EXEO Exeo Entertainment Inc (CE)

Notes to Financial Statements

November 30, 2020 and 2019

Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

This summary of significant accounting policies of Exeo Entertainment, Inc. (the “Company”) is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles and have been consistently applied to the preparation of the financial statements. The Company will adopt accounting policies and procedures based upon the nature of future transactions.

Nature of Business

The Company was incorporated in Nevada on May 12, 2011. The Company is based in Las Vegas, Nevada, and designs, develops, licenses, manufactures, and distributes its products. The Company is working with Vegas Golden Knight NHL team and have designed a custom Krankz™ headphone for them, and the Company is also selling other new peripheral products for the video gaming industry, including the Psyko Krypton™ sound gaming headphones and Krankz™ Bluetooth Wireless Headset. The Company has an “Exclusive Distributor” Agreement with Axcel Electronics Thailand Company Limited (Cableicons, Inc.) to distribute and sell the “Ford Officially Licensed Cell Phone Accessories” in all wholesale and retail channels in the USA and Canada.

Basis of Presentation

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars.

Accounting Basis

The Company uses the accrual basis of accounting and accounting principles generally accepted in the United States of America (“GAAP” accounting). The Company has adopted a November 30 fiscal year end.

Foreign Currency Transactions

Transaction gains and losses, such as those resulting from the settlement of nonfunctional currency receivables or payables, including intercompany balances, are included in foreign currency gain (loss) in our consolidated statements of earnings. Additionally, payable and receivable balances denominated in nonfunctional currencies are marked-to-market at month-end, and the gain or loss is recognized in our statements of operations.

Cash and Cash Equivalents

The Company considers cash on hand, cash in banks, certificates of deposit, time deposits, and U.S. government and other short-term securities with maturities of three months or less when purchased as cash and cash equivalents.

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures, Pre Codification SFAS No. 157, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1 — Quoted prices for identical assets and liabilities in active markets;

Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. 

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

November 30, 2020 and 2019

Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value of Financial Instruments (continued)

The Company designates cash equivalents (consisting of money market funds) and investments in securities of publicly traded companies as Level 1. The total amount of the Company’s investment classified as Level 3 is de minimis.

Fair value of financial instruments: The carrying amounts of financial instruments, including cash and cash equivalents, short-term investments, accounts payable, accrued expenses and notes payables approximated fair value as of November 30, 2020 and 2019 because of the relative short-term nature of these instruments. At November 30, 2020 and 2019, the fair value of the Company’s debt approximates carrying value.

Inventory

The value of the Company’s inventory was $54,325 and $284,497 as of November 30, 2020 and 2019, respectively. Inventory is carried at the lower of cot and estimated net realizable value, with cost being determined using the first-in first out (FIFO) method. The Company establishes reserves for estimated excess, obsolete and slow-moving inventory equal to the difference between the cost of inventory and estimated net realizable value of the inventory based on estimated reserve percentage, which considers historical usage known trends, inventory age and market conditions. When the Company disposes the excess, obsolete and slowing moving inventories, the related disposals are charged against the inventory reserve. See Note B for additional information.

As of November 30, 2020 and 2019, the Company recorded an inventory reserve of $217,297 and $34,600, respectively.

Accounts Receivable

Accounts receivable are stated at the amount the Company expects to collect from outstanding balances and do not bear interest. The Company provides for probable uncollectible amounts through an allowance for doubtful accounts, if an allowance is deemed necessary. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. On a periodic basis, management evaluates its accounts receivable and determines the requirement for an allowance for doubtful accounts based on its assessment of the current and collectible status of individual accounts with past due balances over 90 days. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote.

As of November 30, 2020, the Company had accounts receivable of approximately 100% from two customers.

Allowance for Uncollectible Accounts

The Company estimates losses on receivables based on known troubled accounts, if any, and historical experience of losses incurred. There was $0 and no allowance for doubtful customer receivables at November 30, 2020 and 2019, respectively.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

November 30, 2020 and 2019

Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment

Property and equipment are stated at the lower of cost or fair value. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, as follows:

The estimated useful lives are based on the nature of the assets as well as current operating strategy and legal considerations such as contractual life. Future events, such as property expansions, property developments, new competition, or new regulations, could result in a change in the manner in which the Company uses certain assets requiring a change in the estimated useful lives of such assets.

