Exeo Entertainment, Inc. - Quarter Report: 2019 February (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2019

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-190690

EXEO ENTERTAINMENT, INC.

(Exact name of registrant as specified in its charter)

Nevada		45-2224704
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

4478 Wagon Trail Ave., Las Vegas, NV 89118
(Address of principal executive offices and Zip Code)

(702) 361-3188
(Registrant's telephone number, including area code)

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 past 12 months (or for such shorter period 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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 the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.:

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer (Do not check if a smaller reporting company)	☐	Smaller reporting company	☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No ☒

As of the date of filing of this report, there were outstanding 27,829,742 shares of the issuer’s common stock, par value $0.0001 per share. There were also outstanding 19,500 Series A, and 244,190, Series B Preferred Shares of the issuers preferred stock, par value $0.0001 per share.

EXEO ENTERTAINMENT, INC.

Form 10-Q

Table of Contents

		Page

PART I - FINANCIAL INFORMATION		3

Item 1.	Financial Statements	3

	Balance Sheets	3

	Statements of Operations	4

	Statement of Stockholders Deficit for the Three Months Ended February 28, 2019	5

	Statement of Stockholders Deficit for the Three Months Ended February 28, 2018	6

	Statements of Cash Flows	7

	Notes to Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4.	Controls and Procedures	18

PART II - OTHER INFORMATION		19

Item 1.	Legal Proceedings	19

Item1A.	Risk Factors	19

Item 2.	Unregistered Sales of Equity Securities	19

Item 3.	Defaults Upon Senior Securities	19

Item 4.	Mine Safety Disclosures	19

Item 5.	Other Information	19

Item 6.	Exhibits	20

SIGNATURES		21

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and Item Regulation S-X, Rule 10-01(c) Interim Financial Statements, and, therefore, do not include all information and footnotes necessary for a complete presentation of financial position, results of operations, cash flows, and stockholders' equity in conformity with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. Operating results for the three months ended February 28, 2019 are not necessarily indicative of the results that can be expected for the year ending November 30, 2019.

EXEO ENTERTAINMENT, INC.
BALANCE SHEETS
(unaudited)	February 28,	November 30,
	2019	2018

ASSETS

Current Assets
Cash and cash equivalents	$220,720	$104,485
Inventory	38,306	39,456
Prepaid expenses	161,249	138,850
Accounts Receivable	186	186
Total current assets	420,461	282,977

Property and equipment, net	62,619	28,576

TOTAL ASSETS	$483,080	$311,553

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT

Liabilities
Current liabilities
Accounts payable and accrued expenses	$47,274	$44,111
Accrued interest payable - related party	24,582	23,436
Payroll liabilities	167,016	161,839
Due to related parties	75,000	75,000
Royalty payable	1,216,577	1,129,455
Notes payable	9,314	9,314
Total current liabilities	1,539,763	1,443,155

Long-term liabilities
Notes payable	8,400	10,851
Total long-term liabilities	8,400	10,851

Total Liabilities	1,548,163	1,454,006

Series A redeemable convertible preferred stock; $0.0001 par value,
1,000,000 shares authorized; 19,500 shares issued and outstanding; 0 shares unissued as of February 28, 2019 and November 30, 2018 (liquidation preference of $98,769 and $95,213, respectively). Stated at redemption value.	167,017	163,361
Series B redeemable convertible preferred stock; $0.0001 par value,
1,000,000 shares authorized; 244,190 and 246,690 shares issued and outstanding; 2,500 shares unissued as of February 28, 2019 and November 30, 2018 (liquidation preference of $836,731 and $799,853, respectively). Stated at redemption value, net of Treasury Stock (2,500 shares)	1,762,193	1,725,191

