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, 2020, 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, 2019 audited financial statements. The results of operations
for the period ended March 31, 2020 is not necessarily indicative
of the operating results for the full year.
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 $102,941,857,
negative working capital of $30,112,019 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.
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
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.
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, including standalone warrants, 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.
Leases
The
Company adopted ASC 842 as of July 1, 2019 using a modified
retrospective transition approach for all leases existing at July
1, 2019, the date of the initial application. Consequently,
financial information will not be updated, and disclosures required
under ASC 842 will not be provided for dates and periods before
July 1, 2019.
As of
July 1, 2019, the Company recognized operating lease liabilities of
$154,541 based on the present value of the remaining minimum rental
payments determined under prior lease accounting standards and
corresponding ROU assets of $154,541.
The
Company determines if a contract is a lease or contains a lease at
inception. Right of use assets related to operating type leases are
reported in other noncurrent assets and the present value of
remaining lease obligations is reported in accrued and other
liabilities and other noncurrent liabilities on the Condensed
Consolidated Balance Sheets. The Company does not currently have
any financing type leases.
Operating
lease liabilities are recognized based on the present value of the
future minimum lease payments over the lease term at commencement
date. The Company’s leases do not provide an implicit rate
and the Company could not determine the incremental borrowing rates
applicable to the economic environment; therefore, the Company uses
the risk free interest rates applicable to the duration of the
lease, based on the information available at commencement date, in
determining the present value of future payments. The right of use
asset for operating leases is measured using the lease liability
adjusted for the impact of lease payments made prior to
commencement, lease incentives received, initial direct costs
incurred and any asset impairments. Lease terms may include options
to extend or terminate the lease when it is reasonably certain that
the option will be exercised. Lease expense for minimum lease
payments is recognized on a straight-line basis over the lease
term.
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
The
Company remeasures and reallocates the consideration in a lease
when there is a modification of the lease that is not accounted for
as a separate contract. The lease liability is remeasured when
there is a change in the lease term or a change in the assessment
of whether the Company will exercise a lease option. The Company
assesses right of use assets for impairment in accordance with its
long-lived asset impairment policy.
The
Company accounts for lease agreements with contractually required
lease and non-lease components on a combined basis. Lease payments
made for cancellable leases, variable amounts that are not based on
an observable index and lease agreements with an original duration
of less than twelve months are recorded directly to lease
expense.
Revenue Recognition
The
Company applies the provisions of FASB ASC 606, Revenue Recognition in Financial
Statements, which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements. ASC
606 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 in
accordance with that core principle by applying the following
steps: (i) identify the contract(s) with a customer, (ii) identify
the performance obligations in the contract, (iii) determine the
transaction price (iv) allocate the transaction price to the
performance obligations in the contract, and (v) recognize revenue
when (or as) the entity satisfies a performance obligation. In
general, the Company’s revenues are recognized when control
of the promised goods or services is transferred to our customers,
in an amount that reflects the consideration we expect to be
entitled to in exchange for those goods or services.
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.
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 three and nine months ended
March 31, 2020 and 2019 of $56,367 and $57,595 and $169,101 and
$170,329, respectively.
Due to
the fact that the Preferred Stock has certain features of debt and
is redeemable, the Company analyzed the Preferred Stock 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.
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
three and nine months ended March 31, 2020 and 2019, 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 28,534,619,898 and 457,788,385 at
March 31, 2020 and 2019, respectively.
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
Recent Accounting Pronouncements
In
January 2017, the FASB issued ASU 2017-04, Intangibles –
Goodwill and Other (Topic 350). The amendments in this update
simplify the test for goodwill impairment by eliminating Step 2
from the impairment test, which required the entity to perform
procedures to determine the fair value at the impairment testing
date of its assets and liabilities following the procedure that
would be required in determining fair value of assets acquired and
liabilities assumed in a business combination. The amendments in
this update are effective for public companies for annual or any
interim goodwill impairment tests in fiscal years beginning after
December 15, 2019. The Company is evaluating the effect that the
updated standard will have on its financial statements and related
disclosures.
In June
2018, the FASB issued ASU No. 2018-07, Compensation-Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting. The new ASU expands the scope of Topic 718 to
include share-based payment transactions for acquiring goods and
services from nonemployees. An entity should apply the requirements
of Topic 718 to nonemployee awards except for specific guidance on
inputs to an option pricing model and the attribution of cost. The
new ASU will be effective for the Company beginning in the first
fiscal quarter of 2020, and early adoption is permitted. The
Company is evaluating the effect that the updated standard will
have on its financial statements and related
disclosures.
In
August 2018, the FASB issued ASU No. 2018-13, Fair Value
Measurement (Topic 820) - Disclosure Framework - Changes to the
Disclosure Requirements for Fair Value Measurement. The amendment
modifies, removes, and adds certain disclosure requirements on fair
value measurements. The ASU is effective for annual periods,
including interim periods within those annual periods, beginning
after December 15, 2019. The amendments on changes in unrealized
gains and losses, the range and weighted average of significant
unobservable inputs used to develop Level 3 fair value
measurements, and the narrative description of measurement
uncertainty should be applied prospectively for only the most
recent interim or annual period presented in the initial fiscal
year of adoption. All other amendments should be applied
retrospectively to all periods presented upon their effective date.
Early adoption is permitted. We are currently evaluating the impact
of ASU No. 2018-13 on our consolidated financial
statements.
Management has considered all recent accounting pronouncements
issued since the last audit of our consolidated financial
statements. The Company’s management has evaluated recent
pronouncements and have not included those that were note
applicable.
NOTE 4 – NOTES PAYABLE
Convertible Notes Payable
In
accounting for its convertible notes payable, 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.
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
Convertible Notes Payable – Related Parties
Convertible
notes payable due to related parties consisted of the following as
of March 31, 2020 and June 30, 2019, respectively:
|
Convertible Notes Payable
– Related Parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$30,000 face value,
issued in August 2016, interest rate of 0% and is convertible into
shares of the Company’s Common stock at $0.40 per share,
matured June 30, 2019, net unamortized discount of $0 as of March
31, 2020 and June 30, 2019, respectively. The notes are currently
in default.
|
$30,000
|
$30,000
|
|
Various term notes
with total face value of $89,500 issued from September 2017 to
February 2018, interest rates of 0% and are convertible into shares
of the Company’s common stock at $0.10 per share, matured
from January 2019 to June 30, 2019, net unamortized discount of $0
as of December 31, 2019 and June 30, 2019, respectively. The notes
are currently in default.
|
89,500
|
89,500
|
|
Total convertible
notes payable – related parties
|
119,500
|
119,500
|
|
Less current
portion
|
119,500
|
119,500
|
|
Convertible notes
payable – related parties, long-term
|
$-
|
$-
|
Convertible Notes Payable - Non-Related Parties
Convertible
notes payable due to non-related parties consisted of the following
as of March 31, 2020 and June 30, 2019, respectively:
|
Convertible Notes Payable
- Non-Related Parties
|
|
|
|
|
|
|
|
|
|
|
|
Various term notes
with total face value of $2,049,000, issued from July 2014 to March
2018, interest rates from 0% to 10% and are convertible into shares
of the Company’s common stock from $0.10 to $0.40 per share,
matured from October 2018 to June 2019. One of the notes and
accrued interest was assigned to non-related party notes payable in
September 2019 and three of the notes and accrued interest were
assigned to a non-related convertible note payable in October 2019
The notes are currently in default.
