This Annual Report (the "Report") includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the
Securities Exchange Act of 1934, as amended, and as contemplated under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements may relate to such matters as the Company's (and its subsidiaries)
business strategies, continued growth in the Company's markets, projections, and
anticipated trends in the Company's business and the industry in which it
operates anticipated financial performance, future revenues or earnings,
business prospects, projected ventures, new products and services, anticipated
market performance and similar matters. All statements herein contained in this
Report, other than statements of historical fact, are forward-looking
statements.
When used in this Report, the words "may," "will," "expect," "anticipate,"
"continue," "estimate," "project," "intend," "budget," "budgeted," "believe,"
"will," "intends," "seeks," "goals," "forecast," and similar words and
expressions are intended to identify forward-looking statements regarding
events, conditions, and financial trends that may affect our future plans of
operations, business strategy, operating results, and financial position. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, certain of which are beyond
the Company's control. We caution our readers that a variety of factors could
cause our actual results to differ materially from the anticipated results or
other matters expressed in the forward looking statements, including those
factors described under "Risk Factors" and elsewhere herein. In light of these
risks and uncertainties, there can be no assurance that the forward-looking
information contained in this Report will in fact transpire or prove to be
accurate. These risks and uncertainties, many of which are beyond our control,
include:
? the sufficiency of existing capital resources and our ability to raise
additional capital to fund cash requirements for future operations;
? uncertainties involved in growth and growth rate of our operations, business,
revenues, operating margins, costs, expenses and acceptance of any products or
services;
? uncertainties involved in growth and growth rate of our operations, business,
revenues, operating margins, costs, expenses and acceptance of any products or
services;
? volatility of the stock market, particularly within the technology sector;
? our dilution related to all equity grants to employees and non-employees;
? that we will continue to make significant capital expenditure investments;
? that we will continue to make investments and acquisitions;
? the sufficiency of our existing cash and cash generated from operations;
? the increase of sales and marketing and general and administrative expenses in
the future;
? the growth in advertising revenues from our websites and studios will be
achievable and sustainable;
? that seasonal fluctuations in Internet usage and traditional advertising
seasonality are likely to affect our business; and
? general economic conditions.
Although we believe the expectations reflected in these forward-looking
statements are reasonable, such expectations cannot guarantee future results,
levels of activity, performance or achievements. We urge you not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this Annual Report.
All references in this report to "we," "our," "us," the "Company" or
"AfterMaster" refer to AfterMaster, Inc., and its subsidiary and predecessors.
22
Corporate Background
We are a Delaware corporation, incorporated on about May 12, 1988, and traded on
an over the counter market (ticker symbol OTCQB: AFTM). As of December 31, 2019,
there were 306,736,038 shares of Common Stock issued and outstanding. The
Company's office and principal place of business, research, recording and
mastering studios are located at 6671 Sunset Blvd., Suite 1520, Hollywood, CA
90028 USA, and its telephone number is (310) 657-4886. The Company also has an
office at 7825 E. Gelding Drive, Suite 101, Scottsdale, Arizona 85260 USA, and
its telephone number is (480) 556-9303.
Aftermaster, Inc. ("the Company" or "Aftermaster") is an audio technology
company located in Hollywood, California and Scottsdale, Arizona. The Company's
subsidiaries include Aftermaster HD Audio Labs, Inc. and MyStudio, Inc.
The Company and its subsidiaries are engaged in the development and
commercialization of proprietary (patents issued and pending), leading-edge
audio and video technologies and products for professional and consumer use,
including Aftermaster® Audio, ProMaster™, Aftermaster Pro™, HearClearTV, the
Superbar™, Aftermaster Studio Pro and MyStudio®. The Company also operates
recording and mastering studios at its Hollywood facilities.
The name Aftermaster was derived from our technology being primarily utilized to
remaster and improve audio that has already been mastered. The Aftermaster audio
process remasters an audio event to our standards, that has previously been
finished or mastered, hence "Aftermaster". Aftermaster is unique among audio
processes as it greatly enhances the entire frequency range without distortion
or changing the underlying intent of the audio. The Aftermaster process is also
popular for mastering previously un-mastered audio such as new recordings or
live events.
