Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2016
☐ 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)
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Nevada
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45-2224704
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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4478 Wagon Trail Ave., Las Vegas, NV 89118
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(Address of principal executive offices and Zip Code)
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(702) 361-3188
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(Registrant's telephone number, including area code)
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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 ☒ No ☐
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 ☒ No ☐
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
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☒
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
As of the date of filing of this report, there were outstanding 24,255,231 shares of the issuer’s common stock, par value $0.0001 per share. There were also outstanding 19,500 Series A, and 225,390, Series B Preferred Shares of the issuers preferred stock, par value $0.0001 per share.
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EXEO ENTERTAINMENT, INC.
Form 10-Q
Page
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PART I - FINANCIAL INFORMATION
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3
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Item 1.
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3
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4
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5
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6
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Item 2.
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15
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Item 3.
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Item 4.
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PART II - OTHER INFORMATION
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Item 1.
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Item1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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PART I – FINANCIAL INFORMATION
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, 2016 are not necessarily indicative of the results that can be expected for the year ending November 30, 2016.
BALANCE SHEETS
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(unaudited)
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May 31,
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November 30,
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2016
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2015
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ASSETS
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Current Assets
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Cash and cash equivalents
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$ | 171,930 | $ | 427,663 | ||||
Inventory
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223,228 | 231,610 | ||||||
Prepaid expenses
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6,745 | 1,840 | ||||||
Total current assets
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401,903 | 661,113 | ||||||
Property and equipment, net
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83,581 | 92,953 | ||||||
TOTAL ASSETS
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$ | 485,484 | $ | 754,066 | ||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
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Liabilities
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Current liabilities
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Accounts payable and accrued expenses
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$ | 33,388 | 20,328 | |||||
Accrued interest payable - related party
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11,834 | 9,553 | ||||||
Payroll liabilities
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101,327 | 88,901 | ||||||
Due to related parties
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75,000 | 75,000 | ||||||
Royalty payable
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384,107 | 273,712 | ||||||
Notes payable
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9,247 | 10,099 | ||||||
Total current liabilities
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614,903 | 477,593 | ||||||
Long-term liabilities
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Notes payable
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34,489 | 41,864 | ||||||
Total long-term liabilities
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34,489 | 41,864 | ||||||
Total Liabilities
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649,392 | 519,457 | ||||||
Series A redeemable convertible preferred stock; $0.0001 par value, 1,000,000 shares authorized; 19,500 shares issued and
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outstanding; 0 shares unissued as of May 31, 2016 (liquidation preference of $58,550). Stated at redemption value.
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126,800 | 119,487 | ||||||
Series B redeemable convertible preferred stock; $0.0001 par value, 1,000,000 shares authorized; 227,890 shares issued and
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outstanding; 2,500 shares unissued as of May 31, 2016 (liquidation preference of $411,943). Stated at redemption value.
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1,382,406 | 1,087,906 | ||||||
Stockholders' deficit
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Convertible Preferred Stock Series A - 15%, $0.0001 par value, 1,000,000 shares
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authorized, 19,500 and 19,500 shares issued, respectively
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- | - | ||||||
Convertible Preferred Stock Series B - 12%, $0.0001 par value, 1,000,000 shares
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authorized, 227,890 and 2,500 shares issued, respectively
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- | - | ||||||
Common stock - $0.0001 par value, 100,000,000 shares authorized; 24,255,231
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and 24,255,231 shares issued and outstanding, respectively
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2,425 | 2,425 | ||||||
Additional paid-in capital
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3,235,423 | 3,135,349 | ||||||
Stock payable
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100,000 | 100,000 | ||||||
Deficit accumulated
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(5,010,962 | ) | (4,210,558 | ) | ||||
Total stockholders' equity (deficit)
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(1,673,114 | ) | (972,784 | ) | ||||
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
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$ | 485,484 | $ | 754,066 | ||||
The accompanying notes are an integral part of these financial statements.
