UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| x | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the Fiscal Year Ended November 30, 2020 | |
| o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
| For the Transition Period from __________ to |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
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Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer o | Accelerated filer o |
| Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes o No x
The aggregate market value of the voting and non-voting stock held by non-affiliates of the registrant as of November 30, 2020, the last business day of the registrant’s most recently completed fiscal year end, is undeterminable. The total number of common stock held by non-affiliates of the registrant as of this date was 13,092,629. The aggregate market value of such securities on November 30, 2020 was determined by the Company to be $12,908,214 based upon the analysis described in further detail in Item 5 of this report.
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the last practicable date, which is March 12, 2021: 30,709,948 Common Shares, 17,000 Series A, and 229,250 Series B Preferred Shares.
DOCUMENTS INCORPORATED BY REFERENCE
Incorporated by reference within this report are certain documents previously filed with the Commission within Form S-1, as amended, which was filed on August 16, 2013. Such document(s) are listed in Item 15 of this report.
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EXEO ENTERTAINMENT, INC.
FORM 10-K
For the year ended November 30, 2020
TABLE OF CONTENTS
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ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Exeo Entertainment, Inc. (the “Company” “we” or “us”) designs, develops, licenses, manufactures, 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. We are a development stage company. From our inception to date, we have generated minimal revenues and continue to operate at a loss. Our activities have centered on the design and engineering of peripherals in the video gaming, music, and smart TV sector.
We accomplished the following:
| 1) | We completed the molds for the Psyko™ PC model and are working on the molds for the Psyko™ console unit, and the Psyko®5.1 Surround Sound Gaming Headsets (with built-in microphone) with external amplifier for Personal Computers. |
| 2) | We have an “Exclusive Distributor” Agreement with Axcel Electronics Thailand Company Limited (Cableicons, Inc.) to distribute and sell the “Ford Officially Licensed Cell Phone Accessories” in all wholesale and retail channels in the USA and Canada. |
| 3) | We are also working with Vegas Golden Knight NHL team and have designed a custom Krankz headphone for them. |
Products and Services
Products under development include the Psyko™ 5.1 surround sound gaming headphones for consoles, Krankz™ MAXX Bluetooth™ wireless headphones
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Psyko® Krypton™ Surround Sound 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 does not 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.
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Currently, we are working on slight changes in the design of the Krankz Headphones. We are also, working with Vegas Golden Knights NHL team and have designed a custom Krankz Headphone for them. This is part of the sponsorship agreement we entered into during 2018.
Strategy and Marketing Plan
Manufacturing is established, so we intend on utilizing existing consumer electronics distributers, such as Synnex Corp. (SNX) and Ingram Micro to distribute our products to big box retailers such as Best Buy, GameStop, and Fry’s Electronics. We do not have distribution agreements with these companies at this time.
Distributor Agreement
We have an “Exclusive Distributor” Agreement with Axcel Electronics Thailand Company Limited (Cableicons, Inc.) distribute and sell the “Ford Officially Licensed Cell Phone Accessories” in all wholesale and retail channels in the USA and Canada. Here is the link for the online Ford Officially Licensed Cell Phone Accessories Catalog. https://bit.ly/2Qo1eom
Sources and Availability of Suppliers and Supplies
Currently we have access to an adequate supply of products, from various manufacturers. These companies and their products are new, not well established, and are a subject to significant risk and uncertainty.
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Dependence on One or a few Major Customers
We do not anticipate dependence on one or a few major customers into the foreseeable future.
Patents, Trademarks, Licenses, Franchise Restrictions and Contractual Obligations and Concessions
We executed a license agreement with Psyko Audio Labs Canada to manufacture and distribute the Carbon and Krypton line of patented headphones. US Patent # 8,000,486 (for the Psyko Krypton™ surround sound gaming headphones.) With regard to intellectual property rights associated with Psyko® Headphones, we have a license to use this mark as well as the patented technology.
We entered into a license agreement with Digital Extreme Technologies, Inc., a Delaware corporation, (also referred to as DXT) for use of certain intellectual property associated with the products being designed and developed by us. The Black Widow keyboard is now known as the Zaaz keyboard. DXT worked to design and develop the Extreme Gamer as well as the Black Widow keyboard. We continue to work under a license agreement with DXT to advance the use of technologies designed by DXT. There is no licensing fee paid to DXT during the years ended November 30, 2014 and 2015
DXT applied to the U.S. PTO for a patent of its Multi Video Game Changer. The agency assigned an application number of 12/543,296 to its application, which was published on February 25, 2010. The proposed 10 disk Video Game Changer is designed to interface directly with Sony PS3®, Nintendo Wii®, and Microsoft Xbox 360®. The Company anticipates incorporating Blu-Ray® compatible optics technology under a license agreement. This would allow users to insert Blu-Ray® discs into the Video Game Changer, and once connected to the video game console, to play movies on television. Sony PS3® is now capable of playing Blu-Ray® discs, but only with a capacity for a single disk. This technology would provide for the loading of up to 10 DVD’s, CD’s or Blu-Ray® discs into a single console that communicates with a video game console via USB. Furthermore, users would be able to plug in any external hard disc drive (“HDD”) directly into the console via an internal ATPI port, allowing movies, music and pictures to be played directly from the HDD.
In regard to intellectual property rights associated with Krankz™ Bluetooth® wireless headphones, we do not have a federally registered trademark as to the word marks Krankz or Krankz Maxx. Therefore, we do not have the same presumptive rights which might otherwise apply had we obtained a federally registered trademark. We have an “Exclusive Distributor” Agreement with Axcel Electronics Thailand Company Limited (Cableicons, Inc.) which covers the USA and Canada to Distribute and sell the “Ford Officially Licensed Cell Phone Accessories” in all wholesale and retail channels. We believe we have intellectual property rights to this mark under common law. If we are unable to register this mark, we may use an alternative name for these headphones.
Sponsorship Agreement
On July 13, 2018, the Company entered into a sponsorship agreement for headphones with Black Knight Sports and Entertainment, LLC (dba Vegas Golden Knights) (“BKSE”) for a period through June 2021. During the first NHL season, the Company was obligated to pay $230,000. For the second NHL season, the Company was obligated to pay $239,200 and for the third NHL season, the Company is obligated to pay $248,768. If the team does into playoffs there could be additional fees due.
COVID-19
Since the outset of the pandemic the US and worldwide national securities markets have undergone unprecedented stress due to the uncertainties of the pandemic and the resulting reactions and outcomes of government, business and the general population. Closures and disruptions to business in the U.S. due to the COVID-19 pandemic have led to negative effects on our clients, in some situations, reducing demand for certain of our products. It is unclear how a prolonged outbreak with travel, commercial and other similar restrictions, may adversely affect our business operations and the business operations of our customers and suppliers. However, we anticipate a prolonged period will have a negative effect on our business operations.
Subsidiaries
We do not have any subsidiaries.
Reports to Security Holders
| 1. | We will furnish shareholders with annual financial reports certified by our independent registered public accountants. |
| 2. | We are a reporting issuer with the Securities and Exchange Commission. We file periodic reports, which are required in accordance with Section 15(d) of the Securities Act of 1933, with the Securities and Exchange Commission to maintain the fully reporting status. |
| 3. | The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20002. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC filings will be available on the SEC Internet site, located at http://www.sec.gov. |
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As a “smaller reporting company”, we are not required to provide the information required by this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
The Company has no unresolved staff comments.
ITEM 2. DESRIPTION OF PROPERTY
We currently lease 10,068 sq. ft. of office and warehouse space at 4478 Wagon Trail Avenue, Las Vegas, Nevada 89118. The original lease contains an option for a three-year renewal, which shall expire on September 30, 2020. Our monthly lease payment is $8,558. The Company entered into the office lease extension agreement with the landlord in September 2020 for two years and is set to expire on September 30, 2022. The monthly minimum rental payment is $9,162 from October 1, 2020 to September 30, 2021 and $9,391 from October 1, 2021 to September 30, 2022. This location serves as our only facility for day-to-day operations. We believe our current premises are adequate for our current operations and we do anticipate that we will require additional premises in the next 9-12 months. We do not have any investments or interests in any real estate. Our Company does not invest in real estate mortgages, nor does it invest in securities of, or interests in, persons primarily engaged in real estate activities.