Stockholders' equity (deficit)
Convertible Preferred Stock Series A - 15%, $0.0001 par value, 1,000,000 shares
authorized, 19,500 and 19,500 shares issued, respectively	-	-
Convertible Preferred Stock Series B - 12%, $0.0001 par value, 1,000,000 shares
authorized, 244,190 and 246,690 shares issued, respectively	-	-
Common stock - $0.0001 par value, 100,000,000 shares authorized;
27,449,098 and 26,697,109 shares issued and outstanding, respectively	2,745	2,670
Additional paid-in capital	5,681,403	5,135,475
Treasury stock, Series B Preferred Stock - 2,500 shares	(12,500)	(12,500)
Stock payable	320,000	426,000
Deficit accumulated	(8,985,941)	(8,582,650)
Total stockholders' deficit	(2,994,293)	(3,031,005)

TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT	$483,080	$311,553

The accompanying notes are an integral part of these financial statements.

EXEO ENTERTAINMENT, INC.
STATEMENTS OF OPERATIONS
(unaudited)

	For the three months ended
	February 28,
	2019	2018
REVENUES	$750	$2,765
COST OF GOOD SOLD
Cost of direct materials, shipping and labor	(2,094)	(1,679)
GROSS PROFIT (LOSS)	(1,344)	1,086

OPERATING EXPENSES
General and administrative	291,526	163,802
Executive compensation	33,838	40,606
Professional fees	17,625	60,070
Depreciation	4,958	3,948
TOTAL OPERATING EXPENSES	347,947	268,426

LOSS FROM OPERATIONS	(349,291)	(267,340)

OTHER EXPENSE
Loss from foreign currency transactions	(12,046)	(7,273)
Interest expense - related party	(1,147)	(1,147)
Interest expense	(147)	(218)
TOTAL OTHER EXPENSES	(13,340)	(8,638)

NET LOSS	(362,631)	(275,978)

DIVIDEND OF REDEEMABLE PREFERRED STOCK	(40,660)	(40,660)

NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS	$(403,291)	$(316,638)

NET LOSS PER SHARE: BASIC AND DILUTED	$(0.01)	$(0.01)

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: BASIC AND DILUTED
	27,326,799	25,610,503

The accompanying notes are an integral part of these financial statements.

EXEO ENTERTAINMENT, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(unaudited)



			Additional				Total
	Common Shares		Paid-In	Treasury	Stock	Deficit	Stockholders'
	Shares	Amount	Capital	Stock	Payable	Accumulated	Deficit
Balance, November 30, 2018	26,697,109	$2,670	$5,135,475	$(12,500)	$426,000	$(8,582,650)	$(3,031,005)

Cash received for sale of
common stock	170,997	17	132,483		307,500		440,000

Stock issued for
subscriptions payable	564,132	56	413,444		(413,500)		-

Stock issued for
conversion of preferred stock	16,860	2	1				3

Net loss for the three months ended
February 28, 2019						(403,291)	(403,291)

Balance, February 28, 2019	27,449,098	$2,745	$5,681,403	$(12,500)	$320,000	$(8,985,941)	$(2,994,293)

The accompanying notes are an integral part of these financial statements.

EXEO ENTERTAINMENT, INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
(unaudited)



			Additional				Total
	Common Shares		Paid-In	Treasury	Stock	Deficit	Stockholders'
	Shares	Amount	Capital	Stock	Payable	Accumulated	Deficit
Balance, November 30, 2017	26,216,646	$2,622	$4,795,523	$(12,500)	$68,750	$(7,374,123)	$(2,519,728)

Cash received for sale of
common stock					172,500		172,500

Net loss for the three months ended
February 28, 2018						(316,639)	(316,639)

Balance, February 28, 2018	26,216,646	$2,622	$4,795,523	$(12,500)	$241,250	$(7,690,762)	$(2,663,867)

The accompanying notes are an integral part of these financial statements.

