Attached files
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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 February 28, 2017
☐ 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
(Do not
check if a smaller reporting company)
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☐
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Smaller
reporting company
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☒
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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
24,892,767
shares of the issuer’s common stock, par value $0.0001 per
share. There were also outstanding 19,500 Series A,
and 246,690, Series B Preferred Shares of the issuers
preferred stock, par value $0.0001 per share.
1
EXEO ENTERTAINMENT, INC.
Form 10-Q
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Page
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PART I - FINANCIAL INFORMATION
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3
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Item
1.
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Financial
Statements
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3
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Balance Sheets
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4
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Statements of
Operations
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5
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Statements of Cash
Flows
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6
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Notes to Financial
Statements
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7
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Item
2.
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Management's Discussion and
Analysis of Financial Condition and Results of
Operations
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15
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Item
3.
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Quantitative and Qualitative
Disclosures About Market Risk
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18
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Item
4.
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Controls and
Procedures
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18
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PART II - OTHER INFORMATION
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19
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Item
1.
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Legal
Proceedings
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19
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Item1A.
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Risk Factors
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19
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Item
2.
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Unregistered Sales of Equity
Securities
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19
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Item
3.
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Defaults Upon Senior
Securities
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20
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Item
4.
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Mine Safety
Disclosures
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20
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Item
5.
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Other
Information
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20
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Item
6.
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Exhibits
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20
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SIGNATURES
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21
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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 three months ended February 28, 2017 are not
necessarily indicative of the results that can be expected for the
year ending November 30, 2017.
3
EXEO
ENTERTAINMENT, INC.
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BALANCE
SHEETS
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(unaudited)
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February
28,
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November
30,
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2017
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2016
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ASSETS
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Current
Assets
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Cash and cash
equivalents
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$55,602
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$131,001
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Inventory
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267,000
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227,085
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Prepaid
expenses
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20,000
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51,869
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Total
current assets
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342,602
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409,995
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Property
and equipment, net
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56,811
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64,943
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TOTAL
ASSETS
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$399,413
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$474,898
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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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$20,434
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$33,044
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Accrued interest
payable - related party
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15,286
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14,139
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Payroll
liabilities
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119,965
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113,752
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Due to related
parties
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75,000
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75,000
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Royalty
payable
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611,535
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523,032
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Notes
payable
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9,314
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9,314
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Total
current liabilities
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851,534
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768,281
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Long-term
liabilities
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Notes
payable
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27,529
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29,840
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Total
long-term liabilities
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27,529
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29,840
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Total
Liabilities
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879,063
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798,121
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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 February 2017 and 2016 (liquidation
preference of $69,519). Stated at redemption value.
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137,767
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134,113
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Series B redeemable
convertible preferred stock; $0.0001 par value, 1,000,000 shares
authorized; 246,690 and 246,690 shares issued and
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outstanding; 0
shares unissued as of February 2017 and 2016 (liquidation
preference of $543,203). Stated at redemption value.
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1,468,418
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1,431,415
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Stockholders'
deficit
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Convertible
Preferred Stock Series A - 15%, $0.0001 par value, 1,000,000 shares
authorized, 19,500 and 19,500 shares issued,
respectively
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-
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Convertible
Preferred Stock Series B - 12%, $0.0001 par value, 1,000,000 shares
authorized, 225,390 and 2,500 shares issued,
respectively
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-
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Common stock -
$0.0001 par value, 100,000,000 shares authorized; 24,892,767 and
24,764,129 shares issued and outstanding, respectively
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2,490
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2,476
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Additional paid-in
capital
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3,852,245
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3,711,256
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Stock
payable
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112,500
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112,500
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Deficit
accumulated
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(6,053,070)
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(5,714,983)
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Total
stockholders' deficit
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(2,085,835)
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(1,888,751)
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TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' DEFICIT
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$399,413
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$474,898
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4
EXEO
ENTERTAINMENT, INC.