We know of no existing or pending legal proceedings against us, nor are we involved as a plaintiff in any proceeding or pending litigation. There are no proceedings in which any of our 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. Our address for service of process in Nevada is Business Filings, Incorporated located at 311 S. Division Street, Carson City, Nevada 89703.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND MARKET INFORMATION FOR 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.
On December 24, 2012, the Company filed an amendment to its Articles of Incorporation to change the par value of its common stock from $0.001 to $0.0001 and to add to the authorized capital of the Company 1,000,000 Series A Preferred Stock at par value $0.0001. On January 13, 2014, the Company filed a Certificate of Designation to add to the authorized capital of the Company 1,000,000 Series B Preferred Stock at par value $0.0001. The Company has no other class of stock authorized by the State of Nevada.
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.
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Recent Sales of Unregistered Securities
Common Stock
The Company has 100,000,000 shares at $0.0001 par value common stock authorized and 29,853,327 and 29,054,235 shares issued and outstanding at November 30, 2020 and 2019, respectively.
During the year ended November 30, 2020, the Company issued a total of 460,533 shares of common stock for cash totaling $684,560. The price per share is equal to eighty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. In addition, for each share of common stock purchased, each investor shall receive two warrants. Warrant A shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. Warrant B shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred twenty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing.
During the year ended November 30, 2020, the Company issued 34,740 shares of common stock for the conversion of 5,000 shares of Series B Preferred Stock.
During the year ended November 30, 2020, the Company issued 293,819 shares of common stock and received cash proceeds of $111,911 for the exercise of warrants.
During the year ended November 30, 2020, the Company issued 185,000 shares of common stock for services rendered of $139,750. The shares were valued based on the closing price of the common stock as quoted on the OTC Electronic Bulletin Board Quotation System on the grant date.
Equity Issuance Costs
We incurred equity issuance costs of $1,440 and $8,000 for the years ended November 30, 2020 and 2019, 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.
Preferred Stock
Issuances of Series B Convertible Preferred Stock
During the year ended November 30, 2016, twelve accredited investors subscribed to 45,050 shares, in total, of Series B Preferred Stock in exchange for cash consideration of $225,250, in total, at $5.00 for each share. 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 480-10, 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 November 30, 2020 was $192,851 and $1,876,927, respectively.
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Stock Warrants Issued to Investors
As of November 30, 2020, there were 4,659,430 warrants outstanding, with a weighted average exercise price of $0.75 per share and the weighted average remaining life is 1.32 years.
Dividends
There are no restrictions in our Articles of Incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes, however, prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
| (A) | We would not be able to pay our debts as they become due in the usual course of business; or |
| (B) | Our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution. |
We have neither declared nor paid any cash dividends on our capital stock and do not anticipate paying cash dividends in the foreseeable future. Our current policy is to retain any earnings in order to finance the expansion of our operations. Our board of directors will determine future declaration and payment of dividends, if any, in light of the then-current conditions they deem relevant and in accordance with the Nevada Revised Statutes.
ITEM 6. SELECTED FINANCIAL DATA
As a “smaller reporting company”, we are not required to provide the information required by this Item.
ITEM 7. MANAGEMENT’S DISCUSSION AND PLAN OF OPERATIONS
Comparison of Twelve-Month Results –for the fiscal years ended November 30, 2020 and 2019, respectively
Revenues and Gross Profit
Revenues for the twelve months ended November 30, 2020 and 2019 were $24,745 and $139,450, respectively. Cost of sales for the year ended November 30, 2020 was $238,504, leading to a gross loss of $213,759 during the period. In the comparable year ended November 30, 2019, revenue was $139,450 and cost of sales was $209,272, resulting in a gross loss of $69,822. At November 30, 2020 and 2019, the Company had incurred an accumulated deficit of $11,930,308 and $10,119,541 since inception.
Costs and Expenses
Total operating cost and expenses increased to $1,350,476 for the year ended November 30, 2020 as compared to $1,302,493 for the year ended November 30, 2019. These increases in the fiscal year ended November 30, 2020, were primarily due to the decreasing costs associated with professional fees and general and administrative costs.
Research and Development Costs
The Company incurred $60 and $60 for research and development costs during the fiscal years ended November 30, 2020 and 2019, respectively. These costs relate to hardware engineering, design and development of the Krankz™ Bluetooth wireless audio headphones, the Zaaz™ Keyboard, the Extreme Gamer®, and the Psyko Krypton™ 5.1 surround sound gaming headphones for personal computers. A similar unit under development connects to current generation video game consoles offered by Nintendo®, Microsoft®, and Sony®.
Other Income and Expenses
During the course of our business, we experienced a loss from foreign currency transactions of $43,100 in the year ended November 30, 2020 as compared to a loss of $1,252 for the year ended November 30, 2019. This loss is due to royalty payments owed to a foreign company.
Interest expense associated with obligations to related parties was $4,660 in the twelve months ended November 30, 2020, compared to $4,648 in the period ended November 30, 2019. Interest expense was $44,701 and $477 in the twelve months ended November 30, 2020 and 2019, respectively.
Effect of Inflation
Inflation has not had a significant impact on the Company’s operations or cash flows.
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Liquidity and Capital Resources
Long-Term Debt / Note Payable and Other Commitments
Other than what is described in this Item, the Company had no material commitments for capital expenditures at November 30, 2020 or November 30, 2019.
On May 25, 2011, Exeo Entertainment, Inc. entered into an exclusive license agreement with Digital Extreme Technologies, Inc. whereby Exeo Entertainment, Inc. will manufacture and market the Extreme Gamer and Zaaz keyboard. Exeo Entertainment, Inc. will pay Digital Extreme Technologies, Inc. a 5% royalty fee on gross sales of both products.
On June 10, 2013, Exeo Entertainment, Inc. entered into a license agreement with Psyko Audio Labs, Canada whereby Exeo Entertainment. Inc. will manufacture and market the Psyko Krypton and Carbon line of gaming headphones. The Company will owe a 5% royalty on all headphone sales to Psyko Audio Labs. Payments are due quarterly on January 15, April 15, July 15, and October 15. For the year ended November 30, 2018, the Company has made no payments towards this obligation and no royalty invoices have been received from Psyko Audio Labs. In fiscal year 2018, the Company incurred decreasing minimum royalty expenses as follows: $79,703 (CDN $100,000), $77,610 (CDN $100,000), $76,312 (CDN $100,000), and $76,444 (CDN $100,000) in each of the four quarters, respectively. The total minimum royalty fee expense in fiscal year ended November 30, 2018 and 2017 were $310,069 and $307,321, respectively. Prepaid expenses as of November 30, 2018 and 2017 consist of royalty fees of $0 and $0, respectively, paid to Psyko Audio Labs. These prepaid expenses shall be applied towards royalty expenses incurred in the first quarter of the following fiscal year. Unless the Royalty Agreement is modified by Psyko Audio Labs Canada and the Company, at January 1, 2017, 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.
Leases
In the first quarter of fiscal 2019, the Company adopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” and related amendments.
The Company leases certain property consisting principally of its corporate headquarters, its retail stores, the majority of its distribution and fulfillment centers, and certain equipment under operating leases. Many of the Company’s leases include options to renew at the Company’s discretion. The renewal options are not included in the measurement of right-of-use (“ROU”) assets and lease liabilities as the Company is not reasonably certain to exercise available options. Rent escalations occurring during the term of the leases are included in the calculation of the future minimum lease payments and the rent expense related to these leases is recognized on a straight-line basis over the lease term.