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STATEMENTS OF OPERATIONS
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(unaudited)
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Three month period ending May 31, 2016
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Three month period ending May 31, 2015
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Six month period ending May 31, 2016
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Six month period ending May 31, 2015
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REVENUES
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$ | 5,069 | $ | 4,776 | $ | 17,617 | $ | 10,568 | ||||||||
COST OF GOOD SOLD
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Cost of direct materials, shipping and labor
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(3,756 | ) | (1,793 | ) | (8,633 | ) | (4,686 | ) | ||||||||
GROSS PROFIT
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1,313 | 2,983 | 8,984 | 5,882 | ||||||||||||
OPERATING EXPENSES
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General and adminstrative
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188,236 | 193,288 | 413,695 | 340,773 | ||||||||||||
Executive compensation
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90,608 | 77,072 | 181,215 | 159,558 | ||||||||||||
Professional fees
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63,348 | 5,830 | 107,986 | 21,960 | ||||||||||||
Depreciation
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7,936 | 6,780 | 15,872 | 14,238 | ||||||||||||
TOTAL OPERATING EXPENSES
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350,128 | 282,970 | 718,768 | 536,529 | ||||||||||||
INCOME (LOSS) FROM OPERATIONS
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(348,815 | ) | (279,987 | ) | (709,784 | ) | (530,647 | ) | ||||||||
OTHER INCOME (EXPENSE)
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Gain from foreign currency transactions
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(12,828 | ) | (189 | ) | (11,325 | ) | (1,480 | ) | ||||||||
Other income
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- | - | 312 | - | ||||||||||||
Interest expense - related party
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(1,147 | ) | (1,147 | ) | (2,281 | ) | (2,418 | ) | ||||||||
Interest expense
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(539 | ) | (135 | ) | (764 | ) | (195 | ) | ||||||||
TOTAL OTHER INCOME (EXPENSES)
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(14,514 | ) | (1,471 | ) | (14,058 | ) | (4,093 | ) | ||||||||
NET LOSS
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(363,329 | ) | (281,458 | ) | (723,842 | ) | (534,740 | ) | ||||||||
DIVIDEND OF REDEEMABLE PREFERRED STOCK
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(40,035 | ) | (28,090 | ) | (76,562 | ) | (34,746 | ) | ||||||||
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
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$ | (403,364 | ) | $ | (309,548 | ) | $ | (800,404 | ) | $ | (569,486 | ) | ||||
NET LOSS PER SHARE: BASIC
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$ | (0.02 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.02 | ) | ||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC
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24,255,231 | 24,255,231 | 24,255,231 | 24,255,231 | |||||||||||||
The accompanying notes are an integral part of these financial statements.
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EXEO ENTERTAINMENT, INC.
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STATEMENTS OF CASH FLOWS
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(unaudited)
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Six month period ending May 31, 2016
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Six month period ending May 31, 2015
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CASH FLOWS FROM OPERATING ACTIVITIES
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Net loss for the period
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$ | (723,842 | ) | $ | (534,740 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities
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Depreciation
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15,872 | 14,238 | ||||||
Stock-based compensation to officers
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100,002 | 100,002 | ||||||
Changes in assets and liabilities
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Decrease (Increase) in pre-paid expenses
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(4,904 | ) | (8,333 | ) | ||||
Increase in accounts receivable
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- | (250 | ) | |||||
Decrease (Increase) in inventory
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8,382 | (131,538 | ) | |||||
(Decrease) Increase in accounts payable and accrued expenses
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13,060 | (17,192 | ) | |||||
Decrease in accrued interest - related party
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2,281 | 1,272 | ||||||
Increase in payroll liabilities
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12,426 | 9,122 | ||||||
Increase in royalty payable
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110,395 | 151,190 | ||||||
Net Cash Used in Operating Activities
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(466,328 | ) | (416,229 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES
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Acquisition of property and equipment
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(6,500 | ) | (2,423 | ) | ||||
Cash Flows Used in Investing Activities
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(6,500 | ) | (2,423 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES
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Proceeds from issuance of preferred stock, net of issuance costs
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225,322 | 464,827 | ||||||
Payments to related party debt
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- | (10,000 | ) | |||||
Payments on notes payable - auto loan (principal)
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(8,227 | ) | (5,845 | ) | ||||
Cash Flows Provided by Financing Activities
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217,095 | 448,982 | ||||||
Net increase in cash and cash equivalents
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(255,733 | ) | 30,330 | |||||
Cash and cash equivalents, beginning of the period
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427,663 | 326,683 | ||||||
Cash and cash equivalents, end of the period
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$ | 171,930 | $ | 357,013 | ||||
SUPPLEMENTAL CASH FLOW INFORMATION:
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Cash paid for interest
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$ | - | $ | - | ||||
Dividend of redeemable preferred stock
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$ | 76,562 | $ | 34,746 | ||||
The accompanying notes are an integral part of these financial statements.
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Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Exeo Entertainment, Inc. (the “Company”) is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied to the preparation of the financial statements. The Company will adopt accounting policies and procedures based upon the nature of future transactions.
Nature of Business
The Company was incorporated in Nevada on May 12, 2011. The Company is based in Las Vegas, Nevada, and designs, develops, licenses, manufactures, and distributes its products. The Company plans to market the Zaaz™ Keyboard, to be used with Samsung’s Smart TV® as well as other smart devices, the Extreme Gamer™, and other new peripheral products for the video gaming industry, including the Psyko Krypton™ surround sound gaming headphones.
