Notes
to Financial Statements
November
30, 2016
(Audited)
Note A:
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies of Exeo Entertainment,
Inc. (the “Company”) is presented to assist in
understanding the Company’s financial statements. The
financial statements and notes are representations of the
Company’s management, who is responsible for their integrity
and objectivity. These accounting policies conform to generally
accepted accounting principles and have been consistently applied
to the preparation of the financial statements. The Company will
adopt accounting policies and procedures based upon the nature of
future transactions.
Nature of Business
The
Company was incorporated in Nevada on May 12, 2011. The Company is
based in Las Vegas, Nevada, and designs, develops, licenses,
manufactures, and distributes its products. The Company plans to
market the
Zaaz™
Keyboard
, to be used with Samsung’s Smart TV® as
well as other smart devices, the
Extreme Gamer™
, and other new
peripheral products for the video gaming industry, including the
Psyko Krypton™
surround sound gaming headphones.
Basis of Presentation
The
financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the
United States of America and are presented in US
dollars.
Accounting Basis
The
Company uses the accrual basis of accounting and accounting
principles generally accepted in the United States of America
(“GAAP” accounting). The Company has adopted
a November 30 fiscal year end.
Foreign Currency Transactions
Transaction gains and losses, such as those resulting from the
settlement of nonfunctional currency receivables or payables,
including intercompany balances, are included in foreign currency
gain (loss) in our consolidated statements of earnings.
Additionally, payable and receivable balances denominated in
nonfunctional currencies are marked-to-market at month-end, and the
gain or loss is recognized in our statements of
operations.
Cash and Cash Equivalents
The
Company considers cash on hand, cash in banks, certificates of
deposit, time deposits, and U.S. government and other short-term
securities with maturities of three months or less when purchased
as cash and cash equivalents.
Fair Value of Financial Instruments
The
Company’s financial instruments consist of cash and cash
equivalents, accounts payable, notes payable, and accrued expenses.
The carrying amount of these financial instruments approximates
fair value due either to length of maturity or interest rates that
approximate prevailing market rates unless otherwise disclosed in
these financial statements.
Inventory
Inventories are
stated at cost, not to exceed fair market value. The cost of the
Company’s inventory ($227,085 and $231,610 at November 30,
2016 and November 30, 2015, respectively) has been determined using
the first-in first-out (FIFO) method. The reduction in current
costs as compared to LIFO costs of inventory equals zero at
November 30, 2016 and November 30, 2015, respectively.
EXEO
ENTERTAINMENT, INC.
Notes
to Financial Statements
November
30, 2016
(Audited)
Note A:
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and
equipment are stated at the lower of cost or fair value.
Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets, as follows:
Description
|
Estimated
Life
|
Furniture &
Equipment
|
5
years
|
Vehicles
|
5
years
|
The
estimated useful lives are based on the nature of the assets as
well as current operating strategy and legal considerations such as
contractual life. Future events, such as property expansions,
property developments, new competition, or new regulations, could
result in a change in the manner in which the Company uses certain
assets requiring a change in the estimated useful lives of such
assets.
Maintenance and
repairs that neither materially add to the value of the asset nor
appreciably prolong its life are charged to expense as incurred.
Gains or losses on disposition of property and equipment are
included in the statements of operations. There were no
dispositions during the periods presented.
Impairment of Long-Lived Assets
The
Company evaluates its property and equipment and other long-lived
assets for impairment in accordance with related accounting
standards. No impairments were recorded at November 30, 2016 and
2015. For assets to be held and used (including projects under
development), fixed assets are reviewed for impairment whenever
indicators of impairment exist. If an indicator of impairment
exists, the Company first groups its assets with other assets and
liabilities at the lowest level for which identifiable cash flows
are largely independent of the cash flows of other assets and
liabilities (the “asset group”). Secondly, the Company
estimates the undiscounted future cash flows that are directly
associated with and expected to arise from the completion, use and
eventual disposition of such asset group. The Company estimates the
undiscounted cash flows over the remaining useful life of the
primary asset within the asset group. If the undiscounted cash
flows exceed the carrying value, no impairment is indicated. If the
undiscounted cash flows do not exceed the carrying value, then an
impairment is measured based on fair value compared to carrying
value, with fair value typically based on a discounted cash flow
model.