Maintenance and repairs that neither materially add to the value of the asset nor appreciably prolong its life are charged to expense as incurred. Gains or losses on disposition of property and equipment are included in the statements of operations. There were no dispositions during the periods presented.

KrankzAudio Website

The Company decided to redesign a new Shopify website (krankzaudio.com) in October 2020. The redesign is to increase online sales with a hyper-focused conversion strategy. The website consists of a search engine that users may access in order to compare the prices of different consumer products, which is known as a price comparison website. The new website was launched on January 18, 2021.

Impairment of Long-Lived Assets

The Company evaluates its property and equipment and other long-lived assets for impairment in accordance with related accounting standards. No impairments were recorded at November 30, 2020 and 2019. For assets to be held and used (including projects under development), fixed assets are reviewed for impairment whenever indicators of impairment exist. If an indicator of impairment exists, the Company first groups its assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities (the “asset group”). Secondly, the Company estimates the undiscounted future cash flows that are directly associated with and expected to arise from the completion, use and eventual disposition of such asset group. The Company estimates the undiscounted cash flows over the remaining useful life of the primary asset within the asset group. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model.

Revenue Recognition

The Company recognizes revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which consists of five steps to evaluating contracts with customers for revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.

Revenue recognition occurs at the time we satisfy a performance obligation to our customers, when control transfers to customers, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance. We only record revenue when collectability is probable.

For the years ended November 30, 2020 and 2019, the Company recognized $24,745 and $139,450 in revenue, respectively.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

November 30, 2020 and 2019

Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes

Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

Basic Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity.

Stock-Based Compensation

The Company follows ASC 718, “Stock Compensation”, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718 is a revision to SFAS No. 123, “Accounting for Stock-Based Compensation,” and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.

Reclassification of Temporary Equity

During the year ended November 30, 2020, the Company reclassified $139,214 Series B redeemable convertible preferred stock to additional paid-in capital after the Company reevaluated the conversion of preferred stock

Concentrations of Risk

The Company’s bank accounts are deposited in insured institutions. The maximum insured by the FDIC per bank account is not an issue here since the Company’s bank accounts do not bear any interest and the FDIC limits far exceed balances on deposit. The Company’s funds were held in a single account. At November 30, 2020 and 2019, the Company’s bank balance did not exceed the insured amounts.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

November 30, 2020 and 2019

Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Accounting for Research and Development Costs

The Company records an expense in the current period for all research and development costs, which include Hardware Development Costs. The Company does not capitalize such amounts. Pursuant to ASC Topic 730 Research and Development, once we determine that our Extreme Gamer video game console is technologically feasible and a working model is put into use, the Company will capitalize Software Development costs associated with its products. Once this occurs we will determine a useful life of our software and apply a reasonable economic life of five years or less. At this time, our software development costs only relate to the Extreme Gamer and Zaaz keyboard hardware. The software development costs cannot be separated from the associated hardware development. We do not develop stand-alone software for sale to the retail consumers, rather we develop software in order to operate the designed hardware. The software is designed to be encoded within chips inside the hardware. Thus, it has been determined that the current software development costs, which are intertwined within the hardware development, are to be expensed rather than capitalized pursuant to ASC Topic 730.

This conclusion is also based upon our decision to devote further research and development costs in the support of our product interface to the video game players: Sony PS3® (and other products such as Nintendo Wii® and Microsoft Xbox 360®).

Liquidity and Going Concern

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

Management evaluated all relevant conditions and events that are reasonably known or reasonably knowable, in the aggregate, as of the date the consolidated financial statements are issued and determined that substantial doubt exists about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on the Company’s ability to generate revenues and raise capital. The Company has not generated sufficient revenues from product sales to provide sufficient cash flows to enable the Company to finance its operations internally. At November 30, 2020 the Company has an accumulated deficit of $11,930,308. For the year ended November 30, 2020, the Company had a net loss of $1,652,946, and a working capital deficiency of $2,174,998. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year from the date of filing.