Basis of Presentation
The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars.
Accounting Basis
The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting). The Company has adopted a November 30 fiscal year end. Prior to that, the Company adopted a calendar year end for 2011.
Foreign Currency Transactions
Transaction gains and losses, such as those resulting from the settlement of nonfunctional currency receivables or payables, including intercompany balances, are included in foreign currency gain (loss) in our consolidated statements of earnings. Additionally, payable and receivable balances denominated in nonfunctional currencies are marked-to-market at month-end, and the gain or loss is recognized in our statements of operations.
Cash and Cash Equivalents
The Company considers cash on hand, cash in banks, certificates of deposit, time deposits, and U.S. government and other short-term securities with maturities of three months or less when purchased as cash and cash equivalents.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts payable, notes payable, and accrued expenses. The carrying amount of these financial instruments approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise disclosed in these financial statements.
Inventory
Inventories are stated at cost, not to exceed fair market value. The cost of the Company’s inventory ($223,228 and $231,610 at May 31, 2016 and November 30, 2015, respectively) has been determined using the first-in first-out (FIFO) method. The reduction in current costs as compared to LIFO costs of inventory equals zero at May 31, 2016 and November 30, 2015, respectively.
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EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
May 31, 2016
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at the lower of cost or fair value. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, as follows:
Description
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Estimated Life
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Furniture & Equipment
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5 years
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Vehicles
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5 years
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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, 2016. For assets to be held and used (including projects under development), fixed assets are reviewed for impairment whenever indicators of impairment exist. If an indicator of impairment exists, the Company first groups its assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (the “asset group”). Secondly, the Company estimates the undiscounted future cash flows that are directly associated with and expected to arise from the completion, use and eventual disposition of such asset group. The Company estimates the undiscounted cash flows over the remaining useful life of the primary asset within the asset group. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model.
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.
Management Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
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EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
May 31, 2016
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
The Company recognizes revenue when products are fully delivered or services have been provided and collection is reasonably assured. For the six months ended May 31, 2016 and 2015, the Company recognized $17,617 and $10,568 in revenue, respectively.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
Stock-Based Compensation
Pursuant to ASC Topic 718, the Company recorded the fair value of the stock options on a monthly basis over the vesting period as stock-based compensation expense. The fair value of the options is calculated using the Black-Scholes method as of the date of grant. In fiscal year 2012, the Company adopted an incentive stock option plan for its employees. In fiscal year 2012 the Company granted stock options to three officers of the Company. These are described in Note G- Stock Options and Warrants.
Concentrations of Risk
The Company’s bank accounts are deposited in insured institutions. The maximum insured by the FDIC per bank account is not an issue here since the Company’s bank accounts do not bear any interest and the FDIC limits far exceed balances on deposit. The Company’s funds were held in a single account. At May 31, 2016, the Company’s bank balance did not exceed the insured amounts.
Accounting for Research and Development Costs
The Company records an expense in the current period for all research and development costs, which include Hardware Development Costs. The Company does not capitalize such amounts. Pursuant to ASC Topic 730 Research and Development, once we determine that our Extreme Gamer video game console is technologically feasible and a working model is put into use, the Company will capitalize Software Development costs associated with its products. Once this occurs we will determine a useful life of our software and apply a reasonable economic life of five years or less. At this time, our software development costs only relate to the Extreme Gamer and Zaaz keyboard hardware. The software development costs cannot be separated from the associated hardware development. We do not develop stand-alone software for sale to the retail consumers, rather we develop software in order to operate the designed hardware. The software is designed to be encoded within chips inside the hardware. Thus, it has been determined that the current software development costs, which are intertwined within the hardware development, are to be expensed rather than capitalized pursuant to ASC Topic 730.
This conclusion is also based upon our decision to devote further research and development costs in the support of our product interface to the video game players: Sony PS3® (and other products such as Nintendo Wii® and Microsoft Xbox 360®).
Liquidity and Going Concern
The Company has incurred an accumulated deficit of ($5,010,962) 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.
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EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
May 31, 2016
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
These factors create substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock or obtaining debt financing and attaining future profitable operations.
Management’s plan includes selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.
Note B: PROPERTY AND EQUIPMENT
The Company owned property and equipment, recorded at cost, which consisted of the following at May 31, 2016 and November 30, 2015:
May 31, 2016
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November 30, 2015
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Furniture and fixtures
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$ | 21,499 | $ | 21,499 | ||||
Office & computer equipment
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34,051 | 34,051 | ||||||
Vehicles
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103,444 | 96,943 | ||||||
Subtotal
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158,994 | 152,494 | ||||||
Less: Accumulated depreciation
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(75,413 | ) | (59,541 | ) | ||||
Property and equipment, net
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$ | 83,581 | $ | 92,953 |
Depreciation expense was $15,872 and $14,238 for the six months ended May 31, 2016 and 2015.
