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Exeo Entertainment, Inc. – ‘10-Q’ for 8/31/19

On:  Tuesday, 10/15/19, at 4:59pm ET   ·   For:  8/31/19   ·   Accession #:  1199835-19-23   ·   File #:  333-190690

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

10/15/19  Exeo Entertainment, Inc.          10-Q        8/31/19   37:1.6M                                   Highland Services/FA

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Exeo Entertainment, Inc. 10-Q                       HTML    271K 
 2: EX-31.1     Certification of Chief Executive Officer Pursuant   HTML     19K 
                to the Securities Exchange Act of 1934, Rules                    
                13A-14 and 15D-14 as Adopted Pursuant to Section                 
                302 of the Sarbanes-Oxley Act of 2002.                           
 3: EX-31.2     Certification of Chief Financial Officer Pursuant   HTML     19K 
                to the Securities Exchange Act of 1934, Rules                    
                13A-14 and 15D-14 as Adopted Pursuant to Section                 
                302 of the Sarbanes-Oxley Act of 2002.                           
 4: EX-32.1     Certification of Chief Executive Officer Pursuant   HTML     16K 
                to the Securities Exchange Act of 1934, Rules                    
                13A-14 and 15D-14 as Adopted Pursuant to Section                 
                906 of the Sarbanes-Oxley Act of 2002.                           
 5: EX-32.2     Certification of Chief Financial Officer Pursuant   HTML     16K 
                to the Securities Exchange Act of 1934, Rules                    
                13A-14 and 15D-14 as Adopted Pursuant to Section                 
                906 of the Sarbanes-Oxley Act of 2002.                           
22: R1          Document and Entity Information                     HTML     41K 
34: R2          Balance Sheets (Unaudited)                          HTML    108K 
31: R3          Balance Sheets (Unaudited) (Parenthetical)          HTML     46K 
12: R4          Statements of Operations (Unaudited)                HTML     73K 
21: R5          Statement of Stockholders' Deficit                  HTML     70K 
33: R6          Statements of Cash Flows (Unaudited)                HTML     82K 
30: R7          Note A: BASIS OF PRESENTATION                       HTML     22K 
13: R8          Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  HTML     48K 
20: R9          Note C: COMMON STOCK                                HTML     23K 
26: R10         Note D: COMMITMENTS AND CONTINGENCIES               HTML     19K 
37: R11         Note E: LEASES                                      HTML     27K 
18: R12         Note F: SUBSEQUENT EVENTS                           HTML     17K 
16: R13         Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  HTML     97K 
                (Policies)                                                       
24: R14         Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  HTML     17K 
                (Tables)                                                         
36: R15         Note E: LEASES (Tables)                             HTML     28K 
17: R16         Note A: BASIS OF PRESENTATION (Details Narrative)   HTML     24K 
15: R17         Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  HTML     17K 
                (Details)                                                        
27: R18         Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  HTML     25K 
                (Details Narrative)                                              
35: R19         Note C: COMMON STOCK (Details Narrative)            HTML     25K 
23: R20         Note D: COMMITMENTS AND CONTINGENCIES (Details      HTML     26K 
                Narrative)                                                       
14: R21         Note E: LEASES (Details)                            HTML     18K 
29: R22         Note E: LEASES (Details 1)                          HTML     18K 
32: R23         Note E: LEASES (Details 2)                          HTML     29K 
28: XML         IDEA XML File -- Filing Summary                      XML     58K 
25: EXCEL       IDEA Workbook of Financial Reports                  XLSX     35K 
 6: EX-101.INS  XBRL Instance -- exeo-20190831                       XML    399K 
 8: EX-101.CAL  XBRL Calculations -- exeo-20190831_cal               XML    107K 
 9: EX-101.DEF  XBRL Definitions -- exeo-20190831_def                XML     86K 
10: EX-101.LAB  XBRL Labels -- exeo-20190831_lab                     XML    359K 
11: EX-101.PRE  XBRL Presentations -- exeo-20190831_pre              XML    261K 
 7: EX-101.SCH  XBRL Schema -- exeo-20190831                         XSD     56K 
19: ZIP         XBRL Zipped Folder -- 0001199835-19-000023-xbrl      Zip     50K 