Management Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
EXEO
ENTERTAINMENT, INC.
Notes
to Financial Statements
November
30, 2016
(Audited)
Note A:
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The
Company recognizes revenue when products are fully delivered or
services have been provided and collection is reasonably assured.
For the years ended November 30, 2016 and 2015, the Company
recognized $28,767 and $27,247 in revenue,
respectively.
Basic Income (Loss) Per Share
Basic
income (loss) per share is calculated by dividing the
Company’s net loss applicable to common shareholders by the
weighted average number of common shares during the period. Diluted
earnings per share is calculated by dividing the Company’s
net income available to common shareholders by the diluted weighted
average number of shares outstanding during the year. The diluted
weighted average number of shares outstanding is the basic weighted
number of shares adjusted for any potentially dilutive debt or
equity.
Stock-Based Compensation
Pursuant to ASC
Topic 718, the Company recorded the fair value of the stock options
on a monthly basis over the vesting period as stock-based
compensation expense. The fair value of the options is calculated
using the Black-Scholes method as of the date of grant. In fiscal
year 2012, the Company adopted an incentive stock option plan for
its employees. In fiscal year 2012 the Company granted stock
options to three officers of the Company. These are described in
Note G - Stock Options and Warrants.
Concentrations of Risk
The
Company’s bank accounts are deposited in insured
institutions. The maximum insured by the FDIC per bank account is
not an issue here since the Company’s bank accounts do not
bear any interest and the FDIC limits far exceed balances on
deposit. The Company’s funds were held in a single account.
At November 30, 2016 and 2015, the Company’s bank balance did
not exceed the insured amounts.
Accounting for Research and Development Costs
The
Company records an expense in the current period for all research
and development costs, which include Hardware Development Costs.
The Company does not capitalize such amounts. Pursuant to ASC Topic
730 Research and Development, once we determine that our Extreme
Gamer video game console is technologically feasible and a working
model is put into use, the Company will capitalize Software
Development costs associated with its products. Once this occurs we
will determine a useful life of our software and apply a reasonable
economic life of five years or less. At this time, our software
development costs only relate to the Extreme Gamer and Zaaz
keyboard hardware. The software development costs cannot be
separated from the associated hardware development. We do not
develop stand-alone software for sale to the retail consumers,
rather we develop software in order to operate the designed
hardware. The software is designed to be encoded within chips
inside the hardware. Thus, it has been determined that the current
software development costs, which are intertwined within the
hardware development, are to be expensed rather than capitalized
pursuant to ASC Topic 730.
This
conclusion is also based upon our decision to devote further
research and development costs in the support of our product
interface to the video game players: Sony PS3® (and other
products such as Nintendo Wii® and Microsoft Xbox
360®).
EXEO
ENTERTAINMENT, INC.
Notes
to Financial Statements
November
30, 2016
(Audited)
Note A:
SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Liquidity and Going Concern
The
Company has incurred an accumulated deficit of ($5,714,983) since
inception. The Company incurred significant initial research and
product development costs, including expenditures associated with
hardware engineering and the design and development of its hardware
components and prototypes associated with the Zaaz™ keyboard,
the Extreme Gamer, and the Psyko Krypton™ surround sound
gaming headphones. The Company also incurred costs associated with
its acquisition of property, plant and equipment for its 10,000
square foot office and warehouse.
These
factors create substantial doubt about the Company’s ability
to continue as a going concern. The financial statements do not
include any adjustments to reflect the possible future effects on
the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of the Company to continue as a going
concern.
The
ability of the Company to continue as a going concern is dependent
on the Company generating cash from the sale of its common stock or
obtaining debt financing and attaining future profitable
operations.
Management’s
plan includes selling its equity securities and obtaining debt
financing to fund its capital requirement and ongoing operations;
however, there can be no assurance the Company will be successful
in these efforts.
Recent Accounting Pronouncements
The
Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash
flow.
Note
B:
PROPERTY AND
EQUIPMENT
The
Company owned property and equipment, recorded at cost, which
consisted of the following at November 30, 2016 and November 30,
2015:
|
|
|
Furniture and
fixtures
|
$
21,499
|
$
21,499
|
Office &
computer equipment
|
37,982
|
34,051
|
Vehicles
|
96,943
|
96,943
|
Subtotal
|
156,424
|
152,494
|
Less: Accumulated
depreciation
|
(91,481
)
|
(59,541
)
|
Property
and equipment, net
|
$
64,943
|
$
92,953
|
Depreciation
expense was $31,940 and $29,709 for the years ended November 30,
2016 and 2015.
Note
C:
HARDWARE DEVELOPMENT
COSTS
The
Company incurred $23,080 and $7,850 for research and development
costs for the years ended November 30, 2016 and 2015, respectively.
These costs relate to hardware engineering, design and development
of the Krankz™ and Krankz Maxx™ Bluetooth Wireless
Headset and the Psyko Krypton® surround sound gaming
headphones for personal computers.
Note
D:
PREPAID
EXPENSES
At
November 30, 2016 and 2015, the balance of prepaid expenses on the
balance sheet of the Company is $51,869 and $1,840, respectively,
which primarily relates to a deposit on inventory not delivered and
a prepayment of an annual fee for investor relations.
EXEO
ENTERTAINMENT, INC.
Notes
to Financial Statements
November
30, 2016
(Audited)
Note
E:
PATENT AND
TRADEMARKS
In June
2013, the Company executed a license agreement with Psyko Audio
Labs Canada to manufacture and distribute the Carbon and Krypton
line of patented headphones. US Patent # 8,000,486 (for the Psyko
Krypton™ surround sound gaming headphones). On April 2, 2015,
Krank Amplifiers, LLC submitted to the U.S. Patent and Trademark
Office a request for a design mark as to “Krank
Amplifiers”) for registry on the Principal Register (serial
number 86585697). This design mark includes the name Krank
Amplifiers. The requested goods and services category is for IC
009, which is the same category in which our Company would request
as to our common law trademark “Krankz™.” This
amplifier company submitted its mark on the basis of 1B – not
yet in commerce, while our Company has used the name Krankz™
in commerce for several years, well before Krank Amplifiers. As of
the date of this report, no office action has been taken by the
U.S. PTO. We may no longer be able to use the common law trademark
“Krankz™” if Krank Amplifiers is granted its
trademark and we do not file an opposition to such mark or we do
not prevail in the defense of our mark in the U.S. Trademark and
Trial Appeal Board (TTAB).
Note F:
COMMON
STOCK
The
Company has 100,000,000 shares at $0.0001 par value common stock
authorized and
24,764,129
and
24,255,231 shares issued and outstanding at November 30, 2016 and
November 30, 2015, respectively. During the month of March, 2015,
one accredited investor, previously known by the officers of the
Company, as well as having been a prior investor in the common
stock of the Company, subscribed to 322,188 shares of common stock
of the Company upon the exercise of his common stock warrants. The
Company accepted this subscription at a discounted price of
$0.31037 per share. Prior private party sales of the
Company’s common stock occurred in August, 2014 and such
sales by the Issuer were at $0.80 per share. The discount in sales
price represented by this transaction cannot be reasonably
ascertained due to the lack of recent sales of issuer securities.
Reasons for such discount may include various factors such as the
dollar amount of the single transaction, limitations upon the
immediate marketability of the common stock of the company,
restrictive legends applied to this stock certificate, and price
volatility, if applicable, as reflected in the open market. At the
time of this subscription, the Common shares of the Company were
quoted at $1.00 per share and were not actively trading on the OTC
BB and OTC Markets- QB. For the reasons stated above, the price
quotation in the open market should not be relied upon for purpose
of the determination of the discount rate applied to this sales
transaction. As of the date of this filing, the shares have not
been issued and are recorded to stock payable. The shares were
issued in January 2017.
During
the year ended November 30, 2015, the Company issued 114,631 shares
of common stock for services totaling $91,705. The shares were
valued based on the stock price on the market at the time which was
$0.80 per share.
EXEO
ENTERTAINMENT, INC.
Notes
to Financial Statements
November
30, 2016
(Audited)
Note F:
COMMON STOCK
(CONTINUED)
During the year
ended November 30, 2016, t the Company received subscriptions for
525,237 shares of common stock for cash totaling $389,900. As of
November 31, 2016, 16,339 shares have not been issued to an
investor. The price per share is equal to eighty-five percent of
the average daily “Ask Price” as quoted on the OTC
Electronic Bulletin Board Quotation System for the ten trading days
immediately preceding the Closing. In addition, for each share of
common stock purchased, each investor shall receive two warrants.
Warrant A shall provide the investor the right to purchase one
additional share of the Company’s common stock equal to one
hundred percent of the average daily “Ask Price” as
quoted on the OTC Electronic Bulletin Board Quotation System for
the ten trading days immediately preceding the Closing. Warrant B
shall provide the investor the right to purchase one additional
share of the Company’s common stock equal to one hundred
twenty-five percent of the average daily “Ask Price” as
quoted on the OTC Electronic Bulletin Board Quotation System for
the ten trading days immediately preceding the
Closing.
Note
G:
STOCK OPTIONS AND
WARRANTS
Stock-Based Compensation to Employees
Pursuant to the
employee incentive stock option plan, on July 15, 2012, the Company
granted 2,000,000 shares to each of its two officers and directors.
The option agreement provides the employee has no more than five
years from the date of the grant to exercise the options at an
exercise price of $0.25 per share. The employee may only exercise
such options based upon the contracted vesting schedule, which
provides that the options vest on a pro-rata basis over 60 months
of future services to be rendered by such employee. In addition, on
August 15, 2012, the Company granted 100,000 incentive stock
options to another officer of the Company. This employee received
the right to exercise the options on the date of grant at an
exercise price of $0.25 per share. As the officer was fully vested
in his right to such exercise at the time of the grant, the Company
recorded the entire fair value of his stock options at the date of
grant.
The
fair value of the options is calculated using the Black-Scholes
method as of the date of grant. The factors used to calculate fair
value of the stock options include the following: 1) Risk free
interest rate, 2) Volatility of returns of the underlying asset, 3)
current stock price, 4) Term of the Option, and 5) The exercise
price. The risk free interest rate used in this calculation equals
0.63% and 0.80% for the stock options granted on July 15, 2012 and
August 15, 2012, respectively. The term of the option is 5 years
from the date of the grant. The exercise price is $0.25 per share.
The current stock price at the dates of grant, which is July 15,
2012 and August 15, 2012, is $0.25 based on the sale of common
shares to investors for the eleven months prior to the date of
grant. Several industry comparables to this Company were used in
order to determine an approximation of the volatility. The
approximate volatility based on these comparables is approximately
458%.
EXEO
ENTERTAINMENT, INC.
Notes
to Financial Statements
November
30, 2016
(Audited)
Note
G:
STOCK OPTIONS AND
WARRANTS (CONTINUED)
The
following is a summary of the status of all of the Company’s
stock options issued to the Company’s management as of
November 30, 2016 and 2015 and the changes from December 1, 2014 to
November 30, 2016.
