Picture to generate revenues was terminated. As such, there has been no revenues generated from sub-licensing the Technology since the end of December, 2020.

 

 F-5 

 

In December of 2018, we engaged StarEastnet, a software developer that holds 171,000 common shares of the Company as of August 31, 2019, to start developing a performance matching platform (Ai Bian Quan Qiu) and a WeChat official account to advertise the platform. The matching platform is to arrange performance events for celebrities and performers. Performers can set their schedules and quotes on the platform. The platform will maximize their profits from performance events by optimizing their schedules based upon quotes and event locations and save time from commuting among different events. “Ai Bian Quan Qiu” utilizes the artificial intelligence (AI) matching technology to instantly and accurately match performers and advertisers or merchants. The company charges agency service fees for each successful event matched through the platform. Since no large social gathering is allowed as a result of COVID-19, there has been no revenue generated from the performance matching platform (Ai Bian Quan Qiu) since the end of January, 2020. The Company decided to impair 100% of the carrying amount of Ai Bian Quan Qiu platform and its Wechat official account.

 

In June, 2019, the Company completed the development of a video mix APP for social video sharing via iOS and Android smartphones. This app was originally planned to take advantage of the core design philosophy of “My film anyone, anywhere, anytime be together” as similar and competitive innovative video and community apps have been activated on over 2 million unique devices in China as of December 31, 2017 and precipitated the duet video synthesis phenomenon in China. However, the Company decided to focus on the “Ai Bian Quan Qiu” platform as its main business and thus sold the video mix APP to Anyone Pictures Limited, which holds 242,980 common shares of the Company, for $422,400 with a gain of $59,792 in August of 2019. Due to the quarantine and continuous control imposed by the state and local governments in areas affected by COVID-19, merchant advertising events were suspended. The Company decided to shut down the Ai Bian Quan Qiu platform and no revenue was generated after January 31, 2020. As a result, it has created an adverse impact on the business and financial condition and hampered its ability to generate revenue and access sources of liquidity on reasonable terms.

 

In August of 2019, the Company entered into a one year loan agreement to lend $1,047,040 at an annual interest rate of 10% to All In One Media Ltd, previously named as Aura Blocks Limited, for producing films and digital videos in Hong Kong. The term of note receivable was from August 1, 2019 to July 31, 2020. This loan principal balance was paid off in full in July, 2020. All the interest income of $95,979 was received by August 31, 2020.

 

On September 4, 2019, the Company entered into another loan agreement to lend $1,049,600 at an annual interest rate of 10% to All In One Media Ltd, previously named as Aura Blocks Limited. The term of note receivable was from September 4, 2019 to March 3, 2020. This loan balance was paid off in full on May 4th, 2020 with two months’ extension. All the interest income of $70,021 was received by November 13, 2020. 

 

On April 22, 2020, the Company announced the first phase development of its video streaming service. The online service will be marketed and distributed in the world under the brand name ABQQ.tv. The Company’s professional team are sourcing such dramas and films to provide video streaming service on the ABQQ.tv. The video streaming website www.ABQQ.tv was officially launched on December 29, 2020. As of August 31, 2021, the Company acquired 4 movie copyrights and 59 movie broadcast rights. The Company will continue marketing and promoting the ABQQ.tv website through GoogleAds and acquire additional broadcast rights for movies and TV series, and plan to charge subscription fees once the Company has obtained at least 200 broadcast rights of movie and TV series.

 

 F-6 

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and are presented in US dollars. The Company’s year-end is August 31.

 

Basis of Consolidation

 

The financial statements have been prepared on a consolidated basis, with the Company’s fully owned subsidiary App Board Limited registered and located in Hong Kong. All intercompany balances and transactions have been eliminated in consolidation.

 

Going Concern Uncertainties

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.

 

As of November 30, 2021, the Company had an accumulated deficit of approximately $7.63 million and a working capital deficit of $231,027. For the three months ended November 30, 2021, the Company incurred a net loss of approximately $1 million and the net cash used in operations was $629,550. Losses have principally occurred as a result of the substantial resources required for general and administrative expenses associated with our operations. The continuation of the Company as a going concern through November 30, 2022 is dependent upon the continued financial support from its stockholders or external financing. Management believes the existing stockholders will provide the additional cash to meet the Company’s obligations as they become due. However, there is no assurance that the Company will be successful in securing sufficient funds to sustain the operations.

 

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of these uncertainties. Management believes that the actions presently being taken to obtain additional funding and implement its strategic plan provides the opportunity for the Company to continue as a going concern.

  

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

 

Foreign Currency Transactions

 

The Company’s planned operations are outside of the United States, which results in exposure to market risks from changes in foreign currency rates. The financial risk arises from the fluctuations in foreign exchange rates and the degrees of volatility in these rates. Currently the Company does not use derivative instruments to reduce its exposure to foreign currency risk. Non-monetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the year. Revenues and expenses are translated at average rates for the year. Gains and losses from translation of foreign currency financial statements into U.S. dollars are included in current results of operations.