|
$1,844,000
|
$2,049,000
|
|
Two term notes with
total face value of $373,000, issued in February 2017, interest
rates of 10% and are convertible into shares of the Company’s
common stock at lesser of 40% of the average three lowest closing
bids twenty (20) days prior to the conversion date or $0.40 per
share, matured June 2018, with additional extension fees of $81,000
added to principal. A total of $187,403 has been converted and
$85,654 has been paid. The notes are currently in
default.
|
180,943
|
186,597
|
|
$265,000 face
value, issued in May 2017, interest rate of 10% and is convertible
into shares of the Company’s common stock at the lesser of
$0.31 or 60% of the lowest closing bids twenty-five (25) days prior
to the conversion date, matured February 2018, of which $179,406
was converted. The note is currently in default.
|
85,594
|
104,845
|
|
Two term notes with
total face value of $131,000 face value, issued on July 2017 and
August 2017, interest rates of 12% and are 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, matured May 2018 and June 2018, of which
$72,000 was converted. The note is currently in
default.
|
59,000
|
59,000
|
|
$115,000 face
value, issued in November 2017, interest rate of 10% and is
convertible into shares of the Company’s common stock at
57.5% of the lowest closing bids thirty (30) days prior to the
conversion per share, matured August 2018. The note is currently in
default.
|
115,000
|
115,000
|
|
$115,000 face
value, issued in January 2018, interest rate of 10% and is
convertible into shares of the Company’s common stock at the
lesser of $0.12 and 57.5% of the lowest trading price during the
prior thirty (30) days, matured October 2018. The note is currently
in default.
|
115,000
|
115,000
|
|
$160,000 face
value, issued in April 2018, of which $150,000 in principal and
$10,000 in additional fees, interest rate of 10% and is convertible
into shares of the Company’s common stock at the lesser of
$0.05 or 57.5% of the lowest closing bids twenty (20) days prior to
the conversion date, matured January 2019. The note is currently in
default.
|
160,000
|
160,000
|
|
Two term notes with
total face value of $415,000 face value, issued from an assignment
in April 2018 of $370,000 in principal and an OID of $45,000,
interest rates of 10% and are convertible into shares of the
Company’s common stock at rate of 55% of the average trading
price for the prior three (3) trading days, matured April 2019, of
which $223,198 has been converted. The notes are currently in
default.
|
191,802
|
191,802
|
|
Various term notes
with total face value of $502,534, issued from May 2018 to June
2018, interest rates of 12% and are convertible into shares of the
Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period prior to the date
of conversion, matured from October 2018 to June 2019, of which
$69,898 has been converted and $164,499 has been paid. The note is
currently in default.
|
268,137
|
268,137
|
|
$15,651 face value,
issued in June 2018, interest rate of 12% and is convertible into
shares of the Company’s common stock at 60% of the lowest
trading price during the previous twenty (20) days to the date of
conversion, matured June 30, 2019. The note is currently in
default.
|
15,651
|
15,651
|
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
|
$120,000 face
value, issued in July 2018 for prepaid services, interest rate of
15% and is convertible into shares of the Company's common stock at
70% of the lowest closing price per share during the twenty (20)
days prior to the conversion, matures July 2019. The note is
currently in default.
|
120,000
|
120,000
|
|
$39,759 face value,
issued from an assignment in August 2018, interest rate of 12% and
is convertible into shares of the Company’s common stock at
55% of the lowest sales price for common stock on principal market
during the twenty-five (25) consecutive trading days immediately
preceding the conversion date, matured November 2018. The note is
currently in default.
|
39,759
|
39,759
|
|
$23,000 face value,
issued in August 2018 of $20,000 in principal and an OID of $3,000,
interest rate of 12% and is convertible into shares of the
Company's common stock at 55% of the average of the three (3)
lowest closing price during the 25 days prior to the conversion per
share, matures August 2019, net unamortized discount of $0 and
$3,214 as of March 31, 2020 and June 30, 2019, respectively, of
which $23,000 was converted.
|
-
|
19,786
|
|
Various term notes
total value of $1,575,001 face value, issued from August 2018 to
October 2019, of which $1,352,000 in principal and an OID of
$223,001, interest rates of 10% and are convertible into shares of
the Company’s common stock at equal the lesser of $0.12 and
70% of the lowest trading price for the common stock during the
thirty (30) trading day period ending on the latest complete
trading day prior to the conversion date, matures from August 2019
to December 2020, net unamortized discount of $228,010 and $273,843
as of March 31, 2020 and June 30, 2019, respectively. A total of
$43,750 has been paid. Three notes totaling $1,111,896 in principal
are currently in default.
|
1,303,241
|
838,053
|
|
Two term notes
total value of $64,850, issued in August 2018, of which $61,850 in
principal and an OID of $3,000, interest rate of 12% and is
convertible into shares of the Company’s common stock at 61%
of the lowest trading price for the prior fifteen (15) trading days
immediately preceding the conversion date, matures August 2019, net
unamortized discount of $0 and $6,998 as of March 31, 2020 and June
30, 2019, respectively, of which $4,550 has been paid. The notes
are currently in default.
|
60,300
|
57,852
|
|
Two term notes
total value of $178,000, issued from March 2019 to August 2019, of
$160,000 in principal and an OID of $18,000, interest rate of 10%
and is convertible into shares of the Company’s common stock
at 58% of the lowest trading price for the common stock during the
twenty-five (25) trading day period ending on the latest complete
trading day prior to the conversion date, matures from March 2020
and August 2020, net unamortized discount of $30,153 and $65,899 as
of March 31, 2020 and June 30, 2019, respectively, of which $26,350
has been converted.
|
121,497
|
23,101
|
|
Various term notes
with total value of $562,500, issued from March 2019 to June 2019,
of which $535,500 in principal and an OID of $27,000, interest
rates of 12% and are convertible into shares of the Company’s
common stock at 58% of the lowest trading price for the common
stock during the twenty (20) trading day period ending on the
latest complete trading day prior to the conversion date, matures
from March 2020 and June 2020, net unamortized discount of $93,531
and $509,344 as of March 31, 2020 and June 30, 2019, respectively,
of which $100,000 has been paid and $12,500 has been
converted.
|
356,469
|
53,156
|
|
Two term notes with
total value of $154,000, issued in April 2019 and June 2019,of
which $143,000 in principal and an OID of $11,000, interest rates
of 12% and is convertible into shares of the Company’s common
stock at 60% of the lowest trading price for the common stock
during the twenty (20) trading day period ending on the latest
complete trading day prior to the conversion date, matures April
2020, net unamortized discount of $18,725 and $134,435 as of March
31, 2020 and June 30, 2019, respectively.
|
135,275
|
19,565
|
|
Two term notes
total value $103,289, issued from April 2019 to July 2019 of
$58,750 in principal, $10,000 in extension fees, $21,789 in
additional fees, and an OID of $12,750, interest rate of 12% and is
convertible into shares of the Company’s common stock at the
lesser of 55% of the lowest trading price for the common stock
during the twenty (20) trading day period ending on the latest
complete trading day prior to the issuance date or 55% of the
lowest trading price for the common stock during the twenty (20)
trading day period ending on the latest complete trading day prior
to the conversion date, matures from January 2020 to July 2020, net
unamortized discount of $9,287 and $30,967 as of March 31, 2020 and
June 30, 2019, respectively. A total of $10,000 has been
paid.
|
84,002
|
7,533
|
|
$263,000 face
value, issued from an assignment in October 2019, interest rates of
10% and is convertible into shares of the Company’s common
stock at $0.02 per share, matures March 2020.
|
263,000
|
-
|
|
Total convertible
notes payable – non-related parties
|
5,518,670
|
4,443,837
|
|
Less current
portion
|
5,518,670
|
4,443,837
|
|
Convertible notes
payable – non-related parties, long-term
|
$-
|
$-
|
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
During the nine months ended March 31, 2020, one note were
amended to extend the maturity dates. 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.