Note C: HARDWARE DEVELOPMENT COSTS
The Company incurred $15,018 and $6,338 for research and development costs for the six months ended May 31, 2016 and 2015, respectively. As to the six months ended May 31, 2016, these costs relate to hardware engineering, design and development of the Krankz™ and Krankz Maxx™ Bluetooth Wireless Headset and the Psyko Krypton® surround sound gaming headphones for personal computers.
Note D: PREPAID EXPENSES
At May 31, 2016, the balance of prepaid expenses on the balance sheet of the Company is $6,745, which primarily relates to a prepayment of an annual fee for investor relations. At November 30, 2015, the balance of prepaid expenses on the balance sheet of the Company is $1,840. Prepaid expenses at November 30, 2015 also consist of a prepayment of an annual fee for investor relations.
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EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
May 31, 2016
Note E: PATENT AND TRADEMARKS
In June 2013, the Company executed a license agreement with Psyko Audio Labs Canada to manufacture and distribute the Carbon and Krypton line of patented headphones. US Patent # 8,000,486 (for the Psyko Krypton™ surround sound gaming headphones). On April 2, 2015, Krank Amplifiers, LLC submitted to the U.S. Patent and Trademark Office a request for a design mark as to “Krank Amplifiers”) for registry on the Principal Register (serial number 86585697). This design mark includes the name Krank Amplifiers. The requested goods and services category is for IC 009, which is the same category in which our Company would request as to our common law trademark “Krankz™.” This amplifier company submitted its mark on the basis of 1B – not yet in commerce, while our Company has used the name Krankz™ in commerce for several years, well before Krank Amplifiers. As of the date of this report, no office action has been taken by the U.S. PTO. We may no longer be able to use the common law trademark “Krankz™” if Krank Amplifiers is granted its trademark and we do not file an opposition to such mark or we do not prevail in the defense of our mark in the U.S. Trademark and Trial Appeal Board (TTAB).
Note F: COMMON STOCK
The Company has 100,000,000 shares at $0.0001 par value common stock authorized and 24,255,231 and 24,255,231 shares issued and outstanding at May 31, 2016 and November 30, 2015, respectively.
Note G: PREFERRED STOCK
Issuances of Series A Convertible Preferred Stock
Since March 3, 2014, the Company has not offered or sold any Series A Convertible Preferred Stock and has no intent to do so during fiscal year ended November 30, 2016.
Issuances of Series B Convertible Preferred Stock
On January 14, 2014, the Board of Directors of Exeo Entertainment, Inc. (the “Company” adopted a resolution pursuant to the Company’s Certificate of Incorporation, as amended, providing for the designations, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions, of the Series B Convertible Preferred Stock.
On January 18, 2014, the Company filed a Certificate of Designations for a Series B Convertible Preferred Stock. The authorized number of Series B Convertible Preferred Stock is 1,000,000 shares, par value 0.0001. The holders of shares of Series B Convertible Preferred Stock shall vote as a separate class on all matters adversely affecting the Series B Stock. The authorization or issuance of additional Common Stock, Series B Convertible Preferred Stock or other securities having liquidation, dividend, voting or other rights junior to or on a parity with, the Series B Convertible Preferred Stock shall not be deemed to adversely affect the Series B Convertible Preferred Stock. In each case the holders shall be entitled to one vote per share. During the conversion period, each Series B Preferred share may be converted to common stock at a fixed conversion price of $1.25 per share or the Variable Conversion Price set forth in the Company’s Certificate of Designation. Series B stock bears interest at 12% per annum, paid annually, with principal paid at maturity twenty-four (24) months after the date of issuance of the stock. See table below in this note. Principal repayment may not apply if the stockholder exercises the right to convert all preferred stock to common stock during the conversion period.
During the three month period ended May 31, 2016, nine accredited investors subscribed to 21,300 shares, in total, of Series B Preferred Stock in exchange for cash consideration of $106,500, in total, at $5.00 for each share. As of May 31, 2016, 23,800 shares have not been issued and have been presented outside of permanent equity in accordance with ASC 48-10, Classification and Measurement of Redeemable Securities. The Company relies upon an exemption from registration under the Securities Act of 1933 pursuant to Regulation D, Section 506. The Company agreed to pay interest on such funds at 12% per annum. Each person executed a stock subscription agreement and delivered funds in exchange for the delivery of Series B Convertible Preferred Shares at a price of $5.00 per share. Stock warrants were not sold or included in the offering to such investors.