 

 F-7 

 

Account Receivable

 

Account receivable consisted of amounts due from Anyone Pictures Limited for the sub-licensing fee revenue. Amount receivable balances are recorded at the invoiced amount and do not bear interest. As the sublicensing agreement with Anyone Picture was terminated in January, 2021, there was no account receivable balance as of November 30, 2021 or August 31, 2021. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. No amount for bad debt expense was recorded by the Company during the three months ended November 30, 2021 and August 31, 2021, and no write-offs for bad debt were recorded for the three months ended November 30, 2021 and November 30, 2020.

 

Prepaid Expenses

 

Prepaid expenses primarily consist of prepayments of OTC market annual fee. The prepaid balances are amortized when the related expense is incurred.

 

Fixed Asset

 

Fixed asset consists of furniture and appliances acquired for the office. The balance is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives listed below:

 

    Estimated Useful Life
Furniture   7 years
Appliances   5 years

 

Leasehold Improvement

 

Leasehold improvement is related to the enhancements paid by the Company to leased office and store. Leasehold improvement represents capital expenditures for direct costs of renovation or acquisition and design fees incurred. The amortization of leasehold improvements commences once the renovation is completed and ready for the Company’s intended use. Leasehold improvement is amortized over the lease term of 3 years.

 

Intangible Assets

 

Intangible assets are stated at the lower of cost or amortized cost or estimated fair value and amortized as follows:

 

  Movie copyrights and broadcast rights: straight-line method over the estimated life of the asset, which has been determined by management to be 2 years

 

  Patent: straight-line method over the term of 5 years based on the patent license agreement 

 

Amortized costs of the intangible asset are recorded as cost of sales, as the intangible assets are directly related to generation of revenues in the Company.

 

Lease property under operating lease

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued updated guidance to improve financial reporting about leasing transactions. This guidance required organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued new guidance which included an option to not restate comparative periods in transition. Under this new guidance, a company applies the standard to leases in place as of the date of initial application, records a cumulative-effect adjustment to retained earnings as of the first day of the adoption year, and follows the new rules for all leases entered or modified going forward.  The Company adopted this new standard on June 1, 2020 with no retrospective adjustments to prior comparative periods. In accordance with ASC 250-10-45-14, a change in accounting principle made in an interim period shall be reflected as if the entity had adopted the new principle on the first day of the adoption year, which is September 1, 2019 for the Company. As such, the adoption of ASC 842 lease accounting standard has resulted in $196,813 lease liabilities with corresponding $201,025 ROU assets net of amortization as of September 1, 2019 based on the present value of the remaining rental payments under current leasing standards for existing leases. The remaining balance of lease liabilities are presented within the current portion of lease liabilities and the non-current portion of lease liabilities on the Consolidated Balance Sheet. 

 

 F-8 

 

Impairment of Long-lived asset

 

The Company evaluates its long-lived assets or asset group, including intangible assets with indefinite and finite lives, for impairment. Intangible assets with indefinite lives that are not subject to amortization are tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the assets might be impaired in accordance with ASC 350. Such impairment test compares the fair values of assets with their carrying values with an impairment loss recognized when the carrying values exceed fair values. For long-lived assets and intangible assets with finite lives that are subject to depreciation and amortization are tested for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount of an asset or a Group of long-lived assets may not be recoverable. When these events occur, the Company evaluates impairment by comparing the carrying amount of the assets to future undiscounted net cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flows is less than the carrying amount of the assets, the Company would recognize an impairment loss based on the excess of the carrying amount of the asset group over its fair value.

  

Impairment losses are included in the general and administrative expense. There was no impairment loss during the three months ended November 30, 2021 and the year ended August 31, 2021.

 

Revenue Recognition

 

The Company adopted ASC Topic 606, “Revenue from Contracts with Customers”, applying the modified retrospective method.

  

In accordance with ASC Topic 606, revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its agreements:

 

  the contract with a customer;

 

  identify the performance obligations in the contract;

 

  determine the transaction price;

 

  allocate the transaction price to performance obligations in the contract; and

 

  recognize revenue as the performance obligation is satisfied.

 

The Company does not believe that significant management judgements are involved in revenue recognition, but the amount and timing of the Company’s revenues could be different for any period if management made different judgments or utilized different estimates. Generally, the Company recognizes revenue under ASC Topic 606 for its performance obligation.

 

The Company generates revenue from sub-licensing a patent. The sub-licensing revenue is recognized monthly based upon the number of users who download the APP that utilizes the Company’s patent. The monthly royalty the Company charges Anyone Pictures Limited is $12.8 per 1000 APP users. Both parties agreed to charge the sublicensing fee based upon a fixed number 2,000,000 users. In January, 2021, our sublicensing agreement with Anyone Picture to generate revenues was terminated. As such, there has been no revenues generated from sub-licensing the Technology since the end of December, 2020. Once the Company finds another company to sublicense the patent, it will generate royalty revenue again.

