NOTE 1 – CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the
Company without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations, and cash flows at March 31, 2018, and for all periods
presented herein, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have
been condensed or omitted. It is suggested that these
condensed financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's
June 30, 2017 audited financial statements. The results
of operations for the periods ended March 31, 2018 and 2017 are not
necessarily indicative of the operating results for the full
years.
NOTE 2 – GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles in the United States of America
applicable to a going concern which contemplates the realization of
assets and liquidation of liabilities in the normal course of
business. The Company has an accumulated deficit of
$72,468,111, negative working capital of
$6,834,972, and currently has revenues which are
insufficient to cover its operating costs, which raises substantial
doubt about its ability to continue as a going concern. The Company
has not yet established an ongoing source of revenues sufficient to
cover its operating costs and allow it to continue as a going
concern.
The future of the Company as an operating business will depend on
its ability to (1) obtain sufficient capital contributions and/or
financing as may be required to sustain its operations and (2) to
achieve adequate revenues from its ProMaster and AfterMaster
businesses. Management's plan to address these issues includes, (a)
continued exercise of tight cost controls to conserve cash, (b)
obtaining additional financing, (c) more widely commercializing the
AfterMaster and ProMaster products, and (d) identifying and
executing on additional revenue generating
opportunities.
The ability of the Company to continue as a going concern is
dependent upon its ability to successfully accomplish the plans
described in the preceding paragraph and eventually secure other
sources of financing and attain profitable operations. The
accompanying financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a
going concern. If the Company is unable to obtain adequate capital,
it could be forced to cease operations.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenue and expenses during the reporting
periods. Significant estimates are made in relation to the
allowance for doubtful accounts and the fair value of certain
financial instruments.
Principles of Consolidation
The consolidated financial statements include the accounts of
AfterMaster, Inc. and its subsidiaries. All significant
inter-Company accounts and transactions have been
eliminated.
Investments
Our available for securities are considered Level 1. Realized gains
and losses on these securities are included in “Other income
(expense) – net” in the consolidated statements of
operations using the specific identification method. Unrealized
gains and losses, on available-for-sale securities are recorded in
accumulated other comprehensive income (accumulated OCI).
Unrealized losses that are considered other than temporary are
recorded in other income (expense) – net, with the
corresponding reduction to the carrying basis of the
investment.
Our short-term investments are recorded at amortized cost, and the
respective carrying amounts approximate fair values. Our available
for securities maturing within one year are recorded in
“Other current assets,” on the balance
sheets.
Accounts Receivables
Accounts receivables are stated at amounts management expects to
collect. An allowance for doubtful accounts is provided for
uncollectible receivables based upon management's evaluation of
outstanding accounts receivable at each reporting period
considering historical experience and customer credit quality and
delinquency status. Delinquency status is determined by contractual
terms. Bad debts are written off against the allowance when
identified.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
-
continued
Fair Value Instruments
Cash is the Company’s only financial asset or liability
required to be recognized at fair value and is measured using
quoted prices for active markets for identical assets (Level 1 fair
value hierarchy). The carrying amounts reported in the
balance sheets for notes receivable and accounts payable and
accrued expenses approximate their fair market value based on the
short-term maturity of these instruments.
Market prices are not available for the Company’s loans due
to related parties or its other notes payable, nor are market
prices of similar loans available. The Company
determined that the fair value of the notes payable based on its
amortized cost basis due to the short-term nature and current
borrowing terms available to the Company for these
instruments.
Derivative Liabilities
The Company has financial instruments that are considered
derivatives or contain embedded features subject to derivative
accounting. Embedded derivatives are valued separately from the
host instrument and are recognized as derivative liabilities in the
Company’s balance sheet. The Company measures these
instruments at their estimated fair value and recognizes changes in
their estimated fair value in results of operations during the
period of change. The Company has a sequencing policy
regarding share settlement wherein instruments with the earliest
issuance date would be settled first. The sequencing policy also
considers contingently issuable additional shares, such as those
issuable upon a stock split, to have an issuance date to coincide
with the event giving rise to the additional shares.
Using this sequencing policy, the Company used this sequencing
policy, all instruments convertible into common stock, including
warrants and the conversion feature of notes payable, issued
subsequent to July 5, 2016 until the note was converted on the same
day were derivative liabilities. The Company again used this
sequencing policy, all instruments convertible into common stock,
including warrants and the conversion feature of notes payable,
issued subsequent to August 19, 2016 until the note was converted
on August 22, 2016 were derivative liabilities.
The Company entered into multiple amendments to a note payable to
extend the maturity date (the Amendments). The Company agreed to
additional $30,000 extension fees which were converted at a
percentage discount (variable) exercise price which causes the
number to be converted into a number of common shares that
“approach infinity”, as the underlying stock price
could approach zero. This creates a situation where the Company no
longer has shares enough available to “cover” all
potential equity issuance obligations during the period of issuance
until conversion.
On February 3, 2017, the company entered into a note payable with
an unrelated party at a percentage discount (variable) exercise
price which causes the number to be converted into a number of
common shares that “approach infinity”, as the
underlying stock price could approach zero. Accordingly, all
convertible instruments issued after February 3, 2017 are
considered derivatives according to the Company’s sequencing
policy.
The Company values these convertible notes payable using the
multinomial lattice method that values the derivative liability
within the notes based on a probability weighted discounted cash
flow model. The resulting liability is valued at each reporting
date and the change in the liability is reflected as change in
derivative liability in the statement of operations.
Income Taxes
There is no income tax provision for the three and nine months
ended March 31, 2018 and 2017 due to net operating losses for which
there is no benefit currently available.
At March 31, 2018, the Company had deferred tax assets associated
with state and federal net operating losses. The Company has
recorded a corresponding full valuation allowance as it is more
likely than not that some portion of all of the deferred tax assets
will not be realized.
Revenue Recognition
The Company applies the provisions of FASB ASC
605,
Revenue Recognition in
Financial Statements
, which
provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. ASC 605 outlines the basic
criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. In
general, the Company recognizes revenue related to goods and
services provided when (i) persuasive evidence of an arrangement
exists, (ii) delivery has occurred or services have been rendered,
(iii) the fee is fixed or determinable, and (iv) collectability is
reasonably assured.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
-
continued
The Company's revenues are generated from AfterMaster products and
services, AfterMaster Pro, sessions revenue, and
remastering.
Revenues related to
AfterMaster Pro sells through consumer retail distribution channels
and through our website. For sales through consumer retail
distribution channels, revenue recognition occurs when title and
risk of loss have transferred to the customer which usually occurs
upon shipment to the customers. We established allowances for
expected product returns and these allowances are recorded as a
direct reduction to revenue. Return allowances are based on our
historical experience. Revenues related to sessions and remastering
are recognized when the event occurred.
Cost of Revenues
The Company’s cost of revenues includes employee costs,
product costs, and other nominal amounts. Costs
associated with products are recognized at the time of the sale and
when the inventory is shipped. Costs incurred to provide services
are recognized as cost of sales as incurred. Depreciation is not
included within cost of revenues.
Loss Per Share
Basic loss per Common Share is computed by dividing losses
attributable to Common shareholders by the weighted-average number
of shares of Common Stock outstanding during the period. The losses
attributable to Common shareholders was increased for accrued and
deemed dividends on Preferred Stock during the nine months ended
March 31, 2018 and 2017 of $169,101 and $129,855,
respectively.
Diluted earnings per Common Share is computed by dividing net loss
attributable to Common shareholders by the weighted-average number
of Shares of Common Stock outstanding during the period increased
to include the number of additional Shares of Common Stock that
would have been outstanding if the potentially dilutive securities
had been issued. Potentially dilutive securities include
outstanding convertible Preferred Stock, stock options, warrants,
and convertible debt. The dilutive effect of potentially dilutive
securities is reflected in diluted earnings per share by
application of the treasury stock method. Under the treasury stock
method, an increase in the fair market value of the Company’s
Common Stock can result in a greater dilutive effect from
potentially dilutive securities.
For the nine months ended March 31, 2018 and 2017, all of the
Company’s potentially dilutive securities (warrants, options,
convertible preferred stock, and convertible debt) were excluded
from the computation of diluted earnings per share as they were
anti-dilutive. The total number of potentially dilutive
Common Shares that were excluded were 90,531,890 and 30,383,665 at
March 31, 2018 and 2017, respectively.
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements
issued since the last audit of our consolidated financial
statements. The Company’s management believes that these
recent pronouncements will not have a material effect on the
Company’s consolidated financial statements.
NOTE 4 – SECURITIES AVAILABLE-FOR-SALE
On November 10, 2014, the Company received 600,000 shares of b
Booth stock as part of an Asset License agreement with b Booth. On
February 22, 2018, the Company sold the 600,000 shares to the CEO
of b Booth in exchange for $270,000, which included $250,000 in
cash and $20,000 in commissions fees. The Company realized a gain
on sale of the available for sale securities of $240,000 (Sales
price of $270,000 less the gross realized loss of $30,000). The
following table presents the amortized cost, gross unrealized
gains, gross unrealized losses, and fair market value of
available-for-sale equity securities, nearly all of which are
attributable to the Company's investment in b Booth stock, as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
$
123,600
|
$
-
|
$
(93,600
)
|
$
-
|
$
(30,000
)
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
$
63,600
|
$
60,000
|
$
-
|
$
-
|
$
-
|
$
123,600
|
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
Convertible Notes Payable
In accounting for its convertible notes payable where derivative
accounting does not apply, proceeds from the sale of a convertible
debt instrument with Common Stock purchase warrants are allocated
to the two elements based on the relative fair values of the debt
instrument without the warrants and of the warrants themselves at
time of issuance. The portions of the proceeds allocated to the
warrants are accounted for as paid-in capital with an
offset to debt discount. The remainder of the proceeds are
allocated to the debt instrument portion of the transaction as
prescribed by ASC 470-25-20. The Company then
calculates the effective conversion price of the note based on the
relative fair value allocated to the debt instrument to determine
the fair value of any beneficial conversion feature
(“BCF”) associated with the convertible note in
accordance with ASC 470-20-30. The BCF is recorded to
additional paid-in capital with an offset to debt
discount. Both the debt discount related to the issuance
of warrants and related to a BCF is amortized over the life of the
note.
Convertible Notes Payable – Related Parties
Convertible notes payable due to related parties consisted of the
following as of March 31, 2018 and June 30, 2017,
respectively:
|
Convertible Notes Payable
– Related Parties
|
|
|
|
|
|
|
|
|
|
|
|
Various term notes
with total face value of $3,925,000 issued from February 2010 to
April 2013, interest rates range from 10% to 15%, net of
unamortized discount of $0 as of March 31, 2018 and June 30, 2017,
of which $3,925,000 was extinguished.
|
$
-
|
$
3,925,000
|
|
$30,000
face value, issued in August 2016, interest rate of 0%, matures
January 2017, a gain on extinguishment of debt was recorded
totaling $3,818 net unamortized discount of $0 as of March 31, 2018
and June 30, 2017.
|
30,000
|
26,182
|
|
$10,000
face value, issued in November 2017, interest rate of 0%, matures
November 2018, net amortized discount of $0 as of March 31,
2018.
|
10,000
|
-
|
|
$25,000
face value, issued in December 2017, interest rate of 0%, matures
December 2018, net amortized discount of $3,750 as of March 31,
2018.
|
22,175
|
-
|
|
$10,000
face value, issued in January 2018, interest rate of 0%, matures
January 2019, net unamortized discount of $784 as of March 31,
2018.
|
9,216
|
-
|
|
$15,000
face value, issued in January 2018, interest rate of 0%, matures
January 2019, net unamortized discount of $2,064 as of March 31,
2018.
|
12,936
|
-
|
|
$24,500
face value, issued in February 2018, interest rate of 0%, matures
February 2019, net unamortized discount of $0 as of March 31,
2018.
|
24,500
|
-
|
|
Total convertible
notes payable – related parties
|
108,827
|
3,951,182
|
|
Less current
portion
|
108,827
|
3,951,182
|
|
Convertible notes
payable – related parties, long-term
|
$
-
|
$
-
|
As part of a settlement agreement dated March 30, 2018, the agreed
to extinguish $3,925,000 in convertible notes with related parties
and accrued interest of $240,041, $575,000 in related party notes
payable and accrued interest of $43,007 for a total payment of
$200,000. As part of the arrangement the note holder agreed to
cancel 14,837,251 shares of common stock and 531,250
warrants.
On December 30, 2017, the Company issued a note to a related party
for $25,000 that matures on December 30, 2018. The note bears 0%
interest per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per
share.
The Company
valued a BCF related to the note valued at
$3,750
.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
On January 4, 2018, the Company issued a note to a related party
for $15,000 that matures on January 4, 2019. The note bears 0%
interest per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per
share.
The Company
valued a BCF related to the note valued at
$2,700
.
On January 11, 2018, the Company issued a note to a related party
for $10,000 that matures on January 11, 2019. The note bears 0%
interest per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per
share.
The Company
valued a BCF related to the note valued at
$1,000
.
On February 14, 2018, the Company issued a note to a related party
for $24,500 that matures on February 14, 2019. The note bears 0%
interest per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per
share.
