UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended February 29, 2020
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission
file number 333-190690
EXEO
ENTERTAINMENT, INC.
|
(Exact
name of registrant as specified in its charter) |
|
|
|
|
|
Nevada |
|
45-2224704 |
|
(State
or other jurisdiction of |
|
(I.R.S.
Employer |
|
incorporation
or organization) |
|
Identification
No.) |
|
|
|
|
|
4478
Wagon Trail Ave., Las Vegas, NV 89118 |
|
(Address
of principal executive offices and Zip Code) |
|
|
|
|
|
(702)
361-3188 |
|
(Registrant’s
telephone number, including area code) |
Indicate
by check mark whether the issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the past 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes x No
o
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post
such files). Yes x
No
o
Indicate
by check mark whether the Registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act.:
|
Large
accelerated filer |
o |
Accelerated
filer |
o |
|
Non-accelerated
filer
(Do
not check if a smaller reporting company)
|
o |
Smaller
reporting company |
x |
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). o Yes
x No x
As of
May 27, 2020, there were outstanding 29,638,383
shares of the issuer’s common stock, par value $0.0001 per share.
There were also outstanding 19,500 Series A, and 229,250,
Series B Preferred Shares of the issuers preferred stock,
par value $0.0001 per share.
EXEO
ENTERTAINMENT, INC.
Form 10-Q
Table of Contents
PART I – FINANCIAL
INFORMATION
ITEM 1. FINANCIAL
STATEMENTS
The
accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and Item Regulation
S-X, Rule 10-01(c) Interim Financial Statements, and, therefore, do
not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, cash
flows, and stockholders’ equity in conformity with generally
accepted accounting principles. In the opinion of management, all
adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and
all such adjustments are of a normal recurring nature. Operating
results for the three months ended February 29, 2020 are not
necessarily indicative of the results that can be expected for the
year ending November 30, 2020.
|
EXEO
ENTERTAINMENT, INC. |
|
BALANCE SHEETS |
| |
|
February 29, |
|
|
November 30, |
|
| |
|
2020 |
|
|
2019 |
|
| |
|
(unaudited) |
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
75,130 |
|
|
$ |
96,923 |
|
|
Accounts receivable |
|
|
4,019 |
|
|
|
- |
|
|
Prepaid expenses |
|
|
40,545 |
|
|
|
51,479 |
|
|
Inventory |
|
|
280,020 |
|
|
|
284,497 |
|
|
Total current assets |
|
|
399,714 |
|
|
|
432,899 |
|
| |
|
|
|
|
|
|
|
|
|
Operating lease assets |
|
|
92,655 |
|
|
|
122,723 |
|
|
Property and equipment, net |
|
|
46,381 |
|
|
|
44,527 |
|
| |
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
538,750 |
|
|
$ |
600,149 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES, REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
65,194 |
|
|
$ |
81,127 |
|
|
Accrued interest payable - related party |
|
|
29,243 |
|
|
|
28,084 |
|
|
Payroll liabilities |
|
|
190,086 |
|
|
|
184,950 |
|
| Due
to related parties |
|
|
75,000 |
|
|
|
75,000 |
|
|
Royalty payable |
|
|
1,493,875 |
|
|
|
1,431,665 |
|
|
Notes payable |
|
|
7,727 |
|
|
|
9,314 |
|
|
Operating lease liabilities - current portion |
|
|
80,896 |
|
|
|
103,439 |
|
|
Total current liabilities |
|
|
1,942,021 |
|
|
|
1,913,579 |
|
| |
|
|
|
|
|
|
|
|
|
Long-term liabilities |
|
|
|
|
|
|
|
|
|
Notes payable |
|
|
- |
|
|
|
936 |
|
|
Operating lease liabilities |
|
|
11,084 |
|
|
|
17,084 |
|
|
Total long-term liabilities |
|
|
11,084 |
|
|
|
18,020 |
|
| |
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,953,105 |
|
|
|
1,931,599 |
|
| |
|
|
|
|
|
|
|
|
|
Commitments and Contingencies - Note D |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Series A redeemable convertible preferred stock; $0.0001 par value,
1,000,000 shares authorized; 19,500 shares issued and outstanding;
0 shares unissued as of February 29, 2020 and November 30, 2019
(liquidation preference of $113,394 and $109,738, respectively).
Stated at redemption value. |
|
|
181,642 |
|
|
|
177,985 |
|
|
Series B redeemable convertible preferred stock; $0.0001 par value,
1,000,000 shares authorized; 229,250 and 234,250 shares issued and
outstanding; 2,500 shares unissued as of February 29, 2020 and
November 30, 2019 (liquidation preference of $958,070 and $932,317,
respectively). Stated at redemption value, net of Treasury Stock
(2,500 shares) |
|
|
1,910,191 |
|
|
|
1,873,192 |
|
| |
|
|
|
|
|
|
|
|
|
Stockholders’ deficit |
|
|
|
|
|
|
|
|
|
Convertible Preferred Stock Series A - 15%, $0.0001 par value,
1,000,000 shares authorized, 19,500 and 19,500 shares issued,
respectively |
|
|
- |
|
|
|
- |
|
|
Convertible Preferred Stock Series B - 12%, $0.0001 par value,
1,000,000 shares authorized, 229,250 and 231,690 shares issued,
respectively |
|
|
- |
|
|
|
- |
|
|
Common stock - $0.0001 par value, 100,000,000 shares authorized;
29,088,975 and 29,054,235 shares issued and outstanding,
respectively |
|
|
2,909 |
|
|
|
2,905 |
|
|
Additional paid-in capital |
|
|
6,724,010 |
|
|
|
6,724,009 |
|
|
Treasury stock, Series B Preferred Stock - 2,500 shares |
|
|
(12,500 |
) |
|
|
(12,500 |
) |
|
Stock payable |
|
|
297,500 |
|
|
|
22,500 |
|
|
Accumulated deficit |
|
|
(10,518,107 |
) |
|
|
(10,119,541 |
) |
|
Total stockholders’ deficit |
|
|
(3,506,188 |
) |
|
|
(3,382,627 |
) |
| |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS’ DEFICIT |
|
$ |
538,750 |
|
|
$ |
600,149 |
|
The
accompanying notes are an integral part of these financial
statements.