  

 F-9 

 

Fair Value of Financial Instruments

 

ASC 820, “Fair Value Measurements” (ASC 820) and ASC 825, “Financial Instruments” (ASC 825), requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:

 

Level 1 – Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3 – Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

The carrying values of cash, accounts payable, and accrued liabilities approximate fair value due to their short-term nature. The fair values of warrant liabilities and derivative liabilities embedded in convertible notes are determined by level 3 inputs. 

 

Accounting for Derivative Instruments

 

The Company accounts for derivative instruments in accordance with ASC Topic 815, “Derivatives and Hedging” (ASC 815) and all derivative instruments are reflected as either assets or liabilities at fair value in the balance sheet.

 

The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company's policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for the Company's liabilities), relying first on observable data from active markets. Additional adjustments may be made for factors including liquidity, credit, bid/offer spreads, etc., depending on current market conditions. Transaction costs are not included in the determination of fair value. When possible, the Company seeks to validate the model's output to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussed above. Changes in fair value are recognized in the period incurred as either gains or losses.

 

Warrants

 

Warrants are classified as equity and the proceeds from issuing warrants in conjunction with convertible notes are allocated based on the relative fair values of the base instrument of convertible notes and the warrants by following the guidance of ASC 470-20-25-2 as below:

 

Proceeds from the sale of a debt instrument with stock purchase warrants (detachable call options) shall be allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds so allocated to the warrants shall be accounted for as paid-in capital. The remainder of the proceeds shall be allocated to the debt instrument portion of the transaction. This usually results in a discount (or, occasionally, a reduced premium), which shall be accounted for as interest expense under Topic 835 Interest.

  

 F-10 

 

Income Taxes

 

The Company accounts for income taxes pursuant to FASB ASC 740 “Income Taxes”. Under ASC 740 deferred income taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 

ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. At November 30, 2021 and 2020, there were no unrecognized tax benefits. Please see Note 14 for details.

 

Value-Added Taxes

 

The Company generates revenue in People's Republic of China (PRC) via the “Ai Bian Quan Qiu” platform and is subject to a value-added tax at an effective rate of 6%. In accordance with PRC law, the Company is also subject to surcharges, which includes urban maintenance and construction taxes and additional education fees on VAT payable.

 

The Company’s revenue generated from the “Ai Bian Quan Qiu” platform is subject to VAT at a rate of 6% and subject to surcharges at a rate of 12% of the VAT payable.

  

Basic and Diluted Income (Loss) Per Share

 

The Company computes income (loss) per share in accordance with FASB ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earnings per share on the face of the statement of operations. The earnings per share after the reverse stock split is presented retrospectively as if the reverse split had occurred at the very beginning of the business. Basic loss per share is computed by dividing net income (loss) available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share is computed using the weighted average number of common shares and potential common shares outstanding during the period for warrants, options and restricted shares under treasury stock method, and for convertible debts under if-convertible method, if dilutive. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during the period and excludes all potential common shares if their effects are anti-dilutive.

 

In accordance with the Company’s convertible note agreements, the Note Holders have the option to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into common stock at a conversion price equal to a price which is 55% or 60% of the lowest trading price during the 10 or 20 days prior to the day that the Holder requests conversion. 55% is applicable to EMA Financial whereas 60% applies for the other counterparties. The lowest trading price during 10 days prior to conversion is applicable to East Capital and Fidelis Capital, whereas the other counterparties utilize the lowest trading price during the preceding 20 days. The number of diluted shares from convertible notes is calculated with the assumption of converting all the outstanding principal balance and unpaid interest expense to common shares at the beginning of the period or at the time of issuance, if later.

 

The number of diluted shares from warrants is the upper limit to which warrants can be converted into common shares and adjusted for anti-dilution clauses.

 

 F-11 

 

The Company has prepaid all the remaining convertible notes and exercised all the warrants as of November 30, 2021. As such, 0 potentially diluted shares were from convertible notes and warrants as of November 30, 2021, whereas 45,230,142 potentially diluted shares were from convertible notes and 4,381,313 potentially diluted shares were from warrants as of November 30, 2020.

Diluted shares NOT included in basic loss per share computation  As of November 30,
  2021  2020
Warrants         4,381,313 
Convertible notes         45,230,142 

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” to improve the effectiveness of disclosures in the notes to financial statements related to recurring or nonrecurring fair value measurements by removing amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. The new standard requires disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments in this update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

 

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes” to remove specific exceptions to the general principles in Topic 740 and to simplify accounting for income taxes. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

 

In January 2020, the FASB issued ASU 2020-01, “Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815,” which clarifies the interaction of the accounting for equity investments under Topic 321 and investments accounted for under the equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of this accounting standard update on its consolidated financial statements.