All shares of redeemable convertible preferred stock have been presented outside of permanent equity in accordance with ASC 48-10, Classification and Measurement of Redeemable Securities. The Company accretes the carrying value of its Series A and B redeemable convertible preferred stock to its estimate of fair value (i.e. redemption value) at period end. The estimated fair value of the Series A and Series B redeemable convertible preferred stock at May 31, 2016 was $126,800 and $1,382,405, respectively.
10
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
May 31, 2016
Note G: PREFERRED STOCK (CONTINUED)
We incurred equity issuance costs of $72 and $1,755 for the six months ended May 31, 2016, and 2015, respectively. Rather than expense these costs, such items are charged against the Company’s equity. Our employees coordinate various matters associated with the sales of issuer securities to accredited investors. Equity issuance costs include such wages. These costs also include mailing, copying, courier, and other miscellaneous costs associated with the duplication and delivery of our offering circular to investors and paying for the return delivery of signed stock subscription agreements.
Note H: RELATED PARTY TRANSACTIONS
Notes Payable to Officer
An officer received promissory notes from the Company in exchange for loans from the officer for $85,000. The terms of the notes provide that the Company shall repay the principal of each note in full within nine months of the date of each note. In addition, the Company is obligated to pay interest at a flat rate of 6.00% upon maturity of each note. At the sole discretion of the officer, the notes may be extended for an additional nine month term. The Officer agreed to extend the notes for an additional nine month period. The maturity dates after the extensions are reflected below. In August 2015, the Company made a $10,000 payment to an officer towards the entire principal of one note dated December, 2013. The Company made no payment towards $11,834 accrued interest.
Date of Each Note
|
Amount of Each Note
|
Accrued Interest through the Maturity Date
|
Maturity Date of Each Note
|
December 30, 2013
|
$ 25,000
|
$4,442
|
September 29, 2016
|
January 24, 2014
|
$ 50,000
|
$9,106
|
October 23, 2016
|
11
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
May 31, 2016
Note H: RELATED PARTY TRANSACTIONS (CONTINUED)
Compensation of Officers
The Company entered into officer compensation agreements with two officer/directors whereby each receives $60,000 per annum as cash compensation. The Company pays each officer $5,000 per month.
The amount paid to the two officers in total was $181,215 and $159,558 during the six months ended May 31, 2016 and 2015, respectfully. In addition, each officer/director received additional compensation in the form of non-cash incentive stock options granted on July 15, 2012. Each person received 2,000,000 stock options. For further discussion of the terms of the grant of stock options, see Note G.
Note I: 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 $384,107 for the six months ended May 31, 2016. For the six months ended May 31, 2016, royalty expense and the related loss on foreign currency transactions was $149,070 and $11,325, respectively.
Operating Lease Obligation
On October 25, 2012, the Company signed a lease for its current office and warehouse. The Company executed a one year extension effective October 1, 2014. The original lease contains an option for a three year renewal; which shall expire on September 30, 2016. The typical monthly rent expense is $7,006, which includes base rent of $5,496 and common area maintenance of $1,510. The Company is not obligated to pay a security deposit to the management company.
As of May 31, 2016, the monthly minimum rental payment is $7,006. Rent expense was $42,036 and $42,036 for the six months ended May 31, 2016 and 2015, respectively.
Note Payable for Vehicle Financing Obligations
On September 27, 2012, the Company acquired a pre-owned company vehicle on credit. The original cost basis was $49,824. On November 13, 2015, the Company traded the vehicle for a new leased vehicle for $6,714 due at signing. The Company is obligated to pay a total of $51,963 for 36 months with a monthly payment of $1,196.
On November 13, 2015, the Company acquired a pre-owned company vehicle on credit. The original cost basis was $56,963. The Company paid $5,000 as a down payment. The amount financed by the seller is $48,259, and the Company makes monthly payments of $866. The Company is obligated to pay a total of $51,963 over the course of the loan. This note bears interest at the annual percentage rate of 2.9%, and the term is 60 months. The total finance charge associated with this note is $3,704.
12
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
May 31, 2016
Note J: REINSTATEMENT OF FINANCIAL STATEMENTS
Below are adjustments to financial statements for the six months ended May 31, 2015.