Convertible Notes Payable - Non-Related Parties
Convertible notes payable due to non-related parties consisted of
the following as of March 31, 2018 and June 30, 2017,
respectively:
|
Convertible Notes Payable
- Non-Related Parties
|
|
|
|
|
|
|
|
|
|
|
|
$7,000
face value, issued in July 2014, interest rate of 6%, matures
October 2017, net unamortized discount of $0 as of March 31, 2018
and June 30, 2017, respectively.
|
$
7,000
|
$
7,000
|
|
$600,000
face value, issued in November 2015, interest rate of 0%, an OID of
$190,000, matures January 2018, net unamortized discount of $0 of
March 31, 2018 and June 30, 2017, respectively, of which $335,000
has been paid.
|
355,000
|
430,000
|
|
$100,000
face value, issued in February 2016, interest rate of 10%, matures
March 2018, net unamortized discount of $0 as of March 31, 2018 and
June 30, 2017, respectively.
|
100,000
|
100,000
|
|
$25,000
face value, issued in February 2016, interest rate of 10%, matures
February 2017, net unamortized discount of $0 as of March 31, 2018
and June 30, 2017, respectively.
|
25,000
|
25,000
|
|
$100,000
face value, issued in March 2016, interest rate of 10%, matures
June 2017, net unamortized discount of $0 as of March 31, 2018 and
June 30, 2017, respectively.
|
100,000
|
100,000
|
|
$10,000
face value, issued in March 2016, interest rate of 10%, matures
March 2018, net unamortized discount $0 of March 31, 2018 and June
30, 2017, respectively.
|
10,000
|
10,000
|
|
$50,000
face value, issued in July 2016, interest rate of 0%, matures
October 2017, net unamortized discount of $0 of March 31, 2018 and
June 30, 2017, respectively.
|
50,000
|
50,000
|
|
$50,000
face value, issued in August 2016, interest rate of 0%, matures
September which was amended to January 2018, net unamortized
discount of $1,403 and $5,418 of March 31, 2018 and June 30, 2017,
respectively.
|
50,000
|
44,582
|
|
$1,000,000
face value, issued in September 2016, interest rate of 10%, matures
June 2017, net unamortized discount of $0 as of March 31, 2018 and
June 30, 2017, respectively.
|
1,000,000
|
1,000,000
|
|
$149,000
face value, issued in February 2017, interest rate of 10%, matures
February 2018, net amortized discount of $0 and $59,740 as of March
31, 2018 and June 30, 2017, respectively, of which $30,000 has been
paid.
|
119,000
|
89,260
|
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
|
$224,000
face value, issued in February 2017, interest rate of 10%, matures
February 2018, net amortized discount of $32,452 and $119,795 as of
March 31, 2018 and June 30, 2017, respectively, of which $57,337
has been paid.
|
166,663
|
104,205
|
|
$258,000
face value, issued in February 2017, interest rate of 12%, matures
August 2017, net amortized discount of $0 and $48,464 as of March
31, 2018 and June 30, 2017, respectively, of which $258,000 has
been paid.
|
-
|
209,536
|
|
$55,000
face value, issued in June 2017, interest rate of 10%, matures
April 2018, with additional fees of $20,000 net amortized discount
of $3,341 and $50,631 as of March 31, 2018 and June 30, 2017,
respectively, of which $30,000 has been paid.
|
45,000
|
4,369
|
|
$100,000
face value, issued in June 2017, interest rate of 7%, matures June
2018, net amortized discount of $13,043 and $52,317 as of March 31,
2018 and June 30, 2017, respectively.
|
86,957
|
47,683
|
|
$265,000
face value, issued in May 2017, interest rate of 10%, matures
February 2018, net amortized discount of $45,267 and $218,790 as of
March 31, 2018 and June 30, 2017, respectively, of which $62,238
has been paid.
|
202,362
|
46,210
|
|
$78,000
face value, issued in July 2017, interest rate of 12%, matures May
2018, net amortized discount of $848 as of March 31, 2018, of which
$72,000 has been paid.
|
5,152
|
-
|
|
$50,000
face value, issued in August 2017, interest rate of 0%, matures
October 2017, net amortized discount of $0 as of March 31, 2018, of
which $34,000 has been converted and $16,000 was transferred to a
new note
|
-
|
-
|
|
$60,500
face value, issued in August 2017, interest rate of 12%, matures
August 2018, net amortized discount of $0 as of March 31, 2018, of
which $60,500 has been paid.
|
-
|
-
|
|
$10,000
face value, issued in August 2017, interest rate of 0%, matures
August 2018, net amortized discount of $2,621 as of March 31,
2018.
|
7,376
|
-
|
|
$82,250 face value,
issued in August 2017, interest rate of 12%, matures May 2018, net
amortized discount of $14,304 as of March 31,
2018.
|
32,946
|
-
|
|
$53,000 face value,
issued in August 2017, interest rate of 12%, matures June 2018, net
amortized discount of 13,424 as of March 31, 2018.
|
39,576
|
-
|
|
$65,000 face value,
issued in September 2017, interest rate of 12%, matures March 2018,
net amortized discount of $0 as of March 31, 2018, of which $65,000
has been paid.
|
-
|
-
|
|
$10,000 face value,
issued in September 2017, interest rate of 10%, matures September
2018, net amortized discount of $6,145 as of March 31,
2018.
|
3,855
|
-
|
|
$5,000 face value,
issued in September 2017, interest rate of 0%, matures March 2018,
net amortized discount of $1,354 as of March 31, 2018.
|
3,646
|
-
|
|
$50,000 face value,
issued in September 2017, interest rate of 0%, matures November
2017, net amortized discount of $0 as of March 31, 2018, of which
$50,000 was transferred to a new note.
|
-
|
-
|
|
$110,000 face
value, issued in October 2017, interest rate of 10%, matures July
2018, net amortized discount of $43,114 as of March 31,
2018.
|
66,886
|
-
|
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
|
$100,000 face
value, issued in October 2017, interest rate of 10%, matures
October 2018, net amortized discount of $39,129 as of March 31,
2018.
|
60,871
|
-
|
|
$115,000 face
value, issued in November 2017, interest rate of 10%, matures
August 2018, net amortized discount of $67,214 as of
March 31, 2018.
|
47,786
|
-
|
|
$50,000 face value,
issued in November 2017, interest rate of 10%, matures January
2018, net amortized discount of $0.00 as of March 31,
2018.
|
50,000
|
-
|
|
$66,000 face value,
issued in November 2017, interest rate of 10%, matures November
2018, net amortized discount of $28,190 as of March 31,
2018.
|
37,810
|
-
|
|
$100,000 face
value, issued in November 2017, interest rate of 10%, matures
November 2018, net amortized discount of $64,384 as of March 31,
2018.
|
35,616
|
-
|
|
$5,000 face value,
issued in November 2017, interest rate of 10%, matures November
2018, net amortized discount of $3,127 as of March 31,
2018.
|
1,873
|
-
|
|
$53,000 face value,
issued in November 2017, interest rate of 12%, matures July 2018,
net amortized discount of $30,206 as of March 31,
2018.
|
22,794
|
-
|
|
$100,000 face
value, issued in December 2017, interest rate of 10%, matures
December 2018, net amortized discount of $30,853 as of March 31,
2018.
|
69,147
|
-
|
|
$20,000 face value,
issued in December 2017, interest rate of 10%, matures December
2018, net amortized discount of $7,141 as of March 31,
2018.
|
12,859
|
-
|
|
$75,000 face value,
issued in December 2017, interest rate of 10%, matures December
2018, net amortized discount of $34,644 as of March 31,
2018.
|
40,356
|
-
|
|
$20,000 face value,
issued in December 2017, interest rate of 10%, matures December
2018, net amortized discount of $9,238 as of March 31,
2018.
|
10,762
|
-
|
|
$6,000 face value,
issued in February 2018, interest rate of 10%, matures April 2018,
net amortized discount of $0.00 as of March 31, 2018.
|
6,000
|
-
|
|
$20,000 face value,
issued in February 2018, interest rate of 10%, matures February
2019, net amortized discount of $6,732 as of March 31,
2018.
|
13,268
|
-
|
|
$10,000 face value,
issued in March 2018, interest rate of 10%, matures March 2019, net
amortized discount of $3,109 as of March 31, 2018.
|
6,891
|
-
|
|
$15,000 face value,
issued in March 2018, interest rate of 10%, matures March 2019, net
amortized discount of $3,800as of March 31, 2018.
|
11,200
|
-
|
|
$100,000 face
value, issued in March 2018, interest rate of 10%, matures March
2019, net amortized discount of $29,438 as of March 31,
2018.
|
70,562
|
-
|
|
$115,000 face
value, issued in January 2018, interest rate of 10%, matures
October 2018, net amortized discount of $81,300 as of
March 31, 2018.
|
33,700
|
-
|
|
$75,075 face value,
issued in February 2018, interest rate of 10%, matures November
2018, net amortized discount of $63,250 as of March
31, 2018.
|
11,825
|
-
|
|
$53,000 face value,
issued in January 2018, interest rate of 12%, matures November
2018, net amortized discount of $38,797 as of March
31, 2018.
|
14,203
|
-
|
|
Total convertible
notes payable – non-related parties
|
3,033,942
|
2,267,845
|
|
Less current
portion
|
3,033,942
|
2,267,845
|
|
Convertible notes
payable – non-related parties, long-term
|
$
-
|
$
-
|
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
On November 20, 2015, the Company issued a convertible note to an
unrelated company for $600,000 that matures on May 20,
2016. The company paid $200,000 in principle balance leaving a
remain balance of $430,000 including the extension fees and is
not convertible unless the borrower defaults under the amendment
agreement dated January 1, 2017. The note bears 0% interest
and had an original issue discount (OID) of $100,000. This note is
not convertible unless there is a default event. Per the terms of
the note there are no derivatives until it becomes convertible on
the original note, however the $30,000 extensions are to be
considered derivatives. The Lender released a clarification of
amendments to convertible promissory notes that explained the
$30,000 extension fees are the only portion that is to be
considered as convertible and converts within 2 days of issuance.
The intent of the amendment agreements were to insure the original
note dated November 20, 2015 in the amount of $600,000. Because the
terms do not dictate a maximum numbers of convertible shares, the
ability to settle these obligations with shares would be
unavailable causing these obligations to potentially be settled in
cash. This condition creates a derivative liability Under ASC
815-40. The Company has a sequencing policy regarding share
settlement wherein instruments with the earliest issuance date
would be settled first. The sequencing policy also considers
contingently issuable additional shares, such as those issuable
upon a stock split, to have an issuance date to coincide with the
event giving rise to the additional shares. During the extension
and conversion day period no additional convertible instruments
were issued, therefore on the extension was considered in the
derivative calculation. The Company extended the maturity date
seven times since February 27, 2017 for a total of $210,000, of
which, the Company paid $135,000 in the nine months ended March 31,
2018. The Company latest and fourteenth extension with
consideration of $30,000 was on December 18, 2017 to extending the
maturity date to January 31, 2018. The Company evaluated the
amendments under ASC 470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. On February 2, 2018, the note converted the principal
of $30,000 for 680,118 shares of common stock. On February 23,
2018, the note converted the principal of $30,000 for 1,083,698
shares of common stock.
On February 15, 2016, the Company issued a convertible note to an
unrelated individual for $25,000 that matures on February 15, 2017.
The note was amended subsequently in September 28, 2017 to extend
the maturity date to October 15, 2017. The Company evaluated
amendment under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On September 15, 2016, the Company issued a convertible note to an
unrelated individual for $1,000,000 that matures on June 30, 2017.
The note was amended subsequently on June 30, 2017 to extend the
maturity date to June 30, 2018. The Company evaluated amendment
under ASC 47050,
"Debt Modification and
Extinguishment"
, and concluded
that the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $149,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, that
this percentage discount (variable) exercise
price indicates is an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. The Company
extended the possibility to convert date by issuing 60,000 warrants
valued at $7,813 on September 8, 2017 to November 2, 2017. The
Company extended the possibility to convert date by issuing 60,000
warrants valued at $7,813 on September 8, 2017 to November 2,
2017. The Company extended the possibility to convert
date by paying $10,000 of principal and $1,400 of accrued interest
on October 23, 2017 to November 24, 2017 and extend the maturity
date to February 21, 2018. The Company extended the possibility to
convert date by paying $10,000 of principal and $4,000 of accrued
interest on November 29, 2017 to December 22,
2017.
The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the
multinomial lattice
model
.
The Company evaluated amendment under ASC
470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $224,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. The Company
extended the possibility to convert date by issuing 90,000 warrants
valued at $11,720 on September 8, 2017 to November 2,
2017. The Company extended the possibility to convert date by
paying $10,000 of principal and $2,100 of accrued interest on
October 23, 2017 to November 24, 2017 and extend the maturity date
to February 21, 2018. The Company extended the possibility to
convert date by paying $20,000 of principal and $6,000 of accrued
interest on November 29, 2017 to December 22,
2017.
The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the
multinomial lattice
model
.
The Company evaluated amendment under ASC
470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. On March 12, 2018, the note converted the principal of
$7,337 and $4,278 in accrued interest into for 575,000 shares of
common stock.
On August 26, 2016, the Company issued a convertible note to an
unrelated individual for $50,000 that matures on August 26,
2017. The note bears interest rate of 10% per annum and
is convertible into shares of the Company’s Common stock at
$0.40 per share. The note was amended on June 30, 2017 to extend
the maturity date to October 1, 2017. The Company evaluated
amendment under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the debt.
The note was amended again on September 28, 2017 to extend the
maturity date to January 1, 2018. The Company evaluated amendment
under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension resulted in significant and consequential changes to
the economic substance of the debt and thus resulted in a
extinguishment of the debt. The Company recorded a debt discount of
$30,000 as a result of the extinguishment.
On March 7, 2016, the Company issued a convertible note to an
unrelated individual for $100,000 that matures on March 7, 2017.
The note bears interest rate of 10% per annum and is convertible
into shares of the Company’s Common stock at $0.40 per
share. The Company valued a BCF related to the note
valued at $24,269 and debt discount related to the 10,000 shares of
common stock issued with the note at a relative fair value of
$4,569.