EXEO ENTERTAINMENT, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
	For the three months ended
	February 28,
	2019	2018

CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period	$(362,631)	$(275,978)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation	4,958	3,948
Changes in assets and liabilities
Decrease (Increase) in prepaid expenses	(22,399)	27,999
Decrease (Increase) in accounts receivable	-	(186)
Decrease (Increase) in inventory	1,150	5,028
(Decrease) Increase in accounts payable and accrued expenses	3,163	(12,771)
Decrease in accrued interest - related party	1,146	1,147
Increase in payroll liabilities	5,177	6,912
Increase in royalty payable	87,122	86,977
Net Cash Used in Operating Activities	(282,314)	(156,924)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment	(39,001)	-
Cash Flows Used in Investing Activities	(39,001)	-

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net of issuance costs	440,001	172,500
Payments on notes payable - auto loan (principal)	(2,451)	(2,381)
Cash Flows Provided by Financing Activities	437,550	170,119

Net increase in cash and cash equivalents	116,235	12,495

Cash and cash equivalents, beginning of the period	104,485	139,525

Cash and cash equivalents, end of the period	$220,720	$152,020

SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$-	$-
Income Taxes Paid	$-	$ -
Dividend of redeemable preferred stock	$40,658	$40,660
Foreign currency loss	$12,046	$7,273

The accompanying notes are an integral part of these financial statements.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

February 28, 2019

Note A: BASIS OF PRESENTATION

The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended November 30, 2018. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.

The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumption are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company’s financial position and results of operations.

Operating results for the three-month period ended February 28, 2019 are not necessarily indicative of the results that may be expected for the year ending November 30, 2019.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

February 28, 2019

Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 plans to market the Krankz™ Headphones along with other cell phone accessories and other new peripheral products for the video gaming industry, including the Psyko Krypton™ surround sound gaming headphones.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. A significant estimate includes the carrying value of the Company’s patents, fair value of the Company’s common stock, assumptions used in calculating the value of stock options, depreciation and amortization.

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.

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 February 28, 2019 and November 30, 2018 because of the relative short term nature of these instruments. At February 28, 2019 and November 30, 2018, the fair value of the Company’s debt approximates carrying value.

Foreign Currency Transactions

Transaction gains and losses, such as those resulting from the settlement of nonfunctional currency receivables or payables, are included in foreign currency gain (loss) in our statements of operations. 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.

Inventory

Inventories are stated at cost, not to exceed fair market value. The cost of the Company’s inventory $38,306 and $39,456 at February 28, 2019 and November 30, 2018, respectively has been determined using the first-in first-out (FIFO) method. The Company has reviewed its inventory at the year ended November 30, 2018 and believes its basis for its reserve of $0 is appropriate as of February 28, 2019 based on the anticipated sales during the current year ended November 30, 2019.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

February 28, 2019

Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment

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

Description	Estimated Life
Furniture & Equipment	5 years
Vehicles	5 years

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.

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 February 28, 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 impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model.

Revenue Recognition

As of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective method and the adoption did not have a material impact on its financial statements.

The Company recognizes revenue when products are fully delivered or services have been provided and collection is reasonably assured. For the three months ended February 28, 2019 and 2018, the Company recognized $750 and $2,765 in revenue, respectively.

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.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

February 28, 2019

Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-Based Compensation

Pursuant to ASC Topic 718, the Company recorded the fair value of the stock options on a monthly basis over the vesting period as stock-based compensation expense. The fair value of the options is calculated using the Black-Scholes method as of the date of grant. In fiscal year 2012, the Company adopted an incentive stock option plan for its employees. In fiscal year 2012 the Company granted stock options to three officers of the Company.

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 February 28, 2019, the Company’s bank balance did not exceed the insured amounts.

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 PS4® (and other products such as Nintendo Switch® and Microsoft Xbox One®).

Liquidity and Going Concern

The Company has incurred an accumulated deficit of ($8,985,941) since inception. The Company incurred significant initial research and product development costs, including expenditures associated with hardware engineering and the design and development of its hardware components and prototypes associated with the Zaaz™ keyboard, the Extreme Gamer, and the Psyko Krypton™ surround sound gaming headphones. The Company also incurred costs associated with its acquisition of property, plant and equipment for its 10,000 square foot office and warehouse.

