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 requirementsfor 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 May 12, 1988, and traded on an
over the counter market (ticker symbol: AFTM). As of March 31, 2020, there were
306,736,038 shares of Common Stock issued and outstanding. The Company's office
and principal place of business, research, recording and mastering studios are
located at 6671 Sunset Blvd., Suite 1520, Hollywood, CA 90028 USA, and its
telephone number is (310) 657-4886. The Company also has an office at 7825 E.
Gelding Drive, Suite 101, Scottsdale, Arizona 85260 USA, and its telephone
number is (480) 556-9303.
Aftermaster, Inc. ("the Company" or "Aftermaster") is an audio technology and
products company located in Hollywood, California and Scottsdale, Arizona. The
Company's subsidiaries include Aftermaster HD Audio Labs, Inc. and MyStudio,
Inc.
The Company and its subsidiaries are engaged in the development and
commercialization of proprietary (patents issued and pending), leading-edge
audio and video technologies and products for professional and consumer use,
including Aftermaster® Audio, ProMaster™, Aftermaster Pro™, HearClearTV, the
Superbar™, Aftermaster Studio Pro and MyStudio®. The Company also operates
recording and mastering studios at its Hollywood facilities.
The name Aftermaster was derived from our technology being primarily utilized to
remaster and improve audio that has already been mastered. The Aftermaster audio
process remasters an audio event to our standards, that has previously been
finished or mastered, hence "Aftermaster". Aftermaster is unique among audio
processes as it greatly enhances the entire frequency range without distortion
or changing the underlying intent of the audio. The Aftermaster process is also
popular for mastering previously un-mastered audio such as new recordings or
live events.
Aftermaster, Inc. is an award-winning audio laboratory whose unique expertise
and approach to its audio technologies and products, is rooted in its world
class expertise in music related audio engineering, processing and mastering.
The music industry has been responsible for the biggest breakthroughs in audio
techniques, inventions and technologies for over a century. Aftermaster's team
of audio engineers and music industry veterans have produced, engineered and
mastered more hit records than any other audio company in the world, providing
it with its leading edge expertise. For more information visit.
www.Aftermaster.com/team
Mission Statement
Aftermaster's goal is to become one of the most innovative and important audio
companies in the world through the development and licensing of proprietary
audio technologies, the development and sales of leading-edge consumer and
professional audio electronics products and through its contributions in the
production, mixing and mastering of music, television and film audio.
The quarter ending March 31, 2020 brought unexpected challenges due to the
outbreak of the Worldwide Covid-19 Coronavirus Pandemic. The "stay-at-home" laws
that were passed and the overall uncertainty created by the Pandemic, brought
the company's ability to raise capital to a virtual standstill and further
delayed the roll-out of our products. The one bright spot operationally was the
recording and mastering studios operated by the Company in Hollywood which
continued to perform well during the quarter while complying with California
Executive Order N-33-20. Also, the Company's R & D and product engineering team
continued to work non-stop to refine its existing products, as well as develop
new products, which are soon to be introduced.
The current uncertainty in the financial markets for micro-cap companies has
made the Company's level of debt (a significant portion of it being toxic,
ratcheting convertible notes), a concern with prospective investors, which
combined with the Company's share price, have made it virtually impossible for
the Company to continue to raise capital on acceptable terms. In order to
attract investment capital, the Company must rapidly lower its overall debt.
Accordingly, the Company recently offered all of its creditors and note-holders
the opportunity to convert their debt into common shares. Subsequent to the end
of the quarter, conversions pursuant to the debt-for-shares offer have reduced
the Company's debt by $3,635,513.05 (approximately 33% of total debt, excluding
non-cash derivative liabilities), in exchange for 265,964,064 restricted common
shares with an average conversion price of $0.014 per share (a substantial
premium to the market). The Company is continuing to work aggressively with its
lenders and creditors to further reduce its debt in order to raise the capital
required to carry the Company through until the manufacturing of its products
recommences.
After several quarters of exceptional sales growth, the Company was forced to
suspend manufacturing and dismiss its manufacturer because of high return rates
and quality and reliability issues with the Company's Aftermaster Pro product.
The suspension of manufacturing and sales substantially impaired the Company's
growth and operations over many quarters, as it eliminated any meaningful
revenues from product sales. In an effort to recapture the damages sustained
from its manufacturer before the Pandemic, the Company commenced an action
against the manufacturer, Infinity Power and Controls, LLC of Rock Springs,
Wyoming for $30 million to recover direct and punitive damages in the United
States District Court for the Central District of California.