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STATEMENTS
OF OPERATIONS
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(unaudited)
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Three month period
ending February 28, 2017
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Three month period
ending February 29, 2016
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REVENUES
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$3,609
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$12,548
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COST
OF GOOD SOLD
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Cost of direct
materials, shipping and labor
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(2,431)
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(4,877)
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GROSS
PROFIT
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1,178
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7,671
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OPERATING
EXPENSES
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General and
administrative
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160,444
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225,459
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Executive
compensation
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96,857
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90,607
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Professional
fees
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18,014
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44,638
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Depreciation
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8,132
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7,936
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TOTAL
OPERATING EXPENSES
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283,447
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368,640
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INCOME
(LOSS) FROM OPERATIONS
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(282,269)
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(360,969)
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OTHER
INCOME (EXPENSE)
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Gain (loss) from
foreign currency transactions
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(12,224)
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1,503
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Other
income
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-
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312
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Interest expense -
related party
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(1,147)
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(1,134)
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Interest
expense
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(1,787)
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(225)
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TOTAL
OTHER INCOME (EXPENSES)
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(15,158)
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456
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NET
INOME (LOSS)
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(297,427)
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(360,513)
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DIVIDEND
OF REDEEMABLE PREFERRED STOCK
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(40,660)
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(36,527)
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NET
LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
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$(338,087)
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$(397,040)
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NET
LOSS PER SHARE: BASIC
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$(0.01)
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$(0.02)
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WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC
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24,810,340
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24,255,231
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The
accompanying notes are an integral part of these financial
statements.
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5
EXEO
ENTERTAINMENT, INC.
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STATEMENTS
OF CASH FLOWS
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(unaudited)
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Three month period
ending February 28, 2017
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Three month period
ending February 29, 2016
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CASH
FLOWS FROM OPERATING ACTIVITIES
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Net loss for the
period
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$(297,427)
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$(360,513)
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Adjustments
to reconcile net loss to net cash used in operating
activities
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Depreciation
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8,132
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7,936
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Stock-based
compensation to officers
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50,001
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50,001
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Changes
in assets and liabilities
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Decrease (Increase)
in pre-paid expenses
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31,867
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(7,452)
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Decrease (Increase)
in inventory
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(39,915)
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4,819
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(Decrease) Increase
in accounts payable and accrued expenses
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(12,610)
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7,076
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Decrease in accrued
interest - related party
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1,147
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1,134
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Increase in payroll
liabilities
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6,213
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6,213
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Increase in royalty
payable
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88,503
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70,467
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Net
Cash Used in Operating Activities
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(164,088)
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(220,319)
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CASH
FLOWS FROM FINANCING ACTIVITIES
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Proceeds from
issuance of preferred stock, net of issuance costs
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-
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118,775
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Proceeds from
issuance of common stock, net of issuance costs
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91,000
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Payments on notes
payable - auto loan (principal)
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(2,311)
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(2,705)
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Cash
Flows Provided by Financing Activities
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88,689
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116,070
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Net
increase in cash and cash equivalents
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(75,399)
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(104,249)
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Cash
and cash equivalents, beginning of the period
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131,001
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427,663
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Cash
and cash equivalents, end of the period
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$55,602
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$323,414
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SUPPLEMENTAL
CASH FLOW INFORMATION:
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Cash paid for
interest
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$-
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$-
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Dividend of
redeemable preferred stock
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$40,660
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$36,527
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The
accompanying notes are an integral part of these financial
statements.
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6
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
February 28, 2017
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 $267,000 and $227,085 at February 28,
2017 and November 30, 2016, 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
February 28, 2017 and November 30, 2016, respectively.
7
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
February 28, 2017
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 February 28, 2017. 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.
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.
8
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
February 28, 2017
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 three months ended February 28, 2017 and 2016, the Company
recognized $3,609 and $12,548 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 February 28, 2017, 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®).