Aftermaster, Inc. is an award-winning audio laboratory whose unique expertise
and approach to its audio technologies and products, is rooted in its world
class expertise in music related audio engineering, processing and mastering.
The music industry has been responsible for the biggest breakthroughs in audio
techniques, inventions and technologies for over a century. Aftermaster's team
of audio engineers and music industry veterans have produced, engineered and
mastered more hit records than any other audio company in the world, providing
it with its leading edge expertise. For more information visit.
www.Aftermaster.com/team
Mission Statement
Aftermaster's goal is to become one of the most innovative and important audio
companies in the world through the development and licensing of proprietary
audio technologies, the development and sales of leading-edge consumer and
professional audio electronics products and through its contributions in the
production, mixing and mastering of music, television and film audio.
Summary
The Company continued to underperform during the quarter ended December 31,
2019, due to the ongoing delay in having its products available to sell. High
return rates and quality and reliability issues with the Company's Aftermaster
Pro product, led the Company to suspend sales and dismiss its manufacturer in
December 2018. The suspension of manufacturing has put substantial financial
strain on the company as it has had no meaningful revenues from product sales
since that time. The Company commenced an action against the manufacturer,
Infinity Power and Controls, LLC of Rock Springs, Wyoming for $30 million to
recover direct and punitive damages in the United States District Court for the
Central District of California. The Company expects to resume sales sometime in
the next two calendar quarters.
Since suspending production, the Company undertook a complete redesign of its
Aftermaster Pro unit and developed two new products, HearClear TV and the
"Superbar" soundbar. The Aftermaster Pro has new features including Bluetooth,
optical in/out and a handheld remote. It's sister unit "HearClearTV" is designed
to significantly improve television audio for those that are hard of hearing.
They all join the Aftermaster Studio Pro which is the Company's first product
aimed primarily at commercial applications. www.aftermaster.com/products
During the quarter, in order to address its ongoing financing and manufacturing
challenges, the Company entered into a groundbreaking, multi-year, Financing,
Licensing, Manufacturing and Distribution agreement with Ritika Research Labs
Pvt. Ltd. of Mumbai India. Ritika is a private company which has interests in
manufacturing, electronics and product distribution and marketing. The agreement
calls for Ritika to finance engineering, product development, manufacturing,
inventory and the marketing and distribution of all Aftermaster's products
worldwide (excluding the US and Canada). The Company will receive tiered royalty
payments on worldwide sales excluding the US and Canadian markets, which are
retained by the Company. The agreement is expected to save the Company
significant resources both financially and operationally while raising the
quality and reliability of all its products in markets worldwide. The financing
and manufacturing agreement that the Company entered into with Ritika is
expected to significantly reduce the requirement for the financing of product
inventory and manufacturing going forward.
23
Business and Products
Aftermaster Consumer and Professional Electronics Products
The Company has assembled a talented branding, technical and design team who
design and develop the Company's consumer and professional electronics products.
The first consumer electronic product to be introduced was the Aftermaster Pro,
designed to dramatically improve the quality of TV audio. Aftermaster Pro is the
world's first personal audio re-mastering device and defines a new category in
consumer electronics products by offering a product never before offered.
Aftermaster Pro is a proprietary, first-to-market product which has no direct
competition.
The number of existing televisions worldwide is substantial, and a majority of
TV owners complain about their TV audio quality, especially the need to
continually adjust the volume because of the difficulty in hearing dialogue in
programming.
Smaller than an iPhone, the Aftermaster Pro transforms the audio of a TV to
sound clearer, fuller, deeper, and more exciting. Aftermaster Pro connects
easily via HDMI cables with virtually any A/V media source (i.e., cable,
satellite box, etc.). Aftermaster Pro raises and clarifies TV dialogue in
programming while significantly enhancing the quality of the overall audio
content. This solves the longstanding need to continually adjust volume during a
TV show to hear the dialogue.
Once the Company receives inventory of its products, Aftermaster Pro is for sale
on HSN TV and HSN.com and other online retail outlets as well as through the
Company's own website, Aftermasterpro.com.
The Company has also developed a new portable TV audio remastering product
called HearClear TV™, which is based on its Aftermaster Pro product. HearClear
is aimed at people with hearing loss and will initially be available through
audiological clinics www.hearclear.tv. In addition, the Company also completed
the development of a product called the Superbar™ which is the Company's first
soundbar product. The new Superbar™ will include Aftermaster's award winning and
patented Aftermaster audio technology. The Company expects to begin
manufacturing the Superbar™ late this year.