The note was amended
again on September 28, 2017 to extend the maturity date to January
15, 2018, as additional consideration the Company issued 25,000
shares of common stock valued at $3,998. The Company evaluated
amendment under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On July 26, 2016, the Company issued a convertible note to an
unrelated individual for $50,000 that matures on September 26,
2016. The note bears interest rate of 0% per annum and
is convertible into shares of the Company’s Common stock at
$0.40 per share, as part of the note the company issued warrants to
purchase 35,000 shares of 144 restricted common stock at an
exercise price $0.30 for a two-year period. The note was amended on
September 28, 2017 to extend the maturity date to January 15, 2018,
as additional consideration the Company issued 15,000 shares of
common stock valued at $2,399. The Company evaluated amendment
under ASC 470-50, “
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On May 12, 2017, the Company issued a convertible note to an
unrelated company for $265,000 that matures on February 17, 2018.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at the lesser of $.31
and 60% of the lowest closing bids 25 days prior to the conversion
date. Additionally, the note contains a percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815, the Company has determined
that this percentage discount (variable) exercise
price indicates that these shares, if issued, are not indexed
to the Company’s own stock and, therefore, is an embedded
derivative financial liability, which requires bifurcation and to
be separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value. On February 22, 2018, the note converted interest of
$9,200 and $250 in conversion fees for 450,000 shares of common
stock. On March 6, 2018, the note converted principal of $11,138,
$13,812 in interest, and $250 in conversion fees for 1,200,000
shares of common stock.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
On June 13, 2017, the Company issued a convertible note to an
unrelated company for $55,000 that matures on January 13, 2018. The
note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at 57.5% of the lowest
closing bids 30 days prior to the conversion
date. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815, the Company has determined
that this percentage discount (variable) exercise
price indicates that these shares, if issued, are not indexed
to the Company’s own stock and, therefore, is an embedded
derivative financial liability, which requires bifurcation and to
be separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
The note was amended on
December 13, 2017, to extend the maturity date to January 15, 2018
and again on January 18, 2018, to extend the maturity date to
February 15, 2018.As consideration for the extensions two extension
fees of $10,000 each had been added to the outstanding principal.
The Company evaluated amendment under ASC 470-50,
“
Debt
- Modification and Extinguishment”
, and concluded that
the extension did result in significant and consequential changes
to the economic substance of the debt and thus resulted in an
extinguishment of the debt and the company recorded a loss on
extinguishment of debt of $20,000.
On March 5, 2018, the note converted the
principal of $15,000 for 745,342 shares of common stock. On March
21, 2018, the note converted the principal of $15,000 for 745,342
shares of common stock.
In conjunction with the note, the Company issued to the holder
55,000 warrants to purchase Common Shares. The value of the debt
discount recorded was $41,150 and the debt discount related to the
attached relative fair value of warrants was $8,850, for a total
debt discount of $50,000, and a derivative expense of
$9,432.
On July 31, 2017, the Company issued a convertible note to an
unrelated company for $78,000, which included $75,000 in proceeds
and $3,000 in legal fees, that matures on April 10, 2018. The note
bears 12% interest per annum and is convertible into shares of
the Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. On February 1,
2018, the note converted the principal of $12,000 for 238,284
shares of common stock. On February 1, 2018, the note converted the
principal of $12,000 for 238,284 shares of common stock. On
February 15, 2018, the note converted the principal of $20,000 for
529,101 shares of common stock. On February 22, 2018, the note
converted the principal of $20,000 for 655,738 shares of common
stock. On March 2, 2018, the note converted the principal of
$20,000 for 809,717 shares of common stock.
On August 2, 2017, the Company issued a convertible note to an
unrelated party for $50,000 that matures on August 24, 2017. The
note bears 0% interest per annum, in lieu of interest the Company
issued 12,000 shares of common stock on August 4, 2017. The note is
convertible into shares of the Company’s common stock at
$0.10 per share. The Company valued a BCF related
to the note valued at $31,287 and debt discount related to the
12,000 shares of common stock issued with the note at a relative
fair value of $1,837.
The note was amended on
September 15, 2017, to extend the maturity date to October 15,
2017. The Company evaluated amendment under ASC 470-50,
“
Debt
- Modification and Extinguishment”
, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On September 15,
2017, the note converted the principal of $34,000 for 340,000
shares of common stock. On November 17, 2017, the company
transferred the remaining balance to a new note, see
below.
On August 2, 2017, the Company issued a convertible note to an
unrelated company for $60,500, which includes proceeds of $55,000,
and $5,500 in OID, that matures on August 2, 2018. The note bears
12% interest per annum and is convertible into shares of the
Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
On August 4, 2017, the Company issued a convertible note to an
unrelated party for $10,000 that matures on August 4, 2018. The
note bears 0% interest per annum, in lieu of interest the Company
issued 3,500 shares of common stock on August 7, 2017. The note is
convertible into shares of the Company’s common stock at
$0.10 per share. The Company valued a BCF related
to the note valued at $7,056 and debt discount related to the 3,500
shares of common stock issued with the note at a relative fair
value of $546.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
On August 15, 2017, the Company issued a convertible note to an
unrelated company for $82,250, which included $75,000 in proceeds
and $7,250 in legal and other fees, that matures on April 18, 2018.
The note bears 12% interest per annum and is convertible
into shares of the Company’s common stock at 60% the lowest
trading price during the previous twenty (2) days to the date of
conversion. The note contains a percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage
discount (variable)
exercise price indicates an embedded derivative financial
liability, which requires bifurcation and to be separately
accounted for. At each reporting period, the Company will mark this
derivative financial instrument to its estimated fair value. On
February 21, 2018, the note converted the principal of $15,000 for
714,285 shares of common stock. On March 21, 2018, the note
converted the principal of $20,000 for 833,333 shares of common
stock.
On August 16, 2017, the Company issued a convertible note to an
unrelated company for $53,000, which included $50,000 in proceeds
and $3,000 in legal fees, that matures on June 16, 2018. The note
bears 12% interest per annum and is convertible into shares of
the Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
On September 8, 2017, the Company issued a convertible note to an
unrelated company for $65,000, which included $58,500 in proceeds
and $6,500 in OID, that matures on March 8, 2018. The note bears
12% interest per annum and is convertible into shares of the
Company’s common stock at 55% of either the lowest sales
price for common stock on principal market during the twenty-five
consecutive trading days including the immediately preceding the
conversion date. The note contains a percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
On September 11, 2017, the Company issued a convertible note to an
unrelated party for $10,000 that matures on September 11, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. Due to sequencing on February 2, 2017, the Company
determined under ASC 815, the Company has determined that the note
is to be treated as an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value
.
On September 27, 2017, the Company issued a convertible note to an
unrelated party for $5,000 that matures on March 31, 2018. The note
bears 0% interest per annum. The note is convertible into shares of
the Company’s common stock at $0.10 per
share. The Company valued a BCF related to the note
valued at $2,995.
On September 28, 2017, the Company issued a convertible note to an
unrelated party for $50,000 that matures on November 28, 2017. The
note bears 0% interest per annum, in lieu of interest the Company
issued 25,000 shares of common stock. The note is convertible into
shares of the Company’s common stock at $0.10 per share.
The Company valued a BCF related to the note valued at $33,397
and debt discount related to the 25,000 shares of common stock
issued with the note at a relative fair value of
$3,702
.
On November 17, 2017, the company
transferred the remaining balance to a new note, see
below.
On October 16, 2017, the Company issued a convertible note to an
unrelated company for $110,000 that matures on July 16, 2018. The
note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at 57.5% of the lowest
closing bid 30 days prior to the conversion
date. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates that these shares, if issued, are not indexed
to the Company’s own stock and, therefore, is an embedded
derivative financial liability, which requires bifurcation and to
be separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
The Company extended the possibility to convert date by issuing
60,000 warrants valued at $7,813 on September 8, 2017 to November
2, 2017.
The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the
multinomial lattice
model
.
The Company extended the possibility to
convert date by paying $164,469 in principal on October 23, 2017 to
February 21, 2018.
The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the
multinomial lattice
model
.
The Company evaluated amendment under ASC
470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
On October 29, 2017, the Company issued a convertible note to an
unrelated party for $100,000 that matures October 29, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per share. As
additional consideration
the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share totaling
750,002 shares of common stock.
The Company valued a BCF related to the
note valued at $20,000 and debt discount related to the 750,002
shares of common stock issued with the note at a relative fair
value of
$47,368.
On November 13, 2017, the Company issued a convertible note to an
unrelated party for $115,000 that matures on August 13, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at 57.5% of the lowest
closing bids 30 days prior to the conversion per share. Due to
sequencing on February 2, 2017, the Company determined under ASC
815, the Company has determined that the note is to be treated as
an embedded derivative financial liability, which requires
bifurcation and to be separately accounted for. At each reporting
period, the Company will mark this derivative financial instrument
to its estimated fair value
.
As additional
consideration
the Company also issued
150,000 warrants valued at $12,570. The warrants are considered
derivative liabilities under ASC 815-40 under the Company’s
sequencing policy and were valued using the
multinomial lattice model
.
On November 13, 2017, the Company issued a convertible note to an
unrelated party for $50,000 that matures January 10, 2018. The note
bears 10% interest per annum. The note is convertible into shares
of the Company’s common stock at $0.10 per
share. The Company valued a BCF related to the note
valued at $18,500
.
The note was amended on October 30, 2017, to extend the conversion
rights from 180 days to 225 days, in consideration of the extension
the Company paid $25,000 and issued 150,000 valued at $6,691. The
Company evaluated amendment under ASC 470-50,
“
Debt
- Modification and Extinguishment”
, and concluded that
the extension did result in significant and consequential changes
to the economic substance of the debt and thus resulted in an
extinguishment of the debt.
On November 17, 2017, the Company issued a convertible note to an
unrelated party for $66,000 that matures November 17, 2018 in
exchange for two existing notes for $16,000 issued on August 2,
2017 and $50,000 on September 28, 2017. The note bears 10% interest
per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per share
.
As additional
consideration
the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share totaling
495,001.
The Company
valued a BCF related to the note valued at $13,266 and debt
discount related to the
495,001
shares
of common stock issued with the note at a relative fair value
of
$31,277.
On November 21, 2017, the Company issued a convertible note to an
unrelated party for $100,000 that matures on November 21, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at 57.5% of the lowest
closing bids 20 days prior to the conversion per share. Due to
sequencing on February 2, 2017, the Company determined under ASC
815, the Company has determined that the note is to be treated as
an embedded derivative financial liability, which requires
bifurcation and to be separately accounted for. At each reporting
period, the Company will mark this derivative financial instrument
to its estimated fair value
.
On November 24, 2017, the Company issued a convertible note to an
unrelated party for $5,000 that matures November 24, 2018. The note
bears 10% interest per annum. The note is convertible into shares
of the Company’s common stock at $0.10 per share. As
additional consideration
the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share totaling
37,500.
The Company
valued a BCF related to the note valued at $2,200 and debt discount
related to the
37,500
shares
of common stock issued with the note at a relative fair value
of
$2,596.
On November 28, 2017, the Company issued a convertible note to an
unrelated party for $53,000 that matures on July 16, 2018. The note
bears 12% interest per annum. The note is convertible into shares
of the Company’s common stock at 61% of the lowest closing
bids 15 days prior to the conversion per share. Due to
sequencing on February 2, 2017, the Company determined under ASC
815, the Company has determined that the note is to be treated as
an embedded derivative financial liability, which requires
bifurcation and to be separately accounted for. At each reporting
period, the Company will mark this derivative financial instrument
to its estimated fair value
.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
On December 18, 2017, the Company issued a convertible note to an
unrelated party for $100,000 that matures December 18, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share.
As
additional consideration
the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share totaling
750,002.
The Company
valued a BCF related to the note valued at $100 and debt discount
related to the 750,002 shares of common stock issued with the note
at a relative fair value of
$42,882.
On December 21, 2017, the Company issued a convertible note to an
unrelated party for $20,000 that matures December 21, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. As additional consideration
the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share totaling
150,000
The Company
valued a BCF related to the note valued at $1,020 and debt discount
related to the 150,000 shares of common stock issued with the note
at a relative fair value of
$8,816.
On December 31, 2017, the Company issued a convertible note to an
unrelated party for $75,000 that matures December 31, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share.
As
additional consideration
the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share
totaling
150,000.
The Company valued a BCF related to the note valued at $11,250
and debt discount related to the 150,000 shares of common stock
issued with the note at a relative fair value
of
$34,732.
On December 31, 2017, the Company issued a convertible note to an
unrelated party for $20,000 that matures December 31, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. As additional consideration
the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share totaling
562,501.
The Company
valued a BCF related to the note valued at $3,000 and debt discount
related to the 562,501 shares of common stock issued with the note
at a relative fair value of
$9,262.
On January 8, 2018, the Company issued a convertible note to an
unrelated company for $53,000, which included $50,000 in proceeds
and $3,000 in legal fees, that matures on November 10, 2018. The
note bears 12% interest per annum and is convertible into
shares of the Company’s common stock at 61% of the lowest two
trading prices during the fifteen (15) trading day period ending to
the date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
On January 10, 2018, the Company issued a convertible note to an
unrelated party for $115,000 that matures on October 10, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at the lesser of $.12
and 57.5% of the lowest trading price during the prior 30
days. Due to sequencing on February 2, 2017, the Company
determined under ASC 815, the Company has determined that the note
is to be treated as an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value
.
As additional
consideration
the Company also issued
150,000 warrants valued at $11,056 The warrants are considered
derivative liabilities under ASC 815-40 under the Company’s
sequencing policy and were valued using the
multinomial lattice model
.
On February 8, 2018, the Company issued a convertible note to an
unrelated party for $20,000 that matures February 8, 2019. The note
bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. The Company valued a debt discount related to the
150,004 shares of common stock issued with the note at a relative
fair value of $7,581.
On February 21, 2018, the Company issued a convertible note to an
unrelated party for $6,000 that matures April 1, 2018. The note
bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share.
On March 2, 2018, the Company issued a convertible note to an
unrelated party for $10,000 that matures March 2, 2019. The note
bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. The Company valued a debt discount related to the
75,002 shares of common stock issued with the note at a relative
fair value of $3,377.
On March 5, 2018, the Company issued a convertible note to an
unrelated party for $15,000 that matures March 5, 2019. The note
bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. The Company valued a debt discount related to the
112,503 shares of common stock issued with the note at a relative
fair value of $4,091.
