News Column

EXEO ENTERTAINMENT, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

July 2, 2014

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. We are a development stage company. From our inception to date we have not generated any 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.

We accomplished the following:

1) In 2011, we executed an exclusive license agreement with Digital Extreme

Technologies, Inc. to secure the rights to manufacture and distribute the

Extreme Gamer®, Zaaz™ keyboard and the Reality Pro™ handheld gaming system.

2) In 2012, the company completed its first round of financing for proceeds of

$773,035 and used said proceeds to continue product development on the

aforementioned licensed products.

3) In 2013, we completed our second round of financing for proceeds of $937,740

and we executed a license agreement with Psyko Audio Labs Canada to manufacture and distribute the Psyko® Carbon and Krypton line of patented headphones; Patent US # 8,000,486.



4) In June 2013, we debuted the Extreme Gamer®, the Zaaz™ keyboard, and the

Psyko® Krypton headphones to the public at the 2013 Electronic Entertainment

Expo (E3) held June 11-13.

5) In July 2013, we executed a contract with Elite Product Management, Ltd. Hong

Kong to handle the sourcing, procurement, QA, Logistics and manufacturing of

the Psyko® headphones, Zaaz™ keyboard, and the Extreme Gamer®.

6) In January 2014, the SEC granted the effectiveness of our S-1 registration

statement.

7) In February 2014, FINRA approved the ticker "EXEO".

8) In March 2014, we were approved by DTC (The Depository Trust and Clearing

Company). DTC provides the electronic basis through which stock sales bought and sold through brokers are transferred from the seller's brokerage account to the buyer's account.



9) We completed the molds for the Psyko® headphones (PC model), and are working

on the molds for the Psyko® video game console unit and the Zaaz™ keyboard.

10) On February 1, 2014, we executed an agreement with RedChip Companies, Inc. to

provide investor relations and news services.

11) On April 30, 2014 we entered into a non-exclusive contract with Global

Marketing Partners, Inc. The agreement provides the Company with an avenue for the distribution of its products through various retailers using the Speed Commerce (formerly Navarre) channel of distribution.



12) In May, 2014 our stock began trading on the OTC Markets and on the

Over-the-Counter Bulletin Board (OTCBB).

Products and Services

Products under development include the Psyko® 5.1 surround sound gaming headphones for both PCs and consoles, Krankz™ Bluetooth™ wireless headphones, Zaaz™ Smart TV keyboards, the Extreme Gamer®; a multi-disc video game changer, and an android based portable gaming system. We have completed the engineering on the Psyko® and Krankz™ headphones. We are finalizing development on the Zaaz™ keyboard and will soon begin tooling for manufacturing. The Extreme Gamer™ and portable gaming system are still in development and expected to be released in 2015.

Strategy and Marketing Plan

Once manufacturing is established we intend on utilizing existing consumer electronics distributers, such as Speed Commerce to distribute our products to big box retailers such as Best Buy, GameStop, and Fry's Electronics.

5



--------------------------------------------------------------------------------

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS - continued

Competition

Psyko® Surround Sound Headphones

[[Image Removed]] 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

[[Image Removed]] 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.

Zaaz™ Keyboard

[[Image Removed]] The majority of the competition in the Bluetooth wireless keyboard arena is concentrated amongst a few well-known companies such as Logitech® (LOGI), Microsoft® (MSFT), Apple® (AAPL), and Samsung® (SSNLF). While management believes that only Samsung makes keyboards specifically designed to interact with smart TVs, and that their keyboards only work with certain Samsung® TVs, there can be no assurance that other companies do not currently manufacture, or plan to manufacture, such units in the future. Any such companies that manufacture keyboards capable of connecting to a smart TV would further increase competition.

The Company intends on differentiating the Zaaz™ keyboard through a set of features designed specifically for smart TV users. The Zaaz™ keyboard features a customized set of "one touch access keys" that allows users to access specific, user defined features of the consumers smart TV. Examples include one touch access to the following: Netflix®, Facebook®, Hulu®, and Amazon®. Additionally, the Zaaz™ keyboard will differentiate itself by including a full size track pad - built into the keyboard - to navigate, point, click, and select.

6



--------------------------------------------------------------------------------

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS - continued

Extreme Gamer®



[[Image Removed]] The Extreme Gamer® is a patent pending (patent application 12/543,296) multi-disc video game changer that connects to current generation video game consoles offered by Nintendo®, Microsoft®, and Sony®.

Management believes from attending the Consumer Electronics Show (CES) January 11-13, 2013, having a booth and its products on display at the Electronic Entertainment Expo (E3) June 11 - 13, 2014, and from regularly reading Video Gaming news from sources such as IGN.com, EGNnow.com, 1up.com, and gamespot.com that no other company is currently manufacturing a multi-disc video game changer. If such a unit is being made management is unaware of its existence.

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.

We entered into a license agreement with Digital Extreme Technologies, Inc., a Delaware corporation, (also referred to as DXT) for use of certain intellectual property associated with the products being designed and developed by us. The Black Widow keyboard is now known as the Zaaz keyboard. DXT worked to design and develop the Extreme Gamer as well as the Black Widow keyboard. We continue to work under a license agreement with DXT to advance the use of technologies designed by DXT.