The Company's product sales continued to be on hold during the quarter ended
March 31, 2020, due to the ongoing delay in the manufacturing of our products.
The latest delay is due primarily to the impact of the worldwide Coronavirus
Pandemic, which forced the Company to further hold up the rollout of its product
line.
Prior to the Pandemic, the Company secured a new manufacturer (see below) and
had expected that manufacturing would resume during the latter part of the
quarter. However, the outbreak of the Worldwide Coronavirus Pandemic and
"stay-at-home" laws, brought manufacturing to an abrupt standstill. It remains
uncertain when manufacturing will start-up again, however based on current
information it is expected that our manufacturer will reopen in India soon and
begin manufacturing our products sometime in the next two calendar quarters.
As stated above, the Company entered into a multi-year, Financing, Licensing,
Manufacturing and Distribution agreement with Ritika Research Labs Pvt. Ltd. of
Mumbai India. Ritika is a private company which has interests in manufacturing,
electronics and product distribution and marketing. The agreement calls for
Ritika to finance engineering, product development, manufacturing, inventory and
the marketing and distribution of all Aftermaster's products worldwide
(excluding the US and Canada). The agreement is significant as it brings much
needed capital for manufacturing, inventory and sales of Aftermaster products to
the Company. The agreement is expected to save the Company significant resources
both financially and operationally while raising the quality and reliability of
all its products in markets worldwide. The Company will receive tiered royalty
payments on worldwide sales excluding the US and Canadian markets, which are
retained by the Company. The progress with Ritika in the manufacturing and sales
of Aftermaster products was impacted by the worldwide Coronavirus Pandemic and
lockdown in India. It remains uncertain when our products will be available for
sale but based on the current state of the Coronavirus epidemic in India, the
Company expects manufacturing and sales to begin sometime in the next two
calendar quarters.
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 Company's goal is to invent, develop and market unique products utilizing
its award winning and patented audio technologies.
Aftermaster Pro™ and HearClear TV™
The first consumer electronic product to be introduced was the Aftermaster Pro,
designed to dramatically improve the quality of TV audio. The Aftermaster Pro is
the world's first personal audio re-mastering device and defines a new category
in consumer electronics products by offering a product never before offered.
Aftermaster Pro is a proprietary, first-to-market product which has no direct
competition.
The number of existing televisions worldwide is substantial, and a majority of
TV owners complain about their TV audio quality, especially the need to
continually adjust the volume because of the difficulty in hearing dialogue in
programming.
Smaller than an iPhone, the Aftermaster Pro transforms the audio of a TV to
sound clearer, fuller, deeper, and more exciting using proprietary algorithms
painstakingly developed over several years. The Aftermaster Pro connects easily
via HDMI, optical or 3.5mm cables with virtually any A/V media source (i.e.,
cable, satellite box, stereo, etc.). The Aftermaster Pro raises and clarifies TV
dialogue in programming while significantly enhancing the quality of the overall
audio content. This solves the longstanding need to continually adjust volume
during a TV show to hear the dialogue.
Thousands of Aftermaster Pro units have been sold to buyers in over 70 countries
through HSN TV, HSN.com and online retail outlets including the Company's own
website, Aftermasterpro.com.
The Company has also developed a new portable TV audio remastering product
called HearClear TV™, which is based on its Aftermaster Pro product. HearClear
is aimed at people with hearing loss and will initially be available through
audiological clinics www.hearclear.tv.
The Aftermaster "Superbars™"
Aftermaster has developed two revolutionary soundbars - the compact "Superbar™"
(38" x 3" x 3") and the "Superbar Pro" (40" x 4" x 4"). We consider them
revolutionary because they deliver never before heard audio quality from a
soundbar design. Although our Superbar's are designed for use primarily with
televisions, they also deliver the power and fidelity demanded from a home
stereo system. Aftermaster achieved this leap by incorporating Aftermaster's
proprietary, award-winning audio processing technology with components that are
optimized to process and deliver Aftermaster technology. For the first time,
Aftermaster engineers were able to design a product from the ground up using
components and processes that were specifically chosen to optimize and
complement Aftermaster's revolutionary audio processing technology. State of the
art speakers, clean, powerful amplifiers and custom crossovers are integrated
into a proprietary acoustic shell all designed to compliment our award-winning
and patented Aftermaster audio processing technology.