On March 12, 2018, the Company issued a convertible note to an
unrelated party for $100,000 that matures March 12, 2019. The note
bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. The Company valued a debt discount related to the
750,019 shares of common stock issued with the note at a relative
fair value of $31,055.
On March 29, 2018, the Company issued a convertible note to an
unrelated party for $225,000 that matures March 29, 2019. The note
bears 10% interest per annum. The Company valued a debt
discount related to the 2,000,000 shares of common stock issued
with the note at a relative fair value of
$78,261.
Notes
Payable – Related Parties
Notes payable due to related parties consisted of the following as
of March 31, 2018 and June 30, 2017, respectively:
|
Notes Payable –
Related Parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Various term notes
with total face value of $585,000 issued from April 11 to June 17,
interest rates range from 0% to 15%, net of unamortized discount of
$0 as of March 31, 2018 and June 30, 2017, respectively, of which
$210,000 has been paid and 375,000 had been
extinguished.
|
$
-
|
$
585,000
|
|
$5,000
face value, issued in November 2016, interest rate of 0%, with no
maturity date.
|
5,000
|
5,000
|
|
$25,000
face value, issued in February 2017, interest rate of 0%, matures
October 2017, of which $5,000 has been paid.
|
20,000
|
20,000
|
|
$18,000
face value, issued in September 2017, interest rate of 0%, matures
November 2017.
|
18,000
|
-
|
|
$15,000
face value, issued in October 2017, interest rate of 0%, matures
October 2018.
|
15,000
|
-
|
|
$25,000
face value, issued in December 2017, interest rate of 0%, matures
December 2018.
|
25,000
|
-
|
|
$35,000
face value, issued in December 2017, interest rate of 0%, matures
December 2018, of which $35,000 has been paid.
|
-
|
-
|
|
$7,500
face value, issued in March 2018, interest rate of 0%, matures
March 2019.
|
7,500
|
-
|
|
$10,000
face value, issued in March 2018, interest rate of 0%, matures
March 2019.
|
10,000
|
-
|
|
Total notes payable
– related parties
|
75,500
|
610,000
|
|
Less current
portion
|
75,500
|
610,000
|
|
Notes payable -
related parties, long term
|
$
-
|
$
-
|
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
Notes Payable
–
Non-Related
Parties
Notes payable due to non-related parties consisted of the following
as of March 31, 2018 and June 30, 2017, respectively:
|
Notes
Payable
–
Non-Related Parties
|
|
|
|
|
|
|
|
|
|
|
|
Various term notes
with total face value of $40,488 due upon demand, interest rates
range from 0% to 14%, of which $40,488 have been
extinguished.
|
$
-
|
$
40,488
|
|
$52,000
face value, issued in August 2017, interest rate of 0%, matures
October 2017 net of unamortized discount of $0 as of March 31,
2018.
|
52,000
|
-
|
|
$52,000
face value, issued in August 2017, interest rate of 0%, matures
October 2017 net of unamortized discount of $5,463 as of March 31,
2018.
|
46,537
|
-
|
|
$81,000
face value, issued in September 2017, interest rate of 8% per
month, matures March 2018 net of unamortized discount of $0 as of
March 31, 2018.
|
81,000
|
-
|
|
$255,000
face value, issued in October 2017, interest rate of 2.5% per
month, matures February 2018 net of unamortized discount of $0 as
of March 31, 2018, of which $255,000 has been paid.
|
-
|
-
|
|
$50,000 face value,
issued in March 2018, interest rate of 10%, matures March 2019, net
amortized discount of $0 as of March 31,
2018.
|
50,000
|
-
|
|
$225,000
face value, issued in March 2018, interest rate of 30% , matures
March 2019 net of unamortized discount of $83,426 as
of March 31, 2018.
|
141,574
|
-
|
|
Total note payable
– non-related parties
|
371,111
|
40,488
|
|
Less current
portion
|
371,111
|
40,488
|
|
Notes payable
– non-related parties, long-term
|
$
-
|
$
-
|
On August 25, 2017, the Company issued a note to an unrelated party
for $52,000 as part of an Accounts Receivable Financing Agreement,
which included $50,000 in proceeds and an OID of $2,000, that
matures on October 25, 2017. The note bears 0% interest per annum.
As additional consideration
the Company also issued
50,000 warrants valued at $6,625. The warrants are considered
derivative liabilities under ASC 815-40 under the Company’s
sequencing policy and were valued using the
multinomial lattice model
.
On August 31, 2017, the Company issued a note to an unrelated party
for $52,000 as part of an Accounts Receivable Financing Agreement,
which included $50,000 in proceeds and an OID of $2,000, that
matures on October 31, 2017. The note bears 0% interest per annum.
As additional consideration
the Company also issued
50,000 warrants valued at $6,773. The warrants are considered
derivative liabilities under ASC 815-40 under the Company’s
sequencing policy and were valued using the
multinomial lattice model
.
On September 19, 2017, the Company issued a note to an unrelated
party for $81,000 which included $74,504 in proceeds, $6,000 in
OID, and $496 in other fees, that matures on March 19, 2018. The
note bears 8% interest per month. As additional
consideration
the Company is to issue
75,000 shares of common stock within 10 days.
The note was amended subsequently on March
19,2018, to extend the maturity date to September 19, 2018. The
Company evaluated amendment under ASC
47050,
"Debt Modification and
Extinguishment"
, and concluded
that the extension did result in significant and consequential
changes to the economic substance of the debt and thus resulted in
an
and the company
recorded a loss on extinguishment of debt of $0
.
On October 31, 2017, the Company issued a secured promissory note
to an unrelated party for $255,000, that matures on February 28,
2018. The note bears 2.5% interest per month. The note is to be
paid back the greater of $1,000 per day and $75 per unit sold
commencing 31 days after closing, the greater of $1,500 per day and
$75 per unit sold commencing 61 days after closing, the greater of
$2,000 per day and $75 per unit sold commencing 91 days after
closing.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 5 – NOTES PAYABLE
-
continued
On March 2, 2018, the Company issued a note to an unrelated party
for $50,000 that matures March 2, 2019. The note bears 10% interest
per annum.
NOTE 6 – CONVERTIBLE PREFERRED STOCK
The Company has authorized 10,000,000 shares of $0.001 par value
per share Preferred Stock, of which the following were issued
outstanding:
|
|
|
|
|
|
|
|
|
|
|
Series
A Convertible Preferred
|
100,000
|
15,500
|
-
|
|
Series
A-1 Convertible Preferred
|
3,000,000
|
2,585,000
|
3,581,964
|
|
Series
B Convertible Preferred
|
200,000
|
3,500
|
35,000
|
|
Series
C Convertible Preferred
|
1,000,000
|
13,404
|
-
|
|
Series
D Convertible Preferred
|
375,000
|
130,000
|
-
|
|
Series
E Convertible Preferred
|
1,000,000
|
275,000
|
-
|
|
Series
P Convertible Preferred
|
600,000
|
86,640
|
-
|
|
Series
S Convertible Preferred
|
50,000
|
-
|
-
|
|
Total
Preferred Stock
|
6,325,000
|
3,109,044
|
$
3,616,964
|
The Company's Series A Convertible Preferred Stock ("Series A
Preferred") is convertible into Common Stock at the rate of 0.025
share of Common stock for each share of the Series A Preferred.
Dividends of $0.50 per share annually from date of issue, are
payable from retained earnings, but have not been declared or
paid.
The Company’s Series A-1 Senior Convertible Redeemable
Preferred Stock (“Series A-1 Preferred”) is convertible
at the rate of 2 shares of Common Stock per share of Series A-1
Preferred. The dividend rate of the Series A-1 Senior Convertible
Redeemable Preferred Stock is 6% per share per annum in cash, or
commencing on June 30, 2009 in shares of the Company’s Common
Stock (at the option of the Company).
Due to the fact that the Series A-1 Preferred has certain features
of debt and is redeemable, the Company analyzed the Series A-1
Preferred in accordance with ASC 480 and ASC 815 to determine if
classification within permanent equity was
appropriate. Based on the fact that the redeemable
nature of the stock and all cash payments are at the option of the
Company, it is assumed that payments will be made in shares of the
Company’s Common Stock and therefore, the instruments are
afforded permanent equity treatment.
The Company's Series B Convertible 8% Preferred Stock ("Series B
Preferred") is convertible at the rate of 0.067 share of Common
Stock for each share of Series B Preferred. Dividends from date of
issue are payable on June 30 from retained earnings at the rate of
8% per annum but have not been declared or paid.
The Company's Series C Convertible Preferred Stock ("Series C
Preferred") is convertible at a rate of 0.007 share of Common Stock
per share of Series C Preferred. Holders are entitled to
dividends only to the extent of the holders of the Company’s
Common Stock receive dividends.
The Company's Series D Convertible Preferred Stock ("Series D
Preferred") is convertible at a rate of 0.034 share of Common Stock
per share of Series D Preferred. Holders are entitled to
a proportionate share of any dividends paid as though they were
holders of the number of shares of Common Stock of the Company into
which their shares of are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Company
entitled to receive such distribution.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 6 – CONVERTIBLE PREFERRED STOCK
-
continued
The Company's Series E Convertible Preferred Stock ("Series E
Preferred") is convertible at a rate of 0.034 share of Common Stock
per share of Series E Preferred. Holders are entitled to a
proportionate share of any dividends paid as though they were
holders of the number of shares of Common Stock of the Company into
which their shares of are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Company
entitled to receive such distribution.
The Company's Series P Convertible Preferred Stock ("Series P
Preferred") is convertible at a rate of 0.007 share of Common Stock
for each share of Series P Preferred. Holders are entitled to
dividends only to the extent of the holders of the Company’s
Common Stock receive dividends.
In the event of a liquidation, dissolution or winding up of the
affairs of the Company, holders of Series A Preferred Stock, Series
P Convertible Preferred Stock, Series C Convertible Preferred Stock
have no liquidation preference over holders of the Company’s
Common Stock. Holders of Second Series B Preferred Stock
have a liquidation preference over holders of the Company’s
Common Stock and the Company’s Series A Preferred
Stock. Holders of Series D Preferred Stock are entitled
to receive, before any distribution is made with respect to the
Company’s Common Stock, a preferential payment at a rate per
each whole share of Series D Preferred Stock equal to
$1.00. Holders of Series E Preferred Stock are entitled
to receive, after the preferential payment in full to holders of
outstanding shares of Series D Preferred Stock but before any
distribution is made with respect to the Company’s Common
Stock, a preferential payment at a rate per each whole share of
Series E Preferred Stock equal to $1.00. Holders of
Series A-1 Preferred Stock are superior in rank to the
Company’s Common Stock and to all other series of Preferred
Stock heretofore designated with respect to dividends and
liquidation.
The activity surrounding the issuances of the Preferred Stock is as
follows:
During the three and nine months ended March 31, 2018 the Company
did not issue shares of Series A-1
Preferred.
During the fiscal year ended June 30, 2017 the Company issued
550,000 shares of Series A-1 Preferred Stock for $550,000 in
cash
and paid $196,853 in
cash offering costs
.
The Company had one
conversion of 150,000 shares of Series A-1 Preferred Stock for
300,000 shares of Common Stock, and issued 15,682 shares of Common
Stock of payment of $7,481 in accrued
dividends.
During the three and nine months ended March 31, 2018 and 2017, the
outstanding Preferred Stock accumulated $169,101 and $129,855 in
dividends on outstanding Preferred Stock. The cumulative dividends
in arrears as of March 31, 2018 were approximately
$1,078,039.
NOTE 7 – COMMON STOCK
The Company has authorized 250,000,000 shares of $0.001 par value
per share Common Stock, of which 132,147,996 and 118,486,728 were
issued outstanding as of March 31, 2018 and June 30, 2017,
respectively. The activity surrounding the issuances of the Common
Stock is as follows:
For the nine months Ended March 31, 2018
The Company issued
8,566,666 shares of Common Stock for
$413,751 in cash as part of a private placement, net of $4,750 of
issuance costs, respectively.
The Company issued 9,599,958 shares of Common Stock for the
conversion of notes and accrued interest valued at
$277,265.
The Company issued 6,098,101 shares of Common Stock as incentive
with convertible notes valued at $317,261.
The Company issued 415,000 shares of Common Stock for the prepaid
consulting services and rent valued at $49,290.
The Company issued 115,000 shares of Common Stock for the extension
of two convertible notes valued at $16,897.
As share-based compensation to employees and non-employees, the
Company issued 2,423,632 shares of common stock valued at $252,128,
based on the market price of the stock on the date of
issuance.
As interest expense on outstanding notes payable, the Company
issued 1,280,162 shares of common stock valued at $217,628 based on
the market price on the date of issuance.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 7 – COMMON STOCK
-
continued
As part of a debt extinguishment, the note holder agreed to cancel
14,837,251 shares of common stock.
For the Nine Months Ended March 31, 2017
The Company issued 1,463,334 shares of Common Stock for cash valued
at $359,000 which includes a $80,000 subscription
payable.
The Company issued 994,684 shares of Common Stock for the
conversion of notes and accrued interest valued at
$220,164.
The Company also issued 650,000 shares of Common Stock as incentive
to notes valued at $127,600. The Beneficial Conversion was valued
at $30,519.
The Company also issued 100,000 shares of Common Stock for the
conversion of 50,000
shares of Series A-1 Preferred
Stock
and issued
5,162
shares of Common Stock of payment of
$2,581 in accrued dividends
.
The Company issued 2,667,876 shares of Common Stock as payment for
services and rent valued at $847,616.
The Company issued 3,020,750 shares of Common Stock for the
conversion warrants valued at $906,224.
The Company issued 12,500 shares of Common Stock for the extension
of two convertible notes valued at $3,749.
As share-based compensation to employees and non-employees, the
Company issued 880,366 shares of common stock valued at $328,128,
based on the market price of the stock on the date of issuance. As
interest expense on outstanding notes payable, the Company issued
1,603,135, shares of common stock valued at $569,020 based on the
market price on the date of issuance.