EXEO ENTERTAINMENT, INC.
|
||||||||||||
BALANCE SHEETS
|
||||||||||||
(unaudited)
|
||||||||||||
May 31,
|
May 31,
|
|||||||||||
2015
|
2015
|
|||||||||||
(Originial
|
(Corrected
|
|||||||||||
amount)
|
(Adjustments)
|
amount)
|
||||||||||
ASSETS
|
||||||||||||
Current Assets
|
||||||||||||
Cash and cash equivalents
|
$ | 357,013 | $ | - | $ | 357,013 | ||||||
Inventory
|
146,495 | - | 146,495 | |||||||||
Prepaid expenses
|
8,333 | - | 8,333 | |||||||||
Accounts Receivable
|
360 | - | 360 | |||||||||
Total current assets
|
512,201 | 512,201 | ||||||||||
Property and equipment, net
|
70,101 | 45 | 70,146 | |||||||||
TOTAL ASSETS
|
$ | 582,302 | $ | 582,347 | ||||||||
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
|
||||||||||||
Liabilities
|
||||||||||||
Current liabilities
|
||||||||||||
Accounts payable and accrued expenses
|
$ | 16,319 | $ | 5,000 | 21,319 | |||||||
Accrued interest payable to non-affiliates
|
23,852 | (23,852 | ) | - | ||||||||
Accrued interest payable - related party
|
- | 7,272 | 7,272 | |||||||||
Payroll liabilities
|
35,530 | 39,773 | 75,303 | |||||||||
Due to related parties
|
75,000 | - | 75,000 | |||||||||
Royalty payable
|
- | 185,340 | 185,340 | |||||||||
Notes payable
|
9,698 | - | 9,698 | |||||||||
Total current liabilities
|
160,399 | 373,932 | ||||||||||
Long-term liabilities
|
||||||||||||
Notes payable
|
3,461 | - | 3,461 | |||||||||
Total long-term liabilities
|
3,461 | 3,461 | ||||||||||
Total Liabilities
|
163,860 | 377,393 | ||||||||||
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 November 30, 2015 (liquidation preference of $51,238). Stated at redemption value.
|
- | 112,175 | 112,175 | |||||||||
Series B redeemable convertible preferred stock; $0.0001 par value, 1,000,000 shares authorized; 201,640 shares issued and
|
||||||||||||
outstanding; 5,000 shares unissued as of November 30, 2015 (liquidation preference of $316,131). Stated at redemption value.
|
- | 525,470 | 525,470 | |||||||||
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
|
2 | (2 | ) | - | ||||||||
Convertible Preferred Stock Series B - 15%, $0.0001 par value, 1,000,000 shares
|
||||||||||||
authorized, 61,500 and 10,000 shares issued, respectively
|
6 | (6 | ) | - | ||||||||
Common stock - $0.0001 par value, 100,000,000 shares authorized; 24,140,600
|
||||||||||||
and 24,140,600 shares issued and outstanding, respectively
|
2,414 | - | 2,414 | |||||||||
Additional paid-in capital
|
3,322,831 | (463,938 | ) | 2,858,893 | ||||||||
Stock payable
|
203,500 | (103,500 | ) | 100,000 | ||||||||
Deficit accumulated
|
(3,110,311 | ) | (283,687 | ) | (3,393,998 | ) | ||||||
Total stockholders' equity (deficit)
|
418,442 | (432,691 | ) | |||||||||
TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ | 582,302 | $ | 582,347 |
13
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
May 31, 2016
Note J: REINSTATEMENT OF FINANCIAL STATEMENTS (CONTINUED)
EXEO ENTERTAINMENT, INC.
|
||||||||||||
STATEMENTS OF OPERATIONS
|
||||||||||||
(unaudited)
|
||||||||||||
May 31,
|
May 31,
|
|||||||||||
2015 | 2015 | |||||||||||
(Originial
|
(Corrected
|
|||||||||||
amount)
|
(Adjustments)
|
amount)
|
||||||||||
REVENUES
|
$ | 10,568 | $ | - | $ | 10,568 | ||||||
COST OF GOOD SOLD
|
||||||||||||
Cost of direct materials, shipping and labor
|
(4,643 | ) | (43 | ) | (4,686 | ) | ||||||
GROSS PROFIT
|
5,925 | 5,882 | ||||||||||
OPERATING EXPENSES
|
||||||||||||
General and adminstrative
|
291,251 | 49,522 | 340,773 | |||||||||
Executive compensation
|
55,000 | 104,558 | 159,558 | |||||||||
Professional fees
|
21,961 | (1 | ) | 21,960 | ||||||||
Depreciation
|
13,452 | 786 | 14,238 | |||||||||
TOTAL OPERATING EXPENSES
|
381,664 | 536,529 | ||||||||||
INCOME (LOSS) FROM OPERATIONS
|
(375,739 | ) | (530,647 | ) | ||||||||
OTHER INCOME (EXPENSE)
|
||||||||||||
Gain (Loss) from foreign currency transactions
|
- | (1,480 | ) | (1,480 | ) | |||||||
Forgiveness of debt
|
33,149 | (33,149 | ) | - | ||||||||
Interest expense - related party
|
- | (2,418 | ) | (2,418 | ) | |||||||
Interest expense
|
(16,081 | ) | 15,886 | (195 | ) | |||||||
TOTAL OTHER INCOME (EXPENSES)
|
17,068 | (4,093 | ) | |||||||||
NET INOME (LOSS)
|
(358,671 | ) | (534,740 | ) | ||||||||
DIVIDEND OF REDEEMABLE PREFERRED STOCK
|
- | (34,746 | ) | (34,746 | ) | |||||||
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
|
$ | (358,671 | ) | (210,815 | ) | $ | (569,486 | ) | ||||
NET LOSS PER SHARE: BASIC
|
$ | (0.02 | ) | $ | (0.02 | ) | ||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC
|
||||||||||||
23,433,100 | 24,140,600 |
14
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. From our inception to date we have generated $48,500 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.