Over the next twelve months management plans raise additional capital and to invest its working capital resources in sales and marketing in order to increase the distribution and demand for its products. If the Company fails to generate sufficient revenue and obtain additional capital to continue at its expected level of operations, the Company may be forced to scale back or discontinue its sales and marketing efforts. However, there is no guarantee the Company will generate sufficient revenues or raise capital to continue operations. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

November 30, 2020 and 2019

Note A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC Topic 820. This guidance is effective for public companies in fiscal years beginning after December 15, 2019, with early adoption permitted. Effective January 1, 2020, we adopted ASU 2018-13. The implementation of this standard did not have any material impact on our consolidated financial statements.

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. This amendment is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

Note B: INVENTORIES

The value of inventory was $54,325 and $284,497 as of November 30, 2020 and 2019, respectively, and consists of 100% of finished goods.

Inventory reserves are established for estimated excess, obsolete and slow-moving inventory equal to the difference between the cost of the inventory and estimated net realizable value of the inventory on estimated reserve percentage, which considers historical usage, known trends, inventory age and market conditions. The Company has established an allowance for slow moving inventory. As of November 30, 2020, and 2019, the inventory reserve was $217,297 and $34,600, respectively.

Depreciation expense was $22,652 and $23,818 for the years ended November 30, 2020 and 2019, respectively.

Note D: RESEARCH AND DEVELOPMENT COSTS

The Company incurred $60 and $60 for research and development costs for the years ended November 30, 2020 and 2019, respectively. These costs relate to hardware engineering, design and development of the Krankz™ and Krankz Maxx™ Bluetooth Wireless Headset and the Psyko Krypton® surround sound gaming headphones for personal computers.

Note E: PREPAID EXPENSES

At November 30, 2020 and 2019, the balance of prepaid expenses on the balance sheet of the Company is $12,558 and $51,479, respectively.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

November 30, 2020 and 2019

Note F: PATENT AND TRADEMARKS

In June 2013, the Company executed a license agreement with Psyko Audio Labs Canada to manufacture and distribute the Carbon and Krypton line of patented headphones. US Patent # 8,000,486 (for the Psyko Krypton™ surround sound gaming headphones). On April 2, 2015, Krank Amplifiers, LLC submitted to the U.S. Patent and Trademark Office a request for a design mark as to “Krank Amplifiers”) for registry on the Principal Register (serial number 86585697). This design mark includes the name Krank Amplifiers. The requested goods and services category is for IC 009, which is the same category in which our Company would request as to our common law trademark “Krankz™.” This amplifier company submitted its mark on the basis of 1B – not yet in commerce, while our Company has used the name Krankz™ in commerce for several years, well before Krank Amplifiers. As of the date of this report, no office action has been taken by the U.S. PTO. We may no longer be able to use the common law trademark “Krankz™” if Krank Amplifiers is granted its trademark and we do not file an opposition to such mark or we do not prevail in the defense of our mark in the U.S. Trademark and Trial Appeal Board (TTAB). 

Note G: COMMON STOCK

The Company has 100,000,000 shares at $0.0001 par value common stock authorized and 29,853,327 and 29,054,235 shares issued and outstanding at November 30, 2020 and 2019, respectively.

During the year ended November 30, 2019, the Company sold 1,528,809 shares of common stock for cash totaling $1,055,484. The price per share is equal to eighty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. In addition, for each share of common stock purchased, each investor shall receive two warrants. Warrant A shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. Warrant B shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred twenty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing.

During the year ended November 30, 2019, the Company issued 106,985 shares of common stock for the conversion of 15,000 shares of Series B Preferred Stock.

During the year ended November 30, 2019, the Company issued 74,200 shares of common stock and received $47,120 for the exercise of warrants. As of the date of this filing, the Company recorded $10,000 in stock payable since the shares were not issued.

During the year ended November 30, 2019, the Company issued 83,000 shares of common stock for services rendered of $82,650. The shares were valued according the closing price of the common stock as quoted on the OTC Electronic Bulletin Board Quotation System on the grant date.

During the year ended November 30, 2020, the Company issued 34,740 shares of common stock for the conversion of 5,000 shares of Series B Preferred Stock.

On December 19, 2019, the Company received $10,000 for the exercise of warrants. The stock was considered owed as a common stock payable as of February 29, 2020. On April 17, 2020, the Company has issued 20,000 shares out of stock payable related to exercise of warrants

On January 15, 2020, the Company received $75,000 for the exercise of warrants. The stock was considered owed as a common stock payable as of February 29, 2020. On April 17, 2020, the Company has issued 200,000 shares for the exercise of warrants.