Aftermaster Studio Pro™
The Company also designed and developed its first professional hardware product
dubbed the "Aftermaster Studio Pro" which is the Company's first product
designed for use in commercial audio applications. The new product is a 1 U, 19"
rack-mount Aftermaster audio processor that allows a user to enhance any audio
playback with Aftermaster to make any sound fuller, clearer, louder and deeper.
It is expected to retail for $3,995 and can be seen at
www.aftermastermaster.com/products. The Company believes that the worldwide
market for its new product is significant, as it can be used in potentially
hundreds of thousands of facilities worldwide: radio stations, private and
public recording studios, places of worship, restaurants and bars, sports
facilities, high-end residential, live concerts and concert facilities,
hospitals - virtually any place where a business wants the audio to sound
significantly better than anything that they can currently do.
Additional Aftermaster branded consumer electronics products are under
development, which we expect to introduce in the coming year.
www.aftermaster.com/products
ON Semiconductor/Aftermaster Audio Chip and Software
The Company jointly developed a unique semi-conductor chip with ON Semiconductor
("ON") of Phoenix, Arizona, to commercialize its Aftermaster technology through
audio semiconductor chips. ON is a multi-billion-dollar, multi-national
semiconductor designer and manufacturer.
Branded the BelaSigna 300 AM chip, it is one of the smallest, high power/low
voltage DSP chips available. It is small enough to fit into a hearing aid but
equally effective in any size device with audio capability.
In conjunction with ON, we also completed the development of an Aftermaster
software algorithm that is designed to be a standalone software product. We
believe the sound quality from our algorithm provides a superior audio
experience relative to other products on the market.
The algorithm and chips allow consumer product manufacturers an opportunity to
offer a significantly improved and differential audio experience in their
products without having to significantly change hardware and form factor
designs. We hope to generate significant revenues through the sale of the
ON/Aftermaster chips and software licensing to third parties.
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 able to remaster and
improve audio that has already been mastered. The Aftermaster audio process
pulls an audio event apart that has previously been finished or mastered and
then remasters it to our standards, hence "Aftermaster". Aftermaster is unique
among audio processes as it enhances the entire frequency range without
distortion or changing the underlying intent of the audio. The Aftermaster
process is also popular for mastering previously un-mastered audio such as new
recordings or live events.
Our Aftermaster audio technology is an internally-developed, proprietary
(patented and patents pending) mastering, remastering and audio processing
technology which makes virtually any audio source sound significantly louder,
fuller, deeper and clearer. Aftermaster is a groundbreaking technology which
eliminates the weaknesses found in other audio enhancement and processing
technologies while offering a much superior audio experience for consumer and
industrial applications. We believe that our Aftermaster audio technology is one
of the most significant breakthroughs in digital audio processing technology and
has the potential to create significant revenues for the Company. The broad
commercialization of this technology is a top priority for the Company.
As the convergence of features on consumer electronics continues, it is becoming
more difficult for leading consumer electronics companies to differentiate their
products. We believe that Aftermaster provides a unique and significant
competitive advantage for consumer electronics manufacturers by offering their
customers a superior audio experience. Aftermaster technology can be
incorporated into most audio capable devices through the addition of an
Aftermaster DSP chip or Aftermaster software. Such uses are intended to include
phones (i.e., mobile, home, business and VoIP); headphones; televisions; stereo
speakers; stereos (i.e., home, portable, commercial and automobile); and
computers (i.e., desktop, laptop and tablets).
Aftermaster audio is also the only commercial audio enhancement technology
available that is also used for professional music mastering because it enhances
the entire frequency range without distortion or changing the underlying intent
of the music. The technology has been used to master music created by some of
the world's most popular artists. Further information on Aftermaster and
Aftermaster products can be found at www.Aftermaster.com.
Intellectual Property and Licensing
The Company has been awarded nine patents and multiple trademarks with numerous
others pending. The Company has an aggressive intellectual property strategy to
protect the Aftermaster and the related technologies it has developed. We also
enter into confidentiality and invention assignment agreements with our
employees and consultants and confidentiality agreements with third parties. We
rigorously control access to our proprietary technologies. The Company has
engaged Morgan Chu of Irell and Manella, to represent its intellectual property
interests along with its existing IP attorneys Farjami & Farjami LLP and Arnold
Weintraub of the Weintraub Group. Mr. Weintraub serves on the Board of Directors
of the Company.