From
July 12, 2019 through October 18, 2019, the Company issued three
convertible notes to non-related parties for a total of $541,355,
of which $463,750 in principal and $77,605 in OID, that mature from
July 12, 2020 to August 2, 2020. The notes bear between 10% to 12%
interest per annum. The Company also assumed $21,789 in additional
fees added to principal during the period.
During the nine months ended March 31, 2020, the Company made cash
payment of $120,204 toward principal various notes discussed above,
had $10,000 in extension fees, converted $81,101 in principal, and
assigned one note for $20,000 in principal and $3,468 in accrued
interest into a non-related party note payable.
During the nine months ended March 31, 2020, the Company also
assigned two non-related party notes totaling $78,000 in principal
as well as three non-related party convertible notes for $185,000
in principal into a non-related party note payable totaling
$263,000.
Notes Payable – Related Parties
Notes
payable due to related parties consisted of the following as of
March 31, 2020 and June 30, 2019, respectively:
|
Notes Payable –
Related Parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$5,000 face value,
issued in November 2016, interest rate of 0%, which is due on
demand.
|
$5,000
|
$5,000
|
|
Various term notes
with total face value of $213,000, issued from February 2017 to
April 2019, interest rates of 0%, matured June 30, 2019. The notes
are currently in default.
|
213,000
|
213,000
|
|
$58,200 face value,
issued from June 2019 to February 2020, interest rate of 0%,
matures June 2020.
|
58,200
|
12,000
|
|
Total notes payable
– related parties
|
276,200
|
230,000
|
|
Less current
portion
|
276,200
|
230,000
|
|
Notes payable -
related parties, long term
|
$-
|
$-
|
From
July 15, 2019 through March 31, 2020, the Company issued notes to a
related party for a total of $46,200 that all mature on June 30,
2020. The notes bear 0% interest per annum. The Company evaluated
the notes for imputed interest and found it to be
immaterial.
Notes Payable – Non-Related
Parties
Notes
payable due to non-related parties consisted of the following as of
March 31, 2020 and June 30, 2019, respectively:
|
Notes
Payable – Non-Related Parties
|
|
|
|
|
|
|
|
|
|
|
|
Various term notes
with a total face value of $442,325 issued from August 2017 to
March 2020, of which $428,500 in principal, $4,250 of extension
fees, and an OID of $11,075, interest rate of 0%, matured from
December 2018 to April 2020 net of unamortized discount of $6,119
and $992 as of March 31, 2020 and June 30, 2019, respectfully. A
total of $161,125 has been paid on principal and $13,200 has been
converted on principal. One of the notes and accrued interest with
a total face value of $52,000 was assigned to a non-related parties
convertible note payable with a face value of $263,000 in October
2019. All but two notes are currently in default.
|
$211,381
|
$209,758
|
|
Various notes with
a total face value of $127,000 issued from August 2017 to December
2019, interest rate of 10%, matured from December 2018 through
April 2020 net of unamortized discount of $696 and $0 as of March
31, 2020 and June 30, 2019, respectively. All but one note is
currently in default.
|
126,304
|
102,000
|
|
Two term notes with
total face value of $107,000, issued from September 2017 through
March 2019, interest rate of 8% per month, matured from September
2018 and April 2019 net of unamortized discount of $0 as of March
31, 2020 and June 30, 2019. One of the notes and accrued interest
with a total face value of $81,000 was assigned to non-related
parties notes payable with a total face value of $900,204, and the
other note and interest with a total face value of $26,000 was
assigned to non-related parties convertible notes payable with a
face value of $263,000 in September 2019 and October 2019,
respectively.
|
-
|
107,000
|
|
$225,000 face
value, issued in March 2018, interest rate of 30%, matured March
2019 net of unamortized discount of $0 as of March 31, 2020 and
June 30, 2019. The note and accrued interest were assigned to a
non-related party notes payable with a total face value of $900,204
in September 2019.
|
-
|
225,000
|
|
$260,000 face
value, issued in June 2018, an additional $21,000 was added to
principal by the noteholder, interest rate of 0%, matured December
2018 net of unamortized discount of $0 as of March 31, 2020 and
June 30, 2019, of which $31,000 has been paid. The note and accrued
interest were reassigned to non-related parties notes payable with
a total face value of $900,204 in September 2019.
|
-
|
250,000
|
|
$160,000 face
value, issued in November 2018, interest rate of 5% per month,
matured February 2019 net of unamortized discount of $0 as of March
31, 2020 and June 30, 2019. The note and accrued interest were
reassigned to a non-related party notes payable with a total face
value of $900,204 in September 2019.
|
-
|
160,000
|
|
Four notes and one
convertible note were assigned totaling $900,204 in September 2019,
interest rate of 15%, matures April 2020 net of unamortized
discount of $0 as of March 31, 2020.
|
900,204
|
-
|
|
Two term notes with
a face value of $100,000, issued in November 2019, interest rate of
5%, matures April 2020, net of unamortized discount of $1,113 as of
March 31, 2020.
|
98,887
|
-
|
|
$425,000 face
value, issued in November 2019 resulting from a settlement
agreement, interest rate of 0%, matures December 2022, net of
unamortized discount of $0 as of March 31, 2020, of which $117 has
been paid.
|
424,883
|
-
|
|
Total note payable
– non-related parties
|
1,761,659
|
1,053,758
|
|
Less current
portion
|
1,761,659
|
1,053,758
|
|
Notes payable
– non-related parties, long-term
|
$-
|
$-
|
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
During the nine months ended March 31, 2020, two notes were
amended to extend the maturity dates for payments totaling $4,250.
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.
From
July 9, 2019 to March 27, 2020, the Company issued eleven notes to
non-related parties for a total of $312,325, $303,500 in principal
and $8,825 in OID, that mature from October 14, 2019 to April 19,
2020. The notes bear rates from 0% to 10% interest per annum. The
Company evaluated the non-interest-bearing notes for imputed
interest and found it to be immaterial. As additional
consideration, the Company issued 1,000,000 warrants to purchase
shares of Common Stock valued at $12,595 and issued 3,000,000
shares of Common Stock Valued at $1,500.
During the nine months ended March 31, 2020, the Company assigned
five non-related party notes totaling $716,000 in principal and
$160,736 in accrued interest as well as a non-related party
convertible note for $20,000 in principal and $3,468 in accrued
interest into a non-related party note payable totaling
$900,204.
On
November 4, 2019, the Company issued a note to a non-related party
for a total of $425,000 as part of a settlement agreement, that
matures December 1, 2022. The note bears a rate of 0% interest per
annum. The settlement agreement was for prior advertising services
totaling $527,767. The Company recorded a gain on settlement of
debt of $102,767.
NOTE 5 – 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
|
3,663,824
|
|
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
H Preferred
|
5
|
2
|
-
|
|
Series
P Convertible Preferred
|
600,000
|
86,640
|
-
|
|
Series
S Convertible Preferred
|
50,000
|
-
|
-
|
|
Total
Preferred Stock
|
6,325,005
|
3,109,046
|
$3,698,824
|
The
Company’s Series A Convertible Preferred Stock (“Series
A Preferred”) is convertible into Common Stock at the rate of
0.025 per 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, 2019 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 per 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.