On December 19, 2019, the Company sold 40,000 shares of common stock to an investor in exchange for $30,000. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

November 30, 2020 and 2019

Note G: COMMON STOCK (CONTINUED)

On December 23, 2019, the Company sold 41,177 shares of common stock to two investors in exchange for $35,000. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.

On January 3, 2020, the Company sold 15,480 shares of common stock to an investor in exchange for $12,500. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.

On January 15, 2020, the Company sold 15,480 shares of common stock to an investor in exchange for $12,500. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.

On January 21, 2020, the Company sold 108,360 shares of common stock to three investors in exchange for $87,500. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.

On February 3, 2020, the Company sold 15,480 shares of common stock to an investor in exchange for $12,500. The stock was considered owed as a common stock payable as of February 29, 2020. The shares have been issued on April 17, 2020.

On April 14, 2020, the Company issued 20,000 shares of common stock to an investor in exchange for $10,000.

On April 17, 2020, the Company issued 83,431 shares of common stock to various investors in exchange for $61,000.

On April 17, 2020, the Company issued 10,000 shares of common stock for services rendered of $8,500. The shares were valued according to the closing price of the common stock as quoted on the OTC Electronic Bulletin Board Quotation System on the grant date.

On May 1, 2020, the Company issued 25,000 shares of common stock to an investor in exchange for $17,500.

On May 29, 2020, the Company received $18,576 for warrants exercises of 37,152 common shares. The stock was considered owed as a common stock payable as of May 31. On June 25, 2020, the shares have been issued.

On June 8, 2020, the Company issued 16,667 shares of common stock for warrants exercises in exchange of $8,334.

On June 8, 2020, the Company issued 33,841 shares of common stock to two investors in exchange for $20,000.

On June 19, 2020, the Company received $10,000 for warrants exercises of 20,000 common shares. The stock was considered owed as a common stock payable as of August 31, 2020. On January 22, 2021, the shares have been issued.

On June 22, 2020, the Company issued 62,284 shares of common stock to two investors in exchange for $45,000.

On June 25, 2020, the Company issued 20,000 shares of common stock for warrants exercise, which was considered owed as a common stock payable.

On July 1, 2020, the Company provided 175,000 shares of common stock for the services rendered of $131,250. The shares were valued according to the closing price of the common stock as quoted on the OTC Electronic Bulletin Board Quotation System on the grant date. The stock was considered owed as common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

November 30, 2020 and 2019

Note G: COMMON STOCK (CONTINUED)

On July 1, 2020, the Company sold 17,301 shares of common stock to an investor in exchange of $12,500. The stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued

On July 10, 2020, the Company received $60,000 for warrants exercises of 150,000 common shares. The stock was considered owed as a common stock payable as of November 30, 2020. As the date of filing, the shares have not been issued.

On August 19, 2020, the Company sold 17,301 shares of common stock to an investor in exchange of $12,500. The stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.

On September 30, 2020, the Company sold 17,301 common shares in exchange of $12,500. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.

On October 5, 2020, the Company sold 18,383 common shares in exchange of $12,500. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.

On September 28, 2020, the Company sold 50,000 common shares in exchange of $25,000. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.

On September 29, 2020, the Company sold 200,000 common shares in exchange of $100,000. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.

On September 30, 2020, the Company sold 20,000 common shares in exchange of $10,000. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.

On October 8, 2020, the Company sold 150,000 common shares in exchange of $75,000. The Stock was considered owed as a common stock payable as of November 30, 2020 On January 22, 2021, the shares have been issued.

On November 18, 2020, the Company sold 25,000 common shares to an investor in exchange of $12,500. The Stock was considered owed as a common stock payable as of November 30, 2020. On January 22, 2021, the shares have been issued.

The price per share is equal to eighty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. In addition, for each share of common stock purchased, each investor shall receive two warrants. Warrant A shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. Warrant B shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred twenty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. Warrant C shall provide the investor the right to purchase two additional shares of the Company common stock at a price equal to $0.50 per share.

As of November 30, 2020, the Company is obligated to issue 876,625 common shares, which were considered owed as a common stock payable of $486,250.