‘10-Q’   —   Exeo Entertainment, Inc. 10-Q
Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Part I -- Financial Information
"Item 1
"Financial Statements
"Balance Sheets
"Statements of Operations
"Statements of Stockholders' Equity
"Statements of Cash Flows
"Notes to Financial Statements
"Item 2
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Item 3
"Quantitative and Qualitative Disclosures About Market Risk
"Item 4
"Controls and Procedures
"Part Ii -- Other Information
"Legal Proceedings
"Item 1A
"Risk Factors
"Unregistered Sales of Equity Securities
"Defaults Upon Senior Securities
"Mine Safety Disclosures
"Item 5
"Item 6
"Exhibits
"Signatures

This is an HTML Document rendered as filed.  [ Alternative Formats ]



 

 

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 August 31, 2019

 

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  o No x

 

As of the date of filing of this report, there were outstanding 28,737,373 shares of the issuer’s common stock, par value $0.0001 per share. There were also outstanding 19,500 Series A, and 244,190, Series B Preferred Shares of the issuers preferred stock, par value $0.0001 per share.

 C: 

 C: 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
       
    Statements of Cash Flows 8
       
    Notes to Financial Statements 9
       
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations 18
       
Item 3.   Quantitative and Qualitative Disclosures About Market Risk 22
       
Item 4.   Controls and Procedures 22
       
PART II - OTHER INFORMATION 23
       
Item 1.   Legal Proceedings 23
       
Item 1A.   Risk Factors 23
       
Item 2.   Unregistered Sales of Equity Securities 24
       
Item 3.   Defaults Upon Senior Securities 24
       
Item 4.   Mine Safety Disclosures 24
       
Item 5.   Other Information 24
       
Item 6.   Exhibits 25
       
SIGNATURES 26
 C: 

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 nine months ended August 31, 2019 are not necessarily indicative of the results that can be expected for the year ending November 30, 2019.

 C: 

3

 

EXEO ENTERTAINMENT, INC.

BALANCE SHEETS

 

   August 31,   November 30, 
   2019   2018 
   (unaudited)     
ASSETS          
           
Current Assets          
Cash and cash equivalents  $195,735   $104,485 
Inventory   321,068    39,456 
Prepaid expenses   85,358    138,850 
Accounts Receivable   2,326    186 
Total current assets   604,487    282,977 
           
Right of use assets   151,947    - 
Property and equipment, net   48,985    28,576 
           
TOTAL ASSETS  $805,419   $311,553 
           
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)          
           
Liabilities          
Current liabilities          
Accounts payable and accrued expenses  $78,047   $44,111 
Accrued interest payable - related party   26,925    23,436 
Payroll liabilities   179,400    161,839 
Due to related parties   75,000    75,000 
Royalty payable   1,352,897    1,129,455 
Notes payable   9,314    9,314 
Operating lease liabilities - current portion   126,546    - 
Total current liabilities   1,848,129    1,443,155 
           
Long-term liabilities          
Notes payable   3,440    10,851 
Operating lease liabilities   25,401    - 
Total long-term liabilities   28,841    10,851 
           
Commitments and Contingencies - Note D          
           
Total Liabilities   1,876,970    1,454,006 
           
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 August 31, 2019 and November 30, 2018 (liquidation preference of $106,082 and $95,213, respectively). Stated at redemption value.
   174,329    163,361 
Series B redeemable convertible preferred stock; $0.0001 par value,
1,000,000 shares authorized; 241,690 and 246,690 shares issued and outstanding; 2,500 shares unissued as of August 31, 2019 and November 30, 2018 (liquidation preference of $911,113 and $799,853, respectively). Stated at redemption value, net of Treasury Stock (2,500 shares)
   1,836,198    1,725,191 
           
Stockholders’ equity (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, 244,190 and 244,190 shares issued, respectively   -    - 
Common stock - $0.0001 par value, 100,000,000 shares authorized;
28,737,373 and 26,697,109 shares issued and outstanding, respectively
   2,874    2,670 
Additional paid-in capital   6,521,131    5,135,475 
Treasury stock, Series B Preferred Stock - 2,500 shares   (12,500)   (12,500)
Stock payable   12,500    426,000 
Deficit accumulated   (9,606,083)   (8,582,650)
Total stockholders’ equity (deficit)   (3,082,078)   (3,031,005)
           
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)  $805,419   $311,553 

 

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

 C: 

4

 

EXEO ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
(unaudited)

 