Employees
As of March 31, 2020, we employed nine full-time employees. We expect to seek
additional employees in the next year to handle anticipated potential growth.
We believe that our relationship with our employees are good. None of our
employees are members of any union, nor have they entered into any collective
bargaining agreements.
Facilities
We lease offices in Hollywood, California (located at 6671 Sunset Blvd., Suite
1520, 1518 and 1550, Hollywood, California, 90028) for corporate, research,
engineering and mastering services. The lease expired on December 31, 2017 and
now is on a month to month basis. The total lease expense for the facility is
approximately $20,574 per month, and the total remaining obligations under these
leases at March 31, 2020, were approximately $0.
We lease warehouse space located at 8260 E Gelding Drive, Suite 102, Scottsdale,
Arizona, 85260. The lease expired on January 31, 2019 and now is on a month to
month basis. The total lease expense for the facility is approximately $1,993
per month, and the total remaining obligations under this lease at March 31,
2020, were approximately $0.
We lease corporate offices located at 7825 E Gelding Drive, Suite 101,
Scottsdale, Arizona, 85260. The lease expires on April 30, 2021. The total lease
expense for the facility is approximately $7,799 per month, and the total
remaining obligations under this lease at March 31, 2020, were approximately
$102,491.
26
RESULTS OF OPERATIONS
Revenues
For the Three Months Ended
March 31,
2020 2019
AfterMaster Revenues $140,258 $185,042
Product Revenues 1,166 21,590
Total Revenues $141,424 $206,632
Revenues
For the Nine Months Ended
March 31,
2020 2019
AfterMaster Revenues $415,725 $457,414
Product Revenues 16,430 691,804
Total Revenues $432,155 $1,149,218We currently generate revenue from our operations through two activities:
AfterMaster revenues and AfterMaster product revenues.
AfterMaster revenues are generated primarily from AfterMaster audio services
provided to producers and artists on a contract basis. We hope this source of
revenue grows in coming years, and the Company is expecting to generate
additional revenues in this category from on-line mastering downloads and the
development of the AfterMaster software algorithm and chip, although such growth
and additional revenues are not assured and may not occur. Product revenues for
the three and nine months ended March 31, 2020, decreased to $140,258 and
$415,725, as compared to $185,042 and $457,414 for the comparable the three and
nine months ended March 31, 2019, respectively. The decrease in product revenues
are due to the company selling fewer Aftermaster Pro through our website
(www.Aftermasterpro.com) and through consumer retail distribution channels.
In the aggregate, total Company revenues decreased to $141,424 and $432,155 for
the three and nine months ended March 31, 2020, as compared to total revenues of
$206,632 and $1,149,218 for the three and nine months ended March 31, 2019, the
decrease is due to the company acquiring new overseas manufacturer and the
redesign of the Aftermaster Pro in order to lower the cost of goods sold.
Cost of Revenues
For the Three Months Ended
March 31,
2020 2019
Cost of Revenues (excluding depreciation and
amortization) $ 112,591 $137,958
Cost of Revenues
For the Nine Months Ended
March 31,
2020 2019
Cost of Revenues (excluding depreciation and
amortization) $ 335,399 $1,016,911Cost of sales consists primarily of manufacturing cost of the Aftermaster Pro TV
consumer electronic product, Aftermaster Studio Rent, Consultants, senior
engineers, and excludes depreciation and amortization on fixed assets. The
decrease in cost of sales for the three- and nine-months ending March 31, 2020,
over the comparable quarter, is attributable, primarily, to the decrease in
product revenue therefore the company had lower manufacturing cost of the
Aftermaster Pro. The company had cost of revenues in the amount of $112,591 and
$335,399 for the three- and nine-months ending March 31, 2020, as compared to
$137,958 and $1,016,911 for the three- and nine-months ending March 31, 2019.
