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 May 31, 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 the July 17, 2020, there were outstanding 29,816,175 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.

1

 

EXEO ENTERTAINMENT, INC.
Form 10-Q
Table of Contents

 

      Page 
       
PART I - FINANCIAL INFORMATION 3
       
Item 1.   Financial Statements 3
       
    Balance Sheets 4
       
    Statements of Operations 5
       
    Statements of Stockholders’ Equity 6-7
       
    Statements of Cash Flows 8
       
    Notes to Financial Statements 9-17
       
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
       
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 23
       
Item 4.   Controls and Procedures 23
       
PART II - OTHER INFORMATION 24
       
Item 1.   Legal Proceedings 24
       
Item 1A.   Risk Factors 24
       
Item 2.   Unregistered Sales of Equity Securities 25
       
Item 3.   Defaults Upon Senior Securities 25
       
Item 4.   Mine Safety Disclosures 25
       
Item 5.   Other Information 25
       
Item 6.   Exhibits 26
       
SIGNATURES 27

2

 

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 six months ended May 31, 2020 are not necessarily indicative of the results that can be expected for the year ending November 30, 2020.

3

 

EXEO ENTERTAINMENT, INC.
BALANCE SHEETS

 

    May 31,     November 30,  
    2020     2019  
    (unaudited)        
ASSETS                
                 
Current Assets                
Cash and cash equivalents   $ 88,903     $ 96,923  
Accounts receivable     186       -  
Prepaid expenses     37,545       51,479  
Inventory     275,465       284,497  
Total current assets     402,099       432,899  
                 
Operating lease assets     62,173       122,723  
Property and equipment, net     40,426       44,527  
                 
TOTAL ASSETS   $ 504,698     $ 600,149  
                 
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT                
                 
Liabilities                
Current liabilities                
Accounts payable and accrued expenses   $ 78,400     $ 81,127  
Accrued interest payable - related party     30,413       28,084  
Payroll liabilities     193,980       184,950  
Due to related parties     75,000       75,000  
Royalty payable     1,525,850       1,431,665  
Notes payable     5,184       9,314  
Operating lease liabilities - current portion     55,814       103,439  
Total current liabilities     1,964,641       1,913,579  
                 
Long-term liabilities                
Loan payable     29,740       -  
Notes payable     -       936  
Operating lease liabilities     6,794       17,084  
Total long-term liabilities     36,534       18,020  
                 
Total Liabilities     2,001,175       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 May 31, 2020 and November 30, 2019 (liquidation preference of $117,050 and $109,738, respectively). Stated at redemption value.     185,296       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 May 31, 2020 and November 30, 2019 (liquidation preference of $1,000,449 and $932,317, respectively). Stated at redemption value, net of Treasury Stock (2,500 shares)     1,947,195       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; 29,683,383 and 29,054,235 shares issued and outstanding, respectively     2,969       2,905  
Additional paid-in capital     7,094,612       6,724,009  
Treasury stock, Series B Preferred Stock - 2,500 shares     (12,500 )     (12,500 )
Stock payable     41,076       22,500  
Accumulated deficit     (10,755,125 )     (10,119,541 )
Total stockholders’ deficit     (3,628,968 )     (3,382,627 )
                 
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT   $ 504,698     $ 600,149  

 

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

4

 

EXEO ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
(unaudited)

 

    For the three months ended     For the six months ended  
    May 31,     May 31,  
    2020     2019     2020     2019  
REVENUES   $ 4,513     $ 125,062     $ 14,276     $ 125,812  
COST OF GOOD SOLD                                
Cost of direct materials, shipping and labor     (5,517 )     (69,300 )     (12,114 )     (71,394 )
GROSS PROFIT AND (LOSS)     (1,004 )     55,762       2,162       54,418  
                                 
OPERATING EXPENSES                                
General and administrative     182,489       228,720       505,320       520,246  
Executive compensation     25,448       47,374       59,015       81,212  
Professional fees     20,122       23,923       31,922       41,548  
Depreciation     5,953       2,641       11,281       7,599  
TOTAL OPERATING EXPENSES     234,012       302,658       607,538       650,605  
                                 
LOSS FROM OPERATIONS     (235,016 )     (246,896 )     (605,376 )     (596,187 )
                                 
OTHER EXPENSE                                
Gain (Loss) from foreign currency transactions     39,889       33,789       53,577       21,743  
Interest expense - related party     (1,171 )     (1,171 )     (2,330 )     (2,318 )
Interest expense     (60 )     (127 )     (135 )     (274 )
TOTAL OTHER EXPENSES     38,658       32,491       51,112       19,151  
                                 
NET LOSS     (196,358 )     (214,405 )     (554,264 )     (577,036 )
                                 
DIVIDEND OF REDEEMABLE PREFERRED STOCK     (40,660 )     (40,660 )     (81,320 )     (81,320 )
                                 
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS   $ (237,018 )   $ (255,065 )   $ (635,584 )   $ (658,356 )
                                 
NET LOSS PER SHARE: BASIC   $ (0.01 )   $ (0.01 )   $ (0.02 )   $ (0.02 )
                                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC     29,382,538       27,807,299       29,224,789       27,569,689  

 

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

5

 

EXEO ENTERTAINMENT, INC.
STATEMENT OF STOCKHOLDERS’ DEFICIT
(unaudited)

 

                Additional                       Total  
    Common Shares     Paid-In     Treasury     Stock     Deficit     Stockholders’  
    Shares     Amount     Capital     Stock     Payable     Accumulated     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 )
                                                         
Stock issued for subscriptions payable     235,977       24       189,976       -       (190,000 )     -       -  
                                                         
Stock issued for warrants exercises     220,000       22       84,978       -       (85,000 )     -       -  
                                                         
Cash received for issuance of common stock, net of issuance costs     128,431       13       87,149       -       -       -       87,162  
                                                         
Common stock issued for services     10,000       1       8,499       -       -       -       8,500  
                                                         
Cash received for warrants exercises     -       -       -       -       18,576       -       18,576  
                                                         
Net loss for the three months ended May, 31, 2020     -       -       -       -       -       (237,018 )     (237,018 )
                                                         
Balance, May 31, 2020     29,683,383     $ 2,969     $ 7,094,612     $ (12,500 )   $ 41,076     $ (10,755,125 )   $ (3,628,968 )

 

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

6

 

EXEO ENTERTAINMENT, INC.
STATEMENT OF STOCKHOLDERS’ DEFICIT
(unaudited)

 

                Additional                       Total  
    Common Shares     Paid-In     Treasury     Stock     Deficit     Stockholders’  
    Shares     Amount     Capital     Stock     Payable     Accumulated     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 )
                                                         
Adoption of lease accounting     -       -       -       -       -       4,438       4,438  
                                                         
Stock issued for subscriptions payable     363,155       36       306,263       -       (307,500 )     -       (1,201 )
                                                         
Stock issued for conversion of preferred stock     17,489       2       1       -       -       -       3  
                                                         
Cash received for warrant exercises     -       -       -       -       275,985       -       275,985  
                                                         
Net loss for the three months ended May, 31, 2019     -       -       -       -       -       (255,065 )     (255,065 )
Balance, May 31, 2019     27,829,742     $ 2,783     $ 5,987,667     $ (12,500 )   $ 288,485     $ (9,236,568 )   $ (2,970,133 )

 

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

7

 

EXEO ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
(unaudited)

 

    For the six months ended  
    May 31,  
    2020     2019  
CASH FLOWS FROM OPERATING ACTIVITIES                
Net loss for the period   $ (554,264 )   $ (577,036 )
Adjustments to reconcile net loss to net cash used in operating activities                
Depreciation     11,281       7,599  
Non cash lease expense     2,635       2,708  
Shares issued for services     8,500       -  
Changes in assets and liabilities                
Decrease (Increase) in prepaid expenses     13,934       362  
Increase in accounts receivable     (186 )     (123,900 )
Decrease (Increase) in inventory     9,032       (29,458 )
(Decrease) Increase in accounts payable and accrued expenses     (2,726 )     (6,715 )
Increase in accrued interest - related party     2,329       2,318  
Increase in payroll liabilities     9,030       12,425  
Increase in royalty payable     94,185       127,958  
Net Cash Used in Operating Activities     (406,250 )     (583,739 )
                 
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, net of issuance costs     277,160       714,790  
Proceeds from exercise of warrants     103,576       -  
Proceeds from loan payable     29,740       -  
Payments on notes payable - auto loan (principal)     (5,066 )     (4,923 )
Cash Flows Provided by Financing Activities     405,410       709,867  
                 
Net Change in cash and cash equivalents     (8,020 )     87,127  
                 
Cash and cash equivalents, beginning of the period     96,923       104,485  
                 
Cash and cash equivalents, end of the period   $ 88,903     $ 191,612  
                 
SUPPLEMENTAL CASH FLOW INFORMATION:                
Cash paid for interest   $ -     $ -  
Cash paid for income taxes   $ -     $ -  
Dividend of redeemable preferred stock   $ 81,320     $ 81,320  

 

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

8

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

May 31, 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 six-month period ended May 31, 2020 are not necessarily indicative of the results that may be expected for the year ending November 30, 2020.

 

As of May 31, 2020, the Company has cumulative losses totaling $10,755,125 and negative working capital of $1,562,542. The Company incurred a net loss of $554,264 for the six months ended May 31, 2020. Due to the coronavirus pandemic, the Company has adversely affected our business, which the demand for our products has decreased. 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.

9

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

May 31, 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 May 31, 2020 and November 30, 2019 because of the relative short term nature of these instruments. At May 31, 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 $275,465 and $284,497 as of May 31, 2020 and November 30, 2019, respectively has been determined using the first-in first-out (FIFO) method.

10

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

May 31, 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 May 31, 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 May 31, 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 May 31, 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.

11

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

May 31, 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 six months ended May 31, 2020 and 2019, the Company recognized $14,276 and $125,812 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 May 31, 2020, the Company’s bank balance did not exceed the insured amounts.

12

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

May 31, 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

 

The Company has incurred an accumulated deficit of $10,755,125 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.

 

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.

13

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

May 31, 2020

(Unaudited)

 

Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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.

 

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 29,683,383 and 29,054,235 shares issued and outstanding at May 31, 2020 and November 30, 2019, respectively.

 

During the six months ended May 31, 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.

14

 

On April 14, 2020, the company issued 20,000 shares of common stock to an investor in exchange for $10,000.

 

On April 17, 2020, the company issued 83,431 shares of common stock to various investors in exchange for $61,000.

 

On April 17, 2020, the company issued 10,000 shares of common stock for services rendered of $8,500. The shares were valued according the closing price of the common stock as quoted on the OTC Electronic Bulletin Board Quotation System on the grant date.

 

On May 1, 2020, the company issued 25,000 shares of common stock to an investor in exchange for $17,500.

 

On May 29, 2020, the company received $18,576 for warrants exercises of 37,152 common shares. The stock was considered owed as a common stock payable as of May 31. As the date of filing, the shares have not been issued.

 

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 $1,525,850 as of May 31, 2020. For the six months ended May 31, 2020 and 2019, royalty expense and the related gain on foreign currency transactions were $53,577 and 21,743, respectively.

15

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

May 31, 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 May 31, 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 six months ended May
31, 2020
 
Operating lease cost   $ 55,355  
Total lease cost   $ 55,355  

16

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

May 31, 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 May 31, 2020:

 

    For the six months ended May
31, 2020
 
Remaining lease term – operating leases (years)     0.92  
Incremental borrowing rate     5.57 %
         

As of May 31, 2020, the Company had the following future minimum operating lease payments:

         
Fiscal Year      
2020     55,814  
2021     6,794  
Total lease payments     62,608  
Less: interest     435  
Total lease obligation   $ 62,173  

 

Note F: Loan Payable

 

On May 26, 2020, the Company executed the Paycheck Protection Loan (“Loan”) with Wells Fargo Bank for $29,740. The loan is due on May 26, 2022. The Company agreed the loan bears interest at 1% per annum. The Company needs to pay $1,252.09 monthly payment starting at November 26, 2020.

 

Note G: 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 June 8, 2020, the Company sold 13,841 shares of common stock, to an investor in exchange for $10,000. As of the date of this filing the shares have been issued.

 

On June 8, 2020, the Company received $28,334 for warrants exercises of 56,667 common shares. As of the date of this filing the shares have been issued.

 

On June 22, 2020, the Company sold 62,284 shares of common stock to two investors in exchange for $45,000. As of the date of this filing the shares have been issued.

 

As of the date of this filing, the Company is obligated to issue 73,491 common shares to two investors, and these common shares are recorded as $41,076 in stock payable. These common shares have not been issued.

17

 

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 six months ended May 31, 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.

18

 

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.

19

 

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.

20

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

COMPARISON OF THREE MONTHS RESULTS FOR THE QUARTERS ENDED MAY 31, 2020 AND 2019, RESPECTIVELY

 

Revenues and Gross Profit

 

For the three months ended May 31, 2020 and 2019, the Company recognized $4,513 and $125,062 in revenue, respectively. Cost of sales for the quarter ended May 31, 2020 was $5,517, leading to a gross loss of $1,004 during the period. In the comparable quarter ended May 31, 2019, revenue was $125,062 and cost of sales was $69,300, resulting in a gross profit of $55,762.

 

Operating Expenses

 

Operating expenses were $234,012 and $302,658 for the three months ended May 31, 2020 and 2019, respectively. The decrease was primarily due to executive compensations.

 

Other Income and Expenses

 

During the course of our business, we experienced a gain from foreign currency transactions of $39,889 in the three months period ended May 31, 2020, compared to a gain of $33,789 in the comparable period ended May 31, 2019. These gains 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 $1,171 and $1,171 in the three months periods ended May 31, 2020 and 2019, respectively.

 

Interest expense associated with non-related party obligations was $60 and $127 in the three months periods ended May 31, 2020 and 2019, respectively.

 

COMPARISON OF SIX MONTHS RESULTS FOR THE QUARTERS ENDED MAY 31, 2020 AND 2019, RESPECTIVELY

 

Revenues and Gross Profit

 

For the six months ended May 31, 2020 and 2019, the Company recognized $14,276 and $125,812 in revenue, respectively.   Cost of sales for the period ended May 31, 2020 was $12,114, leading to a gross profit of $2,162 during the period. In the comparable six months ended May 31, 2019, revenue was $125,812 and cost of sales was $71,394, resulting in a gross profit of $54,418.

 

Operating Expenses

 

Operating expenses were $607,538 and $650,605 for the six months ended May 31, 2020 and 2019, respectively. The decrease was primarily due to executive compensations.

 

Other Income and Expenses

 

During the course of our business, we experienced a gain from foreign currency transactions of $53,577 in the six months period ended May 31, 2020, compared to a gain of $21,743 in the comparable period ended May 31, 2019. These gains 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 $2,330 and $2,318 in the six months periods ended May 31, 2020 and 2019, respectively.

 

Interest expense associated with non-related party obligations was $135 and $274 in the six months periods ended May 31, 2020 and 2019, respectively.

21

 

Liquidity and Capital Resources

 

Other than what is described in this Report, the Company had no material commitments for capital expenditures at May, 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 six months ended May 31, 2020 and 2019, the Company made no payments towards this obligation and no royalty invoices have been received from Psyko Audio Labs. Royalty payable was $1,525,850 as of May 31, 2020.

 

The Company has an office and warehouse rental lease obligation through September 30, 2020, which equals $37,750 as of May 31, 2020. The monthly minimum rental payment is $8,769. Rent expense was $46,835 and $56,111 for the six months ended May 31, 2020 and 2019, respectively.

 

Cash Flow Information

 

On May 31, 2020, the Company had working capital of approximately $(1,562,542). On November 30, 2019, the Company had working capital of approximately $(1,480,680). The decrease in working capital of $81,863 primarily relates to an increase in royalty payable in the amount of $94,185 during the six months ending May 31, 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 $88,903 and $96,923 at May 31, 2020 and November 30, 2019, respectively. This represents a decrease in cash of $8,020.

 

Cash used in Operating Activities

 

The Company used approximately $406,250 of cash for operating activities in the six months ended May 31, 2020 as compared to using $583,739 of cash for operating activities in the six months ended May 31, 2020. This decrease in cash used in operating activities, is primarily attributed to decrease 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 six months ended May 31, 2020 as compared to using $39,001 of cash for investing activities in the six months ended May 31, 2019. This decrease in cash used in investing activities, is primarily attributed to equipment purchased.

 

Cash Provided by Financing Activities

 

Financing activities in the six months ended May 31, 2020 provided $405,410 of cash as compared to providing $709,867 of cash in the six months ended May 31, 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.

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As of May 31, 2020, the Company has cumulative losses totaling $10,755,125 and negative working capital of $1,562,542. The Company incurred a net loss of $554,264 for the six months ended May 31, 2020.

 

We have negative working capital and have not yet received significant revenues from sales of products. Due to the coronavirus pandemic, the Company has adversely affected our business, which the demand for our products has decreased. 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.

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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 controls over financial reporting are not effective as of May 31, 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.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the six months ended May 31, 2020, the Company sold 364,408 shares of common stock for cash totaling $277,162. 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 May 31, 2020 and, resultantly, are considered owed as a common stock payable of $22,500. As the date of filing, these common shares have been issued.

 

During the six months ended May 31, 2020, the Company received $103,576 for the exercise of warrants. The stock was subscribed for; however, the certificates representing the shares were not issued as of May 31, 2020 and, resultantly, are considered owed as a common stock payable of $18,576. As the date of filing, 220,000 shares have been issued, and 37,152 shares have not 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.

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Item 6. Exhibits

 

Exhibit Number   Name and/or Identification of Exhibit
31.1   Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1   Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

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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   July 20, 2020
Jeffrey A. Weiland        
         
         
/s/ Robert S. Amaral   Chief Executive Officer,   July 20, 2020
Robert S. Amaral    Treasurer and Director    
    (Principal Executive and Financial Officer)    

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