9
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
February 28, 2017
Note A: SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Liquidity and Going Concern
The
Company has incurred an accumulated deficit of ($6,053,395) since
inception. The Company incurred significant initial research and
product development costs, including expenditures associated with
hardware engineering and the design and development of its hardware
components and prototypes associated with the Zaaz™ keyboard,
the Extreme Gamer, and the Psyko Krypton™ surround sound
gaming headphones. The Company also incurred costs associated with
its acquisition of property, plant and equipment for its 10,000
square foot office and warehouse.
These
factors create substantial doubt about the Company’s ability
to continue as a going concern. The financial statements do not
include any adjustments to reflect the possible future effects on
the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of the Company to continue as a going
concern.
The
ability of the Company to continue as a going concern is dependent
on the Company generating cash from the sale of its common stock or
obtaining debt financing and attaining future profitable
operations.
Management’s
plan includes selling its equity securities and obtaining debt
financing to fund its capital requirement and ongoing operations;
however, there can be no assurance the Company will be successful
in these efforts.
Recent Accounting Pronouncements
The
Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company’s
results of operations, financial position or cash
flow.
Note B: PROPERTY AND
EQUIPMENT
The
Company owned property and equipment, recorded at cost, which
consisted of the following at February 28, 2017 and November 30,
2016:
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February
28, 2017
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November
30, 2016
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Furniture and
fixtures
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$21,499
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$21,499
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Office &
computer equipment
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37,982
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37,982
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Vehicles
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96,944
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96,943
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Subtotal
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156,425
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156,494
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Less: Accumulated
depreciation
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(99,614)
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(91,481)
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Property
and equipment, net
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$56,811
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$64,943
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Depreciation
expense was $8,132 and $7,936 for the three months ended February
28, 2017 and 2016.
Note C: HARDWARE
DEVELOPMENT COSTS
The Company incurred $0 and $15,293 for research and development
costs for the three months ended February 28, 2017 and February 29,
2016, respectively. As to the nine months ended August 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
February 28, 2017, the balance of prepaid expenses on the balance
sheet of the Company is $20,000, which primarily relates to a
prepayment of an annual fee for investor relations and a deposit on
product placement. At November 30, 2016, the balance of prepaid
expenses on the balance sheet of the Company is $51,869. Prepaid
expenses at November 30, 2016 also consist of a deposit on
inventory not delivered, deposit on product placement and
prepayment of an annual fee for investor relations.
10
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
February 28, 2017
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 24,892,767 and
24,761,129 shares issued and outstanding at February 28, 2017 and
November 30, 2016, respectively.
During
the three months ended February 28, 2017, the Company issued
128,638 shares of common stock for cash totaling $91,000. 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.
11
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
February 28, 2017
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, 2017.
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.
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 February 28, 2017 was
$137,768 and $1,468,418, respectively.
We incurred equity issuance costs of $0 and $25 for the three
months ended February 28, 2017 and 2016,
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.
12
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
February 28, 2017
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.
The balance as of February 28, 2017 was $75,000. As of the date of
this filing, the notes are in default and is being
negotiated.
Date of Each Note
|
Amount of Each Note
|
Accrued Interest through the Maturity Date
|
Maturity Date of Each Note
|
December 30, 2013
|
$25,000
|
$4,824
|
February 28, 2017
|
January 24, 2014
|
$50,000
|
$10,462
|
February 28, 2017
|
Compensation of Officers
The
Company entered into officer compensation agreements with two
officer/directors collectively receives $150,000 per annum as cash
compensation. The Company pays the two officers a total of $12,500
per month.
The
amount paid to the two officers in total was $43,750 and $40,606
during the three months ended February 28, 2017 and 2016,
respectfully. In addition, each officer/director received
additional compensation in the form of non-cash incentive stock
options granted on July 15, 2012. The fair value of the stock
options were a total of $50,000. Each person received 2,000,000
stock options.