   For the three months ended   For the nine months ended 
   August 31,   August 31, 
   2019   2018   2019   2018 
REVENUES  $11,678   $591   $137,490   $4,518 
COST OF GOOD SOLD                    
Cost of direct materials, shipping and labor   (16,701)   (1,583)   (88,095)   (3,282)
GROSS PROFIT (LOSS)   (5,023)   (992)   49,395    1,236 
                     
OPERATING EXPENSES                    
General and administrative   241,641    166,578    761,887    492,263 
Executive compensation   40,068    37,087    121,280    114,780 
Professional fees   10,010    46,973    51,558    150,428 
Depreciation   10,992    3,131    18,591    10,639 
TOTAL OPERATING EXPENSES   302,711    253,769    953,316    768,110 
                     
(LOSS) FROM OPERATIONS   (307,734)   (254,761)   (903,921)   (766,874)
                     
OTHER INCOME (EXPENSE)                    
Income (loss) from foreign currency transactions   (19,842)   10,971    1,901    16,174 
Interest expense - related party   (1,172)   (1,172)   (3,490)   (3,490)
Interest expense   (110)   (181)   (384)   (595)
TOTAL OTHER INCOME (EXPENSES)   (21,124)   9,618    (1,973)   12,089 
                     
NET LOSS   (328,858)   (245,143)   (905,894)   (754,785)
                     
DIVIDEND OF REDEEMABLE PREFERRED STOCK   (40,660)   (40,660)   (121,980)   (122,226)
                     
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS  $(369,518)  $(285,803)  $(1,027,874)  $(877,011)
                     
NET LOSS PER SHARE: BASIC AND DILUTED  $(0.01)  $(0.01)  $(0.04)  $(0.03)
                     
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED   28,328,102    26,379,114    27,824,339    26,556,029 

 

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

 C: 

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, 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                            (255,062)   (255,062)
                                    
Balance, May 31, 2019   27,829,742   $2,783   $5,987,667   $(12,500)  $288,485   $(9,236,565)  $(2,970,130)
                                    
Stock issued for subscriptions payable   551,969    55    275,930         (275,985)        - 
                                    
Cash received for sale of common stock   236,462    24    177,676                   177,700 
                                    
Cash received for warrant exercises   74,200    7    37,113                   37,120 
                                    
Common stock issued for services   45,000    5    42,745                   42,750 
                                    
Net loss for the three months ended August 31, 2019                            (369,518)   (369,518)
                                    
Balance, August 31, 2019   28,737,373   $2,874   $6,521,131   $(12,500)  $12,500   $(9,606,083)  $(3,082,078)
                                    
         -    (0)   -    -    -    - 

 

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

 C: 

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, 2017   26,216,646   $2,622   $4,795,523   $(12,500)  $68,750   $(7,374,123)  $(2,519,728)
                                    
Cash received for sale of common stock                       172,500         172,500 
                                    
Net loss for the three months ended February 28, 2018                            (316,639)   (316,639)
                                    
Balance, February 28, 2018   26,216,646   $2,622   $4,795,523   $(12,500)  $241,250   $(7,690,762)  $(2,663,867)
                                    
Cash received for sale of common stock                       43,750         43,750 
                                    
Net loss for the three months ended May 31, 2018                            (274,326)   (274,326)
                                    
Balance, May 31, 2018   26,216,646   $2,622   $4,795,523   $(12,500)  $285,000   $(7,965,088)  $(2,894,443)
                                    
Stock issued for subscriptions payable   480,463    48    339,952         (340,000)        - 
                                    
Cash received for sale of common stock                       229,000         229,000 
                                    
Net loss for the three months ended August 31, 2018                            (286,045)   (286,045)
                                    
Balance, August 31, 2018   26,697,109   $2,670   $5,135,475   $(12,500)  $174,000   $(8,251,133)  $(2,951,488)

 

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

 C: 

7

 

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

 