DXT applied to the U.S. PTO for a patent of its Multi Video Game Changer. The agency assigned an application number of 12/543,296 to its application, which was published on February 25, 2010. The proposed 10 disk Video Game Changer is designed to interface directly with Sony PS3®, Nintendo Wii®, and Microsoft Xbox 360®. The Company anticipates incorporating Blu-Ray® compatible optics technology under a license agreement. This would allow users to insert Blu-Ray® discs into the Video Game Changer, and once connected to the video game console, to play movies on television. Sony PS3® is now capable of playing Blu-Ray® discs, but only with a capacity for a single disk. This technology would provide for the loading of up to 10 DVD's, CD's or Blu-Ray® discs into a single console that communicates with a video game console via USB. Furthermore, users would be able to plug in any external hard disc drive ("HDD") directly into the console via an internal ATPI port, allowing movies, music and pictures to be played directly from the HDD.

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.

Subsidiaries

We do not have any subsidiaries.

7



--------------------------------------------------------------------------------

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS - continued

Comparison of Three and Six Month Results -for the quarters ended May 31, 2014 and 2013, respectively

Revenues and Gross Profit The Company recorded no revenue in the three months ended May 31, 2013. The Company is a development stage company and has incurred significant costs in research and development activities. See discussion below for further information. At May 31, 2014, the Company had incurred an accumulated deficit of $2,558,474 since inception.

Costs and Expenses Total cost and expenses were $274,580 and $189,219 for the three months ended May 31, 2014 and 2013, respectively. Total cost and expenses were $913,244 and $411,757 for the six months ended May 31, 2014 and 2013, respectively. The increase in costs in the six month period ended May 31, 2014 as compared to the three month period ended May 31, 2013 is primarily due to $400,000 stock-based compensation paid to RedChip Companies, Inc. for investor relations services. The Company agreed to deliver to RedChip 400,000 common shares of the Company's equities.

Research and Development Costs

The Company incurred $37,559 and $30,425 for research and development costs during the three months ended May 31, 2014 and 2013, respectively. The Company incurred $56,827 and $87,838 for research and development costs during the six months ended May 31, 2014 and 2013, respectively. As to the 2013 year, these costs pertain to the, Zaaz Keyboard and the Extreme Gamer. As to the 2014 year, these costs relate to the Psyko Krypton™ surround sound gaming headphones, Zaaz Keyboard, Extreme Gamer, and multi-video game changer.

Liquidity and Capital Resources

Long-Term Debt / Note Payable and Other Commitments

Other than what is described in this Report, the Company had no material commitments for capital expenditures at May 31, 2014. In fiscal year 2013, the Company incurred a minimum royalty expense to Psyko Audio Labs, Canada of $12,130. In fiscal year 2014, the Company will incur increasing minimum royalty expenses as follows: $24,063 (CDN $26,741), $33,088 (CDN $36,770), $42,102 (CDN $46,787), and $60,155 (CDN $66,849) in each of the four quarters, respectively. At May 31, 2014, the balance of prepaid expenses was $41,149. At November 30, 2013 the balance of $44,146 consisted of royalty fees owed to Psyko Audio Labs as to the Psyko Audio Headphones. At May 31, 2014, the balance was reduced to $26,149 as the Company applied $17,997 from prepaid expenses to royalty fees during the six months ended May 31, 2014. During this period, the Company also recorded prepaid expenses of $30,000, which is associated with upfront payments of exhibitor fees to participate in the Electronic Entertainment Expo held in June, 2014.

At January 1, 2015, the Company is obligated to pay minimum monthly royalties of $89,986 (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.

The Company has an office and warehouse rental lease obligation through September 30, 2014. The monthly minimum rental payment is $7,006. Rent expense was $21,018 and $21,018 for the three month periods ended May 31, 2014 and 2013, respectively. Rent expense was $42,036 and $42,036 for the six month periods ended May 31, 2014 and 2013, respectively.

Cash Flow Information

On May 31, 2014, the Company had working capital of approximately $413,725. On November 30, 2013, the Company had working capital of approximately $345,267. The increase in working capital primarily relates to proceeds from the sale of securities during the months of February to May, 2014. The Company believes it has insufficient cash resources to meet its liquidity requirements for the next 12 months.

The Company had cash and cash equivalents of approximately $491,648 and $358,299 at May 31, 2014 and November 30, 2013, respectively. This represents an increase in cash of $133,349.

Cash used in Operating Activities

The Company used approximately $418,087 of cash for operating activities in the six months ended May 31, 2014 as compared to using $313,180 of cash for operating activities in the six months ended May 31, 2013. This increase in cash used in operating operating activities, which is $104,907, is primarily attributed to the following: 1) $33,000 minimum royalty fees, 2) approximately $21,907 for engineering and product designs, and 3) $50,000 for investment relations services.

8



--------------------------------------------------------------------------------

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS - continued

Cash used for Investing Activities Investing activities for the six months ended May 31, 2014 used approximately $5,068 of cash as compared to using $20,057 of cash in the six months ended May 31, 2013. This decrease in use is attributable to a reduction in the acquisition of vehicles and equipment.

Cash Provided by Financing Activities Financing activities in the six months ended May 31, 2014 provided $556,504 of cash as compared to providing $333,758 of cash in the six months ended May 31, 2013. The difference of $222,746 in the six month periods is attributable to the increase in equity investments. The Company did not incur any debt issuance costs in 2014.

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

For the period from inception to May 31, 2014, the Company recorded no revenue. 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.


For more stories covering the world of technology, please see HispanicBusiness' Tech Channel



Source: Edgar Glimpses


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters