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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☐ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2018
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to
__________
AFTERMASTER, INC.
(Name
of Small Business Issuer as specific in its Charter)
DELAWARE
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23-2517953
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(State or other jurisdiction of
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(IRS Employer
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Incorporation or organization)
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Identification No.)
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6671 Sunset Blvd., Suite 1520
Hollywood, CA 90028
(Address of Principal Executive Offices) (Zip Code)
(310) 657-4886
(Registrant’s telephone number, including area
code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, $.001 par value
(Title of Class)
Indicate by check mark if the Registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities
Act. Yes ☐
No ☒
Indicate by check mark if the Registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐
No ☒
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter periods that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes ☒
No ☐
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§ 229.405 of
this chapter) is not contained herein, and will not be contained,
to the best of Registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this
Form 10-K. ☐
1
Indicate by check mark whether the Registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☐
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Smaller reporting company
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☒
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Emerging Growth Company |
☐
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Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes ☐
No ☒
State the aggregate market value of the voting and non-voting
common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid
and asked price of such common equity, as of the last business day
of the Registrant’s most recently completed first fiscal
quarter: $13,816,376. Shares of Common Stock held by
each officer and director and each person, to Registrant’s
knowledge, who owns more than 5% or more of the Registrant’s
outstanding Common Stock have been excluded because these persons
may be deemed to be affiliates. The determination of affiliate
status for purpose of this calculation is not necessarily a
conclusive determination for other purposes.
As of October 15, 2018, the number of shares of Registrant’s
Common Stock outstanding was 150,772,893.
DOCUMENTS INCORPORATED BY REFERENCE
2
AFTERMASTER, INC.
(FORMERLY STUDIO ONE MEDIA, INC.)
FORM 10-K
FOR THE FISCAL YEAR ENDED
JUNE 30,
2018
INDEX
PART I
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Page
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Item
1.
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Business
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5
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Item
1A.
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Risk Factors
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9
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Item
1B.
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Unresolved Staff Comments
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15
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Item
2.
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Properties
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16
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Item
3.
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Legal Proceedings
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16
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Item
4.
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Submission of Matters to a Vote of Security Holders
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16
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PART II
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Item
5.
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Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
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16
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Item
6.
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Selected Financial Data
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17
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Item
7.
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Management’s Discussion and Analysis of Financial Condition
and Results of Operations
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18
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Item
7A.
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Quantitative and Qualitative Disclosures About Market
Risk
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21
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Item
8.
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Financial Statements and Supplementary Data
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22
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Item
9.
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Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
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22
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Item
9A(T).
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Controls and Procedures
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22
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Item
9B.
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Other Information
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22
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PART III
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Item
10.
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Directors, Executive Officers and Corporate Governance
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23
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Item
11.
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Executive Compensation
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25
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Item
12.
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Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
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26
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Item
13.
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Certain Relationships and Related Transactions, and Director
Independence
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28
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Item
14.
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Principal Accounting Fees and Services
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29
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PART IV
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Item
15.
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Exhibits, Financial Statement Schedules
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30
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3
FORWARD-LOOKING AND CAUTIONARY STATEMENTS
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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the sufficiency of existing capital resources and our ability to
raise additional capital to fund cash requirements for future
operations;
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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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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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volatility of the stock market, particularly within the technology
sector;
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our dilution related to all equity grants to employees and
non-employees;
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that we will continue to make significant capital expenditure
investments;
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that we will continue to make investments and
acquisitions;
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the sufficiency of our existing cash and cash generated from
operations;
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the increase of sales and marketing and general and administrative
expenses in the future;
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the growth in advertising revenues from our websites and studios
will be achievable and sustainable;
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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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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.
4
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
Corporate Background
We are a Delaware corporation, incorporated on about May 12, 1988,
and traded on an over the counter market (ticker symbol OTCQB:
AFTM). As of June 30, 2018, there were 162,287,902 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 company located
in Hollywood, California and Scottsdale, Arizona. The Company's
wholly-owned subsidiaries include Aftermaster HD Audio Labs, Inc.
and MyStudio, Inc.
The Company and its subsidiaries are engaged in the development and
commercialization of proprietary (patents issued and pending),
leading-edge audio and video technologies and products for
professional and consumer use, including Aftermaster® Audio,
ProMaster™, Aftermaster Pro™, Aftermaster Studio Pro
and MyStudio®. The Company also operates recording and
mastering studios at its Hollywood facilities.
Aftermaster holds an unparalleled position in the audio technology
industry and it is operated by a world-class team of experts with
and extensive experience in music and audio technology. The
Aftermaster team has produced, engineered and mastered more hit
music than any other audio company in the world. We believe that
our expertise and technical skills have led us to develop audio
technologies unmatched in the audio industry. Aftermaster
technologies are both patented and patent pending, and its
technologies have won several awards. www.aftermaster.com
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.
Year End Summary
The
year ending June 30, 2018 brought several notable improvements in
key areas of the Company’s financial results:
● Revenues almost doubled to $1,649,501 from
$879,984
● The Net Loss for the year was reduced by over
50% to $4,253,199 from $8,518,359
● The Net Cash Used in Operations decreased
approximately 42% to $2,381,321 from $4,103,327
● Current Liabilities (excluding Derivative
Liabilities) decreased approximately 25% to $5,719,912 from
$7,686,843
Revenues were generated through the sale of the Company’s
Aftermaster Pro TV audio remastering units, rentals of its
Hollywood recording studio facilities, music production, mixing and
mastering services and its Promaster division. During the year, the
Company also sold $520,000 of its Aftermaster Pro units to its
product manufacturer which reduced its current debt by $490,000.
The Company determined under US GAAP the sales should be recorded
as net sales of $30,000 resulting in total sales of $1,649,501 for
the year ended June 30, 2018.
In
October of 2018, the Company hired a new head of marketing and an
accompanying team to focus on licensing the Company’s unique
and award winning audio technology, as well as build sales for its
current and future products.
During
the year, the Company was awarded another patent relating to its
Aftermaster technology. This was the Company’s eighth issued
audio and visual related patent and is one of several patents that
are filed and pending.
During
the first quarter of the fiscal year beginning July 1, 2018, the
Company secured purchase orders and has generated revenues, which
together, exceed the entire revenue for the year ending June 30,
2018. The Company’s ability to deliver on the purchase orders
(which represent a majority of the potential sales) is subject to
the Company securing sufficient manufacturing and operating
capital, as well as reliable product manufacturing. If the Company
has access to such resources, it expects to see substantial growth
in the coming year from both its existing operations and the new
products that it plans to introduce.
Business and Products
Adventego Strategic Partnership
On May 6, 2018 the Company entered into a Strategic Partnership
Agreement with Advantego Corporation of Denver, Colorado, wherein
Adventego will have the rights to promote and distribute
Aftermaster’s proprietary consumer TV audio product,
Aftermaster Pro (patents issued and pending), to thousands of
professional clinics serving the hearing impaired (audiological)
market in North America. Advantego Corporation designs, develops
and implements digital communications and intelligent software
solutions as a specialized Business Process as a Service (BPaaS).
The Aftermaster Pro will be added to a marketing campaign that
Adventego is undertaking with its strategic partners to promote
public awareness about hearing loss and provide support products to
patients and family members visiting the 15,000+ audiological
hearing aid clinics in North America.
The
Aftermaster Pro is especially coveted by those with hearing loss
impairment for watching TV. The Aftermaster Pro not only boosts and
clarifies TV dialogue but also delivers unparalleled clarity,
depth, fullness and volume throughout the entire frequency range
without any compromises. Unlike other audio post-production
processes, Aftermaster preserves the original intention of an audio
event and brings greater clarity, depth and amplitude to all audio
elements without changing the integrity of the underlying
production.
Muzik Headphones
On November 4, 2017 the Company entered into an agreement with
headphone manufacturer Muzik, Inc., to license its Aftermaster
technology (through both its Company’s proprietary DSP chip
and software application). Known as the “smartphone” of
headphones, award-winning Muzik has created the worlds most
advanced wireless headphone. Muzik's proprietary voice command and
multiple "hot keys" allow a user to access Spotify, Siri and
connect their headphones to over 300 apps from fitness, news, and
productivity to the connected home, commerce, automotive, and
social media. Muzik is considered the most important new headphone
designer and manufacturer. The
Company expects its technology to be implemented in Muzik products
in the first quarter of 2018.
5
Recording Studios
The Company completed an extensive renovation and subsequently
opened a world-class music recording studio originally built by
music legend Graham Nash and made famous by Crosby, Stills and Nash
in 1977, which is located adjacent to its existing studios in
Hollywood at 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 musicians such as Usher and Joe
Perry. It is the largest of the six recording studios that
Aftermaster now operates at its studio facilities in
Hollywood.
www.aftermaster.com/studios
TuneCore Agreement
Aftermaster offers both world-class, professional hands-on
mastering services and instant online mastering through its
Promaster brand for music, TV and film customers in its facilities
in Hollywood, California. The Professional Mastering division is
headed up by Peter Doell, one of the world’s foremost
mastering engineers. The Company has a partnership with TuneCore
Digital Music Services to provide professional hands-on mastering
services to TuneCore’s customers. In September 2017, the
Company expanded its relationship with TuneCore and entered into a
multi-year agreement to also provide TuneCore with the
Company’s award-winning Promaster instant online mastering
service to TuneCore’s artists. The agreement displaced
TuneCore’s previous relationship with online mastering
service, Landr.
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.
Home Shopping Network
On April 15, 2017, the Company introduced its Aftermaster Pro
personal TV re-mastering device on national television on the Home
Shopping Network (HSN) during two 15-minute infomercials. The Home
Shopping Network is one of the world’s largest television
retailers. The launch was considered very successful and HSN has
subsequently issued multi purchase orders for thousands more units.
New airing dates began on June 9, 2017, and have been followed by
multiple airings the latest being in July, 2018. HSN provides a
unique format which provides the Company with the opportunity to
showcase the quality of the product, while explaining the
differentiating features and operation of its Aftermaster Pro on
national television. The Company expects that Aftermaster Pro will
continue to be featured on HSN and other television, online and
store based retailers.
6
Aftermaster Consumer and Professional Electronics
Products
The Company has assembled a world-class branding, technical and
design team who have design the Company’s consumer and
professional electronics products. The first consumer electronics
product to be introduced was the Aftermaster Pro, designed to
dramatically improve the quality of TV audio. Aftermaster Pro is
the world’s first personal audio re-mastering device and
defines a new category in consumer electronics products by offering
a product never before offered. Aftermaster Pro is a proprietary,
first-to-market product which has no direct
competition.
The number of existing televisions worldwide is substantial, and a
majority of TV owners complain about their TV audio quality,
especially the need to continually adjust the volume because of the
difficulty in hearing dialogue in certain programming.
Smaller than an iPhone, the Aftermaster Pro transforms the audio of
a TV to sound clearer, fuller, deeper, and more exciting.
Aftermaster Pro connects easily via HDMI cables with virtually any
A/V media source (i.e., cable, satellite box, etc.). 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.
The Aftermaster Pro debuted to consumers on national television on
the Home Shopping Network (“HSN”) show on April 15,
2017. The Aftermaster Pro sales were deemed to be very successful,
and the product has since been featured on multiple HSN
programs.
The Aftermaster Pro is also for sale at and is available at several
other prominent online retail outlets including Amazon.com,
Walmart.com, Crate and Barrel's "CB2" stores as well as the
Company’s own website, Aftermasterpro.com. The Company has
engaged an on-line marketing firm and began an online advertising
campaign on February 1, 2018 to direct buyers to our various online
retailers and our aftermasterpro.com website
The Company has also recently designed and developed its first
professional hardware product dubbed the “Aftermaster Studio
Pro” which is the Company’s first product designed for
use in commercial audio applications. The new product is a 1 U,
19” rack-mount Aftermaster audio processor that allows a user
to enhance any audio playback with Aftermaster to make their sound
fuller, clearer, louder and deeper. It is expected to retail for
$3,995 and can be seen at www.aftermastermaster.com/products. The
Company believes that the worldwide market for its new product is
significant, as it can be used in potentially hundreds of thousands
of applications worldwide: radio stations, private and public
recording studios, places of worship, restaurants and bars, sports
facilities, high-end residential, live concerts and concert
facilities, hospitals – virtually any place where a business
wants the audio to sound significantly better than anything they
can do in house. The product is expected to be available for
pre-sale in the near future.
7
Additional Aftermaster branded consumer electronics products are
under development, which we expect to introduce in the coming
year.
ON Semiconductor/Aftermaster Audio Chip and Software
The Company entered into a joint development and marketing
agreement with ON Semiconductor ("ON") of Phoenix, Arizona, to
commercialize its technology through audio semiconductor chips. ON
is a multi-billion dollar, multi-national semiconductor designer
and manufacturer.
The agreement called for ON to implement and support our
Aftermaster technology in a Digital Signal Processor (DSP)
semiconductor chip to be marketed to their current OEM customers,
distributors and others. We selected ON for its technical
capabilities, sales support and deep customer pool.
In conjunction with ON, we have completed the development of an
Aftermaster software algorithm that is designed to be used in
semiconductor chips or as a standalone software product. We believe
the sound quality from our algorithm provides a superior audio
experience relative to other products on the market.
Now branded the BelaSigna 300 AM chip, it is one of the smallest,
high power/low voltage DSP chips available. It is small enough to
fit into a hearing aid but equally effective in any size device
with audio capability.
The algorithm and chips allow consumer product manufacturers an
opportunity to offer a significantly improved and differential
audio experience in their products without having to significantly
change hardware and form factor designs. Through the combined
relationships of the Company and ON, we hope to generate
significant revenues for both parties through the sale of the
ON/Aftermaster chips and software licensing.
Promaster
Promaster is an online music mastering, streaming, and storage
service designed for independent artists which utilizes proprietary
audio technologies developed by Aftermaster.
Tens of millions of songs are produced, distributed and played on
the Internet each month around the world by independent artists.
However, many of these artists lack the financial and technical
means to master, or “finish” their composition, as a
professional mastering session can cost up to $500 per song. Now,
with the Promaster online platform, musicians can transmit their
music directly to the Promaster HD website, where it can be
mastered with Aftermaster technology for $9.99 per song. Each user
receives four different mastered versions of their song done in
different styles, and they can preview 90 seconds of each version
to make a decision about whether or not they want to buy
it.
Promaster creates a compelling offering for those seeking to
significantly enhance the quality of their music for personal use,
or with intent to showcase their music in hopes of advancing their
career aspirations. The service also offers additional features
such as file storage. Based on the enormous addressable market for
this product, we believe that with effective marketing Promaster
has the potential to generate significant revenues for the
Company.
www.promasterhd.com
Recording and Mastering Studios
Aftermaster operates six (6) recording and mastering studios at its
Hollywood California facility. The Company’s engineers mix
and master music for both independent and high profile artists,
most recently the music for the hit TV show "Empire". When
available, the Company also rents its studios to third party
artists and producers.
The Company recently took over the former recording studio built by
music legend Graham Nash o Crosby, Stills and Nash in 1977, which
is located next to its existing studios. The Company recently
completely renovated the studio and installed state-of-the-art
equipment. 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.
8
The Aftermaster audio technology is an internally-developed,
proprietary (patented and patents pending) mastering, remastering
and audio processing technology which makes virtually any audio
source sound significantly louder, fuller, deeper and clearer.
Aftermaster is a groundbreaking technology which eliminates the
weaknesses found in other audio enhancement and processing
technologies while offering a much superior audio experience for
consumer and industrial applications. We believe that our
Aftermaster audio technology is one of the most significant
breakthroughs in digital audio processing technology and has the
potential to create significant revenues for the Company. The broad
commercialization of this technology is a top priority for the
Company.
As the convergence of features on consumer electronics continues,
it is becoming more difficult for leading consumer electronics
companies to differentiate their products. We believe that
Aftermaster provides a unique and significant competitive advantage
for consumer electronics manufacturers by offering their customers
a superior audio experience. Aftermaster technology can be
incorporated into most audio capable devices through the addition
of an Aftermaster DSP chip or Aftermaster software. Such uses are
intended to include phones (i.e., mobile, home, business and VoIP);
headphones; televisions; stereo speakers; stereos (i.e., home,
portable, commercial and automobile); and computers (i.e., desktop,
laptop and tablets).
Aftermaster audio is also the only commercial audio enhancement
technology available that is used for professional music mastering
because it enhances the entire frequency range without distortion
or changing the underlying intent of the music. The technology has
been used to master music created by some of the world’s most
popular artists. Further information on Aftermaster and Aftermaster
products can be found at www.Aftermaster.com.
Intellectual Property and Licensing
The Company has been awarded eight 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 June 30, 2018, we employed eleven 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, Suite 1511, Suite 1525, Suite 1509, 1518 and
1550, Hollywood, California, 90028) for corporate, research,
engineering and mastering services. The lease expires on December
31, 2017. The total lease expense for the facility is approximately
$20,573.5 per month, and the total remaining obligations under
these leases at June 30, 2018, were approximately $0.
We lease a warehouse space located at 8260 E Gelding Drive, Suite
102, Scottsdale, Arizona, 85260. The lease expires on January 31,
2019. The total lease expense for the facility is approximately
$1,993 per month, and the total remaining obligations under this
leases at June 30, 2018, were approximately $13,952.
We lease corporate offices located at 7825 E Gelding Drive, Suite
101, Scottsdale, Arizona, 85260. The lease expires on April 30,
2021. The total lease expense for the facility is approximately
$7,224 per month, and the total remaining obligations under this
leases at June 30, 2018, were approximately $198,209.
We lease corporate offices located at 7825 E Gelding Drive, Suite
103, Scottsdale, Arizona, 85260. The lease expires on April 30,
2021. The total lease expense for the facility is approximately
$3,000 per month, and the total remaining obligations under this
leases at June 30, 2018, were approximately $84,391.
ITEM 1A. RISK FACTORS.
You should carefully consider the risk factors and other
uncertainties set forth below and all other information contained
in this Report, as well as the public disclosure documents
incorporated by reference herein. If any of the events
contemplated by the following risks actually occurs, then our
business, financial condition, or results of operations could be
materially adversely affected. As a result, the trading price of
our Common Stock could decline, and you may lose all or part of
your investment. The risks and uncertainties below are not the only
risks facing our company. Additional risks and
uncertainties, including those that are not yet identified or that
we currently believe are immaterial, may also adversely affect our
business, financial condition or operating
results.
9
History of Operations and Dependence on Future
Developments.
We are dependent upon our management, certain shareholders and
investors for fundraising. We expect additional
operating losses will occur until revenues are sufficient to offset
our costs for marketing, sales, general and administrative and
product and services development. We are subject to all
of the risks inherent in establishing an early stage business
enterprise. Since we have limited operations, there can
be no assurance that our business plan will be
successful. The potential for our success must be
considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered with an early stage
business and the competitive environment in which we will
operate. A prospective investor should be aware that if
we are not successful in achieving our goals and achieving
profitability, any money invested in us will likely be
lost. Our management team believes that our potential
near-term success depends on our success in, manufacturing,
marketing and selling our products and services. As an early
stage company, we are particularly susceptible to the risks and
uncertainties described herein, and we will be more likely to incur
the expenses associated with addressing them. Our
business and prospects must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in
early stages of development. These risks are
particularly severe among companies in new markets, such as those
markets in which we expect we will operate. Accordingly,
shareholders will bear the risk of loss of their entire investment
in our shares.
New Business Model.
We have a relatively new business model in an emerging and rapidly
evolving market. Accordingly, this makes it difficult to
evaluate our future prospects and may increase the risk that we
will not continue or be successful. We will encounter
risks and difficulties as a company operating in a new and rapidly
evolving market. We may not be able to successfully
address these risks and difficulties, which could materially harm
our business and operating results.
We Have Limited Capital and Will Need Additional
Financing.
As of June 30, 2018, we had an accumulated deficit
of $76,556,750
and
negative working capital of $7,643,147. In addition, for the year ended June
30, 2018, we had a loss of approximately $4,253,199 and negative
cash flow from operating activities of approximately
$2,381,321. The Company has not
declared dividends on its common stock, but the Company does have
cumulative dividends in arrears through June 30, 2018, of
approximately $1,134,406 for its outstanding Series A Convertible
Preferred Stock.
Revenues generated from our current operations are not sufficient
to pay our ongoing operating expenses. Therefore, we will have to
obtain additional funding from the sale of our securities or from
strategic transactions in order to fund our current level of
operations. In order to fund our working capital needs and our
operational costs during 2018, we entered into thirty-nine (39)
Share Purchase Agreements with individual accredited investors
resulting in net proceeds of $642,750, seven (7) notes payable
resulting in net proceeds of $950,000, nine (9) related notes
payable resulting in net proceeds of $119,500, and thirty-nine (39)
convertible notes payable resulting in net proceeds of $2,016,498
to the Company.
The funds currently available to us are inadequate to fully
implement our business plan. Until we have achieved revenues
sufficient for us to break-even, we will not be a self-sustaining
entity, which could adversely impact our ability to be competitive
in the areas in which we do and intend to operate. We require
additional funding for continued operations and will therefore be
dependent upon our ability to raise additional funds through bank
borrowing, equity or debt financing or asset sales. We expect to
access the public and private equity and/or debt markets
periodically to obtain the funds we need to support our operations
and continued growth. There is no assurance that we will be able to
obtain additional funding when needed, or that such funding, if
available, can be obtained on terms acceptable to us. If we
require, but are unable to obtain, additional financing in the
future on acceptable terms, or at all, we will not be able to
continue our business strategy, respond to changing business or
economic conditions, withstand adverse operating results or compete
effectively. If we cannot obtain needed funds, we may be forced to
curtail, in whole or in part, or cease its activities altogether.
When additional shares are issued to obtain financing, current
shareholders will suffer a dilutive effect on their percentage of
stock ownership.
We require substantial capital to continue Aftermaster operations.
Although we intend to engage in subsequent debt and equity
offerings of our securities to raise additional working capital for
Aftermaster operations, we have no firm commitments for any
additional funding, either debt or equity, at the present time.
Insufficient financial resources may require us to delay or
eliminate all or some of our sales and marketing efforts to
generate revenues for AfterMaster, which could have a material
adverse effect on our business, financial condition and results of
operations. There is no certainty that our expenditures will result
in a profitable business as proposed.
Lack of Diversification.
Our current size and financial condition makes it unlikely that we
will be able to commit our funds to diversify the business until we
have a proven track record in our current markets. However, we do
not have any plans nor have we identified any areas or markets in
which we would seek diversification in our Company's
business. We acknowledge that limiting our product offerings
carries a risk of limiting revenues, which may impact our ability
to continue operations.
10
Competition.
Aftermaster has developed an audio enhancement technology that it
believes is unique and competitive in the audio enhancement
industry. However, there are many more well established and
financially successful brands in the audio enhancement industry,
with more name recognition and financial resources such as, SRS,
DTS, Landr and Dolby Labs. Although we believe that our technology
differentiates us from competitor technologies, there is no
assurance that we will be successful in gaining any consumer
acceptance of our technology.
While we believe that the technologies behind AfterMaster and
ProMaster are unique in the industry, other companies within the
industry may develop or have developed audio enhancement
technologies that are equal to or better than our technologies and
could become our competitors. Potential competitors may have
greater name recognition, access to financing, industry contacts
and more extensive customer bases that could be leveraged to
accelerate their competitive activity. Further,
potential competitors may establish future cooperative
relationships among themselves and with third parties to enhance
their products and services in this market space in which we
propose to operate. Consequently, competitors or
alliances may emerge and rapidly acquire significant market
share. We cannot assure you that we will be able to
compete effectively with any competitor should they arise or that
the competitive pressures faced by us will not harm our business.
Such intense competition will limit our opportunities and have a
materially adverse effect on our profitability or
viability.
To protect our Company against competitors, we have embarked on an
aggressive intellectual property protection program which we
believe will be a significant barrier to market entry to potential
competitors for our current product offerings. In
addition, we strive to employ individuals who have long standing
relationships and expertise in various segments of the
entertainment, marketing, finance and communications industries,
which we hope will help facilitate the negotiation of favorable
partnerships, sponsorships and industry support for AfterMaster and
ProMaster.
However, any investor must recognize that AfterMaster is unproven
as a commercially viable audio technology and that many other
companies dominate and are successful in licensing their audio
products, which compete in the market within which AfterMaster is
attempting to establish itself.
Performance - Market Acceptance.
The quality of our products, services, its marketing and sales
ability, and the quality and abilities of our personnel are among
the operational keys to our success. We are heavily
dependent upon successfully completing our product development,
gaining market acceptance and subsequently recruiting and training
a successful sales and marketing force. There can be no
assurance that we will be successful in attracting, training or
retaining the key personnel required to execute the business
plan. Also, there can be no assurance that we can
complete development of new technologies so that other companies
possessing greater resources will not surpass it. There
can be no assurance that we can achieve our planned levels of
performance. If we are unsuccessful in these areas, it
could have a material adverse effect on our business, results of
operations, financial condition and forecasted financial
results. The entertainment industry may resist our
business plan and refuse to participate in contests and other
sponsorship events. In that case we would be forced to
fund and sponsor its own contests which would affect operating
capital, liquidity and revenues. The music
industry may also resist the adoption of our AfterMaster technology
for new and catalogue releases.
Dependence on Intellectual Property - Design and Proprietary
Rights.
Our success and ability to compete depends to a degree on our
intellectual property. We will rely on copyright,
trademark and patent filings as well as confidentiality
arrangements, to protect our intellectual property locally and
internationally. AfterMaster and its subsidiaries have
filed numerous patent applications relating to MyStudio,
AfterMaster, ProMaster and related technologies and processes, and
while we believe the technologies, methods and processes merit
patent protection, there is no assurance that any patent will be
issued. If circumstances make it impossible to try to
adequately protect our intellectual property, that intellectual
property could be used by others without our consent and there
could be material adverse consequences to us. We have filed several
trademark applications and have received Notices of Allowance on
four of those applications. Effective protection may not be
available for our service marks. Although we plan to continue to
register our service marks in the United States and in countries in
which we do business or expect to do business, we cannot assure you
that we will be able to secure significant protection for these
marks. Our competitors, if any exist, or others may adopt product
or service names similar to ours, thereby impeding our ability to
build brand identity and possibly leading to client confusion. If
circumstances make it impossible to adequately protect the name and
brand, this could seriously harm our business.
Some of Our Markets are Cyclical.
Some of our markets are cyclical, and a decline in any of these
markets could have a material adverse effect on our operating
performance. Our business is cyclical and
dependent on consumer and business spending and is therefore
impacted by the strength of the economy generally, interest rates,
and other factors, including national, regional and local slowdowns
in economic activity and job markets, which can result in a general
decrease in product demand from professional contractors and
specialty distributors. For example, a slowdown in
economic activity that results in less discretionary income for
entertainment and music can have an adverse effect on the
demand for some or all of our products. In addition,
unforeseen events, such as terrorist attacks or armed hostilities,
could negatively affect our industry or the industries in which our
customers operate, resulting in a material adverse effect on our
business, results of operations and financial
condition.
11
Dependency on Foreign Components for our Products.
We do and expect to continue sourcing components for our products
from both inside and outside of the United States, which may
present additional risks to our business. International
sourcing of components subject to various risks, including
political, religious and economic instability, local labor market
conditions, the imposition of foreign tariffs and other trade
restrictions, the impact of foreign government regulations, and the
effects of income and withholding tax, governmental expropriation,
and differences in business practices.
We may incur increased costs and experience delays or disruptions
in product deliveries and payments in connection with component
manufacturers, thus causing a potential loss of revenues.
Unfavorable changes in the political, regulatory, and business
climate could have a material adverse effect on our financial
condition, results of operations, and cash
flows.
Exposure to Product Liability Lawsuits.
Our results of operations may be negatively impacted by product
liability lawsuits. While we expect to maintain what we
believe to be suitable product liability insurance once we have
commenced operations of services with the general public, we cannot
assure you that we will be able to maintain this insurance on
acceptable terms or that this insurance will provide adequate
protection against potential liabilities. A series of
successful claims against us could materially and adversely affect
our reputation and our financial condition, results of operations,
and cash flows.
Dependency on Key Suppliers and Product Availability.
Loss of key suppliers, lack of product availability or loss of
delivery sources could delay product development, manufacturing and
decrease sales and earnings of our consumer electronics
products. While in many instances we have agreements,
including supply agreements, with our suppliers, these agreements
are generally terminable by either party on limited
notice. The loss of, or a substantial decrease in the
availability of, products from certain of our suppliers, or the
loss of key supplier agreements, could have a material adverse
effect on our consumer products business, results of operations and
financial condition. In addition, supply interruptions
could arise from shortages of raw materials, labor disputes or
weather conditions affecting products or shipments, transportation
disruptions or other factors beyond our control.
Dependence on Intellectual Property - Design and Proprietary
Rights.
Our success and ability to compete depends to a degree on our
intellectual property. We will rely on copyright,
trademark and patent filings as well as confidentiality
arrangements, to protect our intellectual property locally and
internationally. The Company and its subsidiaries have filed
numerous patent applications relating to AfterMaster and other
audio and video technologies and processes, and while we believe
the technologies, methods and processes merit patent protection,
there is no assurance that any patent will be issued. If
circumstances make it impossible to try to adequately protect our
intellectual property, that intellectual property could be used by
others without our consent and there could be material adverse
consequences to us. We have filed numerous patents and have
received allowance for five of them. We have filed numerous
trademark applications and have received Notices of Allowance on
four of those applications. Effective protection may not be
available for our service marks. Although we plan to continue to
register our service marks in the United States and in countries in
which we do business or expect to do business, we cannot assure you
that we will be able to secure significant protection for these
marks. Our competitors, if any exist, or others may adopt product
or service names similar to ours, thereby impeding our ability to
build brand identity and possibly leading to client confusion. If
circumstances make it impossible to adequately protect the name and
brand, this could seriously harm our business.
Fluctuations in Cost of Raw Materials.
Our results of operations could be adversely affected by
fluctuations in the cost of raw materials. The
manufacturing process is subject to world commodity pricing for
some of the raw materials used in the manufacture of our consumer
electronics products. Such raw materials are often
subject to price fluctuations, frequently due to factors beyond our
control, including changes in supply and demand, general U.S. and
international economic conditions, labor costs, competition, and
government regulation. Inflationary and other increases
in the costs of raw materials have occurred in the past and may
recur in the future. Any significant increase in the
cost of raw materials could reduce our profitability and have a
material adverse effect on our business, results of operations and
financial condition.
Regulatory Factors.
Our business model includes a component involving the
Internet. As such, we are subject to a number of foreign
and domestic laws and regulations that effect business on the
Internet. We must contend with laws and regulations
relating to user privacy, freedom of expression, content,
advertising, information security and intellectual property rights
of others. Possible future consumer legislation,
regulations and actions could cause additional expense, capital
expenditures, restrictions and delays in the activities undertaken
in connection with our business, the extent of which cannot be
predicted.
12
The exact effect of such legislation cannot be predicted until it
is proposed. Terms of subsequent financings may adversely impact
your investment. We will engage in common equity, debt,
and/or preferred stock financings in the future. Your
rights and the value of your investment in Preferred or Common
Stock could be reduced. Interest on debt securities
could increase costs and negatively impacts operating
results.
Shares of our Preferred Stock may be issued in series from time to
time with such designations, rights, preferences, and limitations
as needed to raise capital. The terms of Preferred stock could be
more advantageous to those investors than to the holders of Common
Stock.
In addition, if we need to raise more equity capital from the sale
of common or preferred stock, institutional or other investors may
negotiate terms at least as, and possibly more, favorable than the
terms of your investment. Shares of Common Stock which we sell
could be sold into the market, which could adversely affect the
market price.
Rapid Technological Change.
The industries in which we operate are characterized by rapid
technological change that requires us to implement new technologies
on an ongoing basis. Our future will depend upon our
ability to successfully implement new technologies in a rapidly
changing technological environment. We will likely
require additional capital to develop new technologies to meet
changing customer demands. Moreover, expenditures for
technology and product development are generally made before the
commercial viability for such developments can be
assured. As a result, we cannot assure that we will
successfully implement new technologies, that any implementations
will be well received by customers, or that we will realize a
return on the capital expended to develop such
technology.
Effect of Fluctuations in Operations on the Price of Common
Stock.
Our future operating results may fluctuate and cause the price of
our Common Stock to decline, which could result in substantial
losses for investors. Our limited operating history makes it
difficult to predict accurately our future
operations. We expect that our operating results will
fluctuate significantly from quarter to quarter, due to a variety
of factors, many of which are beyond our control. If our
operating results fall below the expectations of investors or
securities analysts, the price of our Common Stock could decline
significantly. The factors that could cause our
operating results to fluctuate include, but are not limited
to:
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Ability
to broadly commercialize and expand AfterMaster and/or
ProMaster
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Changes
in entertainment technology;
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●
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Availability
and cost of technology and marketing personnel;
|
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●
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Our
ability to establish and maintain key relationships with industry
partners;
|
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●
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The
amount and timing of operating costs and capital expenditures
relating to maintaining our business, operations, and
infrastructure; and
|
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●
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General
economic conditions and economic conditions specific to the
entertainment industry.
|
These and other external factors have caused and may continue to
cause the market price and demand for our Common Stock to fluctuate
substantially, which may limit or prevent investors from readily
selling their shares of Common Stock and may otherwise negatively
affect the liquidity of our Common Stock. In the past, securities
class action litigation has often been brought against companies
following periods of volatility in the market price of their
securities. If securities class action litigation were
to be brought against us, it could result in substantial costs and
a diversion of our management’s attention and resources,
which could hurt our business.
Our Common Stock is Subject to Penny Stock
Regulations.
Our Common Stock is subject to regulations of the SEC relating to
the market for penny stocks. These regulations generally
require that a disclosure schedule explaining the penny stock
market and the risks associated therewith be delivered to
purchasers of penny stocks and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons
other than established customers and accredited
investors. The regulations applicable to penny stocks
may severely affect the market liquidity for our Common Stock and
could limit your ability to sell your securities in the secondary
market.
Uncertainty as a Going Concern.
Our future existence remains uncertain and the report of our
independent auditors on our financial statements for the year ended
June 30, 2017 includes an explanatory paragraph relating to our
ability to continue as a going concern. We have suffered
substantial losses from operations and require additional
financing. Ultimately, we need to generate additional
revenues and attain profitable operations. These factors
raise substantial doubt about our ability to continue as a going
concern. There can be no assurance that we will be able to develop
commercially viable products or an effective marketing system. Even
if we are able to develop commercially viable products, there is no
assurance that we will be able to attain profitable
operations.
13
Restrictions on Transfer - No Public Market for Preferred Shares or
Restricted Common Shares.
Our shares of Common Stock are traded on the Over-The-Counter
Bulletin Board System (OTCQB) under the ticker symbol
AFTM. However, for shares that have been issued and are
restricted pursuant to SEC Rule 144 of the Securities Act of 1933
(the “Act”), there is presently no public or private
market for such shares. Such shares may only be offered
or sold pursuant to registration under or an exemption from the Act
and have not been registered under the Act, as amended, or any
State securities laws and would be issued under Section 4(2) of the
Act and Rule 506 of Regulation D promulgated under the
Act.
Expect to Incur Losses for the Foreseeable Future.
We expect to incur losses for the foreseeable future and we may
never become profitable. Our business model
requires that we obtain revenues from our online music mastering
service, ProMaster, or by licensing our AfterMaster HD audio and
selling AfterMaster HD chip proprietary technology to consumer
device manufacturers. There are no assurances that
significant revenues from ProMaster and/or AfterMaster necessary
for the Company to become break-even will occur. We expect our
expenses to increase significantly as we continue to develop the
infrastructure necessary to fully implement our business
strategy. Our expenses will continue to increase as we:
hire additional employees; implement our marketing plans; pursue
further research and development; expand our information technology
systems; and lease and purchase more space to accommodate our
operations.
Costs associated with designing, developing, manufacturing,
marketing and developing the infrastructure we will need to support
our customers will depend upon many factors, including the
growth-rate of our online user base and the amount of engineering
expertise needed to maintain and build our IP
portfolio. Therefore, we cannot now determine the amount
by which our expenses will increase as we grow.
Possible Claims
That the Company Has Violated Intellectual Property Rights of
Others.
We are not subject to any dispute, claim or lawsuit or threatened
lawsuit alleging the violation of intellectual property rights of a
third party. We believe AfterMaster and ProMaster are
not in violation of any patents claimed by others. To
the extent that the Company is ever alleged to have violated a
patent or other intellectual property right of a third party, it
may be prevented from operating its business as planned, and it may
be required to pay damages, to obtain a license, if available, to
use the patent or other right or to use a non-infringing method, if
possible, to accomplish its objectives. Any of these claims, with
or without merit, could subject us to costly litigation and the
diversion of our technical and management personnel. If we incur
costly litigation and our personnel are not effectively deployed,
the expenses and losses incurred will increase, and our profits, if
any, will decrease.
Business Plans and Operational Structure May Change.
We continually analyze our business plans and operations in light
of market conditions and developments. As a result of
our ongoing analyses, we may decide to make substantial changes in
our business plan and organization. In the future, as we
continue our internal analyses and as market conditions and our
available capital change, we may decide to make organizational
changes and/or alter some or all of our overall business
plans.
Reliance on
Management.
We believe that our present management has the experience and
ability to successfully implement our business plans for the
foreseeable future. However, it is likely that we will
continue to add to our management and therefore will recruit
additional persons to key management positions in the
future. Should we be unsuccessful in recruiting persons
to fill the key positions or in the event any of these individuals
should cease to be affiliated with us for any reason before
qualified replacements can be hired, there could be material
adverse effects on our business and prospects. Each
officer, director, and other key personnel has or will have an
employment agreement with us which will contain provisions dealing
with confidentiality of trade secrets, ownership of patents,
copyrights and other work product, and
non-competition.
14
Nonetheless, there can be no assurance that these personnel will
remain employed for the entire duration of the respective terms of
such agreements or that any employee will not breach covenants and
obligations owed to us. In addition, all management decisions
will be made exclusively by our officers and
directors. Investors will only have rights associated
with minority ownership interest rights to make decisions that
affect the Company. Our success, to a large extent, will
depend on the quality of our directors, officers and senior
management.
Inability to Attract and Retain Qualified Personnel.
Our future success depends in significant part on its ability to
attract and retain key management, technical and marketing
personnel. Competition for highly qualified
professional, technical, business development, and management and
marketing personnel is intense. We may experience
difficulty in attracting new personnel, may not be able to hire the
necessary personnel to implement our business strategy, or we may
need to pay higher compensation for employees than we currently
expect. A shortage in the availability of required
personnel could limit our ability to grow. We cannot
assure you that we will succeed in attracting and retaining the
personnel we need to grow.
Inability to Manage Rapid Growth.
We expect to grow rapidly. Rapid growth often places
considerable operational, managerial and financial strain on a
business. To successfully manage rapid growth, we must
accurately project its rate of growth and:
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Rapidly
improve, upgrade and expand our business
infrastructure;
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Deliver
our product and services on a timely basis;
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Maintain
levels of service expected by clients and customers;
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Maintain
appropriate levels of staffing;
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Maintain
adequate levels of liquidity; and
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Expand
and upgrade our technology, transaction processing systems and
network hardware or software or find third parties to provide these
services.
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Our business will suffer if we are unable to successfully manage
our growth.
Dividend Policy.
There can be no assurance that our operations will result in future
significant revenues or any level of profitability. We
have not, and do not, anticipate paying cash dividends on our
Common Stock in the foreseeable future. We plan to
retain all future earnings and cash flows, if any, to finance our
operations and for general corporate purposes. Any
future determination as to the payment of cash dividends will be at
our Board of Directors’ discretion and will depend on our
financial condition, operating results, current and anticipated
cash needs, plans for expansion and other factors that our Board of
Directors considers relevant.
Conflicts of Interest.
Existing and future officers and directors may have other interests
to which they devote time, either individually or through
partnerships and corporations in which they have an interest, hold
an office, or serve on boards of directors, and each may continue
to do so. As a result, certain conflicts of interest may
exist between the Company and its officers and/or directors that
may not be susceptible to resolution. All potential
conflicts of interest will be resolved only through exercise by the
directors of such judgment as is consistent with their fiduciary
duties to the Company, and it is the intention of management to
minimize any potential conflicts of interest.
Loss of Services of Key Members of Our Senior Management
Team.
Our future success depends in a large part upon the continued
services of key members of our senior management
team.
These persons are critical to the overall management of AfterMaster
as well as the development of our technology, our culture and our
strategic direction. We do not maintain any key-person
life insurance policies. The loss of any of our
management or key personnel could seriously harm our
business.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
15
ITEM 2. DESCRIPTION OF PROPERTIES.
We lease offices in Hollywood, California (located at 6671 Sunset
Blvd., Suite 1520, Suite 1511, Suite 1525, Suite 1509, 1518 and
1550, Hollywood, California, 90028) for corporate, research,
engineering and mastering services. The lease expires on December
31, 2017. The total lease expense for the facility is approximately
$20,573.5 per month, and the total remaining obligations under
these leases at June 30, 2018, were approximately $0.
We lease a warehouse space located at 8260 E Gelding Drive, Suite
102, Scottsdale, Arizona, 85260. The lease expires on January 31,
2019. The total lease expense for the facility is approximately
$1,993 per month, and the total remaining obligations under this
leases at June 30, 2018, were approximately $13,952.
We lease corporate offices located at 7825 E Gelding Drive, Suite
101, Scottsdale, Arizona, 85260. The lease expires on April 30,
2021. The total lease expense for the facility is approximately
$7,224 per month, and the total remaining obligations under this
leases at June 30, 2018, were approximately $198,209.
We lease corporate offices located at 7825 E Gelding Drive, Suite
103, Scottsdale, Arizona, 85260. The lease expires on April 30,
2021. The total lease expense for the facility is approximately
$3,000 per month, and the total remaining obligations under this
leases at June 30, 2018, were approximately $84,391.
ITEM 3. LEGAL PROCEEDINGS.
The Company may become involved in certain legal proceedings and
claims which arise in the normal course of business. The Company is
not a party to any litigation. To the best of the knowledge of our
management, there are no material litigation matters pending or
threatened against us.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
No
matters were submitted to a vote of the shareholders during the
current fiscal year.
PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Market Information
Aftermaster’s Common Stock is traded on the Over-The-Counter
Bulletin Board System (OTCBB) under the symbol
“AFTM”. The following table sets forth the
range of high and low bid quotations for each fiscal quarter for
the last two fiscal years. These quotations reflect
inter-dealer prices without retail mark-up, markdown, or
commissions and may not necessarily represent actual
transactions.
For the Fiscal Year Ending on June 30, 2018
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High
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Low
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Quarter Ended June 30, 2018
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0.05
|
0.04
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Quarter Ended March 31, 2018
|
0.06
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0.04
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Quarter Ended December 31, 2017
|
0.12
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0.10
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Quarter Ended September 30, 2017
|
0.17
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0.16
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For the Fiscal Year Ending on June 30, 2017
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High
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Low
|
Quarter Ended June 30, 2017
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0.34
|
0.16
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Quarter Ended March 31, 2017
|
0.42
|
0.26
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Quarter Ended December 31, 2016
|
0.45
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0.32
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Quarter Ended September 30, 2016
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0.47
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0.33
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Stockholders
As of June 30, 2018, the number of stockholders of record according
to our transfer agent was approximately 602. Because many of
our shares are held by brokers and other institutions on behalf of
shareholders, we are unable to estimate the total number of
stockholders represented by these record
holders. Consequently, the actual number of stockholders
of record as of the date of this Report was not available. The
Company believes, however, that it has approximately 1,500
stockholders in total.
16
Dividends
The Company has paid no dividends on its Common Stock since its
inception and does not anticipate or contemplate paying cash
dividends in the foreseeable future.
Pursuant to the terms of our Series A Convertible Preferred Stock,
a 5% annual dividend is due and owing. Pursuant to the terms of our
Series B Convertible Preferred Stock, an 8% annual dividend is due
and owing. Pursuant to the terms of our Series A-1
Senior Convertible Redeemable Preferred Stock, a 6% annual dividend
is due and owing. As of June 30, 2018, we had not
declared dividends on Series A, Series B or its Series A-1
Preferred Stock. We have, however, for those shares of
Series A-1 Preferred Stock that were converted, calculated the
dividends through the date of conversion and issued shares of
common stock in payment of those dividends. The unpaid
cumulative dividends totaled approximant $1,134,406. See
Note 8 of Notes to Consolidated Financial
Statements.
Supplemental Disclosure of Non-Cash Investing and Financing
Activities for Fiscal Years 2018 and 2017
Fiscal Year 2018
During fiscal year ended June 30, 2018, the Company
issued 16,200,000 shares
of Common Stock for $647,500 in cash as part of a private
placement, net of $4,750 of issuance costs,
respectively.
The Company issued 28,928,570 shares of Common Stock for the
conversion of notes and accrued interest valued at
$836,833.
The Company issued 6,098,101 shares of Common Stock as incentive
with convertible notes valued at $317,261.
The Company issued 1,415,000 shares of Common Stock for the prepaid
consulting services and rent valued at $107,290.
The Company issued 115,000 shares of Common Stock for the extension
of two convertible notes valued at $16,897.
The Company issued 100,000 shares of Common Stock issued as
charitable contributions valued at $7,000.
As share-based compensation to employees and non-employees, the
Company issued 4,501,592 shares of common stock valued at $353,949,
based on the market price of the stock on the date of
issuance.
As interest expense on outstanding notes payable, the Company
issued 1,280,162 shares of common stock valued at $217,628 based on
the market price on the date of issuance.
As part
of a debt extinguishment, the note holder agreed to cancel
14,837,251 shares of common stock.
Fiscal Year 2017
During fiscal year ended June 30, 2017, the Company issued
3,471,666 shares of Common Stock for cash valued at
$991,500.
The Company issued 2,150,364 shares of Common Stock for the
conversion of notes and accrued interest valued at
$438,781.
The Company also issued 650,000 shares of Common Stock as incentive
to notes valued at $127,500. The Beneficial Conversion was valued
at $30,519.
The Company also issued 300,000 shares of Common Stock, and issued
15,682 shares of Common Stock of payment of $7,841 in accrued
dividends.
The Company issued 2,953,057 shares of Common Stock as payment for
services and rent valued at $917,152.
The Company issued 3,020,750 shares of Common Stock for the
conversion warrants valued at $906,224.
The Company issued 22,000 shares of Common Stock for the extension
of two convertible notes valued at $5,910.
As share-based compensation to employees and non-employees, the
Company issued 1,237,210 shares of common stock valued at $403,945,
based on the market price of the stock on the date of issuance. As
interest expense on outstanding notes payable, the Company issued
2,532,655, shares of common stock valued at $783,786 based on the
market price on the date of issuance.
ITEM 6 - SELECTED FINANCIAL DATA.
Not required by Form 10-K for smaller reporting
companies.
17
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
|
|
|
|
|
|
Revenues
|
|
|
|
For the
Years Ended
|
|
|
June
30,
|
|
|
2018
|
2017
|
AfterMaster
Revenues
|
$517,689
|
$338,725
|
Product
Revenues
|
1,131,812
|
541,259
|
Total
Revenues
|
$1,649,501
|
$879,984
|
We currently generate revenue from our operations through three
activities: Aftermaster Pro consumer electronic product,
Aftermaster recording studios, and mastering services.
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. AfterMaster revenues
for the fiscal year ended June 30, 2018, increased to $517,689, as
compared to $338,725 for the comparable fiscal year ended June 30,
2017, respectively. The increase in AfterMaster revenues are due to
the company selling more recording time in the current year. The
increase in product revenues are due to the company selling
Aftermaster Pro through our website (www.Aftermasterpro.com)
and through consumer retail distribution
channels.
In the aggregate, total Company revenues increased to $1,649,501
for the year ended June 30, 2018, as compared to total revenues of
$879,984 for the year ended June 30, 2017, due to the company
launching the AfterMaster TV Pro online sales and recognition of
deferred revenues from presales.
Cost of Revenues
|
|
|
|
For the
Years Ended
|
|
|
March
31,
|
|
|
2018
|
2017
|
Cost of Revenues (excluding depreciation and
amortization)
|
$1,565,798
|
$1,250,365
|
Cost of sales consists primarily of manufacturing cost of the
AfterMaster Pro TV consumer electronic product, AfterMaster Studio
Rent, Consultants, senior engineers, and excludes depreciation and
amortization on fixed assets. The increase in cost of sales for the
years ended June 30, 2018, over the comparable fiscal year, is
attributable, primarily, to an increase in manufacturing cost for
the AfterMaster Pro TV. The company had manufacturing cost in the
amount of $1,565,798 for the year ended June 30,
2018, as
compared to $1,250,365 for
the year ended June 30, 2017.
Other Operating Expenses
|
|
|
|
|
|
|
For the
Years Ended
|
|
|
June
30,
|
|
|
2018
|
2017
|
Depreciation
and Amortization Expense
|
$158,505
|
$178,071
|
Research
and Development
|
15,771
|
221,437
|
Advertising
and Promotion Expense
|
258,257
|
45,183
|
Legal
and Professional Expense
|
94,102
|
119,520
|
Non-Cash
Consulting Expense
|
296,005
|
2,209,950
|
General
and Administrative Expenses
|
3,637,201
|
2,956,464
|
Total
|
$4,459,841
|
$5,730,625
|
18
General and administrative expenses consist primarily of
compensation and related costs for our finance, legal, human
resources, investor relation, public relations and information
technology personnel; advertising and promotion expenses; rent and
facilities; and expenses related to the issuance of stock
compensation. During the year ended June 30,
2018, General and
administrative expenses increase by $680,737 as compared to
the year ended June
30, 2017. The increase is
primarily due to the company using a third-party consulting to help
with the business operations. Advertising and Promotion Expense
also increased by $213,074 as compared to the year ended June 30,
2017. The increase is primarily due to the company using social
media advertising to help generate sales. The decrease in Research
and Development is due to the company not doing any additional
R&D of the Aftermaster Pro during the year as the product as
all development was completed.
During the year ended June 30,
2018, Research and Development
costs decreased to $15,771 from $221,437, Advertising and Promotion
increased to $258,257 from $45,183, Legal and Professional fees
decreased to $94,102 from $119,520 and consulting services
decreased to $296,005 from $2,209,950, as compared
to
the year ended June 30, 2017.
The decreases in Research and Development, decreases in Advertising
and Promotion, and consulting services are primarily due to the
design, development and marketing of its Aftermaster Pro consumer
hardware product. Legal and Professional fees decrease are
primarily to the company only using one attorney on a monthly
retainer to handle all the company’s legal
needs.
Other Income (Expense)
|
|
|
|
For the
Years Ended
|
|
|
June
30,
|
|
|
2018
|
2017
|
Interest
Expense
|
$(3,178,179)
|
$(1,876,031)
|
Derivative
Expense
|
(2,787,712)
|
(376,427)
|
Change in Fair
Value of Derivative
|
1,161,227
|
(138,693)
|
Loss on Available
for Sale Securities
|
240,000
|
-
|
Gain
(Loss) on Extinguishment of Debt
|
4,762,594
|
1,724
|
Impairment
of assets
|
(74,991)
|
(27,926)
|
Total
|
$122,939
|
$(2,417,353)
|
The other income (expense) during the fiscal year ended June 30,
2018, totaled $212,939 of net income, which consists of interest
expense, derivative expense, change in fair value of derivative,
and gain on extinguishment of debt. During the comparable fiscal
year in 2017, other income and expenses totaled $(2,417,353).
Interest expense has increased primarily due to an increase in
non-cash interest expense relating to recent debt discount. These
additional borrowings have been used in the development of the
AfterMaster HD. Derivative expense and change in fair value of
derivatives has increased due to the issuance of derivative
instruments in the current period and the company revaluing the
instruments at the end of the current period. Gain on
extinguishment of debt increased in the current period due to notes
settlement in the current year.
Net Loss
|
|
|
|
For the
Years Ended
|
|
|
June
30,
|
|
|
2018
|
2017
|
Net
Loss
|
$(4,253,199)
|
$(8,518,359)
|
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 505-50
“Equity
Based Payments to Non-employees”, these non-cash
issuances are expensed at the equity instruments fair market value.
Absent these large stock-based compensations of $296,005 and
$1,377,442, derivative expense of $2,787,712 and $376,427, and
gain(loss) on the change in the derivative liability of $1,161,227
and $(138,693) for the fiscal years ended June 30, 2018 and 2017,
our net (loss) income would have been $(2,330,709) and $(6,255,825)
for fiscal years ended June 30, 2018 and 2017,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had revenues of $1,649,501 the fiscal year ended June
30, 2018 as compared to $879,984 in the comparable period in 2017.
The Company has incurred losses since inception of $76,556,750. At
June 30, 2018, the Company had negative working capital of
$7,643,147, which was an increase in working capital of $1,227,965
from June 30, 2017.
19
The Company had cash of $390,191 as of June 30, 2018, as compared
to $250,728 as of June 30, 2017. The increase is a result of the
Company entering into thirty-nine (39) Share Purchase Agreements
with individual accredited investors resulting in net proceeds of
$642,750, seven (7) notes payable resulting in net proceeds of
$950,000, nine (9) related notes payable resulting in net proceeds
of $119,500, and thirty-nine (39) convertible notes payable
resulting in net proceeds of $2,016,498, which was partially offset
by the Company making payments on notes payable totaling $255,000,
$278,500 in payments on related notes payable, $737,500 in payments
on convertible notes, and $164,860 in payments related to the notes
during the year ended June 30, 2018. This amount also decreased due
to current period operational costs, purchases of assets, and
payments of obligations and lease payables.
The Company had prepaid expense of $388,374 as of June 30, 2018, as
compared to $507,254 as of June 30, 2017. The decrease is due to
the Company amortizing the prepaid expenses totaling $182,213 over
the year ended June 30, 2018, partially offset by the issuance of
nine consulting agreements entered into in the current
year.
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 June 30, 2018, the existing capital and anticipated funds
from operations were not sufficient to sustain Company operations
or the business plan over the next twelve months. We
anticipate substantial increases in our cash requirements which
will require additional capital to be generated from the sale of
Common Stock, the sale of Preferred Stock, equipment financing,
debt financing and bank borrowings, to the extent available, or
other forms of financing to the extent necessary to augment our
working capital. In the event we cannot obtain the
necessary capital to pursue our strategic business plan, we may
have to significantly curtail our operations. This would
materially impact our ability to continue operations. There is no
assurance that the Company will be able to obtain additional
funding when needed, or that such funding, if available, can be
obtained on terms acceptable to the
Company.
Recent global events, as well as domestic economic factors, have
recently limited the access of many companies to both debt and
equity financings. As such, no assurance can be made that financing
will be available or available on terms acceptable to the Company,
and, if available, it may take either the form of debt or equity.
In either case, any financing will have a negative impact on our
financial condition and will likely result in an immediate and
substantial dilution to our existing
stockholders.
Although the Company intends to engage in a subsequent equity
offering of its securities to raise additional working capital for
operations, the Company has no firm commitments for any additional
funding, either debt or equity, at the present time.
Insufficient financial resources may require the Company to delay
or eliminate all or some of its development, marketing and sales
plans, which could have a material adverse effect on the
Company’s business, financial condition and results of
operations. There is no certainty that the expenditures to be
made by the Company will result in a profitable business proposed
by the Company.
CRITICAL ACCOUNTING POLICIES
Revenue Recognition
The Company applies the provisions of FASB ASC 605, “Revenue
Recognition in Financial Statements,” which provides guidance
on the recognition, presentation and disclosure of revenue in
financial statements filed with the SEC. ASC 605 outlines the basic
criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. In
general, the Company recognizes revenue related to goods and
services provided when (i) persuasive evidence of an arrangement
exists, (ii) delivery has occurred or services have been rendered,
(iii) the fee is fixed or determinable, and (iv) collectability is
reasonably assured.
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.
20
Long-lived Assets –
Long-lived tangible assets and definite-lived intangible assets are
reviewed for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may
not be recoverable. The Company uses an estimate of undiscounted
future net cash flows of the assets over the remaining useful lives
in determining whether the carrying value of the assets is
recoverable. If the carrying values of the assets exceed the
expected future cash flows of the assets, the Company recognizes an
impairment loss equal to the difference between the carrying values
of the assets and their estimated fair values. Impairment of
long-lived assets is assessed at the lowest levels for which there
are identifiable cash flows that are independent from other groups
of assets. The evaluation of long-lived assets requires the Company
to use estimates.
Share-based Compensation – The Company follows the provisions
of FASB ASC 718, “Share-Based Payment,” which requires
all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on
their fair values. Equity instruments issued to non-employees for
goods or services are accounted for at fair value and are marked to
market until service is complete or a performance commitment date
is reached, whichever is earlier. The Company uses the
Black-Scholes pricing model for determining the fair value of
stock-based compensation. The Company also follows the provisions
of FASB ASC 505-50, “Equity-Based Payments to
Non-Employees,” which addresses the accounting and reporting
for both the issuer (that is, the purchaser or grantor) and
recipient (that is, the goods or service provider or grantee) for a
subset of share-based payment transactions.
Convertible Securities and Derivatives – The Company estimates the fair values of the
debt and warrants, and allocates the proceeds pro rata based on
these values. The allocation of proceeds to the warrants
results in the debt instrument being recorded at a discount from
the face amount of the debt and the value allocated to the warrant
is recorded to additional paid-in capital.
When the convertible debt or equity instruments contain embedded
derivative instruments that are to be bifurcated and accounted for
as liabilities, the total proceeds from the convertible host
instruments are first allocated to the bifurcated derivative
instruments. The remaining proceeds, if any, are then
allocated to the convertible instruments themselves, resulting in
those instruments being recorded at a discount from their face
value.
Derivative Liabilities - The Company has financial instruments
that are considered derivatives or contain embedded features
subject to derivative accounting. Embedded derivatives are valued
separately from the host instrument and are recognized as
derivative liabilities in the Company’s balance sheet. The
Company measures these instruments at their estimated fair value
and recognizes changes in their estimated fair value in results of
operations during the period of change. The Company has a
sequencing policy regarding share settlement wherein instruments
with the earliest issuance date would be settled first. The
sequencing policy also considers contingently issuable additional
shares, such as those issuable upon a stock split, to have an
issuance date to coincide with the event giving rise to the
additional shares.
Using this sequencing policy, all instruments convertible into
common stock, including warrants and the conversion feature of
notes payable, issued subsequent to August 14, 2014 are derivative
liabilities. On August 28, 2015, the
Company increased the number of authorized common shares from
100,000,000 to 250,000,000, which removed the derivative using the
sequencing policy. The
Company again used this sequencing policy, all instruments
convertible into common stock, including warrants and the
conversion feature of notes payable, issued subsequent to May 10,
2016 until the note was converted on May 20, 2016 were derivative
liabilities.
The
Company entered into multiple amendments to a note payable to
extend the maturity date (the Amendments). The Company agreed to
additional $30,000 extension fees which were converted at a
percentage discount (variable) exercise price which causes the
number to be converted into a number of common shares that
“approach infinity”, as the underlying stock price
could approach zero. This creates a situation where the Company no
longer has shares enough available to “cover” all
potential equity issuance obligations during the period of issuance
until conversion.
On
February 3, 2017, the company entered into a note payable with an
unrelated party at a percentage discount (variable) exercise price
which causes the number to be converted into a number of common
shares that “approach infinity”, as the underlying
stock price could approach zero. Additionally, the note contains a
ratchet provision. The Company determined under ASC 815, that the
embedded conversion feature (if offering of common stock is at no
consideration or at a price that is lower than the effective
conversion price on the date shares are offered for sale, then a
ratchet down of effective exercise price to price per share offered
for common stock would be used to determine additional shares to be
issued). The Company has determined that this ratchet provision
indicates that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability. Accordingly, all convertible instruments
issued after February 3, 2017 are considered derivatives according
to the Company’s sequencing policy.
The Company values these convertible notes payable using the
multinomial lattice method that values the derivative liability
within the notes based on a probability weighted discounted cash
flow model. The resulting liability is valued at each reporting
date and the change in the liability is reflected as change in
derivative liability in the statement of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
Not required for smaller reporting companies.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Our financial statements as of and for the fiscal year ended June
30, 2018 and June 30, 2017 have been audited to the extent
indicated in the report by Sadler, Gibb & Associates,
independent certified public accountants, and have been prepared in
accordance with generally accepted accounting principles and
pursuant to Regulation S-X as promulgated by the
SEC.
The aforementioned financial statements are presented in a separate
section of this Report following Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer, President, and Chief Financial Officer
(the “Certifying Officers”) are responsible for
establishing and maintaining disclosure controls and procedures for
the Company. The Certifying Officers have designed such
disclosure controls and procedures to ensure that material
information is made known to them, particularly during the period
in which this Report was prepared.
The Certifying Officers responsible for establishing and
maintaining adequate internal control over financial reporting for
the Company used the “Internal Control over Financial
Reporting Integrated Framework” issued by Committee of
Sponsoring Organizations (“COSO”) 2013 to conduct an
extensive review of the Company’s “disclosure controls
and procedures” (as defined in the Exchange Act, Rules
13a-15(e) and 15-d-15(e)) as of the end of each of the periods
covered by this Report (the “Evaluation
Date”). Based upon that evaluation, the Certifying
Officers concluded that, as of June 30, 2018 and June 30, 2017, our
disclosure controls and procedures were not effective in ensuring
that the information we were required to disclose in reports that
we file or submit under the Securities and Exchange Act of 1934 is
recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission
(“SEC”) rules and forms.
The Certifying Officers based their conclusion on the fact that the
Company has identified material weaknesses in controls over
financial reporting, detailed below. In order to reduce
the impact of these weaknesses to an acceptable level, the company
has contracted with consultants with expertise in U.S. GAAP and SEC
financial reporting standards to review and compile all financial
information prior to filing that information with the
SEC. However, even with the added expertise of these
consultants, we still expect to be deficient in our internal
controls over disclosure and procedures until sufficient capital is
available to hire the appropriate internal accounting staff and
individuals with requisite GAAP and SEC financial reporting
knowledge. There have been no significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of their
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Management Annual Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting for the
Company. Management used the “Internal Control
over Financial Reporting Integrated Framework” issued by COSO
(2013) to conduct an extensive review of the Company’s
internal controls over financial reporting to make that
evaluation. As of June 30, 2018 and June 30, 2017, the
Company had identified deficiencies in internal controls that
constituted material weaknesses in internal controls. Due to these
material weaknesses, management concluded that internal controls
over financial reporting as of June 30, 2018 and June 30, 2017
were, based on COSO’s framework.
The deficiencies are attributed to the fact that the Company does
not have adequate resources to address complex accounting issues,
as well as an inadequate number of persons to whom it can segregate
accounting tasks within the Company so as to ensure the
segregation of duties between those persons who approve and
issue payment from those persons who are responsible to record and
reconcile such transactions within the Company’s accounting
system. These control deficiencies will be monitored and
attention will be given to the matter as we continue to accelerate
through our current growth stage.
Management has concluded that these control deficiencies constitute
a material weakness that continued throughout fiscal year
2018. In order to reduce the impact of these weaknesses
to an acceptable level, we have contracted with consultants with
expertise in U.S. GAAP and SEC financial reporting standards to
review and compile all financial information prior to filing that
information with the SEC. However, even with the added
expertise of these consultants, we still expect to be deficient in
our internal controls over disclosure and procedures until
sufficient capital is available to hire the appropriate internal
accounting staff and individuals with requisite GAAP and SEC
financial reporting knowledge. There were no significant
changes in our internal control over financial reporting or in
other factors that occurred during our most recent fiscal year that
have materially affected, or are reasonably likely to materially
affect, internal control over financial reporting.
22
This Annual Report does not include attestation reports of the
Company’s registered public accounting firms regarding
internal controls over financial reporting. Management’s
report was not subject to attestation by the Company’s
registered public accounting firm pursuant to rules of the
Securities and Exchange Commission that permit the Company to
provide only management’s report in this Annual
Report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting that occurred during the period covered by this report
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
PART III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
The directors and executive officers of the Company as of June 30,
2018 were as follows:
Name
|
Age
|
Position
|
|
|
|
Lawrence G. Ryckman
|
58
|
Director, President, CEO, Chairman
|
Mirella Chavez
|
32
|
CFO, Director, Secretary, Treasurer
|
Mark Depew
|
55
|
Director, Senior Vice President Finance
|
Arnie Weintraub
|
74
|
Director
|
Sheldon Yakus
|
72
|
Vice President
|
Aaron Ryckman
|
30
|
SVP Business Development
|
The directors and officers of our wholly-owned operating
subsidiary, MyStudio, Inc., at June 30, 2018 were:
Name
|
Age
|
Position
|
|
|
|
Lawrence G. Ryckman
|
58
|
Director, President, CEO, Secretary
|
The directors and officers of our wholly-owned operating
subsidiary, AfterMaster HD Audio Labs, Inc., at June 30, 2018
were:
Name
|
Age
|
Position
|
|
|
|
Lawrence G. Ryckman
|
58
|
Director, President, CEO, Secretary
|
The significant Employees of the Company as of June 30, 2018 were
as follows:
Name
|
Position
|
|
|
Aaron Ryckman
|
SVP Business Development
|
Sheldon Yakus
|
Senior Vice President, Engineering
|
Matthew R. Long
|
Vice President, Video Production and Engineering
|
Pete Doell
|
Senior Mastering Engineer
|
Ari Blitz
|
Senior Engineer
|
Directors serve until the next annual meeting or until their
successors are qualified and elected. Officers serve at the
discretion of the Board of Directors.
23
Lawrence (Larry) Ryckman is a Director and President and CEO of the
Company. Mr. Ryckman was the Founder, President & CEO of
AfterMaster HD Audio, Inc. and MyStudio, Inc., both wholly-owned
subsidiaries of AfterMaster, Inc. He is an award-winning businessman with extensive experience in
the music, audio and entertainment industries. He served as
President & CEO of American Artists, Inc., a film, video and
music production and distribution company; as Owner and President
of the Calgary Stampeder Football Club of the Canadian Football
League; and was Co-Founder, President & CEO of QSound, Inc.,
which develops proprietary audio technologies for the entertainment
industry. QSound grew from a start-up to a NASDAQ-listed,
internationally recognized participant in the entertainment audio
technology industry with numerous patents. His personal mastering
and corporate mixing credits include some of the most popular
artists including Lady Gaga, Madonna, Michael Jackson, Sting and
many others. Mr. Ryckman has negotiated partnerships with many
national and international companies including ON Semiconductor,
Simon Cowell’s “The X-Factor, Mark Burnett Productions,
Guitar Center, JVC, Nintendo, Coca-Cola, Hard Rock International
and the GRAMMY Foundation.
Sheldon “Shelly” Yakus is Senior Vice President, Audio
Engineering. He is a renowned music producer, audio
engineer/mixer and recording studio designer. He has engineered and
mixed recordings for some of the world’s best known artists
including John Lennon, Stevie Nicks, Alice Cooper, Van Morrison,
Tom Petty, Dire Straits, Blue Oyster Cult, Bob Seger, Amy Grant,
Don Henley, U2 and Madonna. Known as “Golden Ears,” he
is also widely respected for his expertise in recording studio
design and acoustics. Mr. Yakus co-designed, equipped and
supervised construction of the industry leading A&M Music
recording studios in Los Angeles and served as vice-president of
A&M studios. He was previously vice president of the Record
Plant recording studios in New York and a partner at Tongue and
Groove Studios in Philadelphia. The music that Mr. Yakus has
engineered, produced or mixed has grossed over a billion dollars in
sales and in 1999 he was nominated for induction into the Rock and
Roll Hall of Fame. Mr. Yakus’ career and accomplishments are
widely covered in publications such as Rolling
Stone, Mix
Magazine, Audio Engineer
and Spin .
Mirella Chavez is Chief
Financial Officer and Treasurer of the Company. Ms. Chavez has a
Bachelor of Science in Accounting and Marketing from DeVry
University. She has been with AfterMaster, Inc. since
October 2006.
Peter Doell is one of the most talented and best known
mastering engineers in the world. Pete has more than 35 years
of experience and has mastered and engineered hundreds of
chart-topping records, film scores and TV spots. Doell has served
as a first-call engineer with some of the most prestigious and
acclaimed studios including Universal Mastering, Sunset Sound,
Capitol Studios, and Sony Pictures. Some of Doell’s
credits include: Josh Groban, Frank Sinatra, Kurupt, John Waite,
Glenn Frye, Celine Dion, Dave Coz, Miss Saigon, Miles Davis, Brian
McKnight, Toto, Dwight Yoakam, Marilyn Manson, Los Lobos, Harry
Connick Jr., The Beach Boys, Dashboard Confessional, Willie Nelson
and Sheryl Crow. He has also worked on feature film scores
including Road To Perdition
and Black Hawk Down, and
mastered the music for prominent TV productions such as American
Idol and The Voice.
Mark Depew is Senior Vice
President and on the board of
director of Aftermaster, Inc. He has been with AfterMaster, Inc.
since December 2016.
Arnie Weintraub on the board of
director of Aftermaster, Inc. Arnie is also the IP attorney for
Aftermaster, Inc.
Arron Ryckman is Senior Executive Vice President of the
Company. Mr. Ryckman has been with Aftermaster, Inc. since June
2010.
Indemnification of Directors and Officers
The Certificate of Incorporation and Bylaws of the Company provide
that the Company will indemnify and advance expenses, to the
fullest extent permitted by the Delaware General Corporation Law,
to each person who is or was a director, officer or agent of the
Company, or who serves or served any other enterprise or
organization at the request of the Company (an
“Indemnitee”). Under Delaware law, to the
extent that an Indemnitee is successful on the merits of a suit or
proceeding brought against him or her by reason of the fact that he
or she was a director, officer or agent of the Company, or serves
or served any other enterprise or organization at the request of
the Company, the Company will indemnify him or her against expenses
(including attorneys’ fees) actually and reasonably incurred
in connection with such action. If unsuccessful in
defense of a third-party civil suit or a criminal suit, or if such
a suit is settled, an Indemnitee may be indemnified under Delaware
law against both (i) expenses, including attorneys’ fees, and
(ii) judgments, fines and amounts paid in settlement if he or she
acted in good faith and in a manner he or she reasonably believed
to be in, or not opposed to, the best interests of the Company,
and, with respect to any criminal action, had no reasonable cause
to believe his other conduct was unlawful. If
unsuccessful in defense of a suit brought by or in the right of the
Company, where the suit is settled, an Indemnitee may be
indemnified under Delaware law only against expenses (including
attorneys’ fees) actually and reasonably incurred in the
defense or settlement of the suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in, or not
opposed to, the best interests of the Company except that if the
Indemnitee is adjudged to be liable for negligence or misconduct in
the performance of his or her duty to the Company, he or she cannot
be made whole even for expenses unless a court determines that he
or she is fully and reasonably entitled to indemnification for such
expenses. Also under Delaware law, expenses incurred by
an officer or director in defending a civil or criminal action,
suit or proceeding may be paid by the Company in advance of the
final disposition of the suit, action or proceeding upon receipt of
an undertaking by or on behalf of the officer or director to repay
such amount if it is ultimately determined that he or she is not
entitled to be indemnified by the Company. The Company
may also advance expenses incurred by other employees and agents of
the Company upon such terms and conditions, if any, that the Board
of Directors of the Company deems appropriate. Insofar
as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, in the opinion of the
Commission, such indemnification is against public policy as
expressed in Delaware law and is therefore
unenforceable.
24
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act, requires the Company’s
directors and named executive officers, and persons who
beneficially own more than ten percent of our common stock, to file
initial reports of ownership and reports of changes in ownership of
our common stock and our other equity securities with the SEC.
Based on a review of the public record, we believe that during the
year ended June 30, 2018 all current Officers and Directors have
file the required reports on a timely basis under Section 16(a) of
the Exchange Act.
Code of Ethics
The Company maintains a Code of Ethics (the “Code”)
that was filed as Exhibit 14 with its Annual Report on Form 10-KSB
for 2004 filed on November 15, 2004. The Code applies to
the Chief Executive, financial and accounting officers, controller
and persons performing similar functions. If the Company
amends the Code or grants a waiver from the Code with respect to
the foregoing persons, it will post that amendment or waiver on its
website.
Audit Committee
The Company’s Audit Committee consists of Arnie Weintraub.
Neither of those members has been designated by the Board or the
Audit Committee as an “audit committee financial
expert.” The Board is seeking to fill a board seat
with an independent Board member that would fulfill that
qualification.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the total compensation earned by or
paid to the Company’s officers for the last two fiscal
years.
Long Term Compensation
|
||||||||
Annual Compensation
|
|
Awards
|
|
|
Payouts
|
|
|
|
Name and Principal Position
|
Fiscal Year
|
Salary ($)
|
Bonus ($)
|
Other Annual Compensation ($)
|
Restricted Stock Awards ($)
|
Underlying Options/Shares ($)
|
LTIP Payout ($)
|
All Other Compensation ($)
|
|
|
|
|
|
|
|
|
|
Lawrence
G. Ryckman, Director, President, CEO, Chairman
|
2018
|
$244,403
|
|
|
$65,069
|
$-
|
$-
|
$-
|
|
2017
|
$272,503
|
|
|
$70,129
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
|
|
Mirella
Chavez CFO, Director, Secretary, Treasurer
|
2018
|
$80,000
|
$-
|
$-
|
$158,742
|
$-
|
$-
|
$-
|
|
2017
|
$80,000
|
$-
|
$-
|
$173,376
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
|
|
Mark
Depew Director, Senior Vice President Finance
|
2018
|
$111,635
|
$-
|
$-
|
$65,069
|
-
|
$-
|
$-
|
|
2017
|
$70,000
|
$-
|
$-
|
$70,129
|
-
|
$-
|
$-
|
|
|
|
|
|
|
|
|
|
Sheldon
Yakus, Vice President
|
2018
|
$94,480
|
|
|
|
|
|
|
|
2017
|
$135,000
|
$-
|
$-
|
$-
|
$-
|
$-
|
$752.00
|
Outstanding Equity Awards at Fiscal Year-End
|
|||||||||
Name
|
Option Awards
|
Stock Awards
|
|||||||
|
Number of Securities Underlying Unexercised Options (#)
Exercisable
|
Number of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity Incentive Plan Awards: Number of Securities Underlying
Unexercised Unearned Options (#)
|
Option Exercise Price ($)
|
Option Expiration Date
|
Number of Shares or Units of Stock that have not Vested
(#)
|
Market Value of Shares or Units of Stock that have not Vested
($)
|
Equity Incentive Plan Awards: Number of Unearned Shares, Units or
Other Rights that have not Vested (#)
|
Equity Incentive Plan Awards: Market or Payout Value of Unearned
Shares, Units or Other Rights that have not Vested ($)
|
Lawrence
G. Ryckman
|
500,000
|
|
-
|
0.2
|
09/11/24
|
-
|
-
|
-
|
-
|
|
200,000
|
-
|
-
|
0.2
|
04/05/26
|
-
|
-
|
-
|
-
|
|
2,000,000
|
|
|
0.2
|
10/01/19
|
|
|
|
|
|
2,000,000
|
|
|
0.05
|
06/30/23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Justin
Timberlake
|
10,579,655
|
-
|
-
|
0.18
|
11/01/24
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Sheldon
Yakus
|
1,000,000
|
|
|
0.45
|
12/18/20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark
Depew
|
2,000,000
|
|
|
0.05
|
06/30/23
|
|
|
|
|
25
Compensation of Directors
Our non-employee Directors receive reimbursement for expenses of
attendance for each scheduled meeting that requires physical
attendance. Effective July 1, 2010, each Director
receives restricted common shares valued at the greater of (i)
fifteen thousand (15,000) shares of Common Stock, or (ii) such
number of shares as shall be determined by dividing the sum of
fifteen thousand dollars ($15,000) by the per share price
calculated at seventy five percent (75%) of the average of the
closing prices of the Company’s Common Stock for the ten (10)
trading days prior to the date such payment is due, for each
quarter year service to the Company. Compensation for
our directors for our last completed fiscal year is set forth
below, with the exception of Directors who are also Officers whose
compensation is disclosed above.
Director Compensation
|
||||||||
Name
|
|
Fees Earned or Paid in Cash ($)
|
Stock Awards ($)
|
Option Awards ($)
|
Non-Equity Incentive Plan Compensation ($)
|
Non-Qualified Deferred Compensation Earnings ($)
|
All Other Compensation ($)
|
Total ($)
|
|
|
|
|
|
|
|
|
|
Arnie
Weintraub
|
2018
|
$-
|
$65,069
|
$-
|
$-
|
$-
|
$-
|
$70,129
|
|
2017
|
$-
|
$70,129
|
$-
|
$-
|
$-
|
$-
|
$66,847
|
Employment and Related Agreements
The Company has no employment agreements with any of its current
management.
Change in Control
The Company is not aware of any arrangements which may result in a
change in control of the Company.
Equity Compensation Plans
As of June 30, 2018, our equity compensation plans were as
follows:
2009 Long-Term Stock Incentive Plan
On June 10, 2009, the Board of Directors approved the 2009
Long-Term Stock Incentive Plan (the “2009
Plan”). The purpose of the 2009 Plan was 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 Plan was 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 was reserved for issuance under
stock options to be issued under the 2009 Plan. The Plan
permits the grant of Incentive Stock Options, Non-Statutory Stock
Options and Restricted Stock Awards. The 2009 Plan is
administered by the Board of Directors or, at its direction, the
Compensation Committee comprised of officers of the
Company. As of June 30, 2011, the Company had
granted options to fifteen employees to purchase, in the aggregate,
727,000 shares of the Company’s Common Stock. The
exercise period for each of the grants was two to five years from
the date of grant and the average exercise price was
$0.88. During the year ended June 30, 2010, one employee
exercised the option to purchase 28,571 shares for
$10,000. During the year ended June 30, 2011, one
employee exercised the option to purchase 20,000 shares for
$10,400, or $0.52 per share. During the year ended June 30,
2013, 85,000 shares expired. No Grants were made under the Plan
during the fiscal year ended June 30, 2013. During the year
ended June 30, 2014, 257,000 shares expired and 25,000 Grants were
made under the Plan. The number of unexercised, outstanding
options at June 30, 2014 was 381,429 at an average exercise price
of $0.87 per share. During the year ended
June 30, 2015, 301,429 shares expired and 0 Grants were made under
the Plan. The number of unexercised, outstanding options at
June 30, 2015 was 80,000 at an average exercise price of $0.66 per
share. During the year ended
June 30, 2016, 812,804 shares expired and 0 Grants were made under
the Plan. The number of unexercised, outstanding options at
June 30, 2016 was 25,000 at an average exercise price of $0.15 per
share. During the year ended
June 30, 2017, 0 shares expired and 0 Grants were made under the
Plan. The number of unexercised, outstanding options at June
30, 2017 was 25,000 at an average exercise price of $0.15 per
share.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information, as of June 30,
2018, concerning shares of the Company’s Common Stock held by
(1) each stockholder known to own beneficially more than five
percent of any class of the Company’s voting securities as of
June 30, 2018, with the number of outstanding common shares at
162,287,902at such time, (A) each of the Company’s directors,
(B) each of the executive officers, and (C) all of the directors
and executive officers as a group:
26
Title of Class
|
Beneficial Owner
|
Title of Class
|
Number of Shares
|
Percent of Class (1)
|
Common
|
Mirella Chavez
|
Direct ( C)
|
3,268,473
|
2%
|
|
6323 W Desert Hills Dr.
|
|
|
|
|
Glendale, AZ 85304
|
|
|
|
|
|
|
|
|
Common
|
Lawrence G. Ryckman
|
Indirect (C) (4)
|
7,856,987
|
4.83%
|
|
20202 Pacific Coast Highway, #5
|
|
|
|
|
Malibu, California 90265
|
|
|
|
|
|
|
|
|
Common
|
Sheldon Yakus
|
Direct (B) (5)
|
245,797
|
0.15%
|
|
1778 Lantana Drive
|
|
|
|
|
Miden, NV 89423
|
|
|
|
|
|
|
|
|
Common
|
Justin Timberlake
|
Direct (6)
|
10,579,655
|
6.50%
|
|
1801 Century Park West
|
|
|
|
|
Los Angeles, CA 90067
|
|
|
|
|
|
|
|
|
Common
|
Arnold S. Weintraub
|
Direct (A)
|
1,017,684
|
0.63%
|
|
24901 Northwestern Hwy, #311
|
|
|
|
|
Southfield, MI 48075
|
|
|
|
|
|
|
|
|
Common
|
Mark Depew
|
Direct ( C) (7)
|
3,009,470
|
1.85%
|
|
1325 Deerbrooke Trail
|
|
|
|
|
Cheyenne, WY 82009
|
|
|
|
|
|
|
|
|
Series A Convertible Preference Stock
|
Murray B. Day
|
Direct
|
5,000
|
32.26%
|
|
549 W. Cresent
|
|
|
|
|
Palo Alto, CA 94301
|
|
|
|
|
|
|
|
|
Series A Convertible Preference Stock
|
Elliot Leferts
|
Direct
|
3,000
|
19.35%
|
|
60 McNear Drive
|
|
|
|
|
San Rafael, CA 9490
|
|
|
|
|
|
|
|
|
Series A Convertible Preference Stock
|
Harriet Lloyd
|
Direct
|
2,500
|
16.13%
|
|
1200 California St.
|
|
|
|
|
San Francisco, CA 94109
|
|
|
|
|
|
|
|
|
Series A Convertible Preference Stock
|
Richard Matza
|
Direct
|
2,500
|
16.13%
|
|
454 Burr Rd.
|
|
|
|
|
Southbury, CT 06488
|
|
|
|
|
|
|
|
|
Series A Convertible Preference Stock
|
Richard Oliver
|
Direct
|
2,500
|
16.13%
|
|
25466 Adobe Lane
|
|
|
|
|
Los Altos, CA 94022
|
|
|
|
|
|
|
|
|
Series B Senior Redeemable Convertible Preference
Stock
|
J. Patrick Carter
|
Direct
|
1,500
|
42.86%
|
|
2448 E. 81st Street, #4550
|
|
|
|
|
Tulsa, OK 74137
|
|
|
|
|
|
|
|
|
Series B Senior Redeemable Convertible Preference
Stock
|
Robert Stillman
|
Direct
|
2,000
|
57.14%
|
|
2440 Virginia Ave NW, Apt. D 1206
|
|
||
|
Washington, DC 20037
|
|
|
|
|
|
|
|
|
Series C Convertible Preferred Stock
|
John Arrilaga, TTEE
|
Direct
|
2,068
|
15.43%
|
|
2560 Mission College Blvd., #101
|
|
||
|
Santa Clara, CA 95054
|
|
|
|
|
|
|
|
|
Series C Convertible Preferred Stock
|
Paul Essi
|
Direct
|
1,171
|
8.74%
|
|
2450 One Cleveland Center
|
|
|
|
|
Cleveland, OH 44114
|
|
|
|
|
|
|
|
|
Series C Convertible Preferred Stock
|
Thomas Fersti
|
Direct
|
3,592
|
26.80%
|
|
P.O. Box 284
|
|
|
|
|
761 State St. Millington, MI 48746
|
|
||
|
|
|
|
|
|
Marton & Kjellaaug Klepp
|
Direct
|
1,825
|
13.62%
|
|
12 Day Road
|
|
|
|
|
Armonk, NY 10504
|
|
|
|
|
|
|
|
|
Series C Convertible Preferred Stock
|
Gustavo Nicolich
|
Direct
|
1,097
|
8.18%
|
|
P.O. Box 60040
|
|
|
|
|
Palo Alton, CA 94306
|
|
|
|
|
|
|
|
|
Series C Convertible Preferred Stock
|
Richard Perry, TTEE
|
Direct
|
2,068
|
15.43%
|
|
2200 Cowper Street
|
|
|
|
|
Palo Alto, CA 94301
|
|
|
|
|
|
|
|
|
Series P Convertible Participating Preferred Stock
|
Robert Huskins
|
Direct
|
67,741
|
78.19%
|
|
42 Shady Vista Rd.
|
|
|
|
|
Rolling Hills Estates, CA 90274
|
|
|
|
|
|
|
|
|
Series P Convertible Participating Preferred Stock
|
Roderick Thompson
|
Direct
|
18,899
|
21.81%
|
|
Address unknown
|
|
|
|
|
|
|
|
|
|
Officers and Directors as a Group
|
26,095,527
|
37.22%
|
27
1.
The number and percentage of shares beneficially owned is
determined under rules of the SEC and the information is not
necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares
as to which the individual has sole or shared voting power or
investment power and also any shares, which the individual has the
right to acquire within 60 days through the exercise of any stock
option or other right. The persons named in the table have sole
voting and investment power with respect to all shares of common
stock shown as beneficially owned by them, subject to community
property laws where applicable and the information contained in the
footnotes to this table.
2.
The above table is based on 162,287,902 shares of
Common Stock outstanding as of June 30, 2018, and
based on the following shares of other voting stock
outstanding as of such date: (i) 15,500 shares of Series A
Convertible Preference Stock; (ii) 3,500 shares of Series B Senior
Redeemable Convertible Preference Stock; (iii) 13,404 shares of
Series C Convertible Preferred Stock; and (iv) 86,640 shares of
Series P Convertible Participating Preferred
Stock. Shares of Common Stock subject to options or
warrants currently exercisable, or exercisable within 60 days, are
deemed outstanding for purposes of computing the percentage of the
person holding such options or warrants, but are not deemed
outstanding for purposes of computing the percentage of any other
person.
3.
Mr. Ryckman owns these shares personally and
through two entities, Maverick Investments and Sundance. The amount
listed here includes an option to purchase 500,000 shares of Common
Stock at $.20 per share, option to purchase 200,000 shares of
Common Stock at $.20 per share, option
to purchase 2,000,000 shares of Common Stock at $.20 per share
and option to purchase
2,000,000 shares of Common Stock at $.05 per
share
4.
Includes
an option to purchase 1,000,000 shares of Common Stock at $.45 per
share.
5.
Tennman
Brands, LLC owns 10,579,665 warrants to purchase shares of Common
Stock at an exercise price of $0.18 per share. Justin Timberlake is
the beneficial owner of Tennman Brands, LLC and, upon exercise of
the warrants, would exercise voting control of the common stock
underlying the warrants.
6.
Includes
an option to purchase 2,000,000 shares of Common Stock at $.05 per
share.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Various
term notes with total face value of $3,925,000 issued from February
2010 to April 2013, interest rates range from 10% to 15%, net of
unamortized discount of $0 as of June 30, 2018 and June 30, 2017,
of which $3,925,000 was extinguished.
On August 8, 2016, the Company issued notes to the Kayla Depew, a
daughter of a director of the Company, for $30,000. 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.
On November 15, 2016, the Company issued notes to Larry Ryckman,
CEO of the Company, for $5,000. The note bears an average interest
rate of 0% per annum.
From November 2016 to June 2018, the Company issued notes to Mark
Depew, a director of the Company, for $209,000. The note bears an
average interest rate of 0% per annum.
Future Transactions
All future affiliated transactions are expected to be made or
entered into on terms that are no less favorable to the Company
than those that can be obtained from any unaffiliated third party.
A majority of the independent, disinterested members of the
Company’s Board of Directors are asked to approve future
affiliated transactions. The Company believes that of the
transactions described above have been on terms at least as
favorable to it as could have been obtained from unaffiliated third
parties as a result of arm’s length
negotiations.
Conflicts of Interest
In accordance with the laws applicable to the Company, its
Directors are required to act honestly and in good faith with a
view to the Company’s best interests. In the event that a
conflict of interest arises at a meeting of the Board of Directors,
a Director who has such a conflict is expected to disclose the
nature and extent of his interest to those present at the meeting
and to abstain from voting for or against the approval of the
matter in which he has a conflict.
Director Independence
Our Common Stock trades on the OTC Bulletin Board. As such,
we are not currently subject to corporate governance standards of
listed companies, which require, among other things, that the
majority of the board of directors be independent.
Since we are not currently subject to corporate governance
standards relating to the independence of our directors, we choose
to define an “independent” director in accordance with
the NASDAQ Global Market’s requirements for independent
directors (NASDAQ Marketplace Rule 4200). The NASDAQ
independence definition includes a series of objective tests, such
as that a director is not an employee of the company and has not
engaged in various types of business dealings with the company. We
presently do not have a compensation committee, nominating
committee, executive committee of our Board of Directors, stock
plan committee or any other committees, except for an Audit
Committee.
28
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The following is a summary of the aggregate fees billed to
Registrant by its principal accountant(s) for professional services
rendered for the fiscal years ended June 30, 2018 and
2017:
|
2018
|
2017
|
|
||
Audit
Fees (1)
|
$122,000
|
$115,000
|
Audit-Related
Fees (2)
|
$-
|
$-
|
Tax
Fees (3)
|
$-
|
$-
|
All
Other Fees (4)
|
$-
|
$-
|
Total
Fees
|
$122,000
|
$115,500
|
1. Audit Fees. Consists of fees billed for professional
services rendered for the audits of Registrant’s financial
statements for the fiscal years ended June 30, 2018 and 2017 and
for review of the financial statements included in
Registrant’s Quarterly Reports on Form 10-Q for those fiscal
years.
2. Audit-Related Fees. Consists of fees billed for
services rendered to Registrant for audit-related services, which
generally include fees for audit and review services in connection
with proposed spin-off transactions, separate audits of employee
benefit and pension plans, and ad hoc fees for consultation on
financial accounting and reporting standards.
3. Tax Fees. Consists of fees billed for services
rendered to Registrant for tax services, which generally include
fees for corporate tax planning, consultation and
compliance.
4. All Other Fees. Consists of fees billed for all other
services rendered to Registrant, which generally include fees for
consultation regarding computer system controls and human capital
consultations. No services were performed related to
financial information systems design and implementation for the
fiscal years ended June 30, 2018 and 2017.
No “audit-related,” “tax” and “all
other” services in 2018 or 2017, as defined above, were
approved by the Audit Committee in reliance on the de minimums
exception to the preapproval requirements under federal securities
laws and regulations.
Pre-Approval of Services of Principal Accounting Firm
The Audit Committee’s written policy is to pre-approve all
audit and permissible non-audit services provided by
Registrant’s principal accounting firm (independent
auditor). These services may include audit services,
audit-related services, tax services and other permissible
non-audit services. Any service incorporated within the
independent auditor’s engagement letter, which is approved by
the Audit Committee, is deemed pre-approved. Any service
identified as to type and estimated fee in the independent
auditor’s written annual service plan, which is approved by
the Audit Committee, is deemed pre-approved up to the dollar amount
provided in such annual service plan.
During the year, the principal accounting firm may also provide
additional accounting research and consultation services required
by, and incident to, the audit of Registrant’s financial
statements and related reporting compliance. These additional
audit-related services are pre-approved up to the amount approved
in the annual service plan approved by the Audit
Committee. The Audit Committee may also pre-approve
services on a case-by-case basis during the year.
The Audit Committee’s approval of proposed services and fees
are noted in the meeting minutes of the Audit Committee and/or by
signature of the Audit Committee on the engagement
letter. The principal accounting firm of Registrant and
management are periodically requested to summarize the principal
accounting firm services and fees paid to date, and management is
required to report whether the principal accounting firm’s
services and fees have been pre-approved in accordance with the
required pre-approval process of the Audit Committee.
Non-Audit Services
The Audit Committee of the Board of Directors has considered
whether the provision of non-audit services by the
Registrant’s principal accountants is compatible with
maintaining auditor independence.
29
ITEM 15. EXHIBITS
The following Exhibits are incorporated by reference:
Exhibit No.
|
Description
|
|
(a)
|
Incorporated by reference from the Company’s Registration
Statement on Form SB-2, dated June 19, 2000 (Registration No.
333-30368).
|
|
(b)
|
Incorporated by reference from the Company’s Registration
Statement on Form SB-2, dated July 10, 2001 (Registration No.
333-56804).
|
|
(c)
|
Incorporated by reference from the Company’s Amendment No. 1
to Annual Report on Form 10-KSB, dated February 22,
2002.
|
|
(d)
|
Incorporated by reference from the Company’s Annual Report,
Form 10-KSB for fiscal year ended June 30, 2003, filed October 15,
2003.
|
|
(e)
|
Incorporated by reference from the Company’s Annual Report,
Form 10-KSB for fiscal year ended June 30, 2004, filed November 15,
2004.
|
|
(f)
|
Incorporated by reference from the Company’s Annual Report,
Form 10-KSB for fiscal year ended June 30, 2006, filed September
29, 2006.
|
|
(g)
|
Incorporated by reference from the Company’s Annual Report,
Form 10-KSB for fiscal year ended June 30, 2007, filed September
28, 2007, and Form 10-K/A for the fiscal year ended June 30, 2007,
filed May 27, 2008.
|
|
(h)
|
Incorporated by reference from the Company’s Annual Report,
Form 10-KSB for fiscal year ended June 30, 2008, filed September
29, 2008.
|
|
(i)
|
Incorporated by reference from the Company’s Annual Report,
Form 10-KSB for fiscal year ended June 30, 2009, filed October 15,
2009.
|
|
(j)
|
Incorporated by reference from the Company’s Annual Report,
Form 10-KSB for fiscal year ended June 30, 2010, filed October 12,
2010
|
30
The following Exhibits are filed herewith:
101.INS*
|
XBRL Instance Document
|
101.SCH*
|
XBRL Taxonomy Extension Schema
|
101.CAL*
|
XBRL Taxonomy Extension Calculation Linkbase
|
101.DEF*
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB*
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE*
|
XBRL Taxonomy Extension Presentation Linkbase
|
* Previously filed
31
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
AFTERMASTER, INC.
|
|
|
|
|
Date: October 15, 2018
|
By:
|
/s/ Larry Ryckman
|
|
Larry Ryckman
|
|
|
President & Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature
|
Title
|
Date
|
|
|
|
|
|
/s/ Larry Ryckman
|
|
President and Director
|
October 15, 2018
|
Larry Ryckman
|
|
(Principal Executive Officer)
|
|
|
|
|
|
/s/ Mirella Chavez
|
|
Chief Financial Officer
|
October 15, 2018
|
Mirella Chavez
|
|
|
|
|
|
|
|
/s/ Mark Depew
|
|
Director
|
October 15, 2018
|
Mark Depew
|
|
|
|
|
|
|
|
/s/ Arnold S. Weintraub
|
|
Director
|
October 15, 2018
|
Arnold S. Weintraub
|
|
|
|
32
AFTERMASTER, INC.
FINANCIAL STATEMENTS
INDEX TO THE FINANCIAL STATEMENTS
|
PAGE
NUMBER
|
|
|
Report of Independent Registered Public Accounting
Firm
|
F-2
|
|
|
Financial Statements
|
F-3
|
|
|
Consolidated Balance Sheets
|
F-3
|
|
|
Consolidated Statements of Operations
|
F-4
|
|
|
Consolidated Statements of Stockholders' Deficit
|
F-5
|
|
|
Consolidated Statements of Cash Flows
|
F-6
|
|
|
Notes to Financial Statements
|
F-7 - F-35
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and Shareholders of AfterMaster,
Inc.:
Opinion on the Financial Statements
We have
audited the accompanying consolidated balance sheets of
AfterMaster, Inc. (“the Company”) as of June 30, 2018
and 2017, the related consolidated statements of operations and
comprehensive loss, stockholders’ deficit, and cash flows for
each of the years in the two-year period ended June 30, 2018 and
the related notes (collectively referred to as the “financial
statements”). In our opinion, the financial statements
referred to above present fairly, in all material respects, the
financial position of the Company as of June 30, 2018 and 2017, and
the results of its operations and its cash flows for each of the
years in the two-year period ended June 30, 2018, in conformity
with accounting principles generally accepted in the United States
of America.
Explanatory Paragraph Regarding Going Concern
The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has suffered recurring
losses from operations and has a net capital deficiency that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
Basis for Opinion
These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting, but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining on a test basis, evidence
regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our
opinion.
/s/ Sadler, Gibb & Associates, LLC
We have served as the Company’s auditor since
2013.
Salt Lake City, UT
October 15, 2018
F-2
AFTERMASTER, INC.
|
||
Consolidated
Balance Sheets
|
||
|
|
|
|
June
30,
|
June
30,
|
|
2018
|
2017
|
|
|
|
ASSETS
|
||
|
|
|
Current
Assets
|
|
|
Cash
and cash equivalents
|
$390,191
|
$250,728
|
Accounts
receivable
|
203,720
|
97,103
|
Inventory,
net
|
-
|
104,891
|
Available
for sale securities
|
-
|
123,600
|
Prepaid
expenses
|
388,374
|
507,254
|
|
|
|
Total
Current Assets
|
982,285
|
1,083,576
|
|
|
|
Property
and equipment, net
|
143,360
|
266,040
|
|
|
|
Intangible
assets, net
|
-
|
102,243
|
|
|
|
Deposits
|
25,117
|
33,363
|
Prepaid
expenses, net of current
|
-
|
9,104
|
|
|
|
Total
Assets
|
$1,150,762
|
$1,494,326
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||
|
|
|
Current
Liabilities
|
|
|
Accounts
payable and other accrued expenses
|
$1,592,257
|
$459,975
|
Accrued
interest
|
351,189
|
185,509
|
Deferred
revenue
|
2,400
|
270,623
|
Accrued
consulting services - related party
|
70,621
|
22,064
|
Lease
payable
|
-
|
1,937
|
Derivative
Liability
|
2,815,520
|
2,145,065
|
Notes
payable - related party
|
76,000
|
610,000
|
Notes
payable, net of discount of $77,090 and $0,
respectively
|
642,910
|
40,488
|
Convertible
notes payable - related party, net of discount of $4,422 and $0,
respectively
|
115,078
|
3,951,182
|
Convertible
notes payable, net of discount of $812,306 and $549,737,
respectively
|
2,959,457
|
2,267,845
|
|
|
|
Total
Current Liabilities
|
8,625,432
|
9,954,688
|
|
|
|
|
|
|
Total
Liabilities
|
8,625,432
|
9,954,688
|
|
|
|
Stockholders'
Deficit
|
|
|
Convertible
preferred stock, Series A; $0.001 par value; 100,000 shares
authorized, 15,500 shares issued and outstanding
|
16
|
16
|
Convertible
preferred stock, Series A-1; $0.001 par value; 3,000,000 shares
authorized 2,585,000 shares issued and outstanding,
respectively
|
2,585
|
2,585
|
Convertible
preferred stock, Series B; $0.001 par value; 200,000 shares
authorized, 3,500 shares issued and outstanding
|
3
|
3
|
Convertible
preferred stock, Series C; $0.001 par value; 1,000,000 shares
authorized, 13,404 shares issued and outstanding
|
13
|
13
|
Convertible
preferred stock, Series D; $0.001 par value; 375,000 shares
authorized, 130,000 shares issued and outstanding
|
130
|
130
|
Convertible
preferred stock, Series E; $0.001 par value; 1,000,000 shares
authorized, 275,000 shares issued and outstanding
|
275
|
275
|
Convertible
preferred stock, Series P; $0.001 par value; 600,000 shares
authorized, 86,640 shares issued and outstanding
|
87
|
87
|
Convertible
preferred stock, Series S; $0.001 par value; 50,000 shares
authorized, -0- shares issued and outstanding
|
-
|
-
|
Common
stock, authorized 250,000,000 shares,
|
|
|
par
value $0.001, 133,446,521 and 118,486,728 shares
issued
|
|
|
and
outstanding, respectively
|
133,742
|
118,493
|
Common
stock to be issued (28,841,381)
|
28,553
|
-
|
Additional
paid In capital
|
68,916,676
|
63,627,987
|
Accumulated
other comprehensive income
|
-
|
93,600
|
Accumulated
Deficit
|
(76,566,750)
|
(72,303,551)
|
|
|
|
Total
Stockholders' Deficit
|
(7,474,668)
|
(8,460,362)
|
|
|
|
Total
Liabilities and Stockholders' Deficit
|
$1,150,762
|
$1,494,326
|
|
|
|
The accompanying notes are an integral part of these consolidated
financial statements.
|
F-3
AFTERMASTER, INC.
|
||
Consolidated
Statements of Operations and Comprehensive Loss
|
||
|
|
|
|
|
|
|
For the
Years Ended
|
|
|
June
30,
|
|
|
2018
|
2017
|
|
|
|
REVENUES
|
|
|
AfterMaster
Revenues
|
$517,689
|
$338,725
|
Product
Revenues
|
1,131,812
|
541,259
|
Total
Revenues
|
1,649,501
|
879,984
|
|
|
|
COSTS
AND EXPENSES
|
|
|
Cost
of Revenues (Exclusive of Depreciation and
Amortization)
|
1,565,798
|
1,250,365
|
Depreciation
and Amortization Expense
|
158,505
|
178,071
|
Research
and Development
|
15,771
|
221,437
|
Advertising
and Promotion Expense
|
258,257
|
45,183
|
Legal
and Professional Expense
|
94,102
|
119,520
|
Non-Cash
Consulting Expense
|
296,005
|
2,209,950
|
General
and Administrative Expenses
|
3,637,201
|
2,956,464
|
|
|
|
Total
Costs and Expenses
|
6,025,639
|
6,980,990
|
|
|
|
Loss
from Operations
|
(4,376,138)
|
(6,101,006)
|
|
|
|
Other
Income (Expense)
|
|
|
Interest
Expense
|
(3,178,179)
|
(1,876,031)
|
Derivative
Expense
|
(2,787,712)
|
(376,427)
|
Change
in Fair Value of Derivative
|
1,161,227
|
(138,693)
|
Gain
Available for Sale Securities
|
240,000
|
-
|
Gain
Loss on Extinguishment of Debt
|
4,762,594
|
1,724
|
Impairment
of assets
|
(74,991)
|
(27,926)
|
|
|
|
Total
Other Income (Expense)
|
122,939
|
(2,417,353)
|
|
|
|
Loss
Before Income Taxes
|
(4,253,199)
|
(8,518,359)
|
Income
Tax Expense
|
-
|
-
|
NET
LOSS
|
$(4,253,199)
|
$(8,518,359)
|
|
|
|
Preferred
Stock Accretion and Dividends
|
(225,468)
|
(169,850)
|
|
|
|
NET
LOSS AVAILABLE TO COMMON SHAREHOLDERS
|
$(4,478,667)
|
$(8,688,209)
|
|
|
|
Basic
and diluted Loss Per Share of Common Stock
|
$(0.03)
|
$(0.08)
|
|
|
|
Weighted
Average Number of Shares Outstanding
|
131,144,651
|
108,520,687
|
|
|
|
Other
Comprehensive Income, net of tax
|
|
|
NET
LOSS AVAILABLE TO COMMON SHAREHOLDERS
|
(4,478,667)
|
(8,688,209)
|
Unrealized
gain on AFS Securities
|
-
|
60,000
|
COMPREHENSIVE
LOSS
|
$(4,478,667)
|
$(8,628,209)
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
F-4
AFTERMASTER, INC.
|
|||||||||
Consolidated
Statements of Stockholders' Equity (Deficit)
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Additional
|
Common
|
|
Other
|
Total
|
|
Preferred Stock
|
Common Stock
|
Paid In
|
Stock to
|
Accumulated
|
Comprehensive
|
Stockholders'
|
||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
be
Issued
|
Deficit
|
Income
|
Equity
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2016
|
2,709,044
|
$2,709
|
102,133,344
|
$102,140
|
$58,997,912
|
$-
|
$(63,785,192)
|
$33,600
|
$(4,648,831)
|
|
|
|
|
|
|
|
|
|
|
Conversion of
Preferred Stock to Common Stock
|
(150,000)
|
(150)
|
315,682
|
316
|
7,675
|
-
|
-
|
-
|
7,841
|
|
|
|
|
|
|
|
|
|
|
Preferred Sold for
Cash, net of offering costs of $196,853
|
550,000
|
550
|
-
|
-
|
352,598
|
-
|
-
|
-
|
353,148
|
|
|
|
|
|
|
|
|
|
|
Common Stock Sold
for Cash
|
-
|
-
|
3,471,666
|
3,470
|
988,030
|
-
|
-
|
-
|
991,500
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for cash conversion of warrants/options
|
-
|
-
|
3,020,750
|
3,021
|
903,204
|
-
|
-
|
-
|
906,225
|
|
|
|
|
|
|
|
|
|
|
Share-Based
Compensation to Directors and Employees- Common shares
|
-
|
-
|
1,237,210
|
1,236
|
402,710
|
-
|
-
|
-
|
403,946
|
|
|
|
|
|
|
|
|
|
|
Total
Stock Issued for Consulting Services and Rent
|
-
|
-
|
2,953,057
|
2,954
|
914,198
|
-
|
-
|
-
|
917,152
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued as incentive with Convertible debt
|
-
|
-
|
650,000
|
650
|
126,950
|
-
|
-
|
-
|
127,600
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for conversion of debt
|
-
|
-
|
2,150,364
|
2,150
|
436,631
|
-
|
-
|
-
|
438,781
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for interest expense
|
-
|
-
|
2,532,655
|
2,533
|
781,253
|
-
|
-
|
-
|
783,786
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for extension of notes
|
-
|
-
|
22,000
|
23
|
5,887
|
-
|
-
|
-
|
5,910
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income from Available for Sale
Securities
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
60,000
|
60,000
|
|
|
|
|
|
|
|
|
|
|
Beneficial
Conversion Feature
|
-
|
-
|
-
|
-
|
30,519
|
-
|
-
|
-
|
30,519
|
|
|
|
|
|
|
|
|
|
|
Modification of
warrants
|
-
|
-
|
-
|
-
|
24,001
|
-
|
-
|
-
|
24,001
|
|
|
|
|
|
|
|
|
|
|
Share-Based
Compensation - Warrants and options
|
-
|
-
|
-
|
-
|
421,000
|
-
|
-
|
-
|
421,000
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
-
|
-
|
-
|
-
|
(764,581)
|
-
|
-
|
-
|
(764,581)
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended June 30, 2017
|
-
|
-
|
-
|
-
|
|
-
|
(8,518,359)
|
-
|
(8,518,359)
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2017
|
3,109,044
|
$3,109
|
118,486,728
|
$118,493
|
$63,627,987
|
$-
|
$(72,303,551)
|
$93,600
|
$(8,460,362)
|
|
|
|
|
|
|
|
|
|
|
Common Stock Sold
for Cash, net of offering costs of $4,750
|
-
|
-
|
16,200,000
|
2,841
|
626,551
|
13,358
|
-
|
-
|
642,750
|
|
|
|
|
|
|
|
|
|
|
Share-Based
Compensation to Directors and Employees- Common shares
|
-
|
-
|
4,501,592
|
2
|
349,446
|
4,501
|
-
|
-
|
353,949
|
|
|
|
|
|
|
|
|
|
|
Total
Stock Issued for Consulting Services and Rent
|
-
|
-
|
1,415,000
|
245
|
105,875
|
1,170
|
-
|
-
|
107,290
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued as charitable contribution
|
-
|
-
|
100,000
|
100
|
6,900
|
-
|
-
|
-
|
7,000
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued as incentive with Convertible debt
|
-
|
-
|
6,098,101
|
267
|
311,161
|
5,833
|
-
|
-
|
317,261
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for conversion of debt
|
-
|
-
|
28,928,570
|
26,344
|
807,905
|
2,584
|
-
|
-
|
836,833
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for interest expense
|
-
|
-
|
1,280,162
|
-
|
216,348
|
1,280
|
-
|
-
|
217,628
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for extension of notes
|
-
|
-
|
115,000
|
-
|
16,782
|
115
|
-
|
-
|
16,897
|
|
|
|
|
|
|
|
|
|
|
Common
Stock cancelled in extinguishment of debt
|
-
|
-
|
(14,837,251)
|
(14,550)
|
14,838
|
(288)
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other comprehensive income from Available for Sale
Securities
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(93,600)
|
(93,600)
|
|
|
|
|
|
|
|
|
|
|
Beneficial
Conversion Feature
|
-
|
-
|
-
|
-
|
188,521
|
-
|
-
|
-
|
188,521
|
|
|
|
|
|
|
|
|
|
|
Share-Based
Compensation - Warrants and options
|
-
|
-
|
-
|
-
|
(16,532)
|
-
|
-
|
-
|
(16,532)
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
-
|
-
|
-
|
-
|
2,660,894
|
-
|
-
|
-
|
2,660,894
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended June 30, 2018
|
-
|
-
|
-
|
-
|
|
-
|
(4,253,199)
|
-
|
(4,253,199)
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2018
|
3,109,044
|
$3,109
|
162,287,902
|
$133,742
|
$68,916,676
|
$28,553
|
$(76,556,750)
|
$-
|
$(7,474,670)
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
F-5
AFTERMASTER,
INC.
|
||
Consolidated
Statements of Cash Flows
|
||
|
||
|
For
the Year Ended
|
|
|
June
30,
|
|
|
2018
|
2017
|
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
Net
Loss
|
$(4,253,199)
|
$(8,518,359)
|
Adjustments to
reconcile net loss to cash from operating activities:
|
|
|
Depreciation and
amortization
|
158,507
|
178,630
|
Share-based
compensation - Common Stock
|
353,949
|
399,495
|
Share-based
compensation - warrants and options
|
246,868
|
-
|
Common stock issued
for charitable contribution
|
7,000
|
24,001
|
Share-based
compensation - warrants
|
-
|
-
|
Common stock issued
for services and rent
|
-
|
94,919
|
Common stock issued
to extend the maturity dates on debt
|
16,897
|
228,911
|
Common stock issued
as incentive with Convertible debt
|
-
|
127,500
|
Amortization of
debt discount and issuance costs
|
1,856,791
|
555,733
|
Closing
fees
|
-
|
-
|
Impairment of
assets
|
74,991
|
27,926
|
Dividend
expense
|
-
|
7,841
|
(Gain)/Loss on
extinguishment of debt
|
(4,762,594)
|
1,724
|
Derivative
expense
|
2,787,712
|
376,427
|
(Gain)/Loss
remeasurement of derivative
|
(1,161,227)
|
138,694
|
Gain on Available
for Sale Securities
|
(240,000)
|
-
|
Changes in
Operating Assets and Liabilities:
|
|
|
Accounts
receivables
|
(106,617)
|
(85,714)
|
Inventory
|
104,891
|
(104,891)
|
Other
assets
|
235,274
|
1,768,155
|
Deposits
|
8,246
|
-
|
Accounts payable
and accrued expenses
|
1,250,908
|
224,014
|
Accrued
interest
|
1,138,856
|
927,741
|
Deferred
revenue
|
(268,223)
|
(469,577)
|
Accrued consulting
services - related party
|
48,557
|
(6,497)
|
|
|
|
Net Cash Used in
Operating Activities
|
(2,381,321)
|
(4,103,327)
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
Purchase of
property and equipment
|
(5,425)
|
(149,296)
|
Sale of available
for sale securities
|
270,000
|
-
|
Purchase of
intangible assets
|
(3,150)
|
(31,800)
|
|
|
|
Net Cash Provided
by (Used in) Investing Activities
|
261,425
|
(181,096)
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
|
|
|
Common Stock issued
for cash
|
642,750
|
991,500
|
Common Stock issued
for conversion of options/warrants
|
-
|
906,225
|
A-1 Preferred Stock
issued for cash
|
-
|
353,148
|
Proceeds from notes
payable
|
950,000
|
-
|
Repayments of notes
payable
|
(255,000)
|
-
|
Proceeds from notes
payable - related party
|
119,500
|
52,500
|
Repayments of notes
payable - related party
|
(278,500)
|
(17,500)
|
Proceeds from
convertible notes payable - related party
|
89,500
|
60,000
|
Repayments of
convertible notes payable - related party
|
-
|
(30,000)
|
Proceeds from
convertible notes payable
|
2,022,122
|
2,024,000
|
Repayments of
convertible notes payable
|
(737,500)
|
(200,000)
|
Payment made on
accrued interest
|
(291,576)
|
-
|
Lease
Payable
|
(1,937)
|
953
|
Net Cash Provided
by Financing Activities
|
2,259,359
|
4,140,826
|
|
|
|
NET CHANGE IN
CASH
|
139,463
|
(143,597)
|
CASH AT BEGINNING
OF PERIOD
|
250,728
|
394,325
|
|
|
|
CASH AT END OF
PERIOD
|
$390,191
|
$250,728
|
|
|
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
CASH PAID
FOR:
|
|
|
Interest
|
$186,860
|
$-
|
Taxes
|
$-
|
$-
|
|
|
|
NON CASH FINANCING
ACTIVITIES:
|
|
|
Beneficial
conversion feature
|
$188,521
|
$30,519
|
Conversion
of notes and Interest into common stock
|
$217,628
|
$438,781
|
Conversion of
preferred stock for common stock
|
$
|
$300
|
Debt
discount
|
$
|
$26,957
|
Derivative
Liability
|
$1,406,506
|
$1,760,160
|
Conversion
of Derivative Liability
|
$2,660,894
|
$130,216
|
MTM
on AFS securities
|
$64,800
|
$60,000
|
Common stock issued
with notes payable
|
$317,261
|
$-
|
Common stock issued
with convertible debt
|
$836,833
|
$33,349
|
Common stock issued
for prepaid expenses
|
$107,290
|
$822,233
|
Cancellation of
common shares as part of settlement of debt
|
$14,838
|
$-
|
Original
Issue Discount
|
$281,765
|
$127,000
|
Assignment
of Debt
|
$16,532
|
$-
|
Conversion
of accrued interest into common stock
|
$8,570
|
$783,786
|
Warrants
issued for prepaid expenses
|
$-
|
$365,244
|
|
|
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
F-6
AFTERMASTER, INC.
Notes to Consolidated Financial Statements
June 30, 2018 and 2017
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Description of Business
AfterMaster,
Inc., formerly Studio One Media, Inc. (the “Company” or
“AfterMaster”) was originally organized in Delaware on
May 12, 1988, as Dimensional Visions Group, Ltd. The name was
changed on January 15, 1998 to Dimensional Visions Incorporated. On
February 8, 2006, it changed its name to Elevation Media, Inc., and
on March 28, 2006 the Company’s name was changed to Studio
One Media, Inc. as part of its overall plan to implement its
revised business plan.
Aftermaster, Inc. (“the Company" or
“Aftermaster”) is an audio technology company located
in Hollywood, California and Scottsdale, Arizona. The Company's
wholly-owned subsidiaries include Aftermaster HD Audio Labs, Inc.
and MyStudio, Inc.
The Company and its subsidiaries are engaged in the development and
commercialization of proprietary (patents issued and pending),
leading-edge audio and video technologies and products for
professional and consumer use, including Aftermaster® Audio,
ProMaster™, Aftermaster Pro™, Aftermaster Studio Pro
and MyStudio®. The Company also operates recording and
mastering studios at its Hollywood facilities.
Accounting Basis
The Company’s financial statements are prepared using the
accrual basis of accounting in accordance with accounting
principles generally accepted in the United States. The
Company has elected a June 30 fiscal year end.
Principles of Consolidation
The consolidated financial statements include
the accounts of AfterMaster and its subsidiaries. All significant
inter-company accounts and transactions have been
eliminated.
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.
Accounts Receivable
Accounts receivable are stated at amounts management expects to
collect. An allowance for doubtful accounts is provided for
uncollectible receivables based upon management's evaluation of
outstanding accounts receivable at each reporting period
considering historical experience and customer credit quality and
delinquency status. Delinquency status is determined by contractual
terms. Bad debts are written off against the allowance when
identified. Allowance for
doubtful accounts were $0 for the years ended June 30, 2018 and
2017.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly
liquid investments with an original maturity of three months or
less. As of June 30, 2018 and 2017, the Company’s cash
balances were within the FDIC insurance coverage
limits.
Inventories
Inventories
consist of finished goods and component parts, which are purchased
from contract manufacturers and component suppliers. Inventories
are stated at the lower of cost or net realizable value. We assess
the valuation of inventory and periodically write down the value
for estimated excess and obsolete inventory and based upon
estimates of future demand and market conditions.
Reserves
Fair Values, Inputs and Valuation Techniques for Financial Assets
and Liabilities Disclosures
The
fair value measurements and disclosure guidance defines fair value
and establishes a framework for measuring fair value. Fair value is
defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between
market participants at the measurement date. In accordance with
this guidance, the Company has categorized its recurring basis
financial assets and liabilities into a three-level fair value
hierarchy based on the priority of the inputs to the valuation
technique.
The
fair value hierarchy gives the highest priority to quoted prices in
active markets for identical assets or liabilities (Level 1) and
the lowest priority to unobservable inputs (Level 3). The inputs
used to measure fair value may fall into different levels of the
fair value hierarchy. In such cases, the level in the fair value
hierarchy within which the fair value measurement in its entirety
falls has been determined based on the lowest level input that is
significant to the fair value measurement in its entirety. The
Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires
judgment, and considers factors specific to the asset or
liability.
The
levels of the fair value hierarchy are described
below:
|
●
|
|
Level 1
inputs utilize quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Company has the ability to
access.
|
|
|
|
|
|
●
|
|
Level 2
inputs utilize other than quoted prices included in Level 1 that
are observable for the asset, either directly or indirectly, for
substantially the full term of the asset. Level 2 inputs include
quoted prices for similar assets in active markets, quoted prices
for identical or similar assets in markets that are not active and
inputs other than quoted prices that are observable in the
marketplace for the asset. The observable inputs are used in
valuation models to calculate the fair value for the
asset.
|
|
●
|
|
Level 3
inputs are unobservable but are significant to the fair value
measurement for the asset, and include situations where there is
little, if any, market activity for the asset. These inputs reflect
management’s own assumptions about the assumptions a market
participant would use in pricing the asset.
|
F-7
A
review of fair value hierarchy classifications is conducted on a
quarterly basis. Changes in the observability of valuation inputs
may result in a reclassification of levels for certain securities
within the fair value hierarchy.
Disclosures for Non-Financial Assets Measured at Fair Value on a
Non-Recurring Basis
The
Company’s financial instruments mainly consist of cash,
receivables, current assets, accounts payable and accrued expenses
and debt. The carrying amounts of its cash, receivables, current
asserts, accounts payable, accrued expenses and current debt
approximates fair value due to the short-term nature of these
instruments.
Concentration of Risk
Financial instruments, which potentially subject us to
concentrations of credit risk, consist principally of
cash. Our cash balances are maintained in accounts held
by major banks and financial institutions located in the United
States. The Company occasionally maintains amounts on
deposit with a financial institution that are in excess of the
federally insured limits. The risk is managed by maintaining all
deposits in high quality financial institutions.
For the years ended June 30,
2018 and 2017 there was
no customer that accounted for a material portion of total
revenues.
Property and Equipment
Property and equipment is recorded at cost less accumulated
depreciation. Depreciation and amortization is calculated using the
straight-line method over the expected useful life of the asset,
after the asset is placed in service. The Company generally uses
the following depreciable lives for its major classifications of
property and equipment:
Description
|
Useful Lives
|
Office Equipment and Computers
|
5 years
|
Computer Software
|
5 years
|
Furniture and Office Equipment
|
5 years
|
Vehicles
|
5 years
|
Leasehold Improvements
|
Shorter of Useful Life or Lease Term
|
Studios
|
5 years
|
Expenditures associated with upgrades and enhancements that
improve, add functionality, or otherwise extend the life of
property and equipment are capitalized, while expenditures that do
not, such as repairs and maintenance, are expensed as
incurred.
Intangible Assets
Intangible assets consist of intellectual property, website costs,
video backgrounds, and patterns and molds. The Company’s
intellectual property includes purchased patents and trademarks as
well as other proprietary technologies. Website costs
are costs incurred to develop the Company’s website. Video
backgrounds are the costs incurred to develop video backgrounds for
use in the Company’s recording studios. Patterns and molds
are for the design and construction of the studios. The Company
amortizes intangible assets over the following useful
lives:
Description
|
Weighted-Average Amortization Period
|
Intellectual Property
|
5 years
|
Website Costs
|
5 years
|
Video Backgrounds
|
5 years
|
Patterns and Molds
|
5 years
|
Long-Lived Assets
Long-lived tangible assets and definite-lived intangible assets are
reviewed for possible impairment annually or whenever events or
changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. The Company uses both an estimate of
undiscounted future net cash flows of the assets over the remaining
useful lives and a replacement cost method when determining their
fair values. If the carrying values of the assets exceed the fair
value of the assets, the Company recognizes an impairment loss
equal to the difference between the carrying values of the assets
and their fair values. Impairment of long-lived assets is assessed
at the lowest levels for which there are identifiable cash flows
that are independent from other groups of assets. The evaluation of
long-lived assets requires the Company to use estimates of future
cash flows. However, actual cash flows may differ from the
estimated future cash flows used in these impairment
tests.
Revenue Recognition
The Company applies the provisions of FASB ASC
605, Revenue Recognition in
Financial Statements, which
provides guidance on the recognition, presentation and disclosure
of revenue in financial statements. ASC 605 outlines the basic
criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. In
general, the Company recognizes revenue related to goods and
services provided when (i) persuasive evidence of an arrangement
exists, (ii) delivery has occurred or services have been rendered,
(iii) the fee is fixed or determinable, and (iv) collectability is
reasonably assured.
F-8
The Company's revenues are generated from AfterMaster products and
services, AfterMaster Pro, sessions revenue, and
remastering. Revenues related to
AfterMaster Pro sells through consumer retail distribution channels
and through our website. For sales through consumer retail
distribution channels, revenue recognition occurs when title and
risk of loss have transferred to the customer which usually occurs
upon shipment to the customers. We established allowances for
expected product returns and these allowances are recorded as a
direct reduction to revenue. Return allowances are based on our
historical experience. Revenues related to sessions and remastering
are recognized when the event occurred.
Cost of Revenues
The
Company’s cost of revenues includes studio lease expense,
employee costs, component and finished goods expense, and other
nominal amounts. Costs associated with products are recognized at
the time of the sale. Costs incurred to provide services are
recognized as cost of sales as incurred. Depreciation is not
included within cost of revenues.
Research and Development
The Company follows the policy of expensing its research and
development costs in the period in which they are incurred in
accordance with ASC 730, Accounting for Research and
Development Costs. The Company
incurred research and development expenses of $15,771 and $221,437
during the years ended June 30, 2018 and 2017.
Advertising Expenses
The Company expenses advertising costs in the period in which they
are incurred. Advertising expenses were $258,257 and $45,183 for
the years ended June 30, 2018 and 2017.
Share-Based Compensation
The Company follows the provisions of ASC
718, Share-Based
Payment, which requires
all share-based payments to employees, including grants of employee
stock options, to be recognized in the income statement based on
their fair values. The Company uses the Black-Scholes
pricing model for determining the fair value of share-based
compensation.
The Company also follows the provisions of FASB ASC 505-50,
“Equity-Based Payments to
Non-Employees,” which addresses the accounting and reporting for both
the issuer (that is, the purchaser or grantor) and recipient (that
is, the goods or service provider or grantee) for a subset of
share-based payment transactions. ASC 505-50 requires equity
instruments issued to non-employees for goods or services are
accounted for at fair value and are marked to market until service
is complete or a performance commitment date is reached, whichever
is earlier.
Convertible Securities and Derivatives
The Company estimates the fair values of the debt and warrants, and
allocates the proceeds pro rata based on these
values. The allocation of proceeds to the warrants
results in the debt instrument being recorded at a discount from
the face amount of the debt and the value allocated to the warrant
is recorded to additional paid-in capital.
When the convertible debt or equity instruments contain embedded
derivative instruments that are to be bifurcated and accounted for
as liabilities, the total proceeds from the convertible host
instruments are first allocated to the bifurcated derivative
instruments. The remaining proceeds, if any, are then
allocated to the convertible instruments themselves, resulting in
those instruments being recorded at a discount from their face
value.
Derivative Liabilities
The Company has financial instruments that are considered
derivatives or contain embedded features subject to derivative
accounting. Embedded derivatives are valued separately from the
host instrument and are recognized as derivative liabilities in the
Company’s balance sheet. The Company measures these
instruments at their estimated fair value and recognizes changes in
their estimated fair value in results of operations during the
period of change. The Company has a sequencing policy
regarding share settlement wherein instruments with the earliest
issuance date would be settled first. The sequencing policy also
considers contingently issuable additional shares, such as those
issuable upon a stock split, to have an issuance date to coincide
with the event giving rise to the additional shares.
Using this sequencing policy, the Company used this sequencing
policy, all instruments convertible into common stock, including
warrants and the conversion feature of notes payable, issued
subsequent to July 5, 2016 until the note was converted on the same
day were derivative liabilities. The Company used this sequencing
policy, all instruments convertible into common stock, including
warrants and the conversion feature of notes payable, issued
subsequent to August 19, 2016 until the note was converted on
August 22, 2016 were derivative liabilities. The Company used this
sequencing policy, all instruments convertible into common stock,
including warrants and the conversion feature of notes payable,
issued subsequent to October 3, 2016 and November 15, 2016 until
the notes were converted on the same day were derivative
liabilities. The Company again used this sequencing policy, all
instruments convertible into common stock, including warrants and
the conversion feature of notes payable, issued subsequent to
January 1, 2017 until the note was converted on January 4, 2017
were derivative liabilities.
F-9
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. Additionally, the note contains a
ratchet provision. The Company determined under ASC 815, that the
embedded conversion feature (if offering of common stock is at no
consideration or at a price that is lower than the effective
conversion price on the date shares are offered for sale, then a
ratchet down of effective exercise price to price per share offered
for common stock would be used to determine additional shares to be
issued). The Company has determined that this ratchet provision
indicates that these shares, if issued, are not indexed to the
Company’s own stock and, therefore, is an embedded derivative
financial liability. Accordingly, all convertible instruments
issued after February 3, 2017 are considered derivatives according
to the Company’s sequencing policy.
The Company values these convertible notes payable using the
multinomial lattice method that values the derivative liability
within the notes based on a probability weighted discounted cash
flow model. The resulting liability is valued at each reporting
date and the change in the liability is reflected as change in
derivative liability in the statement of operations.
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 years ended June 30,
2018 and 2017 of $225,468 and $169,850, respectively.
Diluted earnings per Common Share is computed by dividing 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 years ended June 30, 2018 and 2017, all of the
Company’s potentially dilutive securities (warrants, options,
convertible preferred stock, and convertible debt) were excluded
from the computation of diluted earnings per share as they were
anti-dilutive. The total number of potentially dilutive
Common Shares that were excluded were 134,603,706 and 22,614,408 at
June 30, 2018 and 2017, respectively.
Income Taxes
The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets
and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. The charge
for taxation is based on the results for the year as adjusted for
items, which are non-assessable or disallowed. It is calculated
using tax rates that have been enacted or substantively enacted by
the balance sheet date.
ASC 740, Accounting for Uncertainty in
Income Taxes, clarifies the
accounting for uncertainty in tax positions taken or expected to be
taken in a return. ASC 740 provides guidance on the measurement,
recognition, classification and disclosure of tax positions, along
with accounting for the related interest and
penalties. Under this pronouncement, the Company
recognizes the financial statement benefit of a tax position only
after determining that a position would more likely than not be
sustained based upon its technical merit if challenged by the
relevant taxing authority and taken by management to the court of
the last resort. For tax positions meeting the
more-likely-than-not threshold, the amount recognized in the
consolidated financial statements is the largest benefit that has a
greater than 50% likelihood of being realized upon settlement with
the relevant tax authority.
The Company’s policy is to recognize both interest and
penalties related to unrecognized tax benefits in income tax
expense. Interest and penalties on unrecognized tax benefits
expected to result in payment of cash within one year are
classified as accrued liabilities, while those expected beyond one
year are classified as other liabilities. The Company has not
recorded any interest and penalties since its
inception.
The Company files income tax returns in the U.S. federal tax
jurisdiction and various state tax jurisdictions. The tax years for
2012 to 2018 remain open for federal and/or state tax
jurisdictions. The Company is currently not under examination by
any other tax jurisdictions for any tax years.
Investments
Our available for securities are considered Level 1. Realized gains
and losses on these securities are included in “Other income
(expense) – net” in the consolidated statements of
income using the specific identification method.
Unrealized gains and losses, on available-for-sale securities
are recorded in accumulated other comprehensive income (accumulated
OCI). Unrealized losses that are considered other than temporary
are recorded in other income (expense) – net, with the
corresponding reduction to the carrying basis of the
investment. All
available for sale securities were sold during the current
year.
F-10
Recent Accounting Pronouncements
Management has considered all recent accounting pronouncements
issued since the last audit of our consolidated financial
statements. The Company’s management believes that these
recent pronouncements will not have a material effect on the
Company’s consolidated financial statements.
NOTE 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 $76,466,750
negative working capital of $7,553,147, 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 – PROPERTY AND EQUIPMENT
The Company’s property and equipment are comprised of the
following as of June 30, 2018 and 2017:
|
2018
|
2017
|
Furniture
and Office Equipment
|
$25,478
|
$51,390
|
Office
Equipment and Computers
|
189,087
|
413,466
|
Studios
|
260,543
|
255,665
|
Vehicles
|
31,399
|
60,524
|
Leasehold
Improvements
|
60,084
|
66,658
|
Computer
Software
|
66
|
56,232
|
Accumulated
Depreciation
|
(423,297)
|
(637,895)
|
Net
Property and Equipment
|
$143,360
|
$266,040
|
Depreciation expense for the years ended June 30, 2018 and 2017 was
$128,105 and $149,887, respectively. The Company impaired assets
totaling $0 and $27,926 for the years ended June 30, 2018 and 2017,
respectively.
NOTE 4 – INTANGIBLE ASSETS
The Company’s intangible assets are comprised of the
following on June 30, 2018 and 2017:
|
2018
|
2017
|
Patterns
and Molds
|
$-
|
$18,915
|
Website
Costs
|
-
|
240,415
|
Video
Backgrounds
|
-
|
16,172
|
Accumulated
Amortization
|
-
|
(173,259)
|
Intangible
Assets, Net
|
$-
|
$102,243
|
F-11
Amortization expense for the years ended June 30, 2018 and 2017 was
$30,402 and $28,742, respectively. The Company impaired
intangible assets totaling $74,991 and $0 for the years ended June
30, 2018 and 2017, respectively.
NOTE 5 – SECURITIES AVAILABLE-FOR-SALE
On November 10, 2014, the Company received 600,000 shares of b
Booth stock as part of an Asset License agreement with b Booth. On
February 22, 2018, the Company sold the 600,000 shares to the CEO
of b Booth in exchange for $270,000, which included $250,000 in
cash and $20,000 in commissions fees. The Company realized a gain
on sale of the available for sale securities of $240,000 (Sales
price of $270,000 less the gross realized loss of $30,000). The
following table presents the amortized cost, gross unrealized
gains, gross unrealized losses, and fair market value of
available-for-sale equity securities, nearly all of which are
attributable to the Company's investment in b Booth stock, as
follows:
|
June 30, 2018
|
|||||
|
Amortized
cost
|
Gross unrealized gains
|
Gross unrealized losses
|
Gross realized gains
|
Gross realized losses
|
Fair
value
|
|
|
|
|
|
|
|
Equity securities
|
$ 123,600
|
$-
|
$-
|
$-
|
$(123,600)
|
$-
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|||||
|
Amortized
cost
|
Gross unrealized gains
|
Gross unrealized losses
|
Gross realized gains
|
Gross realized losses
|
Fair
value
|
|
|
|
|
|
|
|
Equity securities
|
$63,600
|
$60,000
|
$-
|
$-
|
$-
|
$123,600
|
NOTE 6 – INVENTORIES
Inventories are stated at the first in first out and consisted of
the following:
|
June 30, 2018
|
June 30, 2017
|
|
|
|
Components
|
$-
|
$159,017
|
Finished
Goods
|
-
|
-
|
Allowance
/ Reserve
|
-
|
(54,126)
|
Totals
|
$-
|
$104,891
|
F-12
NOTE 7– NOTES PAYABLE
Convertible Notes Payable
In accounting for its convertible notes payable where derivative
accounting does not apply, proceeds from the sale of a convertible
debt instrument with Common Stock purchase warrants are allocated
to the two elements based on the relative fair values of the debt
instrument without the warrants and of the warrants themselves at
time of issuance. The portions of the proceeds allocated to the
warrants are accounted for as paid-in capital with an
offset to debt discount. The remainder of the proceeds are
allocated to the debt instrument portion of the transaction as
prescribed by ASC 470-25-20. The Company then
calculates the effective conversion price of the note based on the
relative fair value allocated to the debt instrument to determine
the fair value of any beneficial conversion feature
(“BCF”) associated with the convertible note in
accordance with ASC 470-20-30. The BCF is recorded to
additional paid-in capital with an offset to debt
discount. Both the debt discount related to the issuance
of warrants and related to a BCF is amortized over the life of the
note.
Convertible Notes Payable – Related Parties
Convertible notes payable due to related parties consisted of the
following as of June 30, 2018 and 2017, respectively:
Convertible Notes Payable – Related Parties
|
|
|
|
June
30,
|
June
30,
|
|
2018
|
2017
|
|
|
|
Various term notes
with total face value of $3,925,000 issued from February 2010 to
April 2013, interest rates range from 10% to 15%, net of
unamortized discount of $0 as of June 30, 2018 and June 30, 2017,
of which $3,925,000 was extinguished.
|
$-
|
$3,925,000
|
$30,000
face value, issued in June 2019, interest rate of 0%, matures June
2019, a gain on extinguishment of debt was recorded totaling $3,818
net unamortized discount of $0 as of June 30, 2018 and June 30,
2017.
|
30,000
|
26,182
|
$5,000
face value, issued in June 2019, interest rate of 0%, matures March
2018, net amortized discount of $607 as of June 30,
2018.
|
4,393
|
-
|
$10,000
face value, issued in November 2017, interest rate of 0%, matures
November 2018, net amortized discount of $0 as of June 30,
2018.
|
10,000
|
-
|
$25,000
face value, issued in December 2017, interest rate of 0%, matures
December 2018, net amortized discount of $1,890 as of June 30,
2018.
|
23,110
|
-
|
$10,000
face value, issued in January 2018, interest rate of 0%, matures
January 2019, net unamortized discount of $534 as of June 30,
2018.
|
9,466
|
-
|
$15,000
face value, issued in January 2018, interest rate of 0%, matures
January 2019, net unamortized discount of $1,391 as of June 30,
2018.
|
13,609
|
-
|
$24,500
face value, issued in February 2018, interest rate of 0%, matures
February 2019, net unamortized discount of $0 as of June 30,
2018.
|
24,500
|
-
|
Total convertible
notes payable – related parties
|
115,078
|
3,951,182
|
Less current
portion
|
115,078
|
3,951,182
|
Convertible notes
payable – related parties, long-term
|
$-
|
$-
|
As part of a settlement agreement dated March 30, 2018, the agreed
to extinguish $3,925,000 in convertible notes with related parties
and accrued interest of $240,041, $375,000 in related party notes
payable and accrued interest of $43,007 for a total payment of
$200,000. As part of the arrangement the note holder agreed to
cancel 14,837,251 shares of common stock and 531,250
warrants.
On August 8, 2016, the Company issued a convertible note to a
related individual for $30,000 that matures on October 8,
2016. The note bears interest rate of 0% per annum and
is convertible into shares of the Company’s Common stock at
$0.40 per share, as part of the note the company issued options to
purchase 21,000 shares of 144 restricted common stock at an
exercise price $0.50 for a two-year period. The note was amended on
November 15, 2016 to extend the maturity date to January 31, 2017
and again on May 10, 2017 to extend the maturity date to October 1,
2017. The Company evaluated amendment under ASC 470-50,
“Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a extinguishment of the debt and not modification of the debt
resulting in a gain on extinguishment of debt of $3,818.
The
note was amended subsequently on August 24, 2018 to extend the
maturity date to June 30, 2019. The Company evaluated amendment
under ASC 470-50, “Debt
- Modification and Extinguishment”, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt.
On September 27, 2017, the Company
issued a convertible note to an unrelated party for $5,000 that
matures on March 31, 2018. The note bears 0% interest per annum.
The note is convertible into shares of the Company’s common
stock at $0.10 per share. The Company valued a BCF related to the
note valued at $2,995. The note was amended
subsequently 0n August 24, 2018 to extend the maturity date to June
30, 2019. The Company evaluated amendment under ASC 470-50,
“Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
F-13
On November 1, 2017, the Company issued a note to a related party
for $10,000 that matures on November 1, 2018. The note bears 0%
interest per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per share.
On December 30, 2017, the Company issued a note to a related party
for $25,000 that matures on December 30, 2018. The note bears 0%
interest per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per
share. The Company
valued a BCF related to the note valued at
$3,750.
On January 4, 2018, the Company issued a note to a related party
for $15,000 that matures on January 4, 2019. The note bears 0%
interest per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per
share. The Company
valued a BCF related to the note valued at
$2,700.
On January 11, 2018, the Company issued a note to a related party
for $10,000 that matures on January 11, 2019. The note bears 0%
interest per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per
share. The Company
valued a BCF related to the note valued at
$1,000.
On February 14, 2018, the Company issued a note to a related party
for $24,500 that matures on February 14, 2019. The note bears 0%
interest per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per
share.
Convertible Notes Payable - Non-Related Parties
Convertible notes payable due to non-related parties consisted of
the following as of June 30, 2018 and 2017,
respectively:
Convertible Notes Payable - Non-Related Parties
|
|
|
|
June
30,
|
June
30,
|
|
2018
|
2017
|
$7,000
face value, issued in July 2014, interest rate of 6%, matures
February 2019, net unamortized discount of $0 as of June 30, 2018
and June 30, 2017, respectively.
|
$7,000
|
$7,000
|
$600,000
face value, issued in November 2015, interest rate of 0%, an OID of
$190,000, matures January 2018 , net unamortized discount of $0 of
June 30, 2018 and June 30, 2017, respectively, of which $335,000
has been paid and $355,000 was transferred to a new note in April
2018.
|
-
|
430,000
|
$100,000
face value, issued in February 2016, interest rate of 10%, matures
February 2019, net unamortized discount of $0 as of June 30, 2018
and June 30, 2017, respectively.
|
100,000
|
100,000
|
$25,000
face value, issued in February 2016, interest rate of 10%, matures
February 2017, net unamortized discount of $0 as of June 30, 2018
and June 30, 2017, respectively. The note is currently in
default.
|
25,000
|
25,000
|
$100,000
face value, issued in March 2016, interest rate of 10%, matures
October 2018, net unamortized discount of $0 as of June 30, 2018
and June 30, 2017, respectively.
|
100,000
|
100,000
|
$10,000
face value, issued in March 2016, interest rate of 10%, matures
October 2018, net unamortized discount $0 of June 30, 2018 and June
30, 2017, respectively.
|
10,000
|
10,000
|
$50,000
face value, issued in July 2016, interest rate of 0%, matures
October 2018, net unamortized discount of $0 of June 30, 2018 and
June 30, 2017, respectively.
|
50,000
|
50,000
|
$50,000
face value, issued in August 2016, interest rate of 0%, matures
September which was amended to October 2018, net unamortized
discount of $0 and $5,418 of June 30, 2018 and June 30, 2017,
respectively.
|
50,000
|
44,582
|
$1,000,000
face value, issued in September 2016, interest rate of 10%, matures
June 2017, net unamortized discount of $0 as of June 30, 2018 and
June 30, 2017, respectively.
|
1,000,000
|
1,000,000
|
$258,000
face value, issued in February 2017, interest rate of 12%, matures
August 2017, net amortized discount of $0 and $48,464 as of June
30, 2018 and June 30, 2017, respectively, of which $258,000 has
been paid.
|
-
|
209,536
|
F-14
$149,000
face value, issued in February 2017, interest rate of 10%, matures
November 2017 which was amended to June 2018, net amortized
discount of $0 and $59,740 as of June 30, 2018 and June 30, 2017,
respectively, of which $39,660 was converted and $30,000 has been
paid. The note is currently in default.
|
79,340
|
89,260
|
$224,000
face value, issued in February 2017, interest rate of 10%, matures
November 2017 which was amended to June 2018, net amortized
discount of $32,452 and $119,795 as of June 30, 2018 and June 30,
2017, respectively, of which $75,492 has been converted and $50,000
has been paid. The note is currently in default.
|
98,508
|
104,205
|
$265,000
face value, issued in May 2017, interest rate of 10%, matures
February 2018, net amortized discount of $45,267 and $218,790 as of
June 30, 2018 and June 30, 2017, respectively, of which $64,588 was
converted. The note is currently in default.
|
200,412
|
46,210
|
$55,000
face value, issued in June 2017, interest rate of 10%, matures
January 2018, with additional fees of $20,000 net amortized
discount of $3,341 and $50,631 as of June 30, 2018 and June 30,
2017, respectively, of which $75,000 was converted.
|
-
|
4,369
|
$100,000
face value, issued in June 2017, interest rate of 10%, matures June
2018, net amortized discount of $0 and $52,317 as of June 30, 2018
and June 30, 2017, respectively. The note is currently in
default.
|
100,000
|
47,683
|
$78,000
face value, issued in July 2017, interest rate of 12%, matures May
2018, net amortized discount of $0 as of June 30, 2018, of which
$72,000 was converted. The note is currently in
default.
|
6,000
|
-
|
$50,000
face value, issued in August 2017, interest rate of 0%, matures
October 2017, net amortized discount of $0 as of June 30, 2018, of
which $34,000 has been converted and $16,000 was transferred to a
new note.
|
-
|
-
|
$60,500
face value, issued in August 2017, interest rate of 12%, matures
August 2018, net amortized discount of $0 as of June 30, 2018, of
which $60,500 has been paid.
|
-
|
-
|
$10,000
face value, issued in August 2017, interest rate of 0%, matures
August 2018, net amortized discount of $729 as of June 30, 2018.
The note is currently in default.
|
9,271
|
-
|
$82,250 face value,
issued in August 2017, interest rate of 12%, matures May 2018, net
amortized discount of $0 as of June 30, 2018, of which $35,000 has
been converted and $47,250 was transferred to a new
note.
|
-
|
-
|
$53,000 face value,
issued in August 2017, interest rate of 12%, matures June 2018, net
amortized discount of 0 as of June 30, 2018. The note is currently in
default.
|
53,000
|
-
|
$65,000 face value,
issued in September 2017, interest rate of 12%, matures March 2018,
net amortized discount of $0 as of June 30, 2018, of which $65,000
has been paid.
|
-
|
-
|
$10,000 face value,
issued in September 2017, interest rate of 10%, matures September
2018, net amortized discount of $4,400 as of June 30, 2018.
The note is currently in
default.
|
5,600
|
-
|
$50,000 face value,
issued in September 2017, interest rate of 0%, matures November
2017, net amortized discount of $0 as of June 30, 2018, of which
$50,000 was transferred to a new note.
|
-
|
-
|
$110,000 face
value, issued in October 2017, interest rate of 10%, matures July
2018, net amortized discount of $6,447 as of June 30, 2018, of
which $110,000 has been paid.
|
-
|
-
|
$100,000 face
value, issued in October 2017, interest rate of 10%, matures
October 2018, net amortized discount of $22,333 as of June 30,
2018.
|
77,667
|
-
|
F-15
$115,000 face
value, issued in November 2017, interest rate of 10%, matures
August 2018, net amortized discount of $40,678 as of June 30, 2018.
The note is currently in
default.
|
74,322
|
-
|
$50,000 face value,
issued in November 2017, interest rate of 10%, matures January
2018, net amortized discount of $0 as of June 30, 2018.
The note is currently in
default.
|
50,000
|
-
|
$66,000 face value,
issued in November 2017, interest rate of 10%, matures November
2018, net amortized discount of $17,085 as of June 30,
2018.
|
48,915
|
-
|
$100,000 face
value, issued in November 2017, interest rate of 10%, matures
November 2018, net amortized discount of $39,452 as of June 30,
2018.
|
60,548
|
-
|
$5,000 face value,
issued in November 2017, interest rate of 10%, matures November
2018, net amortized discount of $1,932 as of June 30,
2018.
|
3,068
|
-
|
$53,000 face value,
issued in November 2017, interest rate of 12%, matures July 2018,
net amortized discount of $4,649 as of June 30, 2018, of which
$34,530 was converted. The note is
currently in default.
|
13,821
|
-
|
$100,000 face
value, issued in December 2017, interest rate of 10%, matures
December 2018, net amortized discount of $20,137 as of June 30,
2018.
|
79,863
|
-
|
$20,000 face value,
issued in December 2017, interest rate of 10%, matures December
2018, net amortized discount of $4,689 as of June 30,
2018.
|
15,311
|
-
|
$75,000 face value,
issued in December 2017, interest rate of 10%, matures December
2018, net amortized discount of $23,180 as of June 30,
2018.
|
51,820
|
-
|
$20,000 face value,
issued in December 2017, interest rate of 10%, matures December
2018, net amortized discount of $6,181 as of June 30,
2018.
|
13,819
|
-
|
$115,000 face
value, issued in January 2018, interest rate of 10%, matures
October 2018, net amortized discount of $42,967 as of June 30,
2018. The note is currently in
default.
|
72,033
|
-
|
$53,000 face value,
issued in January 2018, interest rate of 12%, matures November
2018, net amortized discount of $0 as of June 30, 2018, of which
$53,000 was transferred to a new note in June 2018.
|
-
|
-
|
$20,000 face value,
issued in February 2018, interest rate of 10%, matures February
2019, net amortized discount of $4,847 as of June 30,
2018.
|
15,153
|
-
|
$75,075 face value,
issued in February 2018, interest rate of 10%, matures November
2018, net amortized discount of $0 as of June 30,
2018.
|
75,075
|
-
|
$6,000 face value,
issued in February 2018, interest rate of 10%, matures June 2019
net amortized discount of $0 as of June 30, 2018.
|
6,000
|
-
|
$10,000 face value,
issued in March 2018, interest rate of 10%, matures March 2019, net
amortized discount of $2,267 as of June 30, 2018.
|
7,733
|
-
|
$15,000 face value,
issued in March 2018, interest rate of 10%, matures March 2019, net
amortized discount of $2,780 as of June 30, 2018.
|
12,220
|
-
|
$100,000 face
value, issued in March 2018, interest rate of 10%, matures March
2019, net amortized discount of $21,696 as of June 30,
2018.
|
78,304
|
-
|
$26,000 face value,
issued from an assignment in March 2018, interest rate of 0%,
matures May 2018, net amortized discount of $0 as of June 30, 2018.
The note is currently in
default.
|
26,000
|
-
|
$53,102 face value,
issued from an assignment in March 2018, interest rate of 0%,
matures May 2018, net amortized discount of $0 as of June 30, 2018,
of which $53,102 has been converted.
|
-
|
-
|
$150,000 face
value, issued in April 2018, interest rate of 12%, matures January
2019, net amortized discount of $105,818 as of June 30,
2018.
|
44,182
|
-
|
$400,000 face
value, issued from an assignment in April 2018 of $355,000 in
principal and an OID of $45,000, interest rate of 10%, matures
April 2019, net amortized discount of $36,000 as of June 30, 2018,
of which $223,198 has been converted.
|
140,802
|
-
|
$15,000 face value,
issued in April 2018, interest rate of 10%, matures April 2019, net
amortized discount of $12,000 as of June 30, 2018, of which
$223,198 has been converted.
|
3,000
|
-
|
$150,086 face
value, issued in May 2018, interest rate of 12%, matures January
2020, net amortized discount of $116,522 as of June 30, 2018, of
which $12,000 has been paid.
|
21,564
|
-
|
$135,700 face
value, issued in May 2018, interest rate of 12%, matures May 2019,
net amortized discount of $0 as of June 30, 2018, of which $12,000
has been paid.
|
12,201
|
-
|
$15,651 face value,
issued in June 2018, interest rate of 12%, matures June 2019, net
amortized discount of $0 as of June 30, 2018.
|
15,651
|
-
|
$55,718 face value,
issued from an assignment in June 2018, interest rate of 12%,
matures October 2018, net amortized discount of $0 as of June 30,
2018.
|
55,718
|
-
|
$161,000 face
value, issued in June 2018, interest rate of 12%, matures June
2019, net amortized discount of $160,558 as of June 30,
2018.
|
441
|
-
|
Total convertible
notes payable – non-related parties
|
2,959,457
|
2,267,845
|
Less current
portion
|
2, 959,457
|
2,267,845
|
Convertible notes
payable – non-related parties, long-term
|
$-
|
$-
|
On July 14,
2014, the Company issued a convertible note to an unrelated
individual for $7,000 that matures on October 14, 2014. The note
bears interest rate of 6% per annum and is convertible into shares
of the Company’s Common stock at $0.10 per share.
The note
was amended September 12, 2018 to extend the maturity date to
February 15, 2019.
On November 20, 2015, the Company issued a convertible note to an
unrelated company for $600,000 that matures on May 20,
2016. The company paid $200,000 in principle balance leaving a
remain balance of $430,000 including the extension fees and is
not convertible unless the borrower defaults under the amendment
agreement dated January 1, 2017. The note bears 0% interest
and had an original issue discount (OID) of $100,000. This note is
not convertible unless there is a default event. Per the terms of
the note there are no derivatives until it becomes convertible on
the original note, however the $30,000 extensions are to be
considered derivatives. The Lender released a clarification of
amendments to convertible promissory notes that explained the
$30,000 extension fees are the only portion that is to be
considered as convertible and converts within 2 days of issuance.
The intent of the amendment agreements were to insure the original
note dated November 20, 2015 in the amount of $600,000. Because the
terms do not dictate a maximum numbers of convertible shares, the
ability to settle these obligations with shares would be
unavailable causing these obligations to potentially be settled in
cash. This condition creates a derivative liability Under ASC
815-40. The Company has a sequencing policy regarding share
settlement wherein instruments with the earliest issuance date
would be settled first. The sequencing policy also considers
contingently issuable additional shares, such as those issuable
upon a stock split, to have an issuance date to coincide with the
event giving rise to the additional shares. During the extension
and conversion day period no additional convertible instruments
were issued, therefore on the extension was considered in the
derivative calculation. The Company extended the maturity date
seven times since February 27, 2017 for a total of $210,000, of
which, the Company paid $135,000 in the nine months ended March 31,
2018. The Company latest and fourteenth extension with
consideration of $30,000 was on December 18, 2017 to extending the
maturity date to January 31, 2018. The Company evaluated the
amendments under ASC 470-50, “Debt - Modification and
Extinguishment”, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not
extinguishment of the debt. On February 2, 2018, the note converted
the principal of $30,000 for 680,118 shares of common stock. On
February 23, 2018, the note converted the principal of $30,000 for
1,083,698 shares of common stock. On April 18, 2018, the company
transferred the remaining balance to a new note, see below for note
issued on April 18, 2018.
F-16
On February 15, 2016, the Company issued a convertible note to an
unrelated individual for $25,000 that matures on February 15, 2017.
The note was amended subsequently in September 28, 2017 to extend
the maturity date to October 15, 2017. The Company evaluated
amendment under ASC 470-50, “Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the debt. The
note was amended September 12, 2018 to extend the maturity date to
February 15, 2019.
On March 7, 2016, the Company issued a convertible note to an
unrelated individual for $100,000 that matures on March 7, 2017.
The note bears interest rate of 10% per annum and is convertible
into shares of the Company’s Common stock at $0.40 per share.
The Company valued a BCF related to the note valued at $24,269 and
debt discount related to the 10,000 shares of common stock issued
with the note at a relative fair value of
$4,569. The
note was amended again on September 20, 2018 to extend the maturity
date to October 15, 2018.
On March 7, 2016, the Company issued a convertible note to an
unrelated individual for $10,000 that matures on March 7, 2017. The
note bears interest rate of 10% per annum and is convertible into
shares of the Company’s Common stock at $0.50 per share. The
Company valued a debt discount related to the 1,000 shares of
common stock issued with the note at a relative fair value of
$457.
On September 15, 2016, the Company issued a convertible note to an
unrelated individual for $1,000,000 that matures on June 30, 2017.
The note was amended subsequently on June 30, 2017 to extend the
maturity date to June 30, 2018. The note was amended again on
August 24, 2018 to extend the maturity date to October 15,
2018.
On August 26, 2016, the Company issued a convertible note to an
unrelated individual for $50,000 that matures on August 26, 2017.
The note bears interest rate of 10% per annum and is convertible
into shares of the Company’s Common stock at $0.40 per share.
The note was amended on June 30, 2017 to extend the maturity date
to October 1, 2017. The Company evaluated amendment under ASC
470-50, “Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the debt. The
note was amended again on September 28, 2017 to extend the maturity
date to January 1, 2018. The note was amended again on August 24,
2018 to extend the maturity date to October 15, 2018.
On March 7, 2016, the Company issued a
convertible note to an unrelated individual for $100,000 that
matures on March 7, 2017. The note bears interest rate of 10% per
annum and is convertible into shares of the Company’s Common
stock at $0.40 per share. The Company valued a BCF related to the
note valued at $24,269 and debt discount related to the 10,000
shares of common stock issued with the note at a relative fair
value of $4,569. The note was amended
again on September 28, 2017 to extend the maturity date to January
15, 2018, as additional consideration the Company issued 25,000
shares of common stock valued at $3,998. The note was amended again
on September 20, 2018 to extend the maturity date to October 15,
2018.
On July 26, 2016, the Company issued a convertible note to an
unrelated individual for $50,000 that matures on September 26,
2016. The note bears interest rate of 0% per annum and is
convertible into shares of the Company’s Common stock at
$0.40 per share, as part of the note the company issued warrants to
purchase 35,000 shares of 144 restricted common stock at an
exercise price $0.30 for a two-year period. The note was amended on
September 28, 2017 to extend the maturity date to January 15, 2018,
as additional consideration the Company issued 15,000 shares of
common stock valued at $2,399. The note was amended on September
20, 2018 to extend the maturity date to October 15,
2018,
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $149,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815, that this percentage discount
(variable) exercise price indicates is an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value. The Company extended the possibility to convert date by
issuing 60,000 warrants valued at $7,813 on September 8, 2017 to
November 2, 2017. The Company extended the possibility to convert
date by issuing 60,000 warrants valued at $7,813 on September 8,
2017 to November 2, 2017. The Company extended the possibility to
convert date by paying $10,000 of principal and $1,400 of accrued
interest on October 23, 2017 to November 24, 2017 and extend the
maturity date to February 21, 2018. The Company extended the
possibility to convert date by paying $10,000 of principal and
$4,000 of accrued interest on November 29, 2017 to December 22,
2017. The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using the
multinomial lattice
model. The Company evaluated amendment under ASC 470-50,
“Debt
- Modification and Extinguishment”, and concluded that the extension did not result
in significant and consequential changes to the economic substance
of the debt and thus resulted in a modification of the debt and not
extinguishment of the debt. On May 1, 2018, the note converted the
principal of $39,660 and $4,740 in accrued interest into for
2,220,000 shares of common stock.
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $224,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815, the Company has determined
that this percentage discount (variable) exercise price indicates
an embedded derivative financial liability, which requires
bifurcation and to be separately accounted for. At each reporting
period, the Company will mark this derivative financial instrument
to its estimated fair value. The Company extended the possibility
to convert date by issuing 90,000 warrants valued at $11,720 on
September 8, 2017 to November 2, 2017. The Company extended the
possibility to convert date by paying $10,000 of principal and
$2,100 of accrued interest on October 23, 2017 to November 24, 2017
and extend the maturity date to February 21, 2018. The Company
extended the possibility to convert date by paying $20,000 of
principal and $6,000 of accrued interest on November 29, 2017 to
December 22, 2017. The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using the
multinomial lattice
model. The Company evaluated amendment under ASC 470-50,
“Debt
- Modification and Extinguishment”, and concluded that the extension did not result
in significant and consequential changes to the economic substance
of the debt and thus resulted in a modification of the debt and not
extinguishment of the debt. On March 12, 2018, the note converted
the principal of $7,337 and $4,278 in accrued interest into for
575,000 shares of common stock. On April 2, 2018, the note
converted the principal of $19,037 and $963 in accrued interest
into for 1,000,000 shares of common stock. On April 24, 2018, the
note converted the principal of $49,118 and $1,482 in accrued
interest into for 2,530,000 shares of common
stock.
F-17
On May 12, 2017, the Company issued a convertible note to an
unrelated company for $265,000 that matures on February 17, 2018.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at the lesser of $.31
and 60% of the lowest closing bids 25 days prior to the conversion
date. Additionally, the note contains a percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815, the Company has determined
that this percentage discount (variable) exercise
price indicates that these shares, if issued, are not indexed
to the Company’s own stock and, therefore, is an embedded
derivative financial liability, which requires bifurcation and to
be separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value. On February 22, 2018, the note converted interest of
$9,200 and $250 in conversion fees for 450,000 shares of common
stock. On March 6, 2018, the note converted principal of $11,138,
$13,812 in interest, and $250 in conversion fees for 1,200,000
shares of common stock. On April 16, 2018, the note converted
$27,237, $8,513 in interest, and $250 in conversion fees for
1,500,000 shares of common stock. On June 29, 2018, the note
converted principal of $26,213, $9,537 in interest, and $250 in
conversion fees for 1,500,000 shares of common stock.
On June 13, 2017, the Company issued a convertible note to an
unrelated company for $55,000 that matures on January 13, 2018. The
note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at 57.5% of the lowest
closing bids 30 days prior to the conversion
date. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815, the Company has determined
that this percentage discount (variable) exercise
price indicates that these shares, if issued, are not indexed
to the Company’s own stock and, therefore, is an embedded
derivative financial liability, which requires bifurcation and to
be separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value. The note was amended on
December 13, 2017, to extend the maturity date to January 15, 2018
and again on January 18, 2018, to extend the maturity date to
February 15, 2018.As consideration for the extensions two extension
fees of $10,000 each had been added to the outstanding principal.
The Company evaluated amendment under ASC 470-50,
“Debt
- Modification and Extinguishment”, and concluded that
the extension did result in significant and consequential changes
to the economic substance of the debt and thus resulted in an
extinguishment of the debt and the company recorded a loss on
extinguishment of debt of $20,000. On March 5, 2018, the note converted the
principal of $15,000 for 745,342 shares of common stock. On March
21, 2018, the note converted the principal of $15,000 for 745,342
shares of common stock. On April 10, 2018, the note converted the
principal of $25,000 for 1,086,957 shares of common stock. On June
13, 2018, the note converted the remaining principal of $20,000 and
$12,198 in accrued interest for 1,056,538 shares of common
stock.
In conjunction with the note, the Company issued to the holder
55,000 warrants to purchase Common Shares. The value of the debt
discount recorded was $41,150 and the debt discount related to the
attached relative fair value of warrants was $8,850, for a total
debt discount of $50,000, and a derivative expense of
$9,432.
On July 31, 2017, the Company issued a convertible note to an
unrelated company for $78,000, which included $75,000 in proceeds
and $3,000 in legal fees, that matures on April 10, 2018. The note
bears 12% interest per annum and is convertible into shares of
the Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. On February 1,
2018, the note converted the principal of $12,000 for 238,284
shares of common stock. On February 1, 2018, the note converted the
principal of $12,000 for 238,284 shares of common stock. On
February 15, 2018, the note converted the principal of $20,000 for
529,101 shares of common stock. On February 22, 2018, the note
converted the principal of $20,000 for 655,738 shares of common
stock. On March 2, 2018, the note converted the principal of
$20,000 for 809,717 shares of common stock.
On August 2, 2017, the Company issued a convertible note to an
unrelated party for $50,000 that matures on August 24, 2017. The
note bears 0% interest per annum, in lieu of interest the Company
issued 12,000 shares of common stock on August 4, 2017. The note is
convertible into shares of the Company’s common stock at
$0.10 per share. The Company valued a BCF related
to the note valued at $31,287 and debt discount related to the
12,000 shares of common stock issued with the note at a relative
fair value of $1,837. The note was amended on
September 15, 2017, to extend the maturity date to October 15,
2017. The Company evaluated amendment under ASC 470-50,
“Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt. On September 15,
2017, the note converted the principal of $34,000 for 340,000
shares of common stock. On November 17, 2017, the company
transferred the remaining balance to a new note, see
below.
On August 2, 2017, the Company issued a convertible note to an
unrelated company for $60,500, which includes proceeds of $55,000,
and $5,500 in OID, that matures on August 2, 2018. The note bears
12% interest per annum and is convertible into shares of the
Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
F-18
On August 4, 2017, the Company issued a convertible note to an
unrelated party for $10,000 that matures on August 4, 2018. The
note bears 0% interest per annum, in lieu of interest the Company
issued 3,500 shares of common stock on August 7, 2017. The note is
convertible into shares of the Company’s common stock at
$0.10 per share. The Company valued a BCF related
to the note valued at $7,056 and debt discount related to the 3,500
shares of common stock issued with the note at a relative fair
value of $546.
On August 15, 2017, the Company issued a convertible note to an
unrelated company for $82,250, which included $75,000 in proceeds
and $7,250 in legal and other fees, that matures on April 18, 2018.
The note bears 12% interest per annum and is convertible
into shares of the Company’s common stock at 60% the lowest
trading price during the previous twenty (2) days to the date of
conversion. The note contains a percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable)
exercise price indicates an embedded derivative financial
liability, which requires bifurcation and to be separately
accounted for. At each reporting period, the Company will mark this
derivative financial instrument to its estimated fair value. On
February 21, 2018, the note converted the principal of $15,000 for
714,285 shares of common stock. On March 21, 2018, the note
converted the principal of $20,000 for 833,333 shares of common
stock. On March 28, 2018, the company transferred the remaining
balance to a new note, see below.
On August 16, 2017, the Company issued a convertible note to an
unrelated company for $53,000, which included $50,000 in proceeds
and $3,000 in legal fees, that matures on June 16, 2018. The note
bears 12% interest per annum and is convertible into shares of
the Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
On September 8, 2017, the Company issued a convertible note to an
unrelated company for $65,000, which included $58,500 in proceeds
and $6,500 in OID, that matures on March 8, 2018. The note bears
12% interest per annum and is convertible into shares of the
Company’s common stock at 55% of either the lowest sales
price for common stock on principal market during the twenty-five
consecutive trading days including the immediately preceding the
conversion date. The note contains a percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
On September 11, 2017, the Company issued a convertible note to an
unrelated party for $10,000 that matures on September 11, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. Due to sequencing on February 2, 2017, the Company
determined under ASC 815, the Company has determined that the note
is to be treated as an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
On September 28, 2017, the Company issued a convertible note to an
unrelated party for $50,000 that matures on November 28, 2017. The
note bears 0% interest per annum, in lieu of interest the Company
issued 25,000 shares of common stock. The note is convertible into
shares of the Company’s common stock at $0.10 per share.
The Company valued a BCF related to the note valued at $33,397
and debt discount related to the 25,000 shares of common stock
issued with the note at a relative fair value of
$3,702. On November 17, 2017, the company
transferred the remaining balance to a new note, see
below.
On October 16, 2017, the Company issued a convertible note to an
unrelated company for $110,000 that matures on July 16, 2018. The
note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at 57.5% of the lowest
closing bid 30 days prior to the conversion
date. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates that these shares, if issued, are not indexed
to the Company’s own stock and, therefore, is an embedded
derivative financial liability, which requires bifurcation and to
be separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
The Company extended the possibility to convert date by issuing
60,000 warrants valued at $7,813 on September 8, 2017 to November
2, 2017. The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the multinomial lattice
model. The Company extended the possibility to
convert date by paying $164,469 in principal on October 23, 2017 to
February 21, 2018. The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the multinomial lattice
model. The Company evaluated amendment under ASC
470-50, “Debt - Modification and
Extinguishment”, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt.
F-19
On October 29, 2017, the Company issued a convertible note to an
unrelated party for $100,000 that matures October 29, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per share. As
additional consideration the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share totaling
750,002 shares of common stock. The Company valued a BCF related to the
note valued at $20,000 and debt discount related to the 750,002
shares of common stock issued with the note at a relative fair
value of $47,368.
On November 13, 2017, the Company issued a convertible note to an
unrelated party for $115,000 that matures on August 13, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at 57.5% of the lowest
closing bids 30 days prior to the conversion per share. Due to
sequencing on February 2, 2017, the Company determined under ASC
815, the Company has determined that the note is to be treated as
an embedded derivative financial liability, which requires
bifurcation and to be separately accounted for. At each reporting
period, the Company will mark this derivative financial instrument
to its estimated fair value. As additional
consideration the Company also issued
150,000 warrants valued at $12,570. The warrants are considered
derivative liabilities under ASC 815-40 under the Company’s
sequencing policy and were valued using the multinomial lattice model.
On November 13, 2017, the Company
issued a convertible note to an unrelated party for $50,000 that
matures January 10, 2018. The note bears 10% interest per annum.
The note is convertible into shares of the Company’s common
stock at $0.10 per share. The Company valued a BCF related to the
note valued at $18,500.The note was amended
on October 30, 2017, to extend the conversion rights from 180 days
to 225 days, in consideration of the extension the Company paid
$25,000 and issued 150,000 valued at $6,691. The Company evaluated
amendment under ASC 470-50, “Debt
- Modification and Extinguishment”, and concluded that
the extension did result in significant and consequential changes
to the economic substance of the debt and thus resulted in an
extinguishment of the debt. The
note was amended on September 12, 2018, to extend the maturity date
to December 31, 2018.
On November 17, 2017, the Company issued a convertible note to an
unrelated party for $66,000 that matures November 17, 2018 in
exchange for two existing notes for $16,000 issued on August 2,
2017 and $50,000 on September 28, 2017. The note bears 10% interest
per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per share. As additional
consideration the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $.0133333 per share
totaling 495,001. The Company valued a BCF related to the note
valued at $13,266 and debt discount related to
the 495,001shares
of common stock issued with the note at a relative fair value
of $31,277.
On November 21, 2017, the Company issued a convertible note to an
unrelated party for $100,000 that matures on November 21, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at 57.5% of the lowest
closing bids 20 days prior to the conversion per share. Due to
sequencing on February 2, 2017, the Company determined under ASC
815, the Company has determined that the note is to be treated as
an embedded derivative financial liability, which requires
bifurcation and to be separately accounted for. At each reporting
period, the Company will mark this derivative financial instrument
to its estimated fair value.
On November 24, 2017, the Company issued a convertible note to an
unrelated party for $5,000 that matures November 24, 2018. The note
bears 10% interest per annum. The note is convertible into shares
of the Company’s common stock at $0.10 per share. As
additional consideration the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share totaling
37,500. The Company
valued a BCF related to the note valued at $2,200 and debt discount
related to the 37,500
shares of common stock issued with the
note at a relative fair value of $2,596.
On November 28, 2017, the Company issued a convertible note to an
unrelated party for $53,000 that matures on July 16, 2018. The note
bears 12% interest per annum. The note is convertible into shares
of the Company’s common stock at 61% of the lowest closing
bids 15 days prior to the conversion per share. Due to
sequencing on February 2, 2017, the Company determined under ASC
815, the Company has determined that the note is to be treated as
an embedded derivative financial liability, which requires
bifurcation and to be separately accounted for. At each reporting
period, the Company will mark this derivative financial instrument
to its estimated fair value. On May 4, 2018, the note converted principal of
$17,450 for 500,000 shares of common stock. On June 20, 2018, the
note converted principal of $17,080 and $3,914 for 700,000 shares
of common stock.
On December 18, 2017, the Company issued a convertible note to an
unrelated party for $100,000 that matures December 18, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. As
additional consideration the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share totaling
750,002. The Company
valued a BCF related to the note valued at $100 and debt discount
related to the 750,002 shares of common stock issued with the note
at a relative fair value of $42,882.
On December 21, 2017, the Company issued a convertible note to an
unrelated party for $20,000 that matures December 21, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. As additional consideration the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share totaling
150,000 The Company
valued a BCF related to the note valued at $1,020 and debt discount
related to the 150,000 shares of common stock issued with the note
at a relative fair value of $8,816.
F-20
On December 31, 2017, the Company issued a convertible note to an
unrelated party for $75,000 that matures December 31, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. As
additional consideration the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share
totaling 150,000.
The Company valued a BCF related to the note valued at $11,250
and debt discount related to the 150,000 shares of common stock
issued with the note at a relative fair value
of $34,732.
On December 31, 2017, the Company issued a convertible note to an
unrelated party for $20,000 that matures December 31, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. As additional consideration the Company is to issue
shares of common stock as initial interest payment in kind
calculated by dividing the principal by $0133333 per share totaling
562,501. The Company
valued a BCF related to the note valued at $3,000 and debt discount
related to the 562,501 shares of common stock issued with the note
at a relative fair value of $9,262.
On January 8, 2018, the Company issued a convertible note to an
unrelated company for $53,000, which included $50,000 in proceeds
and $3,000 in legal fees, that matures on November 10, 2018. The
note bears 12% interest per annum and is convertible into
shares of the Company’s common stock at 61% of the lowest two
trading prices during the fifteen (15) trading day period ending to
the date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. On June
13, 2018, the company transferred the remaining balance to a new
note, see below.
On January 10, 2018, the Company issued a convertible note to an
unrelated party for $115,000 that matures on October 10, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at the lesser of $.12
and 57.5% of the lowest trading price during the prior 30
days. Due to sequencing on February 2, 2017, the Company
determined under ASC 815, the Company has determined that the note
is to be treated as an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. As additional
consideration the Company also issued
150,000 warrants valued at $11,056 The warrants are considered
derivative liabilities under ASC 815-40 under the Company’s
sequencing policy and were valued using the multinomial lattice model.
On February 8, 2018, the Company issued a convertible note to an
unrelated party for $20,000 that matures February 8, 2019. The note
bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. The Company valued a debt discount related to the
150,004 shares of common stock issued with the note at a relative
fair value of $7,581.
On February 16, 2018, the Company issued a convertible note to an
unrelated party for $75,075 that matures on November 16, 2018. The
note bears 12% interest per annum. The note 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 consecutive trading days including the immediately
preceding the conversion date. . Due to sequencing on
February 2, 2017, the Company determined under ASC 815, the Company
has determined that the note is to be treated as an embedded
derivative financial liability, which requires bifurcation and to
be separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
On February 21, 2018, the Company issued a convertible note to an
unrelated party for $6,000 that matures April 1, 2018. The note was
amended on August 24, 2018, to extend the maturity date to June 30,
2019. The note bears 10% interest per annum. The note is
convertible into shares of the Company’s common stock at
$0.10 per share.
On March 2, 2018, the Company issued a convertible note to an
unrelated party for $10,000 that matures March 2, 2019. The note
bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. The Company valued a debt discount related to the
75,002 shares of common stock issued with the note at a relative
fair value of $3,377.
On March 5, 2018, the Company issued a convertible note to an
unrelated party for $15,000 that matures March 5, 2019. The note
bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. The Company valued a debt discount related to the
112,503 shares of common stock issued with the note at a relative
fair value of $4,091.
On March 12, 2018, the Company issued a convertible note to an
unrelated party for $100,000 that matures March 12, 2019. The note
bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at $0.10 per
share. The Company valued a debt discount related to the
750,019 shares of common stock issued with the note at a relative
fair value of $31,055.
F-21
On March 28, 2018, the Company issued a convertible note to an
unrelated party for $53,102 that matures May 18, 2018 in exchange
for an existing note for $47,250 issued on August 15, 2017 and
$5,852 in accrued interest. The note bears 12% interest per
annum and is convertible into shares of the Company’s
common stock at 60% the lowest trading price during the previous
twenty (2) days to the date of conversion. The note contains
a percentage discount (variable) exercise price which causes
the number to be converted into a number of common shares that
“approach infinity”, as the underlying stock price
could approach zero. The Company determined under ASC 815, the
Company has determined that this percentage discount
(variable) exercise price indicates an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value. On April 3, 2018, the note converted the principal of
$14,400 for 600,000 shares of common stock. On May 8, 2018, the
note converted the principal of $21,600 for 600,000 shares of
common stock. On June 11, 2018, the note converted the remainder of
the principal of $17,638 for 554,651 shares of common
stock.
As part of the assignment of the convertible note for $53,102 on
March 28, 2018, the Company issued a convertible note to an
unrelated party for $26,000 that matures May 18, 2018 as an early
out payment of $24,665 and $1,335 for other fees.
The note bears 12% interest per
annum and is convertible into shares of the Company’s
common stock at 60% the lowest trading price during the previous
twenty (2) days to the date of conversion. The note contains
a percentage discount (variable) exercise price which causes
the number to be converted into a number of common shares that
“approach infinity”, as the underlying stock price
could approach zero. The Company determined under ASC 815, the
Company has determined that this percentage discount
(variable) exercise price indicates an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
On March 29, 2018, the Company issued a convertible note to an
unrelated party for $225,000 that matures March 29, 2019. The note
bears 10% interest per annum. The Company valued a debt
discount related to the 2,000,000 shares of common stock issued
with the note at a relative fair value of
$78,261.
On April 10, 2018, the Company issued a convertible note to an
unrelated company for $150,000, which includes proceeds of
$122,386, $10,000 transaction fee, and $17,700 in OID, that matures
on February 10, 2019. The note bears 10% interest per
annum and is convertible into shares of the Company’s
common stock at the lesser of $0.05 and 57.5% of the lowest closing
bids 20 days prior to the conversion date. Additionally, the
note contains a percentage discount (variable) exercise price
which causes the number to be converted into a number of common
shares that “approach infinity”, as the underlying
stock price could approach zero. The Company determined under ASC
815, the Company has determined that this percentage discount
(variable) exercise price indicates that these shares, if
issued, are not indexed to the Company’s own stock and,
therefore, is an embedded derivative financial liability, which
requires bifurcation and to be separately accounted for. At each
reporting period, the Company will mark this derivative financial
instrument to its estimated fair value.
On April 18, 2018, the Company issued a convertible note to an
unrelated company for $400,000 that matures on April 18, 2019,
which includes proceeds in exchange for an existing note for
$355,000 issued on November 20, 2015 and $55,000 in OID. The note
bears 10% interest per annum and is convertible into shares of
the Company’s common stock at rate of 55% of the average
trading price for the prior 3 trading days. Additionally, the
note contains a percentage discount (variable) exercise price
which causes the number to be converted into a number of common
shares that “approach infinity”, as the underlying
stock price could approach zero. The Company determined under ASC
815, the Company has determined that this percentage discount
(variable) exercise price indicates that these shares, if
issued, are not indexed to the Company’s own stock and,
therefore, is an embedded derivative financial liability, which
requires bifurcation and to be separately accounted for. At each
reporting period, the Company will mark this derivative financial
instrument to its estimated fair value. On April 23, 2018, the
note converted the principal of $100,000 for 1,083,698 shares of
common stock. On May 1, 2018, the note converted the remainder of
the principal of $123,198 for 2,480,466 shares of common
stock.
On April 18, 2018, the Company issued a convertible note to an
unrelated company for $15,000 that matures on April 18, 2019, The
note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at rate of 55% of the
average trading price for the prior 3 trading
days. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815, the Company has determined
that this percentage discount (variable) exercise
price indicates that these shares, if issued, are not indexed
to the Company’s own stock and, therefore, is an embedded
derivative financial liability, which requires bifurcation and to
be separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value.
On May 4, 2018, the Company issued a convertible note to an
unrelated company for $150,086, which includes proceeds of $122,386
and $27,700 in OID, that matures on May 4, 2019. The note bears 12%
interest per annum and is convertible into shares of the
Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
F-22
On May 25, 2018, the Company issued a convertible note to an
unrelated company for $135,700, which includes proceeds of $108,000
and $27,700 in OID, that matures on May 25, 2019. The note bears
12% interest per annum and is convertible into shares of the
Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
On June 13, 2018, the Company issued a convertible note to an
unrelated party for $55,718 that matures June 13, 2019 in exchange
for an existing note for $53,000 issued on January 8, 2018and
$2,718 in accrued interest. The note bears 12% interest per
annum and is convertible into shares of the Company’s
common stock at 61% of the lowest two trading prices during the
fifteen (15) trading day period ending to the date of
conversion. The note contains a percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
As part of the assignment of the convertible note for $55,718 on
June 13, 2018, the Company issued a convertible note to an
unrelated party for $15,651 that matures June 13, 2019 as an early
out payment. The note bears 12%
interest per annum and is convertible into shares of the
Company’s common stock at 60% the lowest trading price during
the previous twenty (2) days to the date of conversion. The
note contains a percentage discount (variable) exercise price
which causes the number to be converted into a number of common
shares that “approach infinity”, as the underlying
stock price could approach zero. The Company determined under
ASC 815, the Company has determined that
this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair
value.
On June 29, 2018, the Company issued a convertible note to an
unrelated company for $161,000, which includes proceeds of $130,000
and $31,000 in OID, that matures on June 29, 2019. The note bears
12% interest per annum and is convertible into shares of the
Company’s common stock at 61% of the lowest two trading
prices during the fifteen (15) trading day period ending to the
date of conversion. The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value.
Notes Payable – Related Parties
Notes payable due to related parties consisted of the following as
of June 30, 2018 and 2017:
|
June
30,
|
June
30,
|
|
2018
|
2017
|
|
|
|
Various term notes
with total face value of $627,500 issued from April 11 to June 17,
interest rates range from 0% to 15%, net of unamortized discount of
$0 as of June 30, 2018 and June 30, 2017, respectively, of which
$10,000 has been paid.
|
$25,000
|
$610,000
|
$18,000
face value, issued in September 2017, interest rate of 0%, matures
June 2019.
|
18,000
|
-
|
$15,000
face value, issued in October 2017, interest rate of 0%, matures
October 2018.
|
15,000
|
-
|
$35,000
face value, issued in December 2017, interest rate of 0%, matures
December 2018, of which $35,000 has been paid.
|
-
|
-
|
$7,500
face value, issued in March 2018, interest rate of 0%, matures
March 2019, of which $7,500 has been paid.
|
-
|
-
|
$10,000
face value, issued in March 2018, interest rate of 0%, matures
March 2019, of which $10,000 has been paid.
|
-
|
-
|
$12,500
face value, issued in May 2018, interest rate of 0%, matures May
2019, of which $12,500 has been paid.
|
-
|
-
|
$3,500
face value, issued in May 2018, interest rate of 0%, matures May
2019, of which $3,500 has been paid.
|
-
|
-
|
$10,000
face value, issued in June 2018, interest rate of 0%, matures June
2019.
|
10,000
|
-
|
$8,000
face value, issued in June 2018, interest rate of 0%, matures June
2019.
|
8,000
|
-
|
Total notes payable
– related parties
|
76,000
|
610,000
|
Less current
portion
|
76,000
|
610,000
|
Notes payable -
related parties, long term
|
$-
|
$-
|
F-23
On September 28, 2017, the Company issued a note to an unrelated
party for $18,000 that matures on November 28, 2017. The note was
amended on August 24, 2018, to extend the maturity date to June 30,
2019. The note bears 0% interest per annum.
On October 16, 2017, the Company issued a note to an unrelated
party for $15,000 that matures on October 16, 2018. The note was
amended on August 24, 2018, to extend the maturity date to June 30,
2019. The note bears 0% interest per annum.
On December 14, 2017, the Company issued a note to an
unrelated party for $35,000 that matures on December 14, 2018. The
note bears 0% interest per annum. The note has been paid in
full.
On March 19, 2018, the Company issued a note to an unrelated party
for $7,500 that matures on March 19, 2019. The note bears 0%
interest per annum. The note has been paid in full.
On March 30, 2018, the Company issued a note to an unrelated party
for $10,000 that matures on March 30, 2019. The note bears 0%
interest per annum. The note has been paid in full.
On May 8, 2018, the Company issued a note to an unrelated party for
$12,500 that matures on May 8, 2019. The note bears 0% interest per
annum. The note has been paid in full.
On May 15, 2018, the Company issued a note to an unrelated party
for $3,500 that matures on May 15, 2019. The note bears 0% interest
per annum. The note has been paid in full.
On June 1, 2018, the Company issued a note to an unrelated party
for $10,000 that matures on June 1, 2019. The note bears 0%
interest per annum.
On June 20, 2018, the Company issued a note to an unrelated party
for $3,500 that matures on June 20, 2019. The note bears 0%
interest per annum.
Notes Payable – Non-Related
Parties
Notes payable due to non-related parties consisted of the following
as of June 30, 2018 and 2017:
Notes
Payable – Non-Related Parties
|
|
|
|
June
30,
|
June
30,
|
|
2018
|
2017
|
Various term notes
with total face value of $40,488 due upon demand, interest rates
range from 0% to 14%, of which $40,488 have been
extinguished
|
$-
|
$40,488
|
$52,000
face value, issued in August 2017, interest rate of 0%, matures
October 2017 net of unamortized discount of $0 as of June 30,
2018.
|
52,000
|
-
|
$52,000
face value, issued in August 2017, interest rate of 0%, matures
October 2017 net of unamortized discount of $4,901 as of June 30,
2018.
|
47,099
|
-
|
$81,000
face value, issued in September 2017, interest rate of 8% per
month, matures September 2018 net of unamortized discount of $0 as
of June 30, 2018. The note is currently in
default.
|
81,000
|
-
|
$255,000
face value, issued in October 2017, interest rate of 2.5% per
month, matures February 2018 net of unamortized discount of $0 as
of June 30, 2018, of which $255,000 has been paid.
|
-
|
-
|
$50,000 face value,
issued in March 2018, interest rate of 10%, matures March 2019, net
amortized discount of $0 as of June 30, 2018.
|
50,000
|
-
|
$225,000
face value, issued in March 2018, interest rate of 30%, matures
March 2019 net of unamortized discount of $62,512 as of June 30,
2018.
|
162,488
|
-
|
$260,000
face value, issued in June 2018, interest rate of 30%, matures
October 2018 net of unamortized discount of $9,677 as of June 30,
2018.
|
250,323
|
-
|
Total note payable
– non-related parties
|
642,910
|
40,488
|
Less current
portion
|
642,910
|
40,488
|
Notes payable
– non-related parties, long-term
|
$-
|
$-
|
F-24
On August 25, 2017, the Company issued a note to an unrelated party
for $52,000 as part of an Accounts Receivable Financing Agreement,
which included $50,000 in proceeds and an OID of $2,000, that
matures on October 25, 2017. The note was amended on September 12,
2018, to extend the maturity date to December 31, 2018.The note
bears 0% interest per annum. As additional consideration the
Company also issued 50,000 warrants valued at $6,625. The warrants
are considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using the
multinomial lattice model.
On
August 31, 2017, the Company issued a note to an unrelated party
for $52,000 as part of an Accounts Receivable Financing Agreement,
which included $50,000 in proceeds and an OID of $2,000, that
matures on October 31, 2017. The note bears 0% interest per annum.
As additional consideration the Company also issued 50,000 warrants
valued at $6,773. The warrants are considered derivative
liabilities under ASC 815-40 under the Company’s sequencing
policy and were valued using the multinomial lattice
model.
On
September 19, 2017, the Company issued a note to an unrelated party
for $81,000 which included $74,504 in proceeds, $6,000 in OID, and
$496 in other fees, that matures on March 19, 2018. The note bears
8% interest per month. As additional consideration the Company is
to issue 75,000 shares of common stock within 10 days. The note was
amended subsequently on March 19,2018, to extend the maturity date
to September 19, 2018. The Company evaluated amendment under ASC
470-50, "Debt Modification and Extinguishment", and concluded that
the extension did result in significant and consequential changes
to the economic substance of the debt and thus resulted in an and
the company recorded a loss on extinguishment of debt of
$0.
On
October 31, 2017, the Company issued a secured promissory note to
an unrelated party for $255,000, that matures on February 28, 2018.
The note bears 2.5% interest per month. The note is to be paid back
the greater of $1,000 per day and $75 per unit sold commencing 31
days after closing, the greater of $1,500 per day and $75 per unit
sold commencing 61 days after closing, the greater of $2,000 per
day and $75 per unit sold commencing 91 days after
closing.
On March 2, 2018, the Company issued a note to an unrelated party
for $50,000 that matures March 2, 2019. The note bears 10% interest
per annum.
On March 29, 2018, the Company issued a convertible note to an
unrelated party for $225,000 that matures March 29, 2019. The note
bears 10% interest per annum. The Company valued a debt
discount related to the 2,000,000 shares of common stock issued
with the note at a relative fair value of
$78,261.
On June 29, 2018, the Company issued a
convertible note to an unrelated party for $260,000 that matures
July 30, 2018. The note was amended on
September 28, 2018, to extend the maturity date to October 15,
2018. The note bears 0%
interest and had an original issue discount (OID) of
$10,000.
NOTE 8 – 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:
|
Shares
|
Shares
|
Liquidation
|
|
Allocated
|
Outstanding
|
Preference
|
Series
A Convertible Preferred
|
100,000
|
15,500
|
-
|
Series
A-1 Convertible Preferred
|
3,000,000
|
2,585,000
|
3,581,964
|
Series
B Convertible Preferred
|
200,000
|
3,500
|
35,000
|
Series
C Convertible Preferred
|
1,000,000
|
13,404
|
-
|
Series
D Convertible Preferred
|
375,000
|
130,000
|
-
|
Series
E Convertible Preferred
|
1,000,000
|
275,000
|
-
|
Series
P Convertible Preferred
|
600,000
|
86,640
|
-
|
Series
S Convertible Preferred
|
50,000
|
-
|
-
|
Total
Preferred Stock
|
6,325,000
|
3,109,044
|
$3,616,964
|
The Company's Series A Convertible Preferred Stock ("Series A
Preferred") is convertible into Common Stock at the rate of 0.025
share of Common stock for each share of the Series A Preferred.
Dividends of $0.50 per share annually from date of issue, are
payable from retained earnings, but have not been declared or
paid.
F-25
The Company’s Series A-1 Senior Convertible Redeemable
Preferred Stock (“Series A-1 Preferred”) is convertible
at the rate of 2 shares of Common Stock per share of Series A-1
Preferred. The dividend rate of the Series A-1 Senior Convertible
Redeemable Preferred Stock is 6% per share per annum in cash, or
commencing on June 30, 2009 in shares of the Company’s Common
Stock (at the option of the Company).
Due to the fact that the Series A-1 Preferred has certain features
of debt and is redeemable, the Company analyzed the Series A-1
Preferred in accordance with ASC 480 and ASC 815 to determine if
classification within permanent equity was
appropriate. Based on the fact that the redeemable
nature of the stock and all cash payments are at the option of the
Company, it is assumed that payments will be made in shares of the
Company’s Common Stock and therefore, the instruments are
afforded permanent equity treatment.
The Company's Series B Convertible 8% Preferred Stock ("Series B
Preferred") is convertible at the rate of 0.067 share of Common
Stock for each share of Series B Preferred. Dividends from date of
issue are payable on June 30 from retained earnings at the rate of
8% per annum but have not been declared or paid.
The Company's Series C Convertible Preferred Stock ("Series C
Preferred") is convertible at a rate of 0.007 share of Common Stock
per share of Series C Preferred. Holders are entitled to
dividends only to the extent of the holders of the Company’s
Common Stock receive dividends.
The Company's Series D Convertible Preferred Stock ("Series D
Preferred") is convertible at a rate of 0.034 share of Common Stock
per share of Series D Preferred. Holders are entitled to
a proportionate share of any dividends paid as though they were
holders of the number of shares of Common Stock of the Company into
which their shares of are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Company
entitled to receive such distribution.
The Company's Series E Convertible Preferred Stock ("Series E
Preferred") is convertible at a rate of 0.034 share of Common Stock
per share of Series E Preferred. Holders are entitled to a
proportionate share of any dividends paid as though they were
holders of the number of shares of Common Stock of the Company into
which their shares of are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Company
entitled to receive such distribution.
The Company's Series P Convertible Preferred Stock ("Series P
Preferred") is convertible at a rate of 0.007 share of Common Stock
for each share of Series P Preferred. Holders are entitled to
dividends only to the extent of the holders of the Company’s
Common Stock receive dividends.
In the event of a liquidation, dissolution or winding up of the
affairs of the Company, holders of Series A Preferred Stock, Series
P Convertible Preferred Stock, Series C Convertible Preferred Stock
have no liquidation preference over holders of the Company’s
Common Stock. Holders of Second Series B Preferred Stock
have a liquidation preference over holders of the Company’s
Common Stock and the Company’s Series A Preferred
Stock. Holders of Series D Preferred Stock are entitled
to receive, before any distribution is made with respect to the
Company’s Common Stock, a preferential payment at a rate per
each whole share of Series D Preferred Stock equal to
$1.00. Holders of Series E Preferred Stock are entitled
to receive, after the preferential payment in full to holders of
outstanding shares of Series D Preferred Stock but before any
distribution is made with respect to the Company’s Common
Stock, a preferential payment at a rate per each whole share of
Series E Preferred Stock equal to $1.00. Holders of
Series A-1 Preferred Stock are superior in rank to the
Company’s Common Stock and to all other series of Preferred
Stock heretofore designated with respect to dividends and
liquidation.