|
|
# of
Options
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining Life
|
Outstanding
November 30, 2014
|
|
4,000,000
|
|
$0.25
|
|
-
|
Granted
|
|
-
|
|
$
-
|
|
-
|
Exercised
|
|
-
|
|
$
-
|
|
-
|
Cancelled
|
|
-
|
|
$
-
|
|
-
|
Outstanding at
November 30, 2015
|
|
4,000,000
|
|
$0.25
|
|
-
|
Granted
|
|
-
|
|
$
-
|
|
-
|
Exercised
|
|
-
|
|
$
-
|
|
-
|
Cancelled
|
|
-
|
|
$
-
|
|
-
|
Outstanding at
November 30, 2016
|
|
4,000,000
|
|
$0.25
|
|
8.50
months
|
Exercisable at
November 30, 2016
|
|
3,500,000
|
|
$0.25
|
|
8.50
months
|
Outstanding at
November 30, 2015
|
|
4,000,000
|
|
$0.25
|
|
20.50
months
|
Exercisable at
November 30, 2015
|
|
2,700,000
|
|
$0.25
|
|
20.50
months
|
Stock Warrants Issued to Investors
Prior
to March 3, 2014, the Company issued 48,750 common stock warrants
to Series A Preferred Stock purchasers in February and March 2014.
All of the warrants expired in February and March
2017.
The
following is a summary of the status of all of the Company’s
stock warrants as of November 30, 2016 and 2015, and the changes
from December 1, 2014 to November 30, 2016.
|
|
# of
Warrants
|
|
Weighted Average
Exercise Price
|
|
Weighted Average
Remaining Life
|
Outstanding at
November 30, 2014
|
|
1,841,250
|
|
$1.00
|
|
-
|
Granted
|
|
-
|
|
$1.00
|
|
-
|
Exercised
|
|
-
|
|
$
.80
|
|
-
|
Cancelled
|
|
(1,792,500)
|
|
$
-
|
|
-
|
Outstanding at
November 30, 2015
|
|
48,750
|
|
$2.00
|
|
15
months
|
Granted
|
|
1,050,474
|
|
$1.09
|
|
36
months
|
Exercised
|
|
-
|
|
$
-
|
|
-
|
Cancelled
|
|
-
|
|
$
-
|
|
-
|
Outstanding at
November 30, 2016
|
|
1,099,224
|
|
$1.03
|
|
24.8
months
|
Exercisable at
November 30, 2016
|
|
1,099,224
|
|
$1.03
|
|
24.8
months
|
Outstanding at
November 30, 2015
|
|
48,750
|
|
$2.00
|
|
3
month
|
Exercisable at
November 30, 2015
|
|
48,750
|
|
$2.00
|
|
3
month
|
EXEO
ENTERTAINMENT, INC.
Notes
to Financial Statements
November
30, 2015
(Audited)
Note H:
PREFERRED
STOCK
Issuances of Series A Convertible Preferred Stock
Since
March 3, 2014, the Company has not offered or sold any Series A
Convertible Preferred Stock and has no intent to do so during
fiscal year ended November 30, 2016.
Issuances of Series B Convertible Preferred Stock
On January 14, 2014, the Board of Directors of
Exeo Entertainment, Inc. (the “Company”
adopted
a resolution pursuant to the Company’s Certificate of
Incorporation, as amended, providing for the designations,
preferences and relative, participating, optional and other rights,
and the qualifications, limitations and restrictions, of the Series
B Convertible Preferred Stock.
On January 18, 2014, the Company filed a
Certificate of Designations for a Series B Convertible Preferred
Stock. The authorized number of Series B Convertible Preferred
Stock is 1,000,000 shares, par value 0.0001.
The holders of
shares of Series B Convertible Preferred Stock shall vote as a
separate class on all matters adversely affecting the Series B
Stock. The authorization or issuance of additional
Common Stock, Series B Convertible Preferred Stock or other
securities having liquidation, dividend, voting or other rights
junior to or on a parity with, the Series B Convertible Preferred
Stock shall not be deemed to adversely affect the Series B
Convertible Preferred Stock. In each case the holders shall be
entitled to one vote per share.