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
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.
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 H Preferred Stock shall not be convertible
into the Corporation’s Common Stock, nor shall such shares
have any liquidation or dividend preference over the
Corporation’s Common Stock. Series H Preferred Stock shall
have the right to take action by written consent or vote based on
the number of votes equal to four times the number of votes of all
outstanding shares of capital stock of the Corporation such that
the holders of outstanding shares of Series H Preferred Stock shall
always constitute eighty percent (80%) of the voting rights of the
Corporation.
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 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 nine months ended March 31, 2020, the Company has not issued
any shares of Series A-1 Preferred.
During
the year ended June 2019, the Company has not issued any shares of
A-1 Preferred.
During
the three and nine months ended March 31, 2020 and 2018, the
outstanding Preferred Stock accumulated $56,367 and $57,595 and
$169,101 and $170,329 in dividends on outstanding Preferred Stock,
respectively. The cumulative dividends in arrears as of March 31,
2020 were approximately $1,530,202.
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
NOTE 6 – COMMON STOCK
On
January 13, 2020, the Company increased the number of authorized
shares of Common Stock from 1,000,000,000 up to 5,000,000,000
shares in the sole discretion of the board. The Company has
authorized 5,000,000,000 shares of $0.001 par value per share
Common Stock, of which 663,215,182 issued (of which 3,885,000 are
to be issued) as of March 31, 2020. The activity surrounding the
issuances of the Common Stock is as follows:
For the Nine months Ended March 31, 2020
The Company issued 167,300,000 shares of Common Stock for
$343,000 in cash as part of a private placement in conjunction with the private
placements, the Company issued 95,200,000 warrants
valued at
$1,018,116.
The Company issued 120,157,194 shares of Common Stock for the
conversion of notes and accrued interest valued at $133,233. The
Company also issued 2,250,000 shares of Common Stock for the
conversion of payables valued at $31,725
As share-based compensation to employees and non-employees, the
Company issued 83,999,993 shares of common stock valued at
$158,192, based on the market price of the stock on the date of
issuance.
As part of a provision in a note payable, the Company issued
10,000,000 shares of common stock valued at $30,900 based on the
market price on the date of issuance.
For the Nine months ended March 31, 2019
The Company issued 9,750,000 shares of Common Stock for $97,500 in
cash as part of a private placement
The Company issued 40,002,560 shares of Common Stock for the
conversion of notes and accrued interest valued at
$438,124.
The Company issued 15,635,000, of which 3,885,00 are to be issued
shares of Common Stock as payment for services valued at
$475,765.
As share-based compensation to employees and non-employees, the
Company issued 12,740,732 shares of common stock valued at
$276,497, based on the market price of the stock on the date of
issuance.
As part of a provision in a note payable, the Company issued
3,000,000 shares of common stock valued at $90,000 based on the
market price on the date of issuance.
NOTE 7 – 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, 2020, the Company did not issue any
stock purchase options.
During
the nine months ended December 31, 2018, the Company did not issue
any stock purchase options, and 25,000 expired.
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
The
following table summarizes the changes in options outstanding of
the Company during the three and nine months ended March 31,
2020.
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
|
|
|
Balance
June 30, 2019
|
500,000
|
$0.05
|
$0.17
|
3.00
|
$25,000
|
|
Granted
|
-
|
-
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
|
Cancelled/Expired
|
-
|
-
|
-
|
-
|
-
|
|
Outstanding
as of March 31, 2020
|
500,000
|
$0.05
|
$0.16
|
2.25
|
$25,000
|
During
the nine months ended March 31, 2020, the Company issued three-year
and five-year warrants to purchase a total of 2,918,244 shares with
exercise prices from $0.04 to $0.10 per share into the
Company’s Common Stock, in conjunction with issuance of two
promissory notes, valued at $36,578. The Company also issued
95,200,000 five-year warrants with exercise prices of $0.02
and $0.05 per shares into the Company’s Common Stock,
in conjunction with
issuance of 22 private placements, valued at $1,818,116 and issued
32,268,725 warrants with exercise price of $0.01 per shares
into the Company’s Common Stock in conjunction to two consulting
agreements valued at $242,825. 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, 2020
|
|
Expected volatility
|
|
149-341%
|
|
Expected dividends
|
|
0%
|
|
Expected term
|
|
0-5 Years
|
|
Risk-free interest rate
|
|
0.05-1.97%
|
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, 2020.
|
|
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
|
|
|
Balance
as of June 30, 2019
|
41,900,718
|
$0.15
|
$0.36
|
3.43
|
$6,308,991
|
|
Granted
|
130,386,969
|
0.03
|
0.01
|
4.99
|
3,777,417
|
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
|
Cancelled/Expired
|
(4,499,466)
|
0.28
|
-
|
-
|
(1,281,550)
|
|
Outstanding
as of March 31, 2020
|
167,788,221
|
$0.05
|
$0.09
|
4.17
|
$8,804,858
|
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
NOTE 8 – 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, 2020 and June 30, 2019.
For amounts over proceeds in the initial derivative measurement,
the Company recorded a derivative expense of $0 and $547,121 and
$239,733 and $1,595,079 during the three and nine months ended
March 31, 2020 and 2019, respectively. The fair values of the
derivative instruments are measured each quarter, which resulted in
a loss of $12,753,720 and $12718,376 and $$3,736,445 and $3,141,707
during the three and nine months ended March 31, 2020 and 2019,
respectively. As of March 31, 2020, and June 30, 2019, the fair
market value of the derivatives aggregated $19,766,624 and
$5,009,094, respectively, using the following assumptions:
estimated 5-0 year term, estimated volatility of 341.18 –
149.39%, and a discount rate of 1.97 – 0.05%.
Financial
instruments measured at fair value on a recurring basis at March
31, 2020, are summarized as follows:
|
|
|
|
|
|
|
Fair value of
derivatives
|
$-
|
$-
|
$19,766,624
|
$19,766,624
|
|
|
|
|
|
|
Liabilities
measured at fair value on a recurring basis at June 30, 2019, are
summarized as follows:
|
|
|
|
|
|
|
Fair value of
derivatives
|
$-
|
$-
|
$5,009,094
|
$5,009,094
|
|
Series H Preferred
Stock
|
$-
|
$198,116
|
$-
|
$198,116
|
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The
Company may become involved in certain legal proceedings and claims
which arise in the normal course of business.
1. The
Company is a defendant in an employment related lawsuit filed in
California by a former employee, who was terminated for cause in
October 2018. The Company believes it is without merit and filed a
defense and a Motion to move the matter to Arbitration in Arizona
where he was hired, which was subsequently granted. The plaintiff
has not responded to requests for the arbitration and the Company
expects the matter to be dismissed. The complaint revolves around
alleged unpaid commissions.
2. The
Company is both a plaintiff and defendant in litigation with its
prior manufacturer, Infinity Power and Controls, LLC, (Infinity) of
Rock Springs, Wyoming. Infinity was the Company’s
manufacturer until they were dismissed in December 2018, due to
quality and reliability issues, which resulted in unacceptable
product returns and substantial damage to the Company. The Company
commenced an action against Infinity in the United States District
Court Central District of California for Breach of Contract,
Negligence and Fraud. The claim of Fraud was later dismissed. The
lawsuit seeks direct and punitive damages of $30 million from
Infinity. Infinity sued the Company in the Superior Court of
Arizona County of Maricopa for the alleged non-payment of invoices
totaling $414,000 and an undetermined amount of parts inventory.