 

 F-12 

 

NOTE 3 –PREPAID EXPENSES

 

Prepaid expense was $24,478 and $13,566 as of November 30, 2021 and August 31, 2021, respectively. Prepaid expense as of November 30, 2021 primarily includes $15,145 prepayment of rents.

 

NOTE 4 – SUBSCRIPTION RECEIVABLE

 

Subscription receivable is cash not yet collected from the shareholders for issuance of common stock. As of November 30, 2021, the company has no Subscription receivable. As of August 31, 2021, the subscription receivable balance of $87,239 was cash to be collected from 3 million Put shares to Peak One Opportunity Fund LP

 

NOTE 5 – FIXED ASSETS AND LEASEHOLD IMPROVEMENT

 

The Company capitalized the renovation cost as leasehold improvement and the cost of furniture and appliances as fixed asset. Leasehold improvement relates to renovation and upgrade of an office and an offline display store. The leasehold improvement is depreciated over 3 years which equal the terms of the operating lease for renting an office. The furniture and appliances are depreciated over 7 and 5 years, respectively.

 

The depreciation expense was $13,300 and $13,148 for three months November 31, 2021 and November 30, 2020, respectively.

 

   November 30, 2021  August 31, 2021
Leasehold improvement  $146,304   $146,304 
Appliances and furniture   25,974    25,974 
 Total cost   172,278    172,278 
 Accumulated depreciation   (131,873)   (118,573)
 Property and equipment, net  $40,405   $53,705 

 

NOTE 6 – INTANGIBLE ASSETS

 

As of November 30, 2021 and August 31, 2021, the balance of intangible assets are as follows;

 

   November 30, 2021  August 31, 2021
Patent  $500,000   $500,000 
Movie copyrights - Love over the world   853,333    853,333 
Sitcom copyrights - Chujian   640,000    640,000 
Movie copyrights - Huafeng   422,400    422,400 
Movie copyrights - Our treasures   936,960    936,960 
Movie and TV series broadcast rights   2,439,840    2,439,840 
Total cost   5,792,533    5,792,533 
Less: Accumulated amortization   (2,480,295)   (1,793,728)
Intangible asset, net  $3,312,238   $3,998,805 

 

Intangible assets include 1) a patent obtained from Guangzhou Shengshituhua Film and Television Company Limited as a worldwide license to a video synthesis and release system for mobile communications equipment, 2) copyrights for the movie “Love over the world”, “Huafeng”, “Our treasures” and the sitcom “Chujian”, and 3) broadcast rights for fifty nine movie and TV series. The amortization expense for three months ended November 30, 2021 and November 30, 2020 was $686,567 and $140,726, respectively.

 

 F-13 

 

The estimated amortization expense for each of the two succeeding years is as follows. The intangible assets as of November 30, 2021 will be fully amortized in the fiscal year of 2023.

 

Year ending November 30,  Amortization expense
2022   $2,580,541 
2023   $731,697 

 

NOTE 7 – RIGHTS-TO-USE OPERATING LEASE ASSETS, NET 

 

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

 

   November 30, 2021  August 31, 2021
Right-to-use gross asset  $1,303,393   $223,237 
Less: accumulated amortization   (226,714)   (175,410)
Right-to-use asset, net  $1,076,679   $47,827 

 

The estimated amortization expenses for succeeding years is as follows: 

 

Year ending November 30,  Amortization expense
 2022   $229,675 
 2023    200,970 
 2024    202,235 
 2025    203,854 
 2026    205,525 
 2027    34,420 
 Total lease payments   $1,076,679 

  

NOTE 8 – LONG-TERM PREPAYMENT

 

In September 2019, the Company entered into an agreement with Guangzhou Yuezhi Computer Ltd. For upgrading software of the “Ai Bian Quan Qiu” platform at a cost of $128,000. $108,800 was paid upon signing the agreement and recorded as long-term prepayment in Q1, FY2020. As COVID-19 restricted crowd-gathering, “Ai Bian Quan Qiu” platform has not generated any revenue since mid-January, 2020, the Company impaired 80% of the “Ai Bian Quan Qiu” platform intangible asset value in Q2 FY2020 and the remaining 20% intangible asset in Q4 FY2020. As such, $108,800 prepayment was expensed as research and development expense from the previously recognized long-term prepayment asset in FY2020.

 

As of November 30, 2021, the long-term prepayment balance of $883,200 relates to movie copyrights and broadcast rights for movies as below:

 

  In November 2019, the Company acquired a broadcast right of “Lushang” (English name: “On the Way”) from All In One Media Ltd for online streaming at a price of $256,000. This broadcast right permits online streaming globally and has been fully paid. As “Lushang” has not yet been approved for screening by the Chinese government, the payment of $256,000 was recorded as long-term prepayment

 

  In November 2019, the Company acquired a broadcast right of “Qi Qing Kuai Che” (English name: “Confusion”) from All In One Media Ltd for online streaming at a price of $115,200. This broadcast right only allows online streaming outside China. In July 2021, the Company acquired the full movie copyright for both domestic and overseas with an additional cost of $908,800, and the total price is $1,024,000. As of November 30, 2021, $627,200 has been paid. As this movie has not yet been fully paid or approved for screening by the Chinese government, the total payment of $627,200 was recorded as long-term prepayment.