The Company determines whether an agreement contains a lease at inception based on the Company’s right to obtain substantially all of the economic benefits from the use of the identified asset and its right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the ROU assets represent the Company’s right to use the underlying assets for the respective lease terms. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The ROU asset is further adjusted to account for previously recorded lease-related expenses such as deferred rent and other lease liabilities. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate as the discount rate to calculate the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate that would be required to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The Company elected not to recognize a ROU asset and a lease liability for leases with an initial term of twelve months or less and not to separate lease and non-lease components. In addition to minimum lease payments, certain leases require payment of a proportionate share of real estate taxes and certain building operating expenses or payments based on a percentage of sales in excess of a specified base. These variable lease costs are not included in the measurement of the ROU asset or lease liability due to unpredictability of the payment amount and are recorded as a lease expense in the period incurred. The Company’s lease agreements do not contain residual value guarantees or significant restrictions or covenants other than those customary in such arrangements.
Cash Flow Information
The Company had working capital of approximately $(2,174,998) and a current ratio of 0.10 at November 30, 2020. The Company had working capital of approximately $(1,480,680) and a current ratio of 0.23 at November 30, 2019. The decrease in working capital at November 30, 2020 as compared to November 30, 2019, was primarily due to increase the royalty payable and adjustment of inventory reserve. The Company believes it has insufficient cash resources to meet its liquidity requirements for the next 12 months.
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During the year ended November 30, 2020, the Company had cash and cash equivalents of approximately $170,852 as compared to cash and cash equivalents of $96,923 at November 30, 2019. This represents an increase of $73,929.
Cash used in Operating Activities
The Company used approximately $710,327 of cash for operating activities in the year ended November 30, 2020, as compared to using $1,060,484 of cash for operating activities in the twelve months ended November 30, 2019.
Cash used for Investing Activities
Investing activities for the year ended November 30, 2020 used approximately $31,750 of cash as compared to using $39,768 of cash in the twelve months ended November 30, 2019.
Cash Provided by Financing Activities
Financing activities for the year ended November 30, 2020, provided $815,961 of cash as compared to providing $1,092,690 of cash in the twelve months ended November 30, 2019.
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.
There is no assurance that Company may secure funding, or whether it can do so on terms acceptable to it, or at all, and its liquidity would be severely compromised.
The accompanying financial statements have been prepared assuming that the company will continue as a going concern which contemplates, amongst other things, the realization of assets and satisfaction of liabilities in the course of business.
We anticipate that our future liquidity requirements will arise from the need to fund our growth, pay our current obligations and future capital expenditures. The primary sources of funding for such requirements are expected to be cash generated from operations and raising additional funds from private sources and/or debt financing.
Going Concern Consideration
Management included an explanatory paragraph in their footnotes on the accompanying financial statements expressing concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure.
As of November 30, 2020, the Company has cumulative losses totaling $11,930,308 and negative working capital of $2,174,998. The Company incurred a net loss of $1,652,946 for the year ended November 30, 2020.
We have negative working capital and have not yet received significant revenues from sales of products. Due to the coronavirus pandemic, the Company has adversely affected our business, which the demand for our products has decreased. These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.
Since the outset of the pandemic the US and worldwide national securities markets have undergone unprecedented stress due to the uncertainties of the pandemic and the resulting reactions and outcomes of government, business and the general population. The demand for our products has decreased and the ability of our customers to make payment for the products they currently purchase has been negatively impacted. It is unclear how a prolonged outbreak with travel, commercial and other similar restrictions, may adversely affect our business operations and the business operations of our customers and suppliers. However, we anticipate a prolonged period will have a negative effect on our business operations.
Our ability to continue as a going concern is dependent on our generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include increasing revenue, selling our equity securities and/or obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful in these.
Off-Balance Sheet Arrangements
We have 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.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As a “smaller reporting company”, we are not required to provide the information required by this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information requested by this item is set forth in Item 15(a) of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 9A. 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 are not 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. 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 was not effective as of November 30, 2020. The Company has resourced outside consultants to assist in implementing the necessary financial controls over the financial reporting and the utilization of internal management and staff to effectuate these controls.
This annual 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 annual report.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
13
Material Contracts
U.S. Distribution Agreement with Global Marketing Partners
As of November 30, 2020, the Company has received no revenue on the following contract with Global Marketing Partners, Inc. On April 30, 2014, the Company entered into a non-exclusive contract with Global Marketing Partners, Inc., a California corporation doing business in Agoura Hills, California (the “Agreement”). The Agreement provides the Company with an avenue for the distribution of its products through various retailers. Global serves as a marketing partner to facilitate and administer the distribution of the Company’s products. A key component includes the introduction of the Company’s products to retailers using the distribution channel operated by Speed Commerce, formerly known as Navarre. The Company hopes to participate in a one-stop shop form of an arrangement via Global to access the retailers via Speed Commerce. Using this arrangement, the Company is not responsible for entering into agreements with each retailer.
14
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The name, age and position of each of our directors and executive officers are as follows:
| Name | Age | Position | ||
| Jeffrey Weiland | 56 | President and Director | ||
| Robert S. Amaral | 51 | CEO, Treasurer, Secretary and Director |
Jeffrey A. Weiland, Age 56, President/Director
Mr. Weiland has over 22 years’ experience in management, sales and marketing, and product development. Mr. Weiland was a Sergeant in the United States Marine Corps and served from 1985 - 1993. Mr. Weiland was awarded several military service medals, including the Navy Achievement Medal, and received various letters of appreciation and meritorious masts, personal commendations, and good conduct medals. He was honorably discharge after serving in Desert Storm. From 1993 - 1997, Mr. Weiland was a metrology supervisor for Gensia Laboratories, LTD/Sicor Pharmaceuticals, based in Irvine California. Mr. Weiland received his Bachelor of Science in Business Management, from the University of Phoenix in 1997. From 1997 - 2003, Mr. Weiland was the National Marketing Director for Guardian Technologies USA based in Irvine, California. From 2003 - 2007, Mr. Weiland was a sole proprietor of Weiland Media, which focused on new product development. From 2008 - 2011, Mr. Weiland devoted 100 percent of his efforts to Digital Extreme Technologies, Inc. Prior to joining our Company, Mr. Weiland had not previously served as an officer or director of any public company.
Robert S. Amaral, Age 51, CEO, Secretary/Treasurer/Director
Mr. Amaral received his MBA in 1997 from Southern Oregon University. In 1996, he received his Bachelor’s Degree in Marketing from Southern Oregon State College. From 1997 – 2000 he was the Director of Marketing of CG Leasing Inc., which later merged with USA Capital Leasing. From 2000 – 2001, Mr. Amaral was a proprietor of a company named Finance Marketing Group, which generated lease finance applications from small businesses across the United States. In 2001, he worked as a Series 3 licensed commodity broker with U.S. Options Corp and Concorde Trading Group. In 2002 Mr. Amaral started Amaral Consultancy where he focused on funding development stage companies. Companies which Mr. Amaral performed contract labor for: L&L Financial, which subsequently changed its name to L&L Energy (LLEN); VSI Wireless, which was acquired by SARS Corporation (SARO.PK); Advanced Ultrasound Imaging, a private healthcare company located in Scottsdale, AZ; American Eagle Motorcycles based in Carlsbad, CA; and Ambient Control Systems located in El Cajon, CA. From 2008 – 2011 Mr. Amaral focused his energies on Digital Extreme Technologies, Inc. Prior to joining our Company, Mr. Amaral had not previously served as an officer or director of any public company.
Significant Employees
We have no significant employees other than the officers and directors described above.