NOTE 8 – STOCK PURCHASE OPTIONS AND WARRANTS
The Board of Directors on June 10, 2009 approved the 2009 Long-Term
Stock Incentive Plan. The purpose of the 2009 Long-term
Stock Incentive Plan is to advance the interests of the Company by
encouraging and enabling acquisition of a financial interest in the
Company by employees and other key individuals. The 2009
Long-Term Stock Incentive Plan is intended to aid the Company in
attracting and retaining key employees, to stimulate the efforts of
such individuals and to strengthen their desire to remain with the
Company. A maximum of 1,500,000 shares of the Company's
Common Stock is reserved for issuance under stock options to be
issued under the 2009 Long-Term Stock Incentive
Plan. The Plan permits the grant of incentive stock
options, nonstatutory stock options and restricted stock
awards. The 2009 Long-Term Stock Incentive Plan is
administered by the Board of Directors or, at its direction, a
Compensation Committee comprised of officers of the
Company.
Stock Purchase Options
During the nine months ended March 31, 2018, the Company did not
issue any stock purchase options.
During the fiscal year ended June 30, 2017, the Company issued
500,000 stock purchase options.
The following table summarizes the changes in options outstanding
of the Company during the nine months ended March 31,
2018.
|
Date
Issued
|
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
|
|
|
Balance
June 30, 2017
|
525,000
|
$
0.18
|
$
0.16
|
4.81
|
$
93,750
|
|
Granted
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
|
Cancelled/Expired
|
-
|
-
|
-
|
-
|
-
|
|
Outstanding
as of March 31, 2018
|
525,000
|
$
0.05
|
$
0.16
|
4.06
|
$
28,750
|
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 8 – STOCK PURCHASE OPTIONS AND
WARRANTS
-
continued
Stock Purchase Warrants
During the three and nine months ended
March 31, 2018, the Company issued warrants to purchase a
total
of
2,175,000
, consisting of 75,000
warrants as part of a private placement valued at $6,019, 100,000
warrants as part of two
AR
financing agreements executed on August 2017
valued at $13,398,
150,000 warrants as part additional consideration of a promissory
note on November 2017 valued at $12,560 and an additional 150,000
warrants to modify the note later in November 2017 valued at
$12,570, 150,000 warrants as part additional consideration of a
promissory note on January 2018 valued at $11,056, 1,000,000
warrants were for facilitating the sales of bBooth stock on
February 2018 valued at 63,041, and 550,000 warrants in conjunction
with extension of three promissory notes valued at $54,491. The
warrants are considered derivative liabilities under ASC 815-40
under the Company’s sequencing policy and were valued using
the
multinomial lattice
model.
The following table presents the assumptions used to estimate the
fair values of the stock warrants and options granted:
|
|
|
March 31, 2018
|
|
June 30, 2017
|
|
Expected volatility
|
|
105-304%
|
|
92-126%
|
|
Expected dividends
|
|
0%
|
|
0%
|
|
Expected term
|
|
0-5 Years
|
|
0-5 Years
|
|
Risk-free interest rate
|
|
0.96-2.48%
|
|
0.74-1.89%
|
The following table summarizes the changes in warrants outstanding
issued to employees and non-employees of the Company during the
three and nine months ended March 31, 2018.
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
|
|
|
Outstanding
as of June 30, 2017
|
39,927,097
|
$
0.38
|
$
0.45
|
3.38
|
$
15,144,835
|
|
Granted
|
2,175,000
|
0.11
|
0.08
|
3.11
|
244,250
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
|
Cancelled/Expired
|
(2,591,250
)
|
0.49
|
-
|
-
|
(1,262,438
)
|
|
Outstanding
as of March 31, 2018
|
39,510,847
|
$
0.36
|
$
0.42
|
2.86
|
$
14,126,647
|
NOTE 9 – FINANCIAL INSTRUMENTS
The Company has financial instruments that are considered
derivatives or contain embedded features subject to derivative
accounting. Embedded derivatives are valued separately from the
host instrument and are recognized as derivative liabilities in the
Company’s balance sheet. The Company measures these
instruments at their estimated fair value and recognizes changes in
their estimated fair value in results of operations during the
period of change. The Company has estimated the fair value of these
embedded derivatives for convertible debentures and associated
warrants using a multinomial lattice model as of March 31, 2018 and
June 30, 2017. The fair values of the derivative instruments are
measured each quarter, which resulted in a gain (loss) on
derivatives of $160,175, and $927,997, and derivative expense of
$1,268,098 and $1,613,231 during the three and nine months ended
March 31, 2018, respectively. As of March 31, 2018, and June 30,
2017, the fair market value of the derivatives aggregated
$3,407,690 and $2,145,065, respectively, using the following
assumptions: estimated 5-0 year term, estimated volatility of
303.62 -104.82%, and a discount rate of
2.48-0.96%.
NOTE 10 – FAIR VALUE MEASUREMENTS
For asset and liabilities measured at fair value, the Company uses
the following hierarchy of inputs:
|
●
|
Level
one — Quoted market prices in active markets for identical
assets or liabilities;
|
|
|
|
|
●
|
Level
two — Inputs other than level one inputs that are either
directly or indirectly observable; and
|
|
|
|
|
●
|
Level
three — Unobservable inputs developed using estimates and
assumptions, which are developed by the reporting entity and
reflect those assumptions that a market participant would
use.
|
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 10 – FAIR VALUE MEASUREMENTS
-
continued
Liabilities measured at fair value on a recurring basis at March
31, 2018, are summarized as follows:
|
|
|
|
|
|
|
Fair
value of derivatives
|
$
-
|
$
-
|
$
3,041,887
|
$
3,041,887
|
|
Securities
available-for-sale
|
$
-
|
$
-
|
$
-
|
$
-
|
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company may become involved in certain legal proceedings and
claims which arise in the normal course of business. The Company is
not a party to any litigation. To the best of the knowledge of our
management, there are no material litigation matters pending or
threatened against us.
Lease Agreements
We lease offices in Hollywood, California (located at 6671 Sunset
Blvd., Suite 1520, 1518 and 1550, Hollywood, California, 90028) for
corporate, research, engineering and mastering services. The lease
expires on December 31, 2017. The total lease expense for the
facility is approximately $17,220 per month, and the total
remaining obligations under these leases at March 31, 2018, were
approximately $0.
We lease a warehouse space located at 8260 E Gelding Drive,
Suite 102, Scottsdale, Arizona, 85260. The lease expires on
February 28, 2019. The total lease expense for the facility is
approximately $1,888 per month, and the total remaining obligations
under this leases at March 31, 2018, were approximately
$20,768.
We lease corporate offices located at 7825 E Gelding Drive, Suite
101, Scottsdale, Arizona, 85260. The lease expires on April 30,
2021. The total lease expense for the facility is approximately
$7,224 per month, and the total remaining obligations under this
leases at March 31, 2018, were approximately $267,288.
We lease corporate offices located at 7825 E Gelding Drive, Suite
103, Scottsdale, Arizona, 85260. The lease expires on April 30,
2021. The total lease expense for the facility is approximately
$3,000 per month, and the total remaining obligations under this
leases at March 31, 2018, were approximately $108,000.
Below is a table summarizing the annual operating lease obligations
over the next 5 years:
|
Year
|
|
|
2018
|
36,336
|
|
2019
|
137,792
|
|
2020
|
122,688
|
|
2021
|
99,746
|
|
2022
|
-
|
|
Total
|
$
396,562
|
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 11 – COMMITMENTS AND CONTINGENCIES
-
continued
Other
The Company has not declared dividends on Series A or B Convertible
Preferred Stock or its Series A-1 Convertible Preferred Stock. The
cumulative dividends in arrears through March 31, 2018 were
approximately $1,078,039.
As of the date of this filing, the Company has not filed its tax
return for the fiscal year ended 2015, 2016, and 2017.
NOTE 13 - SUBSEQUENT EVENTS
In accordance with ASC 855, Company’s management reviewed all
material events through the date of this filing and determined that
there were the following material subsequent events to
report:
On May 4, 2018, the Company issued a convertible note to an
unrelated company for $150,086, which includes proceeds of $127,500
and $22,500 in OID, that matures on May 4, 2019. The note bears 10%
interest per annum and is convertible into shares of the
Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
On April 10, 2018, the Company issued a convertible note to an
unrelated company for $150,000, which includes proceeds of
$122,386, $10,000 transaction fee, and $17,700 in OID, that matures
on February 10, 2019. The note bears 10% interest per
annum and is convertible into shares of the Company’s
common stock at the lesser of $0.05 and 57.5% of the lowest closing
bids 20 days prior to the conversion date. Additionally, the
note contains a percentage discount (variable) exercise price
which causes the number to be converted into a number of common
shares that “approach infinity”, as the underlying
stock price could approach zero. The Company determined under ASC
815, the Company has determined that this percentage discount
(variable) exercise price indicates that these shares, if
issued, are not indexed to the Company’s own stock and,
therefore, is an embedded derivative financial liability, which
requires bifurcation and to be separately accounted for. At each
reporting period, the Company will mark this derivative financial
instrument to its estimated fair value.
On November 20, 2015, the Company issued a convertible note to an
unrelated company for $600,000 that matures on May 20,
2016. The company paid $200,000 in principle balance leaving a
remain balance of $430,000 including the extension fees and is
not convertible unless the borrower defaults under the amendment
agreement dated January 1, 2017. The note bears 0% interest
and had an original issue discount (OID) of $100,000. This note is
not convertible unless there is a default event. Per the terms of
the note there are no derivatives until it becomes convertible on
the original note, however the $30,000 extensions are to be
considered derivatives. The Lender released a clarification of
amendments to convertible promissory notes that explained the
$30,000 extension fees are the only portion that is to be
considered as convertible and converts within 2 days of issuance.
The intent of the amendment agreements were to insure the original
note dated November 20, 2015 in the amount of $600,000. Because the
terms do not dictate a maximum numbers of convertible shares, the
ability to settle these obligations with shares would be
unavailable causing these obligations to potentially be settled in
cash. This condition creates a derivative liability Under ASC
815-40. The Company has a sequencing policy regarding share
settlement wherein instruments with the earliest issuance date
would be settled first. The sequencing policy also considers
contingently issuable additional shares, such as those issuable
upon a stock split, to have an issuance date to coincide with the
event giving rise to the additional shares. During the extension
and conversion day period no additional convertible instruments
were issued, therefore on the extension was considered in the
derivative calculation. The Company extended the maturity date
seven times since February 27, 2017 for a total of $210,000, of
which, the Company paid $135,000 in the nine months ended March 31,
2018. The Company latest and fourteenth extension with
consideration of $30,000 was on December 18, 2017 to extending the
maturity date to January 31, 2018. The Company evaluated the
amendments under ASC 470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. On February 2, 2018, the note converted the principal
of $30,000 for 680,118 shares of common stock. On February 23,
2018, the note converted the principal of $30,000 for 1,083,698
shares of common stock. On April 18, 2018, the note was assigned to
a new note holder under the same terms. On April 23, 2018, the new
note holder converted $100,000 of principal for 2,480,466 shares of
common stock. On May 1, 2018, the new note holder converted
$123,198 of principal for 3,000,000 shares of common
stock.
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
March 31, 2018 and June 30, 2017
NOTE 13 - SUBSEQUENT EVENTS
-
continued
On October 16, 2017, the Company issued a convertible note to an
unrelated company for $110,000 that matures on July 16, 2018. The
note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at 57.5% of the lowest
closing bid 30 days prior to the conversion
date. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates that these shares, if issued, are not indexed
to the Company’s own stock and, therefore, is an embedded
derivative financial liability, which requires bifurcation and to
be separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value. On April 13, 2018, the company paid $145,000 to pay of
the entire debt.
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $149,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, that
this percentage discount (variable) exercise
price indicates is an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. The Company
extended the possibility to convert date by issuing 60,000 warrants
valued at $7,813 on September 8, 2017 to November 2, 2017. The
Company extended the possibility to convert date by issuing 60,000
warrants valued at $7,813 on September 8, 2017 to November 2,
2017. The Company extended the possibility to convert
date by paying $10,000 of principal and $1,400 of accrued interest
on October 23, 2017 to November 24, 2017 and extend the maturity
date to February 21, 2018. . The Company extended the possibility
to convert date by paying $10,000 of principal and $4,000 of
accrued interest on November 29, 2017 to December 22,
2017.
The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the
multinomial lattice
model
.
The Company evaluated amendment under ASC
470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt.
The note was amended on
May 1, 2018, effective March 31, 2018, to extend the maturity date
to June 15, 2018. As consideration for the extension the Company
paid extension fees totaling $2,000.
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $224,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. The Company
extended the possibility to convert date by issuing 90,000 warrants
valued at $11,720 on September 8, 2017 to November 2,
2017. The Company extended the possibility to convert date by
paying $10,000 of principal and $2,100 of accrued interest on
October 23, 2017 to November 24, 2017 and extend the maturity date
to February 21, 2018. The Company extended the possibility to
convert date by paying $20,000 of principal and $6,000 of accrued
interest on November 29, 2017 to December 22,
2017.
The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the
multinomial lattice
model
.
The Company evaluated amendment under ASC
470-50, “
Debt - Modification and
Extinguishment”
, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. On March 12, 2018, the note converted the principal of
$7,337 and $4,278 in accrued interest into for 575,000 shares of
common stock.
The note was amended on
May 1, 2018, effective March 31, 2018, to extend the maturity date
to June 15, 2018. As consideration for the extension the Company
paid extension fees totaling $3,000.
On November 28, 2017, the Company issued a convertible note to an
unrelated party for $53,000 that matures on July 16, 2018. The note
bears 12% interest per annum. The note is convertible into shares
of the Company’s common stock at 61% of the lowest closing
bids 15 days prior to the conversion per share. Due to
sequencing on February 2, 2017, the Company determined under ASC
815, the Company has determined that the note is to be treated as
an embedded derivative financial liability, which requires
bifurcation and to be separately accounted for. At each reporting
period, the Company will mark this derivative financial instrument
to its estimated fair value
. On May 4, 2018, the
Lender assigned principal of $53,000 and $2,614 to an unrelated
party.