|
EXEO
ENTERTAINMENT, INC. |
|
STATEMENTS OF
OPERATIONS |
|
(unaudited) |
| |
|
For
the three months ended |
|
| |
|
February 29 and 28, |
|
| |
|
2020 |
|
|
2019 |
|
|
REVENUES |
|
$ |
9,763 |
|
|
$ |
750 |
|
|
COST OF GOOD SOLD |
|
|
|
|
|
|
|
|
|
Cost of direct materials, shipping and labor |
|
|
(6,597 |
) |
|
|
(2,094 |
) |
|
GROSS PROFIT AND (LOSS) |
|
|
3,166 |
|
|
|
(1,344 |
) |
| |
|
|
|
|
|
|
|
|
|
OPERATING EXPENSES |
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
322,831 |
|
|
|
291,526 |
|
|
Executive compensation |
|
|
33,567 |
|
|
|
33,838 |
|
|
Professional fees |
|
|
11,800 |
|
|
|
17,625 |
|
|
Depreciation |
|
|
5,328 |
|
|
|
4,958 |
|
|
TOTAL OPERATING EXPENSES |
|
|
373,526 |
|
|
|
347,947 |
|
| |
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
|
(370,360 |
) |
|
|
(349,291 |
) |
| |
|
|
|
|
|
|
|
|
|
OTHER EXPENSE |
|
|
|
|
|
|
|
|
|
Gain (Loss) from foreign currency transactions |
|
|
13,688 |
|
|
|
(12,046 |
) |
|
Interest expense - related party |
|
|
(1,159 |
) |
|
|
(1,147 |
) |
|
Interest expense |
|
|
(75 |
) |
|
|
(147 |
) |
|
TOTAL OTHER EXPENSES |
|
|
12,454 |
|
|
|
(13,340 |
) |
| |
|
|
|
|
|
|
|
|
|
NET LOSS |
|
|
(357,906 |
) |
|
|
(362,631 |
) |
| |
|
|
|
|
|
|
|
|
|
DIVIDEND OF REDEEMABLE PREFERRED STOCK |
|
|
(40,660 |
) |
|
|
(40,660 |
) |
| |
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS |
|
$ |
(398,566 |
) |
|
$ |
(403,291 |
) |
| |
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE: BASIC |
|
$ |
(0.01 |
) |
|
$ |
(0.01 |
) |
| |
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC |
|
|
29,065,306 |
|
|
|
27,326,799 |
|
The
accompanying notes are an integral part of these financial
statements.
|
EXEO
ENTERTAINMENT, INC. |
|
STATEMENT OF STOCKHOLDERS’
DEFICIT |
|
(unaudited) |
| |
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| |
|
Common Shares |
|
|
Paid-In |
|
|
Treasury |
|
|
Stock |
|
|
Accumulated |
|
|
Stockholders’ |
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Payable |
|
|
Deficit |
|
|
Deficit |
|
|
Balance, November 30, 2019 |
|
|
29,054,235 |
|
|
$ |
2,905 |
|
|
$ |
6,724,009 |
|
|
$ |
(12,500 |
) |
|
$ |
22,500 |
|
|
$ |
(10,119,541 |
) |
|
$ |
(3,382,627 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash
received for sale of common stock, net of issuance costs |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
190,000 |
|
|
|
- |
|
|
|
190,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash
received for exercise of warrants, net of issuance costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85,000 |
|
|
|
|
|
|
|
85,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for conversion of preferred stock |
|
|
34,740 |
|
|
|
4 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended February 29, 2020 |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(398,566 |
) |
|
|
(398,566 |
) |
|
Balance, February 29, 2020 |
|
|
29,088,975 |
|
|
$ |
2,909 |
|
|
$ |
6,724,010 |
|
|
$ |
(12,500 |
) |
|
$ |
297,500 |
|
|
$ |
(10,518,107 |
) |
|
$ |
(3,506,188 |
) |
The
accompanying notes are an integral part of these financial
statements.
|
EXEO
ENTERTAINMENT, INC. |
|
STATEMENT
OF STOCKHOLDERS’ DEFICIT |
|
(unaudited) |
| |
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| |
|
Common Shares |
|
|
Paid-In |
|
|
Treasury |
|
|
Stock |
|
|
Accumulated |
|
|
Stockholders’ |
|
| |
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Stock |
|
|
Payable |
|
|
Deficit |
|
|
Deficit |
|
|
Balance, November 30, 2018 |
|
|
26,697,109 |
|
|
$ |
2,670 |
|
|
$ |
5,135,475 |
|
|
$ |
(12,500 |
) |
|
$ |
426,000 |
|
|
$ |
(8,582,650 |
) |
|
$ |
(3,031,005 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash
received for sale of common stock |
|
|
170,997 |
|
|
|
17 |
|
|
|
132,483 |
|
|
|
|
|
|
|
307,500 |
|
|
|
|
|
|
|
440,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for subscriptions payable |
|
|
564,132 |
|
|
|
56 |
|
|
|
413,444 |
|
|
|
|
|
|
|
(413,500 |
) |
|
|
|
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for conversion of preferred stock |
|
|
16,860 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the three months ended February 28, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(403,291 |
) |
|
|
(403,291 |
) |
|
Balance, February 28, 2019 |
|
|
27,449,098 |
|
|
$ |
2,745 |
|
|
$ |
5,681,403 |
|
|
$ |
(12,500 |
) |
|
$ |
320,000 |
|
|
$ |
(8,985,941 |
) |
|
$ |
(2,994,293 |
) |
The
accompanying notes are an integral part of these financial
statements.