Infinity’s Arizona action was stayed pending the outcome of
the action in California commenced by the Company. Infinity
subsequently counter-sued Aftermaster in California for the relief
it sought in the stayed Arizona action. In a related action, both
the Company and Infinity were sued in Arizona on December 2, 2019
by PCB manufacturer, Quik Tek Assembly (“Quik Tek”) of
Tempe Arizona, for alleged unpaid products and parts that were
procured by both the Company and Infinity. No amounts were
specified in the complaint nor has Quik Tek ever contacted the
Company regarding any of the alleged outstanding amounts. The
Company believes that the complaint is without merit and was filed
as a defensive maneuver as the Company was looking to recover a
substantial cash deposit of $375,000.00 that it lodged with Quik
Tek. The Company countersued Quik Tek to recover the cash deposit
of $375,000.00.
3. On
December 27, 2019, the Company was sued by JSJ Investments, Inc.
(JSJ), a Texas corporation, in Texas State Court. Shortly
thereafter, the Company successfully filed to have the case moved
to Federal Court in Texas and also filed a counterclaim against JSJ
for Usury. JSJ is a ratcheting convertible note (also referred to
as toxic notes or dilution funding) lender to small-cap companies.
In April and June of 2019, JSJ issued the Company two, one year
loans with a combined value of $154,000.00 ($77,000.00 each),
backed by ratcheting promissory notes. Although neither loan was
due, JSJ issued a notice of default, alleging the Company prevented
them from converting their debt on one of the notes, into common
shares of the Company. The Company offered to pay the notes with
interest at the maximum rate allowed under Texas law, when they
came due. In response, JSJ demanded in writing through their
attorney, Mark Fritsche of Hedrick Kring of Dallas Texas, that the
Company immediately pay $730,200.00 to redeem the two notes (that
had a face value at the time of $154,000.00). The Company refused
to pay what it believed to be an outrageous, egregious and usurious
amount of money to extinguish the loans that were not yet due. When
the Company refused, JSJ sued the Company for $718,200.00. JSJ
alleges that the $718,200.00 represents principal, penalties,
interest and fees on the $154,000.00 in loans that were not yet
due. The Company is vigorously defending its interests and believes
that JSJ’s demands and conduct are illegal under Texas law
and that JSJ operated in violation of Section 15(a)(1) of the
Securities Act of 1934. Further, the Company is actively exploring
its legal rights, if any, in Canada where the loans originated and
Usury is a Federal Criminal Offense. JSJ is operated and controlled
outside of Texas and the US by Sam Hirji, Matthew Hirji and David
Hirji, all of Alberta, Canada.
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
Lease Agreements
The
Company has operating type leases for real estate. As of March 31,
2020, the Company had no finance type leases. The Company’s
leases have remaining lease terms of up to 1.33 years, some of
which may include options to extend the leases for up to 5 years.
Operating lease expense was $21,023 and $63,295 for the three and
nine months ended March 31, 2020, inclusive of period cost for
short-term, cancellable and variable leases, not included in lease
liabilities, of $69,236 and $193,666 for the three and nine months
ended March 31, 2020.
|
Supplemental
cash flow information related to operating
leases:
|
|
|
|
|
|
|
|
Operating
cash paid to settle lease liabilities
|
$61,405
|
|
Right
of use asset additions in exchange for lease
liabilities
|
154,541
|
|
Supplemental
balance sheet information related to operating
leases:
|
|
|
|
|
|
|
|
Balance Sheet Location
|
|
|
Right
of use assets
|
Other
noncurrent assets
|
$91,247
|
|
|
|
|
Lease
payable
|
Current
liabilities
|
$85,235
|
|
Lease
payable
|
Long-term
liabilities
|
7,901
|
|
Total
lease payable
|
|
$93,136
|
|
|
|
|
|
|
|
Weighted
average remaining lease term (in years)
|
1.08
|
|
Weighted
average discount rate
|
12.15%
|
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
expired on December 31, 2017 and now is on a month to month basis.
The total lease expense for the facility is approximately $20,574
per month, and the total remaining obligations under these leases
at March 31, 2020, were approximately $0.
We
lease warehouse space located at 8260 E Gelding Drive, Suite 102,
Scottsdale, Arizona, 85260. The lease expired on January 31, 2019
and now is on a month to month basis. The total lease expense for
the facility is approximately $1,993 per month, and the total
remaining obligations under this lease at March 31, 2020, were
approximately $0.
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 $7,799
per month, and the total remaining obligations under this lease at
March 31, 2020, were approximately $102,491. The lease resulted in
the balance sheet recognition of $154,541.
Below
is a table summarizing the annual operating lease obligations over
the next 5 years:
|
|
|
|
2020
|
$23,478
|
|
2021
|
79,012
|
|
2022
|
-
|
|
2023
|
-
|
|
2024
|
-
|
|
Total
|
$102,491
|
|
AFTERMASTER, INC.
|
|
Notes
to Consolidated Financial Statements
|
|
March
31, 2020 (Unaudited)
|
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, 2020 were
approximately $1,530,202.
NOTE 10 – RELATED PARTY TRANSACTIONS
On
August 8, 2016, the Company issued a convertible note to a daughter
of a director of the Company, for $30,000 as of March 31, 2020 and
June 30, 2019. The note bears an interest rate of 0% per annum and
is convertible into shares of the Company’s Common Stock at
$0.40 per share.
From
September 2017 to June 2019, the Company issued convertible notes
to a director and officer of the Company for $89,500 as of March
31, 2020 and June 30, 2019. The notes bear an average interest rate
of 0% per annum and is convertible into shares of the
Company’s Common Stock at $0.10 per share.
On
November 15, 2016, the Company issued notes to a director and
officer of the Company, for $5,000. The note bears an average
interest rate of 0% per annum.
From
February 2017 to March 2020, the Company issued notes to a director
and officer of the Company for $276,200 and $255,000 as of March
31, 2020 and June 30, 2019, respectively. The notes bear an average
interest rate of 0% per annum.
As share-based compensation to employees and non-employees, the
Company issued 65,947,735 and 7,541,033 and 83,999,993 and
12,740,732 shares of common stock valued at $46,163 and $150,821
and $158,192 and $276,497 for three and nine months ended March 31,
2020 and 2019, respectively, based on the market price of the stock
on the date of issuance.
The
company has accrued consulting services in the amount of $217,505
and $161,124 payable to directors for services rendered as of March
31, 2020 and June 30, 2019, respectively.
NOTE 11 - 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 April 3, 2020, the Company issued a note to an unrelated party
for $34,850, which includes proceeds of $30,000 and $4,850 in OID
that matures in July 2020. The notes bear 0% interest per
annum.
On
March 27, 2020, the Company issued a
note to an unrelated party for $22,500 that matured in April 2020.
The note bears 0% interest per annum. The note was paid in full as
of April 6, 2020.
On April 10, 2020, the Company issued a note to an unrelated party
for $20,000 that matures in July 2020. The note bears 0% interest
per annum. As additional consideration the Company also issued
3,000,000 shares of common stock and issued 1,500,000 shares to
extend the maturity date to April 24, 2020. 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. The note was paid in full as of May 6,
2020.