Section 16(A) Beneficial Ownership Reporting Compliance Pursuant to Item 405 of Regulation S-K
Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who beneficially own more than ten percent of the Company’s equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based on its review of the copies of such forms received by it, the Company believes that during the fiscal year ended November 30, 2018 all such filing requirements applicable to its officers and directors were complied with exception that reports were filed late or not filed at all by the following persons:
| Name and Principal Position | Number of late reports | Number of untimely reports | Number of Known Failures to File a Required Form |
| Robert S. Amaral, CEO | 0 | 0 | 0 |
| Jeffrey A. Weiland, Pres. | 0 | 0 | 0 |
15
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth certain compensation information for: (i) each person who served as the chief executive officer of our Company at any time during the year ended November 30, 2019, regardless of compensation level, and (ii) each of our other executive officers, other than the chief executive officer, serving as an executive officer at any time during the year ended November 30, 2020. The foregoing persons are collectively referred to herein as the “Named Executive Officers.” Compensation information is shown for fiscal years ended November 30, 2020 and 2019, respectively.
SUMMARY COMPENSATION TABLE
|
ANNUAL
COMPENSATION |
LONG TERM COMPENSATION | TOTAL | ||||||||||||||||||||||||||||||
| Cash | Bonus ($) |
Stock
Awarded ($) |
Stock
Options * ($) |
Non-Equity
Incentive Plan Comp. ($) |
All Other
Compensation ($) |
Total
Compensation ($) |
||||||||||||||||||||||||||
| Robert | ||||||||||||||||||||||||||||||||
| Amaral | CEO, Treasurer, | 2020 | $ | 78,000 | 0 | 0 | $ | - | 0 | 0 | $ | 78,000 | ||||||||||||||||||||
| Secretary. & Director | 2019 | $ | 78,000 | 0 | 0 | $ | - | 0 | 0 | $ | 78,000 | |||||||||||||||||||||
| Jeffrey | ||||||||||||||||||||||||||||||||
| Weiland | President & | 2020 | $ | 72,000 | 0 | 0 | $ | - | 0 | 0 | $ | 72,000 | ||||||||||||||||||||
| Director | 2019 | $ | 72,000 | 0 | 0 | $ | - | 0 | 0 | $ | 72,000 | |||||||||||||||||||||
| * | Stock Options - Outstanding Equity Awards at 2014 Fiscal Year-End |
Pursuant to the 2012 Employees/Consultants Stock Compensation Plan, on July 15, 2012, we granted 2,000,000 shares to each of our two officers and directors. The option agreement provides the employee has no more than five years from the date of the grant to exercise the options at an exercise price of $0.25 per share. The employee may only exercise such options based upon the contracted vesting schedule, which provides that the options vest on a pro-rata basis over 60 months of future services to be rendered by such employee. There were no additional awards through the end of our fiscal year 2020 and 2019.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
Employment Arrangements
As of November 30, 2020, we were a party to employment agreements with Jeffrey A. Weiland (dated June 1, 2015) and Robert S. Amaral (dated June 1, 2015), each of which is described directly below.
Employment Agreements with Jeffrey A. Weiland and Robert S. Amaral
Term and Compensation
The initial term of employment of each of Mr. Weiland and Mr. Amaral under their respective employment agreements is until such time the employment agreements are terminated by either party pursuant to the terms of the employment agreements.
Pursuant to his employment agreement, Mr. Weiland is entitled to an initial base salary of $60,000. Pursuant to his employment agreement, Mr. Amaral is entitled to an initial base salary of $60,000. The officers and the Company have mutually agreed to increase the base salary to $72,000 for Mr. Weiland and $78,000 for Mr. Amaral.
Severance
Each employment agreement provides for a severance equal to one month’s pay, less taxes and social security required to be withheld upon a termination by us without cause upon thirty (30) days written notice.
16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial ownership of our common stock as of November 30, 2019, for:
| ● | each person, or group of affiliated persons, known by us to beneficially own more than 5% of our common stock; |
| ● | each of our executive officers; |
| ● | each of our directors; and |
| ● | all of our executive officers and directors as a group. |
We have determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared voting power or investment power with respect to those securities. The person is also deemed to be a beneficial owner of any security of which that person has a right to acquire beneficial ownership within 60 days. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them, subject to applicable community property laws, and the address for each person listed in the table is c/o Exeo Entertainment, Inc., 4478 Wagon Trail Ave., Las Vegas, Nevada 89118.
The percentage ownership information shown in the table below is calculated based on 30,709,948 shares of our common stock issued and outstanding as of March 12, 2021.
|
Title Of
Class |
Name, Title and Address of Beneficial Owner of Shares |
Amount of
Beneficial Ownership |
Percent of Class | |||||||
| Common |
Jeffrey A. Weiland
President/Director |
8,391,999 | 28.85 | % | ||||||
| Common |
Robert S. Amaral
Chief Executive Officer/Director |
8,368,699 | 28.77 | % | ||||||
| All Directors and Officers as a group (2 persons) | 16,760,698 | 57.62 | % | |||||||
We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our Company.
Except for the Stock Options and Warrants set forth in Item 5 of this report, we do not have any issued and outstanding securities that are convertible into common stock. Other than the shares covered by the registration statement filed with the Commission on August 16, 2013 using Form S-1, as amended, we have not registered any shares for sale by security holders under the Securities Act. None of our stockholders are entitled to registration rights.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, may be permitted to our directors, officers or persons controlling us, we have been advised that it is the Securities and Exchange Commission’s opinion that such indemnification is against public policy as expressed in such act and is, therefore, unenforceable.
CHANGE IN CONTROL
We are not aware of any arrangement that might result in a change in control in the future.
17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Leasehold Interest in Real Estate
On September 5, 2017, the Company signed a three-year lease for its current office and warehouse, which shall expire on September 30, 2020. The typical monthly rent expense is $8,558, which includes base rent of $7,048 and common area maintenance of $1,510. The Company entered into the office lease extension agreement with the landlord in September 2020 for two years and is set to expire on September 30, 2020. The monthly minimum rental payment is $9,162, which includes base rent of $7,652 and common area maintenance of $1,510 from October 1, 2020 to September 30, 2021 and $9,391, which includes base rent of $7,881 and common area maintenance of $1,510 from October 1, 2021 to September 30, 2022. The Company is not obligated to pay a security deposit to the management company. A deposit to secure the current lease was made by DXT in 2009. DXT will receive the security deposit at the end of the lease.
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 $48,944 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.
Director Independence
We are not at this time required to have our board comprised of a majority of “independent directors.” Our determination of independence of directors is made using the definition of “independent director” contained in Rule 4200(a)(15) of the Marketplace Rules of the NASDAQ Stock Market (“NASDAQ”) , even though such definitions do not currently apply to us because we are not listed on NASDAQ. We have determined that none of our directors currently meet the definition of “independent” due to the fact that our directors also serve as our executive officers.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth fees billed to us by our independent auditors for the years ended 2020 and 2019 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.
| SERVICES | 2020 | 2019 | ||||||
| Audit fees | $ | 24,028 | $ | 27,523 | ||||
| Audit-related fees | - | - | ||||||
| Tax fees | - | - | ||||||
| All other fees | - | - | ||||||
| Total fees | $ | 24,028 | $ | 27,523 | ||||
Audit fees and audit related fees represent amounts billed for professional services rendered for the audit of our annual financial statements and the review of our interim financial statements. Before our independent accountants were engaged by to render these services, their engagement was approved by our directors.
18
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15(a) Financial Statements
Index to Financial Statements:
Exeo Entertainment, Inc.’s audited Financial Statements, as described below, are attached hereto.
EXEO
ENTERTAINMENT, INC.
TABLE OF CONTENTS
NOVEMBER 30, 2020 AND 2019
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Exeo Entertainment, Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Exeo Entertainment, Inc. (the “Company”) as of November 30, 2020 and 2019, and the related statements of operations, stockholders’ (deficit), and cash flows for each of the years in the two-year period ended November 30, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of November 30, 2020 and 2019, and the result of its operations and its cash flow for each of the years in the two-year period ended November 30, 2020, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the financial statements, the Company incurred net loss and a working capital deficiency as of November 30, 2020, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Prager Metis CPAs, LLC
We have served as the Company’s auditor since 2019
Las Vegas, NV
March 16, 2021
F-1
| EXEO ENTERTAINMENT, INC. |
| BALANCE SHEETS |
The accompanying notes are an integral part of these financial statements.