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 $611,535 as of February 28, 2017. For the three
months ended February 28, 2017, royalty expense and the related
loss on foreign currency transactions was $76,279 and $12,224,
respectively.
Operating Lease Obligation
On
October 25, 2012, the Company signed a lease for its current office
and warehouse. The Company executed a one year extension effective
October 1, 2014. The original lease contains an option for a three
year renewal; which shall expire on September 30, 2016. The Company
signed an additional one year lease at the same terms as the prior
lease. The typical monthly rent expense is $7,006, which includes
base rent of $5,496 and common area maintenance of $1,510. The
Company is not obligated to pay a security deposit to the
management company.
As of
February 28, 2017, the monthly minimum rental payment is $7,006.
Rent expense was $21,018 and $21,018 for the three months ended
February 28, 2017 and 2016, respectively.
13
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
February 28, 2017
Note I: COMMITMENTS AND
CONTINGENCIES (CONTINUED)
Note Payable for Vehicle Financing Obligations
On
September 27, 2012, the Company acquired a pre-owned company
vehicle on credit. The original cost basis was $49,824. On November
13, 2015, the Company traded the vehicle for a new leased vehicle
for $6,714 due at signing. The Company is obligated to pay a total
of $48,259 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.
14
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
quarter ended February 28, 2017, we generated $3,609 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, 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.
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.
15
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 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.
Subsidiaries
We do
not have any subsidiaries.
MANAGEMENT’S DISCUSSION AND ANALYSIS
Comparison of Three Month Results for the quarters ended February
28, 2017 and February 29, 2016, respectively
16
Revenues and Gross Profit
For the
three months ended February 28, 2017 and February 29, 2016, the
Company recognized $3,609 and $12,548 in revenue,
respectively. At February 29, 2016, the Company had
incurred an accumulated deficit of $6,053,070 since
inception.
Costs and Expenses
Total
cost and expenses were $283,447 and $368,640 for the three months
ended February 28, 2017 and February 29, 2016, respectively. The
decrease was primarily due to staff turnover and decreases in legal
and consulting fees paid.
Research and Development Costs
The
Company incurred $0 and $15,239 for research and development costs
for the three months ended February 28, 2017 and February 29, 2016,
respectively. As to the three months ended February 29, 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 were reclassed to promotional
costs.
Other Income and Expenses
During
the course of our business, we experienced a loss from foreign
currency transactions of $12,224 in the three month period ended
February 29, 2016, compared to a gain of $1,503 in the comparable
period ended February 29, 2016. 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 $1,147
and $1,134 in the three month periods ended February 28, 2017 and
February 29, 2016, respectively.
Liquidity and Capital Resources
Other
than what is described in this Report, the Company had no material
commitments for capital expenditures at February 28, 2017 and
February 29, 2016.
On May
25, 2011, Exeo Entertainment, Inc. entered into an exclusive
license agreement with Digital Extreme Technologies, Inc. whereby
Exeo Entertainment, Inc. will manufacture and market the Extreme
Gamer and Zaaz keyboard. Exeo Entertainment, Inc. will pay Digital
Extreme Technologies, Inc. a 5% royalty fee on gross sales of both
products.
Unless
the Royalty Agreement is modified by Psyko Audio Labs Canada and
the Company, at January 1, 2016, the Company is obligated to pay
minimum monthly royalties of $80,000 (CDN $100,000) per quarter for
the remaining term of the contract. No such modification has
been made as of the date of this report. The company carries the
risk of currency exchange rate fluctuations as our royalty
obligation under the license agreement is stated in Canadian
dollars. For the three months ended February 28, 2017 and February
29, 2016, the Company made no payments towards this obligation and
no royalty invoices have been received from Psyko Audio Labs.
Royalty payable was $611,535 for the three months ended February
28, 2017. For the three months ended February 28, 2017, royalty
expense and related gain on foreign currency transactions was
$75,564 and $12,224, respectively.