 

NOTE 9 – CONVERTIBLE NOTES

 

On November 18, 2019, the Company closed a private financing with EMA Financial, LLC (“EMA Financial” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $250,000, and upon issuance, the Company is expected to receive net proceeds of $228,333 after subtracting an original issue discount of $21,667 per the Note agreement. This Note carries a prorated original issue discount of up to $21,667 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.

 

 F-14 

 

As part of initial closing the outstanding principal amount shall be $75,000 and the Holder shall pay $68,500 of the consideration (the “First Tranche”).  Out of $68,500 consideration, the Company has received $64,737 cash from EMA Financial with the remaining $3,763 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 9 months with the maturity date on August 18, 2020.  The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 55.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading Days on which at least 100 shares of common stock were traded including and immediately preceding the Conversion Date.

 

In connection with the issuance of the Note, the Company granted EMA Financial a five-year cashless warrant (the “Warrant”) to purchase 30,000 shares of common stock at an exercise price of $12.5 per share. As of November 30, 2020, EMA Financial exercised 100% of the total warrant shares to acquire 45,851,221 common shares through cashless exercises.

 

On December 13, 2019, the Company entered into a Securities Purchase Agreement with Peak One Opportunity Fund, L.P., a Delaware limited partnership (“Peak One” or the “Holder”), pursuant to which we issued and sold to the Peak One a convertible promissory note. The Note has an original principal amount of $235,000, and upon issuance, the Company is expected to receive net proceeds of $211,500 after subtracting an original issue discount of $23,500 per the Note agreement. This Note carries a prorated original issue discount of up to $23,500 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.

 

As part of initial closing the outstanding principal amount shall be $85,000 and the Holder shall pay $76,500 of the consideration (the “First Tranche”). Out of $76,500 consideration, the Company has received $65,312 cash from Peak One with the remaining $11,188 spent as legal expense for note issuance and due diligence fees. Peak One has converted all the convertible notes into 1,096,846 common shares by July 16th, 2020.

 

The term of this convertible note is 1 year with the maturity date on December 9, 2020. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features. The conversion price shall equal to the lesser of (a) $10.00 or (b) Sixty percent (60%) of the lowest closing bid price (as reported by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of the date of conversion of the Debentures (provided, further, that if either the Company is not DWAC Operational at the time of conversion or the Conversion Price is less than $0.01 per share, then sixty percent (60%) shall automatically adjust to Fifty percent (50%) of the lowest closing bid price (as reported by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately preceding the date of conversion of the Debenture), subject in each case to equitable adjustments resulting from any stock splits, stock dividends, recapitalizations or similar events.

 

In connection with the issuance of the Note, the Company granted Peak One a five-year cashless warrant (the “Warrant”) to purchase 10,000 shares of common stock at an exercise price of $10 per share. As of November 30, 2020, Peak One exercised 100% of the total warrant shares to acquire 3,720,326 common shares through cashless exercises.

 

On January 8, 2020, the Company entered into a Securities Purchase Agreement with Crown Bridge Partners, LLC, a New York limited company (“Crown Bridge”), pursuant to which the Company issued and sold to Crown a convertible promissory note, dated January 8, 2020, in the principal amount of $121,500. Upon issuance, the Company is expected to receive net proceeds of $109,500 after subtracting an original issue discount of $12,000 per the Note agreement. This Note carries a prorated original issue discount of up to $12,000 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.

 

As part of initial first tranche closing on January 8th, 2020 the outstanding principal amount shall be $40,500 and the Holder shall pay $36,500 of the consideration (the “First Tranche”). Out of $36,500 consideration, the Company has received $34,992 cash from Crown Bridge with the remaining $1,508 spent as legal expense for note issuance and due diligence fees.

 

 F-15 

 

As part of the second tranche closing on July 23rd, 2020 the outstanding principal amount shall be $50,000 and the Holder shall pay $47,500 of the consideration (the “Second Tranche”). Out of $47,500 consideration, the Company has received $42,987 cash from Crown Bridge with the remaining $4,513 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 1 year with the maturity date on January 8, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal lesser (i) fifteen percent (15%) per annum or (ii) the maximum amount permitted by law from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The Conversion Price shall be the lesser of (i) the lowest closing price of the Common Stock during the previous twenty (20) Trading Day period ending on the latest complete Trading Day prior to the date of this Note or (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events) (also subject to adjustment as further described herein). The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein) (representing a discount rate of 40%). “Market Price” means the lowest one (1) Trading Price (as defined below) for the Common Stock during the twenty (20) Trading Day period ending on the last complete Trading Day prior to the Conversion Date.