F-2
| EXEO ENTERTAINMENT, INC. |
| STATEMENTS OF OPERATIONS |
| For the years ended | ||||||||
| November 30, | ||||||||
| 2020 | 2019 | |||||||
| REVENUES | $ | 24,745 | $ | 139,450 | ||||
| COST OF GOOD SOLD | ||||||||
| Inventory reserve | (217,297 | ) | (34,600 | ) | ||||
| Cost of direct materials, shipping and labor | (21,207 | ) | (174,672 | ) | ||||
| GROSS LOSS | (213,759 | ) | (69,822 | ) | ||||
| OPERATING EXPENSES | ||||||||
| General and administrative | 1,106,351 | 1,056,037 | ||||||
| Executive compensation | 159,361 | 161,555 | ||||||
| Professional fees | 62,112 | 61,083 | ||||||
| Depreciation | 22,652 | 23,818 | ||||||
| TOTAL OPERATING EXPENSES | 1,350,476 | 1,302,493 | ||||||
| LOSS FROM OPERATIONS | (1,564,235 | ) | (1,372,315 | ) | ||||
| OTHER EXPENSE | ||||||||
| Loss from foreign currency transactions | (43,100 | ) | (1,252 | ) | ||||
| Interest expense - related party | (4,660 | ) | (4,648 | ) | ||||
| Interest expense and financing expense | (44,701 | ) | (477 | ) | ||||
| Other income | 3,750 | - | ||||||
| TOTAL OTHER EXPENSES | (88,711 | ) | (6,377 | ) | ||||
| NET LOSS | (1,652,946 | ) | (1,378,692 | ) | ||||
| DIVIDEND OF REDEEMABLE PREFERRED STOCK | (157,821 | ) | (162,640 | ) | ||||
| NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (1,810,767 | ) | $ | (1,541,332 | ) | ||
| NET LOSS PER SHARE: BASIC AND DILUTED | $ | (0.06 | ) | $ | (0.05 | ) | ||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED | 29,536,305 | 28,075,058 | ||||||
The accompanying notes are an integral part of these financial statements.
F-3
| EXEO ENTERTAINMENT, INC. |
| STATEMENT OF STOCKHOLDERS’ DEFICIT |
| Additional | Total | |||||||||||||||||||||||||||
| Common Shares | Paid-In | Treasury | Stock | Accumulated | Stockholders’ | |||||||||||||||||||||||
| Shares | Amount | Capital | Stock | Payable | Deficit | Deficit | ||||||||||||||||||||||
| Balance, November 30, 2018 | 26,697,109 | $ | 2,670 | $ | 5,135,475 | $ | (12,500 | ) | $ | 426,000 | $ | (8,582,650 | ) | $ | (3,031,005 | ) | ||||||||||||
| Adoption of lease accounting | 4,438 | 4,438 | ||||||||||||||||||||||||||
| Cash received for sale of common stock | 1,528,809 | 153 | 1,055,331 | - | 1,055,484 | |||||||||||||||||||||||
| Stock issued for Subscriptions payable | 564,132 | 56 | 413,444 | (413,500 | ) | - | ||||||||||||||||||||||
| Stock issued for conversion of preferred stock | 106,985 | 11 | 4 | 15 | ||||||||||||||||||||||||
| Cash received for warrant exercises | 74,200 | 7 | 37,113 | 10,000 | 47,120 | |||||||||||||||||||||||
| Common stock issued for services | 83,000 | 8 | 82,642 | 82,650 | ||||||||||||||||||||||||
| Net loss for the year ended November 30, 2019 | (1,541,332 | ) | (1,541,332 | ) | ||||||||||||||||||||||||
| Balance, November 30, 2019 | 29,054,235 | 2,905 | 6,724,009 | (12,500 | ) | 22,500 | (10,119,541 | ) | (3,382,627 | ) | ||||||||||||||||||
| Common stock issued for cash, net of issuance costs | 460,533 | 46 | 342,014 | - | 342,500 | - | 684,560 | |||||||||||||||||||||
| Cash received for exercise of warrants | 293,819 | 29 | 121,882 | - | (10,000 | ) | - | 111,911 | ||||||||||||||||||||
| Stock issued for conversion of preferred stock | 34,740 | 4 | 1 | - | - | - | 5 | |||||||||||||||||||||
| Common stock issued for services | 10,000 | 1 | 8,499 | - | 131,250 | - | 139,750 | |||||||||||||||||||||
| Adjustment of conversion of preferred stock | - | - | 139,214 | - | - | - | 139,214 | |||||||||||||||||||||
| Modification of warrants | - | - | 44,399 | - | - | - | 44,399 | |||||||||||||||||||||
| Net loss for the year ended November 30, 2020 | - | - | - | - | - | (1,810,767 | ) | (1,810,767 | ) | |||||||||||||||||||
| Balance, November 30, 2020 | 29,853,327 | $ | 2,985 | $ | 7,380,018 | $ | (12,500 | ) | $ | 486,250 | $ | (11,930,308 | ) | $ | (4,073,555 | ) | ||||||||||||
The accompanying notes are an integral part of these financial statements.
F-4
| EXEO ENTERTAINMENT, INC. |
| STATEMENTS OF CASH FLOWS |
| For the years ended | ||||||||
| November 30, | ||||||||
| 2020 | 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (1,652,946 | ) | $ | (1,378,692 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Depreciation and amortization | 22,652 | 21,517 | ||||||
| Shares issued for services | 139,750 | 82,650 | ||||||
| Non cash lease expense | 1,350 | 4,540 | ||||||
| Modification of warrants | 44,399 | - | ||||||
| Inventory reserve | 217,297 | 34,600 | ||||||
| Changes in assets and liabilities | ||||||||
| Decrease (Increase) in accounts receivable | (645 | ) | 186 | |||||
| Decrease (Increase) in prepaid expenses | 38,921 | 87,371 | ||||||
| Decrease (Increase) in inventory | 12,874 | (279,641 | ) | |||||
| (Decrease) Increase in accounts payable and accrued expenses | 101,386 | 37,016 | ||||||
| Decrease in accrued interest - related party | 4,660 | 4,648 | ||||||
| Increase in payroll liabilities | 18,722 | 23,111 | ||||||
| Increase in royalty payable | 341,253 | 302,210 | ||||||
| Net Cash Used in Operating Activities | (710,327 | ) | (1,060,484 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Website development | (24,525 | ) | - | |||||
| Acquisition of property and equipment | (7,180 | ) | (39,768 | ) | ||||
| Cash Flows Used in Investing Activities | (31,705 | ) | (39,768 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of common stock, net of issuance costs | 684,560 | 1,102,605 | ||||||
| Proceeds from exercise of warrants | 111,911 | - | ||||||
| Proceeds from PPP loan | 29,740 | - | ||||||
| Payments on notes payable - auto loan | (10,250 | ) | (9,915 | ) | ||||
| Cash Flows Provided by Financing Activities | 815,961 | 1,092,690 | ||||||
| Net change in cash and cash equivalents | 73,929 | (7,562 | ) | |||||
| Cash and cash equivalents, beginning of the period | 96,923 | 104,485 | ||||||
| Cash and cash equivalents, end of the period | $ | 170,852 | $ | 96,923 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Cash paid for interest | $ | - | $ | - | ||||
| Cash Paid for income taxes | $ | - | $ | - | ||||
| Non-cash financing activities: | ||||||||
| Conversion of preferred stock | $ | 139,219 | $ | - | ||||
| Dividend of redeemable preferred stock | $ | 157,821 | $ | 162,640 | ||||
The accompanying notes are an integral part of these financial statements.
F-5
EXEO ENTERTAINMENT, INC.