27
Other Operating Expenses
For the Three Months Ended
March 31,
2020 2019
Depreciation and Amortization Expense $6,119 $22,792
Research and Development
- -
Advertising and Promotion Expense - 10,252
Legal and Professional Expense 16,924 17,736
Non-Cash Consulting Expense
8,384 406,661
General and Administrative Expenses 439,165 625,452
Total $470,592 $1,082,893
Other Operating Expenses
For the Nine Months Ended
March 31,
2020 2019
Depreciation and Amortization Expense $20,772 $69,687
Research and Development
- 5,623
Advertising and Promotion Expense 3,777 76,820
Legal and Professional Expense 103,443 32,546
Non-Cash Consulting Expense
304,314 710,508
General and Administrative Expenses 1,682,064 2,260,986
Total
$2,114,370 $3,156,170
General and administrative expenses consist primarily of compensation and
related costs for our finance, legal, human resources, investor relation, public
relations and information technology personnel; rent and facilities; and
expenses related to the issuance of stock compensation. During the three and
nine months ended March 31, 2020, General and administrative expenses decreased
by $186,287 and $578,992 as compared to the three and nine months ended March
31, 2019. The decrease is primarily due to the company using a third-party
consultant to help with the business operations in the prior period, which did
not occur in the current period.
During the three and nine months ended March 31, 2020, Research and Development
costs decreased to $0 and $0 from $0 and $5,623, Advertising and Promotion
decreased to $0 and $3,777 from $10,252 and $76,820, Legal and Professional fees
decreased for the three month period and increased for the nine month period to
$16,924 and $103,443 from $17,736 and $32,546 and consulting services decreased
to $8,384 and $304,314 from $406,661 and $710,508, as compared to the three and
nine months ended March 31, 2019. The decrease is primarily due to the company
using social media advertising to help generate sales. The decrease in Research
and Development was not material compared to the three and nine months ended
December 31, 2018. The decreases in Advertising and Promotion for the three and
nine months ended March 31, 2020, are primarily due to the design, development
and marketing of its Aftermaster Pro consumer hardware product in the three and
nine months ended March 31, 2019. Legal and Professional fees increases are
primarily to the company only using one attorney on a monthly retainer to handle
all the company's legal needs in the prior period compared to five in the nine
months ended March 31, 2020. The decrease in consulting expenses are primarily
due to issuing fewer stock for services compared to the three and nine months
ended March 31, 2019, respectively.
28
Other Expense
For the Three Months Ended
March 31,
2020 2019
Interest Expense $(555,100) $(686,510)
Derivative Expense - (239,733)
Change in Fair Value of Derivative (12,753,720) (3,736,445)
Gain on Extinguishment of Debt -
-
Gain on Disposal of Property 10,000 -
Total $(13,298,820) $(4,662,688)
Other Expense
For the Nine Months Ended
March 31,
2020 2019
Interest Expense $(1,897,659) $(2,225,076)
Derivative Expense (547,121) (1,595,079)
Change in Fair Value of Derivative (12,718,516) (3,141,708)
Gain on Extinguishment of Debt 88,542 -
Gain on Disposal of Property 10,000 -
Total
$(15,064,754) $(6,961,863)
The other expenses during the three and nine months ended March 31, 2020,
totaling $13,298,820 and $15,064,754 of expenses, which consists of interest
expense, derivative expense, change in fair value of derivative, and gain on
extinguishment of debt. During the comparable three and nine months in 2019,
other expenses totaled $4,662,688 and $6,961,863. Interest expense has decreased
primarily due to a decrease in non-cash interest expense relating to
amortization of recent debt discount. These additional borrowings have been used
in the development of the Aftermaster HD. Derivative expense and change in fair
value of derivatives has decreased due to the company revaluing the instruments
at the end of the current period offset by the issuance of derivative
instruments in the current period . Gain on extinguishment of debt is due to two
settlement agreements in the current period. Gain on disposal of property is due
to the Company selling a vehicle that was fully depreciated during current
period.