 

“Trading Price” means, for any security as of any date, the lesser of the (i) lowest traded price and (ii) lowest closing bid price on the Over-the-Counter Pink Marketplace, OTCQB, or applicable trading market (the “Principal Market”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the Principal Market is not the principal trading market for such security, on the principal securities exchange or trading market where such security is listed or traded or, if the lowest intraday trading price of such security is not available in any of the foregoing manners, the lowest intraday price of any market makers for such security that are quoted on the OTC Markets

 

 In connection with the issuance of each tranche of the Note, the Company granted Crown Bridge a five-year cashless warrant (the “Warrant”) to purchase 4,680 shares of common stock at an exercise price of $12.5 per share.

 

On December 31, 2019, the Company closed a private financing with Auctus Capital Partners, LLC, (“Auctus” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $75,000 with no original discount upon issuance.

 

As part of initial closing the outstanding principal amount shall be $75,000 and the Holder shall pay $75,000 of the consideration (the “First Tranche”). Out of $75,000 consideration, the Company has received $59,342 cash from Auctus with the remaining $15,658 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 9 months with the maturity date on September 30, 2020. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal the lesser of (i) twenty-four percent (24%) per annum and (ii) the maximum amount permitted under law from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price is the lesser of: (i) the lowest closing price of the Common Stock during the previous twenty (20) Trading Day period ending on the latest complete Trading Day prior to the date of this Note, and (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein) (representing a discount rate of 40%). “Market Price” means the lowest Trading Price (as defined below) for the Common Stock during the twenty (20) Trading Days on which at least 100 shares of Common Stock were traded including and immediately preceding the Conversion Date. “Trading Price” means, for any security as of any date, the lowest trade price on the OTC Pink, OTCQB or applicable trading market as reported by a reliable reporting service (“Reporting Service”) designated by the Holder or, if the OTC Pink is not the principal trading market for such security, the trading price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no trading price of such security is available in any of the foregoing manners, the average of the trading prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.

 

 F-16 

 

On February 13, 2020, the Company closed a private financing with East Capital Investment Corporation (“East Capital” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $50,000 with no original discount upon issuance.

 

As part of initial closing the outstanding principal amount shall be $50,000 and the Holder shall pay $50,000 of the consideration (the “First Tranche”). Out of $50,000 consideration, the Company has received $43,492 cash from EMA Financial with the remaining $6,508 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 1 year with the maturity date on February 13, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features. The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties.

 

On February 19, 2020, the Company closed a private financing with Fidelis Capital, LLC, (“Fidelis” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $50,000 with no original discount upon issuance.

 

As part of initial closing the outstanding principal amount shall be $50,000 and the Holder shall pay $50,000 of the consideration (the “First Tranche”). Out of $50,000 consideration, the Company has received $43,487 cash from Fidelis with the remaining $6,513 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 1 year with the maturity date on February 19, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features. The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties.

 

 On March 12, 2020, the Company closed a private financing with Armada Capital Partners, LLC, (“Armada” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $38,500 and an original issue discount of $3,500 per the Note agreement.

 

As part of initial closing the outstanding principal amount shall be $38,500 and the Holder shall pay $35,000 of the consideration (the “First Tranche”). Out of $35,000 consideration, the Company has received $32,992 cash from Fidelis with the remaining $2,008 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 1 year with the maturity date on March 12, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features. The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) days prior to the day that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties. In connection with the issuance of the Armada Note, the Company granted Armada a five-year cashless warrant (the “Warrant”) to purchase 4,200 shares of the Company’s common stock at an exercise price of $12.50 per share.

 

On July 17, 2020, the Company closed a private financing with EMA Financial, LLC (“EMA Financial” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $50,000, and upon issuance, carries a prorated original issue discount of up to $2,500 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase and sale of the Note, which is included in the principal balance of this Note.

 

As part of initial closing the outstanding principal amount shall be $50,000 and the Holder shall pay $47,500 of the consideration. Out of $47,500 consideration, the Company has received $42,987 cash from EMA Financial with the remaining $4,513 spent as legal expense for note issuance and due diligence fees.

 

 F-17 

 

The term of the convertible note is 1 year with the maturity date on July 17, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.

 

On July 24, 2020, the Company closed a private financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $130,000 with no original discount upon issuance.

 

As part of initial closing the outstanding principal amount shall be $130,000 and the Holder shall pay $130,000 of the consideration (the “First Tranche”). Out of $130,000 consideration, the Company has received $116,079 cash from Power up with the remaining $13,921 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 1 year with the maturity date on July 24, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.

 

On August 18, 2020, the Company closed another private financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $63,000 with no original discount upon issuance.

 

As part of closing the outstanding principal amount shall be $63,000 and the Holder shall pay $63,000 of the consideration (the “Second Tranche”). Out of $63,000 consideration, the Company has received $54,939 cash from Power up with the remaining $8,061 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 1 year with the maturity date on August 18, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.

 

On September 1, 2020, the Company closed another private financing with Jefferson Street Capital LLC, (“Jefferson Street Capital” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $82,500 with $7,500 discount upon issuance.