November 30, 2020 and 2019
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 is working with Vegas Golden Knight NHL team and have designed a custom Krankz™ headphone for them, and the Company is also selling other new peripheral products for the video gaming industry, including the Psyko Krypton™ sound gaming headphones and Krankz™ Bluetooth Wireless Headset. The Company has an “Exclusive Distributor” Agreement with Axcel Electronics Thailand Company Limited (Cableicons, Inc.) to distribute and sell the “Ford Officially Licensed Cell Phone Accessories” in all wholesale and retail channels in the USA and Canada.
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.
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
Effective January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures, Pre Codification SFAS No. 157, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices for identical assets and liabilities in active markets;
Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
F-6
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
November 30, 2020 and 2019
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments (continued)
The Company designates cash equivalents (consisting of money market funds) and investments in securities of publicly traded companies as Level 1. The total amount of the Company’s investment classified as Level 3 is de minimis.
Fair value of financial instruments: The carrying amounts of financial instruments, including cash and cash equivalents, short-term investments, accounts payable, accrued expenses and notes payables approximated fair value as of November 30, 2020 and 2019 because of the relative short-term nature of these instruments. At November 30, 2020 and 2019, the fair value of the Company’s debt approximates carrying value.
Inventory
The value of the Company’s inventory was $54,325 and $284,497 as of November 30, 2020 and 2019, respectively. Inventory is carried at the lower of cot and estimated net realizable value, with cost being determined using the first-in first out (FIFO) method. The Company establishes reserves for estimated excess, obsolete and slow-moving inventory equal to the difference between the cost of inventory and estimated net realizable value of the inventory based on estimated reserve percentage, which considers historical usage known trends, inventory age and market conditions. When the Company disposes the excess, obsolete and slowing moving inventories, the related disposals are charged against the inventory reserve. See Note B for additional information.
As of November 30, 2020 and 2019, the Company recorded an inventory reserve of $217,297 and $34,600, respectively.
Accounts Receivable
Accounts receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company provides for probable uncollectible amounts through an allowance for doubtful accounts, if an allowance is deemed necessary. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. On a periodic basis, management evaluates its accounts receivable and determines the requirement for an allowance for doubtful accounts based on its assessment of the current and collectible status of individual accounts with past due balances over 90 days. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote.
As of November 30, 2020, the Company had accounts receivable of approximately 100% from two customers.
Allowance for Uncollectible Accounts
The Company estimates losses on receivables based on known troubled accounts, if any, and historical experience of losses incurred. There was $0 and no allowance for doubtful customer receivables at November 30, 2020 and 2019, respectively.
F-7
EXEO
ENTERTAINMENT, INC.
Notes
to Financial Statements
November
30, 2020 and 2019
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
Estimated
Life
Furniture
& Equipment
5
years
Vehicles
5
years
Computer
Equipment
3
years
The estimated useful lives are based on the nature of the assets as well as current operating strategy and legal considerations such as contractual life. Future events, such as property expansions, property developments, new competition, or new regulations, could result in a change in the manner in which the Company uses certain assets requiring a change in the estimated useful lives of such assets.
Maintenance and repairs that neither materially add to the value of the asset nor appreciably prolong its life are charged to expense as incurred. Gains or losses on disposition of property and equipment are included in the statements of operations. There were no dispositions during the periods presented.
KrankzAudio Website
The Company decided to redesign a new Shopify website (krankzaudio.com) in October 2020. The redesign is to increase online sales with a hyper-focused conversion strategy. The website consists of a search engine that users may access in order to compare the prices of different consumer products, which is known as a price comparison website. The new website was launched on January 18, 2021.
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 November 30, 2020 and 2019. For assets to be held and used (including projects under development), fixed assets are reviewed for impairment whenever indicators of impairment exist. If an indicator of impairment exists, the Company first groups its assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (the “asset group”). Secondly, the Company estimates the undiscounted future cash flows that are directly associated with and expected to arise from the completion, use and eventual disposition of such asset group. The Company estimates the undiscounted cash flows over the remaining useful life of the primary asset within the asset group. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model.
Revenue Recognition
The Company recognizes revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which consists of five steps to evaluating contracts with customers for revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.
Revenue recognition occurs at the time we satisfy a performance obligation to our customers, when control transfers to customers, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance. We only record revenue when collectability is probable.
For the years ended November 30, 2020 and 2019, the Company recognized $24,745 and $139,450 in revenue, respectively.
F-8
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
November 30, 2020 and 2019
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Basic Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.
Stock-Based Compensation
The Company follows ASC 718, “Stock Compensation”, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718 is a revision to SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.
Reclassification of Temporary Equity
During the year ended November 30, 2020, the Company reclassified $139,214 Series B redeemable convertible preferred stock to additional paid-in capital after the Company reevaluated the conversion of preferred stock
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 November 30, 2020 and 2019, the Company’s bank balance did not exceed the insured amounts.
F-9
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
November 30, 2020 and 2019
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting for Research and Development Costs
The Company records an expense in the current period for all research and development costs, which include Hardware Development Costs. The Company does not capitalize such amounts. Pursuant to ASC Topic 730 Research and Development, once we determine that our Extreme Gamer video game console is technologically feasible and a working model is put into use, the Company will capitalize Software Development costs associated with its products. Once this occurs we will determine a useful life of our software and apply a reasonable economic life of five years or less. At this time, our software development costs only relate to the Extreme Gamer and Zaaz keyboard hardware. The software development costs cannot be separated from the associated hardware development. We do not develop stand-alone software for sale to the retail consumers, rather we develop software in order to operate the designed hardware. The software is designed to be encoded within chips inside the hardware. Thus, it has been determined that the current software development costs, which are intertwined within the hardware development, are to be expensed rather than capitalized pursuant to ASC Topic 730.
This conclusion is also based upon our decision to devote further research and development costs in the support of our product interface to the video game players: Sony PS3® (and other products such as Nintendo Wii® and Microsoft Xbox 360®).
Liquidity and Going Concern
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide sufficient cash flows to enable the Company to finance its operations internally. At November 30, 2020 the Company has an accumulated deficit of $11,930,308. For the year ended November 30, 2020, the Company had a net loss of $1,652,946, and a working capital deficiency of $2,174,998. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of filing.
Over the next twelve months management plans raise additional capital and to invest its working capital resources in sales and marketing in order to increase the distribution and demand for its products. If the Company fails to generate sufficient revenue and obtain additional capital to continue at its expected level of operations, the Company may be forced to scale back or discontinue its sales and marketing efforts. However, there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
F-10
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
November 30, 2020 and 2019
Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC Topic 820. This guidance is effective for public companies in fiscal years beginning after December 15, 2019, with early adoption permitted. Effective January 1, 2020, we adopted ASU 2018-13. The implementation of this standard did not have any material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. This amendment is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.
Note B: INVENTORIES
The value of inventory was $54,325 and $284,497 as of November 30, 2020 and 2019, respectively, and consists of 100% of finished goods.
Inventory reserves are established for estimated excess, obsolete and slow-moving inventory equal to the difference between the cost of the inventory and estimated net realizable value of the inventory on estimated reserve percentage, which considers historical usage, known trends, inventory age and market conditions. The Company has established an allowance for slow moving inventory. As of November 30, 2020, and 2019, the inventory reserve was $217,297 and $34,600, respectively.
| November 30, 2020 | November 30, 2019 | |||||||
| Headphones | $ | 67,310 | $ | 110,522 | ||||
| Licensed Ford Accessories | 204,312 | 208,575 | ||||||
| Total inventory | 271,622 | 319,097 | ||||||
| Less: inventory reserve | (217,297 | ) | (34,600 | ) | ||||
| Inventory, net | $ | 54,325 | $ | 284,497 | ||||
Note C: PROPERTY AND EQUIPMENT
The Company owned property and equipment, recorded at cost, which consisted of the following at November 30, 2020 and 2019:
| November 30, 2020 | November 30, 2019 | |||||||
| Furniture and fixtures | $ | 22,267 | $ | 22,267 | ||||
| Office & computer equipment | 84,162 | 76,981 | ||||||
| Vehicles | 101,944 | 101,944 | ||||||
| Subtotal | 208,373 | 201,192 | ||||||
| Less: Accumulated depreciation | (179,318 | ) | (156,665 | ) | ||||
| Property and equipment, net | $ | 29,055 | $ | 44,527 | ||||
Depreciation expense was $22,652 and $23,818 for the years ended November 30, 2020 and 2019, respectively.
