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AB INTERNATIONAL GROUP CORP.

Date Filed : Apr 20, 2021

S-11abqq_s1.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER THE SECURITIESACT OF 1933

 

AB INTERNATIONALGROUP CORP.

(Exact name of registrant as specified in itscharter)

 

Nevada     37-1740351
(State of Incorporation)    

(IRS Employer

Identification Number)

 

48 Wall Street, Suite 1009,

New York, NY 10005

(852) 2622-2891

(Address, including zip code, and telephonenumber, including area code,

of registrant’s principal executive offices)

 

Copiesof all correspondence to: 

The Doney Law Firm

4955 S. Durango Rd. Ste. 165

Las Vegas, NV 89113
Tel. No.: (702) 982-5686
(Address, including zip code, and telephone, including area code)

 

Approximate date ofcommencement of proposed sale of the securities to the public:
From time to time after the effective date of this registration statement.

 

Ifany of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 underthe Securities Act of 1933, check the following box. 

 

Ifthis Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please checkthe following box and list the Securities Act registration statement number of the earlier effective registration statement forthe same offering. 

 

Ifthis Form is a post-effective amendment filed pursuant to rule 462(c) under the Securities Act, check the following box and listthe Securities Act registration statement number of the earlier effective registration statement for the same offering. 

 

Ifthis Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and listthe Securities Act registration statement number of the earlier effective registration statement for the same offering. 

 

Indicate by check mark whether the registrantis 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

  

Ifan emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period forcomplying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. 

 

CALCULATION OF REGISTRATION FEE

                 
Title of Each Class of Securities to be Registered   Amount to be
Registered(1)
  Proposed
Maximum
Offering Price
per Share(2)
  Proposed Maximum
Aggregate Offering
Price(2)
  Amount of
Registration Fee
Common Stock, par value $0.001 per share   28,989,199   $ 0.0861   $ 2,495,970   $ $272.31
Common Stock, par value $0.001 per share, issuable upon conversion of Series D Preferred Stock   40,872,483   $ 0.0861   $ 3,519,120.82   $ $383.94
Total   69,861,682       $ 6,015,090.82   $ 656.25

 

(1)         Pursuant to Rule 416(a) under the Securities Act of 1933, as amended, this registration statement shall be deemed tocover additional securities that may be offered or issued to prevent dilution resulting from splits, dividends or similar transactions.

 

(2)         Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(c) and (g) under the Securities Act, basedon the average of the high and low prices reported for the shares of Common Stock as reported on the OTCQB on April 19, 2021.

 

TheRegistrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date untilthe Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter becomeeffective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall becomeeffective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 
 

 

The information in thisprospectus is not complete and may be changed. The Selling Stockholders may not sell these securities until the registration statementfiled with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and itis not soliciting an offer to buy these securities in any state where the offer, solicitation or sale is not permitted.

 

PRELIMINARYPROSPECTUS, SUBJECT TO COMPLETION, DATED APRIL 20, 2021

 

AB INTERNATIONAL GROUP CORP.

 

Up to 69,861,682 Shares of Common Stock

 

Pursuant to this prospectus, Peak One OpportunityFund, L.P., a Delaware Limited Partnership (referred to herein as “Peak One”), is offering on a resale basis from timeto time an aggregate of up to 28,989,199 shares of common stock, par value $0.001 per share (the “Common Stock), of AB InternationalGroup Corp. (“AB International,” “we,” “our” or the “Company”), a Nevada corporation.These shares of Common Stock are purchasable by Peak One pursuant to the terms and conditions of an Equity Purchase Agreement thatwe entered into with Peak One on July 30, 2020 (the “Financing Agreement”). Pursuant to the Financing Agreement, wehave the right to “put”,” or sell, at our discretion, up to $10,000,000 worth of shares of Common Stock to PeakOne. This arrangement is also sometimes referred to herein as the “Equity Line.”

 

As of April 13, 2021, the 28,989,199 sharesof Common Stock registered for resale herein would represent approximately 17% of the Company’s public float. In connectionwith an Equity Line in prior registration statements on Form S-1, file numbers 333-249514 and 333-246252, Peak One sold 27,991,674shares of Common Stock. Because the total amount of shares to be sold pursuant to the Financing Agreement may not exceed one-thirdof our public float in a 12 month period, the 27,991,674 shares already sold must be added to the amount registered in this offering,or 28,989,199 shares, for a total amount of 56,980,873 shares, which collectively amounts to 33% of our public float.

 

Also pursuant to this prospectus, GHS Investments,LLC (referred to herein as “GHS Investments”) is offering on a resale basis from time to time an aggregate of up to46,153,847 shares of Common Stock issuable upon conversion of the Company’s Series D Preferred Stock (“Series D Preferred”)that GHS Investments may acquire pursuant to the terms and conditions of a Securities Purchase Agreement that we entered into withGHS Investments on March 10, 2021 (the “Securities Purchase Agreement”).

 

We are not selling any shares of Common Stockunder this prospectus and will not receive any of the proceeds from the sale of the Common Stock by either Peak One or GHS Investments(referred to herein together as the “Selling Stockholders”). However, we may receive up to an aggregate of $10 millionin proceeds from the sale of our Common Stock to Peak One pursuant to the Equity Line and up to $5 million in proceeds from thesale of Series D Preferred Stock to GHS Investments pursuant to the Securities Purchase Agreement.

 

The Selling Stockholders may sell all or a portionof the shares being offered pursuant to this Prospectus at fixed prices, at prevailing market prices at the time of sale, at varyingprices or at negotiated prices. For additional information regarding the methods of sale you should refer to the section entitled“Plan of Distribution” in this Prospectus.

 

The Selling Stockholders may be considered underwriterswithin the meaning of the Securities Act of 1933, and any broker-dealers or agents that are involved in selling the shares maybe deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In suchevent, any commissions received by such broker-dealers or agents, and any profit on the resale of the shares purchased by them,may be deemed to be underwriting commissions or discounts under the Securities Act of 1933. 

 

The Common Stock is quoted on the OTCQB, underthe symbol “ABQQ.” On April 19, 2021, the last reported sale price of the Common Stock on the OTCQB was $0.0879 pershare.

 

Investing in our common stock involvesa high degree of risk. Before deciding whether to invest in our securities, you should consider carefully the risks that wehave described on page 5 of this prospectus under the caption “Risk Factors” and in the documents incorporated byreference into this prospectus.

 

Neither the Securities and Exchange Commissionnor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthfulor complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is April 20, 2021.

 

 
 

 

TABLE OF CONTENTS

 

ABOUT THIS PROSPECTUS 1
PROSPECTUS SUMMARY 2
RISK FACTORS 5
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 15
USE OF PROCEEDS 16
DILUTION 16
SELLING STOCKHOLDERS 16
PLAN OF DISTRIBUTION 17
DESCRIPTION OF CAPITAL STOCK 19
DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS, AND CONTROL PERSONS 22
EXECUTIVE COMPENSATION 26
BUSINESS 28
MARKET PRICE OF THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS 30
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION 31
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS 36
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT 37
LEGAL MATTERS 38
EXPERTS 38
WHERE YOU CAN FIND MORE INFORMATION 38
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  39

 

We have not, and the Selling Stockholders havenot, authorized anyone to provide you with information other than that contained or incorporated by reference in this prospectusand any applicable prospectus supplement or amendment. We have not, and the Selling Stockholders have not, authorized any personto provide you with different information. This prospectus is not an offer to sell, nor is it an offer to buy, these securitiesin any jurisdiction where the offer is not permitted. The information contained or incorporated by reference in this prospectusand any applicable prospectus supplement or amendment is accurate only as of its date. Our business, financial condition, resultsof operations, and prospects may have changed since that date.

 

 
 

 

ABOUT THIS PROSPECTUS

 

This prospectus is part of a registration statementthat we have filed with the Securities and Exchange Commission (the “SEC”) pursuant to which the Selling Stockholdernamed herein may, from time to time, offer and sell or otherwise dispose of the securities covered by this prospectus. You shouldnot assume that the information contained in this prospectus is accurate on any date subsequent to the date set forth on the frontcover of this prospectus or that any information we have incorporated by reference is correct on any date subsequent to the dateof the document incorporated by reference, even though this prospectus is delivered or securities are sold or otherwise disposedof on a later date. It is important for you to read and consider all information contained in this prospectus, including the InformationIncorporated by Reference herein, in making your investment decision. You should also read and consider the information in thedocuments to which we have referred you under the captions “Where You Can Find More Information” and “Incorporationof Information by Reference” in this prospectus.

 

Neither we nor the Selling Stockholders haveauthorized any dealer, salesman or other person to give any information or to make any representation other than those containedor incorporated by reference in this prospectus. You must not rely upon any information or representation not contained or incorporatedby reference in this prospectus. This prospectus does not constitute an offer to sell or the solicitation of an offer to buy anyof our securities other than the securities covered hereby, nor does this prospectus constitute an offer to sell or the solicitationof an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation insuch jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are requiredto inform themselves about, and to observe, any restrictions as to the offering and the distribution of this prospectus applicableto those jurisdictions.

 

We further note that the representations, warrantiesand covenants made in any agreement that is filed as an exhibit to any document that is incorporated by reference in the accompanyingprospectus were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocatingrisk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover,such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warrantiesand covenants should not be relied on as accurately representing the current state of our affairs.

 

Unless the context otherwise requires, referencesin this prospectus to “AB International,” the “Company,” “we,” “us,” and “our”refer to AB International Group Corp.

 

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PROSPECTUS SUMMARY

 

The following is a summary of what we believeto be the most important aspects of our business and the offering of our securities under this prospectus. We urge you to readthis entire prospectus, including the more detailed financial statements, notes to the financial statements and other informationincorporated by reference from our other filings with the SEC. Each of the risk factors could adversely affect our business, operatingresults and financial condition, as well as adversely affect the value of an investment in our securities.

 

Overview

 

AB International Group Corp. (the "Company","we" or "us") was incorporated under the laws of the State of Nevada on July 29, 2013 and originally intendedto purchase used cars in the United States and sell them in Krygyzstan. The Company's fiscal year end is August 31.

 

We are an intellectual property (IP) and movieinvestment and licensing firm, focused on acquisitions and development of various intellectual property. We are engaged to acquisitionand 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 businessapplication (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 efficientservices. We generate revenues through an agency service fee from each matched performance. Due to the quarantine and continuouscontrol imposed by the state and local governments in areas affected by COVID-19, merchant advertising events have been suspendedfor 7 months. The Company decided to shut down the Ai Bian Quan Qiu platform, which has created an adverse impact on the businessand financial condition and hampered its ability to generate revenue and access sources of liquidity on reasonable terms.

 

On June 1, 2017, we entered into a Patent LicenseAgreement (the “Agreement”) pursuant to which Guangzhou Shengshituhua Film and Television Company Limited, a companyincorporated in China (“Licensor”), granted to us a worldwide license to a video synthesis and release system for mobilecommunications equipment (the “Technology”). The Technology is the subject of a utility patent in the People’sRepublic of China. Under the Agreement, we are able to utilize, improve upon, and sub-license the technology for an initial periodof one year from October 1, 2017 to September 30, 2018, subject to a right to renew. We were obligated to pay the Licensor $500,000within 30 days of the date of the Agreement and a royalty fee in the amount of 20% of any proceeds resulting from our utilizationof the Technology, whether in the form of sub-licensing fees or sales of licensed products. Our Chief Executive Officer, ChiyuanDeng and former Chief Executive Officer, Jianli Deng, jointly own and control Licensor. On October 10, 2017, we completed the paymentof $500,000 initial payment amount due under the Agreement. In October of 2019, the term of this sublicensing agreement was renewedand extended until December 31, 2021.

 

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

 

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

 

Covid-19

 

The full extent of the impact of the COVID-19pandemic on our business, operations and financial results will depend on numerous evolving factors that we may not be able toaccurately predict at the present time. In an effort to contain COVID-19 or slow its spread, governments around the world haveenacted various measures, including orders to close all businesses not deemed “essential,” isolate residents to theirhomes or places of residence, and practice social distancing when engaging in essential activities. We anticipate that these actionsand the global health crisis caused by COVID-19 will

 

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negatively impact business activity across the globe. The movie industry ingeneral has changed dramatically as a result of the pandemic restrictions. While movie theaters struggle to stay alive, onlinestreaming programming has increased. We have endeavored to stay with the trend for streaming services to remain competitive. Wehave experienced the negative impact in our results of operations and in our financial condition for the year ended August, 2020,especially with respect to the movie distribution end of our business. These impacts concern delays in delivering our movies andIP because of health restrictions imposed on certain public events that concern our business, including, among other things, theaters,indoor and outdoor performances, filming restrictions, music festivals, concerts and other such events, Some of these restrictionsinclude pandemic government mandated shutdowns and others restrictions on capacity gathered at these events, with some jurisdictionsimposing fines or revocation of business licensing, and other restrictions. As a result of these factors, our revenue was reducedfrom March to May of 2020. With immediate closures, the resultant industry and business specific delays have negatively affectedour company.

 

We plan to focus on the video streaming andother web based applications and expand our business into those areas that we believe we situate the company for continued andincreased revenues. As the pandemic is forecasted to worsen in the United States and other areas around the globe, we believe thatthe demand for our IP, online products and services offerings increases. While we cannot guarantee that the negative effects ofthe pandemic will not interfere with our ability to generate revenues, we intend to strengthen our position in this dynamic marketand position the company to best suit its shareholders.

 

Specific to our company operations, during thepandemic period, we have enacted precautionary measures to protect the health and safety of our employees and partners. These measuresinclude closing our office, having employees work from home, and eliminating all travel. While having employees work from homemay have a negative impact on efficiency and may result in negligible increases in costs, it does have an impact on our abilityto execute on our agreements to deliver our core products.

 

We will continue to actively monitor the situationand may take further actions that alter our business operations as may be required by federal, state, local or foreign authorities,or that we determine are in the best interests of our employees, customers, partners and stockholders. It is not clear what thepotential effects any such alterations or modifications may have on our business, including the effects on our customers, partners,or vendors, or on our financial results. 

 

Description of the Financing Agreement and the Securities PurchaseAgreement

 

Description of the Financing Agreement (Equity Line)

 

On July 30, 2020, we enteredinto an Equity Purchase Agreement (the “Financing Agreement”) with Peak One. Although we are not mandated to sell sharesunder the Financing Agreement, the Financing Agreement gives us the option to sell to Peak One, up to $10,000,000 worth of ourcommon stock over the period ending twenty-four (24) months after the date the Registration Statement of which this prospectusforms a part is deemed effective. In consideration for Peak One’s execution and performance under the Financing Agreement,the Company issued a warrant to purchase 750,000 shares of Common Stock, as Warrant Shares (as defined in the Financing Agreement),to Peak One in July 2020.

 

OnJuly 30, 2020, we also entered into a registration rights agreement with Peak One (the“Registration Rights Agreement”) whereby we are obligated to file a registration statement to register the resale ofthe purchase shares. The Registration Statement of which this prospectus forms a part isbeing filed to comply with the Registration Rights Agreement. We must our reasonable efforts to keep the registration statementcontinuously effective under the Securities Act until all of the Warrant Shares and purchase shares have been sold there underor pursuant to Rule 144.

 

Description of Securities Purchase Agreement (Series D PreferredStock Issuance)

 

On March 10, 2021, we entered a Securities PurchaseAgreement (the “Securities Purchase Agreement”) with GHS Investments, whereby GHS Investments agreed to purchase, intranches, up to Five Million Dollars ($5,000,000) of our Series D Preferred Stock in exchange for Five Thousand (5,000) sharesof Series D Preferred Stock. The first tranche, which was paid at execution of the Securities Purchase Agreement, was for the purchaseof Two Hundred and Fifty (250) shares of Series D Preferred Stock for Two Hundred and Fifty Thousand Dollars ($250,000). The remainingtranches (each consisting of the sale of Five Hundred shares of Series D Preferred Stock for Five Hundred Thousand Dollars ($500,000))shall occur so long as the Equity Conditions are met as defined in the Securities Purchase Agreement.

 

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These Equity Conditions include items such as:there are no uncured Events of Defaults under the Securities Purchase Agreement, the closing price of the Common Stock for eachof the thirty (30) Trading Days prior to the date of such additional Closing exceeds $0.01, (iii) the average daily trading volumeof the Company’s Common Stock for each of the thirty (30) Trading Days prior to the date of such additional Closing exceeds$200,000 and (iv) there remains an effective Registration Statement available to the Purchaser for the resale of the shares ofCommon Stock issuable upon conversion of the Preferred Stock. However, if the Equity Conditions are not met, GHS shall purchasesuch number of shares of Series D Preferred Stock, at the per share price of $1,000, that equates to one hundred percent (100%)of the average daily trading dollar volume for the ten (10) Trading Days preceding the relevant tranche.

 

The Company issued to GHS commitment sharesof 75 shares of Series D Preferred Stock. We have agreed to register the shares of Common Stock that may be issued upon conversionof the Series D Preferred Stock. 

 

THE OFFERING

 

Common stock to be offered by the Selling Stockholder   Up to 69,861,682 shares
     
Shares of Common Stock outstanding before this offering   176,457,310 shares, as of April 12, 2021
     
Shares of Common Stock outstanding after this offering

  246,318,992 shares.  This assumes that the Company has fully committed on the Equity Line up to the maximum of shares allowable under this Prospectus and has converted of all Series D Preferred Stock into shares of Common Stock.
     
Use of Proceeds   We will not receive any proceeds from the sale of Common Stock by the Selling Stockholder. We may receive up to an aggregate of $10 million in proceeds from the sale of our Common Stock to Peak One pursuant to the Equity Line and up to $5 million in proceeds from the sale of Series D Preferred Stock to GHS Investments pursuant to the Securities Purchase Agreement.
     
Plan of Distribution   The Selling Stockholder may, from time to time, sell any or all of their shares of our Common Stock on the stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be fixed or negotiated prices. For further information, see “Plan of Distribution” beginning on page 5.
     
Risk Factors   This investment involves a high degree of risk. See “Risk Factors” for a discussion of factors you should consider carefully before making an investment decision.
     
OTCQB symbol   “ABQQ.”

  

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RISK FACTORS

 

This investment has a high degree of risk. Beforeyou invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus.If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the valueof our stock could go down. This means you could lose all or a part of your investment.

 

Risk Related to Covid 19

 

Our business and future operations maybe adversely affected by epidemics and pandemics, such as the recent COVID-19 outbreak.

 

We may face risks related to health epidemicsand pandemics or other outbreaks of communicable diseases, which could result in a widespread health crisis that could adverselyaffect general commercial activity and the economies and financial markets of the country as a whole. For example, the recent outbreakof COVID-19, which began in China, has been declared by the World Health Organization to be a “pandemic,” has spreadacross the globe, including the United States of America.

 

A health epidemic or pandemic or other outbreakof communicable diseases, such as the current COVID-19 pandemic, poses the risk that we, or potential business partners may bedisrupted or prevented from conducting business activities for certain periods of time, the durations of which are uncertain, andmay otherwise experience significant impairments of business activities, including due to, among other things, operational shutdownsor suspensions that may be requested or mandated by national or local governmental authorities or self-imposed by us, our customersor other business partners. While it is not possible at this time to estimate the impact that COVID-19 could have on our business,potential customers, potential suppliers or other current or potential business partners, the continued spread of COVID-19, themeasures taken by the local and federal government, actions taken to protect employees, and the impact of the pandemic on variousbusiness activities could adversely affect our results of operations and financial condition.

 

The COVID-19 pandemic has required our managementto focus their attention primarily on responding to the challenges presented by the pandemic, including ensuring continuous operations,and adjusting our operations to address changes in the virtual payments industry. Due to measures imposed by the local governmentsin areas affected by COVID-19, businesses have been suspended due to quarantine intended to contain this outbreak and many peoplehave been forced to work from home in those areas. As a result, advertiser merchants orders for event has been suspended, whichhas had an adverse impact on our business and financial condition and has hampered our ability to generate revenue and access usualsources of liquidity on reasonable terms.

 

“Ai Bian Quan Qiu” utilizes theartificial intelligence (AI) matching technology to instantly and accurately match performers and advertisers or merchants. Thecompany charges agency service fees for each successful event matched through the platform. It’s one of our main businessand revenue streaming. Since no large social gathering is allowed as a result of COVID-19, there has been no revenue generatedfrom the performance matching platform (Ai Bian Quan Qiu) since the end of January, 2020. In February of 2020, the Company decidedthat 80% of the carrying amount of Ai Bian Quan Qiu platform and its Wechat official account should be impaired. The platform operatinghasn’t restart, most of the users are no longer use this services.

 

Risks Associated With Doing Business in Hong Kong

 

Political consideration of Hong Kong

 

While we are planning to move our principalbusiness location to New York in the near future, our business operations are principally based in Hong Kong. Accordingly, ourbusiness operation and financial conditions will be affected by the political and legal developments in Hong Kong. Any adverseeconomic, social and/or political conditions, material social unrest, strike, riot, civil disturbance or disobedience, as wellas significant natural disasters, may affect the market may adversely affect our business operations. Hong Kong is a special administrativeregion of the PRC and the basic policies of the PRC regarding Hong Kong are reflected in the Basic Law, namely, Hong Kong’sconstitutional document, which provides

 

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Hong Kong with a high degree of autonomy and executive, legislative and independent judicialpowers, including that of final adjudication under the principle of “one country, two systems”. However, there is noassurance that there will not be any changes in the economic, political and legal environment in Hong Kong in the future. Sincea substantial part of our operations is based in Hong Kong, any change of such political arrangements may pose immediate threatto the stability of the economy in Hong Kong, thereby directly and adversely affecting our results of operations and financialpositions.

 

The Hong Kong protests that begun in 2019 areongoing protests in Hong Kong (the “Hong Kong Protests”) triggered by the introduction of the Fugitive Offenders amendmentbill by the Hong Kong government. If enacted, the bill would have allowed the extradition of criminal fugitives who are wantedin territories with which Hong Kong does not currently have extradition agreements, including mainland China. This led to concernsthat the bill would subject Hong Kong residents and visitors to the jurisdiction and legal system of mainland China, thereby underminingthe region’s autonomy and people’s civil liberties. Various sectors of the Hong Kong economy have been adversely affectedas the protests turned increasingly violent. Most notably, the airline, retail, and real estate sectors have seen their sales decline.

 

Under the Basic Law of the Hong Kong SpecialAdministrative Region of the People’s Republic of China, Hong Kong is exclusively in charge of its internal affairs and externalrelations, while the government of the PRC is responsible for its foreign affairs and defense. As a separate customs territory,Hong Kong maintains and develops relations with foreign states and regions. We cannot assure that the Hong Kong Protests will notaffect Hong Kong’s status as a Special Administrative Region of the People’s Republic of China and thereby affectingits current relations with foreign states and regions.

 

Our revenue is susceptible to the ongoing HongKong Protests as well as any other incidents or factors which affect the stability of the social, economic and political conditionsin Hong Kong. Any drastic events may adversely affect our business operations. Such adverse events may include changes in economicconditions and regulatory environment, social and/or political conditions, civil disturbance or disobedience, as well as significantnatural disasters. Given the relatively small geographical size of Hong Kong, any of such incidents may have a widespread effecton our business operations, which could in turn adversely and materially affect our business, results of operations and financialcondition.

 

We cannot assure that the Hong Kong Protestswill end in the near future and that there will be no other political or social unrest in the near future or that there will notbe other events that could lead to the disruption of the economic, political and social conditions in Hong Kong. If such eventspersist for a prolonged period of time or that the economic, political and social conditions in Hong Kong are to be disrupted,our overall business and results of operations may be adversely affected.

 

Costs of conducting business in Hong Kongand globally

 

Because we operate our business in Hong Kongand other countries, our business is subject to risks associated with doing business globally. Accordingly, our business and financialresults in the future could be adversely affected due to a variety of factors, including: changes in a specific country’sor region’s political and cultural climate or economic condition; unexpected changes in laws and regulatory requirementsin local jurisdictions; difficulty of effective enforcement of contractual provisions in local jurisdictions; inadequate intellectualproperty protection in certain countries; enforcement of anti-corruption and anti-bribery laws; trade-protection measures, importor export licensing requirements and fines, penalties or suspension or revocation of export privileges; the effects of applicablelocal tax regimes and potentially adverse tax consequences; and significant adverse changes in local currency exchange rates.