These factors create substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

Management’s plan includes selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

February 28, 2019

Note B: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Subsequent Events

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to February 28, 2019 to the date these financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these financial statements.

Recent Accounting Pronouncements

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow except as noted below.

In February 2016, the FASB issued authoritative guidance, which is included in ASC 842, “Leases.” This guidance requires lessees to recognize most leases on the balance sheet by recording a right-of-use asset and a lease liability. This guidance is effective for the Company as of March 1, 2019. Based on the completed analysis, the Company has determined the adjustment will not have a material impact on the financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligns accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. This update supersedes previous guidance for equity-based payments to nonemployees under Subtopic 505-50, Equity—Equity-Based Payments to Non-Employees. This guidance is effective for the Company as of March 1, 2019. Based on the completed analysis, the Company has determined the adjustment will not have a material impact on the financial statements.

Note C: COMMON STOCK

The Company has 100,000,000 shares at $0.0001 par value common stock authorized and 27,449,098 and 26,697,109 shares issued and outstanding at February 28, 2019 and November 30, 2018, respectively.

During the three months ended February 28, 2019, the Company sold 534,152 shares of common stock for cash totaling $440,000. 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. The stock was subscribed for; however, the certificates representing the shares were not issued as of February 28, 2019 and, resultantly, are considered owed as a common stock payable of $307,500. The shares were issued subsequently and discussed in Note F.

Note D: PREFERRED STOCK

Issuances of Series A Convertible Preferred Stock

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, 2019.

Issuances of Series B Convertible Preferred Stock

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.

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 $1.25 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.

During the three months ended February 28, 2019, there were no new issuances of Series B Preferred Stock. However, there was a total of 2,500 shares of Series B Preferred Stock converted into 16,860 shares of common stock.

All shares of redeemable convertible preferred stock have been presented outside of permanent equity in accordance with ASC 48-10, 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 February 28, 2019 was $167,017 and $1,762,193, respectively.

The estimated fair value of the Series A and Series B redeemable convertible preferred stock at November 30, 2018 was $163,361 and $1,725,191, respectively.

EXEO ENTERTAINMENT, INC.

Notes to Financial Statements

(Unaudited)

February 28, 2019

Note E: COMMITMENTS AND CONTINGENCIES

Royalty Payable Obligation

At January 1, 2015, the Company is obligated to pay approximate royalties of $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 $1,216,577 as of February 28, 2019. For the three months ended February 28, 2019 and 2018, royalty expense was $75,078 and $79,703, respectively, and the related gain/(loss) on foreign currency transactions was ($12,046) and ($7,273), respectively.

Operating Lease Obligation

On September 30, 2017, the Company signed a renewed three-year lease for its current office and warehouse. The typical monthly rent expense is $8,558, which includes base rent of $7,048 and common area maintenance of $1,510. Rent expense was $25,874 and $25,674 for the three months ended February 28, 2019 and 2018, respectively.

Note F: SUBSEQUENT EVENTS

In accordance with ASC 855-10, Company management reviewed all material events through the date of this report and determined that there are no additional material subsequent events to report except for the disclosure below.

On March 5, 2019, the Company issued 363,155 shares of common stock and reduced the common stock payable by $307,500.

On April 5, 2019, the Company issued 17,489 shares of common stock in exchange for the conversion of 2,500 shares of Series B preferred stock.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

OVERVIEW

Exeo Entertainment, Inc. designs, develops, licenses, manufacturers, and markets consumer electronics in the video gaming, music and smart TV sector. Our current business objectives are:

Complete product development and establish channels of distribution, and

Expand SKUs within the headphone market for both music and gaming

Activities to date

We incorporated in the state of Nevada on May 12, 2011. For the three months ended February 28, 2019, we generated $750 in revenues and continue to operate at a loss. Our activities have centered on the design and engineering of peripherals in the video gaming, music, and smart TV sector.

Products and Services

Products under development include the Psyko™ 5.1 surround sound gaming headphones for consoles, Krankz™ MAXX Bluetooth™ wireless headphones.