|
EXEO
ENTERTAINMENT, INC. |
|
STATEMENTS OF CASH
FLOWS |
|
(unaudited) |
| |
|
For
the three months ended |
|
| |
|
February 29 and 28, |
|
| |
|
2020 |
|
|
2019 |
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Net loss for the period |
|
$ |
(357,906 |
) |
|
$ |
(362,631 |
) |
|
Adjustments to reconcile net loss to net cash used in operating
activities |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
5,327 |
|
|
|
4,958 |
|
| Non
cash lease expense |
|
|
1,525 |
|
|
|
- |
|
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
|
|
Decrease (Increase) in prepaid expenses |
|
|
10,934 |
|
|
|
(22,399 |
) |
|
Increase in accounts receivable |
|
|
(4,019 |
) |
|
|
- |
|
|
Decrease in inventory |
|
|
4,477 |
|
|
|
1,150 |
|
|
(Decrease) Increase in accounts payable and accrued expenses |
|
|
(15,933 |
) |
|
|
3,163 |
|
|
Decrease in accrued interest - related party |
|
|
1,159 |
|
|
|
1,146 |
|
|
Increase in payroll liabilities |
|
|
5,136 |
|
|
|
5,177 |
|
|
Increase in royalty payable |
|
|
62,210 |
|
|
|
87,122 |
|
|
Net Cash Used in Operating Activities |
|
|
(287,090 |
) |
|
|
(282,314 |
) |
| |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
|
(7,180 |
) |
|
|
(39,001 |
) |
|
Cash Flows Used in Investing Activities |
|
|
(7,180 |
) |
|
|
(39,001 |
) |
| |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
190,000 |
|
|
|
440,001 |
|
|
Proceeds from exercise of warrants |
|
|
85,000 |
|
|
|
- |
|
|
Payments on notes payable - auto loan (principal) |
|
|
(2,523 |
) |
|
|
(2,451 |
) |
|
Cash Flows Provided by Financing Activities |
|
|
272,477 |
|
|
|
437,550 |
|
| |
|
|
|
|
|
|
|
|
|
Net Change in cash and cash equivalents |
|
|
(21,793 |
) |
|
|
116,235 |
|
| |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of the period |
|
|
96,923 |
|
|
|
104,485 |
|
| |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of the period |
|
$ |
75,130 |
|
|
$ |
220,720 |
|
| |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
- |
|
|
$ |
- |
|
|
Cash paid for income taxes |
|
$ |
- |
|
|
$ |
- |
|
|
Dividend of redeemable preferred stock |
|
$ |
40,660 |
|
|
$ |
40,660 |
|
The
accompanying notes are an integral part of these financial
statements.
|
EXEO
ENTERTAINMENT, INC. |
|
Notes to Financial
Statements |
|
February
29, 2020 |
|
(Unaudited) |
|
|
Note
A: BASIS OF PRESENTATION
The
foregoing unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form
10-Q and Regulation S-X as promulgated by the Securities and
Exchange Commission (“SEC”). Accordingly, these financial
statements do not include all of the disclosures required by
generally accepted accounting principles in the United States of
America for complete financial statements. These unaudited interim
financial statements should be read in conjunction with the audited
financial statements and the notes thereto included on Form 10-K
for the year ended November 30, 2019. In the opinion of management,
the unaudited interim financial statements furnished herein include
all adjustments, all of which are of a normal recurring
nature, necessary for a fair statement of the results for the
interim period presented.
The
preparation of financial statements in accordance with generally
accepted accounting principles in the United States of America
requires the use of estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities known to exist as of the date the
financial statements are published, and the reported amounts of
revenues and expenses during the reporting period. Uncertainties
with respect to such estimates and assumption are inherent in the
preparation of the Company’s financial statements; accordingly, it
is possible that the actual results could differ from these
estimates and assumptions that could have a material effect on the
reported amounts of the Company’s financial position and results of
operations.
Operating
results for the three-month period ended February 29, 2020 are not
necessarily indicative of the results that may be expected for the
year ending November 30, 2020.
|
EXEO
ENTERTAINMENT, INC. |
|
Notes
to Financial Statements |
|
February
29, 2020 |
|
(Unaudited) |
|
|
Note
B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect
the amount of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting
period. A significant estimate includes the carrying value of the
Company’s patents, fair value of the Company’s common stock,
assumptions used in calculating the value of stock options,
depreciation and amortization.
Fair
Value of Financial Instruments
Effective
January 1, 2008, the Company adopted FASB ASC 820, Fair Value
Measurements and Disclosures, Pre Codification SFAS No. 157, “Fair
Value Measurements”, which provides a framework for measuring fair
value under GAAP. Fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. The standard also expands
disclosures about instruments measured at fair value and
establishes a fair value hierarchy, which requires an entity to
maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair
value:
Level
1 — Quoted prices for identical assets and liabilities in active
markets;
Level
2 — Quoted prices for similar assets and liabilities in active
markets; quoted prices for identical or similar assets and
liabilities in markets that are not active; and model-derived
valuations in which all significant inputs and significant value
drivers are observable in active markets; and
Level
3 — Valuations derived from valuation techniques in which one or
more significant inputs or significant value drivers are
unobservable.
The
Company designates cash equivalents (consisting of money market
funds) and investments in securities of publicly traded companies
as Level 1. The total amount of the Company’s investment classified
as Level 3 is de minimis.
Fair
value of financial instruments: The carrying amounts of financial
instruments, including cash and cash equivalents, short-term
investments, accounts payable, accrued expenses and notes payables
approximated fair value as of February 29, 2020 and November 30,
2019 because of the relative short term nature of these
instruments. At February 29, 2020 and November 30, 2019, the fair
value of the Company’s debt approximates carrying value.
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.
Inventory
Inventories
are stated at cost, not to exceed fair market value. The cost of
the Company’s inventory $280,020 and $284,497 as of February 29,
2020 and November 30, 2019, respectively has been determined using
the first-in first-out (FIFO) method.
|
EXEO
ENTERTAINMENT, INC. |
|
Notes
to Financial Statements |
|
February
29, 2020 |
|
(Unaudited) |
|
|
Note
B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Accounts
Receivable
Accounts
receivable are stated at the amount the Company expects to collect
from outstanding balances and do not bear interest. The Company
provides for probable uncollectible amounts through an allowance
for doubtful accounts, if an allowance is deemed necessary. The
allowance for doubtful accounts is the Company’s best estimate of
the amount of probable credit losses in the Company’s existing
accounts receivable; however, changes in circumstances relating to
accounts receivable may result in a requirement for additional
allowances in the future. On a periodic basis, management evaluates
its accounts receivable and determines the requirement for an
allowance for doubtful accounts based on its assessment of the
current and collectible status of individual accounts with past due
balances over 90 days. Account balances are charged against the
allowance after all collection efforts have been exhausted and the
potential for recovery is considered remote.
As of
February 29, 2020, the Company had accounts receivable of
approximately 95% from two customers.
Allowance
for Uncollectible Accounts
The
Company estimates losses on receivables based on known troubled
accounts, if any, and historical experience of losses incurred.
There was no allowance for doubtful customer receivables at
February 29, 2020 and November 30, 2019.
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 |
| Computer Equipment |
|
3 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 February 29, 2020. 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 impairment is measured based on
fair value compared to carrying value, with fair value typically
based on a discounted cash flow model.
|
EXEO
ENTERTAINMENT, INC. |
|
Notes
to Financial Statements |
|
February
29, 2020 |
|
(Unaudited) |
|
|
Note
B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Revenue
Recognition
The
Company recognizes revenue in accordance with generally accepted
accounting principles as outlined in the Financial Accounting
Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”)
606, Revenue From Contracts with Customers, which consists of five
steps to evaluating contracts with customers for revenue
recognition: (i) identify the contract with the customer; (ii)
identity the performance obligations in the contract; (iii)
determine the transaction price; (iv) allocate the transaction
price; and (v) recognize revenue when or as the entity satisfied a
performance obligation.
Revenue
recognition occurs at the time we satisfy a performance obligation
to our customers, when control transfers to customers, provided
there are no material remaining performance obligations required of
the Company or any matters of customer acceptance. We only record
revenue when collectability is probable.
For
the three months ended February 29, 2020 and February 28, 2019, the
Company recognized $9,763 and $750 in revenue,
respectively.
Income
Taxes
Income
taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and
liabilities are determined based on the differences between the
financial reporting and tax bases of assets and liabilities and are
measured using the currently enacted tax rates and laws. A
valuation allowance is provided for the amount of deferred tax
assets that, based on available evidence, are not expected to be
realized.
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
The
Company follows ASC 718-10, “Stock Compensation”, which addresses
the accounting for transactions in which an entity exchanges its
equity instruments for goods or services, with a primary focus on
transactions in which an entity obtains employee services in
share-based payment transactions. ASC 718-10 is a revision to SFAS
No. 123, “Accounting for Stock-Based Compensation,” and supersedes
Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for
Stock Issued to Employees,” and its related implementation
guidance. ASC 718-10 requires measurement of the cost of employee
services received in exchange for an award of equity instruments
based on the grant-date fair value of the award (with limited
exceptions). Incremental compensation costs arising from subsequent
modifications of awards after the grant date must be
recognized.
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 February 29, 2020, the Company’s
bank balance did not exceed the insured amounts.
|
EXEO
ENTERTAINMENT, INC. |
|
Notes
to Financial Statements |
|
February
29, 2020 |
|
(Unaudited) |
|
|
Note
B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 PS4® (and other products
such as Nintendo Switch® and Microsoft Xbox One®).
Liquidity
and Going Concern
As of
February 29, 2020, the Company has cumulative losses totaling
$10,518,107 and negative working capital of $1,542,307. The Company
incurred a net loss of $394,566 for the three months ended February
29, 2020. Due to the coronavirus pandemic, the Company has
adversely affected our business, which the demand for our products
has decreased and the ability of our clients to make payments for
the products they currently purchased has been negatively impacted.
Because of these conditions, the Company will require additional
working capital to develop business operations. The Company intends
to raise additional working capital through the continued licensing
of its technology as well as to generate revenues for other
services. There are no assurances that the Company will be able to
achieve the level of revenues adequate to generate sufficient cash
flow from operations to support the Company’s working capital
requirements. To the extent that funds generated are insufficient,
the Company will have to raise additional working capital. No
assurance can be given that additional financing will be available,
or if available, will be on terms acceptable to the Company. If
adequate working capital is not available, the Company may not
continue its operations.
Due
to the coronavirus (“COVID-19”) pandemic, the demand for the
Company’s products has decreased and the ability of the Company’s
customers to make payments for the products that they currently
purchase has been negatively impacted. It is unclear how a
prolonged outbreak with travel, commercial and other similar
restrictions, may adversely affect the Company business operations
and the business operations of the Company’s customers and
suppliers. Therefore, the Company anticipates a prolonged period
will have a negative effect on business operations.
These
factors raise substantial doubt about the Company’s ability to
continue within one year from the date of the filing. 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 except as
noted below.
|
EXEO
ENTERTAINMENT, INC. |
|
Notes
to Financial Statements |
|
February
29, 2020 |
|
(Unaudited) |
|
|
Note
B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Recent
Accounting Pronouncements (continued)
In
August 2018, the FASB issued ASU 2018-13, Disclosure
Framework — Changes to the Disclosure Requirements for Fair Value
Measurement, which removes, modifies, and adds certain
disclosure requirements related to fair value measurements in ASC
Topic 820. This guidance is effective for public companies in
fiscal years beginning after December 15, 2019, with early adoption
permitted. Effective January 1, 2020, we adopted ASU 2018-13. The
implementation of this standard did not have any material impact on
our consolidated financial statements.
Note
C: COMMON STOCK
The
Company has 100,000,000 shares at $0.0001 par value common stock
authorized and 29,088,975 and 29,054,235 shares issued and
outstanding at February 29, 2020 and November 30, 2019,
respectively.
During
the three months ended February 29, 2020, the Company issued 34,740
shares of common stock for the conversion of 5,000 shares of Series
B Preferred Stock.
On
December 19, 2019, the Company received $10,000 for the exercise of
warrants. The stock was considered owed as a common stock payable
as of February 29, 2020. On April 17, 2020, the Company has issued
20,000 shares out of stock payable related to exercise of
warrants
On
January 15, 2020, the Company received $75,000 for the exercise of
warrants. The stock was considered owed as a common stock payable
as of February 29, 2020. On April 17, 2020, the Company has issued
200,000 shares for the exercise of warrants.
On
December 19, 2019, the Company sold 40,000 shares of common stock
to an investor in exchange for $30,000. The stock was considered
owed as a common stock payable as of February 29, 2020. The shares
have been issued on April 17, 2020.
On
December 23, 2019, the Company sold 41,177 shares of common stock
to two investors in exchange for $35,000. The stock was considered
owed as a common stock payable as of February 29, 2020. The shares
have been issued on April 17, 2020.
On
January 3, 2020, the Company sold 15,480 shares of common stock to
an investor in exchange for $12,500. The stock was considered owed
as a common stock payable as of February 29, 2020. The shares have
been issued on April 17, 2020.