The activity surrounding the issuances of the Preferred Stock is as
follows:
During the fiscal year ended June 30, 2018 the Company did not
issue shares of Series A-1 Preferred.
During the fiscal year ended June 30, 2017 the Company issued
550,000 shares of Series A-1 Preferred Stock for $550,000 in
cash and paid $196,853 in
cash offering costs. The Company had one
conversion of 150,000 shares of Series A-1 Preferred Stock for
300,000 shares of Common Stock, and issued 15,682 shares of Common
Stock of payment of $7,481 in accrued
dividends.
During the fiscal years ended June 30, 2018 and 2017, the
outstanding Preferred Stock accumulated $225,468 and $169,567 in
dividends on outstanding Preferred Stock. The cumulative dividends
in arrears as of June 30, 2018 were approximately
$1,134,406.
NOTE 9 – COMMON STOCK
Fiscal Year Ended June 30, 2018
The
Company has authorized 250,000,000 shares of $0.001 par value per
share Common Stock, of which 162,287,902 issued (of which
28,841,381 are to be issued) as of June 30, 2018 and 118,486,728
were issued and outstanding as of June 30, 2018 and 2017. The
activity surrounding the issuances of the Common Stock is as
follows:
F-26
The Company agreed to issue 16,200,000 shares of Common Stock for $642,750 in
cash as part of a private placement, net of $4,750 of issuance
costs, respectively.
The Company agreed to issue 28,928,570 shares of Common Stock for
the conversion of notes and accrued interest valued at
$836,833.
The Company agreed to issue 6,098,101 shares of Common Stock as
incentive with convertible notes valued at $317,261.
The Company agreed to issue 1,415,000 shares of Common Stock for
the prepaid consulting services and rent valued at
$107,290.
The Company agreed to issue 115,000 shares of Common Stock for the
extension of two convertible notes valued at $16,897.
The Company issued 100,000 shares of Common Stock issued as
charitable contributions valued at $7,000.
As share-based compensation to employees and non-employees, the
Company issued 4,501,592 shares of common stock valued at $353,949,
based on the market price of the stock on the date of
issuance.
As interest expense on outstanding notes payable, the Company
agreed to issue 1,280,162 shares of common stock valued at $217,628
based on the market price on the date of issuance.
As part
of a debt extinguishment, the note holder agreed to cancel
14,837,251 shares of common stock.
Fiscal Year Ended June 30, 2017
The Company has authorized 250,000,000 shares of $0.001 par value
per share Common Stock, of which 118,486,728 and 102,133,344 were
issued outstanding as of June 30, 2017 and 2016, respectively. The
Company amended its articles of incorporation on August 28, 2015 to
increase the number of authorized shares to 250,000,000. The
activity surrounding the issuances of the Common Stock is as
follows:
The Company agreed to issue 3,471,666 shares of Common Stock for
cash valued at $991,500.
The Company agreed to issue 2,150,364 shares of Common Stock for
the conversion of notes and accrued interest valued at
$438,781.
The Company also agreed to issue 650,000 shares of Common Stock as
incentive to notes valued at $127,600. The Beneficial Conversion
was valued at $30,519.
The Company also agreed to issue 300,000 shares of Common Stock for
conversion of Preferred Stock, and issued 15,682 shares of Common
Stock of payment of $7,841 in accrued dividends.
The Company agreed to issue 2,953,057 shares of Common Stock as
payment for services and rent valued at $917,152.
The Company agreed to issue 3,020,750 shares of Common Stock for
the conversion warrants valued at $906,225.
The Company agreed to issue 22,000 shares of Common Stock for the
extension of two convertible notes valued at $5,910.
As share-based compensation to employees and non-employees, the
Company issued 1,237,210 shares of common stock valued at $403,945,
based on the market price of the stock on the date of issuance. As
interest expense on outstanding notes payable, the Company issued
2,532,655, shares of common stock valued at $783,786 based on the
market price on the date of issuance.
NOTE 10 – 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 fiscal year ended June 30, 2018, the Company did not
issue stock purchase options.
F-27
During the fiscal year ended June 30, 2017, the Company issued
500,000 stock purchase options.
The following table summarizes the changes in options outstanding
of the Company during the fiscal year ended June 30,
2018.
Date
Issued
|
Number
of Options
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
Expiration
Date (yrs)
|
Value
if Exercised
|
Balance
June 30, 2017
|
525,000
|
$0.18
|
$0.16
|
4.81
|
$93,750
|
Granted
|
-
|
-
|
-
|
-
|
-
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
Cancelled/Expired
|
-
|
-
|
-
|
-
|
-
|
Outstanding
as of June 30, 2018
|
525,000
|
$0.05
|
$0.16
|
3.81
|
$28,750
|
The
following table summarizes the changes in options outstanding of
the Company during the fiscal year ended June 30,
2017
Date
Issued
|
Number
of Options
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
Expiration
Date (yrs)
|
Value
if Exercised
|
Balance
June 30, 2016
|
25,000
|
$0.15
|
$0.24
|
2.00
|
$3,750
|
Granted
|
500,000
|
0.18
|
0.16
|
5.00
|
90,000
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
Cancelled/Expired
|
-
|
-
|
-
|
-
|
-
|
Outstanding
as of June 30, 2017
|
525,000
|
$0.18
|
$0.16
|
4.81
|
$93,750
|
Stock
Purchase Warrants
During the fiscal year ended June 30,
2018, the Company issued
warrants to purchase a total of 6,675,000, consisting of 75,000
warrants as part of a private placement valued at $6,019, 100,000
warrants as part of two AR financing agreements executed on August
2017 valued at $13,398, 150,000 warrants as part additional
consideration of a promissory note on November 2017 valued at
$12,560 and an additional 150,000 warrants to modify the note later
in November 2017 valued at $12,570, 150,000 warrants as part
additional consideration of a promissory note on January 2018
valued at $11,056, 1,000,000 warrants were for facilitating the
sales of bBooth stock on February 2018 valued at 63,041, 550,000
warrants in conjunction with extension of three promissory notes
valued at $54,491, and 4,500,000 warrants as compensation for
consulting services valued at $183,828. The warrants are considered
derivative liabilities under ASC 815-40 under the Company’s
sequencing policy and were valued using the multinomial lattice
model.
During the fiscal year ended June 30,
2017, the Company issued
warrants to purchase a total of 10,424,998. The Company issued
455,000 warrants in conjunction with four promissory notes executed
in February 2017 to June 2017. The warrants were valued using the
Black-Scholes pricing model under the assumptions noted below. The
Company apportioned value to the warrants based on the relative
fair market value of the Common Stock and
warrants.
The following table presents the assumptions used to estimate the
fair values of the stock warrants and options granted:
|
|
June 30, 2018
|
|
June 30, 2017
|
Expected volatility
|
|
105-304%
|
|
92-126%
|
Expected dividends
|
|
0%
|
|
0%
|
Expected term
|
|
0-5 Years
|
|
0-5 Years
|
Risk-free interest rate
|
|
0.96-2.73%
|
|
0.74-1.89%
|
F-28
The following table summarizes the changes in warrants outstanding
issued to employees and non-employees of the Company during the
fiscal year ended June 30, 2018.
|
Number
of Warrants
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
Expiration
Date (yrs)
|
Value
if Exercised
|
Outstanding
as of June 30, 2017
|
39,927,097
|
$0.38
|
$0.45
|
3.38
|
$15,144,835
|
Granted
|
6,675,000
|
0.08
|
0.05
|
4.38
|
534,250
|
Exercised
|
-
|
-
|
-
|
-
|
-
|
Cancelled/Expired
|
(4,842,500)
|
0.49
|
-
|
-
|
(2,388,063)
|
Outstanding
as of June 30, 2018
|
41,759,597
|
$0.32
|
$0.40
|
3.01
|
$13,291,022
|
The following table summarizes the changes in warrants outstanding
issued to employees and non-employees of the Company during the
fiscal year ended June 30, 2017.
|
Number
of Warrants
|
Weighted
Average Exercise Price
|
Weighted
Average Grant Date Fair Value
|
Expiration
Date (yrs)
|
Value
if Exercised
|
Outstanding
as of June 30, 2016
|
35,034,550
|
$0.36
|
$0.45
|
4.31
|
$12,767,108
|
Granted
|
10,424,998
|
0.46
|
0.18
|
2.07
|
4,404,232
|
Exercised
|
(3,020,750)
|
-
|
-
|
-
|
-
|
Cancelled/Expired
|
(2,511,701)
|
0.36
|
-
|
-
|
(2,026,505)
|
Outstanding
as of June 30, 2017
|
39,927,097
|
$0.38
|
$0.45
|
3.38
|
$15,144,835
|
NOTE 11 – INCOME TAXES
The components of the income tax (benefit) provision are as
follows:
|
As
of
|
|
|
June
30,
|
June
30,
|
|
2018
|
2017
|
Current
|
|
|
Federal
|
$-
|
$-
|
State
|
-
|
-
|
Total
Current
|
-
|
-
|
|
|
|
Deferred
|
|
|
Federal
|
-
|
-
|
State
|
-
|
-
|
Total
Deferred
|
-
|
-
|
|
|
|
Income
tax provision
|
$-
|
$-
|
F-29
A reconciliation of the expected income tax benefit (provision)
computed using the federal statutory income tax rate of 21% to the
Company’s effective income tax rate is as
follows:
|
As
of
|
|
|
June
30,
|
June
30,
|
|
2018
|
2017
|
Income
tax benefit based on federal statutory rate
|
$(11,780,000)
|
$(4,914,000)
|
State
income tax benefit, net of federal income tax
|
(462,000)
|
(475,000)
|
Change
in deferred tax valuation allowance
|
12,242,000
|
5,389,000
|
Other,
net
|
-
|
-
|
Income
tax provision
|
$-
|
$-
|
The tax effects of temporary differences that give rise to
significant portions of the Company’s deferred tax assets and
deferred tax liabilities are presented below:
|
As
of
|
|
|
June
30,
|
June
30,
|
|
2018
|
2017
|
Deferred
tax assets:
|
|
|
Debt
extinguishment
|
$-
|
$-
|
Impairment
of fixed assets
|
74,991
|
-
|
Domestic
net operating loss carryforwards
|
10,286,000
|
11,671,000
|
Total
gross deferred tax assets
|
10,360,991
|
11,671,000
|
|
|
|
Less
valuation allowance on deferred tax assets
|
(10,360,991)
|
(11,671,000)
|
Net
deferred tax assets
|
-
|
-
|
|
|
|
Deferred
tax liabilities:
|
|
|
Deferred
costs
|
-
|
-
|
|
|
|
Total
deferred tax liabilities
|
-
|
-
|
Net
deferred taxes
|
$-
|
$-
|
Deferred income taxes result from temporary differences between
income tax and financial reporting computed at the effective income
tax rate. The Company has established a valuation allowance against
its net deferred tax assets due to the uncertainty surrounding the
realization of such assets. Management periodically evaluates the
recoverability of the deferred tax assets. At such time it is
determined that it is more likely than not that deferred tax assets
are realizable, the valuation allowance will be
reduced.
As of June 30, 2018, and 2017, the Company had net operating loss
carry-forwards for federal and state income tax purposes of
approximately $42 million and $32 million,
respectively. Such carryforwards may be used to reduce
taxable income, if any, in future year subject to limitations of
Section 382 of the Internal Revenue Code for federal income and
Arizona tax purposes. The Company believes an ownership
change may have occurred, as defined by Sections 382 and 383 of the
Internal Revenue Code, which could result in the forfeiture of a
significant portion of its net operating loss carry-forwards. The
Company is not using any tax attributes in the current year, but
will analyze whether a change occurred and the related impact on
its gross deferred tax assets, if needed. As the Company's analysis
is not complete, the impact to its gross deferred tax assets is
uncertain. If not utilized, the federal and state net
operating loss carry-forwards will begin expiring in
2018.
F-30
NOTE 12 – 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 June 30, 2018, and
2017. The fair values of the derivative instruments are measured
each quarter, which resulted in a gain (loss) of $1,161,227 and
$(138,693), and derivative expense of $2,787,712 and $376,427
during the fiscal years ended June 30, 2018 and 2017, respectively.
As of June 30, 2018, and 2017, the fair market value of the
derivatives aggregated $2,815,520 and $2,145,065, respectively,
using the following assumptions: estimated 5-0 year term, estimated
volatility of 303.62 -104.82%, and a discount rate of
2.73-0.96%.
NOTE 13 – FAIR VALUE MEASUREMENTS
For asset and liabilities measured at fair value, the Company uses
the following hierarchy of inputs:
●
|
Level
one — Quoted market prices in active markets for identical
assets or liabilities;
|
|
|
●
|
Level
two — Inputs other than level one inputs that are either
directly or indirectly observable; and
|
|
|
●
|
Level
three — Unobservable inputs developed using estimates and
assumptions, which are developed by the reporting entity and
reflect those assumptions that a market participant would
use.
|
Liabilities measured at fair value on a recurring basis at June 30,
2018, are summarized as follows:
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Fair
value of derivatives
|
$-
|
$-
|
$2,815,520
|
$2,815,520
|
Securities
available-for-sale
|
$-
|
$-
|
$-
|
$-
|
Liabilities measured at fair value on a recurring basis at June 30,
2017, are summarized as follows:
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Fair
value of derivatives
|
$-
|
$-
|
$2,145,065
|
$2,145,065
|
Securities
available-for-sale
|
$123,600
|
$-
|
$-
|
$123,600
|
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company may become involved in certain legal proceedings and
claims which arise in the normal course of business. The Company is
not a party to any litigation. To the best of the knowledge of our
management, there are no material litigation matters pending or
threatened against us.
Lease Agreements
We lease offices in Hollywood, California (located at 6671 Sunset
Blvd., Suite 1520, 1518 and 1550, Hollywood, California, 90028) for
corporate, research, engineering and mastering services. The lease
expires on December 31, 2017. The total lease expense for the
facility is approximately $20,573.50 per month, and the total
remaining obligations under these leases at June 30, 2018, were
approximately $0.
We lease a warehouse space located at 8260 E Gelding Drive, Suite
102, Scottsdale, Arizona, 85260. The lease expires on February 28,
2019. The total lease expense for the facility is approximately
$1,888 per month, and the total remaining obligations under this
leases at June 30, 2018, were approximately $13,952.
We lease corporate offices located at 7825 E Gelding Drive, Suite
101, Scottsdale, Arizona, 85260. The lease expires on April 30,
2021. The total lease expense for the facility is approximately
$7,224 per month, and the total remaining obligations under this
leases at June 30, 2018, were approximately $198,209.
F-31
We lease corporate offices located at 7825 E Gelding Drive, Suite
103, Scottsdale, Arizona, 85260. The lease expires on April 30,
2021. The total lease expense for the facility is approximately
$3,000 per month, and the total remaining obligations under this
leases at June 30, 2018, were approximately $84,391.
Below is a table summarizing the annual operating lease obligations
over the next 5 years:
Year
|
Lease
Payments
|
2019
|
138,290
|
2020
|
131,475
|
2021
|
24,077
|
2022
|
-
|
2023
|
-
|
Total
|
$293,842
|
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 June 30, 2018 were
approximately $1,134,406.
NOTE 13 - SUBSEQUENT EVENTS
In accordance with ASC 855, Company’s management reviewed all
material events through the date of this filing and determined that
there were the following material subsequent events to
report:
On November 28, 2017, the Company issued a convertible note to an
unrelated party for $53,000 that matures on July 16, 2018. The note
bears 12% interest per annum. The note is convertible into shares
of the Company’s common stock at 61% of the lowest closing
bids 15 days prior to the conversion per share. Due to
sequencing on February 2, 2017, the Company determined under ASC
815, the Company has determined that the note is to be treated as
an embedded derivative financial liability, which requires
bifurcation and to be separately accounted for. At each reporting
period, the Company will mark this derivative financial instrument
to its estimated fair value. On May 4, 2018, the note converted the principal
of $17,450 for 500,000 shares of common stock. On June 20, 2018,
the note converted principal of $17,080 and $3,914 for 700,000
shares of common stock. On July 9, 2018, the note converted the
remainder of the principal of $18,470 and $2,524 for 914,934 shares
of common stock.
On June 13, 2018, the Company issued a convertible note to an
unrelated party for $55,718 that matures June 13, 2019 in exchange
for an existing note for $53,000 issued on January 8, 2018and
$2,718 in accrued interest. The note bears 12% interest per
annum and is convertible into shares of the Company’s
common stock at 61% of the lowest two trading prices during the
fifteen (15) trading day period ending to the date of
conversion. The note contains a percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. On July 19, 2018,
the note converted all the principal of $55,718 for 2,854,420
shares of common stock.
On August 2, 2018, the Company issued a convertible note to an
unrelated company for $537,500, which includes proceeds of $500,000
and $37,500 in OID, that matures on August 2, 2019. The note bears
10% interest per annum and is 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
Trading Day period ending on the latest complete Trading Day prior
to the Conversion Date .The note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. As additional
consideration the Company also issued
3,593,750 warrants. The warrants are considered derivative
liabilities under ASC 815-40 under the Company’s sequencing
policy and were valued using the multinomial lattice model.
F-32
On
August 16, 2018, the Company issued a note to an unrelated party
for $52,000 as part of an Accounts Receivable Financing Agreement,
which included $50,000 in proceeds and an OID of $2,000, that
matures on November 16, 2018. The note bears 0% interest per
annum.
On February 16, 2018, the Company issued a convertible note to an
unrelated party for $75,075 that matures on November 16, 2018. The
note bears 12% interest per annum. The note 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 consecutive trading days including the immediately
preceding the conversion date. Due to sequencing on February
2, 2017, the Company determined under ASC 815, the Company has
determined that the note is to be treated as an embedded derivative
financial liability, which requires bifurcation and to be
separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value. On August 16, 2018, the Lender assigned
principal of $39,759 to an unrelated party.
Also, on August 16, 2018, the new note holder converted the entire
$39,759 balance for 2,839,920 shares of common stock.
On May 12, 2017, the Company issued a convertible note to an
unrelated company for $265,000 that matures on February 17, 2018.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at the lesser of $.31
and 60% of the lowest closing bids 25 days prior to the conversion
date. Additionally, the note contains a percentage discount
(variable) exercise price which causes the number to be converted
into a number of common shares that “approach
infinity”, as the underlying stock price could approach zero.
The Company determined under ASC 815, the Company has determined
that this percentage discount (variable) exercise
price indicates that these shares, if issued, are not indexed
to the Company’s own stock and, therefore, is an embedded
derivative financial liability, which requires bifurcation and to
be separately accounted for. At each reporting period, the Company
will mark this derivative financial instrument to its estimated
fair value. On February 22, 2018, the note converted interest of
$9,200 and $250 in conversion fees for 450,000 shares of common
stock. On March 6, 2018, the note converted principal of $11,138,
$13,812 in interest, and $250 in conversion fees for 1,200,000
shares of common stock. On April 16, 2018, the note converted
$27,237, $8,513 in interest, and $250 in conversion fees for
1,500,000 shares of common stock. On June 29, 2018, the note
converted principal of $26,213, $9,537 in interest, and $250 in
conversion fees for 1,500,000 shares of common stock. On August 24,
2018, the note converted principal of $30,620, $7,380 in interest,
and $250 in conversion fees for 2,500,000 shares of common
stock.
On November 21, 2017, the Company issued a convertible note to an
unrelated party for $100,000 that matures on November 21, 2018. The
note bears 10% interest per annum. The note is convertible into
shares of the Company’s common stock at 57.5% of the lowest
closing bids 20 days prior to the conversion per share. Due to
sequencing on February 2, 2017, the Company determined under ASC
815, the Company has determined that the note is to be treated as
an embedded derivative financial liability, which requires
bifurcation and to be separately accounted for. At each reporting
period, the Company will mark this derivative financial instrument
to its estimated fair value. On August 24, 2018, the note converted the full
balance of the principal of $100,000 for 5,217,098 shares of common
stock.
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $149,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, that
this percentage discount (variable) exercise
price indicates is an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. The Company
extended the possibility to convert date by issuing 60,000 warrants
valued at $7,813 on September 8, 2017 to November 2, 2017. The
Company extended the possibility to convert date by issuing 60,000
warrants valued at $7,813 on September 8, 2017 to November 2,
2017. The Company extended the possibility to convert
date by paying $10,000 of principal and $1,400 of accrued interest
on October 23, 2017 to November 24, 2017 and extend the maturity
date to February 21, 2018. The Company extended the possibility to
convert date by paying $10,000 of principal and $4,000 of accrued
interest on November 29, 2017 to December 22,
2017. The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the multinomial lattice
model. The Company evaluated amendment under ASC
470-50, “Debt - Modification and
Extinguishment”, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. On May 1, 2018, the note converted the principal of
$39,660 and $4,740 in accrued interest into for 2,220,000 shares of
common stock. On September 10, 2018, the note converted the
principal of $15,578 and $4,222 in accrued interest into for
1,200,000 shares of common stock.
F-33
On February 23, 2017, the Company issued a convertible note to an
unrelated company for $224,000 that matures on November 23, 2017.
The note bears 10% interest per annum and is convertible into
shares of the Company’s common stock at lesser of 40% of the
average three lowest closing bids 20 days prior to the conversion
date. Additionally, the note contains a percentage
discount (variable) exercise price which causes the number to be
converted into a number of common shares that “approach
infinity”, as the underlying stock price could approach
zero. The Company determined under ASC 815, the Company has
determined that this percentage discount (variable) exercise
price indicates an embedded derivative financial liability,
which requires bifurcation and to be separately accounted for. At
each reporting period, the Company will mark this derivative
financial instrument to its estimated fair value. The Company
extended the possibility to convert date by issuing 90,000 warrants
valued at $11,720 on September 8, 2017 to November 2,
2017. The Company extended the possibility to convert date by
paying $10,000 of principal and $2,100 of accrued interest on
October 23, 2017 to November 24, 2017 and extend the maturity date
to February 21, 2018. The Company extended the possibility to
convert date by paying $20,000 of principal and $6,000 of accrued
interest on November 29, 2017 to December 22,
2017. The warrants are
considered derivative liabilities under ASC 815-40 under the
Company’s sequencing policy and were valued using
the multinomial lattice
model. The Company evaluated amendment under ASC
470-50, “Debt - Modification and
Extinguishment”, and
concluded that the extension did not result in significant and
consequential changes to the economic substance of the debt and
thus resulted in a modification of the debt and not extinguishment
of the debt. On March 12, 2018, the note converted the principal of
$7,337 and $4,278 in accrued interest into for 575,000 shares of
common stock. On April 2, 2018, the note converted the principal of
$19,037 and $963 in accrued interest into for 1,000,000 shares of
common stock. On April 24, 2018, the note converted the principal
of $49,118 and $1,482 in accrued interest into for 2,530,000 shares
of common stock. On September 10, 2018, the note converted the
principal of $23,966 and $5,966 in accrued interest into for
1,800,000 shares of common stock.
On August 8, 2016, the Company issued a convertible note to a
related individual for $30,000 that matures on October 8, 2016. The
note bears interest rate of 0% per annum and is convertible into
shares of the Company’s Common stock at $0.40 per share, as
part of the note the company issued options to purchase 21,000
shares of 144 restricted common stock at an exercise price $0.50
for a two-year period. The note was amended on November 15, 2016 to
extend the maturity date to January 31, 2017 and again on May 10,
2017 to extend the maturity date to October 1, 2017. The Company
evaluated amendment under ASC 470-50, “Debt - Modification
and Extinguishment”, and concluded that the extension did not
result in significant and consequential changes to the economic
substance of the debt and thus resulted in an extinguishment of the
debt and not modification of the debt resulting in a gain on
extinguishment of debt of $3,818. The note was amended again on
August 28, 2018 to extend the maturity date to June 30,
2019. The Company evaluated
amendment under ASC 470-50, “Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On September 27, 2017, the Company issued a convertible note to an
unrelated party for $5,000 that matures on March 31, 2018. The note
bears 0% interest per annum. The note is convertible into shares of
the Company’s common stock at $0.10 per
share. The Company valued a BCF related to the note
valued at $2,995. The note was amended on August 28, 2018 to extend
the maturity date to June 30, 2019. The Company evaluated
amendment under ASC 470-50, “Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On September 28, 2017, the Company issued a note to a related party
for $18,000 that matures on November 28, 2017. The note bears 0%
interest per annum. The note was amended on August 28, 2018 to
extend the maturity date to June 30, 2019. The Company evaluated
amendment under ASC 470-50, “Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On December 30, 2017, the Company issued a note to a related party
for $25,000 that matures on December 30, 2018. The note bears 0%
interest per annum. The note is convertible into shares of the
Company’s common stock at $0.10 per
share. The Company
valued a BCF related to the note valued at
$3,750.
The note was amended on August 28,
2018 to extend the maturity date to June 30, 2019.
The Company
evaluated amendment under ASC 470-50, “Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On July 14, 2014, the Company issued a convertible note to an
unrelated individual for $7,000 that matures on October 14, 2014.
The note bears interest rate of 6% per annum and is convertible
into shares of the Company’s Common stock at $0.10 per
share. The note was amended on
September 8, 2018 to extend the maturity date to February 15,
2019. The Company evaluated
amendment under ASC 470-50, “Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
F-34
On February 15, 2016, the Company issued a convertible note to an
unrelated individual for $25,000 that matures on February 15, 2017.
The note was amended subsequently in September 28, 2017 to extend
the maturity date to October 15, 2017. The Company evaluated
amendment under ASC 470-50, “Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt. The note was amended
again on September 12, 2018 to extend the maturity date to February
15, 2019. The Company evaluated
amendment under ASC 470-50, “Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On July 26, 2016, the Company issued a convertible note to an
unrelated individual for $50,000 that matures on September 26,
2016. The note bears interest rate of 0% per annum and
is convertible into shares of the Company’s Common stock at
$0.40 per share, as part of the note the company issued warrants to
purchase 35,000 shares of 144 restricted common stock at an
exercise price $0.30 for a two-year period. The note was amended on
September 28, 2017 to extend the maturity date to January 15, 2018,
as additional consideration the Company issued 15,000 shares of
common stock valued at $2,399. The note was amended on September
20, 2018 to extend the maturity date to October 15, 2018, The
Company evaluated amendment under ASC 470-50,
“Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
On March 7, 2016, the Company issued a convertible note to an
unrelated individual for $100,000 that matures on March 7, 2017.
The note bears interest rate of 10% per annum and is convertible
into shares of the Company’s Common stock at $0.40 per
share. The Company valued a BCF related to the note
valued at $24,269 and debt discount related to the 10,000 shares of
common stock issued with the note at a relative fair value of
$4,569. The note was amended
again on September 28, 2017 to extend the maturity date to January
15, 2018, as additional consideration the Company issued 25,000
shares of common stock valued at $3,998. The note was amended again
on September 20, 2018 to extend the maturity date to October 15,
2018. The Company evaluated amendment under ASC 470-50,
“Debt
- Modification and Extinguishment”, and concluded that
the extension did not result in significant and consequential
changes to the economic substance of the debt and thus resulted in
a modification of the debt and not extinguishment of the
debt.
F-35