Note H: STOCK OPTIONS AND WARRANTS

Stock-Based Compensation to Employees

During the years ended November 30, 2020 and 2019, the Company had not issued stock based compensation to employees.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

November 30, 2020 and 2019

Note H: STOCK OPTIONS AND WARRANTS (CONTINUED)

Stock Warrants Issued to Investors

As of November 30, 2020, there were 4,659,430 warrants outstanding, with a weighted average exercise price of $0.75 per share and the weighted average remaining life is 1.32 years.

As of November 30, 2019, there were 5,133,482 warrants outstanding, with a weighted average exercise price of $0.66 per share and the weighted average remaining life is 1.19 years.

Warrant A shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. Warrant B shall provide the investor the right to purchase one additional share of the Company’s common stock equal to one hundred twenty-five percent of the average daily “Ask Price” as quoted on the OTC Electronic Bulletin Board Quotation System for the ten trading days immediately preceding the Closing. The exercisable period for Warrant A and B is three years.

Warrant C shall provide the investor the right to purchase two additional shares of the Company common stock at a price equal to $0.50 per share. The exercisable period for Warrant C is 180 days.

The following is a summary of the status of all of the Company’s stock warrants as of November 30, 2020 and 2019, and the changes for the years ended November 30, 2020 and 2019. 

Note I: PREFERRED STOCK

Issuances of Series A Convertible Preferred Stock

The Company has 19,500 and 19,500 shares of its $0.0001 par value preferred stock Series A issued and outstanding as of November 30, 2020 and 2019, respectively.

Since March 3, 2014, the Company has not offered or sold any Series A Convertible Preferred Stock and has no intent to do so during fiscal years ended November 30, 2020 and 2019.

Issuances of Series B Convertible Preferred Stock

The Company has 229,250 and 234,250 shares of its $0.0001 par value preferred stock Series B issued and outstanding as of November 30, 2020 and 2019, respectively.

On January 14, 2014, the Board of Directors of Exeo Entertainment, Inc. (the “Company” adopted a resolution pursuant to the Company’s Certificate of Incorporation, as amended, providing for the designations, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions, of the Series B Convertible Preferred Stock.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

November 30, 2020 and 2019

Note I: PREFERRED STOCK (CONTINUED)

On January 18, 2014, the Company filed a Certificate of Designations for a Series B Convertible Preferred Stock. The authorized number of Series B Convertible Preferred Stock is 1,000,000 shares, par value 0.0001. The holders of shares of Series B Convertible Preferred Stock shall vote as a separate class on all matters adversely affecting the Series B Stock. The authorization or issuance of additional Common Stock, Series B Convertible Preferred Stock or other securities having liquidation, dividend, voting or other rights junior to or on a parity with, the Series B Convertible Preferred Stock shall not be deemed to adversely affect the Series B Convertible Preferred Stock. In each case the holders shall be entitled to one vote per share. During the conversion period, each Series B Preferred share may be converted to common stock at a fixed conversion price of $1.50 per share or the Variable Conversion Price set forth in the Company’s Certificate of Designation. Series B stock bears interest at 12% per annum, paid annually, with principal paid at maturity twenty-four (24) months after the date of issuance of the stock. See table below in this note. Principal repayment may not apply if the stockholder exercises the right to convert all preferred stock to common stock during the conversion period.

All shares of redeemable convertible preferred stock have been presented outside of permanent equity in accordance with ASC 480-10, Classification and Measurement of Redeemable Securities. The Company accretes the carrying value of its Series A and B redeemable convertible preferred stock to its estimate of fair value (i.e. redemption value) at period end.

The estimated fair value of the Series A and Series B redeemable convertible preferred stock at November 30, 2020 was $192,851 and $1,876,927, respectively.

The estimated fair value of the Series A and Series B redeemable convertible preferred stock at November 30, 2019 was $177,985 and $1,873,202, respectively.

We incurred equity issuance costs of $0 and $0 for the years ended November 30, 2020 and 2019, respectively. Rather than expense these costs, such items are charged against the Company’s equity. Our employees coordinate various matters associated with the sales of issuer securities to accredited investors. Equity issuance costs include such wages. These costs also include mailing, copying, courier, and other miscellaneous costs associated with the duplication and delivery of our offering circular to investors and paying for the return delivery of signed stock subscription agreements.