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.
|
|
2)
|
During the six months ending May 31, 2015, we received inventory of the Krankz™ Bluetooth Wireless Headsets, and the Psyko®5.1 Surround Sound Gaming Headsets (with built-in microphone) with external amplifier for Personal Computers. We also approved the working prototypes of the similar type of Psyko® Krypton headphones for use with gaming consoles (such as Xbox®), and the Company is ready to go forward with the manufacturing.
|
|
3)
|
We are currently working on molds for the Zaaz™ keyboard.
|
Products and Services
Products under development include the Psyko™ 5.1 surround sound gaming headphones for consoles, Krankz™ MAXX Bluetooth™ wireless headphones, Zaaz™ Smart TV keyboards, the Extreme Gamer®; a multi-disc video game changer, and an android based portable gaming system. We are finalizing development on the Zaaz™ keyboard and will soon begin tooling for manufacturing. The Extreme Gamer™ and portable gaming system are still in development. We expect to release several new products in fiscal years 2015 and 2016.
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.
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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..
Zaaz™ Keyboard
The majority of the competition in the Bluetooth wireless keyboard arena is concentrated amongst a few well-known companies such as Logitech® (LOGI), Microsoft® (MSFT), Apple® (AAPL), and Samsung® (SSNLF). While management believes that only Samsung makes keyboards specifically designed to interact with smart TVs, and that their keyboards only work with certain Samsung® TVs, there can be no assurance that other companies do not currently manufacture, or plan to manufacture, such units in the future. Any such companies that manufacture keyboards capable of connecting to a smart TV would further increase competition.
The Company intends on differentiating the Zaaz™ keyboard through a set of features designed specifically for smart TV users. The Zaaz™ keyboard features a customized set of “one touch access keys” that allows users to access specific, user defined features of the consumers smart TV. Examples include one touch access to the following: Netflix®, Facebook®, Hulu®, and Amazon®. Additionally, the Zaaz™ keyboard will differentiate itself by including a full size track pad – built into the keyboard – to navigate, point, click, and select.
Extreme Gamer®
The Extreme Gamer® is a patent pending (patent application 12/543,296) multi-disc video game changer that connects to current generation video game consoles offered by Nintendo®, Microsoft®, and Sony®.
Management believes from attending the Consumer Electronics Show (CES) January 11-13, 2013, having a booth and its products on display at the Electronic Entertainment Expo (E3) June 11 – 13, 2013 (booth 4010), and from regularly reading Video Gaming news from sources such as IGN.com, EGNnow.com, 1up.com, and gamespot.com that no other company is currently manufacturing a multi-disc video game changer. If such a unit is being made management is unaware of its existence.
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.
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 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.
16
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
Subsidiaries
We do not have any subsidiaries.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Comparison of Three and Six Month Results for the quarters ended May 31, 2016 and 2015, respectively
Revenues and Gross Profit
For the three months ended May 31, 2016 and 2015, the Company recognized $5,069 and $4,776 in revenue, respectively. For the six months ended May 31, 2016 and 2015, the Company recognized $17,617 and $10,568 in revenue, respectively. At May 31, 2016, the Company had incurred an accumulated deficit of $5,010,962 since inception.
Costs and Expenses
Total cost and expenses were $350,128 and $282,970 for the three months ended May 31, 2016 and 2015, respectively. Total cost and expenses were $709,784 and $530,647 for the six months ended May 31, 2016 and 2015, respectively. The increase was primarily due to the increasing costs associated with public relations, royalty fees, and professional fees.