On
January 15, 2020, the Company sold 15,480 shares of common stock to
an investor in exchange for $12,500. The stock was considered owed
as a common stock payable as of February 29, 2020. The shares have
been issued on April 17, 2020.
On
January 21, 2020, the Company sold 108,360 shares of common stock
to an investor in exchange for $87,500. The stock was considered
owed as a common stock payable as of February 29, 2020. The shares
have been issued on April 17, 2020.
On
February 3, 2020, the Company sold 15,480 shares of common stock to
an investor in exchange for $12,500. The stock was considered owed
as a common stock payable as of February 29, 2020. The shares have
been issued on April 17, 2020.
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
D: 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. Royalty payable was $1,493,875 as of February 29,
2020. For the three months ended February 29, 2020 and February 28,
2019, royalty expense and the related gain/(loss) on foreign
currency transactions were $13,688 and ($12,046),
respectively.
|
EXEO
ENTERTAINMENT, INC. |
|
Notes
to Financial Statements |
|
February
29, 2020 |
|
(Unaudited) |
|
|
Note
E: LEASES
In
the first quarter of fiscal 2019, the Company adopted Accounting
Standards Update (“ASU”) 2016-02, “Leases (Topic
842),” and related amendments.
The
Company leases certain property consisting principally of its
corporate headquarters, its retail stores, the majority of its
distribution and fulfillment centers, and certain equipment under
operating leases. Many of the Company’s leases include options to
renew at the Company’s discretion. The renewal options are not
included in the measurement of right-of-use (“ROU”) assets and
lease liabilities as the Company is not reasonably certain to
exercise available options. Rent escalations occurring during the
term of the leases are included in the calculation of the future
minimum lease payments and the rent expense related to these leases
is recognized on a straight-line basis over the lease
term.
The
Company determines whether an agreement contains a lease at
inception based on the Company’s right to obtain substantially all
of the economic benefits from the use of the identified asset and
its right to direct the use of the identified asset. Lease
liabilities represent the present value of future lease payments
and the ROU assets represent the Company’s right to use the
underlying assets for the respective lease terms. ROU assets and
lease liabilities are recognized at the lease commencement date
based on the present value of the lease payments over the lease
term. The ROU asset is further adjusted to account for previously
recorded lease-related expenses such as deferred rent
and other lease liabilities. As the Company’s
leases do not provide an implicit rate, the Company uses its
incremental borrowing rate as the discount rate to calculate the
present value of lease payments. The incremental borrowing rate
represents an estimate of the interest rate that would be required
to borrow on a collateralized basis over a similar term an amount
equal to the lease payments in a similar economic
environment.
The
Company elected not to recognize a ROU asset and a lease liability
for leases with an initial term of twelve months or less and not to
separate lease and non-lease components. In addition to minimum
lease payments, certain leases require payment of a proportionate
share of real estate taxes and certain building operating expenses
or payments based on a percentage of sales in excess of a specified
base. These variable lease costs are not included in the
measurement of the ROU asset or lease liability due to
unpredictability of the payment amount and are recorded as a lease
expense in the period incurred. The Company’s lease agreements do
not contain residual value guarantees or significant restrictions
or covenants other than those customary in such arrangements. As of
February 29, 2020, the Company did not have material leases that
had been signed but not yet commenced.
The
components of lease cost are as follows:
|
|
|
For the three months ended
February 29, 2020 |
|
|
Operating lease cost |
|
$ |
18,621 |
|
|
Total lease cost |
|
$ |
18,621 |
|
|
EXEO
ENTERTAINMENT, INC. |
|
Notes
to Financial Statements |
|
February
29, 2020 |
|
(Unaudited) |
|
|
Note
E: LEASES (CONTINUED)
The
following table discloses the weighted average remaining lease term
and weighted average discount rate for the Company’s leases as of
February 29, 2020:
|
|
|
For the three months ended
February 29, 2020 |
|
|
Remaining lease term – operating leases (years) |
|
|
1.04 |
|
|
Incremental borrowing
rate
|
|
|
5.57 |
% |
As of
February 29, 2020, the Company had the following future minimum
operating lease payments:
|
Fiscal Year |
|
|
|
|
2020 |
|
|
80,896 |
|
|
2021 |
|
|
11,084 |
|
|
Total lease payments |
|
|
91,980 |
|
|
Less: interest |
|
|
675 |
|
|
Total lease obligation |
|
$ |
92,655 |
|
Note
F: SUBSEQUENT EVENTS
In
accordance with ASC 855-10, Company management reviewed all
material events through the date of this report and determined that
there are no additional material subsequent events to report except
for the disclosure below.
On
March 2, 2020, the Company sold 37,951 shares of common stock,
37,951 warrant A and 37,951 warrant B to an investor in exchange
for $30,000. As of the date of this filing the shares have been
issued.
On
March 13, 2020, the Company sold 15,480 shares of common stock,
15,480 warrant A and 15,480 warrant B to an investor in exchange
for $12,500. As of the date of this filing the shares have been
issued.
On
April 3, 2020, the Company sold 10,000 shares of common stock to an
investor in exchange for $6,500. As of the date of this filing the
shares have been issued.
On
April 6, 2020, the Company sold 10,000 shares of common stock to an
investor in exchange for $6,000. As of the date of this filing the
shares have been issued.
On
April 8, 2020, the Company sold 10,000 shares of common stock to an
investor in exchange for $6,000. As of the date of this filing the
shares have been issued.
On
April 17, 2020, the Company sold 10,000 shares of common stock to
an investor. As of the date of this filing the shares have been
issued.
On
April 17, 2020, the Company issued 235,977 shares to various
investors for shares purchased during the three months ended
February 29, 2020
On
April 17, 2020, the Company issued 220,000 shares to two investors
for exercised warrants during the three months ended February 29,
2020.
As of
the date of this filing, the Company is obligated to issue 36,339
common shares to two investors, and these common shares are
recorded as $22,500 in stock payable. These common shares have not
been issued.
Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of
Operations
OVERVIEW
Exeo
Entertainment, Inc. designs, develops, licenses, manufacturers, and
markets consumer electronics in the video gaming, music and smart
TV sector. Our current business objectives are:
|
● |
Complete
product development and establish channels of distribution,
and |
|
● |
Expand
SKUs within the headphone market for both music and
gaming |
Activities
to date
We
incorporated in the state of Nevada on May 12, 2011. For the three
months ended February 29, 2020, we generated minimal revenues and
continue to operate at a loss. Our activities have centered on the
design and engineering of peripherals in the video gaming, music,
and smart TV sector.
We
accomplished the following:
|
1) |
We
completed the molds for the Psyko™ PC model and are working on the
molds for the Psyko™ console unit, and the Psyko®5.1 Surround Sound
Gaming Headsets (with built-in microphone) with external amplifier
for Personal Computers. |
|
2) |
We
have an “Exclusive Distributor” Agreement with Axcel Electronics
Thailand Company Limited (Cableicons, Inc.) which covers the USA
and Canada to Distribute and sell the “Ford Officially Licensed
Cell Phone Accessories” in all wholesale and retail
channels. |
|
3) |
We
received inventory of the Krankz™ Bluetooth Wireless Headsets, We
also are also working with Vegas Golden Knight NHL team and have
designed a custom headphone for them. |
Products
and Services
Products
under development include the Psyko™ 5.1 surround sound gaming
headphones for consoles and Krankz™ MAXX Bluetooth™ wireless
headphones.
Strategy
and Marketing Plan
Manufacturing
is established, so we intend on utilizing existing consumer
electronics distributers, such as Synnex Corp. (SNX) and Ingram
Micro to distribute our products to big box retailers such as Best
Buy, GameStop, and Fry’s Electronics. We do not have distribution
agreements with these companies at this time.
Competition
Psyko
™ Headphones
While
our Psyko™ headphone offering differs from the competition in the
method of 5.1-surround sound delivery, we will face competition
from manufacturers with established channels of distribution,
mature capital structures, and significantly larger marketing
budgets. Well established gaming headphone manufacturers include
Turtle Beach; a private company, Tritton – a subsidiary of Mad Catz
Interactive (MCZ), and Astro Gaming which is a subsidiary of
Skullcandy (SKUL).
While
other headphone manufacturers replicate 5.1 surround sound through
Digital Signal Processing (DSP), the Psyko™ headphones use a
patented method of sound delivery that doesn’t require the use of
DSP. Management believes that the difference in audio quality is a
major differentiating factor between our product offering and what
is currently available on the market.
Krankz™
Headphones
The
driver design provides a deep bass sound with clear midrange audio
for a full-range for use up to 30’ distance. These headsets work
with most mobile devices and have a retractable, foldable design
with built-in microphone and noise cancelling feature. We expect to
face competition from lifestyle headphone companies such as Beats
by Dr. Dre and Skull candy. These entities are well established and
have a loyal customer following. We expect to carve out a niche
within the market by initially marketing to the X games demographic
through endorsements and sponsorships in Extreme sports such as
motocross, supercross, snowboarding, surfing, skating, and similar
such sports.
We
are also, working with Vegas Golden Knights NHL team and have
designed a custom Krankz Headphone for them. This is part of the
sponsorship agreement we entered into during 2018 and renewed in
2019.
Management
however acknowledges that while it cannot find any commercially
available products that our patents may never be awarded and that
we could face competition from any number of existing video game
accessory manufacturers.
Distributor
Agreement
We
have an “Exclusive Distributor” Agreement with Axcel Electronics
Thailand Company Limited (Cableicons, Inc.) which covers the USA
and Canada to Distribute and sell the “Ford Officially Licensed
Cell Phone Accessories” in all wholesale and retail channels. Here
is the link for the online Ford Officially Licensed Cell Phone
Accessories Catalog. https://bit.ly/2Qo1eom
Sources
and Availability of Suppliers and Supplies
Currently
we have access to an adequate supply of products, from various
manufacturers. These companies and their products are new, not well
established, and are a subject to significant risk and uncertainty.
We are uncertain if the impact, if any, COVID-19 will have for our
supply of products at this time.
Dependence
on One or a few Major Customers
We do
not anticipate dependence on one or a few major customers into the
foreseeable future.
Patents,
Trademarks, Licenses, Franchise Restrictions and Contractual
Obligations and Concessions
We
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.) With regard to intellectual property
rights associated with Psyko® Headphones, we have a license to use
this mark as well as the patented technology.
We
entered into a license agreement with Digital Extreme Technologies,
Inc., a Delaware corporation, (also referred to as DXT) for use of
certain intellectual property associated with the products being
designed and developed by us. The Black Widow keyboard is now known
as the Zaaz keyboard. DXT worked to design and develop the Extreme
Gamer as well as the Black Widow keyboard. We continue to work
under a license agreement with DXT to advance the use of
technologies designed by DXT. There is no licensing fee paid to DXT
during the years ended November 30, 2014 and 2015
DXT
applied to the U.S. PTO for a patent of its Multi Video Game
Changer. The agency assigned an application number of 12/543,296 to
its application, which was published on February 25, 2010. The
proposed 10 disk Video Game Changer is designed to interface
directly with Sony PS3®, Nintendo Wii®, and Microsoft Xbox 360®.
The Company anticipates incorporating Blu-Ray® compatible optics
technology under a license agreement. This would allow users to
insert Blu-Ray® discs into the Video Game Changer, and once
connected to the video game console, to play movies on television.
Sony PS3® is now capable of playing Blu-Ray® discs, but only with a
capacity for a single disk. This technology would provide for the
loading of up to 10 DVD’s, CD’s or Blu-Ray® discs into a single
console that communicates with a video game console via USB.
Furthermore, users would be able to plug in any external hard disc
drive (“HDD”) directly into the console via an internal ATPI port,
allowing movies, music and pictures to be played directly from the
HDD.
In
regard to intellectual property rights associated with Krankz™
Bluetooth® wireless headphones, we do not have a federally
registered trademark as to the word marks Krankz or Krankz Maxx.
Therefore, we do not have the same presumptive rights which might
otherwise apply had we obtained a federally registered trademark.
We have an “Exclusive Distributor” Agreement with Axcel Electronics
Thailand Company Limited (Cableicons, Inc.) which covers the USA
and Canada to Distribute and sell the “Ford Officially Licensed
Cell Phone Accessories” in all wholesale and retail channels. We
believe we have intellectual property rights to this mark under
common law. If we are unable to register this mark, we may use an
alternative name for these headphones.
Sponsorship
Agreement
On
July 13, 2018, the Company entered into a sponsorship agreement for
headphones with Black Knight Sports and Entertainment, LLC (dba
Vegas Golden Knights)(“BKSE”) for a period through June 2021.