The Company has an office and warehouse rental lease obligation
through October 31, 2017, which equals a balance of $56,048 from
March 1, 2017 through October 31, 2017. The monthly minimum rental
payment is $7,006. Rent expense was $21,018 and $21,018 for the
three months ended February 28, 2017 and February 29, 2016,
respectively.
Cash Flow Information
On
February 28, 2017, the Company had working capital of approximately
$(508,932). On November 30, 2016, the Company had working capital
of approximately $(358,326). 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 28, 2017.
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 $55,602 and
$131,001 at February 29, 2016 and November 30, 2016, respectively.
This represents a decrease in cash of $75,399.
17
Cash used in Operating Activities
The
Company used approximately $164,088 of cash for operating
activities in the three months ended February 28, 2017 as compared
to using $220,319 of cash for operating activities in the three
months ended February 29, 2016. This decrease in cash used in
operating activities, is primarily attributed to an increase in
inventory purchases.
Cash Provided by Financing Activities
Financing
activities in the three months ended February 28, 2017 provided
$88,689 of cash as compared to providing $116,070 of cash in the
three months ended February 29, 2016. 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.
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, 2015, management is in the
process of determining how to most effectively improve our
disclosure controls and procedures.
18
Management’s Report on Internal Control over Financial
Reporting
Our
management is responsible for establishing and maintaining adequate
internal control, as is defined in the Securities Exchange Act of
1934. These internal controls are designed to provide reasonable
assurance that the reported financial information is presented
fairly, that disclosures are adequate and that the judgments
inherent in the preparation of financial statements are reasonable.
There are inherent limitations in the effectiveness of any system
of internal controls, including the possibility of human error and
overriding of controls. Consequently, an effective internal control
system can only provide reasonable, not absolute, assurance with
respect to reporting financial information.
Our
internal control over financial reporting includes policies and
procedures that: (i) pertain to maintaining records that in
reasonable detail accurately and fairly reflect our transactions;
(ii) provide reasonable assurance that transactions are recorded as
necessary for preparation of our financial statements in accordance
with generally accepted accounting principles and the receipts and
expenditures of company assets are made and in accordance with our
management and directors authorization; and (iii) provide
reasonable assurance regarding the prevention or timely detection
of unauthorized acquisition, use or disposition of assets that
could have a material effect on our financial
statements.
Management
has undertaken an assessment of the effectiveness of our internal
control over financial reporting based on the framework and
criteria established in the Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”). Based upon this
evaluation, management concluded that our internal control over
financial reporting may not be effective as of February 28, 2017.
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.
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
first quarter of 2017, management is in the process of determining
how to most effectively improve our disclosure controls and
procedures.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
The
Company has no knowledge of existing or pending legal proceedings
against the Company, nor is the Company involved as a plaintiff in
any proceeding or pending litigation. There are no proceedings in
which any of the Company’s directors, officers or any of
their respective affiliates, or any beneficial stockholder, is an
adverse party or has a material interest adverse to our interest.
The Company’s address for service of process in Nevada is
Business Filings, Incorporated located at 311 S. Division Street,
Carson City, Nevada 89703.
Item 1A. Risk Factors
As a
“smaller reporting company”, we are not required to
provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
During
the three months ended February 28, 2017, the Company issued
128,638 shares of common stock for cash totaling $91,000. 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.
19
Item 3. Defaults Upon Senior Securities
None.
All payments were made on schedule.
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.
Related Party
Transactions
At
February 28, 2017 we owed an officer $75,000.
Item 6. Exhibits
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
|
20
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
|
April
18, 2016
|
Jeffrey
A. Weiland
|
|
|
|
|
|
|
|
|
/s/ Robert S. Amaral
|
Chief
Executive Officer,
|
April
18, 2016
|
Robert
S. Amaral
|
Treasurer
and Director
|
|
|
(Principal
Executive and Financial Officer)
|
|
21