 

Risks Related to Our Financial Condition

 

Because we have a limited operating history,you may not be able to accurately evaluate our operations.

 

We have had limited operations to date and havegenerated limited revenues. Therefore, we have a limited operating history upon which to evaluate the merits of investing in ourcompany. Potential investors should be aware of the difficulties normally encountered by new companies and the high rate of failureof such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complicationsand delays encountered in connection with the operations that we plan to undertake. These potential problems include, but are notlimited to, unanticipated problems relating

 

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to the ability to generate sufficient cashflow to operate our business, and additional costs and expenses that may exceed current estimates. We expect to incur significantlosses into the foreseeable future. We recognize that if the effectiveness of our business plan is not forthcoming, we will notbe able to continue business operations. There is no history upon which to base any assumption as to the likelihood that we willprove successful, and it is doubtful that we will continue to generate operating revenues or ever achieve profitable operations.If we are unsuccessful in addressing these risks, our business will most likely fail.

 

Because we have generated limited revenuesand currently operate at a loss, we are completely dependent on the continued availability of financing in order to continue ourbusiness. There can be no assurance that financing sufficient to enable us to continue our operations will be available to us inthe future.

 

We have sold several convertible promissorynotes with discount to market conversions that have the effect of driving down our stock price, from which we may never recover.

 

In 2019 and 2020, we have issued several convertiblepromissory notes to accredited investors. These notes contain terms that allow for discounted conversions from the company’sstock price, with most at a 40% discount. These notes also contain strict terms for compliance and penalty provisions that couldcost us more than the principal and accrued interest. They also have most favored nation clauses that force us to offer more favorableterms in subsequent offerings. If we are unable to secure a better form of financing, or pay off the notes before they convert,we could experience a significant drop in our stock price and face other negative consequences. Because we are penny stock, andthere is a limited market for our shares, investor may not be able to recoup their investment and noteholders may not be able tosell their converted shares into the market. We may be forced to pay off the convertible debt, with existing or raised funds, whichmight not be available. We could be at risk of default with the noteholders. If that happens, we may be forced to defend the lawsuits,liquidate assets, etc., which would be costly and turn management’s attention away from the business. We could go out ofbusiness and you could lose your entire investment.

 

Investors may experience dilution of theirownership interests because of the future issuance of additional shares of our common stock.

 

We may issue additional shares of our commonstock or other securities that are convertible into or exercisable for common stock in the future in connection with hiring orretaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes,resulting in the dilution of the ownership interests of our stockholders at that time. At December 10, 2020, we had convertiblenotes with an aggregate principal amount of $468,200 that may convert into our common stock at a conversion price equal to a pricewhich is a 40% discount to the lowest trading price in the twenty (20) days prior to the day that the Holder requests conversionand warrants to purchase an aggregate of 1,254 shares of our common stock at a weighted average exercise price of $0.10 per share.We had to reduce the exercise price per share of certain of the warrants as result of a provision that allows the holder to reducethe exercise price in the event of a more favored exercised price used by the company. The adjustment to $0.01672 per share resultedfrom our issuing such restricted stock at a price per share less than the exercise price of such warrants.

 

The exercise of such outstanding convertiblenotes and warrants and the future issuance of any such additional shares of common stock, will result in further dilution of yourinvestment and may create downward pressure on the trading price of the common stock. There can also be no assurance that we willnot be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capitalraising efforts, including at a price (or exercise prices) below the price at which shares of our common stock are currently tradedon the OTCQB, and new investors could gain rights superior to those of our stockholders at that time.

 

Risks Related toIntellectual Property

 

Certain aspectsof our technology are not protectable by patent or copyright.

 

Certainparts of our know-how and technology are not patentable. To protect our proprietary position in such know-how and technology, werequire all employees, consultants, advisors and collaborators with access to our technology to enter into confidentiality andinvention ownership agreements with us. We cannot assure you; however, that these agreements will provide meaningful protectionfor our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Further, inthe absence of patent protection, competitors who independently develop substantially equivalent technology may harm our business.

 

 7 

  

Patent litigationpresents an ongoing threat to our business with respect to both outcomes and costs.

 

Itis possible that litigation over patent matters with one or more competitors could arise. We could incur substantial litigationor interference costs in defending ourselves against suits brought against us or in suits in which we may assert our patents againstothers. If the outcome of any such litigation is unfavorable, our business could be materially adversely affected. To determinethe priority of inventions, we may also have to participate in interference proceedings declared by the United States Patent andTrademark Office, which could result in substantial cost to us. Without additional capital, we may not have the resources to adequatelydefend or pursue this litigation.

 

We may not beable to protect our proprietary technology, which could harm our ability to operate profitably.

 

Patentand trade secret protection is critical for the new technologies we utilize, artificial intelligence, machine learning and nanotechnologyand microfluidics, as well as the products and processes derived through them. Our success will depend, to a substantial degree,on our ability to obtain and enforce patent protection for our products, preserve any trade secrets and operate without infringingthe proprietary rights of others. We cannot assure you that:

 

§we will succeed in obtainingany patents in a timely manner or at all, or that the breadth or degree of protection of any such patents will protect our interests;
§the use of our technologywill not infringe on the proprietary rights of others;
§patent applications relatingto our potential products or technologies will result in the issuance of any patents or that, if issued, such patents will affordadequate protection to us or not be challenged, invalidated or infringed;
§patents will not issueto other parties, which may be infringed by our potential products or technologies, and
§we will continue to havethe financial resources necessary to prosecute our existing patent applications, pay maintenance fees on patents and patent applications,or file patent applications on new inventions.

 

The fields in whichwe operate have been characterized by significant efforts by competitors to establish dominant or blocking patent rights to gaina competitive advantage, and by considerable differences of opinion as to the value and legal legitimacy of competitors’purported patent rights and the technologies they actually utilize in their businesses.

 

Patents obtainedby other persons may result in infringement claims against us that are costly to defend and which may limit our ability to usethe disputed technologies and prevent us from pursuing research and development or commercialization of potential products.

 

Ifthird party patents or patent applications contain claims infringed by either our technology or other technology required to makeand use our potential products and such claims are ultimately determined to be valid, there can be no assurance that we would beable to obtain licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology.If we are unable to obtain such licenses at a reasonable cost, we may not be able to develop some products commercially. We maybe required to defend ourselves in court against allegations of infringement of third-party patents. Patent litigation is veryexpensive and could consume substantial resources and create significant uncertainties. Any adverse outcome in such a suit couldsubject us to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require usto cease using such technology.

 

We may not beable to adequately defend against piracy of intellectual property in foreign jurisdictions.

 

Considerableproducts research and development of software is being performed in countries outside of the United States, and a number of potentialcompetitors are located in these countries. The laws protecting intellectual property in some of those countries may not provideadequate protection to prevent our competitors from misappropriating our intellectual property. Several of these potential competitorsmay be further along in the process of product development and also operate large, company-funded research and development programs.As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or productcommercialization than we are able to achieve. Competitive products may render any products or product candidates that we developobsolete.

 

 8 

 

Risks Related to Legal Uncertainty

 

Compliance with changing regulation ofcorporate governance and public disclosure may result in additional expenses.

 

Changing laws, regulations and standards relatingto corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC regulations, are creating uncertaintyfor companies such as ours. These new or changed laws, regulations and standards are subject to varying interpretations in manycases due to their lack of specificity, and as a result, their application in practice may evolve over time as new guidance isprovided by regulatory and governing bodies, which could result in continuing uncertainty regarding compliance matters and highercosts necessitated by ongoing revisions to disclosure and governance practices. We are committed to maintaining high standardsof corporate governance and public disclosure. As a result, we intend to invest resources to comply with evolving laws, regulationsand standards, and this investment may result in increased general and administrative expenses and a diversion of management timeand attention from revenue-generating activities to compliance activities. If our efforts to comply with new or changed laws, regulationsand standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to practice, ourreputation may be harmed.

 

Failure to achieve and maintain effectiveinternal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our businessand operating results.

 

It may be time consuming, difficult and costlyfor us to develop and implement the additional internal controls, processes and reporting procedures required by the Sarbanes-OxleyAct. We may need to hire additional financial reporting, internal auditing and other finance staff in order to develop and implementappropriate additional internal controls, processes and reporting procedures.

 

If we fail to comply in a timely manner withthe requirements of Section 404 of the Sarbanes-Oxley Act regarding internal control over financial reporting or to remedy anymaterial weaknesses in our internal controls that we may identify, such failure could result in material misstatements in our financialstatements, cause investors to lose confidence in our reported financial information and have a negative effect on the tradingprice of our common stock.

Pursuant to Section 404 of the Sarbanes-OxleyAct and current SEC regulations, we are required to prepare assessments regarding internal controls over financial reporting and,furnish a report by our management on our internal control over financial reporting. We have begun the process of documenting andtesting our internal control procedures in order to satisfy these requirements, which is likely to result in increased generaland administrative expenses and may shift management time and attention from revenue-generating activities to compliance activities.While our management is expending significant resources in an effort to complete this important project, there can be no assurancethat we will be able to achieve our objective on a timely basis. Failure to achieve and maintain an effective internal controlenvironment or complete our Section 404 certifications could have a material adverse effect on our stock price.

 

In addition, in connection with our on-goingassessment of the effectiveness of our internal control over financial reporting, we may discover “material weaknesses”in our internal controls as defined in standards established by the Public Company Accounting Oversight Board, or the PCAOB. Amaterial weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihoodthat a material misstatement of the annual or interim financial statements will not be prevented or detected. The PCAOB defines“significant deficiency” as a deficiency that results in more than a remote likelihood that a misstatement of the financialstatements that is more than inconsequential will not be prevented or detected.

 

 9 

  

In the event that a material weakness is identified,we will employ qualified personnel and adopt and implement policies and procedures to address any material weaknesses that we identify.However, the process of designing and implementing effective internal controls is a continuous effort that requires us to anticipateand react to changes in our business and the economic and regulatory environments and to expend significant resources to maintaina system of internal controls that is adequate to satisfy our reporting obligations as a public company. We cannot assure you thatthe measures we will take will remediate any material weaknesses that we may identify or that we will implement and maintain adequatecontrols over our financial process and reporting in the future.

 

Any failure to complete our assessment of ourinternal control over financial reporting, to remediate any material weaknesses that we may identify or to implement new or improvedcontrols, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reportingobligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the resultsof the periodic management evaluations of our internal controls and, in the case of a failure to remediate any material weaknessesthat we may identify, would adversely affect the annual auditor attestation reports regarding the effectiveness of our internalcontrol over financial reporting that are required under Section 404 of the Sarbanes-Oxley Act. Inadequate internal controls couldalso cause investors to lose confidence in our reported financial information, which could have a negative effect on the tradingprice of our common stock.

 

Risks Associated with Management and Control Persons

 

If we fail to attract and retain qualifiedsenior executive and key technical personnel, our business will not be able to expand.

 

We are dependent on the continued availabilityof Chiyuan Deng, and the availability of new employees to implement our business plans. The market for skilled employees is highlycompetitive, especially for employees in the service industry. Although we expect that our compensation programs will be intendedto attract and retain the employees required for us to be successful, there can be no assurance that we will be able to retainthe services of all our key employees or a sufficient number to execute our plans, nor can there be any assurance we will be ableto continue to attract new employees as required.

 

Our personnel may voluntarily terminate theirrelationship with us at any time, and competition for qualified personnel is intense. The process of locating additional personnelwith the combination of skills and attributes required to carry out our strategy could be lengthy, costly and disruptive.

 

If we lose the services of key personnel, orfail to replace the services of key personnel who depart, we could experience a severe negative effect on our financial resultsand stock price. In addition, there is intense competition for highly qualified bilingual and “people friendly” personnelin the locations where we principally operate. The loss of the services of any key personnel, marketing or other personnel or ourfailure to attract, integrate, motivate and retain additional key employees could have a material adverse effect on our business,operating and financial results and stock price.

 

Mr. Deng owns a significant percentageof the voting power of our stock and will be able to exercise significant influence over the composition of our Board of Directors,matters subject to stockholder approval and our operations.

 

As of the date of this filing, Chiyuan Dengowns 100,000 shares of our Series A Preferred Stock, which has the voting power of 51% of the total vote of shareholders. As aresult of his equity ownership interest, voting power and the contractual rights described above, Mr. Deng currently is in a positionto influence, subject to our organizational documents and Nevada law, the composition of our Board of Directors and the outcomeof corporate actions requiring stockholder approval, such as mergers, business combinations and dispositions of assets, among othercorporate transactions. In addition, this concentration of voting power could discourage others from initiating a potential merger,takeover or other change of control transaction that may otherwise be beneficial to us, which could adversely affect the marketprice of our securities.

 

 10 

 

Risks Related to Our Legal Status

 

As an “emerging growth company”under the JOBS Act, we are permitted to rely on exemptions from certain disclosure requirements.

 

We qualify as an “emerging growth company”under the JOBS Act. As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements. Forso long as we are an emerging growth company, we will not be required to:

 

§have an auditor report on our internal controls overfinancial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act;

 

§comply with any requirement that may be adopted bythe Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s reportproviding additional information about the audit and the financial statements (i.e., an auditor discussion and analysis);

 

§submit certain executive compensation matters toshareholder advisory votes, such as “say-on-pay” and “say-on-frequency;” and

 

§disclose certain executive compensation related itemssuch as the correlation between executive compensation and performance and comparisons of the Chief Executive’s compensationto median employee compensation.

 

In addition, Section 107 of the JOBS Act alsoprovides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) ofthe Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delaythe adoption of certain accounting standards until those standards would otherwise apply to private companies. We have electedto take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparableto those of companies that comply with such new or revised accounting standards.

 

We will remain an “emerging growth company”for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our total annual gross revenuesexceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the SecuritiesExchange Act of 1934, which would occur if the market value of our ordinary shares that is held by non-affiliates exceeds $700million as of the last business day of our most recently completed second fiscal quarter or (iii) the date on which we have issuedmore than $1 billion in non-convertible debt during the preceding three year period.

 

Even if we no longer qualify for the exemptionsfor an emerging growth company, we may still be, in certain circumstances, subject to scaled disclosure requirements as a smallerreporting company. For example, smaller reporting companies, like emerging growth companies, are not required to provide a compensationdiscussion and analysis under Item 402(b) of Regulation S-K or auditor attestation of internal controls over financial reporting.

 

Until such time, however, we cannot predictif investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our commonstock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be morevolatile.

 

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Risks Related to Our Securities and the Over the Counter Market

 

If a market for our common stock doesnot develop, shareholders may be unable to sell their shares.

 

Our common stock is quoted under the symbol“ABQQ” on the OTCQB operated by OTC Markets Group, Inc, an electronic inter-dealer quotation medium for equity securities.We do not currently have an active trading market. There can be no assurance that an active and liquid trading market will developor, if developed, that it will be sustained.

 

Our securities are very thinly traded. Accordingly,it may be difficult to sell shares of our common stock without significantly depressing the value of the stock. Unless we are successfulin developing continued investor interest in our stock, sales of our stock could continue to result in major fluctuations in theprice of the stock.

 

Our common stock price may be volatile and couldfluctuate widely in price, which could result in substantial losses for investors.

 

The market price of our common stock is likelyto be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control,including:

 

§technological innovations or new products and servicesby us or our competitors;
§government regulation of our products and services;
§the establishment of partnerships with other technologycompanies;
§intellectual property disputes;
§additions or departures of key personnel;
§sales of our common stock
§our ability to integrate operations, technology,products and services;
§our ability to execute our business plan;
§operating results below expectations;
§loss of any strategic relationship;
§industry developments;
§economic and other external factors; and
§period to period fluctuations in our financial results.

 

Because we have nominal revenues to date, youshould consider any one of these factors to be material. Our stock price may fluctuate widely as a result of any of the above.

 

In addition, the securities markets have fromtime to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particularcompanies. These market fluctuations may also materially and adversely affect the market price of our common stock.

 

As a new investor, you will experiencesubstantial dilution as a result of future equity issuances.

 

In the event we are required to raise additionalcapital we may do so by selling additional shares of common stock thereby diluting the shares and ownership interests of existingshareholders.

 

Our stock is a penny stock. Trading ofour stock may be restricted by the SEC’s penny stock regulations and FINRA’s sales practice requirements, which maylimit a stockholder’s ability to buy and sell our stock.

 

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Our stock is a penny stock. The Securities andExchange Commission has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that hasa market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers whosell to persons other than established customers and “accredited investors”. The term “accredited investor”refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 orannual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior toa transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a formprepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market.The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation ofthe broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each pennystock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information,must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writingbefore or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a pennystock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock isa suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosurerequirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subjectto these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities.We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.

 

In addition to the “penny stock”rules promulgated by the Securities and Exchange Commission, the Financial Industry Regulatory Authority has adopted rules thatrequire that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investmentis suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealersmust make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectivesand other information. Under interpretations of these rules, the Financial Industry Regulatory Authority believes that there isa high probability that speculative low-priced securities will not be suitable for at least some customers. The Financial IndustryRegulatory Authority’ requirements make it more difficult for broker-dealers to recommend that their customers buy our commonstock, which may limit your ability to buy and sell our stock.

 

Rule 144 sales in the future may havea depressive effect on our stock price as an increase in supply of shares for sale, with no corresponding increase in demand willcause prices to fall.

 

All of the outstanding shares of common stockheld by the present officers, directors, and affiliate stockholders are “restricted securities” within the meaningof Rule 144 under the Securities Act of 1933, as amended. As restricted shares, these shares may be resold only pursuant to aneffective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under theAct and as required under applicable state securities laws. Rule 144 provides in essence that a person who is an affiliate or officeror director who has held restricted securities for six months may, under certain conditions, sell every three months, in brokeragetransactions, a number of shares that does not exceed the greater of 1.0% of a company’s outstanding common stock. Thereis no limit on the amount of restricted securities that may be sold by a non-affiliate after the owner has held the restrictedsecurities for a period of six months if the company is a current reporting company under the 1934 Act. A sale under Rule 144 orunder any other exemption from the Act, if available, or pursuant to subsequent registration of shares of common stock of presentstockholders, may have a depressive effect upon the price of the common stock in any market that may develop.

 

FINRA sales practice requirements mayalso limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock”rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommendingan investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for thatcustomer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must makereasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and otherinformation. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low pricedsecurities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommendthat their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect onthe market for our shares.

 

 13 

 

We do not intend to pay dividends.

 

We do not anticipate paying cash dividends onour common stock in the foreseeable future. We may not have sufficient funds to legally pay dividends. Even if funds are legallyavailable to pay dividends, we may nevertheless decide in our sole discretion not to pay dividends. The declaration, payment andamount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things,the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors our boardof directors may consider relevant. There is no assurance that we will pay any dividends in the future, and, if dividends are rapid,there is no assurance with respect to the amount of any such dividend.

 

We have the right to issue additionalcommon stock and preferred stock without consent of shareholders. This would have the effect of diluting investors’ ownershipand could decrease the value of their investment.

 

We are authorized to issue up to 1,000,000,000shares of common stock, of which there were 176,457,310 shares issued and outstanding as of April 12, 2021. In addition, our articlesof incorporation authorizes the issuance of up to 10,000,000 shares of preferred stock, the rights, preferences, designations andlimitations of which may be set by the Board of Directors. We have designated and authorized, one 100,000 share of Series A PreferredStock, 20,000 shares of Series B Convertible Preferred Stock, 1,000,000 shares of Series C Preferred Stock, and 5,075 shares ofSeries D Preferred Stock. As of April 12, 2021, there were issued and outstanding (i) 100,000 shares of our Series A PreferredStock, (ii) 20,000 shares of our Series B Preferred Stock, (iii) 280,025 shares of our Series C Preferred Stock, and (iv) 250 sharesof our Series D Convertible Preferred Stock.

 

The shares of authorized but undesignated preferredstock may be issued upon filing of an amended certificate of incorporation and the payment of required fees; no further shareholderaction is required. If issued, the rights, preferences, designations and limitations of such preferred stock would be set by ourBoard and could operate to the disadvantage of the outstanding common stock. Such terms could include, among others, preferencesas to dividends and distributions on liquidation. We have designated four series of preferred stock, four of which have sharesissued and outstanding. A description of the terms, rights and preferences of these series of preferred stock are described under“Description of Securities” beginning on page 3.

 

Risks Related to the Offering

 

Our existing stockholdersmay experience significant dilution from the sale of our common stock pursuant to the Peak One Financing Agreement.

 

The sale of our commonstock to Peak One in accordance with the Financing Agreement may have a dilutive impact on our shareholders. As a result, the marketprice of our common stock could decline. In addition, the lower our stock price is at the time we exercise our put options, themore shares of our common stock we will have to issue to Peak One in order to exercise a put under the Financing Agreement. Ifour stock price decreases, then our existing shareholders would experience greater dilution for any given dollar amount raisedthrough the offering.

 

The perceived risk of dilutionmay cause our stockholders to sell their shares, which may cause a decline in the price of our common stock. Moreover, the perceivedrisk of dilution and the resulting downward pressure on our stock price could encourage investors to engage in short sales of ourcommon stock. By increasing the number of shares offered for sale, material amounts of short selling could further contribute toprogressive price declines in our common stock.

 

The issuance of sharespursuant to the Peak One Financing Agreement may have significant dilutive effect.

 

Depending on the numberof shares we issue pursuant to the Peak One Financing Agreement, it could have a significant dilutive effect upon our existingshareholders. Although the number of shares that we may issue pursuant to the Financing Agreement will vary based on our stockprice (the higher our stock price, the less shares we have to issue), there may be a potential dilutive effect to our shareholders,based on different potential future stock prices, if the full amount of the

 

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Financing Agreement isrealized. Dilution is based upon common stock put to Peak One and the stock price discounted to the lesser of the lowest closingbid price preceding the put date, or 88% of the lowest closing bid price of our common stock during the seven (7) Trading Daysimmediately following the Clearing Date associated with the applicable Put Notice during which the Purchase Price of the CommonStock is valued.

 

Peak One will payless than the then-prevailing market price of our common stock which could cause the price of our common stock to decline.

 

Our common stock to beissued under the Peak One Financing Agreement will be purchased at the lesser of the lowest closing bid price preceding the putdate, or 88% of the lowest closing bid price of our common stock during the seven (7) Trading Days immediately following the ClearingDate associated with the applicable Put Notice during which the Purchase Price of the Common Stock is valued.

 

Peak One has a financialincentive to sell our shares immediately upon receiving them to realize the profit between the discounted price and the marketprice. If Peak One sells our shares, the price of our common stock may decrease. If our stock price decreases, Peak One may havefurther incentive to sell such shares. Accordingly, the discounted sales price in the Financing Agreement may cause the price ofour common stock to decline.

 

We may not have accessto the full amount under the Financing Agreement.

 

Thelowest closing bid price of the Company’s common stock during the seven (7) consecutive trading day period immediately precedingthe filing of this Registration Statement was approximately $0.106 .At that price we would be able to sell shares to Peak One under the Financing Agreement at the discounted price of $0.09308. Atthat discounted price, the 28,989,199 shares of Common Stock to be issued in connection with the Financing Agreement would onlyrepresent approximately $2,698,315, which is far below $10,000,000 (the full amount of the Financing Agreement).

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKINGSTATEMENTS

 

This prospectus and the documents incorporatedby reference into it contain forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21Eof the Securities Exchange Act of 1934, as amended, or the Exchange Act). We have made these statements in reliance on the safeharbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical factscontained in or incorporated by reference into this prospectus, including statements regarding our future results of operationsand financial position, business strategy, prospective products, product approvals, research and development costs, commercializationplans and timing, other plans and objectives of management for future operations, and future results of current and anticipatedproducts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factorsthat may cause our actual results, performance or achievements to be materially different from any future results, performanceor achievements expressed or implied by the forward-looking statements.