   For the nine months ended 
   August 31, 
   2019   2018 
           
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss for the period  $(905,894)  $(754,785)
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation   16,291    7,508 
Stock issued for services   42,750    - 
Non cash lease expense   6,736    - 
Changes in assets and liabilities          
Decrease (Increase) in prepaid expenses   53,492    68,332 
Decrease (Increase) in accounts receivable   (2,140)   (186)
Decrease (Increase) in inventory   (281,612)   4,277 
(Decrease) Increase in accounts payable and accrued expenses   33,936    (5,865)
Decrease in accrued interest - related party   3,489    2,319 
Increase in payroll liabilities   17,561    11,886 
Increase in royalty payable   223,442    152,110 
Net Cash Used in Operating Activities   (791,949)   (514,404)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Acquisition of property and equipment   (39,000)   - 
Cash Flows Used in Investing Activities   (39,000)   - 
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from issuance of common stock, net of issuance costs   929,610    216,250 
Payments on notes payable - auto loan (principal)   (7,411)   (4,783)
Cash Flows Provided by Financing Activities   922,199    211,467 
           
Net increase in cash and cash equivalents   91,250    (302,937)
           
Cash and cash equivalents, beginning of the period   104,485    139,525 
           
Cash and cash equivalents, end of the period  $195,735   $(163,412)
           
SUPPLEMENTAL CASH FLOW INFORMATION:          
Cash paid for interest  $-   $- 
Cash paid for income taxes  $-   $- 
Dividend of redeemable preferred stock  $121,980   $122,226 
Stock issued for services  $42,750   $- 

 

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

8

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

August 31, 2019

 

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, 2018. 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 and nine-month period ended August 31, 2019 are not necessarily indicative of the results that may be expected for the year ending November 30, 2019.

 

As of August 31, 2019, the Company has cumulative losses totaling $9,606,083 and negative working capital of $1,243,642. The Company incurred a net loss of $1,027,871 for the nine months ended August 31, 2019. 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.

 C: 

9

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

August 31, 2019

 

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 August 31, 2019 and November 30, 2018 because of the relative short term nature of these instruments. At August 31, 2019 and November 30, 2018, 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 $321,068 and $39,456 at August 31, 2019 and November 30, 2018, respectively has been determined using the first-in first-out (FIFO) method.

 C: 

10

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

August 31, 2019

 

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 August 31, 2018, the Company had accounts receivable of approximately 92% from one customer.

 

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 August 31, 2019 and November 30, 2018.

 

Property and Equipment

 

Property and equipment are stated at the lower of cost or fair value. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, as follows:

 

Description  Estimated Life
Furniture & Equipment  5 years
Vehicles  5 years

 

The estimated useful lives are based on the nature of the assets as well as current operating strategy and legal considerations such as contractual life. Future events, such as property expansions, property developments, new competition, or new regulations, could result in a change in the manner in which the Company uses certain assets requiring a change in the estimated useful lives of such assets.

 

Maintenance and repairs that neither materially add to the value of the asset nor appreciably prolong its life are charged to expense as incurred. Gains or losses on disposition of property and equipment are included in the statements of operations. There were no dispositions during the periods presented.

 

Impairment of Long-Lived Assets

 

The Company evaluates its property and equipment and other long-lived assets for impairment in accordance with related accounting standards. No impairments were recorded at August 31, 2019. 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.

 C: 

11

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

August 31, 2019

 

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 reasonably assured.

 

For the nine months ended August 31, 2019 and 2018, the Company recognized $137,490 and $4,518 in revenue, respectively. During the nine months ended May 31, 2019, one customer accounted for approximately 93.85% of the revenue.

 

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 Credit 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 August 31, 2019, the Company’s bank balance did not exceed the insured amounts.

 C: 

12

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

August 31, 2019

 

Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Concentrations of Credit Risk (continued)

 

The Company had one major customer that generated approximately 93.85% of the total revenue for the nine months ended August 31, 2019.

 

The Company has one major customer that comprised of approximately 92% of the total accounts receivable as of August 31, 2019.

 

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 $9,606,083 since inception. The Company incurred significant initial research and product development costs, including expenditures associated with hardware engineering and the design and development of its hardware components and prototypes associated with the Zaaz™ keyboard, the Extreme Gamer, and the Psyko Krypton™ surround sound gaming headphones. The Company also incurred costs associated with its acquisition of property, plant and equipment for its 10,000 square foot office and warehouse.

 

These factors create substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock or obtaining debt financing and attaining future profitable operations.

 

Management’s plan includes selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.

 

Recent Accounting Pronouncements

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow except as noted below.