Note J: RELATED PARTY TRANSACTIONS

Notes Payable to Officer

An officer received promissory notes from the Company in exchange for loans from the officer for $85,000. The terms of the notes provide that the Company shall repay the principal of each note in full within nine months of the date of each note. In addition, the Company is obligated to pay interest at a flat rate of 6.00% upon maturity of each note. At the sole discretion of the officer, the notes may be extended for an additional nine-month term. The Officer agreed to extend the notes for an additional nine-month period. The maturity dates after the extensions are reflected below. In November 2015, the Company made a $10,000 payment to an officer towards the entire principal of one note dated December, 2013. The Company made no payment towards $32,744 accrued interest. 

Compensation of Officers

The Company entered into officer compensation agreements with two officer/directors. The amount paid to the two officers in total was $159,361 and $161,555 during the years ended November 30, 2020 and 2019, respectively.

Note K: COMMITMENTS AND CONTINGENCIES

Royalty Payable Obligation

At January 1, 2015, the Company is obligated to pay minimum monthly royalties of approximately $80,000 (CDN $100,000) per quarter for the remaining term of the Psyko Audio Labs contract. The company carries the risk of currency exchange rate fluctuations as our royalty obligation under the license agreement is stated in Canadian dollars. Royalty payable was $1,772,918 and $1,431,665 as of November 30, 2020 and 2019. For the years ended November 30, 2020 and 2019, royalty expense and the related gain/(loss) on foreign currency transactions were ($43,100) and ($1,252), respectively.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

November 30, 2020 and 2019

Note L: LEASES

In the first quarter of fiscal 2019 the Company adopted Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842),” and related amendments.

The Company leases certain property consisting principally of its corporate headquarters, its retail stores, the majority of its distribution and fulfillment centers, and certain equipment under operating leases. Many of the Company’s leases include options to renew at the Company’s discretion. The renewal options are not included in the measurement of right-of-use (“ROU”) assets and lease liabilities as the Company is not reasonably certain to exercise available options. Rent escalations occurring during the term of the leases are included in the calculation of the future minimum lease payments and the rent expense related to these leases is recognized on a straight-line basis over the lease term.

The Company determines whether an agreement contains a lease at inception based on the Company’s right to obtain substantially all of the economic benefits from the use of the identified asset and its right to direct the use of the identified asset. Lease liabilities represent the present value of future lease payments and the ROU assets represent the Company’s right to use the underlying assets for the respective lease terms. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The ROU asset is further adjusted to account for previously recorded lease-related expenses such as deferred rent and other lease liabilities. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate as the discount rate to calculate the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate that would be required to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.

The Company elected not to recognize a ROU asset and a lease liability for leases with an initial term of twelve months or less and not to separate lease and non-lease components. In addition to minimum lease payments, certain leases require payment of a proportionate share of real estate taxes and certain building operating expenses or payments based on a percentage of sales in excess of a specified base. These variable lease costs are not included in the measurement of the ROU asset or lease liability due to unpredictability of the payment amount and are recorded as a lease expense in the period incurred. The Company’s lease agreements do not contain residual value guarantees or significant restrictions or covenants other than those customary in such arrangements. As of November 30, 2020, the Company did not have material leases that had been signed but not yet commenced.

The Company entered into the office lease extension agreement with the landlord in September 2020 for two years and is set to expire on September 30, 2022. The monthly minimum rental payment is $9,162 from October 1, 2020 to September 30, 2021 and $9,391 from October 1, 2021 to September 30, 2022.

The components of lease cost are as follows: 

The following table discloses the weighted average remaining lease term and weighted average discount rate for the Company’s leases as of November 30, 2020: 

Note M: LOAN PAYABLE

On May 26, 2020, the Company executed the Paycheck Protection Loan (“Loan”) with Wells Fargo Bank for $29,740. The loan is due on May 26, 2022. The Company agreed the loan bears interest at 1% per annum. The Company needs to pay $1,252.09 monthly payment starting at November 26, 2020. The accrued interest is $159 as of November 30, 2020. The Company believes current economic uncertainty relating to the Coronavirus crisis makes the loan necessary to support our ongoing operations. The Company anticipates that the entire balance of the loan will be forgiven based on our disbursements of payroll and rent.