 

In some cases, you can identify forward-lookingstatements by terms such as “may,” “will,” “should,” “expect,” “plan,”“aim,” “anticipate,” “could,” “intend,” “target,” “project,”“contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue”or the negative of these terms or other similar expressions. The forward-looking statements in this prospectus are only predictions.We have based these forward-looking statements largely on our current expectations and projections about future events and financialtrends that we believe may affect our business, financial condition and results of operations. These forward-looking statementsspeak only as of the date of this prospectus and are subject to a number of risks, uncertainties and assumptions including thoselisted in the ‘‘Risk Factors’’ incorporated by reference into this prospectus from our Annual Report onForm 10-K, as updated by subsequent reports. Forward-looking statements are subject to inherent risks and uncertainties, someof which cannot be predicted or quantified and some of which are beyond our control. The events and circumstances reflected inour forward-looking statements may not be achieved or occur and actual results could differ materially from those projected inthe forward-looking statements. Moreover, we operate in a dynamic industry and economy. New risk factors and uncertainties mayemerge from time to time, and it is not possible for management to predict all risk factors and uncertainties that we may face.Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein,whether as a result of any new information, future events, changed circumstances or otherwise.

 

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USE OF PROCEEDS

 

We will not receive any of the proceeds fromthe sale of shares of our Common Stock in this offering. The Selling Stockholders will receive all of the proceeds from this offering.However, we may receive up to an aggregate of $10 million in proceeds from the sale of our Common Stock to Peak One pursuant tothe Equity Line and up to $5 million in proceeds from the sale of Series D Preferred Stock to GHS Investments pursuant to the SecuritiesPurchase Agreement..

 

The Selling Stockholders will pay any underwritingdiscounts and commissions and expenses incurred by the Selling Stockholders for brokerage, accounting, tax or legal services orany other expenses incurred by the Selling Stockholders in disposing of the shares. We will bear all other costs, fees and expensesincurred in effecting the registration of the shares covered by this prospectus, including, without limitation, all registrationand filing fees, fees and expenses of our counsel, certain expenses of counsel to the Selling Stockholder and our independent registeredpublic accountants.

 

DILUTION

 

The sale of our common stock to Peak One inaccordance with the Financing Agreement will have a dilutive impact on our stockholders. Also, the conversion of our Series D PreferredStock to common stock will have a dilutive impact on our stockholders. As a result, our net loss per share could increase in futureperiods and the market price of our common stock could decline. In addition, the lower our stock price is at the time we exerciseour Purchase Notice, the more shares of our common stock we will have to issue to Peak One in order to drawdown pursuant to theFinancing Agreement. If our stock price decreases during the pricing period, then our existing stockholders would experience greaterdilution.

 

SELLING STOCKHOLDER

 

We are registering shares of Common Stock inorder to permit the Selling Stockholders to offer the shares for resale from time to time.

 

The following table sets forth:

 

·                 the Selling Stockholders and other informationregarding the beneficial ownership of the shares of Common Stock by the Selling Stockholders;

 

·                 the number of shares of Common Stock beneficiallyowned by the Selling Stockholders, based on their ownership of the shares of Common Stock, as of April 12, 2021, without regardto any limitations on exercises prior to the sale of the shares covered by this prospectus;

 

·                 the number of shares that may be offered by theSelling Stockholders pursuant to this prospectus;

 

·                 the number of shares to be beneficially ownedby the Selling Stockholders and their affiliates following the sale of any shares covered by this prospectus; and

 

·                 the percentage of our issued and outstanding CommonStock to be beneficially owned by the Selling Stockholders and their affiliates following the sale of all shares covered by thisprospectus, based on the Selling Stockholder’s ownership of Common Stock as of April 12, 2021.

 

This prospectus generally covers the (i) resaleof all shares received by the Selling Stockholders in connection with the transactions contemplated by the Financing Agreementand (ii) resale of all shares of Common Stock that are issuable upon conversion by the Selling Stockholder of the Company’sSeries D Preferred Stock.

 

 16 

 

The Selling Stockholders may sell all, someor none of its shares in this offering. See “Plan of Distribution.”

 

    Number of
shares of
Beneficially
Owned Prior to
  Maximum
Number
of shares of
Common Stock
to be Sold
Pursuant to this
  Number of shares
of Common Stock
Beneficially Owned After
Offering(1)(2)
Name of Selling Stockholder   Offering(1)   Prospectus   Number   Percent
GHS Investments, LLC(3)   2,013,422(4)   40,872,483(5)   0   0%
Peak One Opportunity Fund, L.P. (6)   0   28,989,199(7)   0   0%

  

(1)             Beneficial ownership is determined in accordance with SEC rules and generally includesvoting or investment power with respect to shares of Common Stock. Shares of Common Stock subject to derivative securities exercisable,or exercisable within 60 days, are counted as outstanding for computing the percentage of the person holding such options or warrantsbut are not counted as outstanding for computing the percentage of any person.

 

(2)             Assumes that each Selling Stockholder sells all shares of Common Stock registered under thisprospectus held by such Selling Stockholder.

 

(3)Jason Goldstein, Manager of Peak One Opportunity Fund, L.P. exercises voting and dispositive power with respect to the sharesof our common stock that are beneficially owned by Peak One Opportunity Fund, L.P.

 

(4)Mark Grober exercises voting and dispositive power with respect to the shares of our common stock that are beneficially ownedby GHS Investments LLC.

 

(5)Represents the amount of Common Stock issuable upon conversion of 250 shares of Series D Preferred Stock held by GHS Investments.

 

(6)             Represents the amount of Common Stock issuable upon conversion of Series D Preferred Stock.

 

(7)             Represents the amount of Common Stock issuable pursuant to the Financing Agreement.

 

PLAN OF DISTRIBUTION

 

The Selling Stockholders may, fromtime to time, sell any or all of shares of our Common Stock covered hereby on the OTCQB or any other stock exchange, market ortrading facility on which the shares are traded or in private transactions. The Selling Stockholder may sell  all or a portionof the shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varyingprices or at negotiated prices. The Selling Stockholder may use any one or more of the following methods when selling shares:

 

·           on any national securities exchange or quotationservice on which the securities may be listed or quoted at the time of sale;

·           in the over-the-counter market;

·           in transactions otherwise than on these exchangesor systems or in the over-the-counter market;

·           ordinary brokerage transactions and transactionsin which the broker-dealer solicits purchasers;

·           block trades in which the broker-dealer will attemptto sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

·           purchases by a broker-dealer as principal andresale by the broker-dealer for its account;

·           an exchange distribution in accordance with therules of the applicable exchange;

·           privately negotiated transactions;

 

 17 

 

·           in transactions through broker-dealers that agreewith the selling stockholder to sell a specified number of such shares at a stipulated price per share;

·           through the writing or settlement of options orother hedging transactions, whether through an options exchange or otherwise;

·           a combination of any such methods of sale; or

·           any other method permitted pursuant to applicablelaw.

 

The Selling Stockholders may alsosell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

 

Broker-dealers engaged by the SellingStockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discountsfrom the Selling Stockholders (or, if any broker- dealer acts as agent for the purchaser of securities, from the purchaser) inamounts to be negotiated, provided such amounts are in compliance with FINRA Rule 2121. Discounts, concessions, commissionsand similar selling expenses, if any, that can be attributed to the sale of Common Stock will be paid by the selling stockholdersand/or the purchasers.

 

The Selling Stockholders and anybroker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaningof the Securities Act in connection with such sales. With respect to any shares of Common Stock issued pursuant to the Equity Lineare resold hereunder, the Selling Stockholder is deemed as an underwriter and any broker-dealers that are involved in selling suchshares is deemed as an underwriter. In such event, any commissions received by such broker-dealers or agents and any profit onthe resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act,and such broker-dealers or agents will be subject to the prospectus delivery requirements of the Securities Act.

 

We are required to pay certainfees and expenses incurred by us incident to the registration of the shares covered by this prospectus. We have agreed to indemnifythe selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Actof 1933. We will not receive any proceeds from the resale of any of the shares of our common stock by the selling stockholders.We may, however, receive proceeds from the sale of our common stock under the Financing Agreement with Peak One and sales of ourSeries D Preferred Stock. We may also receive proceeds from the cash exercise of the warrant in favor of Peak One. Neither theFinancing Agreement with Peak One nor any rights of the parties under the Financing Agreement with Peak One may be assigned ordelegated to any other person.

 

We have entered into an agreementwith Peak One to keep this prospectus effective until Peak One has sold all of the common shares purchased by it under the FinancingAgreement and has no right to acquire any additional shares of common stock under the Financing Agreement.

 

Under applicable rules and regulationsunder the Securities Exchange Act of 1934, any person engaged in the distribution of the resale shares may not simultaneously engagein market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M,prior to the commencement of the distribution. In addition, the selling stockholders will be subject to applicable provisions ofthe Securities Exchange Act of 1934 and the rules and regulations thereunder, including Regulation M, which may limit the timingof purchases and sales of shares of the common stock by the selling stockholders or any other person. We will make copies of thisprospectus available to the selling stockholders.

  

 18 

 

DESCRIPTION OF CAPITAL STOCK

 

General

 

We are authorized to issue an aggregate of 1,000,000,000shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock in one or more series and to fix thevoting powers, preferences and other rights and limitations of the preferred stock. As of April 12, 2021, we had 176,457,310 sharesof common stock outstanding and 100,000 shares of preferred stock issued and outstanding.

 

Each share of common stock shall have one (1)vote per share. Our common stock does not provide a preemptive, subscription or conversion rights and there are no redemption orsinking fund provisions or rights. Our common stock holders are not entitled to cumulative voting for election of Board of Directors.

 

Dividends

 

We have not paid any dividends on our commonstock since our inception and do not intend to pay any dividends in the foreseeable future.

 

The declaration of any future cash dividendsis at the discretion of our board of directors and depends upon our earnings, if any, our capital requirements and financial position,our general economic conditions, and other pertinent conditions. It is our present intention not to pay any cash dividends in theforeseeable future, but rather to reinvest earnings, if any, in our business operations.

 

Warrants

 

Currently, we have no warrants outstanding topurchase our common stock..

 

Options

 

Currently, we have no options outstanding topurchase our common stock..

 

Securities Authorized for Issuance Under Equity CompensationPlans

 

We have no equity compensation plans.

 

Preferred Stock

 

The Company has authorized 10,000,000 sharesof preferred stock. The board of directors has the authority to issue these shares and to set dividends, voting and conversionrights, redemption provisions, liquidation preferences, and other rights and restrictions.

 

Series A Preferred Stock

 

On September 4, 2020, we filed a certificateof designation for 100,000 shares of Series A Preferred Stock. The Series A Preferred Stock has the right to vote 51% of the totalvote of shareholders and concerts to common stock on a one for one conversion. Our Chief Executive Officer, Chiyuan Deng, ownsall 100,000 shares.

 

Series B Preferred Stock

 

On January 8, 2021, we filed a certificate ofdestination for 20,000 shares of Series B Preferred Stock. The Series B Preferred Stock is entitled to a liquidation preferenceof $16 per share, the stated value of the Series B Preferred Stock, over our common stock and Series A Preferred Stock in the eventof a dissolution, liquidation or winding up of the company. The Series B Preferred Stock does not have voting rights, but after36 months the holders may convert each share of their preferred stock into 1,000 shares of common stock. The holders of sharesof Series B Preferred Stock have no dividend rights except as may be declared by the Board in its sole and absolute discretion,out of funds legally available for that purpose. Our Chief Executive Officer, Chiyuan Deng, owns all 20,000 shares.

 

 19 

 

Series C Preferred Stock

 

On January 28, 2019, we filed a certificateof designation for 1,000,000 shares of the Series C Preferred Stock. The shares of Series C Preferred Stock have a stated valueof $1.00 per share, are convertible into Common Stock after one hundred and eighty (180) days at a price per share equal to 75%of the average of the lowest three (3) VWAPs for the Common Stock during the ten (10) Trading Day (as defined in the Certificateof Designation) period ending on the last complete Trading Day prior to the Conversion Date (as defined in the Certificate of Designation)(the “Conversion Price”), and earn dividends at the rate of twelve percent (12%) per annum. Upon an Event of Default(as defined in the Certificate of Designation), the Series C Preferred Stock earn dividends at the rate of twenty two percent (22%)per annum. The shares of Series C Preferred Stock do not have voting rights, and rank: (a) senior with respect to dividend rightsand rights of liquidation with the Common Stock and Series A Preferred Stock; (b) junior with respect to dividends and right ofliquidation with respect to our Series B Preferred Stock; and (c) junior with respect to dividends and right of liquidation toall existing indebtedness of the Company. We may redeem the Series C Preferred Stock in accordance with the terms of the Certificateof Designation prior to the one hundred eightieth (180th) day following the date of issuance of the Series C Preferred Stock. Wecurrently have 280,025 shares of Series C Preferred Stock outstanding.

 

Series D Preferred Stock

 

On April 12, 2021, we filed a certificate ofdesignation for 5,075 shares of the Company’s Series D Preferred Stock. .

 

Below is a summary description of the materialrights, designations and preferences of the Series D Preferred Stock (all capitalized terms not otherwise defined herein shallhave that definition assigned to it as per the Certificate of Designation).

 

The Company has the right to redeem the SeriesD Preferred Stock, in accordance with the following schedule:

 

§If all of the Series D Preferred Stock are redeemed within ninety(90) calendar days from the issuance date thereof, the Company shall have the right to redeem the Series D Preferred Stock uponthree (3) business days’ of written notice at a price equal to one hundred and fifteen percent (115%) of the Stated Valuetogether with any accrued but unpaid dividends.

 

§If all of the Series D Preferred Stock are redeemed after ninety (90)calendar days and within one hundred twenty (120) calendar days from the issuance date thereof, the Company shall have the rightto redeem the Series D Preferred Stock upon three (3) business days of written notice at a price equal to one hundred and twentypercent (120%) of the Stated Value together with any accrued but unpaid dividends; and

 

§If all of the Series D Preferred Stock are redeemed after one hundredand twenty (120) calendar days and within one hundred eighty (180) calendar days from the issuance date thereof, the Company shallhave the right to redeem the Series D Preferred Stock upon three (3) business days of written notice at a price equal to one hundredand twenty five percent (125%) of the Stated Value together with any accrued but unpaid dividends.

 

The Company shall pay a dividend of three percent(8%) per annum on the Series D Preferred Stock. Dividends shall be paid quarterly, and at the Company’s discretion, in cashor Series D Preferred Stock calculated at the purchase price. The Stated Value of the Series D Preferred Stock is $1,200 per share.

 

The Series D Preferred Stock will vote togetherwith the common stock on an as-converted basis subject to the Beneficial Ownership Limitations (as set forth in the Certificateof Designation).

 

Each share of the Series D Preferred Stock isconvertible, at any time and from time to time from and after the issuance at the option of the Holder thereof, into that numberof shares of Common Stock (subject to Beneficial Ownership Limitations) determined by dividing the Stated Value of such share by$0.149.

 

There are also Purchase Rights and Most FavoredNation Provisions. We currently have 250 shares of Series D Preferred Stock outstanding.

 

 20 

 

Anti-Takeover Effects of Various Provisions of Nevada Law

 

Provisions of the Nevada Revised Statutes, ourarticles of incorporation, as amended, and bylaws could make it more difficult to acquire us by means of a tender offer, a proxycontest or otherwise, or to remove incumbent officers and directors. These provisions, summarized below, would be expected to discouragecertain types of takeover practices and takeover bids our Board may consider inadequate and to encourage persons seeking to acquirecontrol of us to first negotiate with us. We believe that the benefits of increased protection of our ability to negotiate withthe proponent of an unfriendly or unsolicited proposal to acquire or restructure us will outweigh the disadvantages of discouragingtakeover or acquisition proposals because, among other things, negotiation of these proposals could result in an improvement oftheir terms.

 

Blank Check Preferred

 

Our articles of incorporation permit our Boardto issue preferred stock with voting, conversion and exchange rights that could negatively affect the voting power or other rightsof our Common Stockholders. The issuance of our preferred stock could delay or prevent a change of control of our Company.

 

Amendments to our Articles of Incorporation and Bylaws

 

Under the Nevada Revised Statutes, our articlesof incorporation may not be amended by stockholder action alone.

 

Nevada Anti-Takeover Statute

 

We may be subject to Nevada’s Combinationwith Interested Stockholders Statute (Nevada Corporation Law Sections 78.411-78.444) which prohibits an “interested stockholder”from entering into a “combination” with the corporation, unless certain conditions are met. An “interested stockholder”is a person who, together with affiliates and associates, beneficially owns (or within the prior two years, did beneficially own)10% or more of the corporation’s capital stock entitled to vote. 

Limitations on Liability and Indemnification of Officersand Directors

 

The Nevada Revised Statutes limits or eliminatesthe personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’fiduciary duties as directors.

 

The limitation of liability and indemnification provisions underthe Nevada Revised Statutes and in our articles of incorporation and bylaws may discourage stockholders from bringing a lawsuitagainst directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood ofderivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us andour stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetaryrelief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisionsdo not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affectedto the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officerspursuant to these indemnification provisions.

 

Authorized but Unissued Shares

 

Our authorized but unissued shares of CommonStock and preferred stock will be available for future issuance without stockholder approval, except as may be required under thelisting rules of any stock exchange on which our Common Stock is then listed. We may use additional shares for a variety of corporatepurposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. Theexistence of authorized but unissued shares of Common Stock and preferred stock could render more difficult or discourage an attemptto obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

 

 21 

 

Penny Stock Considerations

 

Our shares will be “penny stocks”as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00per share. Thus, our shares will be subject to rules that impose sales practice and disclosure requirements on broker-dealers whoengage in certain transactions involving a penny stock. Under the penny stock regulations, a broker-dealer selling a penny stockto anyone other than an established customer must make a special suitability determination regarding the purchaser and must receivethe purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt.

 

In addition, under the penny stock regulations, the broker-dealeris required to:

 

  Deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt;

 

  Disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities;

 

  Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value, and information regarding the limited market in penny stocks; and

 

  Make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account.

 

Because of these regulations, broker-dealersmay encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholdersor other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity inthe secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if oursecurities become publicly traded. In addition, the liquidity for our securities may be decreased, with a corresponding decreasein the price of our securities. Our shares in all probability will be subject to such penny stock rules and our shareholders will,in all likelihood, find it difficult to sell their securities.

 

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS,AND CONTROL PERSONS

 

Our current executive officer and director isas follows:

 

Name   Age   Position  
Chiyuan Deng   57   Chief Executive Officer, Principal Executive Officer and Director  
Brandy Gao   36   Chief Financial Officer, Principal Financial Officer and Chief Accounting Officer  
Jimmy Chue   61   Chief Investment Officer  
Ho Fai Lam   63   Director  
Ruiyu Guan   51   Director  

 

Chiyuan Deng

 

Mr. Deng is an investor, producer, and directorof Chinese films. He has worked as Vice Chairman of the Guangdong Province Film and TV Production Industry Association and ViceSecretary General of the China City Image Project Advancement Committee. He has extensive investment and management experiencein China, including in the areas of corporate development and business investment activities. Mr. Deng graduated from GuangzhouBroadcast TV University in 1987. Mr. Deng is Jianli Deng’s father.

 

 22 

 

Mr. Deng does not hold and has not held overthe past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of theExchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment companyunder the Investment Company Act of 1940.

 

We have chosen Mr. Deng as our director becauseof his experience in the movie production business.

 

 Brandy Gao

 

Ms. Gao has more than 13 years of professionalservice experience in a variety of industries including software, media, telecommunications, FinTech, pharmaceuticals, biotech,healthcare, financial services, real estate, manufacturing, and retail. She played leadership roles at PwC and KPMG before becomingthe CFO of the Company.

 

Ms. Gao does not hold and has not held overthe past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of theExchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment companyunder the Investment Company Act of 1940.

 

Jimmy Chue

 

Wall Street career spans for more than threedecades. Working with prestiges firms such as Merrill Lynch and Prudential Securities as a senior analysis of operations. FoundingMember and CIO of Healthier2gether, Senior Partner at Silver Bear Capital, and Cofounder of a new entity in formation named WorldGlobal Partners Inc.

 

Mr. Chue does not hold and has not held overthe past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of theExchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment companyunder the Investment Company Act of 1940.

 

Ho Fai Lam

 

From Jan 2014 to present, Mr. Lam is a directorof Gay Giano Company Limited, a company holding patent and trademarks in the fashion industry.

 

Mr. Lam has over 20 years’ experiencein treasury management in the banking industry and 10 years of corporate finance experience.

 

Mr. Lam does not hold and has not held overthe past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of theExchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment companyunder the Investment Company Act of 1940.

 

Ruiyu Guan

 

From May 2014 to present, Ms. Guan has servedas Secretary General of Guangdong Jin Shi Gold L.L.C. in China.

 

Ms Guan does not hold and has not held overthe past five years any other directorships in any company with a class of securities registered pursuant to Section 12 of theExchange Act or subject to the requirements of Section 15(d) of the Exchange Act or any company registered as an investment companyunder the Investment Company Act of 1940.

 

Other Significant Employees

 

Other than our executive officer, we do notcurrently have any significant employees.

 

Term of Office

 

Our directors are appointed for a one-year termto hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws.Our officers are appointed by our board of directors and hold office until removed by the board, subject to their respective employmentagreements.

 

 23 

 

Family Relationships

 

There are no family relationships between oramong the directors, executive officers or persons nominated or chosen by us to become directors or executive officers..

 

Involvement in Certain Legal Proceedings

 

During the past 10 years, none of our currentexecutive officers, nominees for directors, or current directors have been involved in any legal proceeding identified in Item401(f) of Regulation S-K, including:

 

  1. Any petition under the Federal bankruptcy laws or any state insolvency law filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he or she was a general partner at or within two years before the time of such filing, or any corporation or business association of which he or she was an executive officer at or within two years before the time of such filing;

  

  2. Any conviction in a criminal proceeding or being named a subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

  3. Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him or her from, or otherwise limiting, the following activities:

 

  i. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;  

 

  ii.  Engaging in any type of business practice; or

      

  iii. Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

 

  4. Being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any type of business regulated by the Commodity Futures Trading Commission, securities, investment, insurance or banking activities, or to be associated with persons engaged in any such activity;

 

  5. Being found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

 

  6. Being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

 

 24 

 

  7. Being subject to, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

i.       Any Federalor State securities or commodities law or regulation; or

 

  ii. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

 

  iii. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

  8. Being subject to, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

  

Audit Committee

 

The Boardof Directors has an audit committee to assist the Board of Directors in the execution of its responsibilities. Our audit committeeis comprised solely of non-employee, independent directors as defined by NYSE American market listing standards.

 

The AuditCommittee was established in October of 2019 and is comprised of Directors Ruiyu Guan and Ho Fai Lam, and is chaired by DirectorLam.

 

The AuditCommittee approves the selection of our independent accountants and meets and interacts with the independent accountants to discussissues related to financial reporting. In addition, the Audit Committee reviews the scope and results of the audit with the independentaccountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of ourinternal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independentauditor and the performance of the independent auditor.

 

For thefiscal year ending August 31, 2020, the Audit Committee:

 

1. Reviewed and discussed theaudited financial statements with management, and

2. Reviewed and discussed thewritten disclosures and the letter from our independent auditors on the matters relating to the auditor's independence.

 

Based uponthe Audit Committee’s review and discussion of the matters above, the board of directors authorized inclusion of the auditedfinancial statements for the year ended August 31, 2020 to be included in the Annual Report.

 

The Boardhas determined that Mr. Lam of the Audit Committee qualifies as an audit committee financial expert as defined under applicableSEC rules and also meets the additional criteria for independence of audit committee members set forth in Rule 10A-3(b)(1) underthe Securities Exchange Act of 1934, as amended.

 

Compliance with Section 16(a) Of the Exchange Act

 

Section16(a) of the Exchange Act requires our directors and executive officers and persons who beneficially own more than ten percentof a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports ofchanges in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percentbeneficial shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To thebest of our knowledge based solely on a review of Forms 3, 4, and 5 (and any amendments thereof) received by us during or withrespect to the year ended August 31, 2020, there have been no late reports, failures to file or transactions not timely reported,aside from one transaction not timely reported for Mr. Chiyuan Deng.