Subsequent to March 31, 2018, the Company issued
5,466,666 shares of Common Stock for
$165,000 in cash as part of a private
placement.
AFTERMASTER, INC.
Notes
to Consolidated Financial Statements
March
31, 2018 and June 30, 2017
NOTE
14 – RESTATEMENT OF INTERIM CONDENSED FINANCIAL
STATEMENTS
During the September 30, 2017 quarter, the Company sold $400,000 of
its product to its manufacturer for $400,000 and recorded it as
gross revenue. The transaction eliminated $400,000 in short term
debt. During the course of the audit it was determined that the
transaction should have been classified as net sales. Accordingly,
the Company should not have (i) recognized gross revenue of
$400,000 for the sale related to 4,000 units to the Company’s
manufacturer, (ii) recognized the cost of sales related to 4,000
units of Company products sold to that manufacturer in the amount
of $400,000.
The Company also determined that it erroneously overstated the
derivative liability as of September 30, 2017 and it should be
reduced by $485,031.
During the December 31, 2017 quarter, the Company sold $90,000 of
its product to its manufacturer for $120,000 and recorded it as
gross revenue. The transaction eliminated $90,000 in short term
debt. During the course of the audit it was determined that the
transaction should have been classified as net sales. Accordingly,
the Company should not have (i) recognized gross revenue of
$120,000 for the sale related to the 1,000 units to the
Company’s manufacturer and should have only recognized
$30,000 in net revenue, (ii) recognized the cost of sales of
$90,000 related to 1,000 units of Company product sold to that
manufacturer, or (iii) decreased derivative liabilities by $356,396
by including in the derivative liability calculation convertible
debt that did not include elements that would trigger derivative
treatment.
During the March 31, 2018 quarter, the Company is (i) recording
changes made in the September 30, 2017 and the December 31, 2017
quarters, and (ii) increasing derivative liabilities by $365,803
due to the Company using the incorrect discounted conversion rate
to arrive at the conversion price and number of shares that could
be issued and using an incorrect maturity date to estimate the
useful life on several notes used in the derivative liability
calculation.
We restated the three and nine months ended March 31, 2018 because
we concluded the corrections were material to the interim condensed
financial statements
The effects of these corrections on the interim consolidated
financial statements were:
|
|
Consolidated Balance
Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability
|
3,407,690
|
(365,803
)
|
3,041,887
|
|
Notes
payable, net of discount of $83,295 and $0,
respectively
|
376,705
|
(5,594
)
|
371,111
|
|
Convertible
notes payable, net of discount of $521,668 and $549,737,
respectively
|
3,147,681
|
(113,739
)
|
3,033,942
|
|
Total
Current Liabilities
|
8,145,057
|
(485,136
)
|
7,659,921
|
|
Total
Liabilities
|
8,145,057
|
(485,136
)
|
7,659,921
|
|
Additional
paid In capital
|
65,761,141
|
7,000
|
65,768,141
|
|
Accumulated
Deficit
|
(72,946,247
)
|
478,136
|
(72,468,111
)
|
|
Total
Stockholders' Deficit
|
(7,049,842
)
|
485,136
|
(6,564,706
)
|
NOTE
14 – RESTATEMENT OF INTERIM CONDENSED FINANCIAL
STATEMENTS
-
continued
|
AFTERMASTER,
INC.
|
|
Consolidated
Statements of Operations and Comprehensive Loss
(Unaudited)
|
|
|
For
the nine
Months
Ended
March
31, 2018
|
|
For
the nine
Months
Ended
March
31, 2018
|
|
|
|
|
|
|
AfterMaster
Revenues
|
$
371,910
|
$
-
|
$
371,910
|
|
AfterMaster
Product Revenues
|
1,019,748
|
(490,000
)
|
529,748
|
|
Total
Revenues
|
1,391,658
|
(490,000
)
|
901,658
|
|
Cost
of Revenues (Exclusive of Depreciation and
Amortization)
|
1,366,747
|
(490,000
)
|
876,747
|
|
Total
Costs and Expenses
|
3,978,547
|
(490,000
)
|
3,488,547
|
|
Interest
Expense
|
(2,382,084
)
|
182,375
|
(2,199,709
)
|
|
Derivative
Expense
|
(1,613,231
)
|
(55,190
)
|
(1,668,421
)
|
|
Change
in Fair Value of Derivative
|
927,997
|
350,951
|
1,278,948
|
|
Total
Other Expense
|
1,944,193
|
478,136
|
2,422,329
|
|
Loss Before Income
Taxes
|
(642,696
)
|
478,136
|
(164,560
)
|
|
NET
LOSS
|
$
(642,696
)
|
$
478,136
|
$
(164,560
)
|
|
NET
LOSS AVAILABLE TO COMMON SHAREHOLDERS
|
$
(811,797
)
|
$
478,136
|
$
(333,661
)
|
|
Basic
and diluted Loss Per Share of Common Stock
|
$
(0.01
)
|
$
0.00
|
$
(0.00
)
|
|
NET
LOSS AVAILABLE TO COMMON SHAREHOLDERS
|
(811,797
)
|
478,136
|
(333,661
)
|
|
COMPREHENSIVE
LOSS
|
$
(811,797
)
|
$
478,136
|
$
(333,661
)
|
|
|
Consolidated
Statements of Cash Flows (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
$
(642,696
)
|
$
478,136
|
$
(164,560
)
|
|
Amortization
of debt discount and issuance costs
|
1,457,536
|
(119,334
)
|
1,338,202
|
|
Derivative
expense
|
1,676,273
|
(7,852
)
|
1,668,421
|
|
(Gain)/Loss
remeasurement of derivative
|
(927,998
)
|
(350,950
)
|
(1,278,948
)
|
|
Beneficial
conversion feature
|
$
181,521
|
$
7,000
|
$
188,521
|
|
Derivative
Liability
|
$
917,001
|
$
(10,000
)
|
$
907,001
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Annual Report (the “Report”) includes
“forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934, as amended, and as contemplated
under the Private Securities Litigation Reform Act of
1995. These forward-looking statements may relate to
such matters as the Company’s (and its
subsidiaries) business strategies, continued growth in the
Company’s markets, projections, and anticipated trends in the
Company’s business and the industry in which it operates
anticipated financial performance, future revenues or earnings,
business prospects, projected ventures, new products and services,
anticipated market performance and similar matters. All
statements herein contained in this Report, other than statements
of historical fact, are forward-looking statements.
When used in this Report, the words “may,”
“will,” “expect,” “anticipate,”
“continue,” “estimate,”
“project,” “intend,” “budget,”
“budgeted,” “believe,” “will,”
“intends,” “seeks,” “goals,”
“forecast,” and similar words and expressions are
intended to identify forward-looking statements regarding events,
conditions, and financial trends that may affect our future plans
of operations, business strategy, operating results, and financial
position. These forward-looking statements are based largely on the
Company’s expectations and are subject to a number of risks
and uncertainties, certain of which are beyond the Company’s
control. We caution our readers that a variety of
factors could cause our actual results to differ materially from
the anticipated results or other matters expressed in the forward
looking statements, including those factors described under
“Risk Factors” and elsewhere herein. In
light of these risks and uncertainties, there can be no assurance
that the forward-looking information contained in this Report will
in fact transpire or prove to be accurate. These risks
and uncertainties, many of which are beyond our control,
include:
|
|
●
|
the sufficiency of existing capital resources and our ability to
raise additional capital to fund cash requirements
for future
operations;
|
|
|
●
|
uncertainties involved in growth and growth rate of our operations,
business, revenues, operating margins, costs,
expenses and acceptance of
any products or services;
|
|
|
●
|
uncertainties involved in growth and growth rate of our operations,
business, revenues, operating margins, costs,
expenses and acceptance of
any products or services;
|
|
|
●
|
volatility of the stock market, particularly within the technology
sector;
|
|
|
●
|
our dilution related to all equity grants to employees and
non-employees;
|
|
|
●
|
that we will continue to make significant capital expenditure
investments;
|
|
|
●
|
that we will continue to make investments and
acquisitions;
|
|
|
●
|
the sufficiency of our existing cash and cash generated from
operations;
|
|
|
●
|
the increase of sales and marketing and general and administrative
expenses in the future;
|
|
|
●
|
the growth in advertising revenues from our websites and studios
will be achievable and sustainable;
|
|
|
●
|
that seasonal fluctuations in Internet usage and traditional
advertising seasonality are likely to affect our business;
and
|
|
|
●
|
general economic conditions.
|
Although we believe the expectations reflected in these
forward-looking statements are reasonable, such expectations cannot
guarantee future results, levels of activity, performance or
achievements. We urge you not to place undue reliance on
these forward-looking statements, which speak only as of the date
of this Annual Report.
All references in this report to
“we,” “our,” “us,” the
“Company” or “AfterMaster” refer to
AfterMaster, Inc., and its
subsidiary and
predecessors.
Corporate Background
We are a Delaware corporation, incorporated on May 12, 1988, and we
are traded on an over the counter market (ticker symbol
OTCQB:AFTM). As of March 31, 2018, there were 132,147,996 shares of
Common Stock issued and outstanding. The Company's office and
principal place of business, research, recording and mastering
studios are located at 6671 Sunset Blvd., Suite 1520, Hollywood, CA
90028 USA, and its telephone number is (310) 657-4886. The Company
also has an office at 7825 E. Gelding Drive, Suite 101, Scottsdale,
Arizona 85260 USA, and its telephone number is (480)
556-9303.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-
continued
Aftermaster, Inc. (“the Company" or
“Aftermaster”) is an audio technology company located
in Hollywood, California and Scottsdale, Arizona. The Company's
wholly-owned subsidiaries include Aftermaster HD Audio Labs, Inc.
and MyStudio, Inc.
The Company and its subsidiaries are engaged in the development and
commercialization of proprietary (patents issued and pending),
leading-edge audio and video technologies and products for
professional and consumer use, including Aftermaster® Audio,
ProMaster™, Aftermaster Pro™ and MyStudio®. The
Company also operates recording and mastering studios at its
Hollywood facilities.
Aftermaster believes it holds an unparalleled position in the audio
technology industry and it enjoys a world-class team with extensive
experience in music and audio technology. The Aftermaster team has
produced, engineered and mastered more hit music than any other
audio company in the world. We believe that our expertise and
technical skills have led us to develop audio technologies
unmatched in the audio industry. Aftermaster technologies are both
patented and patent pending, and these technologies have won
several awards. www.aftermaster.com
Mission Statement
Aftermaster's goal is to be one of the most innovative and
important audio companies in the world through the development and
licensing of proprietary audio technologies, the development and
sales of leading-edge consumer and professional audio electronics
products and through its contributions in the production, mixing
and mastering of music, television and film audio.
Quarterly Summary
During the quarter ending March 31, 2018, the Company saw
improvements in several key areas of its operations including
revenue increases throughout all operating divisions and
significant decreases in Cost of Revenues, Losses from Operations
and Notes Payable.
●
Total Debt (excluding
accounts payable, accrued interest and non-cash derivative
liabilities) was reduced from $6,869,515 to
$3,589,380.
●
During the period, the
company finalized an agreement to extinguish $4,500,000 in
convertible notes payable and for the note holder to return
14,880,000 common shares to the Company for
cancellation.
●
Net Income rose to
$2,331,302 or approximately $0.02 per share for the
period versus a ($0.02) per share loss for the comparable period in
2017. The extinguishment of debt was primarily responsible for the
net income increase.
●
Quarterly revenues
increased almost 70% to $441,196 over revenues during the same
period in 2017. For the nine months ending March 31, 2018, revenues
increased to $901,658 as compared to revenues of
$369,844 for the nine months ending March 31,
2017.
●
Losses from Operations
declined to $697,388 from $1,236,185 during the comparable period
in 2017. Net Losses for the nine-month period ending March 31, 2018
was $164,560 versus losses of $6,636,058 for the
comparable period in 2017.
The commencement of an on-line sales program aimed at the
Aftermaster Pro™ television audio system commenced on
February 1, 2018 and is showing strong growth. Preliminary results
indicate that online sales for the month of April 2018 exceeded the
total online sales revenue recorded during the quarter ending March
31, 2018. Based on current and forecasted sales, the Company
believes that it will continue to see increased growth from the
sales of its Aftermaster Pro™, studio revenues, its
Promaster™ on-line mastering service and its partnership with
Tunecore. The Company also expects to generate revenue from one or
more of its other licensing and marketing relationships this
year.
Business and Products
Adventego Strategic Partnership
On May 6, 2018 the Company entered into a Strategic Partnership
Agreement with Advantego Corporation of Denver, Colorado, wherein
Adventego will have the rights to promote and distribute
Aftermaster’s proprietary consumer TV audio product,
Aftermaster Pro (patents issued and pending), to thousands of
professional clinics serving the hearing impaired (audiological)
market in North America. Advantego Corporation designs, develops
and implements digital communications and intelligent software
solutions as a specialized Business Process as a Service (BPaaS).
The Aftermaster Pro will be added to a marketing campaign that
Adventego is undertaking with its strategic partners to promote
public awareness about hearing loss and provide support products to
patients and family members visiting the 15,000+ audiological
hearing aid clinics in North America.
The Aftermaster Pro is especially coveted by the hearing impaired
for watching TV. The Aftermaster Pro not only boosts and clarifies
TV dialogue but also delivers unparalleled clarity, depth, fullness
and volume throughout the entire frequency range without any
compromises. Unlike other audio post-production processes,
Aftermaster preserves the original intention of an audio event and
brings greater clarity, depth and amplitude to all audio elements
without changing the integrity of the underlying
production.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-
continued
Muzik Headphones
On November 4, 2017 the Company entered into an agreement with
headphone manufacturer Muzik, Inc., to license its Aftermaster
technology (through both its Company’s proprietary DSP chip
and software application). Known as the “smartphone” of
headphones, award-winning Muzik has created the worlds most
advanced wireless headphone. Muzik's proprietary voice command and
multiple "hot keys" allow a user to access Spotify, Siri and
connect their headphones to over 300 apps from fitness, news, and
productivity to the connected home, commerce, automotive, and
social media. Muzik is considered the most important new headphone
designer and manufacturer.