The Company has also recently designed and developed its first professional
hardware product dubbed the "Aftermaster Studio Pro" which is the Company's
first product designed for use in commercial audio applications. The new product
is a 1 U, 19" rack-mount Aftermaster audio processor that allows a user to
enhance any audio playback with Aftermaster to make any sound fuller, clearer,
louder and deeper. It is expected to retail for $3,995 and can be seen at
www.aftermastermaster.com/products. The Company believes that the worldwide
market for its new product is significant, as it can be used in potentially
hundreds of thousands of facilities worldwide: radio stations, private and
public recording studios, places of worship, restaurants and bars, sports
facilities, high-end residential, live concerts and concert facilities,
hospitals - virtually any place where a business wants the audio to sound
significantly better than anything that they can currently do. The product is
expected to be available for pre-sale in the near future.
Additional Aftermaster branded consumer electronics products are under
development, which we expect to introduce in the coming year.
ON Semiconductor/Aftermaster Audio Chip and Software
The Company jointly developed a unique semi-conductor chip with ON Semiconductor
("ON") of Phoenix, Arizona, to commercialize its Aftermaster technology through
audio semiconductor chips. ON is a multi-billion-dollar, multi-national
semiconductor designer and manufacturer.
Branded the BelaSigna 300 AM chip, it is one of the smallest, high power/low
voltage DSP chips available. It is small enough to fit into a hearing aid but
equally effective in any size device with audio capability.
In conjunction with ON, we also completed the development of an Aftermaster
software algorithm that is designed to be a standalone software product. We
believe the sound quality from our algorithm provides a superior audio
experience relative to other products on the market.
The algorithm and chips allow consumer product manufacturers an opportunity to
offer a significantly improved and differential audio experience in their
products without having to significantly change hardware and form factor
designs. We hope to generate significant revenues through the sale of the
ON/Aftermaster chips and software licensing.
24
Promaster On-line Music Mastering
Promaster is an online music mastering, streaming, and storage service designed
for independent artists which utilizes proprietary audio technologies developed
by Aftermaster.
Tens of millions of songs are produced, distributed and played on the Internet
each month around the world by independent artists. However, many of these
artists lack the financial and technical means to master, or "finish" their
composition, as a professional mastering session can cost up to $500 per song.
Now, with the Promaster online platform, musicians can transmit their music
directly to the Promaster HD website, where it can be mastered with Aftermaster
technology for $9.99 per song. Each user receives four different mastered
versions of their song done in different styles, and they can preview 90 seconds
of each version to make a decision about whether or not they want to buy it.
Promaster creates a compelling offering for those seeking to significantly
enhance the quality of their music for personal use, or with intent to showcase
their music in hopes of advancing their career aspirations. The service also
offers additional features such as file storage. Based on the enormous
addressable market for this product, we believe that with effective marketing
Promaster has the potential to generate significant revenues for the Company.
www.promasterhd.com
TuneCore
Aftermaster offers both world-class, professional hands-on mastering services
and instant online mastering through its Promaster brand for music, TV and film
in its facilities in Hollywood, California. The Professional Mastering division
is headed up by Peter Doell, one of the world's foremost mastering engineers.
The Company has a partnership with TuneCore Digital Music Services to provide
both professional hands-on mastering services and on-line instant mastering
services through its Promaster on-line to TuneCore's customers.
Currently, TuneCore is one of the world's largest independent digital music
distribution and publishing administration service. Under our agreement,
Aftermaster has become the platform for both hands-on professional and online
instant mastering services for TuneCore's artists on an exclusive basis.
TuneCore has one of the highest artist revenue-generating music catalogs in the
world, earning TuneCore Artists over a billion dollar from downloads and
streams. TuneCore's music distribution services help artists, labels and
managers sell their music through iTunes, Amazon Music, Spotify and other major
download and streaming sites while retaining 100% of their sales revenue and
rights for a low annual flat fee. TuneCore's artists have direct access to
Aftermaster's world-class senior mastering engineers and unmatched technologies
and can get their tracks hand mastered for a premium price or instantly
electronically mastered through Aftermaster's Promaster, returned and ready for
distribution. The partnership builds upon TuneCore's mission to provide
independent artists with key tools to build their careers and gain broad fan
exposure, by granting access to unparalleled mastering that meets the industry's
highest standards.