 

 25 

 

Code of Ethics

 

We have adopted a Corporate Code of BusinessConduct and Ethics and Financial Code of Ethics. These are attached as exhibits to our Annual Report for the year ended August31, 2019.

 

EXECUTIVE COMPENSATION

 

The tablebelow summarizes all compensation awarded to, earned by, or paid to our former or current executive officers for the fiscal yearsended August 31, 2020 and 2019.

  

  SUMMARY COMPENSATION TABLE 

Name

and

principal

position

Year Salary($)

Bonus

($)

 

Stock

Awards

($)

Option

Awards

($)

Non-Equity

Incentive Plan

Compensation

($)

Nonqualified

Deferred

Compensation

Earnings ($)

All Other

Compensation

($)

Total

($)

Chiyuan Deng
PresidentCEO and Director

2019

2020

 

0

0

0

 

100,000

100,000

0

0

0

0

0

0

0

9,000

100,000

109,000

Brandy Gao

CFO

2019

2020

0

15,000

0

0

435

145

0

0

0

0

0

0

0

0

435

15,145 

Linqing Ye

Former COO

2019

2020

 

14,976

0

0

0

5,639

9,667

0

0

0

0

0

0

0

120,000

20,615

129,667

Jianli Deng

Former Secretary, Treasurer and Director

2019

2020

0

0

 

0

0

50,000

50,000

 

 

0

0

0

0

0

0

0

119,000

50,000

169,000

Lijun Yu

Former Chief Marketing Officer

2019

2020

0

0

0

0

5,639

9,667

0

0

0

0

0

0

0

110,000

5,639

119,667

 

 

 

On July 30, 2018, we entered into an employmentagreement with Chiyuan Deng to serve as our President. The agreement is for six years and we issued Mr. Deng 400,000 shares forhis services. Under the agreement, Mr. Deng is eligible for a bonus if provided by the board, vacation, medical, insurance andother benefits.

 

On August 29, 2020, we entered into a SeparationAgreement and Release with each of Jianli Deng, Lijun Yu and Linqing Ye. Pursuant to the agreements, Mr. Deng resigned as Secretaryand Treasurer, Mr. Yu resigned as Chief Marketing Officer and Mr. Ye resigned as Chief Operating Officer. Mr. Deng will remainon as a member of our board of directors. The Separation and Release Agreement cancelled the employment agreements for each ofMessrs. Deng, Yu and Ye, and provided them each an indebtedness payment within five (5) business days of the agreements. Mr. Dengwill receive $110,000 USD, Miss Yu will receive $110,000 USD and Mr. Ye will receive $120,000 USD. We received a release of allclaims from these prior officers.

 

On September 11, 2020, we entered into an amendedemployment agreement with Chiyuan Deng, our Chief Executive Officer. Pursuant the amended agreement, we amended the compensationto Mr. Deng to include a salary of $180,000 annually, a reduction in common stock received under his initial employment agreement,a potential for a bonus in cash or shares, and the issuance of 100,000 shares of our newly created Series A Preferred Stock.

 

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On September 29, 2020, our board of directorsapproved a change in director compensation from shares to cash compensation. For the fiscal year of 2020, the Board of Directorshereby approves of the payment of US$9,000 as the fee for each Director. For the fiscal year of 2021, the Board of Directors herebyapproves of the payment of US$9,000 as the fee for each Director.

 

On February 22, 2021, we entered into an employmentagreement with Mr. Chue. Pursuant to the agreement, Mr. Chue will receive an annual base salary of $78,000 and he is eligible foran annual bonus of at least 50% of his salary within the discretion of the board of directors. Mr. Chue also received 500,000 sharesof our common stock as a signing bonus.

 

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS STOCK AWARDS
Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Equity Incentive  Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) Option Exercise Price  ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#)

Market Value of Shares or Units

of Stock That Have Not Vested ($)

Equity Incentive  Plan Awards:  Number of Unearned  Shares, Units or Other Rights That Have

 Not Vested (#)

Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not  Vested (#)
Chiyuan Deng - - - - - - - - -
Linqing Ye - - - - - - - - -
Jianli Deng - - - - - - - - -
Lijun Yu - - - - - - - - -
Brandy Gao - - - - - - - - -

 

 

Director Compensation

 

On September29, 2020, our board of directors approved a change in director compensation from shares to cash compensation.

Forthe year 2019-2020, the Board of Directors hereby approves of the payment of US$9,000 as the fee for each Director.

For theyear 2020-2021, the Board of Directors hereby approves of the payment of US$9,000 as the fee for each Director.

 

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BUSINESS

 

CompanyOverview 

 

AB InternationalGroup Corp. (the "Company", "we" or "us") was incorporated under the laws of the State of Nevadaon July 29, 2013 and originally intended to purchase used cars in the United States and sell them in Krygyzstan. The Company'sfiscal year end is August 31.

 

We arean intellectual property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectualproperty. We are engaged to acquisition and distribution of movies. We have a patent license to a video synthesis and release systemfor mobile communications equipment, in which the technology is the subject of a utility model patent in the People's Republicof China. We had launched a business application (Ai Bian Quan Qiu) through smartphones and official social media accounts basedon 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 January22, 2016, our former sole officer, who owned 83% of our outstanding common shares, sold all of his common shares to unrelated investorJianli Deng. After the stock sale, we modified our business to focus on the creation of a mobile app marketing engine. The appwas designed for movie trailer promotions and we planned to generate a subscriber base of smartphone users primarily through pre-installedapp smartphone makers, online app stores, WeChat official accounts, Weibo and other social network media outlets and sell prepaidcards or coins to movie distributors or other video advertisers in China. We created the app “Amoney” for the Androidsmartphone platform to develop a WeChat micro-shop that was designed to display and deliver a variety of information and linksfor download or online watch prices in the China market.

 

On June1, 2017, we entered into a Patent License Agreement (the “Agreement”) pursuant to which Guangzhou Shengshituhua Filmand Television Company Limited, a company incorporated in China (“Licensor”), granted to us a worldwide license toa video synthesis and release system for mobile communications equipment (the “Technology”). The Technology is thesubject of a utility patent in the People’s Republic of China. Under the Agreement, we are able to utilize, improve upon,and sub-license the technology for an initial period of one year from October 1, 2017 to September 30, 2018, subject to a rightto renew. We were obligated to pay the Licensor $500,000 within 30 days of the date of the Agreement and a royalty fee in the amountof 20% of any proceeds resulting from our utilization of the Technology, whether in the form of sub-licensing fees or sales oflicensed products. Our Chief Executive Officer, Chiyuan Deng and former Chief Executive Officer, Jianli Deng, jointly own and controlLicensor. On October 10, 2017, we completed the payment of $500,000 initial payment amount due under the Agreement. In Octoberof 2019, the term of this sublicensing agreement was renewed and extended until October 31, 2020.

 

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

 

On March10, 2018, we acquired intellectual property for $200,000 from All In One Media Ltd, previously named as Aura Blocks Ltd. On March19, 2018, we entered into consulting agreements (the “Consulting Agreements”) with four consultants (the “Consultants”).The Consulting Agreements have terms or either two or three years. Under the Consulting Agreements the Consultants will provideservices to us in Hong Kong and China related to blockchain technology and krypto kiosks. In consideration for the services providedby the Consultants, we have issued the Consultants a total of 1,100,000 shares of our common stock. On November 10, 2018, the Companysold this intellectual property to China IPTV Industry Park Holdings Ltd. for $80,000.

 

On March21, 2018, we acquired the intellectual assets of KryptoKiosk Limited, a crypto currencies kiosk company which has licenses andpatent in Australia, which enable the operation of cryptocurrency ATMs that allow buying and selling of Bitcoin, Litecoin, andEthererum all in one terminal. The Company plans to generate revenue through sub-licensing fees for the operation of cryptocurrencyATMs. Through the foregoing the Company proposes to bring a physical aspect to something that is otherwise very abstract to people.We also issued to JPC Fintech Limited 2,400,000 common shares with a market value of $72,000 exchange of KryptoKiosk Limited’sassets consist mostly of intellectual property, including, but not limited to, certain domain names, copyrights, trademarks, andpatents pending, but also include contract rights and personal property.

 

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We plannedto generate revenue through sub-licensing fees for the operation of cryptocurrency ATMs. Through the foregoing, we proposed tobring a physical aspect to something that is otherwise very abstract to people. We planned to invest in machines and sell sub-licensesin the Asia Pacific region with future world-wide expansion. We had promoted and marketed the ATM business for 6 months or untilaround August 2018, because the BTC and cryptocurrencies price went down. The IP, however, was never transferred to us. We haverepeatedly requested from Messrs. Grounds, Vickery and Shakespare access to the domains and websites and other information concerningthe IP assets. As of the date of this annual report, no such information has been provided. In addition, the IP including domainnames were transferred to others while Messrs. Vickery and Shakespare were officers of our company. As a result, we ceased promotionsand marketing on the ATM business and relations cryptocurrencies business in September 2018. On November 21, 2018, we had sentthe final notice that JPC Fintech has materially breached the agreement. We requested that JPC Fintech Ltd. return its stock certificatereceived in the transaction to our transfer agent for immediate cancellation. We have not yet received the certificate for termination.In February of 2020, 100% of the intellectual assets of KryptoKiosk Limited‘s carrying value $48,000 net of amortizationis written off since the IP was never transferred to us and no revenue was generated from this intellectual asset.

 

On May9, 2018, we entered into an investor agreement with iCrowdU Inc. We agreed to purchase 228,013 shares of iCrowdU Inc. at a shareprice of $1.228 for total consideration of $280,000. iCrowdU Inc. offers an online platform and mobile app for crowd funding servicestargeting the global crowd funding market.

 

Furthermore,it was agreed to exchange 2,000,000 shares of our common stock for 2,000,000 shares of common stock in iCrowdU Inc. This shareexchange was made as collateral in advance of an investment of $1,935,000 by us into iCrowdU Inc., which never occurred.

 

On or aboutMay 9, 2018, we entered into consultancy agreements with Alexander Holtermann, Ian Wright and Luis Hadic. Each of Messrs. Holtermann,Wright and Hadic received 200,000 shares of our common stock under the consultancy agreements.

 

On or aboutJuly 26, 2018, we entered into an investment agreement with iCrowdU Inc. for the purchase of 40% of iCrowdU in exchange for 8,000,000shares of our common stock that would be split between Messrs. Holtermann and Wright at 70% and 30%, respectively, and an investmentof $10,000,000. The 8,000,000 shares were cut but not delivered to Messrs. Holtermann and Wright and no part of the $10,000,000was invested by us into iCrowdU Inc.

 

On or aboutJuly 31, 2018, we entered into employment agreements with Messrs. Holtermann and Wright for the consideration provided for underthe agreements.

 

On October25, 2018, the above parties entered into an Agreement for Termination and Release that terminated all outstanding agreements amongthe parties and released each party from the other. We agreed to settle outstanding expenses and costs incurred by iCrowdU Inc.,in the sum of $6,444.90. In addition, all parties agreed to return any shares received from the above agreements, save we shallbe permitted to retain the 228,013 shares purchased in iCrowdU Inc. Finally, we agreed to amend our Current Report on Form 8-Kconcerning certain disclosures made therein. We amended the report as per the agreement.

 

On September5, 2018, the Company entered into an agreement to acquire a movie copyright for $768,000 from All In One Media Ltd, which holds200,000 common shares of the Company as of August 31, 2019 and is previously named as Aura Blocks Limited. The remaining balanceto Aura Blocks Limited is $153,600 as of August 31, 2019. The Company has obtained the exclusive permanent broadcasting right outsidethe mainland China and is expected to generate revenues from showing the movie online, in theaters, and on TV outside the mainlandChina once this movie is completed in June, 2019. In August of 2019, the Company sold this movie copyright to China IPTV IndustryPark Holding Ltd for $857,600 with a gain of $89,538.

 

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

 

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In June,2019, the Company completed the development of a video mix APP for social video sharing via iOS and Android smartphones. This appwas 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 asof 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, whichholds 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 continuouscontrol imposed by the state and local governments in areas affected by COVID-19, merchant advertising events were suspended. TheCompany decided to shut down the Ai Bian Quan Qiu platform, which has created an adverse impact on the business and financial conditionand hampered its ability to generate revenue and access sources of liquidity on reasonable terms.

 

In Augustof 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 OneMedia Ltd, previously named as Aura Blocks Limited, for producing films and digital videos in Hong Kong. The term of note receivableis from August 1, 2019 to July 31, 2020. This loan principal balance was paid off in full in July, 2020.

 

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

 

OnApril 22, 2020, the Company has announced the first phase development of a video streaming service, the Company expects a fulllaunch by the end of December, 2020. The online service will be marketed and distributed in the world under the brand name ABQQ.tv.ABQQ.tv is expected to generate a new and profitable revenue stream immediately following its launch derived from its hybrid subscriptionand advertising business model. The Company is currently designing and creating the website, the Company's professional team aresourcing such dramas and films to prepare the ABQQ.tv official launch in December 2020.  Asof August 31, 2020, the Company acquired broadcast rights for a TV series of “Iftime could stop at the moment when we first met” and a movie of “Huafeng” at a price of $640,000 and $422,420,respectively.

 

Competition

 

Our mainbusiness is sub-license a patent of video synthesis and release system for mobile communications equipment to smartphone apps andsmartphone makers. We are in the process of using the underlying technology to create a smartphone video mix app as well as thesocial video sharing platform. The main competitors are short video apps, we are going to discuss become a cooperation partnerof them which generated sub-license patent of video synthesis and release system monthly fee from them.

 

Employees 

 

We currentlyhave 10 employees.  

 

MARKET PRICE OF THE REGISTRANT’S COMMONEQUITY AND RELATED STOCKHOLDERS MATTERS

 

Market for Common Equity

 

Our common stock is quotedon the OTCQB under the symbol “ABQQ”. Price quotations on the OTCQB reflect inter-dealer prices, without retail mark-up,markdown or commission, and may not necessarily represent actual transactions.

 

Holders

 

As of April 12, 2021, therewere approximately 555 record holders of our Common Stock.

 

 30 

 

Dividends

 

We have not paid cash dividendson our common stock and we do not anticipate paying a dividend in the foreseeable future.

 

Equity Compensation Plans

 

Wedo not have any formal equity compensation plans.   Wehave issued the following securities as compensation for officers and directors as detailed in the Section titled “ExecutiveCompensation.”

 

MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTS OF OPERATION

You should read thefollowing discussion of our financial condition and results of operations in conjunction with financial statements and notes theretoincluded elsewhere in this prospectus. The following discussion contains forward-looking statements that reflect our plans, estimatesand beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that couldcause or contribute to these differences include those discussed below and elsewhere in this prospectus, particularly in the sectionlabeled “Risk Factors.”

 

This section of theprospectus includes a number of forward-looking statements that reflect our current views with respect to future events and financialperformance. Forward-looking statements are often identified by words like “believe,” “expect,” “estimate,”“anticipate,” “intend,” “project,” and similar expressions, or words that, by their nature,refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the dateof this prospectus. These forward-looking statements are subject to certain risks and uncertainties that could cause actual resultsto differ materially from historical results or our predictions.

 

COVID-19

 

The fullextent of the impact of the COVID-19 pandemic on our business, operations and financial results will depend on numerous evolvingfactors that we may not be able to accurately predict at the present time. In an effort to contain COVID-19 or slow its spread,governments around the world have enacted various measures, including orders to close all businesses not deemed “essential,”isolate residents to their homes or places of residence, and practice social distancing when engaging in essential activities.We anticipate that these actions and the global health crisis caused by COVID-19 will negatively impact business activity acrossthe globe. The movie industry in general has changed dramatically as a result of the pandemic restrictions. While movie theatersstruggle to stay alive, online streaming programming has increased. We have endeavored to stay with the trend for streaming servicesto remain competitive. We have experienced the negative impact in our results of operations and in our financial condition forthe year ended August, 2020, especially with respect to the movie distribution end of our business. These impacts concern delaysin delivering our movies and IP because of health restrictions imposed on certain public events that concern our business, including,among other things, theaters, indoor and outdoor performances, filming restrictions, music festivals, concerts and other such events,Some of these restrictions include pandemic government mandated shutdowns and others restrictions on capacity gathered at theseevents, with some jurisdictions imposing fines or revocation of business licensing, and other restrictions. As a result of thesefactors, our revenue was reduced from March to May of this fiscal year. With immediate closures, the resultant industry and businessspecific delays have negatively affected our company.

 

We planto focus on the video streaming and other web based applications and expand our business into those areas that we believe we situatethe company for continued and increased revenues. As the pandemic is forecasted to worsen in the United States and other areasaround the globe, we believe that the demand for our IP, online products and services offerings increases. While we cannot guaranteethat the negative effects of the pandemic will not interfere with our ability to generate revenues, we intend to strengthen ourposition in this dynamic market and position the company to best suit its shareholders.

 

Specificto our company operations, during the pandemic period, we have enacted precautionary measures to protect the health and safetyof our employees and partners. These measures include closing our office, having employees work from home, and eliminating alltravel. While having employees work from home may have a negative impact on efficiency and may result in negligible increases incosts, it does have an impact on our ability to execute on our agreements to deliver our core products.

 

 31 

 

We willcontinue to actively monitor the situation and may take further actions that alter our business operations as may be required byfederal, state, local or foreign authorities, or that we determine are in the best interests of our employees, customers, partnersand stockholders. It is not clear what the potential effects any such alterations or modifications may have on our business, includingthe effects on our customers, partners, or vendors, or on our financial results.

 

Results of Operationsfor the Three and Six Months Ended February 28, 2021 and February 29, 2020

 

Revenues

 

Our total revenue reportedfor the six months ended February 28, 2021 was $851,309, compared with $294,743 for the six months ended February 29, 2020.

 

18% and 52% of revenuewas generated from one customer during the six months ended February 28, 2021 and February 29, 2020, respectively.

 

The increase in revenuefor the six months ended February 28, 2021 over the six months ended February 29, 2020 is attributable to the movie box-officerevenue of $697,709 from the movie “Ai Bian Quan Qiu”.

 

Our cost of revenues was$454,927 for the six months ended February 28, 2021, as compared with $95,025 for the six months ended February 29, 2020.

 

As a result, we had grossprofit of $396,382 for the six months ended February 28, 2021, as compared with gross profit of $199,718 for the six months endedFebruary 29, 2020. The increase in gross profit margin is due to the movie box-office revenue from the movie “Ai Bian QuanQiu”.

 

Operating Expenses

 

Operating expenses increasedto $949,134 for the six months ended February 28, 2021 from $522,096 for the six months ended February 29, 2020.

 

Our operating expensesfor six months ended February 28, 2021 consisted of general and administrative expenses of $764,796 and related party salary andwages of $184,337. In contrast, our operating expenses for the six months ended February 29, 2020 consisted of general and administrativeexpenses of $433,244 and related party salary and wages of $88,852.

 

We experienced an increasein general and administrative expenses in 2021 over 2020, mainly as a result of increased rent, salaries, valuation fees, consultingfees, transaction costs for issuing preferred shares, travel and entertainment, and depreciation expense, etc.

 

We experienced an increasein related party salary and wages as the Chief Executive Officer started receiving cash salary in the fiscal year of 2021 and receivedboth cash bonus and stock-based compensation in February, 2021. During the six months ended February 28, 2021, the Company paidthe Chief Executive Officer $90,000 salary, $50,000 bonus in cash, and $30,100 stock-based compensation. In addition, the Companyhired Chief Investment Officer on February 22, 2021 and $1,710 cash salary and $27 stock-based compensation were paid to ChiefInvestment Officer for the six months ended Feb 28, 2021.

 

We anticipate our operatingexpenses will increase as we undertake our plan of operations, including increased costs associated with marketing, personnel,and other general and administrative expenses, along with increased professional fees associated with SEC and COVID complianceas our business grows more complex and more expensive to maintain. On the COVID front, we expect that our online operations willincrease, as we use online working systems to monitor and communicate with employees, consultants and suppliers. These and othercosts for COVID expenditures will increase our operational costs in fiscal 2022 at various levels of operation.

 

 32 

 

Other Expenses

 

We had other expenses of$326,549 for the six months ended February 28, 2021, as compared with other expenses of $92,953 for the six months ended February29, 2020. Our other expenses in 2021 were mainly the result of interest expense and the loss from prepaid convertible notes andwarrant exercises. Our other expenses for 2020 was the result of interest expenses and a loss from a change in fair value.

 

Net Loss

 

We incurred a net lossin the amount of $879,301 for the six months ended February 28, 2021, as compared with a net loss of 415,331 for the six monthsended February 29, 2020.

 

Liquidity and CapitalResources

 

As of February 28, 2021,we had $1,189,690 in current assets consisting of cash, prepaid expenses, accounts receivable, related party receivables and otherreceivables. Our total current liabilities as of February 28, 2021 were $501,076. As a result, we have working capital of $688,614as of February 28, 2021.

Operating activities used$416,164 in cash for the six months ended February 28, 2021, as compared with $46,718 provided in cash for the same period endedFebruary 29, 2020. Our negative operating cash flow in 2021 was mainly the result of our net loss for the year combined with changesin accounts payable and accrued liabilities. Our positive operating cash flow in 2020 was mainly the result of our net loss forthe year combined with changes in long term prepayments.

Investing activities used$2,880,733 in cash for the six months ended February 28, 2021, as compared with $1,049,600 used for the six months ended February29, 2020. Our negative investing cash flow for February 28, 2021 was mainly the result of the purchase of a movie and TV seriesbroadcast right and copyright. Our negative investing cash flow for February 29, 2020 was the result of proceeds from a note receivablecollection.

Financing activities provided$1,066,639 for the six months ended February 28, 2021, as compared with $311,360 provided in financing activities for the six monthsended February 29, 2020. Our positive financing cash flow for February 28, 2021 was the result of proceeds from convertible notesand sales of our common stock and preferred stock. Our positive financing cash flow for February 28, 2020 was the result of proceedsfrom convertible notes.

Based upon our current financial condition,we do not have sufficient cash to operate our business at the current level for the next twelve months. We intend to fund operationsthrough increased sales and debt and/or equity financing arrangements, which may be insufficient to fund expenditures or othercash requirements. We plan to seek additional financing in a private equity offering to secure funding for operations. There canbe no assurance that we will be successful in raising additional funding. If we are not able to secure additional funding, theimplementation of our business plan will be impaired. There can be no assurance that such additional financing will be availableto us on acceptable terms or at all.

 

Off Balance Sheet Arrangements

 

As of February 28, 2021,there were no off-balance sheet arrangements.

 

Critical AccountingPolicies

 

In December 2001, the SECrequested 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’sfinancial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a resultof the need to make estimates about the effect of matters that are inherently uncertain.

 

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

 

 33 

 

Recently Issued AccountingPronouncements

 

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

 

Results ofoperations for the years ended August 31, 2020 and 2019 

 

Revenues

 

Our total revenue reported for the year endedAugust 31, 2020 was $448,343, compared with $433,567 for the year ended August 31, 2019.

 

69% and 70% of revenue was generated from onecustomer during the years ended August 31, 2020 and August 31, 2019, respectively.

  

The increase in revenue for the year ended August31, 2020 over the year ended August 31, 2019 is attributable to increased revenue from sublicensing the VideoMix patent to AnyonePictures Limited and the new revenue stream of performance matching service fees generated from the Fan Dou He Pai Wechat Officialaccount. 

 

We expect to continue to achieve steadily increasingrevenues within the coming months especially with respect to our streaming products. However, we have limited operating historyto rely upon and in the face of a worldwide pandemic, we cannot guarantee that our business plan will be successful. Having generatedno revenues on our “Ai Bian Quan Qiu” platform after later January of 2020, we lost the revenue stream resulting inan impairment of the asset by 80% in the second quarter of 2020. Notwithstanding these obstacles, management notes that its decisionto accelerate the development and launch date of its video streaming service was largely also in part to the mandatory quarantinesbeing implemented due to the COVID-19 pandemic, which has increased viewership of video streaming services and the Internet byas much as 70% over the course of the past several weeks.