During the conversion period, each Series B
Preferred share may be converted to common stock at a fixed
conversion price of $1.25 per share or the Variable Conversion
Price set forth in the Company’s Certificate of Designation.
Series B stock bears interest at 12% per annum, paid annually, with
principal paid at maturity twenty-four (24) months after the date
of issuance of the stock. See table below in this note. Principal
repayment may not apply if the stockholder exercises the right to
convert all preferred stock to common stock during the conversion
period.
During
the year ended November 30, 2015, forty-five
accredited investors subscribed to 206,640 shares,
in total, of Series B Preferred Stock in exchange for cash
consideration of $1,033,200, in total, at $5.00 for each share. As
of November 30, 2016, the shares have been issued and have been
presented
outside of permanent equity in accordance with ASC
48-10,
Classification and
Measurement of Redeemable Securities
. The Company relies upon an exemption from
registration under the Securities Act of 1933 pursuant to
Regulation D, Section 506. The Company agreed to pay interest on
such funds at 12% per annum.
Each person executed a stock
subscription agreement and delivered funds in exchange for the
delivery of Series B Convertible Preferred Shares at a price of
$5.00 per share. Stock warrants were not sold or included in the
offering to such investors.
During
the year ended November 30, 2016, twelve
accredited investors subscribed to 45,050 shares,
in total, of Series B Preferred Stock in exchange for cash
consideration of $225,250, in total, at $5.00 for each share. As of
November 30, 2016, the shares have been issued and have been
presented
outside of permanent equity in accordance with ASC
48-10,
Classification and
Measurement of Redeemable Securities
. The Company relies upon an exemption from
registration under the Securities Act of 1933 pursuant to
Regulation D, Section 506. The Company agreed to pay interest on
such funds at 12% per annum.
Each person executed a stock
subscription agreement and delivered funds in exchange for the
delivery of Series B Convertible Preferred Shares at a price of
$5.00 per share. Stock warrants were not sold or included in the
offering to such investors.
EXEO
ENTERTAINMENT, INC.
Notes
to Financial Statements
November
30, 2015
(Audited)
Note H:
PREFERRED STOCK
(CONTINUED)
All
shares of redeemable convertible preferred stock have been
presented outside of permanent equity in accordance with ASC 48-10,
Classification and Measurement of
Redeemable Securities
. The Company accretes the carrying
value of its Series A and B redeemable convertible preferred stock
to its estimate of fair value (i.e. redemption value) at period
end.
The
estimated fair value of the Series A and Series B redeemable
convertible preferred stock at November 30, 2016 was $134,112 and
$1,431,414, respectively.
The
estimated fair value of the Series A and Series B redeemable
convertible preferred stock at November 30, 2015 was $119,487 and
$1,087,906, respectively.
We
incurred equity issuance costs of $1,446 and $3,403 for the years
ended November 30, 2016 and 2015, respectively. Rather
than expense these costs, such items are charged against the
Company’s equity. Our employees coordinate various matters
associated with the sales of issuer securities to accredited
investors. Equity issuance costs include such wages.
These costs also include mailing, copying, courier, and other
miscellaneous costs associated with the duplication and delivery of
our offering circular to investors and paying for the return
delivery of signed stock subscription agreements.
Note I:
RELATED PARTY
TRANSACTIONS
Notes Payable to Officer
An
officer received promissory notes from the Company in exchange for
loans from the officer for $85,000. The terms of the notes provide
that the Company shall repay the principal of each note in full
within nine months of the date of each note. In addition, the
Company is obligated to pay interest at a flat rate of 6.00% upon
maturity of each note. At the sole discretion of the officer, the
notes may be extended for an additional nine month term. The
Officer agreed to extend the notes for an additional nine month
period. The maturity dates after the extensions are reflected
below. In November 2015, the Company made a $10,000 payment to an
officer towards the entire principal of one note dated December,
2013. The Company made no payment towards $14,139 accrued
interest.