Muzik Headphones
The Company is party to an agreement with headphone manufacturer Muzik, Inc., to
license its Aftermaster technology (through both its Company's proprietary DSP
chip and software application). Known as the "smartphone" of headphones,
award-winning Muzik has created one of the worlds most advanced wireless
headphones. Muzik's proprietary voice command and multiple "hot keys" allow a
user to access Spotify, Siri and connect their headphones to over 300 apps from
fitness, news, and productivity to the connected home, commerce, automotive, and
social media. Muzik is considered one of the most important new headphone
designer and manufacturer. The Company expects its technology to be implemented
in Muzik products in the future.
Recording Studios
The Company operates a world-class music recording studio originally built by
music legend Graham Nash and made famous by Crosby, Stills and Nash in 1977,
which is located adjacent to the Company's existing studios in Hollywood at the
Crossroads of the World complex. The studio is equipped with state-of-the-art
recording and mixing equipment, and it is used for both audio research and
development as well as to generate revenue from rental to prominent musicians.
It is the largest of the six recording studios that Aftermaster operates at its
studio facilities in Hollywood. www.aftermaster.com/studios
Aftermaster Audio Technology
Aftermaster audio technology was created and developed pursuant to a multi-year,
multi-million-dollar development effort to make digital audio sound
substantially better by developing proprietary software, digital signal
processing technology and consumer products. The Aftermaster Audio Labs team is
comprised of a unique group of award-winning industry leaders in music,
technology and audio engineering which includes Ari Blitz, Peter Doell, Rodney
Jerkins, Larry Ryckman, Justin Timberlake, Andrew Wuepper and Shelly Yakus. See
www.Aftermaster.com.
25
The name Aftermaster was derived by our technology being primarily utilized to
remaster and improve audio that has already been mastered. The Aftermaster audio
process pulls an audio event apart that has previously been finished or mastered
and then remasters it to our standards, hence "Aftermaster". Aftermaster is
unique among audio processes as it enhances the entire frequency range without
distortion or changing the underlying intent of the audio. The Aftermaster
process is also popular for mastering previously un-mastered audio such as new
recordings or live events.
Our Aftermaster audio technology is an internally-developed, proprietary
(patented and patents pending) mastering, remastering and audio processing
technology which makes virtually any audio source sound significantly louder,
fuller, deeper and clearer. Aftermaster is a groundbreaking technology which
eliminates the weaknesses found in other audio enhancement and processing
technologies while offering a much superior audio experience for consumer and
industrial applications. We believe that our Aftermaster audio technology is one
of the most significant breakthroughs in digital audio processing technology and
has the potential to create significant revenues for the Company. The broad
commercialization of this technology is a top priority for the Company.
As the convergence of features on consumer electronics continues, it is becoming
more difficult for leading consumer electronics companies to differentiate their
products. We believe that Aftermaster provides a unique and significant
competitive advantage for consumer electronics manufacturers by offering their
customers a superior audio experience. Aftermaster technology can be
incorporated into most audio capable devices through the addition of an
Aftermaster DSP chip or Aftermaster software. Such uses are intended to include
phones (i.e., mobile, home, business and VoIP); headphones; televisions; stereo
speakers; stereos (i.e., home, portable, commercial and automobile); and
computers (i.e., desktop, laptop and tablets).
Aftermaster audio is also the only commercial audio enhancement technology
available that is also used for professional music mastering because it enhances
the entire frequency range without distortion or changing the underlying intent
of the music. The technology has been used to master music created by some of
the world's most popular artists. Further information on Aftermaster and
Aftermaster products can be found at www.Aftermaster.com.
Intellectual Property and Licensing
The Company has been awarded eight patents and multiple trademarks with numerous
others pending. The Company has an aggressive intellectual property strategy to
protect the Aftermaster and the related technologies it has developed. We also
enter into confidentiality and invention assignment agreements with our
employees and consultants and confidentiality agreements with third parties. We
rigorously control access to our proprietary technologies. The Company has
engaged Morgan Chu of Irell and Manella, to represent its intellectual property
interests along with its existing IP attorneys Farjami & Farjami LLP and Arnold
Weintraub of the Weintraub Group. Mr. Weintraub serves on the Board of Directors
of the Company.