 

Our cost of revenues was $177,577 for the yearended August 31, 2020, as compared with $174,533 for the year ended August 31, 2019.

 

As a result, we had gross profit of $270,766for the year ended August 31, 2020, as compared with gross profit of $259,034 for the year ended August 31, 2019.

 

We had a gross profit margin of 60% for theyear ended August 31, 2020, roughly the same from 59% over the year ended August 31, 2019.

 

The reason for the slight increase in our grossprofit margin in 2020 over 2019 is attributable to revenue from the Wechat Official account for the Fan Dou He Pai performancematching platform that started generating revenue in February, 2019.

 

Operating Expenses

 

Operating expenses increased to $1,640,094 forthe year ended August 31, 2020 from $702,088 for the year ended August 31, 2019.

 

Our operating expenses for year ended August31, 2020 consisted of general and administrative expenses of $1,346,525, research and development expenses of $108,800, and relatedparty salary and wages of $184,768. In contrast, our operating expenses for the year ended August 31, 2019 consisted of generaland administrative expenses of $525,109 and related party salary and wages of $176,979.

 

 34 

 

We experienced an increase in general and administrativeexpenses in 2020 over 2019, mainly as a result of increased rent, salaries, valuation fees, consulting fees, issuance expense forconvertible notes, travel and entertainment, and depreciation expense, etc.

 

The increase in researchand development expense was due to $108,800 long-term prepayment expensed as research and development expense in Q3, FY2020, becausethe Ai Bian Quan Qiu” platform did not generate any revenue during the COVID-19 period in Q2 (after January 23, 2020) andQ3, FY2020 and the Company impaired 80% of the “Ai Bian Quan Qiu” platform intangible asset value in Q2 2020.

 

We anticipate our operatingexpenses will increase as we undertake our plan of operations, including increased costs associated with marketing, personnel,and other general and administrative expenses, along with increased professional fees associated with SEC and COVID complianceas our business grows more complex and more expensive to maintain. On the COVID front, we expect that our online operations willincrease, as we use online working systems to monitor and communicate with employees, consultants and suppliers. These and othercosts for COVID expenditures will increase our operational costs in 2021 at various levels of operation.

 

Other Expenses

 

We had other expenses of$153,743 for the year ended August 31, 2020, as compared with other income of $38,419 for the year ended August 31, 2019. Our otherexpenses in 2020 were the result of interest expense and loss from the change in fair value. Our other income for 2019 was theresult of a gain on the sale of intangible assets and interest income.

 

Net (Loss) Income

 

We incurred a net loss in the amount of $1,523,071for the year ended August 31, 2020, as compared with a net loss of $404,635 for the year ended August 31, 2019.

        

Liquidity and Capital Resources

 

As of August 31, 2020, we had $2,779,106 incurrent assets. Our total current liabilities as of August 31, 2020 were $938,374. As a result, we have working capital of $1,840,732as of August 31, 2020.

 

Operating activities used $1,263,370 in cashfor the year ended August 31, 2020, as compared with $811,102 in cash used for the year ended August 31, 2019. Our negative operatingcash flow in 2020 was mainly the result of our net loss of 1,523,071 and long-term prepayment of $1,742,080, offset mainly by $1,280,000receivable on asset disposal. Our negative operating cash flow in 2019 was mainly the result of our net loss of $404,635 and by$1,280,000 receivable on asset disposal, offset mainly by prepaid expenses of $301,897.

 

Investing activities provided $1,047,040 incash for the year ended August 31, 2020, as compared with $1,234,350 used for the year ended August 31, 2019. Our positive investingcash flow for the year ended August 31, 2020 is the result of a note receivable in the amount of $1,047,040. Our negative investingcash flow for the year ended August 31, 2019 is the result of the note receivable in the amount of $1,047,040, office renovationsof $167,726 and development of integible assets of $99,584, offset by the sale of the copyright and all other rights in a filmnamed “Gong Fu Nv Pai” copyright and the mobile application (Amoney) assets to an unrelated party.

 

Financing activities provided $1,106,641 incash for the year ended August 31, 2020, as compared with $3,400,000 for the year ended August 31, 2019. Our positive operatingcash flow for both periods was mainly proceeds from the sale of our common stock with 2020 adding proceeds from the issuance ofconvertible notes and warrants.

 

 35 

 

In 2019 and 2020, we have issued several convertiblepromissory notes to accredited investors. These notes contain terms that allow for discounted conversions from the company’sstock price, with most at a 40% discount. These notes also contain strict terms for compliance and penalty provisions that couldcost us more than the principal and accrued interest. They also have most favored nation clauses that force us to offer more favorableterms in subsequent offerings. If we are unable to secure a better form of financing, or pay off the notes before they convert,we could experience a significant drop in our stock price and face other negative consequences. Because we are penny stock, andthere is a limited market for our shares, investor may not be able to recoup their investment and noteholders may not be able tosell their converted shares into the market. We may be forced to pay off the convertible debt, with existing or raised funds, whichmight not be available. We could be at risk of default with the noteholders. If that happens, we may be forced to defend the lawsuits,liquidate assets, etc., which would be costly and turn management’s attention away from the business. We could go out ofbusiness and you could lose your entire investment.

 

There can be no assurance that we will be successfulin raising additional funding. If we are not able to secure additional funding, the implementation of our business plan will beimpaired. There can be no assurance that such additional financing will be available to us on acceptable terms or at all.

 

Off Balance Sheet Arrangements

 

As of August 31, 2020, there were no off-balancesheet arrangements.

 

Critical Accounting Policies

 

In December 2001, the SECrequested 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’sfinancial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a resultof the need to make estimates about the effect of matters that are inherently uncertain.

 

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

 

Recently Issued Accounting Pronouncements

 

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

 

CertainRelationships and Related Person Transactions

 

Except as provided in “Description ofBusiness” and “Executive Compensation” set forth above, for the past two fiscal years there have not been, andthere is not currently proposed, any transaction or series of similar transactions to which we were or will be a participant inwhich the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year-endfor the last two completed fiscal years, and in which any director, executive officer, holder of 5% or more of any class of ourcapital stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect materialinterest.

 

The Company has entered into a patent licenseagreement with a related party Guangzhou Shengshituhua Film and Television Company Limited (“Licensor”). The agreementis for a term of 5 years commencing on the effective date on June 1, 2017. The Company has already paid the licensor a non-refundable,up-from payment of $500,000 and shall pay a royalty of 20% of the gross revenue realized from the sale of licensed products andsub-licensing of this patent every year. The royalty expenses during the years ended August 31, 2020 and 2019 are $61,440 and $60,928,respectively.

 

 36 

 

Youall Perform Services Ltd, owned by the Company’sformer Board of Director Jianli Deng, has been collecting revenue on behalf of the Company from the performance matching platform“Ai Bian Quan Qiu”. As of August 31, 2020, the Company has $87,581 related party receivable from Youall Perform ServicesLtd for the revenue collected from “Ai Bian Quan Qiu” on behalf of the Company.

 

In September 2019, the company entered intoan agreement with Youall Perform Services Ltd for two transactions. 1) The Company pays Youall Perform Services Ltd. 10% of therevenue generated from the “Ai Bian Quan Qiu” platform every month to reimburse the valued-added tax, tax surcharges,and foreign transaction fee Youall Perform Services Ltd. has been paying on behalf of the Company. 2) Youall Perform Services Ltd.will provide IT consulting service for “Ai Bian Quan Qiu” platform upgrade and maintenance at a total cost of $128,000,out of which $108,800 has been paid. As there has been no revenue from “Ai Bian Quan Qiu” due to COVID-19 since mid-January,2020, $108,800 long-term prepayment is expensed as research and development expense. In July 2020, the Company changed the servicescope of this agreement and turned it into a website maintenance contract over the next two years. The major website of this Companyis ABQQ.tv for video streaming. The contract amount remains to be $128,000, out of which $108,800 was previously paid and $19,200will be due on the twenty first month after the contract related signing date of July 31, 2020.

 

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

 

During the years ended August 31, 2020, $169,768was paid to five executives in the form of stock-based compensation and $15,000 cash salary was paid to Brandy Gao.

 

SECURITY OWNERSHIP OF BENEFICIAL OWNERS ANDMANAGEMENT

 

The following table sets forth, as of April12, 2021 certain information as to shares of our common stock owned by (i) each person known by us to beneficially own more than5% of our outstanding common stock, (ii) each of our directors, and (iii) all of our executive officers and directors as a group:

 

Name and Address of
Beneficial Owner
  Common Stock     Series A
Preferred Stock
    Number of Shares Owned     Percent of  Class(1)(2)     Number of Shares Owned     Percent of  Class(1)(2)
Chiyuan Deng(3)     3,120,400       1.7%       100,000       100%
Brandy Gao     2,000       *       —        — 
Ho Fai Lam     —        —        —        — 
Ruiyu Guan     —         —         —        — 
Jimmy Chue     500,000       *       —        — 
All Directors and Executive Officers as a Group (2 persons)     3,622,400       2%       100,000       100%
5% Holders                              
                               

 

* Less than 1%

  

  (1) Unless otherwise indicated, each person or entity named in the table has sole voting power and investment power (or shares that power with that person’s spouse) with respect to all shares of voting stock listed as owned by that person or entity.

 

  (2) Pursuant to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership includes any shares as to which a shareholder has sole or shared voting power or investment power, and also any shares which the shareholder has the right to acquire within 60 days, including upon exercise of common shares purchase options or warrants. The percent of class is based on 176,457,310 shares of common stock issued and outstanding and 100,000 shares of Series A Preferred Stock as of April 12, 2021.

 

  (3) Includes 3,020,400 shares and 100,000 shares that may be acquired within 60 days on conversion of the 100,000 shares of Series A Preferred Stock

  

 37 

 

LEGAL MATTERS

 

The validity of the shares of Common Stock offeredby this prospectus will be passed upon for us by The Doney Law Firm, Las Vegas, Nevada.

 

EXPERTS

 

The consolidated financial statements for theCompany as of August 31, 2019 and August 31, 2020 and for the years then ended included in this prospectus have been audited byYu Certified Public Accountant PC, an independent registered public accounting firm, to the extent and for the periods set forthin our report and are incorporated herein in reliance upon such report given upon the authority of said firm as experts in auditingand accounting. 

  

WHERE YOU CAN FIND MORE INFORMATION

 

We are subject to the reporting requirementsof the Securities Exchange Act of 1934, as amended, and file annual, quarterly and current reports, proxy statements and otherinformation with the SEC. You may read and copy these reports, proxy statements and other information at the SEC’s publicreference facilities at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can request copies of these documents by writingto the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operationof the public reference facilities. SEC filings are also available at the SEC’s web site at http://www.sec.gov.

 

This prospectus is only part of a registrationstatement on Form S-1 that we have filed with the SEC under the Securities Act and therefore omits certain information containedin the registration statement. We have also filed exhibits and schedules with the registration statement that are excluded fromthis prospectus, and you should refer to the applicable exhibit or schedule for a complete description of any statement referringto any contract or other document. You may inspect a copy of the registration statement, including the exhibits and schedules,without charge, at the public reference room or obtain a copy from the SEC upon payment of the fees prescribed by the SEC.

 

 38 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

  

  Page
   
Consolidated Financial Statements of AB International Group Corp. and Subsidiaries  
   
Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets as of August 31, 2020 and 2019 F-3
Consolidated Statements of Operations for the Years Ended August 31, 2020 and 2019 F-4
Consolidated Statements of Stockholders’ Equity for the Years Ended August 31, 2020 and 2019 F-5
Consolidated Statements of Cash Flows for the Years Ended August 31, 2020 and 2019 F-6
Notes to Consolidated Financial Statements F-7

 

  Page
   
Consolidated Financial Statements of AB International Group Corp. and Subsidiaries  
   
Consolidated Balance Sheets as of February 28, 2021 and August 31, 2020 F-35
Consolidated Statements of Operations for the Three and Six Months Ended February 28, 2021 and February 29, 2020 F-36
Consolidated Statements of Stockholders’ Equity for Six Months Ended February 28, 2021 and February 29, 2020 F-37
Consolidated Statements of Cash Flows  for the Six Months Ended February 28, 2021 and February 29, 2020 F-38
Notes to Consolidated Financial Statements F-39

 

 39 

 

Yu Certified Public AccountantPC

Professionalism, Expertise, Integrity

 

REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To theBoard of Directors and Shareholders of
AB International Group Corp

 

Opinionon the Financial Statements

 

Wehave audited the accompanying consolidated balance sheets of AB International Group Corp (the “Company”) as of August31, 2020, and 2019, and the related consolidated statements of operations, statements of changes in stockholders’ equityand consolidated statements of cash flows for the years then ended, and the related notes (collectively referred to as the financialstatements). In our opinion, the financial statements referred to above present fairly, in all material respects, the financialpositions of AB International Group Corp as of August 31, 2020, and 2019, and the results of their operations and their cash flowsfor the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

Emphasisof Matter - Going Concern

 

Theaccompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note18 to the financial statements, although the Company has limited operations it has yet to attain profitability. This raises substantialdoubt about its ability to continue as a going concern. Management’s plan in regard to these matters is also described inNote 18. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Emphasisof Matter - Adoption of New Accounting Standards

Asdiscussed in Note 2 to the consolidated financial statements, the Company has adopted Accounting Standards Codification Topic842, Leases, effective September 1, 2019.

 

Basisfor Opinion

 

Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthe Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company AccountingOversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordancewith the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and thePCAOB.

 

 F-1 

 

Weconducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to erroror fraud. The Company is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting.As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for thepurpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly,we express no such opinion.

 

Ouraudits included performing procedures to assess the risks of material misstatement of the financial statements, whether due toerror or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidenceregarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principlesused and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.We believe that our audits provide a reasonable basis for our opinion.

  

 

/s/ YuCertified Public Accountant PC

 

We haveserved as the Company's auditor since 2018.

 

New York,New York

December9, 2020

 

Certified Public Accountants

99 Madison Avenue, Suite601, New York NY 10016

Email: info@yucpa.net

 

 F-2 

 

AB INTERNATIONAL GROUP CORP.

CONSOLIDATED BALANCE SHEETS

 

   August 31,  August 31,
   2020  2019
       
 ASSETS         
 Current Assets         
    Cash and cash equivalents  $2,455,061   $1,564,750
    Prepaid expenses   11,024    21,970
    Accounts receivable   137,700    35,300
    Related party receivable   87,581    34,994
    Due from shareholders   61,500    —  
    Note receivable   —      1,047,040
    Interest receivable   26,240    8,725
    Receivable on asset disposal   —      1,280,000
       Total Current Assets   2,779,106    3,992,779
          
 Fixed assets, net   16,408    20,124
 Leasehold improvement, net   85,345    134,523
 Right of Use Lease Assets, net    126,354    —  
 Intangible assets, net   175,000    413,793
 Long-term prepayment   1,742,080    —  
 Other assets   18,427    15,027
 TOTAL ASSETS  $4,942,721   $4,576,246
          
 LIABILITIES AND STOCKHOLDERS’ EQUITY         
 Current Liabilities         
    Accounts payable and accrued liabilities  $364,979   $116,664
Current portion of obligations under operating
leases
   73,664    —  
    Convertible note and derivative liability   438,921    —  
    Due to shareholder   476    2,037
    Tax payable   56,750    64,564
    Other payable   3,584    161,856
 Total Current Liabilities   938,374    345,121
          
          
Non-Current Liabilities         
   Obligations under Operating Leases, non-current   48,249    —  
 Total Liabilities   986,623    345,121
          
 Stockholders’ Equity         
 Common stock, $0.001 par value, 1,000,000,000 shares authorized; 46,661,417 and 4,822,016 shares issued and outstanding, as of August 31, 2020 and August 31, 2019, respectively   46,661    4,822
 Additional paid-in capital   7,271,983    6,520,980
 Accumulated deficit   (2,970,881)   (1,452,020)
 Unearned shareholders' compensation   (391,666)   (842,657)
 Total Stockholders’ Equity   3,956,097    4,231,125
 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $4,942,721   $4,576,246

 

The accompanying notes are an integral partof these financial statements.

 

 F-3 

 

AB INTERNATIONAL GROUP CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS 

 

   Years Ended
   August 31,
   2020  2019
       
Revenue  $448,343   $433,567
Cost of revenue   177,577    174,533
Gross Profit   270,766    259,034
          
OPERATING EXPENSES         
General and administrative expenses   (1,346,525)   (525,109)
Research and development expenses   (108,800)   —  
Related party salary and wages   (184,768)   (176,979)
      Total Operating Expenses   (1,640,094)   (702,088)
          
OTHER INCOME (EXPENSES)         
Loss on sale of intangible assets   —      29,330
Interest income   166,352    9,089
Interest expense   (255,512)   —  
Gain /(loss)  from change in fair value   (64,584)   —  
      Total other income (expenses)   (153,743)   38,419
          
LOSS FROM OPERATIONS         
Income tax provision   —      —  
Net loss from operations   (1,523,071)   (404,635)
          
NET INCOME (LOSS)  $(1,523,071)  $(404,635)
          
NET INCOME (LOSS) PER SHARE: BASIC  $(0.21)  $(0.11)
NET INCOME (LOSS) PER SHARE: DILUTED  $(0.02)  $(0.11)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC   7,186,259    3,767,041
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: DILUTED   81,964,690    3,767,041

     

 

The accompanying notes are an integral partof these financial statements.

 

 F-4 

 

AB INTERNATIONAL GROUP CORP.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’EQUITY

 

    Common Stock                    
    Number of Shares    Amount    Additional Paid-in Capital    Accumulated Deficit    Unearned Shareholders' Compensation    Total Equity
                              
Balance - August 31,  2019   4,822,016   $4,822   $6,520,980   $(1,452,020)  $(842,657)  $4,231,125
Common shares issued for cash at $0.0350 or $0.0205 per share   21,000,000    21,000    554,500    —      —      575,500
Common shares issued from note conversions   18,014,401    18,014    291,880    —      —      309,894
Common shares issued from warrant exercises   3,250,000    3,250    39,997    —      —      43,247
Common shares issued to officers for services   —      —      —      —      169,768    169,768
Common shares returned due to officer resignations   (425,000)   (425)   (280,797)   —     281,222    —  
Warrant shares issued in conjunction with convertible notes   —      —      145,423    —      —      145,423
Adjustment due to “ASC 842 adoption for lease”   —      —      —      4,211    —      4,211
Net loss   —      —      —      (1,523,071)   —      (1,523,071)
Balance - August 31,  2020   46,661,417   $46,661   $7,271,983   $(2,970,880)  $(391,667)  $3,956,097

    

The accompanying notes are an integral partof these financial statements.

  

 F-5 

 

AB INTERNATIONAL GROUP CORP.

CONSOLIDATED STATEMENTS OF CASHFLOWS

 

   Years Ended
   August 31,
   2020  2019
       
CASH FLOWS FROM OPERATING ACTIVITIES         
Net loss from operations  $(1,523,071)  $(404,635)
Adjustments to reconcile net income (loss) to net cash from operating activities:         
Executive salaries and consulting fees paid in stock   169,768    197,052
Depreciation of fixed asset   52,446    13,079
Amortization of intangible asset   113,731    126,791
Impairment of intangible asset   125,062    —  
Loss/(gain) on sales of intangible assets   —      120,000
Gain /Loss from change in fair value of derivatives   64,584    —  
Interest expense   255,512    —  
Non-cash note conversion fees   24,750    —  
Adjustment due to ASC 842 adoption for lease   4,211    —  
Non-cash lease expense   (4,441)   —  
Changes in operating assets and liabilities:         
Accounts receivable   (102,400)   (25,700)
Receivable on asset disposal   1,280,000    (1,280,000)
Interest receivable   (17,515)   (8,725)
Related party receivable   (52,588)   (34,994)
Prepaid expenses   10,946    301,897
Rent security & electricity deposit   (3,400)   (15,027)
Long-term prepayment   (1,742,080)   —  
Accounts payable and accrued liabilities   248,314    140,223
Accrued payroll   —      (112,136)
Due to shareholder   (1,561)   —  
Tax payable   (7,814)   9,217
Other payable   (157,824)   161,856
Net cash used in operating activities   (1,263,370)   (811,102)
          
CASH FLOWS FROM INVESTING ACTIVITIES         
Sales of intangible asset   —      80,000
Issuance of note receivable   —     (1,047,040)
Proceeds collected from note receivable   1,047,040    — 
Renovation of an office and an offline display store   —      (167,726)
Development of intangible asset   —      (99,584)
Net cash used in / (provided by) investing activities   1,047,040    (1,234,350)
          
CASH FLOWS FROM FINANCING ACTIVITIES         
Proceeds from issuance of convertible notes and warrants   592,641    —  
Proceeds from common stock issuances   514,000    3,400,000
Net cash provided by financing activities   1,106,641    3,400,000
          
Net increase in cash and cash equivalents   890,311    1,354,549
Cash and cash equivalents - beginning of year   1,564,750    210,202
Cash and cash equivalents - end of the year  $2,455,061   $1,564,750
          
Supplemental Cash Flow Disclosures         
   Cash paid for interest  $—     $—  
   Cash paid for income taxes  $—     $—  
          
Non-Cash Activities:         
Issuance of warrants in conjunction with convertible notes  $145,423   $—  
Cashless warrant exercises  $(43,247) $—  
Convertible notes converted to common shares  $(309,894)  $—  
Common shares returned for cancelled acquisition of iCrowdU  $—     $(10,000)
Prepaid expense reversed for cancelled acquisition of iCrowdU  $—     $10,000
Additions to ROU assets from operating lease liabilities  $228,510   $—  
Common shares returned due to officer resignations  $(228,222)  $—  

  

The accompanying notes are an integral partof these financial statements.

 

 F-6 

 

AB INTERNATIONAL GROUP CORP.

NOTES TO CONSOLIDATED FINANCIALSTATEMENTS

For the years ended August 31, 2020 and August31, 2019

 

NOTE 1 - ORGANIZATIONAND BUSINESS OPERATIONS

 

AB International Group Corp. (the "Company","we" or "us") was incorporated under the laws of the State of Nevada on July 29, 2013 and originally intendedto purchase used cars in the United States and sell them in Krygyzstan. The Company's fiscal year end is August 31.

 

We arean intellectual property (IP) and movie investment and licensing firm, focused on acquisitions and development of various intellectualproperty. We are engaged to acquisition and distribution of movies. We have a patent license to a video synthesis and release systemfor mobile communications equipment, in which the technology is the subject of a utility model patent in the People's Republicof China. We had launched a business application (Ai Bian Quan Qiu) through smartphones and official social media accounts basedon 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 stocksale, we modified our business to focus on the creation of a mobile app marketing engine. The app was designed for movie trailerpromotions 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 moviedistributors or other video advertisers in China. We created the app “Amoney” for the Android smartphone platform todevelop a WeChat micro-shop that was designed to display and deliver a variety of information and links for download or onlinewatch prices in the China market.

 

On June 1, 2017, we entered into a Patent LicenseAgreement (the “Agreement”) pursuant to which Guangzhou Shengshituhua Film and Television Company Limited, a companyincorporated in China (“Licensor”), granted to us a worldwide license to a video synthesis and release system for mobilecommunications equipment (the “Technology”). The Technology is the subject of a utility patent in the People’sRepublic of China. Under the Agreement, we are able to utilize, improve upon, and sub-license the technology for an initial periodof one year from October 1, 2017 to September 30, 2018, subject to a right to renew. We were obligated to pay the Licensor $500,000within 30 days of the date of the Agreement and a royalty fee in the amount of 20% of any proceeds resulting from our utilizationof the Technology, whether in the form of sub-licensing fees or sales of licensed products. Our Chief Executive Officer, ChiyuanDeng and former Chief Executive Officer, Jianli Deng, jointly own and control Licensor. On October 10, 2017, we completed the paymentof $500,000 initial payment amount due under the Agreement. In October of 2019, the term of this sublicensing agreement was renewedand extended until October 31, 2020.

