Comparison of Twelve Month Results -for the fiscal years ended November 30, 2019 and 2018, respectively





Revenues and Gross Profit

Revenues for the twelve months ended November 30, 2019 and 2018 were $139,450 and $5,318, respectively. Gross (loss) profit for the periods ended November 30, 2019 and 2018 were ($69,822) and ($2,868), respectively. The Company has incurred significant costs in research and development activities. See discussion below for further information. At November 30, 2019 and 2018, the Company had incurred an accumulated deficit of $10,119,541 and $8,582,650 since inception.





Costs and Expenses

Total operating cost and expenses increased to $1,302,493 for the year ended November 30, 2019 as compared to $1,076,124 for the year ended November 30, 2018. These increases in the fiscal year ended November 30, 2019, were primarily due to the increasing costs associated with employees compensation, royalty fees, sponsorships and advertisement of our audio headphone products.

Research and Development Costs

The Company incurred $60 and $3,148 for research and development costs during the fiscal years ended November 30, 2019 and 2018, respectively. These costs relate to hardware engineering, design and development of the Krankz™ Bluetooth wireless audio headphones, the Zaaz™ Keyboard, the Extreme Gamer®, and the Psyko Krypton™ 5.1 surround sound gaming headphones for personal computers. A similar unit under development connects to current generation video game consoles offered by Nintendo®, Microsoft®, and Sony®.





Other Income and Expenses

During the course of our business, we experienced a loss from foreign currency transactions of $1,252 in the year ended November 30, 2019 as compared to a gain of $38,759 for the year ended November 30, 2018. This gain is due to royalty payments owed to a foreign company.

Interest expense associated with obligations to related parties was $4,648 in the year ended November 30, 2019, compared to $4,648 in the year ended November 30, 2018. Interest expense was $477 and $760 in the twelve months ended November 30, 2019 and 2018, respectively.





Effect of Inflation

Inflation has not had a significant impact on the Company's operations or cash flows.

Liquidity and Capital Resources

Long-Term Debt / Note Payable and Other Commitments

Other than what is described in this Item, the Company had no material commitments for capital expenditures at November 30, 2019 or November 30, 2018.

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.



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On June 10, 2013, Exeo Entertainment, Inc. entered into a license agreement with Psyko Audio Labs, Canada whereby Exeo Entertainment. Inc. will manufacture and market the Psyko Krypton and Carbon line of gaming headphones. The Company will owe a 5% royalty on all headphone sales to Psyko Audio Labs. Payments are due quarterly on January 15, April 15, July 15, and October 15. For the years ended November 30, 2019 and 2018, the Company has made no payments towards this obligation and no royalty invoices have been received from Psyko Audio Labs. In fiscal year 2018, the Company incurred decreasing minimum royalty expenses as follows: $79,703 (CDN $100,000), $77,610 (CDN $100,000), $76,312 (CDN $100,000), and $76,444 (CDN $100,000) in each of the four quarters, respectively. The total minimum royalty fee expense in fiscal year ended November 30, 2018 and 2017 were $310,069 and $307,321, respectively. Prepaid expenses as of November 30, 2019 and 2018 consist of royalty fees of $0 and $0, respectively, paid to Psyko Audio Labs. These prepaid expenses shall be applied towards royalty expenses incurred in the first quarter of the following fiscal year. Unless the Royalty Agreement is modified by Psyko Audio Labs Canada and the Company, at January 1, 2017, the Company is obligated to pay minimum monthly 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.





Leases

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

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

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

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

As of February 28, 2020, the Company did not have material leases that had been signed but not yet commenced.





Cash Flow Information

The Company had working capital deficit of approximately $(1,480,680) and a current ratio of 0.23 at November 30, 2019. The Company had working capital deficit of approximately $(1,160,178) and a current ratio of 0.20 at November 30, 2018. The decrease in working capital at November 30, 2019 as compared to November 30, 2018, was primarily due to operating activities (an increase of $340,153 from fiscal year 2018 to 2019). The Company believes it has insufficient cash resources to meet its liquidity requirements for the next 12 months.

During the twelve months ended November 30, 2019, the Company had cash and cash equivalents of approximately $96,923 as compared to cash and cash equivalents of $104,485 at November 30, 2018. This represents a decrease of $7,562.

Cash used in Operating Activities

The Company used $1,060,484 of cash for operating activities in the twelve months ended November 30, 2019, as compared to using $722,657 of cash for operating activities in the twelve months ended November 30, 2018.



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Cash used for Investing Activities

Investing activities for the twelve months ended November 30, 2019 used approximately $39,768 of cash as compared to using $0 of cash in the twelve months ended November 30, 2018.

Cash Provided by Financing Activities

Financing activities for the twelve months ended November 30, 2019, provided $1,092,690 of cash as compared to providing $687,617 of cash in the twelve months ended November 30, 2018.

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.

There is no assurance that Company may secure funding, or whether it can do so on terms acceptable to it, or at all, and its liquidity would be severely compromised.

The accompanying financial statements have been prepared assuming that the company will continue as a going concern which contemplates, amongst other things, the realization of assets and satisfaction of liabilities in the course of business.

We anticipate that our future liquidity requirements will arise from the need to fund our growth, pay our 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

Management included an explanatory paragraph in their footnotes on the accompanying financial statements expressing concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure.

We have negative working capital and have not yet received significant revenues from sales of products. These factors raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern.

Our ability to continue as a going concern is dependent on our generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management's plans include increasing revenue, selling our equity securities and/or obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance we will be successful in these efforts.

Off-Balance Sheet Arrangements

We have 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.

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