Strategy and Marketing Plan

Once manufacturing is established we intend on utilizing existing consumer electronics distributers, such as Synnex Corp. (SNX) and Ingram Micro to distribute our products to big box retailers such as Best Buy, GameStop, and Fry’s Electronics. We do not have distribution agreements with these companies at this time.

Competition

Psyko ™ Headphones

While our Psyko™ headphone offering differs from the competition in the method of 5.1-surround sound delivery, we will face competition from manufacturers with established channels of distribution, mature capital structures, and significantly larger marketing budgets. Well established gaming headphone manufacturers include Turtle Beach; a private company, Tritton – a subsidiary of Mad Catz Interactive (MCZ), and Astro Gaming which is a subsidiary of Skullcandy (SKUL).

While other headphone manufacturers replicate 5.1 surround sound through Digital Signal Processing (DSP), the Psyko™ headphones use a patented method of sound delivery that doesn’t require the use of DSP. Management believes that the difference in audio quality is a major differentiating factor between our product offering and what is currently available on the market.

Krankz™ Headphones

The driver design provides a deep bass sound with clear midrange audio for a full-range for use up to 30’ distance. These headsets work with most mobile devices and have a retractable, foldable design with built-in microphone and noise cancelling feature. We expect to face competition from lifestyle headphone companies such as Beats by Dr. Dre and Skull candy. These entities are well established and have a loyal customer following. We expect to carve out a niche within the market by initially marketing to the X games demographic through endorsements and sponsorships in Extreme sports such as motocross, supercross, snowboarding, surfing, skating, and similar such sports..

Management however acknowledges that while it cannot find any commercially available products that our patents may never be awarded and that we could face competition from any number of existing video game accessory manufacturers.

Sources and Availability of Suppliers and Supplies

Currently we have access to an adequate supply of products, from various manufacturers. These companies and their products are new, not well established, and are a subject to significant risk and uncertainty.

Dependence on One or a few Major Customers

We do not anticipate dependence on one or a few major customers into the foreseeable future.

Patents, Trademarks, Licenses, Franchise Restrictions and Contractual Obligations and Concessions

We 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). With regard to intellectual property rights associated with Psyko ™ Headphones, we have a license to use this mark as well as the patented technology.

In regard to intellectual property rights associated with Krankz™ Bluetooth® wireless headphones, we do not have a federally registered trademark in the word Krankz. Therefore, we do not have the same presumptive rights which might otherwise apply had we obtained a federally registered trademark. We believe we have intellectual property rights to this mark under common law. If we are unable to register this mark, we may use an alternative name for these headphones. On April 2, 2015, Krank™ Amplifiers (associated with guitar amplifiers) filed an application for a design plus words mark on the Principal Register with the U.S. PTO. Guitar amplifiers consist of electronic communication and amplification devices and would generally fall in the same or similar category as our Krankz™ Bluetooth® Audio Headset. As of this date of this report, no office action has been issued by the U.S. PTO, and Krank™ Amplifiers reported in April that they have not yet made any use of this mark in interstate commerce. We have been using this mark in interstate commerce for quite some time prior to April, 2015. 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). We shall continue to monitor the status of that mark to determine what impact it might have, if any, as to our Krankz mark.

Subsidiaries

We do not have any subsidiaries.

MANAGEMENT’S DISCUSSION AND ANALYSIS

COMPARISON OF THREE MONTH RESULTS FOR THE QUARTERS ENDED FEBRUARY 28, 2019 AND 2018, RESPECTIVELY

Revenues and Gross Profit

For the three months ended February 28, 2019 and 2018, the Company recognized $750 and $2,765 in revenue, respectively. Cost of sales for the quarter ended February 28, 2019 was $2,094, leading to a gross loss of $1,344 during the period. In the comparable quarter ended February 28, 2018, cost of sales was $1,679, resulting in a gross profit of $1,086.