Employees
As of December 31, 2019, we employed nine full-time employees. We expect to seek
additional employees in the next year to handle anticipated potential growth.
We believe that our relationship with our employees are good. None of our
employees are members of any union, nor have they entered into any collective
bargaining agreements.
Facilities
We lease offices in Hollywood, California (located at 6671 Sunset Blvd., Suite
1520, 1518 and 1550, Hollywood, California, 90028) for corporate, research,
engineering and mastering services. The lease expired on December 31, 2017 and
now is on a month to month basis. The total lease expense for the facility is
approximately $20,574 per month, and the total remaining obligations under these
leases at December 31, 2019, were approximately $0.
We lease warehouse space located at 8260 E Gelding Drive, Suite 102, Scottsdale,
Arizona, 85260. The lease expired on January 31, 2019 and now is on a month to
month basis. The total lease expense for the facility is approximately $1,993
per month, and the total remaining obligations under this lease at December 31,
2019, were approximately $0.
We lease corporate offices located at 7825 E Gelding Drive, Suite 101,
Scottsdale, Arizona, 85260. The lease expires on April 30, 2021. The total lease
expense for the facility is approximately $7,799 per month, and the total
remaining obligations under this lease at December 31, 2019, were approximately
$125,518.
26
RESULTS OF OPERATIONS
Revenues
For the Three Months Ended
December 31,
2019 2018
AfterMaster Revenues $143,587 $126,959
Product Revenues 6,875 281,105
Total Revenues $150,462 $408,064
Revenues
For the Six Months Ended
December 31,
2019 2018
AfterMaster Revenues $275,467 $272,372
Product Revenues 15,264 670,214
Total Revenues $290,731 $942,586We currently generate revenue from our operations through two activities:
AfterMaster revenues and AfterMaster product revenues.
AfterMaster revenues are generated primarily from AfterMaster audio services
provided to producers and artists on a contract basis. We hope this source of
revenue grows in coming years, and the Company is expecting to generate
additional revenues in this category from on-line mastering downloads and the
development of the AfterMaster software algorithm and chip, although such growth
and additional revenues are not assured and may not occur. Product revenues for
the three and six months ended December 31, 2019, increased to $143,587 and
$275,467, as compared to $126,959 and $282,372 for the comparable the three and
six months ended December 31, 2018, respectively. The increase in product
revenues are due to the company selling more Aftermaster Pro through our website
(www.Aftermasterpro.com) and through consumer retail distribution channels.
In the aggregate, total Company revenues decreased to $150,462 and $290,731for
the three and six months ended December 31, 2019, as compared to total revenues
of $408,064 and $942,586 for the three and six months ended December 31, 2018,
the decrease is due to the company acquiring new overseas manufacturer and the
redesign of the Aftermaster Pro in order to lower the cost of goods sold.
Cost of Revenues
For the Three Months Ended
December 31,
2019 2018
Cost of Revenues (excluding depreciation and
amortization) $108,742 $461,196
Cost of Revenues
For the Six Months Ended
December 31,
2019 2018
Cost of Revenues (excluding depreciation and
amortization) $222,808 $878,953Cost of sales consists primarily of manufacturing cost of the Aftermaster Pro TV
consumer electronic product, Aftermaster Studio Rent, Consultants, senior
engineers, and excludes depreciation and amortization on fixed assets. The
decrease in cost of sales for the three and six months ending December 31, 2019,
over the comparable quarter, is attributable, primarily, to the decrease in
product revenue therefore the company had lower manufacturing cost of the
Aftermaster Pro. The company had cost of revenues in the amount of $108,742 and
$222,808 for the three and six months ending December 31, 2019, as compared to
$461,196 and $878,953 for the three and six months ending December 31, 2018.