Note D: RESEARCH AND DEVELOPMENT COSTS
The Company incurred $60 and $60 for research and development costs for the years ended November 30, 2020 and 2019, 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.
Note E: PREPAID EXPENSES
At November 30, 2020 and 2019, the balance of prepaid expenses on the balance sheet of the Company is $12,558 and $51,479, respectively.
F-11
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
November 30, 2020 and 2019
Note F: 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 G: COMMON STOCK
The Company has 100,000,000 shares at $0.0001 par value common stock authorized and 29,853,327 and 29,054,235 shares issued and outstanding at November 30, 2020 and 2019, respectively.
During the year ended November 30, 2019, the Company sold 1,528,809 shares of common stock for cash totaling $1,055,484. The price per share is equal to eighty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. In addition, for each share of common stock purchased, each investor shall receive two warrants. Warrant A shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. Warrant B shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred twenty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing.
During the year ended November 30, 2019, the Company issued 106,985 shares of common stock for the conversion of 15,000 shares of Series B Preferred Stock.
During the year ended November 30, 2019, the Company issued 74,200 shares of common stock and received $47,120 for the exercise of warrants. As of the date of this filing, the Company recorded $10,000 in stock payable since the shares were not issued.
During the year ended November 30, 2019, the Company issued 83,000 shares of common stock for services rendered of $82,650. The shares were valued according the closing price of the common stock as quoted on the OTC Electronic Bulletin Board Quotation System on the grant date.
During the year ended November 30, 2020, the Company issued 34,740 shares of common stock for the conversion of 5,000 shares of Series B Preferred Stock.
On December 19, 2019, the Company received $10,000 for the exercise of warrants. The stock was considered owed as a common stock payable as of February 29, 2020. On April 17, 2020, the Company has issued 20,000 shares out of stock payable related to exercise of warrants
On January 15, 2020, the Company received $75,000 for the exercise of warrants. The stock was considered owed as a common stock payable as of February 29, 2020. On April 17, 2020, the Company has issued 200,000 shares for the exercise of warrants.
On December 19, 2019, the Company sold 40,000 shares of common stock to an investor in exchange for $30,000. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.
F-12
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
November 30, 2020 and 2019
Note G: COMMON STOCK (CONTINUED)
On December 23, 2019, the Company sold 41,177 shares of common stock to two investors in exchange for $35,000. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.
On January 3, 2020, the Company sold 15,480 shares of common stock to an investor in exchange for $12,500. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.
On January 15, 2020, the Company sold 15,480 shares of common stock to an investor in exchange for $12,500. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.
On January 21, 2020, the Company sold 108,360 shares of common stock to three investors in exchange for $87,500. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.
On February 3, 2020, the Company sold 15,480 shares of common stock to an investor in exchange for $12,500. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.
On April 14, 2020, the Company issued 20,000 shares of common stock to an investor in exchange for $10,000.
On April 17, 2020, the Company issued 83,431 shares of common stock to various investors in exchange for $61,000.
On April 17, 2020, the Company issued 10,000 shares of common stock for services rendered of $8,500. The shares were valued according to the closing price of the common stock as quoted on the OTC Electronic Bulletin Board Quotation System on the grant date.
On May 1, 2020, the Company issued 25,000 shares of common stock to an investor in exchange for $17,500.
On May 29, 2020, the Company received $18,576 for warrants exercises of 37,152 common shares. The stock was considered owed as a common stock payable as of May 31. On June 25, 2020, the shares have been issued.
On June 8, 2020, the Company issued 16,667 shares of common stock for warrants exercises in exchange of $8,334.
On June 8, 2020, the Company issued 33,841 shares of common stock to two investors in exchange for $20,000.
On June 19, 2020, the Company received $10,000 for warrants exercises of 20,000 common shares. The stock was considered owed as a common stock payable as of August 31, 2020. On January 22, 2021, the shares have been issued.
On June 22, 2020, the Company issued 62,284 shares of common stock to two investors in exchange for $45,000.
On June 25, 2020, the Company issued 20,000 shares of common stock for warrants exercise, which was considered owed as a common stock payable.
On July 1, 2020, the Company provided 175,000 shares of common stock for the services rendered of $131,250. The shares were valued according to the closing price of the common stock as quoted on the OTC Electronic Bulletin Board Quotation System on the grant date. The stock was considered owed as common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.
F-13
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
November 30, 2020 and 2019
Note G: COMMON STOCK (CONTINUED)
On July 1, 2020, the Company sold 17,301 shares of common stock to an investor in exchange of $12,500. The stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued
On July 10, 2020, the Company received $60,000 for warrants exercises of 150,000 common shares. The stock was considered owed as a common stock payable as of November 30, 2020. As the date of filing, the shares have not been issued.
On August 19, 2020, the Company sold 17,301 shares of common stock to an investor in exchange of $12,500. The stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.
On September 30, 2020, the Company sold 17,301 common shares in exchange of $12,500. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.
On October 5, 2020, the Company sold 18,383 common shares in exchange of $12,500. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.
On September 28, 2020, the Company sold 50,000 common shares in exchange of $25,000. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.
On September 29, 2020, the Company sold 200,000 common shares in exchange of $100,000. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.
On September 30, 2020, the Company sold 20,000 common shares in exchange of $10,000. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.
On October 8, 2020, the Company sold 150,000 common shares in exchange of $75,000. The Stock was considered owed as a common stock payable as of November 30, 2020 On January 22, 2021, the shares have been issued.
On November 18, 2020, the Company sold 25,000 common shares to an investor in exchange of $12,500. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.
The price per share is equal to eighty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. In addition, for each share of common stock purchased, each investor shall receive two warrants. Warrant A shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. Warrant B shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred twenty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. Warrant C shall provide the investor the right to purchase two additional shares of the Company common stock at a price equal to $0.50 per share.
As of November 30, 2020, the Company is obligated to issue 876,625 common shares, which were considered owed as a common stock payable of $486,250.
Note H: STOCK OPTIONS AND WARRANTS
Stock-Based Compensation to Employees
During the years ended November 30, 2020 and 2019, the Company had not issued stock based compensation to employees.
F-14
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
November 30, 2020 and 2019
Note H: STOCK OPTIONS AND WARRANTS (CONTINUED)
Stock Warrants Issued to Investors
As of November 30, 2020, there were 4,659,430 warrants outstanding, with a weighted average exercise price of $0.75 per share and the weighted average remaining life is 1.32 years.
As of November 30, 2019, there were 5,133,482 warrants outstanding, with a weighted average exercise price of $0.66 per share and the weighted average remaining life is 1.19 years.
Warrant A shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. Warrant B shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred twenty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. The exercisable period for Warrant A and B is three years.
Warrant C shall provide the investor the right to purchase two additional shares of the Company common stock at a price equal to $0.50 per share. The exercisable period for Warrant C is 180 days.