Costs and Expenses

Total cost and expenses were $347,947 and $268,426 for the three months ended February 28, 2019 and 2018, respectively. The increase was primarily due to sponsorship fees with Vegas Golden Knights.

Other Income and Expenses

During the course of our business, we experienced a loss from foreign currency transactions of $12,046 in the three month period ended February 28, 2019, compared to a loss of $7,273 in the comparable period ended February 28, 2018. These gains/losses are associated with currency exchange rate fluctuations as our royalty obligation under the license agreement is stated in Canadian dollars.

Interest expense associated with obligations to related parties was $1,147 and $1,147 in the three month periods ended February 28, 2019 and 2018, respectively.

Interest expense associated with non-related party obligations was $147 and $218 in the three month periods ended February 28, 2019 and 2018, respectively.

Liquidity and Capital Resources

Other than what is described in this Report, the Company had no material commitments for capital expenditures at February 28, 2019.

On May 25, 2011, Exeo Entertainment, Inc. entered into an exclusive license agreement with Digital Extreme Technologies, Inc. whereby Exeo Entertainment, Inc. will manufacture and market the Extreme Gamer and Zaaz keyboard. Exeo Entertainment, Inc. will pay Digital Extreme Technologies, Inc. a 5% royalty fee on gross sales of both products.

Unless the Royalty Agreement is modified by Psyko Audio Labs Canada and the Company, at January 1, 2016, the Company is obligated to pay approximate royalties of $80,000 (CDN $100,000) per quarter for the remaining term of the contract. No such modification has been made as of the date of this report. The company carries the risk of currency exchange rate fluctuations as our royalty obligation under the license agreement is stated in Canadian dollars. For the three months ended February 28, 2019 and 2018, the Company made no payments towards this obligation and no royalty invoices have been received from Psyko Audio Labs. Royalty payable was $1,216,577 as of February 28, 2019. For the three months ended February 28, 2019 and 2018, respectively, royalty expense was $75,078 and $79,703, respectively and related gain/(loss) on foreign currency transactions was ($12,046) and ($7,273), respectively.

The Company has an office and warehouse rental lease obligation through September 30, 2020, which equals $162,602 as of February 28, 2019. The monthly minimum rental payment is $8,558. Rent expense was $25,874 and $25,674 for the three months ended February 28, 2019, respectively.

Cash Flow Information

On February 28, 2019, the Company had negative working capital of approximately $(1,119,302). On November 30, 2018, the Company had negative working capital of approximately $(1,106,178). The increase in negative working capital of $40,876 primarily relates to an increase in royalty payable in the amount of $87,122 and increase in prepaid expenses of $22,399 during the three months ending February 28, 2019.

The Company is attempting to commence significant operations and generate sufficient revenue; however, the Company’s cash position may not be sufficient to support the Company’s daily operations. Management intends to raise additional funds by way of a private or public offering. While the Company believes in the viability of its strategy to commence operations and generate sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering.

The Company had cash and cash equivalents of approximately $220,720 and $104,485 at February 28, 2019 and November 30, 2018, respectively. This represents an increase in cash of $116,235.

Cash used in Operating Activities

The Company used approximately $282,314 of cash for operating activities in the three months ended February 28, 2019 as compared to using $156,924 of cash for operating activities in the three months ended February 28, 2018. This increase in cash used in operating activities, is primarily attributed to increase in net loss.

Cash used in Investing Activities

The Company used approximately $39,001 of cash for investing activities in the three months ended February 28, 2019 as compared to using $0 of cash for operating activities in the three months ended February 28, 2018. This increase in cash used in investing activities, is primarily attributed to increase equipment purchased.

Cash Provided by Financing Activities

Financing activities in the three months ended February 28, 2019 provided $437,550 of cash as compared to providing $170,119 of cash in the three months ended February 28, 2018. The difference is attributable to an increase in cash receipts from sales of the Company’s common stock.

The Company’s principal sources and uses of funds are investments from accredited investors. The Company would need to raise additional capital in order to meet its business plan. Management intends to secure additional funds using borrowing or the further sale of Regulation D, Section 506 securities to accredited investors in the future.