Research and Development Costs
The Company incurred ($276) and $6,100 for research and development costs for the three months ended May 31, 2016 and 2015, respectively. The Company incurred $15,018 and $6,338 for research and development costs for the six months ended May 31, 2016 and 2015, respectively. These costs relate to hardware engineering, design and development of the Krankz™ and Krankz Maxx™ Bluetooth Wireless Headset and the Psyko Krypton® surround sound gaming headphones for personal computers were reclassed to promotional costs.
Other Income and Expenses
During the course of our business, we experienced a loss from foreign currency transactions of $12,828 in the three month period ended May 31, 2016, compared to $189 in the comparable period ended May 31, 2015. During the six months ended May 31, 2016 and 2015, we experienced a loss from foreign currency transactions of $11,325 and $1,480, respectively. 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 $1,147 and $1,147 in the three month periods ended May 31, 2016 and 2015, respectively. Interest expense associated with obligations to related parties was $2,281 and $2,418 in the six month periods ended May 31, 2016 and 2015, respectively.
Liquidity and Capital Resources
Other than what is described in this Report, the Company had no material commitments for capital expenditures at May 31, 2016 and 2015.
On May 25, 2011, Exeo Entertainment, Inc. entered into an exclusive license agreement with Digital Extreme Technologies, Inc. whereby Exeo Entertainment, Inc. will manufacture and market the Extreme Gamer and Zaaz keyboard. Exeo Entertainment, Inc. will pay Digital Extreme Technologies, Inc. a 5% royalty fee on gross sales of both products.
Unless the Royalty Agreement is modified by Psyko Audio Labs Canada and the Company, at January 1, 2016, the Company is obligated to pay minimum monthly royalties of $80,000 (CDN $100,000) per quarter for the remaining term of the contract. No such modification has been made as of the date of this report. The company carries the risk of currency exchange rate fluctuations as our royalty obligation under the license agreement is stated in Canadian dollars. For the three months ended May 31, 2016, the Company made a $50,000 payment towards this obligation and no royalty invoices have been received from Psyko Audio Labs. Royalty payable was $384,107 as of May 31, 2016. For the three months ended May 31, 2016, royalty expense and related loss on foreign currency transactions was $77,100 and $12,828, respectively. For the six months ended May 31, 2016, royalty expense and related loss on foreign currency transactions was $149,070 and $11,325, respectively.
17
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
The Company has an office and warehouse rental lease obligation through September 30, 2016, which equals $70,060 as of November 30, 2015. The monthly minimum rental payment is $7,006. Rent expense was $21,018 and $21,018 for the three months ended May 31, 2016 and 2015, respectively. Rent expense was $42,036 and $42,036 for the six months ended May 31, 2016 and 2015, respectively.
Cash Flow Information
On May 31, 2016, the Company had working capital of approximately $(213,000). On November 30, 2015, the Company had working capital of approximately $183,520. The decrease in working capital primarily relates to a decrease in cash, offset by an increase in royalty payable during the three months ending February 29, 2016. 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 $171,930 and $427,663 at May 31, 2016 and November 30, 2015, respectively. This represents a decrease in cash of $255,733.
Cash used in Operating Activities
The Company used approximately $466,328 of cash for operating activities in the six months ended May 31, 2016 as compared to using $416,229 of cash for operating activities in the three months ended May 31, 2015. This decrease in cash used in operating activities, is primarily attributed to an increase in operating loss.
Cash used in Investing Activities
The Company used approximately $6,500 of cash for investing activities in the six months ended May 31, 2016 as compared to using $2,423 of cash for investing activities in the three months ended May 31, 2015. This decrease in cash used in investing activities, is primarily attributed to a purchase of a vehicle.
Cash Provided by Financing Activities
Financing activities in the six months ended May 31, 2016 provided $217,095 of cash as compared to providing $448,982 of cash in the six months ended May 31, 2015. The difference is attributable to an increase in cash receipts from sales of the Company’s preferred 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
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.
18
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued)
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.
As a “smaller reporting company”, we are not required to provide the information required by this Item.
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, 2015, 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 May 31, 2016. 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 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.
19
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. In the second quarter of 2016, management is in the process of determining how to most effectively improve our disclosure controls and procedures.
PART II – OTHER INFORMATION
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.
As a “smaller reporting company”, we are not required to provide the information required by this Item.
None.
None. All payments were made on schedule.
Not applicable.
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.
Related Party Transactions
At May 31, 2016 we owed an officer $86,834.
20
Exhibit Number
|
Name and/or Identification of Exhibit
|
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
|
21
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/ Robert S. Amaral
|
Chief Executive Officer,
|
July 15, 2016
|
Robert S. Amaral
|
(Principal Executive Officer)
|
|
|
||
/s/ Robert S. Amaral
|
Chief Financial Officer,
|
July 15, 2016
|
Robert S. Amaral
|
(Principal Financial Officer)
|
22