Recording Studios
The Company completed an extensive renovation and subsequently
opened a world-class music recording studio originally built by
music legend Graham Nash and made famous by Crosby, Stills and Nash
in 1977, which is located adjacent to its existing studios in
Hollywood at Crossroads of the World. The studio is equipped with
state-of-the-art recording and mixing equipment, and it is used for
both audio research and development as well as to generate revenue
from rental to musicians. The Company considers it to be one of the
finest recording studios in the US, and it began generating revenue
in the first quarter of 2017. It is the largest of the six
recording studios that Aftermaster now operates at its studio
facilities in Hollywood.
www.aftermaster.com/studios
Investment Bankers
The recent successful introduction of our Aftermaster Pro has led
the Company to engage a respected investment banking firm that
specializes in small cap stocks, Maxim Group of New York, to assist
the Company in concurrently raising the capital to both extinguish
its current debt and to provide the additional growth capital
required for the Company to complete an up-listing of its shares to
a larger trading platform. Such financing is contingent on market
conditions, share price and the performance of the company over the
next two fiscal quarters, and there is no guarantee that we will
raise such capital or complete such an up-listing.
TuneCore Agreement
Aftermaster offers both world-class, professional hands-on
mastering services and instant online mastering through its
Promaster brand for music, TV and film customers in its facilities
in Hollywood, California. The Professional Mastering division is
headed up by Peter Doell, one of the world’s foremost
mastering engineers. In May 2016, the Company entered into a
partnership with TuneCore Digital Music Services to provide
professional hands-on mastering services to TuneCore’s
customers. In September 2017, the Company expanded its relationship
with TuneCore and entered into a multi-year agreement to also
provide TuneCore with the Company’s award-winning Promaster
instant online mastering service to TuneCore’s artists. The
agreement displaced TuneCore’s previous relationship with
online mastering service, Landr. TuneCore was impressed by the
music quality and technologies developed by
Aftermaster.
Currently, TuneCore is one of the world's largest independent
digital music distribution and publishing administration service.
Under our agreement, Aftermaster has become the platform for both
hands-on professional and online instant mastering services for
TuneCore’s artists on an exclusive basis. TuneCore has one of
the highest artist revenue-generating music catalogs in the world,
earning TuneCore Artists approximately $987 million from billions
of downloads and streams. TuneCore’s music distribution
services help artists, labels and managers sell their music through
iTunes, Amazon Music, Spotify and other major download and
streaming sites while retaining 100% of their sales revenue and
rights for a low annual flat fee. TuneCore’s artists have
direct access to Aftermaster's world-class senior mastering
engineers and unmatched technologies and can get their tracks hand
mastered for a premium price or instantly electronically mastered
through Aftermaster's Promaster, returned and ready for
distribution. The partnership builds upon TuneCore's mission to
provide independent artists with key tools to build their careers
and gain broad fan exposure, by granting access to unparalleled
mastering that meets the industry's highest standards.
Home Shopping Network and QVC
On April 15, 2017, the Company introduced its Aftermaster Pro
personal TV re-mastering device on national television on the Home
Shopping Network (HSN) during two 15-minute infomercials. Home
Shopping Network is one of the world’s largest television
retailers. HSN initially purchased 1,000 Aftermaster Pros, and its
management team has expressed to the Company that it considered the
launch to be a big success. HSN has subsequently issued purchase
orders for several thousand more units and began new airing dates
on June 9, 2017 followed on September 2, 2017. The Aftermaster Pro
was featured on QVC on March 8 2018 and again on HSN on March 17,
2018 wherein it sold out. HSN provides a unique format which
provides the Company with the opportunity to showcase the quality
of the product, while explaining the differentiating features and
operation of its Aftermaster Pro on national
television.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-
continued
The Company’s Aftermaster Pro product was recently approved
for sale by marketing giant QVC and is currently scheduled for two
airings in the first quarter of 2018. The Company expects that
Aftermaster Pro will continue to be featured on HSN and other
television, online and store based retailers.
Icon Health and Fitness Products
The Company is party to into a consulting and license agreement
with ICON Health & Fitness, Inc. (“ICON”), pursuant
to which the Company will act as an audio technology development
consultant to develop an AfterMaster-based sound module for
integration with ICON’s exercise equipment. ICON will pay the
Company a per module fee and receive a license from the Company to
use or sell the modules and use the software relating to each
module in its products. The Company will also provide audio tuning
services to further enhance the sound quality for ICON’s
other audio-enabled equipment. The Company recently completed the
design of a proprietary audio board for ICON and is expected to be
included in ICON products in the near future.
ICON Health and Fitness, Inc. is the world’s largest
manufacturer and marketer of home fitness equipment, selling over
10 million audio-enable fitness-related devices annually. ICON
manufactures treadmills, elliptical trainers, stationary bicycles,
weight machines and benches, and yoga and Pilates equipment. ICON
has a wide range of well-known and respected brands, products and
technologies, and sells home fitness and health club equipment
under the following brands: NordicTrack®, ProForm®,
Weider®, Gold's Gym® Home Fitness and FreeMotion®.
Its fitness technology brand, including Wi-Fi-enabled fitness
equipment and fitness wearables, is iFit®.
CB2 Marketing Agreement
CB2 (a division of Crate and Barrel), an industry leading lifestyle
furniture retailer, and the Company have entered into a multi-year
partnership to bring music and lifestyle spaces together like never
before. CB2 has unique positioning in the furnishings industry as a
modern, affordable and socially responsible brand who regularly
offers its sophisticated clientele new and exciting opportunities
to better their lifestyle and living environments.
Under the partnership, CB2’s customers will receive the
chance to purchase the unprecedented leading-edge audio through
Aftermaster’s revolutionary technology to be showcased with
the CB2 platforms in a myriad of ways. As part of its collaborative
strategic venture, CB2 began offering the Company's Aftermaster Pro
personal audio remastering devices at key store locations across
the United States including West Hollywood, New York: Soho, South
Beach, Chicago, and Austin. The units retail at $179.99 in stores
and online at CB2's website.
In addition, Aftermaster is now part of powering CB2’s
“After Hours” concert series. The “After
Hours” events transform CB2 locales into intimate nocturnal
music experiences. Just after closing time, the stores play host to
a bevy of notable artists as they perform a one-of-a-kind show to
an exclusive audience sipping on cocktails in a chic and
sophisticated atmosphere. Aftermaster provides enhanced audio
capability for these shows with its proprietary technology and
offers unrivaled sound in real-time. Attendees may also try the
Aftermaster Pro at demo stations throughout the stores during these
events. We believe this is another important brand awareness avenue
for the Pro.
Extending this partnership, CB2 also outfitted Aftermaster's famous
music recording studios at Crossroads of the World in Hollywood,
with a complete makeover of new furniture including
"first-to-be-seen" pieces from their latest
collection.
Aftermaster Consumer and Professional Electronics
Products
The Company has assembled a world-class branding, technical and
design team who have designed the Company’s first consumer
and professional electronics products. The first consumer
electronics product is the Aftermaster Pro, designed to
dramatically improve the quality of TV audio. Aftermaster Pro is
the world’s first personal audio re-mastering device and
defines a new category in consumer electronics products by offering
a product never before offered. Aftermaster Pro is a proprietary,
first-to-market product which has no direct
competition.
The number of existing televisions worldwide is substantial, and a
majority of TV owners complain about their TV audio quality,
especially the need to continually adjust the volume because of the
difficulty in hearing dialogue in certain programming.
Smaller than an iPhone, Aftermaster Pro transforms the audio of
your TV to sound clearer, fuller, deeper, and more exciting.
Aftermaster Pro connects easily via HDMI or 3.5mm audio cables with
virtually any media source (i.e., cable, satellite box, cell phone,
computer, tablet, etc.). Aftermaster Pro raises and clarifies TV
dialogue in programming while significantly enhancing the quality
of the overall audio content. This solves the longstanding issue
with TV audio of having to continually adjust volume during a TV
show to hear dialogue.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-
continued
The Company has an aggressive marketing and sales plan for the
Aftermaster Pro, which is the Company's first consumer electronics
product completely developed in-house. The Aftermaster Pro debuted
to consumers on national television on the Home Shopping Network
(“HSN”) show on April 15, 2017. The Aftermaster Pro
sales were deemed to be very successful, and the product has since
been featured on seven additional HSN programs and on
QVC.
The Aftermaster Pro is also for sale at and is available at several
other prominent online retail outlets including Amazon.com,
Walmart.com, Crate and Barrel's "CB2" stores as well as the
Company’s own website, Aftermasterpro.com. The Company has
engaged an on-line marketing firm and began an online advertising
campaign on February 1, 2018 to drive buyers to our various online
retailers and our aftermasterpro.com website using the same ad
process that produced highly successful sales metrics during our
crowdfunding campaigns.
The Company has also recently designed and developed its first
professional hardware product dubbed the “Aftermaster Studio
Pro” which is the Company’s first product designed for
use in commercial audio applications. The new product is a 1 U,
19” rack-mount Aftermaster audio processor that allows a user
to enhance any audio playback with Aftermaster to make their sound
fuller, clearer, louder and deeper. It is expected to retail for
$3,995 and can be seen at www.aftermastermaster.com/products. The
Company believes that the worldwide market for its new product is
significant, as it can be used in potentially hundreds of thousands
of applications worldwide: radio stations, private and public
recording studios, places of worship, restaurants and bars, sports
facilities, high-end residential, live concerts and concert
facilities, hospitals – virtually any place where a business
wants the audio to sound significantly better than anything they
can do in house. The product is expected to be available for
pre-sale in the second quarter of 2018.
Additional Aftermaster branded consumer electronics products are
under development, which we expect to introduce in the coming
year.
ON Semiconductor/Aftermaster Audio Chip and Software
The Company is party to a joint development and marketing agreement
with ON Semiconductor ("ON") of Phoenix, Arizona, to commercialize
its technology through audio semiconductor chips. ON is a
multi-billion dollar, multi-national semiconductor designer and
manufacturer.
The agreement calls for ON to implement and support our Aftermaster
technology in a Digital Signal Processor (DSP) semiconductor chip
that is being marketed to their current OEM customers, distributors
and others. We selected ON for its technical capabilities, sales
support and deep customer pool.
In conjunction with ON, we have completed the development of an
Aftermaster software algorithm that is designed to be used in
semiconductor chips or as a standalone software product. We believe
the sound quality from our algorithm provides a superior audio
experience relative to other products on the market.
Now branded the BelaSigna 300 AM chip, it is one of the smallest,
high power/low voltage DSP chips available. It is small enough to
fit into a hearing aid but equally effective in any size device
with audio capability.
The algorithm and chips allow consumer product manufacturers an
opportunity to offer a significantly improved and differential
audio experience in their products without having to significantly
change hardware and form factor designs. Through the combined
relationships of the Company and ON, we hope to generate
significant revenues for both parties through the sale of the
ON/AfterMaster chips and software licensing.
Promaster
Promaster is an online music mastering, streaming, and storage
service designed for independent artists which utilizes proprietary
audio technologies developed by Aftermaster.
Tens of millions of songs are produced, distributed and played on
the Internet each month around the world by independent artists.
However, many of these artists lack the financial and technical
means to master, or “finish” their composition, as a
professional mastering session can cost up to $500 per song. Now,
with the Promaster online platform, musicians can transmit their
music directly to the Promaster HD website, where it can be
mastered with Aftermaster technology for $9.99 per song. Each user
receives four different mastered versions of their song done in
different styles, and they can preview 90 seconds of each version
to make a decision about whether or not they want to buy
it.
Promaster creates a compelling offering for those seeking to
significantly enhance the quality of their music for personal use,
or with intent to showcase their music in hopes of advancing their
career aspirations. The service also offers additional features
such as file storage. Based on the enormous addressable market for
this product, we believe that Promaster has the potential to
generate significant revenues for the Company.
www.promasterhd.com
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-
continued
Recording and Mastering Studios
Aftermaster operates six (6) recording and mastering studios at its
Hollywood California facility. The Company’s engineers mix
and master music for both independent and high profile artists,
most recently the music for the hit TV show "Empire". When
available, the Company also rents its studios to third party
artists and producers.
The Company recently took over the former recording studio built by
music legends Crosby, Stills and Nash in 1977, which is located
next to its existing studios. The Company recently completely
renovated the studio and installed state-of-the-art equipment. The
Company considers the new studio to be one of the finest recording
studios in the US and began generating revenues in the first
quarter of 2017. www.aftermaster.com/studios
Aftermaster Audio Technology
Aftermaster audio technology was created and developed pursuant to
a multi-year, multi-million dollar development effort to make
digital audio sound substantially better by developing proprietary
software, digital signal processing technology and consumer
products. The Aftermaster Audio Labs team is comprised of a unique
group of award-winning industry leaders in music, technology and
audio engineering which includes Ari Blitz, Peter Doell, Rodney
Jerkins, Larry Ryckman, Justin Timberlake, Andrew Wuepper and
Shelly Yakus. See www.Aftermaster.com.
The Aftermaster audio technology is an internally-developed,
proprietary (patented and patents pending) mastering, remastering
and audio processing technology which makes virtually any audio
source sound significantly louder, fuller, deeper and clearer.
Aftermaster is a groundbreaking technology which eliminates the
weaknesses found in other audio enhancement and processing
technologies while offering a much superior audio experience for
consumer and industrial applications. We believe that our
Aftermaster audio technology is one of the most significant
breakthroughs in digital audio processing technology and has the
potential to create significant revenues for the Company. The broad
commercialization of this technology is a top priority for the
Company.