Net Loss
For the Three Months Ended
March 31,
2020 2019
Net Loss $ (13,740,579) $(5,676,907)
Net Loss
For the Nine Months Ended
March 31,
2020 2019
Net Loss $ (17,082,368) $(9,985,726)
29
Due to the Company's cash position, we use our Common Stock as currency to pay
many employees, vendors and consultants. Once we have raised additional capital
from outside sources, as well as generated cash flows from operations, we expect
to reduce the use of Common Stock as a significant means of compensation. Under
FASB ASC 718, "Accounting for Stock-Based Compensation" and ASC 505, Equity
Based Payments to Non-Employees", these non-cash issuances are expensed at the
equity instruments fair market value. Absent these large stock-based
compensation of $8,384 and $406,661 and $304,314 and $710,508, derivative
expense of $0 and $239,733 and $547,121 and $1,595,079, loss on the change in
the derivative liability of $12,718,516 and $3,736,445 and 12,753,720 and
$3,141,708 for the three and nine months ended March 31, 2020 and 2019, our net
loss would have been $978,475 and $1,294,068 and $3,512,417 and $4,538,431 for
three and nine months ended March 31, 2020 and 2019, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company had revenues of $141,424 and $432,155 during the three and nine
months ended March 31, 2020 as compared to $206,632 and $1,149,218 in the
comparable three and nine months of 2019. The Company has incurred losses since
inception of $102,941,857. At March 31, 2020, the Company has negative working
capital of $30,112,019, which was a decrease in working capital of $17,220,615
from June 30, 2019.
The Company had cash of $3,721 as of March 31, 2020, as compared to $366,129 as
of June 30, 2019. The decrease is a result of the Company making payments on
convertible notes payable totaling $120,204 and payments on notes payable
totaling $119,742, which was partially offset by the Company entered into thirty
four (34) Share Purchase Agreements with individual accredited investors
resulting in net proceeds of $343,000, eleven (11) notes payable resulting in
net proceeds of $303,500, five (5) related notes payable resulting in net
proceeds of $46,200, and three (3) convertible notes payable resulting in net
proceeds of $463,750 during the nine months ended March 31, 2020. The cash
provided by financing activities decreased by $646,987 during the nine months
ended March 31, 2020 as compared to the nine months ended March 31, 2019. This
amount was also decreased by operational costs, payments of obligations from
convertible notes, notes, and lease payables. The company had more expenses
during the quarter than the funding which resulted in a decrease in cash. The
decrease is related to the company having less funding during the nine months
ending March 31, 2020 as compared to June 30, 2019.
The Company had prepaid expense of $266,263 as of March 31, 2020, as compared to
$311,296 as of June 30, 2019. The decrease is due to the Company amortizing the
prepaid expenses totaling $61,490 over the nine months ended March 31, 2020.
The future of the Company as an operating business will depend on its ability to
obtain sufficient capital contributions and/or financing as may be required to
sustain its operations. Management's plan to address these issues includes a
continued exercise of tight cost controls to conserve cash and obtaining
additional debt and/or equity financing.
As we continue our activities, we will continue to experience net negative cash
flows from operations, pending receipt of significant revenues that generate a
positive sales margin.
The Company expects that additional operating losses will occur until net
margins gained from sales revenue is sufficient to offset the costs incurred for
marketing, sales and product development. Until the Company has achieved a sales
level sufficient to break even, it will not be self-sustaining or be competitive
in the areas in which it intends to operate.
In addition, the Company will require substantial additional funds to continue
production and installation of the additional studios and to fully implement its
marketing plans.
As of March 31, 2020, the existing capital and anticipated funds from operations
were not sufficient to sustain Company operations or the business plan over the
next twelve months. We anticipate substantial increases in our cash requirements
which will require additional capital to be generated from the sale of Common
Stock, the sale of Preferred Stock, equipment financing, debt financing and bank
borrowings, to the extent available, or other forms of financing to the extent
necessary to augment our working capital. In the event we cannot obtain the
necessary capital to pursue our strategic business plan, we may have to
significantly curtail our operations. This would materially impact our ability
to continue operations. There is no assurance that the Company will be able to
obtain additional funding when needed, or that such funding, if available, can
be obtained on terms acceptable to the Company.
Recent global events, as well as domestic economic factors, have recently
limited the access of many companies to both debt and equity financings. As
such, no assurance can be made that financing will be available or available on
terms acceptable to the Company, and, if available, it may take either the form
of debt or equity. In either case, any financing will have a negative impact on
our financial condition and will likely result in an immediate and substantial
dilution to our existing stockholders.
Although the Company intends to engage in a subsequent equity offering of its
securities to raise additional working capital for operations, the Company has
no firm commitments for any additional funding, either debt or equity, at the
present time. Insufficient financial resources may require the Company to delay
or eliminate all or some of its development, marketing and sales plans, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. There is no certainty that the expenditures
to be made by the Company will result in a profitable business proposed by the
Company.
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AFTERMASTER, INC. 