Date of Each Note
|
Amount of Each Note
|
Accrued Interest through the Maturity Date
|
Maturity Date of Each Note
|
December 30, 2013
|
$ 25,000
|
$4,666
|
September 29, 2016
|
January 24, 2014
|
$ 50,000
|
$9,473
|
October 23, 2016
|
EXEO
ENTERTAINMENT, INC.
Notes
to Financial Statements
November
30, 2015
(Audited)
Note I:
RELATED PARTY
TRANSACTIONS (CONTINUED)
Compensation of Officers
The
Company entered into officer compensation agreements with two
officer/directors whereby each receives $60,000 per annum as cash
compensation. The Company pays each officer $5,000 per month.
During June 2015, the Company increased the total monthly
compensation to a total of $12,500 per month for both
officers.
The
amount paid to the two officers in total was $150,200 and $143,105
during the years ended November 30, 2016 and 2015, respectfully. In
addition, each officer/director received additional compensation in
the form of non-cash incentive stock options granted on July 15,
2012. Each person received 2,000,000 stock options. For further
discussion of the terms of the grant of stock options, see Note
G.
Note
J:
COMMITMENTS AND
CONTINGENCIES
Royalty Payable Obligation
At
January 1, 2015, the Company is obligated to pay minimum monthly
royalties of approximately $80,000 (CDN $100,000) per quarter for
the remaining term of the Psyko Audio Labs
contract. The company carries the risk of currency
exchange rate fluctuations as our royalty obligation under the
license agreement is stated in Canadian dollars. For the
years ended November 30, 2016 and 2015, the Company has made a
total of $50,000 and $50,000 towards this obligation and no royalty
invoices have been received from Psyko Audio Labs. Royalty payable
was $523,032 and $273,712 as of November 30, 2016 and 2015. For the
years ended November 30, 2016 and 2015, royalty expense and the
related gain on foreign currency transactions were $327,095 and
$311,594, respectively.
Operating Lease Obligation
On
October 25, 2012, the Company signed a lease for its current office
and warehouse. The Company executed a one year extension effective
October 1, 2014. The original lease contains an option for a three
year renewal; which shall expire on September 30, 2016. The Company
signed an additional one year lease at the same terms as the prior
lease. The typical monthly rent expense is $7,006, which includes
base rent of $5,496 and common area maintenance of $1,510. The
Company is not obligated to pay a security deposit to the
management company.
As of
November 30, 2016 and 2015, the monthly minimum rental payment is
$7,006.
Rent expense was $84,072 and
$84,072 for the years ended November 30, 2016 and 2015,
respectively.
Note Payable for Vehicle Financing Obligations
On
September 27, 2012, the Company acquired a pre-owned company
vehicle on credit. The original cost basis was $49,824. On November
13, 2015, the Company traded the vehicle for a new leased vehicle
for $6,714 due at signing. The Company is obligated to pay a total
of $48,944 for 36 months with a monthly payment of
$1,196.
On
November 13, 2015, the Company acquired a pre-owned company vehicle
on credit. The original cost basis was $56,963. The Company paid
$5,000 as a down payment. The amount financed by the seller is
$48,259, and the Company makes monthly payments of $866. The
Company is obligated to pay a total of $51,963 over the course of
the loan. This note bears interest at the annual percentage rate of
2.9%, and the term is 60 months. The total finance charge
associated with this note is $3,704.
EXEO
ENTERTAINMENT, INC.
Notes
to Financial Statements
November
30, 2015
(Audited)
Note
K:
SUBSEQUENT
EVENTS
In
December 2016, the Company agreed to issue 50,000 shares of common
stock for services.
In
December 2016 and January 2017, the Company sold 32,000 shares of
common stock in exchange for cash of $16,000.
In
January 2017, the Company issued 322,188 shares to an investor and
reduced the stock payable by $100,000.
In
January and February 2017, the Company sold units consisting of
96,638 shares of common stock, 96,638 warrant A and 96,638 of
warrant B for total cash of $75,000.
Item 15(B) Exhibits