 C: 

13

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

August 31, 2019

 

Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recent Accounting Pronouncements (continued)

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This guidance requires an entity to recognize lease liabilities and a right-of-use asset for all leases on the balance sheet and to disclose key information about the entity’s leasing arrangements. ASU 2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, with earlier adoption permitted. In July 2018, the FASB approved an amendment to the new guidance that allows companies the option of using the effective date of the new standard as the initial application (at the beginning of the period in which it is adopted, rather than at the beginning of the earliest comparative period) and to recognize the effects of applying the new ASU as a cumulative effect adjustment to the opening balance sheet or retained earnings. 

 

The Company adopted this accounting standard at the beginning of the second quarter of fiscal 2019 using the new transition election to not restate comparative periods. The Company elected the package of practical expedients upon adoption, which permits the Company to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. In addition, the Company elected not to separate lease and non-lease components for all real estate leases and did not elect the hindsight practical expedient. Lastly, the Company elected the short-term lease exception policy, permitting it to exclude the recognition requirements of this standard from leases with initial terms of 12 months or less. Upon adoption, the Company recognized right of use lease assets of approximately $209,000 and operating lease liabilities of approximately $204,000 on its consolidated balance sheet. In addition, upon adoption deferred rent and various lease incentives which were recorded as of March 1, 2019 were reclassified as a component of the right-of-use assets. Upon adoption, the Company recognized a cumulative adjustment decreasing opening retained earnings by approximately $4,000 due to the impairment of certain right-of-use assets. The adoption of the new standard did not have a material impact on the consolidated statements of operations or cash flows.

 

Note C: COMMON STOCK

 

The Company has 100,000,000 shares at $0.0001 par value common stock authorized and 28,737,373 and 26,697,109 shares issued and outstanding at August 31, 2019 and November 30, 2018, respectively.

 

During the three months ended February 28, 2019, the Company sold 534,152 shares of common stock for cash totaling $440,000. 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 28, 2019 and, resultantly, are considered owed as a common stock payable of $307,500. The shares were issued during the three months ended May 31, 2019.

 

During the three months ended February 28, 2019, the Company issued 16,860 shares of common stock for the conversion of 2,500 shares of Series B Preferred Stock.

 

During the three months ended May 31, 2019, the Company received $275,985 for the exercise of warrants. The stock was subscribed for; however, the certificates representing the shares were not issued as of May 31, 2019 and, resultantly, are considered owed as a common stock payable of $275,985. The shares were issued during July 2019.

 C: 

14

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

August 31, 2019

 

Note C: COMMON STOCK (CONTINUED)

 

During the three months ended May 31, 2019, the Company issued 17,489 shares of common stock for the conversion of 2,500 shares of Series B Preferred Stock.

 

During the three months ended August 31, 2019, the Company sold 236,462 shares of common stock for cash totaling $177,700. 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.

 

During the three months ended August 31, 2019, the Company received $37,120 for the exercise of warrants and issued 74,200 shares of common stock.

 

During the three months ended August 31, 2019, the Company issued 45,000 shares of common stock for services rendered of $42,750.  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.

 

As of August 31, 2019, the Company had a balance in stock payable totaling $12,500.

 

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 $1,352,897 as of August 31, 2019. For the nine months ended August 31, 2019 and 2018, royalty expense and the related gain/(loss) on foreign currency transactions were $1,901 and $16,174, respectively.

 

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 2018/2019 NHL season, the Company was obligated to pay $230,000. For the 2019/2020 NHL season, the Company is obligated to pay $239,200 and for the 2020/2021 NHL season, the Company is obligated to pay $248,768. If the Vegas Golden Knights Make the NHL Playoffs there will be additional fees due because of the additional sponsorship opportunities.

 

As of August 31, 2019, the Company owes an additional prepayment of $59,800.

 C: 

15

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

August 31, 2019

 

Note E: LEASES

 

In the first quarter of fiscal 2020, 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 June 1, 2019, 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 nine months ended
August 31, 2019
 
Operating lease cost  $87,605 
Total lease cost  $87,605 
 C: 

16

 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

August 31, 2019

 

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 August 31, 2019:

 

   For the nine months ended
August 31, 2019
 
Remaining lease term – operating leases (years)   1.58 
Incremental borrowing rate   5.57%

 

As of August 31, 2019, the Company had the following future minimum operating lease payments:

 

Fiscal Year    
2019 (remaining)  $30,945 
2020   106,728 
2021   14,049 
Total lease payments   151,722 
Less: interest   225 
Total lease obligation  $151,947 

 

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 August 31, 2019, the Company received $10,000 for the exercise of warrants and plan to issue 20,000 shares of common stock. As of the date of this filing the shares have not been issued.