During the first NHL season, the Company was obligated to pay
$230,000. For the second NHL season, the Company is obligated to
pay $239,200 and for the third NHL season, the Company is obligated
to pay $248,768. If the team goes into playoffs there could be
additional fees due. At this time we are uncertain if the impact,
if any, COVID-19 will have for our sponsorship agreement due to the
suspension of the 2019-2020 NHL season.
COVID-19
Since
the outset of the pandemic the US and worldwide national securities
markets have undergone unprecedented stress due to the
uncertainties of the pandemic and the resulting reactions and
outcomes of government, business and the general population. The
demand for our products has decreased and the ability of our
customers to make payment for the products they currently purchase
has been negatively impacted. It is unclear how a prolonged
outbreak with travel, commercial and other similar restrictions,
may adversely affect our business operations and the business
operations of our customers and suppliers. However, we anticipate a
prolonged period will have a negative effect on our business
operations.
Subsidiaries
We do
not have any subsidiaries.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
COMPARISON
OF THREE MONTH RESULTS FOR THE QUARTERS ENDED FEBRUARY 29, 2020 AND
FEBRUARY 28, 2019, RESPECTIVELY
Revenues
and Gross Profit
For
the three months ended February 29, 2020 and 2019, the Company
recognized $9,763 and $750 in revenue, respectively. Cost of sales
for the quarter ended February 29, 2020 was $6,597, leading to a
gross profit of $3,166 during the period. In the comparable quarter
ended February 28, 2019, revenue was $750 and cost of sales was
$2,094, resulting in a gross loss of $1,344.
Operating
Expenses
Operating
expenses were $373,526 and $347,947 for the three months ended
February 29, 2020 and February 28, 2019, respectively. The increase
was primarily due to general and administrative costs.
Other
Income and Expenses
During
the course of our business, we experienced a gain from foreign
currency transactions of $13,688 in the three month period ended
February 29, 2020, compared to a loss of $12,046 in the comparable
period ended February 28, 2019. These gains/losses are associated
with currency exchange rate fluctuations as our royalty obligation
under the license agreement is stated in Canadian
dollars.
Interest
expense associated with obligations to related parties was $1,159
and $1,147 in the three month periods ended February 29, 2020 and
February 28, 2019, respectively.
Interest
expense associated with non-related party obligations was $75 and
$147 in the three months periods ended February 29, 2020 and
February 28, 2019, respectively.
Liquidity
and Capital Resources
Other
than what is described in this Report, the Company had no material
commitments for capital expenditures at February 29,
2020.
On
May 25, 2011, Exeo Entertainment, Inc. entered into an exclusive
license agreement with Digital Extreme Technologies, Inc. whereby
Exeo Entertainment, Inc. will manufacture and market the Extreme
Gamer and Zaaz keyboard. Exeo Entertainment, Inc. will pay Digital
Extreme Technologies, Inc. a 5% royalty fee on gross sales of both
products.
Unless
the Royalty Agreement is modified by Psyko Audio Labs Canada and
the Company, at January 1, 2016, the Company is obligated to pay
minimum monthly royalties of $80,000 (CDN $100,000) per quarter for
the remaining term of the contract. No such modification has been
made as of the date of this report. 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 three
months ended February 29, 2020 and February 28, 2019, the Company
made no payments towards this obligation and no royalty invoices
have been received from Psyko Audio Labs. Royalty payable was
$1,493,875 as of February 29, 2020.
The
Company has an office and warehouse rental lease obligation through
September 30, 2020, which equals $63,942 as of February 29, 2020.
The monthly minimum rental payment is $8,769. Rent expense was
$18,621 and $25,874 for the three months ended February 29, 2020
and February 28, 2019, respectively.
Cash
Flow Information
On
February 29, 2020, the Company had working capital of approximately
$(1,542,307). On November 30, 2019, the Company had working capital
of approximately $(1,480,680). The decrease in working capital of
$67,627 primarily relates to an increase in royalty payable in the
amount of $62,210 during the three months ending February 29, 2020.
The Company believes it has insufficient cash resources to meet its
liquidity requirements for the next 12 months.
The
Company had cash and cash equivalents of approximately $75,130 and
$96,923 at February 29, 2020 and November 30, 2019, respectively.
This represents a decrease in cash of $21,793.
Cash
used in Operating Activities
The
Company used approximately $287,090 of cash for operating
activities in the three months ended February 29, 2020 as compared
to using $282,314 of cash for operating activities in the three
months ended February 28, 2020. This increase in cash used in
operating activities, is primarily attributed to increase in net
loss, accounts receivable and accounts payable.
Cash
used in Investing Activities
The
Company used approximately $7,180 of cash for investing activities
in the three months ended February 29, 2020 as compared to using
$39,001 of cash for investing activities in the three months ended
February 28, 2019. This decrease in cash used in investing
activities, is primarily attributed to equipment
purchased.
Cash
Provided by Financing Activities
Financing
activities in the three months ended February 29, 2020 provided
$272,477 of cash as compared to providing $437,550 of cash in the
three months ended February 28, 2019. The difference is
attributable to the decrease in cash receipts from sales of the
Company’s common stock.
The
Company’s principal sources and uses of funds are investments from
accredited investors. The Company would need to raise additional
capital in order to meet its business plan. Management intends to
secure additional funds using borrowing or the further sale of
Regulation D, Section 506 securities to accredited investors in the
future.
The
Company anticipates that its future liquidity requirements will
arise from the need to fund its growth, pay its current obligations
and future capital expenditures. The primary sources of funding for
such requirements are expected to be cash generated from operations
and raising additional funds from private sources and/or debt
financing.
Going
Concern Consideration
Management
included an explanatory paragraph in their footnotes on the
accompanying financial statements expressing concerns about our
ability to continue as a going concern. Our financial statements
contain additional note disclosures describing the circumstances
that lead to this disclosure.
As of
February 29, 2020, the Company has cumulative losses totaling
$10,518,107 and negative working capital of $1,542,307. The Company
incurred a net loss of $394,566 for the three months ended February
29, 2020.