 

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

 

On March 10, 2018, we acquired intellectualproperty for $200,000 from All In One Media Ltd, previously named as Aura Blocks Ltd. On March 19, 2018, we entered into consultingagreements (the “Consulting Agreements”) with four consultants (the “Consultants”). The Consulting Agreementshave terms or either two or three years. Under the Consulting Agreements the Consultants will provide services to us in Hong Kongand China related to blockchain technology and krypto kiosks. In consideration for the services provided by the Consultants, wehave issued the Consultants a total of 1,100,000 shares of our common stock. On November 10, 2018, the Company sold this intellectualproperty to China IPTV Industry Park Holdings Ltd. for $80,000.

 

On March 21, 2018, we acquired the intellectualassets of KryptoKiosk Limited, a crypto currencies kiosk company which has licenses and patent in Australia, which enable the operationof cryptocurrency ATMs that allow buying and selling of Bitcoin, Litecoin, and Ethererum all in one terminal. The Company plansto generate revenue through sub-licensing fees for the operation of cryptocurrency ATMs. Through the foregoing the Company proposesto bring a physical aspect to something that is otherwise very abstract to people. We also issued to JPC Fintech Limited 2,400,000common shares with a market value of $72,000 exchange of KryptoKiosk Limited’s assets consist mostly of intellectual property,including, but not limited to, certain domain names, copyrights, trademarks, and patents pending, but also include contract rightsand personal property.

 

 F-7 

 

We plannedto generate revenue through sub-licensing fees for the operation of cryptocurrency ATMs. Through the foregoing, we proposedto bring a physical aspect to something that is otherwise very abstract to people. We planned to invest in machines and sellsub-licenses in the Asia Pacific region with future world-wide expansion. We had promoted and marketed the ATM business for 6months or until around August 2018, because the BTC and cryptocurrencies price went down. The IP, however, was nevertransferred to us. We have repeatedly requested from Messrs. Grounds, Vickery and Shakespare access to the domains andwebsites and other information concerning the IP assets. As of the date of this annual report, no such information has beenprovided. In addition, the IP including domain names were transferred to others while Messrs. Vickery and Shakespare wereofficers of our company. As a result, we ceased promotions and marketing on the ATM business and relations cryptocurrenciesbusiness in September 2018. On November 21, 2018, we had sent the final notice that JPC Fintech has materially breached theagreement. We requested that JPC Fintech Ltd. return its stock certificate received in the transaction to our transfer agentfor immediate cancellation. We have not yet received the certificate for termination. In February of 2020, 100% of theintellectual assets of KryptoKiosk Limited‘s carrying value $48,000 net of amortization is written off since the IP wasnever transferred to us and no revenue wasgenerated from this intellectual asset.

 

On May 9, 2018, we entered into an investoragreement with iCrowdU Inc. We agreed to purchase 228,013 shares of iCrowdU Inc. at a share price of $1.228 for total considerationof $280,000. iCrowdU Inc. offers an online platform and mobile app for crowd funding services targeting the global crowd fundingmarket.

 

Furthermore, it was agreed to exchange 2,000,000shares of our common stock for 2,000,000 shares of common stock in iCrowdU Inc. This share exchange was made as collateral in advanceof an investment of $1,935,000 by us into iCrowdU Inc., which never occurred.

 

On or about May 9, 2018, we entered into consultancyagreements with Alexander Holtermann, Ian Wright and Luis Hadic. Each of Messrs. Holtermann, Wright and Hadic received 200,000shares of our common stock under the consultancy agreements.

 

On or about July 26, 2018, we entered intoan investment agreement with iCrowdU Inc. for the purchase of 40% of iCrowdU in exchange for 8,000,000 shares of our common stockthat would be split between Messrs. Holtermann and Wright at 70% and 30%, respectively, and an investment of $10,000,000. The 8,000,000shares were cut but not delivered to Messrs. Holtermann and Wright and no part of the $10,000,000 was invested by us into iCrowdUInc.

 

On or about July 31, 2018, we entered intoemployment agreements with Messrs. Holtermann and Wright for the consideration provided for under the agreements.

 

On October 25, 2018, the above parties enteredinto an Agreement for Termination and Release that terminated all outstanding agreements among the parties and released each partyfrom the other. We agreed to settle outstanding expenses and costs incurred by iCrowdU Inc., in the sum of $6,444.90. In addition,all parties agreed to return any shares received from the above agreements, save we shall be permitted to retain the 228,013 sharespurchased in iCrowdU Inc. Finally, we agreed to amend our Current Report on Form 8-K concerning certain disclosures made therein.We amended the report as per the agreement.

 

On September 5, 2018, the Company entered intoan agreement to acquire a movie copyright for $768,000 from All In One Media Ltd, which holds 200,000 common shares of the Companyas of August 31, 2019 and is previously named as Aura Blocks Limited. The remaining balance to Aura Blocks Limited is $153,600as of August 31, 2019. The Company has obtained the exclusive permanent broadcasting right outside the mainland China and is expectedto generate revenues from showing the movie online, in theaters, and on TV outside the mainland China once this movie is completedin June, 2019. In August of 2019, the Company sold this movie copyright to China IPTV Industry Park Holding Ltd for $857,600 witha gain of $89,538.

 

In December of 2018, we engaged StarEastnet,a software developer that holds 171,000 common shares of the Company as of August 31, 2019, to start developing a performance matchingplatform (Ai Bian Quan Qiu) and a WeChat official account to advertise the platform. The matching platform is to arrange performanceevents for celebrities and performers. Performers can

 

 F-8 

 

set their schedules and quotes on the platform. The platform will maximizetheir profits from performance events by optimizing their schedules based upon quotes and event locations and save time from commutingamong different events. “Ai Bian Quan Qiu” utilizes the artificial intelligence (AI) matching technology to instantlyand accurately match performers and advertisers or merchants. The company charges agency service fees for each successful eventmatched through the platform. Since no large social gathering is allowed as a result of COVID-19, there has been no revenue generatedfrom the performance matching platform (Ai Bian Quan Qiu) since the end of January, 2020. The Company decided that 100% of thecarrying amount of Ai Bian Quan Qiu platform and its Wechat official account should be impaired.

 

In June, 2019, the Company completed the developmentof a video mix APP for social video sharing via iOS and Android smartphones. This app was originally planned to take advantageof the core design philosophy of “My film anyone, anywhere, anytime be together” as similar and competitive innovativevideo and community apps have been activated on over 2 million unique devices in China as of December 31, 2017 and precipitatedthe duet video synthesis phenomenon in China. However, the Company decided to focus on the “Ai Bian Quan Qiu” platformas 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 continuouscontrol imposed by the state and local governments in areas affected by COVID-19, merchant advertising events were suspended. TheCompany decided to shut down the Ai Bian Quan Qiu platform, which has created an adverse impact on the business and financial conditionand hampered its ability to generate revenue and access sources of liquidity on reasonable terms.

 

In August of 2019, the Company entered intoa 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 AuraBlocks Limited, for producing films and digital videos in Hong Kong. The term of note receivable is from August 1, 2019 to July31, 2020. This loan principal balance was paid off in full in July, 2020.

 

On September 4, 2019, the Companyentered into another loan agreement to lend $1,049,600 at an annual interest rate of 10% to All In One Media Ltd, previously namedas Aura Blocks Limited. The term of note receivable is from September 4, 2019 to March 3, 2020. This loan balance was paid offin full on May 4th, 2020 with two months’extension. 

 

On April 22, 2020, the Company hasannounced the first phase development of it’s a video streaming service, the Company expects a full launch by December,2020. The online service will be marketed and distributed in the world under the brand name ABQQ.tv. ABQQ.tv is expected to generatea new and profitable revenue stream immediately following its launch derived from its hybrid subscription and advertising businessmodel. The Company is currently designing and creating the website, the Company's professional team are sourcing such dramas andfilms to prepare the ABQQ.tv official launch in December,2020.As of August 31, 2020, the Company acquired broadcast rights for a TV series of “If time could stop at the moment when wefirst met” and a movie of “Huafeng” at a price of $640,000 and $422,420, respectively.

 

NOTE 2 –SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES

 

Basis of Presentation

 

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

 

Basis of Consolidation

 

The financial statements have been preparedon a consolidated basis, with the Company’s fully owned subsidiary App Board Limited registered and located in Hong Kong.For the year ended August 31, 2020, there were intercompany receivable and payables balance of $9,060, which is offset to zeroin the consolidated financial statements. No intercompany balances or transactions existed during the year ended August 31, 2019.

 

 F-9 

 

Use of Estimates

 

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

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows,the Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents.

 

Foreign Currency Transactions

 

The Company’s planned operations areoutside of the United States, which results in exposure to market risks from changes in foreign currency rates. The financial riskarises from the fluctuations in foreign exchange rates and the degrees of volatility in these rates. Currently the Company doesnot use derivative instruments to reduce its exposure to foreign currency risk. Non-monetary assets and liabilities are translatedat historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the year. Revenuesand expenses are translated at average rates for the year. Gains and losses from translation of foreign currency financial statementsinto U.S. dollars are included in current results of operations.

 

Accounts Receivable

 

Accounts receivable consist of amounts duefrom Anyone Pictures Limited for the sub-licensing fee revenue. Amounts receivable are recorded at the invoiced amount and do notbear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit lossesin its existing accounts receivable. No amount for bad debt expense has been recorded by the Company during the years ended August31, 2020 and August 31, 2019, and no write-off for bad debt were recorded for the years ended August 31, 2020 and August 31, 2019.

 

Prepaid Expenses

 

Prepaid expenses primarily consist of consultingfees that have been paid in advance and prepayments of OTC market annual fee, website domain fee, TV promotion fee, and investorrelation fee.

 

The prepaid balances are amortized when therelated expense is incurred.

 

Note Receivable

 

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

 

Fixed Asset

 

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

 

    Estimated Useful Life
Furniture   7 years
Appliances   5 years

  

 F-10 

 

Leasehold Improvement

 

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

 

Intangible Assets

 

Intangible assets are stated at cost and depreciatedas follows:

 

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

 

  Movie copyrights: income forecast method for a period not to exceed 10 years

 

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

 

Amortized costs of the intangible asset arerecorded as cost of sales, as the intangible asset is directly related to generation of revenues in the Company.

 

Lease property under operating lease

 

In February 2016, the Financial AccountingStandards Board (“FASB”) issued updated guidance to improve financial reporting about leasing transactions. This guidancerequired organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligationscreated by those leases. The original guidance required application on a modified retrospective basis with the earliestperiod presented. In August 2018, the FASB issued new guidance which included an option to not restate comparative periods in transition. Underthis new guidance, a company applies the standard to leases in place as of the date of initial application, records a cumulative-effectadjustment to retained earnings as of the first day of the adoption year, and follows the new rules for all leases entered or modifiedgoing forward.  The Company adopted this new standard on June 1, 2020 with no retrospective adjustments to priorcomparative periods. In accordance with ASC 250-10-45-14, a change in accounting principle made in an interim period shall be reflectedas 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 $201,025ROU assets net of amortization as of September 1, 2019 based on the present value of the remaining rental payments undercurrent leasing standards for existing leases. The remaining balance of lease liabilities are presented within the currentportion of lease liabilities and the non-current portion of lease liabilities on the Consolidated Balance Sheet. 

 

Impairment of Long-lived asset

 

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

 

Impairment lossesare included in G&A expense. For the year ended August 31, 2020, the impairment loss of intangible assets was $125,062, including$48,000 for the intellectual assets acquired from KryptoKiosk Limited and $77,062 for the performance matching platform “AiBian Quan Qiu” and its WeChat official account.

 

 F-11 

 

Revenue Recognition

 

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

 

In accordance with ASC Topic 606, revenuesare recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the considerationthat the Company expects to receive in exchange for those goods or services. The Company applies the following five steps in orderto 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 significantmanagement judgements are involved in revenue recognition, but the amount and timing of the Company’s revenues could be differentfor any period if management made different judgments or utilized different estimates. Generally, the Company recognizes revenueunder ASC Topic 606 for its performance obligation.

The Company generates revenue from sub-licensinga patent and charging a service fee from the “Ai Bian Quan Qiu” platform for actors and commercial events matching.

 

The sub-licensing revenue is recognized monthlybased upon the number of users who download the APP that utilizes the Company’s patent. The monthly royalty the Company chargesAnyone Pictures Limited is $12.8 per 1000 APP users. Both parties agreed to charge the sublicensing fee based upon a fixed number2,000,000 users.

 

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

 

Fair Value of Financial Instruments

 

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

 

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

 

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

 

Level 3 - Level 3 applies to assets or liabilitiesfor which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair valueof the assets or liabilities.

 

 F-12 

 

The carrying values of cash, accounts payable,and accrued liabilities approximate fair value. Pursuant to ASC 820 and 825, the fair value of cash is determined based on "Level1" inputs, which consist of quoted prices in active markets for identical assets. The fair values of warrant liabilities andderivative liabilities embedded in convertible notes are determined by level 3 inputs.

 

Accounting for Derivative Instruments

 

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

The Company uses estimates offair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability inan orderly transaction between willing and able market participants. In general, the Company's policy in estimating fair valuesis to first look at observable market prices for identical assets and liabilities in active markets, where available. When theseare 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 datafrom active markets. Additional adjustments may be made for factors including liquidity, credit, bid/offer spreads, etc., dependingon current market conditions. Transaction costs are not included in the determination of fair value. When possible, the Companyseeks to validate the model's output to market transactions. Depending on the availability of observable inputs and prices, differentvaluation models could produce materially different fair value estimates. The values presented may not represent future fair valuesand may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820 based on the hierarchicalframework associated with the three levels of price transparency utilized in measuring financial instruments at fair value as discussedabove. Changes in fair value are recognized in the period incurred as either gains or losses.

 

Warrants

 

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

 

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

 

Income Taxes

 

The Company accounts for income taxes pursuantto FASB ASC 740 “Income Taxes”. Under ASC 740 deferred income taxes are provided on a liability method wherebydeferred tax assets are recognized for deductible temporary differences and operating loss carryforwards and deferred tax liabilitiesare recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assetsand 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 taxesrepresents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. Deferredtax 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 onthe income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by therelevant taxing authority. At August 31, 2020, there was unrecognized tax benefits. Please see Notes 14 for details.

 

Value-Added Taxes

 

The Company generates revenue in People's Republicof 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 taxesand additional education fees on VAT payable.

 

 F-13 

 

For the year ended August 31, 2020, the Company’srevenue generated from the “Ai Bian Quan Qiu” platform is subject to VAT at a rate of 6% and subject to surchargesat a rate of 12% of the VAT payable.

 

Basic and Diluted Income (Loss) Per Share

 

The Company computes income (loss) per sharein accordance with FASB ASC 260, “Earnings per Share” which requires presentation of both basic and diluted earningsper share on the face of the statement of operations. The earnings per share after the reverse stock split is presented retrospectivelyas 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. Dilutedloss per share is computed using the weighted average number of common shares and potential common shares outstanding during theperiod for warrants, options and restricted shares under treasury stock method, and for convertible debts under if-convertiblemethod, if dilutive. Diluted income (loss) per share gives effect to all dilutive potential common shares outstanding during theperiod and excludes all potential common shares if their effects are anti-dilutive.

 

In accordance with the Company’s convertiblenote agreements, the Note Holders have the option to convert all or any lesser portion of the outstanding principal amount andaccrued but unpaid interest into common stock at a conversion price equal to a price which is 55% or 60% of the lowest tradingprice during the 10 or 20 days prior to the day that the Holder requests conversion. 55% is applicable to EMA Financial whereas60% applies for the other counterparties. The lowest trading price during 10 days prior to conversion is applicable to East Capital andEast Capital, whereas the other counterparties utilize the lowest trading price during the preceding 20 days. The number of dilutedshares from convertible notes is calculated with the assumption of converting all the outstanding principal balance and unpaidinterest expense to common shares at the beginning of the period or at the time of issuance, if later.

 

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

 

As of August 31, 2020, 6,614,769 potentiallydiluted shares were from convertible notes and 68,163,661 potentially diluted shares were from warrants. 68,163,661 diluted sharesare the maximum number of common shares these warrants can be converted into. No potentially dilutive debt or equity instrumentswere issued or outstanding as of August 31, 2019.

 

   Years Ended
   August 31,
Diluted shares not included in basic loss per share computation  2020  2019
Warrants   68,163,661    —  
Convertible notes   6,614,769    —  

 

Recent Accounting Pronouncements

 

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

 

In September 2017, the FASB has issued ASUNo. 2017-13, Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases(Topic 842): Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission ofPrior SEC Staff Announcements and Observer

 

 F-14 

 

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

 

In February 2018, the FASB issued guidanceto address the income tax accounting treatment of the tax effects within other comprehensive income due to the enactment of theTax Cuts and Jobs Act (the “Act”). This guidance allows entities to elect to reclassify the tax effects of the changein the income tax rates from other comprehensive income to retained earnings. The guidance is effective for periods beginning afterDecember 15, 2018 although early adoption is permitted. The Company has evaluated and concluded that there was no impact on itsconsolidated financial position and results of operations.

 

In March 2018, the FASB issued ASU 2018-05:“Income Taxes (Topic 740)-Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”. The amendmentsin this ASU add various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118, which expresses the viewof the staff regarding application of Topic 740, Income Taxes, in the reporting period that includes December 22, 2017 –the date on which the Tax Cuts and Jobs Act was signed into law. The Company has evaluated and concluded that there was no impacton its consolidated financial position and results of operations.

 

In June 2018, the FASB issued ASU 2018-07:“Compensation – Stock Compensation (Topic 718) – Improvements to Nonemployee Share-Based Payment Accounting”.This ASU expands the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based paymentsto employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-basedpayments to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity—Equity-BasedPayments to Nonemployees. The amendments in this ASU are effective for public companies for fiscal years beginning after December15, 2018, including interim periods within that fiscal year. For all other companies, the amendments are effective for fiscal yearsbeginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption ispermitted, but no earlier than a company’s adoption date of Topic 606, Revenue from Contracts with Customers. The Companydoes not currently expect the adoption of the amendment to have a material impact on its consolidated financial position and resultsof operations.

 

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

 

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

 

In August 2018,the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the DisclosureRequirements for Fair Value Measurement,” to improve the effectiveness of disclosures in the notes to financial statementsrelated to recurring or nonrecurring fair value measurements by removing amounts and reasons for transfers between Level 1 andLevel 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3fair value measurements. The new standard requires disclosure of the range and weighted average of significant unobservable inputsused 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 .

 

 F-15 

 

In December 2019, the FASB issued ASU2019-12, “Simplifying the Accounting for Income Taxes” to remove specific exceptions to the general principles in Topic740 and to simplify accounting for income taxes. The standard is effective for public companies for fiscal years, and interim periodswithin those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluatingthe 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 Derivativesand Hedging (Topic 815): Clarifying the Interactions between Topic 321, Topic 323, and Topic 815,” which clarifies the interactionof the accounting for equity investments under Topic 321 and investments accounted for under the equity method of accounting inTopic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic 815. The standard iseffective 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 consolidatedfinancial statements.

 

NOTE 3 –PREPAID EXPENSES

 

Prepaid expense was $11,024 and $21,970 asof August 31, 2020 and August 31, 2019, respectively. Prepaid expense at August 31, 2020 primarily included $11,000 prepaymentof OTC market annual fee.

 

NOTE 4 –NOTE RECEIVABLE 

 

Note receivable relates to two loan agreementsentered with All In One Media, previously named as Aura Blocks Limited, in August and September of 2019, respectively. The notereceivable entered in August, 2019 is a one-year loan of $1,047,040 the Company lends to All In One Media Ltd at an annual interestrate of 10%. The loan principal is due on July 31, 2020. The note receivable entered in September, 2019 is to lend $1,049,600 atan annual interest rate of 10% to All In One Media Ltd with a term from September 4, 2019 to March 3, 2020.

 

On May 4th, 2020, All In One Media paid offthe loan principal of $1,049,600 with 5 months’ interest of $43,717. The Company has received 2 months’ extra interestincome due to the delay in payment from All In One Media Ltd. On July 31, 2020, All In One Media paid off the loan principal of$1,047,040. As of August 31, 2020, and August 31, 2019, the Note receivable balance was $0 and $1,047,040, respectively and theinterest receivable balance was $26,240 and $8,725, respectively. For the year ended August 31, 2020, the Company has generatedan interest income of $166,000 from these two note receivables.

 

On July 31,2020, All In One Media paid off the loan principal of $1,047,040 with 3 months interest of $26,240 as interest receivable outstandingas of August 31, 2020.  Refer to subsequent eventdisclosures in Note 17.  

 

NOTE 5 – FIXED ASSETS AND LEASEHOLDIMPROVEMENT

 

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

 

The total original cost was $167,278, including$146,304 for renovation of the office and the store and $20,974 office furniture and appliances. The accumulated depreciation was$65,525 and $12,631 at August 31, 2020 and August 31, 2019, respectively.

 

   August 31,  August 31,
   2020  2019
 Appliances and furniture  $20,974   $20,974
 Leasehold improvement   146,304    146,304
 Total cost   167,278    167,278
 Accumulated depreciation   (65,525)   (12,631)
 Property and equipment, net  $101,753   $154,647

 

 F-16 

 

NOTE 6 – INTANGIBLE ASSETS

 

As of August 31, 2020 and August 31, 2019,the balance of intangible assets are as follows;

 

   August 31,  August 31,
   2020  2019
 Patent  $500,000   $500,000
 Intellectual property: Kryptokiosk   —      72,000
 Ai Bian Quan Qiu platform   —      99,584
 Total cost   500,00    671,584
 Accumulated amortization   (325,000)   (257,791)
 Intangible asset,net                                        $175,000   $413,793

 

The two intangibleassets of Krypotokiosk and Ai Bian Quan Qiu platform are both impaired to zero values because they cease in operations and donot generate revenues for the Company any more. Amortization expenses for years ended August 31, 2020 and 2019 was $113,731 and$126,791, respectively.

 

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

 

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

 

   August 31,  August 31,
   2020  2019
Leased properties under operating leases  $228,510   $—  
Less: accumulated amortization   (102,156)   —  
Right-to-use asset, net  $126,354   $—  

 

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

 

Year ending August 31,  Amortization expense
 2021   $77,082
 2022   $49,273
 Total   $126,355

 

NOTE 8 - LONG-TERMPREPAYMENT

 

In September 2019,the Company entered into an agreement with Guangzhou Yuezhi Computer Ltd.   for upgrading software of the “Ai BianQuan Qiu” platform at a cost of $128,000. $108,800 was paid upon signing the agreement and recorded as long-term prepaymentin Q1, FY2020. As COVID-19 restricted crowd-gathering, “Ai Bian Quan Qiu” platform has not generated any revenue sincemid-January, 2020, the Company impaired 80% of the “Ai Bian Quan Qiu” platform intangible asset value in Q2 FY2020and the remaining 20% intangible asset in Q4 FY2020. As such, $108,800 prepayment was expensed as research and development expensefrom the previously recognized long-term prepayment asset.

 

 F-17 

 

As of August 31, 2020,the long-term prepayment balance of $1,742,080 relates to three movie copyrights and two broadcast rights for a movie and a TVseries as below:

 

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

  · InJanuary 2020, the Company acquired a movie copyright “Ai Bian Quan Qiu” (English name: “Love Over The World”)at a price of $870,978. As of May 31, 2020, $640,000 has been paid and recorded as long-term prepayment for this movie copyright.

  · In June 2020, the Company acquired broadcast rights for a TV series of “If time could stop at the moment when we first met” and a movie of “Huafeng” at a price of $640,000 and $422,420, respectively. As of August 31, 2020, $435,200 and $295,680 has been paid and recorded as long-term prepayment for “If time could stop at the moment when we first met” and “Huafeng”, respectively . “If time could stop at the moment when we first met” and “Huafeng” can be both exclusively broadcasted on the video streaming website of abqq.tv after the website is officially launched.

 

NOTE 9 - CONVERTIBLENOTES

 

On November 18, 2019, the Company closed aprivate 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 toreceive net proceeds of $228,333 after subtracting an original issue discount of $21,667 per the Note agreement. This Note carriesa prorated original issue discount of up to $21,667 (the “OID”), to cover the Holder’s monitoring costs associatedwith the purchase and sale of the Note, which is included in the principal balance of this Note.