The Company anticipates that its future liquidity requirements will arise from the need to fund its growth, pay its current obligations and future capital expenditures. The primary sources of funding for such requirements are expected to be cash generated from operations and raising additional funds from private sources and/or debt financing.

Going Concern Consideration

There is substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

The ability of the Company to continue as a going concern is dependent on the Company generating cash from the sale of its common stock or obtaining debt financing and attaining future profitable operations. Management’s plan includes selling its equity securities and obtaining debt financing to fund its capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Forward-Looking Statements

Many statements made in this report are forward-looking statements that are not based on historical facts. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements made in this report relate only to events as of the date on which the statements are made.

Item 3. Quantitative and Qualitative Disclosure About Market Risks

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on the management evaluation, we concluded that our disclosure controls and procedures may not be effective to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In the 1st Quarter, 2019, management is in the process of determining how to most effectively improve our disclosure controls and procedures.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control, as is defined in the Securities Exchange Act of 1934. These internal controls are designed to provide reasonable assurance that the reported financial information is presented fairly, that disclosures are adequate and that the judgments inherent in the preparation of financial statements are reasonable. There are inherent limitations in the effectiveness of any system of internal controls, including the possibility of human error and overriding of controls. Consequently, an effective internal control system can only provide reasonable, not absolute, assurance with respect to reporting financial information.

Our internal control over financial reporting includes policies and procedures that: (i) pertain to maintaining records that in reasonable detail accurately and fairly reflect our transactions; (ii) provide reasonable assurance that transactions are recorded as necessary for preparation of our financial statements in accordance with generally accepted accounting principles and the receipts and expenditures of company assets are made and in accordance with our management and directors authorization; and (iii) provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

Management has undertaken an assessment of the effectiveness of our internal control over financial reporting based on the framework and criteria established in the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based upon this evaluation, management concluded that our internal control over financial reporting may not be effective as of February 28, 2019. Other than our two officers, we have no employees or contractors that have the authority to implement any changes in our internal control or financial reporting.

This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this quarterly report.

Changes in Internal Control Over Financial Reporting

There were changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that may have materially affected, or may be reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

The Company has no knowledge of existing or pending legal proceedings against the Company, nor is the Company involved as a plaintiff in any proceeding or pending litigation. There are no proceedings in which any of the Company’s directors, officers or any of their respective affiliates, or any beneficial stockholder, is an adverse party or has a material interest adverse to our interest. The Company’s address for service of process in Nevada is Business Filings, Incorporated located at 311 S. Division Street, Carson City, Nevada 89703.

Item 1A. Risk Factors

As a “smaller reporting company”, we are not required to provide the information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Market for the Company’s Common Stock

The Company’s common stock is traded on the over-the-counter market and quoted on the Over-The-Counter Bulletin Board (OTCBB) under the trading symbol “EXEO”. Our common stock is also quoted on OTCQB, a segment of OTC Link LLC and OTC Markets Group. As of the date of this report, there is a limited public market for our common stock. For purpose of this Item, the existence of limited or sporadic quotations should not of itself be deemed to constitute an “established public trading market,” if any, for our common stock. We can provide no assurance that our shares will be actively traded on the OTC or, that the public market will achieve or continue with any particular daily volume or price for our listed securities.

Item 6. Exhibits

Exhibit Number	Name and/or Identification of Exhibit

31.1	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	XBRL Taxonomy Extension Label Linkbase Document

101.PRE	XBRL Taxonomy Extension Presenation Linkbase Document

SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EXEO ENTERTAINMENT, INC.
(Registrant)

Signature	Title	Date

/s/ Jeffrey A. Weiland	President and Director	April 22, 2019
Jeffrey A. Weiland


/s/ Robert S. Amaral	Chief Executive Officer,	April 22, 2019
Robert S. Amaral	Treasurer and Director
	(Principal Executive and Financial Officer)