Due
to the coronavirus (“COVID-19”) pandemic, the demand for the
Company’s products has decreased and the ability of the Company’s
customers to make payments for the products that they currently
purchase has been negatively impacted. It is unclear how a
prolonged outbreak with travel, commercial and other similar
restrictions, may adversely affect the Company business operations
and the business operations of the Company’s customers and
suppliers. Therefore, the Company anticipates a prolonged period
will have a negative effect on business operations.
These
factors raise substantial doubt about our ability to continue as a
going concern. The financial statements do not include any
adjustment that might be necessary if we are unable to continue as
a going concern.
Our ability
to continue as a going concern is dependent on our generating cash
from the sale of our common stock and/or obtaining debt financing
and attaining future profitable operations. Management’s plans
include increasing revenue, selling our equity securities and/or
obtaining debt financing to fund our capital requirement and
ongoing operations; however, there can be no assurance we will be
successful in these
Off-Balance
Sheet Arrangements
The
Company has no off-balance sheet arrangements.
Forward-Looking
Statements
Many
statements made in this report are forward-looking statements that
are not based on historical facts. Because these forward-looking
statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from
those expressed or implied by these forward-looking statements. The
forward-looking statements made in this report relate only to
events as of the date on which the statements are made.
Item 3. Quantitative and Qualitative
Disclosure About Market Risks
As a
“smaller reporting company”, we are not required to provide the
information required by this Item.
Item 4. Controls and
Procedures
Evaluation
of Disclosure Controls and Procedures
Our
management has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as amended) as of the end of the
period covered by this Report. Based on the management evaluation,
we concluded that our disclosure controls and procedures may not be
effective to provide reasonable assurance that information we are
required to disclose in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to our
management, including our principal executive officer and principal
financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure. In the 3rd Quarter, 2019, management is in the process
of determining how to most effectively improve our disclosure
controls and procedures.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate
internal control, as is defined in the Securities Exchange Act of
1934. These internal controls are designed to provide reasonable
assurance that the reported financial information is presented
fairly, that disclosures are adequate and that the judgments
inherent in the preparation of financial statements are reasonable.
There are inherent limitations in the effectiveness of any system
of internal controls, including the possibility of human error and
overriding of controls. Consequently, an effective internal control
system can only provide reasonable, not absolute, assurance with
respect to reporting financial information.
Our
internal control over financial reporting includes policies and
procedures that: (i) pertain to maintaining records that in
reasonable detail accurately and fairly reflect our transactions;
(ii) provide reasonable assurance that transactions are recorded as
necessary for preparation of our financial statements in accordance
with generally accepted accounting principles and the receipts and
expenditures of company assets are made and in accordance with our
management and directors authorization; and (iii) provide
reasonable assurance regarding the prevention or timely detection
of unauthorized acquisition, use or disposition of assets that
could have a material effect on our financial
statements.
Management
has undertaken an assessment of the effectiveness of our internal
control over financial reporting based on the framework and
criteria established in the Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”). Based upon this evaluation, management
concluded that our internal control over financial reporting may
not be effective as of February 29, 2020. Other than our two
officers, we have no employees or contractors that have the
authority to implement any changes in our internal control or
financial reporting.
This
quarterly report does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to
the temporary rules of the Securities and Exchange Commission that
permit us to provide only management’s report in this quarterly
report.
Changes
in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
that occurred during our most recent fiscal quarter that have
materially affected, or reasonably likely to materially affect, our
internal control over financial reporting.
Limitations
on Effectiveness of Controls and Procedures
In
designing and evaluating the disclosure controls and procedures,
management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives. In addition,
the design of disclosure controls and procedures must reflect the
fact that there are resource constraints and that management is
required to apply its judgment in evaluating the benefits of
possible controls and procedures relative to their
costs.
PART II – OTHER
INFORMATION
Item 1. Legal
Proceedings
The
Company has no knowledge of existing or pending legal proceedings
against the Company, nor is the Company involved as a plaintiff in
any proceeding or pending litigation. There are no proceedings in
which any of the Company’s directors, officers or any of their
respective affiliates, or any beneficial stockholder, is an adverse
party or has a material interest adverse to our interest. The
Company’s address for service of process in Nevada is Business
Filings, Incorporated located at 311 S. Division Street, Carson
City, Nevada 89703.
Item 1A. Risk Factors
As a
“smaller reporting company”, we are not required to provide the
information required by this Item.
Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds
During
the three months ended February 29, 2020, the Company sold 235,977
shares of common stock for cash totaling $190,000. 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. The stock
was subscribed for; however, the certificates representing the
shares were not issued as of February 29, 2020 and, resultantly,
are considered owed as a common stock payable of $190,000. As the
date of filing, these common shares have been issued.
During
the three months ended February 29, 2020, the Company received
$85,000 for the exercise of warrants. The stock was subscribed for;
however, the certificates representing the shares were not issued
as of February 29, 2020 and, resultantly, are considered owed as a
common stock payable of $85,000. As the date of filing, these
common shares have been issued.
Item 3. Defaults Upon Senior
Securities
None.
Item 4. Mine Safety
Disclosures
Not
applicable.
Item 5. Other
Information
Market
for the Company’s Common Stock
The
Company’s common stock is traded on the over-the-counter market and
quoted on the Over-The-Counter Bulletin Board (OTCBB) under the
trading symbol “EXEO”. Our common stock is also quoted on OTCQB, a
segment of OTC Link LLC and OTC Markets Group. As of the date of
this report, there is a limited public market for our common stock.
For purpose of this Item, the existence of limited or sporadic
quotations should not of itself be deemed to constitute an
“established public trading market,” if any, for our common stock.
We can provide no assurance that our shares will be actively traded
on the OTC or, that the public market will achieve or continue with
any particular daily volume or price for our listed
securities.
Item 6. Exhibits
SIGNATURES
Pursuant
to the requirements of the Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
EXEO ENTERTAINMENT, INC. |
| |
|
(Registrant) |
|
|
| |
|
|
|
|
|
|
Signature |
|
Title |
|
Date |
| |
|
|
|
|
|
/s/ Jeffrey A. Weiland |
|
President and Director |
|
May
28, 2020 |
| Jeffrey A.
Weiland |
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
/s/ Robert S. Amaral |
|
Chief Executive Officer, |
|
May
28, 2020 |
| Robert S.
Amaral |
|
Treasurer
and Director |
|
|
| |
|
(Principal
Executive and Financial Officer) |
|
|