On
April 15, 2020, the Company received approval and funding pursuant
to a promissory note evidencing an unsecured loan in the amount of
approximately $177,500 (the “Loan”) under the Paycheck
Protection Program (or “PPP”). The PPP was established
under the Coronavirus Aid, Relief, and Economic Security Act (the
“CARES Act”) and is administered by the U.S. Small
Business Administration (“SBA”). The Company intended
to use the Loan for qualifying expenses in accordance with the
terms of the CARES Act.
On April 28, 2020, a holder of the unrelated convertible note
converted $1,815 of accrued interest into 23,066,380 shares of
common stock.
In June 2020, a holder of an unrelated convertible note converted
$9,000 of principal and $705 of accrued interest into 16,733,120
shares of common stock.
In June 2020, the Company issued 3,500,000 shares of Common Stock
for $3,500 in cash as part of a private placement.
On June 11, 2020, the Company issued a convertible note to an
unrelated company for $40,000 that matures in June 2021. The note
bears 8% interest per annum and is convertible into shares of the
Company’s common stock at equal the greater of $0.02 and 40%
of the lowest Trading Price for the Common Stock on the date of the
conversion notice.
Subsequent to the end of the quarter and as of July 06, 2030,
certain Aftermaster creditors and note-holders have converted debt
totaling the amount of $3,635,531.05 into 265,964,064 shares of
restricted common stock at an average conversion price of
$0.14.
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:
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●
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the sufficiency of existing capital resources and our ability to
raise additional capital to fund cash requirements
for future
operations;
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|
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●
|
uncertainties involved in growth and growth rate of our operations,
business, revenues, operating margins, costs, expenses and acceptance of
any products or services;
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●
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uncertainties involved in growth and growth rate of our operations,
business, revenues, operating margins, costs, expenses and acceptance of
any products or services;
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●
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volatility of the stock market, particularly within the technology
sector;
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|
|
●
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our dilution related to all equity grants to employees and
non-employees;
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|
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●
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that we will continue to make significant capital expenditure
investments;
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●
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that we will continue to make investments and
acquisitions;
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●
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the sufficiency of our existing cash and cash generated from
operations;
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|
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●
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the increase of sales and marketing and general and administrative
expenses in the future;
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●
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the growth in advertising revenues from our websites and studios
will be achievable and sustainable;
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●
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that seasonal fluctuations in Internet usage and traditional
advertising seasonality are likely to affect our business;
and
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●
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general economic conditions.
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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
traded on an over the counter market (ticker symbol: AFTM). As of
March 31, 2020, there were 306,736,038 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.
Aftermaster,
Inc. (“the Company” or “Aftermaster”) is an
audio technology and products company located in Hollywood,
California and Scottsdale, Arizona. The Company’s
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™, HearClearTV, the
Superbar™, Aftermaster Studio Pro and MyStudio®. The
Company also operates recording and mastering studios at its
Hollywood facilities.
The
name Aftermaster was derived from our technology being primarily
utilized to remaster and improve audio that has already been
mastered. The Aftermaster audio process remasters an audio event to
our standards, that has previously been finished or mastered, hence
“Aftermaster”. Aftermaster is unique among audio
processes as it greatly enhances the entire frequency range without
distortion or changing the underlying intent of the audio. The
Aftermaster process is also popular for mastering previously
un-mastered audio such as new recordings or live
events.
Aftermaster,
Inc. is an award-winning audio laboratory whose unique expertise
and approach to its audio technologies and products, is rooted in
its world class expertise in music related audio engineering,
processing and mastering. The music industry has been responsible
for the biggest breakthroughs in audio techniques, inventions and
technologies for over a century. Aftermaster’s team of audio
engineers and music industry veterans have produced, engineered and
mastered more hit records than any other audio company in the
world, providing it with its leading edge expertise. For more
information visit. www.Aftermaster.com/team
Mission Statement
Aftermaster’s
goal is to become 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.
The
quarter ending March 31, 2020 brought unexpected challenges due to
the outbreak of the Worldwide Covid-19 Coronavirus Pandemic. The
“stay-at-home” laws that were passed and the overall
uncertainty created by the Pandemic, brought the company’s
ability to raise capital to a virtual standstill and further
delayed the roll-out of our products. The one bright spot
operationally was the recording and mastering studios operated by
the Company in Hollywood which continued to perform well during the
quarter while complying with California Executive Order N-33-20.
Also, the Company’s R & D and product engineering team
continued to work non-stop to refine its existing products, as well
as develop new products, which are soon to be
introduced.
The
current uncertainty in the financial markets for micro-cap
companies has made the Company’s level of debt (a significant
portion of it being toxic, ratcheting convertible notes), a concern
with prospective investors, which combined with the Company’s
share price, have made it virtually impossible for the Company to
continue to raise capital on acceptable terms. In order to attract
investment capital, the Company must rapidly lower its overall
debt. Accordingly, the Company recently offered all of its
creditors and note-holders the opportunity to convert their debt
into common shares. Subsequent to the end of the quarter,
conversions pursuant to the debt-for-shares offer have reduced the
Company’s debt by $3,635,513.05 (approximately 33% of total
debt, excluding non-cash derivative liabilities), in exchange for
265,964,064 restricted common shares with an average conversion
price of $0.014 per share (a substantial premium to the market).
The Company is continuing to work aggressively with its lenders and
creditors to further reduce its debt in order to raise the capital
required to carry the Company through until the manufacturing of
its products recommences.
After
several quarters of exceptional sales growth, the Company was
forced to suspend manufacturing and dismiss its manufacturer
because of high return rates and quality and reliability issues
with the Company’s Aftermaster Pro product. The suspension of
manufacturing and sales substantially impaired the Company’s
growth and operations over many quarters, as it eliminated any
meaningful revenues from product sales. In an effort to recapture
the damages sustained from its manufacturer before the Pandemic,
the Company commenced an action against the manufacturer, Infinity
Power and Controls, LLC of Rock Springs, Wyoming for $30 million to
recover direct and punitive damages in the United States District
Court for the Central District of California.
The
Company’s product sales continued to be on hold during the
quarter ended March 31, 2020, due to the ongoing delay in the
manufacturing of our products. The latest delay is due primarily to
the impact of the worldwide Coronavirus Pandemic, which forced the
Company to further hold up the rollout of its product
line.
Prior
to the Pandemic, the Company secured a new manufacturer (see below)
and had expected that manufacturing would resume during the latter
part of the quarter. However, the outbreak of the Worldwide
Coronavirus Pandemic and “stay-at-home” laws, brought
manufacturing to an abrupt standstill. It remains uncertain when
manufacturing will start-up again, however based on current
information it is expected that our manufacturer will reopen in
India soon and begin manufacturing our products sometime in the
next two calendar quarters.
As
stated above, the Company entered into a multi-year, Financing,
Licensing, Manufacturing and Distribution agreement with Ritika
Research Labs Pvt. Ltd. of Mumbai India. Ritika is a private
company which has interests in manufacturing, electronics and
product distribution and marketing. The agreement calls for Ritika
to finance engineering, product development, manufacturing,
inventory and the marketing and distribution of all
Aftermaster’s products worldwide (excluding the US and
Canada). The agreement is significant as it brings much needed
capital for manufacturing, inventory and sales of Aftermaster
products to the Company. The agreement is expected to save the
Company significant resources both financially and operationally
while raising the quality and reliability of all its products in
markets worldwide. The Company will receive tiered royalty payments
on worldwide sales excluding the US and Canadian markets, which are
retained by the Company. The progress with Ritika in the
manufacturing and sales of Aftermaster products was impacted by the
worldwide Coronavirus Pandemic and lockdown in India. It remains
uncertain when our products will be available for sale but based on
the current state of the Coronavirus epidemic in India, the Company
expects manufacturing and sales to begin sometime in the next two
calendar quarters.
