Notes
to Financial Statements
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
|
%
|
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.
Item
15(B) Exhibits