27
Other Operating Expenses
For the Three Months Ended
December 31,
2019 2018
Depreciation and Amortization Expense $6,237 $23,428
Research and Development
- 3,023
Advertising and Promotion Expense 1,780 12,199
Legal and Professional Expense 43,365 3,780
Non-Cash Consulting Expense
270,543 238,731
General and Administrative Expenses 517,013 786,347
Total $838,938 $1,067,508
Other Operating Expenses
For the Six Months Ended
December 31,
2019 2018
Depreciation and Amortization Expense $14,653 $46,895
Research and Development
- 5,623
Advertising and Promotion Expense 3,777 66,568
Legal and Professional Expense 86,519 14,810
Non-Cash Consulting Expense
295,930 303,847
General and Administrative Expenses 1,242,899 1,635,534
Total
$1,643,778 $2,073,277
General and administrative expenses consist primarily of compensation and
related costs for our finance, legal, human resources, investor relation, public
relations and information technology personnel; rent and facilities; and
expenses related to the issuance of stock compensation. During the three and six
months ended December 31, 2019, General and administrative expenses decrease by
$269,334 and $392,635 as compared to the three and six months ended December 31,
2018. The decrease is primarily due to the company using a third-party
consultant to help with the business operations in the prior period, which did
not occur in the current period.
During the three and six months ended December 31, 2019, Research and
Development costs decreased to $0 and $0 from $3,023 and $5,623, Advertising and
Promotion decreased to $1,780 and $3,777 from $12,199 and $66,568, Legal and
Professional fees increased to $43,365 and $86,519 from $3,780 and $14,810 and
consulting services increased and decreased to $270,543 and $295,930 from
$238,731 and $303,847, as compared to the three and six months ended December
31, 2018. The decrease is primarily due to the company using social media
advertising to help generate sales. The decrease in Research and Development was
not material compared to the three and six months ended December 31, 2018. The
decreases in Advertising and Promotion for the three and six months ended
December 31, 2019, are primarily due to the design, development and marketing of
its Aftermaster Pro consumer hardware product in the three and six months ended
December 31, 2018. Legal and Professional fees increases are primarily to the
company only using one attorney on a monthly retainer to handle all the
company's legal needs in the prior period compared to five in the three and six
months ended December 31, 2019. The increase in consulting expenses are
primarily due to the issuance of warrants as part of an advisory agreement and
the decrease in consulting expenses are primarily due to issuing fewer stock for
services compared to the three and six months ended December 31, 2018,
respectively.
28
Other Expense
For the Three Months Ended
December 31,
2019 2018
Interest Expense $(652,185) $(731,916)
Derivative Expense (475,762) (312,256)
Change in Fair Value of Derivative 359,896 (17,475)
Gain on Extinguishment of Debt 88,542 -
Total $(679,509) $(1,061,647)
Other Expense
For the Six Months Ended
December 31,
2019 2018
Interest Expense $(1,342,559) $(1,538,566)
Derivative Expense (547,121) (1,355,346)
Change in Fair Value of Derivative 35,204 594,737
Gain on Extinguishment of Debt 88,542 -
Total
$(1,765,934) $(2,299,175)
The other expenses during the three and six months ended December 31, 2019,
totaling $679,509 and $1,765,934 of expenses, which consists of interest
expense, derivative expense, change in fair value of derivative, and gain on
extinguishment of debt. During the comparable three and six months in 2018,
other expenses totaled $1,061,647 and $2,299,175. Interest expense has decreased
primarily due to a decrease in non-cash interest expense relating to
amortization of recent debt discount. These additional borrowings have been used
in the development of the Aftermaster HD. Derivative expense and change in fair
value of derivatives has decreased due to the company revaluing the instruments
at the end of the current period offset by the issuance of derivative
instruments in the current period . Gain on extinguishment of debt is due to two
settlement agreements in the current period.
Net Loss
For the Three Months Ended
December 31,
2019 2018
Net Loss $(1,476,727) $(2,182,287)
Net Loss
For the Six Months Ended
December 31,
2019 2018
Net Loss $(3,341,789) $(4,308,819)
Due to the Company's cash position, we use our Common Stock as currency to pay
many employees, vendors and consultants. Once we have raised additional capital
from outside sources, as well as generated cash flows from operations, we expect
to reduce the use of Common Stock as a significant means of compensation. Under
FASB ASC 718, "Accounting for Stock-Based Compensation" and ASC 505, Equity
Based Payments to Non-Employees", these non-cash issuances are expensed at the
equity instruments fair market value. Absent these large stock-based
compensation of $270,543 and $295,930 and $238,731 and $303,847, derivative
expense of $475,762 and $547,121 and $312,256 and $1,355,346, gain (loss) on the
change in the derivative liability of $359,896 and $35,204 and $(17,475) and
$594,737 for the three and six months ended December 31, 2019 and 2018, our net
loss would have been $1,090,318 and $1,613,825 and $2,533,942 and $3,244,363 for
three and six months ended December 31, 2019 and 2018, respectively.