Business
and Products
Aftermaster
Consumer and Professional Electronics Products
The
Company has assembled a talented branding, technical and design
team who design and develop the Company’s consumer and
professional electronics products. The Company’s goal is to
invent, develop and market unique products utilizing its award
winning and patented audio technologies.
Aftermaster
Pro™ and HearClear TV™
The
first consumer electronic product to be introduced was the
Aftermaster Pro, designed to dramatically improve the quality of TV
audio. The 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 programming.
Smaller
than an iPhone, the Aftermaster Pro transforms the audio of a TV to
sound clearer, fuller, deeper, and more exciting using proprietary
algorithms painstakingly developed over several years. The
Aftermaster Pro connects easily via HDMI, optical or 3.5mm cables
with virtually any A/V media source (i.e., cable, satellite box,
stereo, etc.). The Aftermaster Pro raises and clarifies TV dialogue
in programming while significantly enhancing the quality of the
overall audio content. This solves the longstanding need to
continually adjust volume during a TV show to hear the
dialogue.
Thousands
of Aftermaster Pro units have been sold to buyers in over 70
countries through HSN TV, HSN.com and online retail outlets
including the Company’s own website,
Aftermasterpro.com.
The
Company has also developed a new portable TV audio remastering
product called HearClear TV™, which is based on its
Aftermaster Pro product. HearClear is aimed at people with hearing
loss and will initially be available through audiological clinics
www.hearclear.tv.
The
Aftermaster "Superbars™"
Aftermaster
has developed two revolutionary soundbars - the compact
"Superbar™" (38" x 3" x 3") and the "Superbar Pro" (40" x 4"
x 4"). We consider them revolutionary because they deliver never
before heard audio quality from a soundbar design. Although our
Superbar’s are designed for use primarily with televisions,
they also deliver the power and fidelity demanded from a home
stereo system. Aftermaster achieved this leap by incorporating
Aftermaster’s proprietary, award-winning audio processing
technology with components that are optimized to process and
deliver Aftermaster technology. For the first time, Aftermaster
engineers were able to design a product from the ground up using
components and processes that were specifically chosen to optimize
and complement Aftermaster's revolutionary audio processing
technology. State of the art speakers, clean, powerful amplifiers
and custom crossovers are integrated into a proprietary acoustic
shell all designed to compliment our award-winning and patented
Aftermaster audio processing technology.
Aftermaster
Studio Pro™
The
Company also 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 any 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 facilities 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 that they can currently
do.
Additional
Aftermaster branded consumer electronics products are under
development, which we expect to introduce in the coming year.
www.aftermaster.com/products
ON
Semiconductor/Aftermaster Audio Chip and Software
The
Company jointly developed a unique semi-conductor chip with ON
Semiconductor (“ON”) of Phoenix, Arizona, to
commercialize its Aftermaster technology through audio
semiconductor chips. ON is a multi-billion-dollar, multi-national
semiconductor designer and manufacturer.
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.
In
conjunction with ON, we also completed the development of an
Aftermaster software algorithm that is designed to be a standalone
software product. We believe the sound quality from our algorithm
provides a superior audio experience relative to other products on
the market.
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. We hope to generate
significant revenues through the sale of the ON/Aftermaster chips
and software licensing to third parties.
Promaster On-line Music Mastering
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 with effective marketing Promaster has the
potential to generate significant revenues for the Company.
www.promasterhd.com
TuneCore
Aftermaster
offers both world-class, professional hands-on mastering services
and instant online mastering through its Promaster brand for music,
TV and film in its facilities in Hollywood, California. The
Professional Mastering division is headed up by Peter Doell, one of
the world’s foremost mastering engineers. The Company has a
partnership with TuneCore Digital Music Services to provide both
professional hands-on mastering services and on-line instant
mastering services through its Promaster on-line to
TuneCore’s customers.
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 over a billion dollar from 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.
Muzik Headphones
The
Company is party to 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 one of the worlds most advanced wireless
headphones. 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 one of the most important new
headphone designer and manufacturer. The Company expects its
technology to be implemented in Muzik products in the
future.
Recording Studios
The
Company operates 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 the Company’s
existing studios in Hollywood at the Crossroads of the World
complex. 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 prominent
musicians. It is the largest of the six recording studios that
Aftermaster operates at its studio facilities in Hollywood.
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
name Aftermaster was derived by our technology being able to
remaster and improve audio that has already been mastered. The
Aftermaster audio process pulls an audio event apart that has
previously been finished or mastered and then remasters it to our
standards, hence “Aftermaster”. Aftermaster is unique
among audio processes as it enhances the entire frequency range
without distortion or changing the underlying intent of the audio.
The Aftermaster process is also popular for mastering previously
un-mastered audio such as new recordings or live
events.
Our
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 also 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 nine patents and multiple 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. The
Company has 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, 2020, we employed nine full-time employees. We expect to
seek additional employees in the next year to handle anticipated
potential growth.
We
believe that our relationship with our employees are good. None of
our employees are members of any union, nor have they entered into
any collective bargaining agreements.
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
expired on December 31, 2017 and now is on a month to month basis.
The total lease expense for the facility is approximately $20,574
per month, and the total remaining obligations under these leases
at March 31, 2020, were approximately $0.
We
lease warehouse space located at 8260 E Gelding Drive, Suite 102,
Scottsdale, Arizona, 85260. The lease expired on January 31, 2019
and now is on a month to month basis. The total lease expense for
the facility is approximately $1,993 per month, and the total
remaining obligations under this lease at March 31, 2020, were
approximately $0.
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 $7,799
per month, and the total remaining obligations under this lease at
March 31, 2020, were approximately $102,491.
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RESULTS OF OPERATIONS
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|
|
|
|
|
|
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Revenues
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For the
Three Months Ended
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|
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AfterMaster
Revenues
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$140,258
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$185,042
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Product
Revenues
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1,166
|
21,590
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Total
Revenues
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$141,424
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$206,632
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Revenues
|
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For the
Nine Months Ended
|
|
|
|
|
|
|
|
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AfterMaster
Revenues
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$415,725
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$457,414
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Product
Revenues
|
16,430
|
691,804
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Total
Revenues
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$432,155
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$1,149,218
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We currently generate revenue from our operations through two
activities: AfterMaster revenues and AfterMaster product
revenues.
AfterMaster revenues are generated primarily from AfterMaster audio
services provided to producers and artists on a contract basis. We
hope this source of revenue grows in coming years, and the Company
is expecting to generate additional revenues in this category from
on-line mastering downloads and the development of the AfterMaster
software algorithm and chip, although such growth and additional
revenues are not assured and may not occur. Product revenues for
the three and nine months ended March 31, 2020, decreased to
$140,258 and $415,725, as compared to $185,042 and $457,414 for the
comparable the three and nine months ended March 31, 2019,
respectively. The decrease in product revenues are due to the
company selling fewer Aftermaster Pro through our website
(www.Aftermasterpro.com) and through consumer retail distribution
channels.
In the aggregate, total Company revenues decreased to $141,424 and
$432,155 for the three and nine months ended March 31, 2020, as
compared to total revenues of $206,632 and $1,149,218 for the three
and nine months ended March 31, 2019, the decrease is due to the
company acquiring new overseas manufacturer and the redesign of the
Aftermaster Pro in order to lower the cost of goods
sold.