 

On  September 9, 2019, 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 not been issued.

 C: 

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 nine months ended August 31, 2019, we generated $137,490 in 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.

 

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

 

Once manufacturing is established 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.

 C: 

18

 

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.

 

Dependence on One or a few Major Customers

 

We had a concentration of revenue from one customer during the nine months ended August 31, 2019 but 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.

 

In regard to intellectual property rights associated with Krankz™ Bluetooth® wireless headphones, we do not have a federally registered trademark in the word Krankz.  Therefore, we do not have the same presumptive rights which might otherwise apply had we obtained a federally registered trademark.  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.  On April 2, 2015, Krank™ Amplifiers (associated with guitar amplifiers) filed an application for a design plus words mark on the Principal Register with the U.S. PTO.  Guitar amplifiers consist of electronic communication and amplification devices and would generally fall in the same or similar category as our Krankz™ Bluetooth® Audio Headset. As of this date of this report, no office action has been issued by the U.S. PTO, and Krank™ Amplifiers reported in April that they have not yet made any use of this mark in interstate commerce.  We have been using this mark in interstate commerce for quite some time prior to April, 2015.  We may no longer be able to use the common law trademark “Krankz™” if Krank Amplifiers is granted its trademark and we do not file an opposition to such mark or we do not prevail in the defense of our mark in the U.S. Trademark and Trial Appeal Board (TTAB). We shall continue to monitor the status of that mark to determine what impact it might have, if any, as to our Krankz mark.

 

Subsidiaries

 

We do not have any subsidiaries.

 C: 

19

 

MANAGEMENT’S DISCUSSION AND ANALYSIS

 

COMPARISON OF THREE MONTH RESULTS FOR THE QUARTERS ENDED AUGUST 31, 2019 AND 2018, RESPECTIVELY

 

Revenues and Gross Profit

 

For the three months ended August 31, 2019 and 2018, the Company recognized $11,678 and $591 in revenue, respectively.   Cost of sales for the quarter ended August 31, 2019 was $16,701, leading to a gross loss of $5,023 during the period. In the comparable quarter ended August 31, 2018, revenue was $591 and cost of sales was $1,583, resulting in a gross loss of $992.

 

Operating Expenses

 

Operating expenses were $302,708 and $253,769 for the three months ended August 31, 2019 and 2018, respectively. The increase was primarily due to promotional and sponsorship fees and a slight increase in executive compensation.

 

Other Income and Expenses

 

During the course of our business, we experienced a loss from foreign currency transactions of $19,842 in the three month period ended August 31, 2019, compared to a gain of $10,971 in the comparable period ended August 31, 2018. 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 $1,172 and $1,172 in the three month periods ended August 31, 2019 and 2018, respectively.

 

Interest expense associated with non-related party obligations was $110 and $181 in the three month periods ended August 31, 2019 and 2018, respectively.

 

COMPARISON OF NINE MONTH RESULTS FOR THE PERIODS ENDED AUGUST 31, 2019 AND 2018, RESPECTIVELY

 

Revenues and Gross Profit

 

For the nine months ended August 31, 2019 and 2018, the Company recognized $137,490 and $4,518 in revenue, respectively.   Cost of sales for the period ended August 31, 2019 was $88,095, leading to a gross profit of $49,395 during the period. In the comparable quarter ended August 31, 2018, revenue was $4,518 and cost of sales was $3,282, resulting in a gross profit of $1,236.

 

Operating Expenses

 

Operating expenses were $955,313 and $768,110 for the nine months ended August 31, 2019 and 2018, respectively. The increase was primarily due to promotional and sponsorship fees.

 

Other Income and Expenses

 

During the course of our business, we experienced a gain from foreign currency transactions of $1,901 in the nine month period ended August 31, 2019, compared to a gain of $16,174 in the comparable period ended August 31, 2018. 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 $3,490 and $3,490 in the nine month periods ended August 31, 2019 and 2018, respectively.

 

Interest expense associated with non-related party obligations was $384 and $595 in the nine month periods ended August 31, 2019 and 2018, respectively.