 

As part of closing the outstanding principal amount shall be $82,500 and the Holder shall pay $75,000 of the consideration. Out of $75,000 consideration, the Company has received $68,949 cash from Jefferson Street Capital with the remaining $6,051 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 1 year with the maturity date on September 1, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.

 

 F-18 

 

On September 1, 2020, the Company closed another private financing with FirstFire Global Opportunities Fund, LLC, (“FirstFire Global” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $75,000 with $3,750 discount upon issuance.

 

As part of closing the outstanding principal amount shall be $75,000 and the Holder shall pay $71,250 of the consideration. Out of $71,250 consideration, the Company has received $61,498 cash from FirstFire Global with the remaining $9,752 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 9 months with the maturity date on June 1, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.

 

On October 8, 2020, the Company closed another private financing with Power Up Lending Group Ltd., (“Power up” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $55,000 with no original discount upon issuance.

 

As part of closing the outstanding principal amount shall be $55,000 and the Holder shall pay $55,000 of the consideration. Out of $55,000 consideration, the Company has received $47,579 cash from Power up with the remaining $7,421 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 1 year with the maturity date on October 8, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate will be equal to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.

 

On October 9, 2020, the Company closed another private financing with East Capital Investment Corp., (“East Capital” or the “Holder”) by issuing a convertible note (the “Note”). The Note has an original principal amount of $62,700 with no original discount upon issuance.

  

As part of closing the outstanding principal amount shall be $62,700 and the Holder shall pay $62,700 of the consideration. Out of $62,700 consideration, the Company has received $54,992 cash from Power up with the remaining $7,708 spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 1 year with the maturity date on October 9, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversion features. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading day prior to the Issue Date of this Note (the “Closing Price”) or (ii) 60.0% of the lowest traded price for the common stock on the principal market during the 20 consecutive trading immediately preceding the Conversion Date.

 

 F-19 

 

The below table summarizes all the convertible notes issued during the year ended August 31, 2020.

 

Counterparties   Issuance date   Maturity date   Principal Amount   Purchase Price   Discount on Note issuance   Note issuance costs   Proceeds Received (USD)
EMA Financial   November 18, 2019   August 18, 2020   $ 75,000     $ 68,500     $ 6,500     $ 3,763     $ 64,737
Peak One Opportunity   December 9, 2019   December 9, 2022   $ 85,000     $ 76,500     $ 8,500     $ 11,188     $ 65,312
Crown Bridge (Tranche I)   January 8, 2020   January 8, 2021   $ 40,500     $ 36,500     $ 4,000     $ 1,508     $ 34,992
Auctus Fund Note   December 31, 2019   September 30, 2020   $ 75,000     $ 75,000     $ -       $ 15,658     $ 59,342
East Capital   February 13, 2020   February 13, 2021   $ 50,000     $ 50,000     $ -       $ 6,508     $ 43,492
Fidelis Capital   February 19, 2020   February 19, 2021   $ 50,000     $ 50,000     $ -       $ 6,513     $ 43,487
Armada Partners   March 12, 2020   March 12, 2021   $ 38,500     $ 35,000     $ 3,500     $ 2,008     $ 32,992
EMA Financial   July 17, 2020   July 17, 2021   $ 50,000     $ 47,500     $ 2,500     $ 4,513     $ 42,987
Crown Bridge (Tranche II)   July 23, 2020   July 23, 2021   $ 40,500     $ 36,500     $ 4,000     $ 2,208     $ 34,292
Power Up Lending (Tranche I)   July 24, 2020   July 24, 2021   $ 130,000     $ 130,000     $ -       $ 13,921     $ 116,079
Power Up Lending  (Tranche II)   August 18, 2020   August 18, 2021   $ 63,000     $ 63,000     $ -       $ 8,061     $ 54,939
            $ 697,500     $ 668,500     $ 29,000     $ 75,849     $ 592,651

 

The below table summarizes all the convertible notes issued during the year ended August 31, 2021.

 

Counterparties   Issuance date  

Maturity

Date

  Principal Amount   Purchase Price   Discount on Note issuance   Note issuance costs   Proceeds Received (USD)
Jefferson Street Capital   September 1,2020   September 1, 2021     82,500       75,000       7,500       6,051       68,949
FirstFire Global   September 1,2020   June 1, 2021     75,000       71,250       3,750       9,752       61,498
Power Up Lending   October 8, 2020   October 8, 2021     55,000       55,000       -        7,421       47,579
East Capital   October 9, 2020   October 9, 2021     62,700       62,700       -        7,708       54,992
            $ 275,200     $ 263,950     $ 11,250     $ 30,932     $ 233,018

 

The following table summarizes the convertible note and derivative liability in the balance sheet at August 31, 2021:

       
Balance, August 31, 2020   $ 438,921
Issuance of Convertible Note Principal   $ 275,200
Issuance of MFN Principal   $ 15,000
Discount on Note issuance, net of amortization   $ 75,075
Accrued interest expense   $ 24,562
Converted Note Principal   $ (166,464)
Converted accrued and unpaid interest   $ (8,538)
Prepayment of Note Principal   $ (559,782)
Paid interest expense   $ (29,390)
Change in fair value of Derivative liability   $ (64,584)
 Balance, August 31, 2021   $  

 

 F-20 

 

The Company valued its derivatives liability using Monte Carlo simulation. Assumptions used as of August 31, 2021 include (1) risk-free interest rates of 0.06%, (2) expected equity volatility of 66.25% - 66.3%, (3) zero dividends, (4) discount for lack of marketability of 30% (5) remaining terms and conversion prices as set forth in the convertible note agreement, and (6) the common stock price of the underlying share on the valuation date of August 31, 2021.

 

The Company recognizes gain due to convertible feature of $64,584 in the income statement for the year ended August 31, 2021.

 

The Company prepaid nine convertible notes during the year ended August 31, 2021 as below:

 

Convertible Notes Beginning Principal after Note Conversion Total Interest Accrued Paid Date Paid Principal Paid Interest Principal balance Outstanding Payment amount Loss from prepaid convertible note
Crown Bridge (Tranche I)     1,082   2,641 12/9/20         (1,082) (2,641)                                 -    -   -  
Crown Bridge (Tranche II)   40,500   1,545 12/9/20        (40,500)  (1,545)                                 -   

  72,5001

 (26,732)1
EMA Financial  50,000   1,990 12/9/20        (50,000)  (1,990)                                 -     72,800  (20,810)
Power Up Lending    130,000   6,491 1/22/21      (130,000)  (6,491)                                 -    190,925  (54,434)
Power Up Lending    63,000   3,042 2/10/21        (63,000)  (3,042)                                 -    92,380  (26,338)
East Capital 62,700   3,114 4/7/21        (62,700)  (3,114)                                 -    87,467 (21,652)
Power Up Lending    55,000   2,746       4/7/21        (55,000)  (2,746)                                 -    80,797 (23,051)
Jefferson Street    82,500   4,097 3/1/21       (82,500)  (4,097)                                 -    116,975 (30,378)
FirstFire Global  75,000   3,724 3/1/21        (75,000) (3,724)                                 -    108,125 (29,401)
Total       559,782 29,390                   -       (559,782) (29,390)    -    821,969    (232,796)

 

1. The balance is the total of Crown Bridge Tranche I and Tranche II

 

The Holders converted convertible notes to common shares during the year ended August 31, 2021 as detailed below:

 

EMA Financial:

 

Conversion date   Beginning principal balance   Principal Amount Converted   Interest Amount Converted   MFN Principal   Total converted principals and unpaid interest   Closing
Fee
  Ending principal balance   Conversion Price   Converted
Shares
September 1, 2020     5,285       5,285       5,154                10,439       1,000              $ 0.00812       1,408,800
Total             5,285       5,154                10,439       1,000                       1,408,800

 

Auctus Capital Partners:

 

Conversion date   Beginning principal balance   Principal Amount Converted   Interest Amount Converted   MFN Principal   Total converted principals and unpaid interest   Closing
Fee
  Ending principal balance   Conversion Price   Converted
Shares
September 8, 2020     33,295       12,055       73                12,128       750       21,240     $ 0.00510       2,525,000
September 18, 2020     21,240       15,233       58                15,291       750       6,007     $ 0.00510       3,145,300
September 29, 2020     6,007       6,007       18       11,082       17,107       750              $ 0.00480       3,720,200
October 22, 2020                                3,918       3,918       750              $ 0.00216       2,161,240
Total             33,295       149       15,000       48,444       3,000                       11,551,740

 

*On September 29, 2020, $6,007 of the Auctus Capital convertible note was converted to 17,107 shares of common stock at a conversion price $0.0048, 60% of the lowest trading price in the 20 days prior to the conversion dates. Additional most-favored-nation (MFN) principal of $15,000 was triggered when the conversion price is lower than $0.1. The remaining Auctus Capital convertible note principal balance was $0, including $15,000 MFN principal.

 

 F-21 

  

East Capital:

 

Conversion date   Beginning principal balance   Principal Amount Converted   Interest Amount Converted   MFN Principal   Total converted principals and unpaid interest   Closing
Fee
  Ending principal balance   Conversion Price   Converted
Shares
September 8, 2020     26,600       13,300       250                13,550                13,300     $ 0.01020       1,328,431
September 25, 2020     13,300       13,300       129                13,429                       $ 0.00960       1,398,854
Total             26,600       379                26,979       —                         2,727,285

 

Fidelis Capital: 

 

Conversion date   Beginning principal balance   Principal Amount Converted   Interest Amount Converted   MFN Principal   Total converted principals and unpaid interest   Closing
Fee
  Ending principal balance   Conversion Price   Converted
Shares
September 1, 2020     41,000