As the convergence of features on consumer electronics continues,
it is becoming more difficult for leading consumer electronics
companies to differentiate their products. We believe that
Aftermaster provides a unique and significant competitive advantage
for consumer electronics manufacturers by offering their customers
a superior audio experience. Aftermaster technology can be
incorporated into most audio capable devices through the addition
of an Aftermaster DSP chip or Aftermaster software. Such uses are
intended to include phones (i.e., mobile, home, business and VoIP);
headphones; televisions; stereo speakers; stereos (i.e., home,
portable, commercial and automobile); and computers (i.e., desktop,
laptop and tablets).
Aftermaster audio is also the only commercial audio enhancement
technology available that is used for professional music mastering
because it enhances the entire frequency range without distortion
or changing the underlying intent of the music. The technology has
been used to master music created by some of the world’s most
popular artists. Further information on Aftermaster and Aftermaster
products can be found at
www.Aftermaster.com
.
Intellectual Property and Licensing
The Company has been awarded seven patents and six trademarks with
numerous others pending. The Company has an aggressive intellectual
property strategy to protect the Aftermaster and the related
technologies it has developed. We also enter into confidentiality
and invention assignment agreements with our employees and
consultants and confidentiality agreements with third parties. We
rigorously control access to our proprietary technologies. During
the year, the Company engaged Morgan Chu of Irell and Manella, to
represent its intellectual property interests along with its
existing IP attorneys Farjami & Farjami LLP and Arnold
Weintraub of the Weintraub Group. Mr. Weintraub serves on the Board
of Directors of the Company.
Employees
As of March 31, 2018, we employed eleven full-time and one
part-time employees. We expect to add additional employees in the
next year to handle anticipated potential growth.
We believe that our relationship with our employees is good. None
of our employees are members of any union nor have they entered
into any collective bargaining agreements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-
continued
Facilities
We lease offices in Hollywood, California (located at 6671 Sunset
Blvd., Suite 1520, 1518 and 1550, Hollywood, California, 90028) for
corporate, research, engineering and mastering services. The lease
one to month. The total lease expense for the facility is
approximately $17,220 per month, and the total remaining
obligations under these leases at March 31, 2018, were
approximately $0.00.
We lease a warehouse space located at 8260 E Gelding Drive, Suite
102, Scottsdale, Arizona, 85260. The lease expires on February 28,
2019. The total lease expense for the facility is approximately
$1,888 per month, and the total remaining obligations under this
leases at March 31, 2018, were approximately
$17,910.20.
We lease corporate offices located at 7825 E Gelding Drive, Suite
101 & 103, Scottsdale, Arizona, 85260. The lease expires on
April 30, 2021. The total lease expense for the facility is
approximately $10,443.82 per month, and the total remaining
obligations under this leases at March 31, 2018, were approximately
$94,455.58.
|
RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
For the
Nine Months Ended
|
|
|
|
|
|
|
|
|
|
AfterMaster
Revenues
|
$
371,910
|
$
369,844
|
|
Product
Revenues
|
529,748
|
-
|
|
Total
Revenues
|
$
901,658
|
$
369,844
|
|
Revenues
|
|
|
|
|
For the
Three Months Ended
|
|
|
|
|
|
|
|
|
AfterMaster
Revenues
|
$
132,291
|
$
266,621
|
|
Product
Revenues
|
308,905
|
-
|
|
Total
Revenues
|
$
441,196
|
$
266,621
|
We currently generate revenue from our operations through three
activities: Aftermaster Pro consumer electronic product,
Aftermaster recording studios, and mastering services.
Our product revenues were $308,905 and $901,748 and $0
and $0 during the three and nine months ended March 31, 2018 and
2017, respectively. The increase in product revenues are due to the
company selling Aftermaster Pro through our website
(
www.Aftermasterpro.com
)
and through consumer retail distribution
channels.
In the aggregate, total Company revenues increased to $441,196 and
$901,658 for the three and nine months ended March 31,
2018, as compared to total revenues of $266,621 and $369,844 for
the three and nine months ended March 31, 2017, due to the company
launching the AfterMaster TV Pro online sales and recognition of
deferred revenues from presales.
|
Cost of Revenues
|
|
|
|
For the
Nine Months Ended
|
|
|
|
|
|
|
|
|
Cost
of Revenues (excluding depreciation and amortization)
|
$
876,747
|
$
563,403
|
|
|
For the
Three Months Ended
|
|
|
|
|
|
|
|
|
Cost
of Revenues (excluding depreciation and amortization)
|
$
365,407
|
$
243,628
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-
continued
Cost of sales consists primarily of manufacturing cost of the
AfterMaster Pro TV consumer electronic product, AfterMaster Studio
Rent, Consultants, senior engineers, and excludes depreciation and
amortization on fixed assets. The increase in cost of sales for the
nine months ended March 31, 2018, over the comparable nine-month
period, is attributable, primarily, to an increase in manufacturing
cost for the AfterMaster Pro TV. The company had
manufacturing cost in the amount of $365,407 and
$876
,
747 for
the nine months ending March 31, 2018,
as
compared
to $243,628 and $563,403 for the nine months
ended March 31, 2017.
|
Other Operating Expenses
|
|
|
|
|
|
|
|
|
For the
Nine Months Ended
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization Expense
|
$
125,307
|
$
131,876
|
|
Research
and Development
|
10,987
|
138,987
|
|
Advertising
and Promotion Expense
|
47,604
|
42,509
|
|
Legal
and Professional Expense
|
66,105
|
116,430
|
|
Non-Cash
Consulting Expense
|
167,949
|
1,959,408
|
|
General
and Administrative Expenses
|
2,193,848
|
2,281,202
|
|
Total
|
$
2,611,800
|
$
4,670,412
|
|
Other Operating Expenses
|
|
|
|
|
For the
Three Months Ended
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization Expense
|
$
41,800
|
$
46,322
|
|
Research
and Development
|
8,793
|
45,972
|
|
Advertising
and Promotion Expense
|
28,939
|
24,865
|
|
Legal
and Professional Expense
|
28,915
|
61,360
|
|
Non-Cash
Consulting Expense
|
75,914
|
427,499
|
|
General
and Administrative Expenses
|
588,816
|
653,160
|
|
Total
|
$
773,177
|
$
1,259,178
|
General and administrative expenses
consist primarily of compensation and related costs for our
finance, legal, human resources, investor relation, public
relations and information technology personnel; advertising and
promotion expenses; rent and facilities; and expenses related to
the issuance of stock compensation. During
the three and nine
months ended March 31, 2018
,
General and administrative expenses decrease by $64,344 and $87,354
as compared to the three and nine months ending March 31, 2017. The
decrease is primarily due to the company on longer using a third
party consulting to help with the business
operations.
During
the three and nine
months ended March 31, 2018
,
Research and Development costs decreased by $37,179 and $128,000,
Advertising and Promotion increased by $4,074 and $5,095, Legal and
Professional fees decreased by $32,445 and $50,325 and consulting
services decreased by $351,585 and $1,791,459, as
compared
to the three and nine
months ended March 31, 2017
.
The decreases in Research and Development, decreases in Advertising
and Promotion, and consulting services are primarily due to the
design, development and marketing of its Aftermaster Pro consumer
hardware product. Legal and Professional fees decrease are
primarily to the company only using one attorney on a monthly
retainer to handle all the company’s legal
needs.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-
continued
|
Other Income (Expense)
|
|
|
|
|
For the
Nine Months Ended
|
|
|
|
|
|
|
|
|
Interest
Expense
|
$
(2,199,709
)
|
$
(1,149,424
)
|
|
Derivative
Expense
|
(1,668,421
)
|
(197,200
)
|
|
Change in Fair
Value of Derivative
|
1,278,948
|
(434,699
)
|
|
Gain on Available
for Sale Securities
|
240,000
|
-
|
|
Gain
on Extinguishment of Debt
|
4,771,511
|
9,236
|
|
Total
|
$
2,422,329
|
$
(1,772,087
)
|
|
Other Income (Expense)
|
|
|
|
|
For the
Three Months Ended
|
|
|
|
|
|
|
|
|
Interest
Expense
|
$
(734,221
)
|
$
(401,829
)
|
|
Derivative
Expense
|
(1,328,142
)
|
(197,200
)
|
|
Change in Fair
Value of Derivative
|
169,584
|
(434,125
)
|
|
Gain on Available
for Sale Securities
|
240,000
|
-
|
|
Gain
on Extinguishment of Debt
|
4,681,469
|
-
|
|
Total
|
$
3,028,690
|
$
(1,033,154
)
|
The other income/(expense) during the three and nine ended March
31, 2018 and 2017, totaling $3,028,690 and
$2,422,329 and ($1,033,154) and ($1,772,087) of
income/(expense), respectively, which consists of interest expense,
derivative expense, change in fair value of derivative, and loss on
extinguishment of debt. Interest expense has increased primarily
due to an increase in non-cash interest expense relating to recent
debt discount. These additional borrowings have been
used in the development of the AfterMaster HD. Derivative expense
and change in fair value of derivatives has increased due to the
issuance of derivative instruments in the current period and the
company revaluing the instruments at the end of the current period.
Gain on extinguishment of debt increased in the current period due
to notes settlement in the current period.
|
Net Loss
|
|
|
|
|
For the
Nine Months Ended
|
|
|
|
|
|
|
|
|
Net
Loss
|
$
(164,560
)
|
$
(6,636,058
)
|
|
Net Income (Loss)
|
|
|
|
|
For the
Three Months Ended
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
$
2,331,302
|
$
(2,269,339
)
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-
continued
Due to the Company’s cash position, we use our Common Stock
as currency to pay many employees, vendors and
consultants. Once we have raised additional capital from
outside sources, as well as generated cash flows from operations,
we expect to reduce the use of Common Stock as a significant means
of compensation. Under FASB ASC 718, “
Accounting for Stock-Based
Compensation”
,
these
non-cash issuances are expensed at the equity instruments fair
market value.
Absent these large
stock-based compensations of $75,914 and $167,949 and $427,499 and
$1,959,408, derivative expense of $1,328,142 and
$1,668,421 and $197,200 and $197,200, (gain)loss on the
change in the derivative liability of $169,584 and
1,278,948 and ($434,125) and $9,236 for
the
three and nine
e
nded March 31, 2018 and
2017, our net income(loss) would have been $3,565,774 and
$392,862 and ($1,210,515) and ($4,044,751) for
t
hree and
nine
ended March 31, 2018
and 2017, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had revenues of $901,658 during the nine
months ended March 31, 2018 as compared to $369,844 in the
comparable period of 2017. The Company has incurred losses since
inception of $72,468,111. At March 31, 2018, the
Company has negative working capital of $6,834,972,
which was a decrease in working capital of $2,036,140
from June 30, 2017.
The Company had cash of $180,291 as of March 31, 2018, as compared
to $
250,728
as of June 30, 2017. The decrease is a
result of the Company making payments on notes payable totaling
$255,000, $245,000 in payments on related notes payable, $650,000
in payments on convertible notes, and $119,457 in payments related
to the notes during the period ended March 31, 2018. This amount
also decreased due to current period operational costs, purchases
of assets, and payments of obligations and lease payables, which
was partially offset by the Company entering into twenty-seven (27)
Share Purchase Agreements with individual accredited investors
resulting in net proceeds of $418,500, six (6) notes payable
resulting in net proceeds of $700,000, five (5) related notes
payable resulting in net proceeds of $85,500, and thirty-four (34)
convertible notes payable resulting in net proceeds of
$1,625,360.
The Company had prepaid expense of $450,740 as of March 31, 2018,
as compared to $507,254 as of June 30, 2017. The
decrease is due to the Company amortizing the prepaid expenses
totaling $56,514 over the nine months ended March 31, 2018,
partially offset by the issuance of two consulting agreements
entered into in the current period.
The future of the Company as an operating business will depend on
its ability to obtain sufficient capital contributions and/or
financing as may be required to sustain its
operations. Management’s plan to address these
issues includes a continued exercise of tight cost controls to
conserve cash and obtaining additional debt and/or equity
financing.
As we continue our activities, we will continue to experience net
negative cash flows from operations, pending receipt of significant
revenues that generate a positive sales
margin.
The Company expects that additional operating losses will occur
until net margins gained from sales revenue is sufficient to offset
the costs incurred for marketing, sales and product development.
Until the Company has achieved a sales level sufficient to break
even, it will not be self-sustaining or be competitive in the areas
in which it intends to operate.
In addition, the Company will require substantial additional funds
to continue production and installation of the additional studios
and to fully implement its marketing
plans.
As of March 31, 2018, the existing capital and anticipated funds
from operations were not sufficient to sustain Company operations
or the business plan over the next twelve months. We
anticipate substantial increases in our cash requirements which
will require additional capital to be generated from the sale of
Common Stock, the sale of Preferred Stock, equipment financing,
debt financing and bank borrowings, to the extent available, or
other forms of financing to the extent necessary to augment our
working capital. In the event we cannot obtain the
necessary capital to pursue our strategic business plan, we may
have to significantly curtail our operations. This would
materially impact our ability to continue operations. There is no
assurance that the Company will be able to obtain additional
funding when needed, or that such funding, if available, can be
obtained on terms acceptable to the
Company.
Recent global events, as well as domestic economic factors, have
recently limited the access of many companies to both debt and
equity financings. As such, no assurance can be made that financing
will be available or available on terms acceptable to the Company,
and, if available, it may take either the form of debt or equity.
In either case, any financing will have a negative impact on our
financial condition and will likely result in an immediate and
substantial dilution to our existing
stockholders.
Although the Company intends to engage in a subsequent equity
offering of its securities to raise additional working capital for
operations, the Company has no firm commitments for any additional
funding, either debt or equity, at the present time.
Insufficient financial resources may require the Company to delay
or eliminate all or some of its development, marketing and sales
plans, which could have a material adverse effect on the
Company’s business, financial condition and results of
operations. There is no certainty that the expenditures to be
made by the Company will result in a profitable business proposed
by the Company.