 

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

 

The term of thisconvertible note is 9 months with the maturity date on August 18, 2020.  Theinterest 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 duedate thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price shall equalthe lower of: (i) the lowest closing price during the preceding 20 trading day period ending on the latest complete trading dayprior to the Issue Date of this Note (the “Closing Price”) or (ii) 55.0% of the lowest traded price for the commonstock on the principal market during the 20 consecutive trading Days on which at least 100 shares of common stock were traded includingand 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 commonstock at an exercise price of $12.5 per share.

 

On December 13, 2019, the Company entered into a Securities PurchaseAgreement 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 discountof $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 principalbalance of this Note.

 

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

 

 F-18 

 

The term of this convertible note is 1 yearwith the maturity date on December 09, 2020. The interest rate of 10.0% per annum. The convertible note has prepayment and conversionfeatures. 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 ofconversion of the Debentures (provided, further, that if either the Company is not DWAC Operational at the time of conversion orthe Conversion Price is less than $0.01 per share, then Sixty percent (60%) shall automatically adjust to Fifty percent (50%) ofthe lowest closing bid price (as reported by Bloomberg LP) of the Common Stock for the twenty (20) Trading Days immediately precedingthe date of conversion of the Debenture), subject in each case to equitable adjustments resulting from any stock splits, stockdividends, 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 stockat an exercise price of $10 per share. As of August 31, 2020, Peak One exercised 87% of the total warrant shares to acquire 3,250,000common shares through cashless exercises.

 

On January 8, 2020, the Company entered intoa Securities Purchase Agreement with Crown Bridge Partners, LLC., a New York limited company (“Crown Bridge”), pursuantto 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 discountof $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 principalbalance of this Note.

 

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

 

As part of the second tranche closing on July23rd, 2020 the outstanding principal amount shall be $50,000 and the Holder shall pay $47,500 of the consideration (the “SecondTranche”). Out of $47,500 consideration, the Company has received $42,987 cash from Crown Bridge with the remaining $ 4,513spent as legal expense for note issuance and due diligence fees.

 

The term of this convertible note is 1 yearwith the maturity date on January 8, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate willbe equal lesser (i) fifteen percent (15%) per annum or (ii) the maximum amount permitted by law from the due date thereof untilthe 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 TradingDay prior to the date of this Note or (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustmentsfor stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securitiesof 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 bythe 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 TradingDay prior to the Conversion Date. “Trading Price” means, for any security as of any date, the lesser of the (i) lowesttraded 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 theHolder (i.e. Bloomberg) or, if the Principal Market is not the principal trading market for such security, on the principal securitiesexchange or trading market where such security is listed or traded or, if the lowest intraday trading price of such security isnot available in any of the foregoing manners, the lowest intraday price of any market makers for such security that are quotedon the OTC Markets.

 

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

 

 F-19 

 

On December 31, 2019, the Company closed aprivate 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 outstandingprincipal amount shall be $75,000 and the Holder shall pay $75,000 of the consideration (the “First Tranche”). Outof $75,000 consideration, the Company has received $59,342 cash from Auctus with the remaining $15,658 spent as legal expense fornote issuance and due diligence fees.

 

The term of this convertible note is 9 monthswith the maturity date on September 30, 2020. The interest rate of 10.0% per annum. Upon an event of default, the interest ratewill be equal the lesser of (i) twenty-four percent (24%) per annum and (ii) the maximum amount permitted under law from the duedate thereof until the same is paid. The convertible note has prepayment and conversion features. The conversion price is the lesserof: (i) the lowest closing price of the Common Stock during the previous twenty (20) Trading Day period ending on the latest completeTrading Day prior to the date of this Note, and (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustmentsfor stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securitiesof 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 discountrate 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 applicabletrading market as reported by a reliable reporting service (“Reporting Service”) designated by the Holder or, if theOTC Pink is not the principal trading market for such security, the trading price of such security on the principal securitiesexchange or trading market where such security is listed or traded or, if no trading price of such security is available in anyof the foregoing manners, the average of the trading prices of any market makers for such security that are listed in the “pinksheets” by the National Quotation Bureau, Inc.

 

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

 

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

 

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

 

On February 19, 2020, the Company closed aprivate 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 outstandingprincipal amount shall be $50,000 and the Holder shall pay $50,000 of the consideration (the “First Tranche”). Outof $50,000 consideration, the Company has received $43,487 cash from Fidelis with the remaining $6,513 spent as legal expense fornote issuance and due diligence fees.

 

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

 

 F-20 

 

On March 12, 2020, the Company closed a privatefinancing 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 Noteagreement.

 

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

 

The term of this convertible note is 1 yearwith the maturity date on March 12, 2021. The interest rate of 10.0% per annum. The convertible note has prepayment and conversionfeatures. The conversion price shall equal to a price which is a 40% discount to the lowest trading price in the ten (10) daysprior to the day that the Holder requests conversion, unless otherwise modified by mutual agreement between the Parties. In connectionwith the issuance of the Armada Note, the Company granted Armada a five-year cashless warrant (the “Warrant”) to purchase4,200 shares of the Company’s common stock at an exercise price of $12.50 per share.

 

On July 17, 2020, the Company closed a privatefinancing 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 issuediscount of up to $2,500 (the “OID”), to cover the Holder’s monitoring costs associated with the purchase andsale of the Note, which is included in the principal balance of this Note.

 

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

 

The term of the convertible note is 1 yearwith the maturity date on July 17, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate willbe equal to the 24.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversionfeatures. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day periodending 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 precedingthe Conversion Date.

 

On July 24, 2020, the Company closed a privatefinancing 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 outstandingprincipal amount shall be $130,000 and the Holder shall pay $130,000 of the consideration (the “First Tranche”). Outof $130,000 consideration, the Company has received $116,079 cash from EMA Financial with the remaining $13,921 spent as legalexpense for note issuance and due diligence fees.

 

The term of this convertible note is 1 yearwith the maturity date on July 24, 2021. The interest rate of 10.0% per annum. Upon an event of default, the interest rate willbe equal to the 22.0% per annum from the due date thereof until the same is paid. The convertible note has prepayment and conversionfeatures. The conversion price shall equal the lower of: (i) the lowest closing price during the preceding 20 trading day periodending 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 precedingthe Conversion Date.

 

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

 

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

 

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

 

 F-21 

 

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

 

Counterparties   Issuance date   Maturity  date   Principal Amount   Purchase Price   Discount on Note issuance   Note issuance costs   Proceeds Received (USD)
EMA Financial   November 18, 2019   August 18, 2020   $ 75,000     $ 68,500     $ 6,500     $ 18,763     $ 64,737
Peak One Opportunity   December 9, 2019   December 9, 2022   $ 85,000     $ 76,500     $ 8,500     $ 11,188     $ 65,312
Crown Bridge (Tranche I)   January 8, 2020   January 8, 2021   $ 40,500     $ 36,500     $ 4,000     $ 1,508     $ 34,992
Auctus Fund Note   December 31, 2019   September 30, 2020   $ 75,000     $ 75,000     $ —       $ 15,658     $ 59,342
East Capital   February 13, 2020   February 13, 2021   $ 50,000     $ 50,000     $ —       $ 6,508     $ 43,492
Fidelis Capital   February 19, 2020   February 19, 2021   $ 50,000     $ 50,000     $ —       $ 6,513     $ 43,487
Armada Partners   March 12, 2020   March 12, 2021   $ 38,500     $ 35,000     $ 3,500     $ 2,008     $ 32,992
EMA Financial   July 17, 2020   July 17, 2021   $ 50,000     $ 47,500     $ 2,500     $ 4,513     $ 42,987
Crown Bridge (Tranche II)   July 23, 2020   July 23, 2021   $ 40,500     $ 36,500     $ 4,000     $ 2,208     $ 34,292
Power Up Lending (Tranche I)   July 24, 2020   July 24, 2021   $ 130,000     $ 130,000     $ —       $ 13,921     $ 116,079
Power Up Lending  (Tranche II)   August 18, 2020   August 18, 2021   $ 63,000     $ 63,000     $ —       $ 8,061     $ 54,939
            $ 697,500     $ 668,500     $ 29,000     $ 90,853     $ 592,647

 

The following table summarizes the convertiblenote and derivative liability in the balance sheet at August 31, 2020:

 

Balance, August 31, 2019  $— 
 Principal  $436,046
 Discount on Note issuance  $(75,074)
 Accrued interest expense  $13,365
 Derivative liability  $64,584
 Balance, August 31, 2020  $438,921

 

The Company valued its derivatives liabilityusing Monte Carlo simulation. Assumptions used as of August 31, 2020 include (1) risk-free interest rates of 0.12% - 0.17%, (2)expected equity volatility of 64.4% - 82.9%, (3) zero dividends, (4) discount for lack of marketability of 30% (5) remaining termsand conversion prices as set forth in the convertible note agreement, and (6) the common stock price of the underlying share onthe valuation date of August 31, 2020.

 

 F-22 

 

The Company recognizes loss due to convertiblefeature of $ 64,584 in the income statement for the year ended August 31, 2020.

 

The Holders converted convertible notes tocommon shares throughout Q4 of FY2020 as below:

 

EMA Financial: 

 

Conversion date  Principal Amount Converted  Interest Amount Converted  Conversion value  Closing Fee  Ending principal balance  Conversion Price  Converted Shares
June 2, 2020   4,775    —      4,775    1,000    70,225   $3.85000    1,500
June 22, 2020   3,040    —      3,040    1,000    67,185   $0.80800    5,000
June 25, 2020   3,433    —      3,433    1,000    63,753   $0.17730    25,000
July 1, 2020   5,000    —      5,000    1,000    58,753   $0.12000    50,000
*July 7, 2020   8,660    —      8,660    1,000    65,093   $0.06440    150,000
July 9, 2020   7,050    —      7,050    1,000    58,043   $0.03220    250,000
July 14, 2020   5,000    —      5,000    1,000    53,043   $0.02000    300,000
July 16, 2020   5,900    —      5,900    1,000    47,143   $0.02000    345,000
July 20, 2020   6,200    —      6,200    1,000    40,943   $0.02000    360,000
July 21, 2020   7,440    —      7,440    1,000    33,503   $0.02000    422,000
July 24, 2020   7,298    —      7,298    1,000    26,205   $0.01844    450,000
August 3, 2020   5,864    —      5,864    1,000    20,341   $0.01320    520,000
August 10, 2020   9,560    —      9,560    1,000    10,781   $0.01320    800,000
August 21, 2020   5,496    —      5,496    1,000    5,285   $0.00812    800,000
Total   84,716    —      84,716    14,000              4,478,500

 

*On July 7,2020, $8,660 of the EMA Financialconvertible note was converted to 150,000 shares of common stock at a conversion price $ 0.0644, 55% of the lowest trading pricein the 20 days prior to the conversion dates. Additional most-favored-nation (MFN) principal of $15,000 was triggered when theconversion price is lower than $0.1. Therefore, the remaining EMA Financial convertible note principle balance was $65,093, including$15,000 MFN principal.

 

PeakOne:

 

Conversion date  Principal Amount Converted  Interest Amount Converted  Conversion value  Closing Fee  Ending principal balance  Conversion Price  Converted Shares
June 22, 2020   10,000    —      10,000    —      75,000   $1.21200    8,250
June 25, 2020   10,000    —      10,000    —      65,000   $0.31800    31,446
June 29, 2020   10,000    —      10,000    —      55,000   $0.21660    46,168
July 1, 2020   10,000    —      10,000    —      45,000   $0.18000    55,555
July 7, 2020   10,000    —      10,000    —      35,000   $0.12000    83,333
July 9, 2020   10,000    —      10,000    —      25,000   $0.06012    166,333
July 13, 2020   10,000    —      10,000    —      15,000   $0.04860    205,761
July 15, 2020   7,500    —      7,500    —      7,500   $0.03000    250,000
July 16, 2020   7,500    —      7,500    —      —     $0.03000    250,000
Total   85,000    —      85,000    —                1,096,846

 

 F-23 

 

AuctusCapital Partners:

 

Conversion date  Principal Amount Converted  Interest Amount Converted  Conversion value  Closing Fee  Ending principal balance  Conversion Price  Converted Shares
July 9, 2020   3,180    3,760    6,941    750    71,820   $0.03006    255,841
July 15, 2020   3,738    118    3,857    750    68,081   $0.01500    307,100
July 17, 2020   4,649    37    4,686    750    63,433   $0.01500    362,400
August 3, 2020   4,117    295    4,413    750    59,315   $0.00990    521,500
August 25, 2020   6,130    358    6,488    750    53,185   $0.00609    1,188,499
August 27, 2020   7,855    29    7,884    750    45,330   $0.00609    1,417,693
August 31, 2020   12,036    50    12,085    750    33,295   $0.00609    2,107,596
Total   41,705    4,648    46,353    5,250              6,160,629

 

CrownBridge (Tranche I):

 

Conversion date  Principal Amount Converted  Interest Amount Converted  Conversion value  Closing Fee  Ending principal balance  Conversion Price  Converted Shares
July 17, 2020   4,375    —      4,375    1,250    36,125   $0.02250    250,000
August 3, 2020   2,834    —      2,834    1,250    33,291   $0.01485    275,000
August 24, 2020   6,438    —      6,438    1,250    26,853   $0.00905    850,000
August 26, 2020   5,986    —      5,986    1,250    20,867   $0.00905    800,000
Total   19,633    —      19,633    5,000              2,175,000

 

EastCapital:

 

Conversion date  Principal Amount Converted  Interest Amount Converted  Conversion value  Closing Fee  Ending principal balance  Conversion Price  Converted Shares
August 27, 2020   5,300    2,100    7,400    —      44,700   $0.01218    607,553
August 28, 2020   18,100    200    18,300    —      26,600   $0.01218    1,502,463
Total   23,400    2,300    25,700    —                2,110,016

 

FidelisCapital:

 

Conversion date  Principal Amount Converted  Interest Amount Converted  Conversion value  Closing Fee  Ending principal balance  Conversion Price  Converted Shares
August 25, 2020   9,000    —      9,000    —      41,000   $0.01218    738,916
Total   9,000         9,000    —                738,916

 

ArmadaPartners:

 

Conversion date  Principal Amount Converted  Interest Amount Converted  Conversion value  Closing Fee  Ending principal balance  Conversion Price  Converted Shares
August 26, 2020   13,000    1,743    14,743    500    25,500   $0.01215    1,254,494
Total   13,000         14,743    500              1,254,494

 

 F-24 

 

NOTE 10 - WARRANTS

 

On December 9, 2019, January 8, 2020, January17, 2020, March 12, 2020, July 23, 2020 and July 30, 2020 the Company issued warrants to EMA Financial, Peak One Opportunity, CrownBridge, and Armada Partners in conjunction with their convertible notes (see Note 9). Classified as equity, these detachable warrantsissued in a bundled transaction with convertible notes are accounted for separately as additional paid-in capital for the portionof the proceeds allocated to them. The allocation of the sales proceeds between the base instrument of convertible notes and thewarrants are allocated based on the relative fair values of the base instrument of convertible notes and the warrants followingthe guidance in ASC 470-20-25-2.

 

The fair value of the stock warrants grantedto EMA Financial was estimated at $106,540 on the date granted using the Black-Scholes pricing model, with the following assumptionused for the valuation: exercise price of $12 per share, average risk-free interest rate of 0.89%, expected dividend yield of zero,remaining contractual life of 4.89 years, and an average expected volatility of 58.11%.

 

The fair value of the stock warrants grantedto Peak One was estimated at $39,515 on the date granted using the Black-Scholes pricing model, with the following assumption usedfor the valuation: exercise price of $10 per share, average risk-free interest rate of 0.89%, expected dividend yield of zero,remaining contractual life of 4.78 years, and an average expected volatility of 57.51%.

 

The fair value of the stock warrants grantedto Crown Bridge (Tranche I) was estimated at $17,443 on the date granted using the Black-Scholes pricing model, with the followingassumption used for the valuation: exercise price of $12.5 per share, average risk-free interest rate of 0.89%, expected dividendyield of zero, remaining contractual life of 4.86, and an average expected volatility of 57.97%.

 

The fair value of the stock warrants grantedto Armada was estimated at $12,341 on the date granted using the Black-Scholes pricing model, with the following assumption usedfor the valuation: exercise price of $12.5 per share, average risk-free interest rate of 0.29%, expected dividend yield of zero,remaining contractual life of 4.78, and an average expected volatility of 61.54%.

 

The fair value of the stock warrants grantedto Crown Bridge (Tranche II), issued on July 23, 2020 was estimated at $126,112 on August 31, 2020 using the Black-Scholes pricingmodel, with the following assumption used for the valuation: exercise price of $0.00905 per share, average risk-free interest rateof 0.28%, expected dividend yield of zero, remaining contractual life of 4.90, and an average expected volatility of 55.33%.

 

The fair value of the stock warrants grantedto Peak One, a standalone warrant issued on July 30, 2020 was estimated at $45,722 on August 31, 2020 using the Black-Scholes pricingmodel, with the following assumption used for the valuation: exercise price of $0.1 per share, average risk-free interest rateof 0.27%, expected dividend yield of zero, remaining contractual life of 4.92, and an average expected volatility of 55.29%.

 

Peak One exercised warrant shares to acquirecommon shares via cashless exercises throughout Q4 of FY2020 as below:

 

On July 20, 2020, 250,358 anti-dilution adjustedwarrant shares were exercised to acquire 250,000 shares of common stock at $0.03 per share through a cashless exercise.

 

On July 21, 2020, 250,358 anti-dilution adjustedwarrant shares were exercised to acquire 250,000 shares of common stock at $0.03 per share through a cashless exercise.

 

On July 23, 2020, 250,358 anti-dilution adjustedwarrant shares were exercised to acquire 250,000 shares of common stock at $0.03 per share through a cashless exercise.

 

On July 29, 2020, 250,358 anti-dilution adjustedwarrant shares were exercised to acquire 250,000 shares of common stock at $0.03 per share through a cashless exercise.

 

 F-25 

 

On August 04, 2020, 250,358 anti-dilution adjustedwarrant shares were exercised to acquire 250,000 shares of common stock at $0.03 per share through a cashless exercise.

 

On August 11, 2020, 500,715 anti-dilution adjustedwarrant shares were exercised to acquire 500,000 shares of common stock at $0.03 per share through a cashless exercise.

 

On August 21, 2020, 500,715 anti-dilution adjustedwarrant shares were exercised to acquire 500,000 shares of common stock at $0.03 per share through a cashless exercise.

 

On August 25, 2020, 500,489 anti-dilution adjustedwarrant shares were exercised to acquire 500,000 shares of common stock at $0.0205 per share through a cashless exercise.

 

On August 31, 2020, 500,489 anti-dilution adjustedwarrant shares were exercised to acquire 500,000 shares of common stock at $0.0205 per share through a cashless exercise.

 

If the Market Price of one share of CommonStock is greater than the Exercise Price, the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieuof a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remainingunexercised) by surrender of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder a number ofCommon Stock computed using the formula of X = Y (A-B)/A, where X, Y, A, B are as below.

 

X = the number of Warrant Shares to be issued to Holder.

Y = the number of Warrant Shares that the Holder electsto purchase under this

Warrant (at the date of such calculation).

A = the Market Price (at the date of such calculation).

B = Exercise Price (as adjusted to the date of such calculation).

 

The exercise prices for all the warrants aresubject to anti-dilution adjustments. If the Company issues common stocks under a purchase agreement, issue options, or convertnotes to common stocks at a lower price than the warrant exercise prices while the warrants are still outstanding, such lower priceis the base price that the warrant exercise price can be reduced to. As such, the Holder will receive additional warrant sharesto keep the same warrant value as the original issuance before the exercise price is adjusted down.

 

A summary of the status of the Company’swarrants as of August 31, 2020 is presented below. The number of shares is adjusted in accordance with the anti-dilution adjustmentand equals the original number of warrant shares times the original exercise prices divided by based prices. Base price is eitherthe note conversion price or the share issuance price used by the Company while the warrants are outstanding.

 

   Number of warrants
   Original shares issued  Anti-dilution Adjusted
Warrants as at August 31,2019  —    —  
 Warrants granted   803,920    88,649,948
 Exercised, forfeited or expired   (10,000)   (20,486,287)
 Outstanding at August 31,2020   793,920    68,163,661
 Exercisable at August 31, 2020   793,920    68,163,661

 

 F-26 

 

The following table summarizes informationabout the Company’s warrants as of August 31, 2020:

 

Warrants outstanding    Warrants exercisable
                              
    Exercise price(1)    Anti-dilution Adjusted Number outstanding(2)    Weighted average remaining contractual life (in years)    Weighted average exercise price    Number exercisable    Weighted average exercise price
                              
EMA Financial  $0.01    46,182,266    2.97   $0.00550    46,182,266   $0.00550
Peak One  $0.02    579,678    0.04   $0.00017    579,678   $0.00017
Crown Bridge
(Tranche I)
  $0.01    6,716,418    0.43   $0.00089    6,716,418   $0.00089
Armada Partners  $0.01    4,310,345    0.29   $0.00077    4,310,345   $0.00077
Crown Bridge
(Tranches II)
  $0.01    6,716,418    0.48   $0.00089    6,716,418   $0.00089
Peak One Opportunity  $0.02    3,658,537    0.26   $0.00110    3,658,537   $0.00110
Total        68,163,661    4.47   $0.00933    68,163,661   $0.00933

 

 

(1). Exercise price is reduced to the latestbase price. Base price is either the note conversion price or the share issuance price, which the Company used while the warrantswere outstanding.

(2). The number of shares is adjusted in accordancewith the anti-dilution clause per the warrant agreement and equals the original number of warrant shares times the original exerciseprices divided by base price.

 

NOTE 11 - FAIR VALUE MEASUREMENTS

 

The Company applies ASC 820, Fair ValueMeasurements and Disclosures. ASC 820 defines fair value, establishes a framework for measuring fair value and expands disclosuresabout fair value measurements. ASC 820 requires disclosures to be provided on fair value measurement.

 

ASC 820 establishes a three-tier fair valuehierarchy, which prioritizes the inputs used in measuring fair value as follows:

 

Level 1 — Observable inputs that reflectquoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — Include other inputs that aredirectly or indirectly observable in the marketplace.
Level 3 — Unobservable inputs which are supported by little or no market activity.

 

ASC 820 describes three main approaches tomeasuring the fair value of assets and liabilities: (1) market approach; (2) income approach; and (3) cost approach. The marketapproach uses prices and other relevant information generated from market transactions involving identical or comparable assetsor liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurementis based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amountthat would currently be required to replace an asset.

 

Derivative liabilities of conversion featuresin convertible notes are classified within Level 3. We estimate the fair values of these liabilities at August 31, 2020 by usingMonte Carlo simulation based on the remaining contractual terms, risk-free interest rates, and expected volatility of the stockprices, etc. The assumptions used, including the market value of stock prices in the future and the expected volatilities, weresubjective unobservable inputs.

 

 F-27 

 

Liabilities measured at fair value on a recurringbasis as of August 31, 2020 are summarized below:

 

       Fair value measurement using:        
       Quoted prices in active markets for identical assets (Level 1)      

 Significant other observable inputs

  ( Level 2)

     

Unobservable inputs

( Level 3)

       Fair value at August 31, 2020
 Derivative liabilities   $ —       $ —       $ 64,584     $ 64,584

 

 

   Derivative liabilities embedded in convertible notes
    
 Fair value at September 1, 2019  $—  
 Increase in liability   18,084
 Fair value at November 30, 2019   18,084
 Increase in liability   34,683
 Changes in the fair value   (2,441)
 Fair value at February 29, 2020  $50,326
 Increase in liability   4,650
 Changes in the fair value   (660)
 Fair value at May 31, 2020   54,316
Increase in liability   18,558
Changes in the fair value   (8,290)
Fair value at August 31, 2020  $64,584

 

NOTE 12– RELATEDPARTY TRANSACTIONS

 

In support of the Company’s efforts andcash requirements, it may rely on advances from related parties until such time that the Company can support its operations orattains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment forcontinued support by shareholders. Amounts represent advances or amounts paid in satisfaction of liabilities. The advances areconsidered temporary in nature and have not been formalized by a promissory note. During the years ended August 31, 2020 and 2019,there are no such related party transactions.