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Cost of Revenues
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For the
Three Months Ended
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Cost of
Revenues (excluding depreciation and
amortization)
|
$ 112,591
|
$137,958
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|
Cost of Revenues
|
|
|
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For the
Nine Months Ended
|
|
|
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|
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Cost of
Revenues (excluding depreciation and
amortization)
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$ 335,399
|
$1,016,911
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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 decrease in cost of sales for the
three- and nine-months ending March 31, 2020, over the comparable
quarter, is attributable, primarily, to the decrease in product
revenue therefore the company had lower manufacturing cost of the
Aftermaster Pro. The company had cost of revenues in the amount of
$112,591 and $335,399 for the three- and nine-months ending March
31, 2020, as
compared to $137,958 and $1,016,911 for the three- and
nine-months ending March 31, 2019.
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Other Operating Expenses
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For the
Three Months Ended
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Depreciation
and Amortization Expense
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$6,119
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$22,792
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Research
and Development
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-
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-
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Advertising
and Promotion Expense
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-
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10,252
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Legal
and Professional Expense
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16,924
|
17,736
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Non-Cash
Consulting Expense
|
8,384
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406,661
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General
and Administrative Expenses
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439,165
|
625,452
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Total
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$470,592
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$1,082,893
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Other Operating Expenses
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|
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For the
Nine Months Ended
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|
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Depreciation
and Amortization Expense
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$20,772
|
$69,687
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Research
and Development
|
-
|
5,623
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Advertising
and Promotion Expense
|
3,777
|
76,820
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Legal
and Professional Expense
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103,443
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32,546
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Non-Cash
Consulting Expense
|
304,314
|
710,508
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General
and Administrative Expenses
|
1,682,064
|
2,260,986
|
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Total
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$2,114,370
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$3,156,170
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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;
rent and facilities; and expenses related to the issuance of stock
compensation. During the
three and nine months ended March 31, 2020, General and
administrative expenses decreased by $186,287 and $578,992 as
compared to the three and
nine months ended March 31, 2019. The decrease is primarily
due to the company using a third-party consultant to help with the
business operations in the prior period, which did not occur in the
current period.
During
the three and nine months ended March 31,
2020, Research and Development costs decreased to $0 and $0
from $0 and $5,623, Advertising and Promotion decreased to $0 and
$3,777 from $10,252 and $76,820, Legal and Professional fees
decreased for the three month period and increased for the nine
month period to $16,924 and $103,443 from $17,736 and $32,546 and
consulting services decreased to $8,384 and $304,314 from $406,661
and $710,508, as compared to the three and nine months ended March
31, 2019. The decrease is primarily due to the company using social
media advertising to help generate sales. The decrease in Research
and Development was not material compared to the three and nine
months ended December 31, 2018. The decreases in Advertising and
Promotion for the three and nine months ended March 31, 2020, are
primarily due to the design, development and marketing of its
Aftermaster Pro consumer hardware product in the three and nine
months ended March 31, 2019. Legal and Professional fees increases
are primarily to the company only using one attorney on a monthly
retainer to handle all the company’s legal needs in the prior
period compared to five in the nine months ended March 31, 2020.
The decrease in consulting expenses are primarily due to issuing
fewer stock for services compared to the three and nine months
ended March 31, 2019, respectively.
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Other Expense
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For the
Three Months Ended
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Interest
Expense
|
$(555,100)
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$(686,510)
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Derivative
Expense
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-
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(239,733)
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Change in Fair
Value of Derivative
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(12,753,720)
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(3,736,445)
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Gain
on Extinguishment of Debt
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-
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-
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Gain
on Disposal of Property
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10,000
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-
|
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Total
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$(13,298,820)
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$(4,662,688)
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Other Expense
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|
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For the
Nine Months Ended
|
|
|
|
|
|
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Interest
Expense
|
$(1,897,659)
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$(2,225,076)
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Derivative
Expense
|
(547,121)
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(1,595,079)
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Change in Fair
Value of Derivative
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(12,718,516)
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(3,141,708)
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Gain
on Extinguishment of Debt
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88,542
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-
|
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Gain
on Disposal of Property
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10,000
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-
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Total
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$(15,064,754)
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$(6,961,863)
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The
other expenses during the three and nine months ended March 31,
2020, totaling $13,298,820 and $15,064,754 of expenses, which
consists of interest expense, derivative expense, change in fair
value of derivative, and gain on extinguishment of debt. During the
comparable three and nine months in 2019, other expenses totaled
$4,662,688 and $6,961,863. Interest expense has decreased primarily
due to a decrease in non-cash interest expense relating to
amortization of 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 decreased due
to the company revaluing the instruments at the end of the current
period offset by the issuance of derivative instruments in the
current period . Gain on extinguishment of debt is due to two
settlement agreements in the current period. Gain on disposal of
property is due to the Company selling a vehicle that was fully
depreciated during current period.
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Net Loss
|
|
|
|
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For the
Three Months Ended
|
|
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|
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Net
Loss
|
$ (13,740,579)
|
$(5,676,907)
|
|
Net Loss
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|
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|
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For the
Nine Months Ended
|
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Net
Loss
|
$ (17,082,368)
|
$(9,985,726)
|
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” and ASC 505, Equity Based
Payments to Non-Employees”, these non-cash issuances
are expensed at the equity instruments fair market value.
Absent these large
stock-based compensation of $8,384 and $406,661 and $304,314 and
$710,508, derivative expense of $0 and $239,733 and $547,121 and
$1,595,079, loss on the change in the derivative liability of
$12,718,516 and $3,736,445 and 12,753,720 and $3,141,708 for the
three and nine months ended March 31, 2020 and 2019, our net loss
would have been $978,475 and $1,294,068 and $3,512,417 and
$4,538,431 for three and nine months ended March 31, 2020 and 2019,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The
Company had revenues of $141,424 and $432,155 during the
three and nine months ended March 31, 2020 as compared to
$206,632 and
$1,149,218 in the comparable three and nine months of 2019.
The Company has incurred losses since inception of $102,941,857. At
March 31, 2020, the Company has negative working capital of
$30,112,019, which was a decrease in working capital of $17,220,615
from June 30, 2019.
The
Company had cash of $3,721 as of March 31, 2020, as compared to
$366,129 as of June
30, 2019. The decrease is a result of the Company making payments
on convertible notes payable totaling $120,204 and payments on
notes payable totaling $119,742, which was partially offset by the
Company entered into thirty four (34) Share Purchase Agreements
with individual accredited investors resulting in net proceeds of
$343,000, eleven (11) notes payable resulting in net proceeds of
$303,500, five (5) related notes payable resulting in net proceeds
of $46,200, and three (3) convertible notes payable resulting in
net proceeds of $463,750 during the nine months ended March 31,
2020. The cash provided by financing activities decreased by
$646,987 during the nine months ended March 31, 2020 as compared
to the nine months
ended March 31, 2019. This amount was also decreased
by operational costs, payments of obligations from convertible
notes, notes, and lease payables. The company had more expenses
during the quarter than the funding which resulted in a decrease in
cash. The decrease is related to the company having less funding
during the nine months ending March 31, 2020 as compared to June
30, 2019.
The
Company had prepaid expense of $266,263 as of March 31, 2020, as
compared to $311,296 as of June 30, 2019. The decrease is due to
the Company amortizing the prepaid expenses totaling $61,490 over
the nine months ended March 31, 2020.
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, 2020, 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.