The following is a summary of the status of all of the Company’s stock warrants as of November 30, 2020 and 2019, and the changes for the years ended November 30, 2020 and 2019.
| # of Warrants |
Weighted
Average Exercise Price |
Weighted
Average
Remaining Life |
|
| Outstanding November 30, 2018 | 4,797,286 | $ 1.01 | 1.03 |
| Granted | 1,947,722 | $ 1.05 | 2.26 |
| Exercised | (642,613) | $ 1.04 | - |
| Cancelled | (968,913) | $ 0.88 | - |
| Outstanding at November 30, 2019 | 5,133,482 | $ 0.66 | 1.19 |
| Granted | 1,509,536 | $ 0.82 | 2.27 |
| Exercised | (273,819) | $ 0.98 | - |
| Cancelled | (1,709,769) | $ 1.01 | - |
| Outstanding at November 30, 2020 | 4,659,430 | $ 0.75 | 1.32 |
| Exercisable at November 30, 2020 | 4,659,430 | $ 0.75 | 1.32 |
Note I: PREFERRED STOCK
Issuances of Series A Convertible Preferred Stock
The Company has 19,500 and 19,500 shares of its $0.0001 par value preferred stock Series A issued and outstanding as of November 30, 2020 and 2019, respectively.
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 years ended November 30, 2020 and 2019.
Issuances of Series B Convertible Preferred Stock
The Company has 229,250 and 234,250 shares of its $0.0001 par value preferred stock Series B issued and outstanding as of November 30, 2020 and 2019, respectively.
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.
F-15
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
November 30, 2020 and 2019
Note I: PREFERRED STOCK (CONTINUED)
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 $1.50 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 480-10, 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 November 30, 2020 was $192,851 and $1,876,927, respectively.
The estimated fair value of the Series A and Series B redeemable convertible preferred stock at November 30, 2019 was $177,985 and $1,873,202, respectively.
We incurred equity issuance costs of $0 and $0 for the years ended November 30, 2020 and 2019, 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 J: 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 November 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 $32,744 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 | $ 6,804 | September 29, 2016 |
| January 24, 2014 | $ 50,000 | $11,983 | October 23, 2016 |
Compensation of Officers
The Company entered into officer compensation agreements with two officer/directors. The amount paid to the two officers in total was $159,361 and $161,555 during the years ended November 30, 2020 and 2019, respectively.
Note K: COMMITMENTS AND CONTINGENCIES
Royalty Payable Obligation
At January 1, 2015, the Company is obligated to pay minimum monthly royalties of approximately $80,000 (CDN $100,000) per quarter for the remaining term of the Psyko Audio Labs contract. The company carries the risk of currency exchange rate fluctuations as our royalty obligation under the license agreement is stated in Canadian dollars. Royalty payable was $1,772,918 and $1,431,665 as of November 30, 2020 and 2019. For the years ended November 30, 2020 and 2019, royalty expense and the related gain/(loss) on foreign currency transactions were ($43,100) and ($1,252), respectively.
F-16
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
November 30, 2020 and 2019
Note L: LEASES
In the first quarter of fiscal 2019 the Company adopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” and related amendments.
The Company leases certain property consisting principally of its corporate headquarters, its retail stores, the majority of its distribution and fulfillment centers, and certain equipment under operating leases. Many of the Company’s leases include options to renew at the Company’s discretion. The renewal options are not included in the measurement of right-of-use (“ROU”) assets and lease liabilities as the Company is not reasonably certain to exercise available options. Rent escalations occurring during the term of the leases are included in the calculation of the future minimum lease payments and the rent expense related to these leases is recognized on a straight-line basis over the lease term.
The Company determines whether an agreement contains a lease at inception based on the Company’s right to obtain substantially all of the economic benefits from the use of the identified asset and its right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the ROU assets represent the Company’s right to use the underlying assets for the respective lease terms. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The ROU asset is further adjusted to account for previously recorded lease-related expenses such as deferred rent and other lease liabilities. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate as the discount rate to calculate the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate that would be required to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
The Company elected not to recognize a ROU asset and a lease liability for leases with an initial term of twelve months or less and not to separate lease and non-lease components. In addition to minimum lease payments, certain leases require payment of a proportionate share of real estate taxes and certain building operating expenses or payments based on a percentage of sales in excess of a specified base. These variable lease costs are not included in the measurement of the ROU asset or lease liability due to unpredictability of the payment amount and are recorded as a lease expense in the period incurred. The Company’s lease agreements do not contain residual value guarantees or significant restrictions or covenants other than those customary in such arrangements. As of November 30, 2020, the Company did not have material leases that had been signed but not yet commenced.
The Company entered into the office lease extension agreement with the landlord in September 2020 for two years and is set to expire on September 30, 2022. The monthly minimum rental payment is $9,162 from October 1, 2020 to September 30, 2021 and $9,391 from October 1, 2021 to September 30, 2022.
The components of lease cost are as follows:
|
For the year ended
November 30, 2020 |
||||
| Operating lease cost | $ | 125,115 | ||
| Total lease cost | $ | 125,115 | ||
The following table discloses the weighted average remaining lease term and weighted average discount rate for the Company’s leases as of November 30, 2020:
|
For the year ended
November 30, 2020 |
||||
| Remaining lease term – operating leases (years) | 1.76 | |||
| Incremental borrowing rate | 5.57 | % | ||
F-17
EXEO ENTERTAINMENT, INC.
Notes to Financial Statements
November 30, 2020 and 2019
Note L: LEASES (CONTINUED)
As of November 30, 2020, the Company had the following future minimum operating lease payments:
| Fiscal Year | ||||
| 2021 | $ | 124,448 | ||
| 2022 | 93,912 | |||
| Total lease payments | 218,360 | |||
| Adjusted for interest | 10,010 | |||
| Total lease obligation | $ | 208,350 | ||
Note M: LOAN PAYABLE
On May 26, 2020, the Company executed the Paycheck Protection Loan (“Loan”) with Wells Fargo Bank for $29,740. The loan is due on May 26, 2022. The Company agreed the loan bears interest at 1% per annum. The Company needs to pay $1,252.09 monthly payment starting at November 26, 2020. The accrued interest is $159 as of November 30, 2020. The Company believes current economic uncertainty relating to the Coronavirus crisis makes the loan necessary to support our ongoing operations. The Company anticipates that the entire balance of the loan will be forgiven based on our disbursements of payroll and rent.
Note N: SUBSEQUENT EVENTS
In accordance with ASC 855-10, Company management reviewed all material events through the date of this report and determined that there are no additional material subsequent events to report except for the disclosure below.
As of the date of this filing, the Company is obligated to issue 166,339 common shares to various investors, and these common shares are recorded as $72,500 in stock payable.
On December 14, 2020, the Company issued 12,500 shares of common stock for the conversion of 2,500 shares of Series A Preferred Stock.
On January 5, 2021, the Company sold 12,500 common shares in exchange of cash $6,250. As of the date of filing, the shares had been issued.
On January 12, 2021, the Company sold 113,636 common shares in exchange of cash $50,000. As of the date of filing, the shares had been issued.
On February 15, 2021, the Company sold 31,289 common shares in exchange of cash $12,500. As of the date of filing, the shares have not been issued.
F-18
Item 15(B) Exhibits
INDEX TO EXHIBITS
| (1) | Not filed herewith, but this exhibit is incorporated by reference. Previously filed as an exhibit to Exeo Entertainment, Inc.’s Form S-1 filed with the Commission on August 16, 2013, as amended. |
| (2) | Not filed herewith, but this exhibit is incorporated by reference. Previously filed as an exhibit to Exeo Entertainment, Inc.’s Form 10-K filed with the Commission on March 13, 2014. |
| (3) | Not filed herewith, but this exhibit is incorporated by reference. Previously filed as an exhibit 99.1 to Exeo Entertainment, Inc.’s Form 10-Q filed with the Commission on October 6, 2014. |
Item 15(c) Reports on Form 8-K
None.
Press Releases
None.
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In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
| EXEO ENTERTAINMENT, INC. | ||
| (Registrant) | ||
| Signature | Title | Date |
| /s/ Jeffrey A. Weiland | President and Director | March 16, 2021 |
| Jeffrey A. Weiland | ||
| /s/ Robert S. Amaral | Chief Executive Officer, | March 16, 2021 |
| Robert S. Amaral | Treasurer and Director | |
| (Principal Executive and Financial Officer | ||
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