 

The Company has entered into a patent licenseagreement with a related party Guangzhou Shengshituhua Film and Television Company Limited (“Licensor”). The agreementis for a term of 5 years commencing on the effective date on June 1, 2017. The Company has already paid the licensor a non-refundable,up-from payment of $500,000 and shall pay a royalty of 20% of the gross revenue realized from the sale of licensed products andsub-licensing of this patent every year. The royalty expenses during the years ended August 31, 2020 and 2019 are $61,440 and $60,928,respectively.

 

Youall Perform Services Ltd, owned by the Company’sBoard of Director Jianli Deng, has been collecting revenue on behalf of the Company from the performance matching platform “AiBian Quan Qiu”. As of August 31, 2020, the Company has $87,581 related party receivable from Youall Perform Services Ltdfor the revenue collected from “Ai Bian Quan Qiu” on behalf of the Company.

 

 F-28 

 

In September 2019, the company entered intoan agreement with Youall Perform Services Ltd for two transactions. 1) The Company pays Youall Perform Services Ltd. 10% of therevenue generated from the “Ai Bian Quan Qiu” platform every month to reimburse the valued-added tax, tax surcharges,and foreign transaction fee Youall Perform Services Ltd. has been paying on behalf of the Company. 2) Youall Perform Services Ltd.will provide IT consulting service for “Ai Bian Quan Qiu” platform upgrade and maintenance at a total cost of $128,000,out of which $108,800 has been paid. As there has been no revenue from “Ai Bian Quan Qiu” due to COVID-19 since mid-January,2020, $108,800 long-term prepayment is expensed as research and development expense. In July 2020, the Company changed the servicescope of this agreement and turned it into a website maintenance contract over the next two years. The major website of this Companyis ABQQ.tv for video streaming. The contract amount remains to be $128,000, out of which $108,800 was previously paidand $19,200 will be due on the twenty first month after the contract related signing date of July 31, 2020.

 

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

 

During the yearsended August 31, 2020, $169,768 was paid to five executives in the form of stock-based compensation and $15,000 cash salary waspaid to the Chief Financial Officer. 

 

On August 29, 2020, the Company entered into a Separation Agreementand Release with each of Jianli Deng, Lijun Yu and Linqing Ye. Pursuant to the agreements, Mr. Deng resigned as Secretary and Treasurer,Ms. Yu resigned as Chief Marketing Officer and Mr. Ye resigned as Chief Operating Officer. Mr. Deng will remain on as a memberof our board of directors. The Separation and Release Agreement cancelled the employment agreements for each of Messrs. Deng, Yuand Ye, and provided them each an indebtedness payment within five (5) business days of the agreements. Mr. Deng will receive $110,000USD, Ms. Yu will receive $110,000 USD and Mr. Ye will receive $120,000 USD. We received a release of all claims from these priorofficers. In addition, Mr. Deng, Ms. Yu, and Mr. Deng agreed to return to the Company their unvested restricted shares of 130,556,147,222, and 147,222, respectively.

 

NOTE 13– EQUITY

 

Effective as of June 6, 2018, AB InternationalGroup Corporation amended its Articles of Incorporation to increase its authorized common stock to One Billion (1,000,000,000)shares, par value $0.001 per share.

 

During the year ended August 31, 2019, thefollowing 40,600,000 common shares were returned to the Company due to the termination of the Investor Agreement to acquire 51%ownership of iCrowdU Inc:

 

  2,000,000 shares for acquisition of shares of iCrowdU as collateral and 8,000,000 shares as consideration.

 

  20,200,000 issued to Alexander Holtermann for employment as Chief Executive Officer, 10,200,000 to Ian Wright for employment as Chief Operational Officer, and 200,000 to Eichbaum Financial Reporting Services Inc. for consulting fees.

 

In June, 2019, the Company incurred a 50:1common reverse stock split. Prior to approval of the reverse split the Company had a total of 177,100,000 issued and outstandingshares of common stock, par value $0.001. On the effective date of the reverse split, the Company has a total of 3,602,016 issuedand outstanding shares of common stock, par value $0.001. 

 

Upon the Reverse Split becoming effective,the par value per share of common stock will remain unchanged at $0.001 per share. As a result, on the effective date of the ReverseSplit, the stated capital on the Company’s balance sheet attributable to our common stock will be reduced proportionally,based on the exchange ratio of the Reverse Split, from its present amount, and the additional paid-in capital account will be creditedwith the amount by which the stated capital is reduced. The net income or loss and net book value per share of common stock willbe increased, because there will be fewer shares of common stock outstanding.

 

 F-29 

 

The Company issued the following common sharesduring year ended August 31, 2019:

 

  1,975,000 shares issued for consulting services of $59,250 to two third-party consultants during Q1, FY2019 and 3,300,000 common shares for consulting services of $99,000 to nine third-party consultants during Q3, FY2019

 

  20,100,000 shares for services of the Chief Operational Officer, the Chief Marketing Officer, and the Chief Financial Officer.

 

  18,000,000 common shares issued at $0.02 per share to five unrelated parties for proceeds of $360,000 during Q2, FY2019. The five unrelated parties include Anyone Pictures Limited, Kangdi Liu, Lijun Yu, Zestv Features Limited, and All In One Media Limited.

 

  13,000,000 common shares issued at $0.02 per share to three unrelated parties, including 3,000,000 to Kangdi Liu and 10,000,000 Bonus Media Investment Limited during Q3, 2019 for total proceeds of $260,000 during Q3, FY2019.

 

  3,000,000 common shares issued at $0.02 per share to an unrelated third party Zestv Features Limited in Q4, FY2019 before the 50:1 reverse stock split for a total proceed of $60,000.

 

  20,000,000 common shares to the Chief Executive Officer Chiyuan Deng with 14,000,000 issued at $0.02 per share in Q3, FY2019 and 600,000 shares issued at $2 per share in Q4, FY2019 after the 50:1 reverse stock split for total cash proceeds of $1,480,000.

 

 

620,000 common shares issued at $2per share after the reverse stock split to five unrelated party, including 100,000 to All In One Media Limited, 60,000 to KangDiLiu, 130,000 to Anyone Pictures Limited, 165,000 to StarEastNet, and 165,000 to Baoyu Chen, for total proceeds of $1,240,000 

 

 The Company issued and cancelledthe following common shares during the year ended August 31, 2020:

 

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

 

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

 

·18,014,401 common shares issued from note conversions for total proceedsof $309,894. Please refer to Note 9 for detailed conversion price.

 

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

 

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

 

The Company issued the following warrant sharesduring the year ended August 31, 2020:

 

·During FY2020 the Company issued six five-year warrants to purchase up to 803,920 shares of commonstock at an exercise price of $10.00 per share, $12.50 per share, or $0.1 per share. The exercise prices for all the warrants aresubject to anti-dilution adjustments. Refer to Note 10 for further details.

 

The Company has 46,661,417 and 4,822,016 sharesissued and outstanding, as of August 31, 2020 and August 31, 2019, respectively. These common shares were held by approximately520 and 513 shareholders of record at August 31, 2020 and August 31, 2019, respectively.

 

 F-30 

 

On July 30, 2020,the Company entered into an Equity Purchase Agreement (the “Financing Agreement”) with Peak One. Although we are notmandated to sell shares under the Financing Agreement, the Financing Agreement gives us the option to sell to Peak One, up to $10,000,000worth of our common stock over the period ending twenty-four (24) months after the date the Registration Statement of which thisprospectus forms a part is deemed effective. In consideration for Peak One’s execution and performance under the FinancingAgreement, the Company issued a warrant to purchase 750,000 shares of Common Stock, as Warrant Shares (as defined in the FinancingAgreement), to Peak One in July 2020. As of August 31, 2020, there were no put shares issued to Peak One.

 

OnJuly 30, 2020, the Company also entered into a registration rights agreement with Peak One (the “Registration RightsAgreement”) whereby we are obligated to file a registration statement to register the resale of the purchase shares. The RegistrationStatement of which this prospectus forms a part is being filed to comply with the Registration Rights Agreement. We must ourreasonable efforts to keep the registration statement continuously effective under the Securities Act until all of the WarrantShares and purchase shares have been sold there under or pursuant to Rule 144 .

 

The Company will notreceive any proceeds from the sale of the shares of our common stock by Peak One. However, we will receive proceeds from our initialsale of shares to Peak One pursuant to the Financing Agreement. We will sell shares to Peak One at a price equal to 88% of theMarket price. The Market price is the lesser of the lowest closing bid price immediately preceding the put date, or the lowestclosing bid price of our common stock during the ten (10) consecutive trading day period beginning on the date on which we delivera put notice to Peak One.

 

NOTE 14– INCOME TAXES

 

On December 22, 2017, the United States enactedthe Tax Cuts and Jobs Act (the “Act”) resulting in significant modifications to existing law. The Company has completedthe accounting for the effects of the Act. The Company’s financial statements for the year ended August 31, 2019 reflectcertain effects of the Act which includes a reduction in the corporate tax rate from 35% to 21% as well as other changes.

 

Components of net deferred tax assets, includinga valuation allowance, are as follows as of August 31, 2020 and August 31, 2019:

   August 31,  August 31,
   2020  2019
Deferred tax asset attributable to:         
Net operating loss carry over  $447,765   $201,056
Less: valuation allowance   (447,765)   (201,056)
Net deferred tax asset  $—     $—  

 

The valuation allowance for deferred tax assetswas $447,765 as of August 31, 2020 and $201,056 as of August 31, 2019. In assessing the recovery of the deferred tax assets, managementconsiders whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimaterealization of deferred tax assets is dependent upon the generation of future taxable income in the periods in which those temporarydifferences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxableincome, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not thedeferred tax assets would not be realized as of August 31, 2020 and August 31, 2019.

 

Reconciliation between the statutory rate andthe effective tax rate is as follows for the years ended August 31, 2020 and August 31, 2019:

 

   Years ended
   August 31,
   2020  2019
Federal statutory tax rate   21%   21%
Change in valuation allowance   (21%)   (21%)
Effective tax rate   0%   0%

 

The Company’s fully owned subsidiaryApp Board Limited registered and located in Hong Kong. It is governed by the income tax law of the Hong Kong and is subject toa tax rate of 16.5%.

 

During the years ended August 31, 2020 andAugust 31, 2019, the Company and its subsidiary have incurred a loss of (1,523,071) and ($404,635), respectively. As a result,the Company and its subsidiary did not incur any income tax during the years ended August 31, 2020 and August 31, 2019.

 

 F-31 

 

 NOTE 15 – CONCENTRATIONRISK

 

69% and 70% of revenue was generated from onecustomer during the years ended August 31, 2020 and August 31, 2019, respectively.

 

100% of the account receivable balance wasdue from one customer as of August 31, 2020 and August 31, 2019.

 

NOTE 16 – COMMITMENTS AND CONTINGENCIES

 

Operatinglease 

 

The Company leases office premises and a displaystore under non-cancelable operating lease agreements with an option to renew the lease. On February 21, 2020, the display storelease for a monthly rent of $1,766 was updated with a lower monthly rent of $768 per month from February 23, 2020 to February 22,2021 and $968 from February 23, 2021 to February 22, 2022. The cash lease expense for the years ended August 31, 2020 and 2019was $79,488 and $34,381, respectively. All leases are on a fixed payment basis. None of the leases include contingent rentals.The Company had lease commitment of $125,440 as of August 31, 2020, of which $76,608 was within one year.

 

In accordance with ASC 250-10-45-14, the adoptionof ASC 842 lease accounting standard has resulted in $79,258 lease expenses for the year ended August 31, 2020 

 

As of August 31,   Commitments  
2021   $ 76,608  
2022   $ 48,832  
Total Lease Payments   $ 125,440  
Less: imputed interest   $ (3,527 )
Present value of lease liabilities   $ 121,913  
Current portion of obligations under operating leases   $ 73,664  
Obligations under operating leases, non-current   $ 48,249  

 

NOTE 17 –SUBSEQUENT EVENTS  

 

In accordance with ASC 855-10, the Companyhas analyzed its operations subsequent to August 31, 2020 to the date these financial statements were issued.

 

Covid-19 impact:

 

In December 2019, a novel strain of coronavirus(COVID-19) surfaced. The spread of COVID-19 around the world in the first quarter of 2020 has caused significant volatility inthe U.S. and international markets. The ultimate disruption which may be caused by the outbreak is uncertain; however, it may resultin a material adverse impact on the Company’s financial position, operations and cash flows. It is too early to quantifythe impact this situation will have on company revenue and profits at this time. Possible areas that may be affected include, butare not limited to, disruption to the Company’s customers and revenue, labor workforce, unavailability of supplies used inoperations, etc. Accordingly, Management is evaluating the Company’s liquidity position, reduction in revenues, and reviewingthe analysis of the Company’s financial performance as the Company seeks to withstand the uncertainty related to the coronavirus.As no large-crowd gathering has been allowed since the outbreak of COVID-19, the Company has not generated any revenue from theAi Bian Quan Qiu performance matching platform. Consequently, the Company has decided to impair all of the intangible asset carryingvalue related to the Ai Bian Quan Qiu performance matching platform and its Wechat official account, given that it is uncertainwhether this platform will continue generating any revenue.

 

Subsequent cash receipt for investments:

 

On September 1, 2020, the Company receivedthe outstanding cash investment from Mingpeng Ou for issuing 3,000,000 shares of common stocks at a price of $0.0205 per share.Therefore, $61,500 due from shareholder at August 31, 2020 was reduced to zero.

 

 F-32 

 

Issuance of convertible notes: 

 

OnSeptember 1, 2020, we entered into a Securities Purchase Agreement (“JSC SPA”) with Jefferson Street Capital LLC,a New Jersey limited liability company (“Jefferson Street”), pursuant to which we issued and sold to Jefferson Streeta convertible promissory note, dated September 1, 2020, in the principal amount of $82,500 (the “Jefferson Street Note”).We received $75,000 after paying fees and expenses.

 

OnSeptember 1, 2020, we entered into a Securities Purchase Agreement (“Firstfire SPA”) with Firstfire Global OpportunitiesFund, LLC., a Delaware limited company (“Firstfire”), pursuant to which we issued and sold to the Firstfire a convertiblepromissory note, dated September 1, 2020 in the principal amount of $75,000(the “Firstfire Note”). We received $71,250after fees and expenses.

 

On October 10, 2020, we entered into and closed a Securities PurchaseAgreement (“SPA”), dated October 8, 2020, with Power Up Lending Group Ltd., a Virginia corporation (“Purchaser”),pursuant to which we issued and sold to the Purchaser a convertible promissory note, dated October 8, 2020 in the principal amountof $55,000 (the “Note”). We received $47,600 from the investment after the payment of expenses.

 

On October 20, 2020, we entered into a Securities Purchase Agreement(“EC SPA”), dated October 9, 2020, with East Capital Investment Corp., a New Jersey corporation (“East Capital”),pursuant to which we issued and sold to the East Capital a convertible promissory note, dated October 9, 2020, in the principalamount of $62,700 (the “East Capital Note”). We received $55,000 after paying fees and expenses.

 

Change in board of directors, authorized common shares, and preferredshares:

 

OnSeptember 11, 2020, we issued a total of 100,000 shares of our newly designated Series A Preferred Stock to Chiyuan Deng in connectionwith Mr. Deng’s amended employment agreement.

 

On September 29, 2020, our board of directorsapproved a change in director compensation from shares to cash compensation. For the fiscal year of 2020, the Board of Directorshereby approves of the payment of US$9,000 as the fee for each Director. For the fiscal year of 2021, the Board of Directors herebyapproves of the payment of US$9,000 as the fee for each Director.

 

On November 3, 2020, Jianli Deng resigned asa member of our Board of Directors. There was no known disagreement with Mr. Deng on any matter relating to our operations, policiesor practices.

 

On November 10, 2020, the Company approved an amendment to the Company’s Articles of Incorporation (the “Amendment”) to increase the total number of authorized shares of our Common Stock from one billion (1,000,000,000) shares to five billion (5,000,000,000) shares.

  

Equity purchase agreement and put shareissuances:

 

In connection with the Equity Purchase Agreement(the “Financing Agreement”) signed on July 30, 2020 to sell to Peak One up to $10,000,000 worth of the Company’scommon stock over the period ending twenty-four (24) months after the date the Registration Statement, the Company issued two putnotices to Peak One for selling 2,735,000 Put Shares at a revised purchase price of $0.015312 per share on September 17, 2020 andanother 2,735,000 Put Shares at a revised purchase price of $0.014256 per share on October 7, 2020. On October 8 and October 24,2020, the Company received $36,175 and $33,503 proceeds for selling these Put shares after deducting clearing and trading costsas well as banker commissions of $5,703 and $5,487, respectively.

 

PeakOne may offer up to 21,444,261 shares of common stock to be used for drawdowns and warrant exercises in connection with the July30, 2020 Equity Purchase Agreement (the “Financing Agreement”). As of October 12, 2020, the 21,444,261 shares of CommonStock registered for resale herein would represent approximately 25.8% of the Company’s public float.

 

Purchases of movie broadcast rights:

 

In October 2020, the company entered into agreementswith All In One Media Limited in purchasing broadcast rights for 25 movies and paid $1,408,000 in cash.  We obtainedthe transferable exclusive copyright for these 25 films. The copyright period is permanent. The exclusive rights to grant any kindof media to broadcast and sublicense to broadcast in other regions of the globe (excluding mainland China). The Company had beenprovided with the following agreed materials and materials after signing the agreements: 1) all films’ digital hard drivesets (all films are final version completed film, technical standards according to our technical review requirements); 2) all films’instruction manuals, synopsis of the stories, the textbooks, the line-ups, the main creative staff, posters, and the films’related materials.

 

 F-33 

 

Subsequent collection of interest receivable:

 

On November 13, 2020, the last payment of $26,240interest receivable from the $1,047,040 loan to All In One Media Ltd, previously named as Aura Blocks Limited, was deposited intothe Company’s bank account. Interest receivable at August 31, 2020 was reduced to zero.

 

Termination of issued warrants:

 

On November 23, 2020, the Company entered intoa Termination and Release Agreement with Armada Capital Partners LLC (“Armada”). Pursuant to the agreement, the partiesagreed to terminate the warrant issued in favor of Armada to purchase 4,200 shares of our common stock for a payment of $20,000.AB International agrees to pay to Armada the sum of $20,000 within five business days from the date of execution of the agreement.The parties also entered into a mutual release of claims.

 

On November 30, 2020, the Company entered intoa Termination and Release Agreement with Crown Bridge Partners LLC (“Crown Bridge”). Pursuant to the agreement, theparties agreed to terminate the warrant issued in favor of Crown Bridge to purchase 9,720 shares of our common stock for a paymentof $75,000. AB International agrees to pay to Crown Bridge the sum of $75,000 on or before December 2, 2020. The parties also enteredinto a mutual release of claims.

 

Warrant exercises:

 

As of November 30, 2020, EMA Financial exercisedall of its warrant shares. 46,182,266 anti-dilution adjusted warrant shares were exercised to acquire 45,850,861 shares of commonstock at $0.00812 per share through cashless exercises.

 

Ceased operation of the display store:

 

The Company closed down the display store dueto the COVID-19 impact and uncertainties of the economy in Hong Kong. The lease agreement for the display store, which has theoriginal term of February 23, 2019 to February 22, 2022, was terminated on November 22, 2020.

 

NOTE18 – GOING CONCERN UNCERTAINTIES

 

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

 

As of August 31, 2020, the Company had an accumulateddeficit of $2,970,881. For the year ended August 31, 2020, the Company incurred a net loss of $1,523,071 and the net cash usedin operations was $1,263,370. Losses have principally occurred as a result of the substantial resources required for general andadministrative expenses associated with our operations. The continuation of the Company as a going concern through August 31, 2020is dependent upon the continued financial support from its stockholders or external financing. Management believes the existingstockholders will provide the additional cash to meet with the Company’s obligations as they become due. However, there isno assurance that the Company will be successful in securing sufficient funds to sustain the operations.

 

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

 

 F-34 

 

AB INTERNATIONALGROUP

CondensedConsolidated Balance Sheets

 

   February 28,  August 31,
   2021  2020
    (Unaudited)    (Audited)
 ASSETS         
 Current Assets         
    Cash and cash equivalents  $224,804   $2,455,061
    Prepaid expenses   5,000    11,024
    Accounts receivable   51,338    137,700
    Related party receivable   699,149    87,581
 Due from shareholders   —      61,500
    Interest receivable   —      26,240
 Other receivable   209,400    —  
       Total Current Assets   1,189,690    2,779,106
          
 Fixed assets, net   19,344    16,408
 Leasehold improvement, net   60,961    85,345
 Right of use lease assets, net   85,581    126,354
 Intangible assets, net   2,626,526    175,000
 Long-term prepayment   1,705,395    1,742,080
 Other assets   14,536    18,427
 TOTAL ASSETS  $5,702,034   $4,942,721
          
 LIABILITIES AND STOCKHOLDERS’ EQUITY         
 Current Liabilities         
    Accounts payable and accrued liabilities  $114,330   $364,979
Current portion of obligations under operating leases   74,618    73,664
    Convertible note and derivative liability   306,212    438,921
    Due to shareholder   2,089    476
    Tax payable   —      56,750
    Other payable   3,827    3,584
 Total Current Liabilities   501,076    938,374
          
 Obligations under operating leases, non-current   10,963    48,249
 Total Liabilities   512,039    986,623
          
 Stockholders’ Equity         
 Common stock, $0.001 par value, 1,000,000,000 shares authorized:  173,434,446 and 46,661,417 shares issued and outstanding, as of
  February 28, 2021 and August 31, 2020, respectively
   173,434    46,661
 Preferred stock, $0.001 par value, 10,000,000 preferred shares authorized:         
  Series A preferred stock, 100,000 and 0 shares issued and outstanding, as of February 28, 2021 and August 31, 2020, respectively   100    —  
  Series B preferred stock, 20,000 and 0 shares issued and outstanding, as of February 28, 2021 and August 31, 2020, respectively   20    —  
  Series C convertible preferred stock, 280,025 and 0 shares issued and outstanding, as of February 28, 2021 and August 31, 2020, respectively   280    —  
 Additional paid-in capital   8,825,968    7,271,983
 Accumulated deficit   (3,794,835)   (2,970,881)
 Unearned shareholders' compensation   (14,973)   (391,666)
 Total Stockholders’ Equity   5,189,995    3,956,097
 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $5,702,034   $4,942,721

 

The accompanying notes are anintegral part of these financial statements.

 F-35 

  

ABINTERNATIONAL GROUP

CondensedConsolidated Statements of Operations

(Unaudited)

 

   Six Months Ended  Three Months Ended
   February 28,  February 28,
   2021  2020  2021  2020
             
Revenue  $851,309   $294,743   $774,509   $138,338
Cost of revenue   (454,927)   (95,025)   (298,841)   (42,979)
Gross Profit   396,382    199,718    475,668    95,359
                    
OPERATING EXPENSES                   
General and administrative expenses   (764,796)   (433,244)   (578,651)   (277,501)
Related party salary and wages   (184,337)   (88,852)   (132,987)   (42,479)
      Total Operating Expenses   (949,134)   (522,096)   (711,638)   (319,980)
                    
OTHER INCOME (EXPENSES)                   
Rent income   1,920    —      1,920    —  
Interest expense   (128,661)   (42,627)   (46,905)   (95,115)
Interest income   8    —      3    —  
Gain /(Loss) from change in fair value   19,094    (50,326)   117,881    (32,242)
Gain/(Loss) from lease termination   (3,251)   —      —      —  
Gain/(Loss) from prepaid convertible note   (128,316)   —      (128,316)   —  
Gain/(Loss) from warrant termination   (12,343)   —      —      —  
Gain/(Loss) from warrant exercise   (75,000)   —      (62,460)   —  
      Total other income (expenses)   (326,549)   (92,953)   (117,877)   (127,357)