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Liquidity and Capital Resources

 

Other than what is described in this Report, the Company had no material commitments for capital expenditures at August 31, 2019.

 

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 nine months ended August 31, 2019 and 2018, the Company made no payments towards this obligation and no royalty invoices have been received from Psyko Audio Labs. Royalty payable was $1,352,897 as of August 31, 2019. For the nine months ended August 31, 2019 and 2018, respectively, royalty expense and related gain on foreign currency transactions was $1,901 and $16,174, respectively.

 

The Company has an office and warehouse rental lease obligation through September 30, 2020, which equals $116,613 as of August 31, 2019. The monthly minimum rental payment is $8,769. Rent expense was $72,995 and $63,054 for the nine months ended August 31, 2019, respectively.

 

Cash Flow Information

 

On August 31, 2019, the Company had working capital of approximately $(1,243,642). On November 30, 2018, the Company had working capital of approximately $(1,160,178). The decrease in working capital of $83,464 primarily relates to an increase in royalty payable in the amount of $223,442 during the nine months ending August 31, 2019. 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 $195,735 and $104,485 at August 31, 2019 and November 30, 2018, respectively. This represents an increase in cash of $91,250.

 

Cash used in Operating Activities

 

The Company used approximately $791,949 of cash for operating activities in the nine months ended August 31, 2019 as compared to using $514,404 of cash for operating activities in the nine months ended August 31, 2018. This increase in cash used in operating activities, is primarily attributed to increase in net loss, accounts receivable and inventory.

 

Cash used in Investing Activities

 

The Company used approximately $39,000 of cash for investing activities in the nine months ended August 31, 2019 as compared to using $0 of cash for operating activities in the nine months ended August 31, 2018. This increase in cash used in investing activities, is primarily attributed to increase equipment purchased.

 

Cash Provided by Financing Activities

 

Financing activities in the nine months ended August 31, 2019 provided $922,199 of cash as compared to providing $211,467 of cash in the nine months ended August 31, 2018. The difference is attributable to an increase 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.

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Going Concern Consideration

 

There is substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock or obtaining debt financing and attaining future profitable operations. Management’s plan includes selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.

  

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 August 31, 2019. 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.

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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 changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that may have materially affected, or may be 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 three months ended February 28, 2019, the Company sold 534,152 shares of common stock for cash totaling $440,000. 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 28, 2019 and, resultantly, are considered owed as a common stock payable of $307,500. The shares were issued during the three months ended May 31, 2019.

 

During the three months ended February 28, 2019, the Company issued 16,860 shares of common stock for the conversion of 2,500 shares of Series B Preferred Stock.

 

During the three months ended May 31, 2019, the Company received $275,985 for the exercise of warrants. The stock was subscribed for; however, the certificates representing the shares were not issued as of August 31, 2019 and, resultantly, are considered owed as a common stock payable of $275,985. The shares were issued during July 2019.

 

During the three months ended May 31, 2019, the Company issued 17,489 shares of common stock for the conversion of 2,500 shares of Series B Preferred Stock.

 

During the three months ended August 31, 2019, the Company sold 236,462 shares of common stock for cash totaling $177,700. 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.

 

During the three months ended August 31, 2019, the Company received $37,120 for the exercise of warrants and issued 74,200 shares of common stock.

 

During the three months ended August 31, 2019, the Company issued 45,000 shares of common stock for services rendered of $42,750. 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.

 

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 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
   
32.1 Certification of Chief Executive Officer and 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 Presenation 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  October 15, 2019
Jeffrey A. Weiland      
       
       
/s/ Robert S. Amaral  Chief Executive Officer,  October 15, 2019
Robert S. Amaral   Treasurer and Director   
   (Principal Executive and Financial Officer)   
 C: 

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Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
9/30/20
11/30/1910-K,  10-K/A,  NT 10-K
Filed on:10/15/19
9/9/19
For Period end:8/31/19
6/1/19
5/31/1910-Q,  NT 10-Q
3/1/19NT 10-K
2/28/1910-Q,  NT 10-Q
12/15/18
11/30/1810-K,  NT 10-K
8/31/1810-Q
7/13/18
5/31/1810-Q
2/28/1810-Q
11/30/1710-K,  NT 10-K
1/1/16
4/2/15
1/1/15
5/25/11
5/12/11
1/1/08
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