29
LIQUIDITY AND CAPITAL RESOURCES
The Company had revenues of $150,462 and $290,467 during the three and six
months ended December 31, 2019 as compared to $408,064 and $942,586 in the
comparable three and six months of 2018. The Company has incurred losses since
inception of $89,201,278. At December 31, 2019, the Company has negative working
capital of $16,554,457, which was a decrease in working capital of $3,663,053
from June 30, 2019.
The Company had cash of $62,140 as of December 31, 2019, as compared to
$366,129 as of June 30, 2019. The decrease is a result of the Company making
payments on convertible notes payable totaling $120,204 and payments on notes
payable totaling $97,147, which was partially offset by the Company entered into
twenty four (24) Share Purchase Agreements with individual accredited investors
resulting in net proceeds of $273,000, seven (7) notes payable resulting in net
proceeds of $219,000, four (4) related notes payable resulting in net proceeds
of $44,000, and three (3) convertible notes payable resulting in net proceeds of
$463,750 during the six months ended December 31, 2019. The cash provided by
financing activities decreased by $481,792 during the six months ended December
31, 2019 as compared to the six months ended December 31, 2018. This amount was
also decreased by operational costs, payments of obligations from convertible
notes, notes, and lease payables. The company had more expenses during the
quarter than the funding which resulted in a decrease in cash. The decrease is
related to the company having less funding during the six months ending December
31, 2019 as compared to June 30, 2019.
The Company had prepaid expense of $270,786 as of December 31, 2019, as compared
to $311,296 as of June 30, 2019. The decrease is due to the Company amortizing
the prepaid expenses totaling $53,106 over the six months ended December 31,
2019.
The future of the Company as an operating business will depend on its ability to
obtain sufficient capital contributions and/or financing as may be required to
sustain its operations. Management's plan to address these issues includes a
continued exercise of tight cost controls to conserve cash and obtaining
additional debt and/or equity financing.
As we continue our activities, we will continue to experience net negative cash
flows from operations, pending receipt of significant revenues that generate a
positive sales margin.
The Company expects that additional operating losses will occur until net
margins gained from sales revenue is sufficient to offset the costs incurred for
marketing, sales and product development. Until the Company has achieved a sales
level sufficient to break even, it will not be self-sustaining or be competitive
in the areas in which it intends to operate.
In addition, the Company will require substantial additional funds to continue
production and installation of the additional studios and to fully implement its
marketing plans.
As of December 31, 2019, the existing capital and anticipated funds from
operations were not sufficient to sustain Company operations or the business
plan over the next twelve months. We anticipate substantial increases in our
cash requirements which will require additional capital to be generated from the
sale of Common Stock, the sale of Preferred Stock, equipment financing, debt
financing and bank borrowings, to the extent available, or other forms of
financing to the extent necessary to augment our working capital. In the event
we cannot obtain the necessary capital to pursue our strategic business plan, we
may have to significantly curtail our operations. This would materially impact
our ability to continue operations. There is no assurance that the Company will
be able to obtain additional funding when needed, or that such funding, if
available, can be obtained on terms acceptable to the Company.
Recent global events, as well as domestic economic factors, have recently
limited the access of many companies to both debt and equity financings. As
such, no assurance can be made that financing will be available or available on
terms acceptable to the Company, and, if available, it may take either the form
of debt or equity. In either case, any financing will have a negative impact on
our financial condition and will likely result in an immediate and substantial
dilution to our existing stockholders.
30
Although the Company intends to engage in a subsequent equity offering of its
securities to raise additional working capital for operations, the Company has
no firm commitments for any additional funding, either debt or equity, at the
present time. Insufficient financial resources may require the Company to delay
or eliminate all or some of its development, marketing and sales plans, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. There is no certainty that the
expenditures to be made by the Company will result in a profitable business
proposed by the Company.
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AFTERMASTER, INC. 
