Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. AFTERMASTER, INC. (836809) 10-Q published on Jul 06, 2020 at 4:34 pm
Reporting Period: Mar 30, 2020
On April 15, 2020, the Company received approval and funding pursuant to a promissory note evidencing an unsecured loan in the amount of approximately $177,500 (the “Loan”) under the Paycheck Protection Program (or “PPP”). The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (“SBA”). The Company intended to use the Loan for qualifying expenses in accordance with the terms of the CARES Act.
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.
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.
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.
3. On December 27, 2019, the Company was sued by JSJ Investments, Inc. (JSJ), a Texas corporation, in Texas State Court. Shortly thereafter, the Company successfully filed to have the case moved to Federal Court in Texas and also filed a counterclaim against JSJ for Usury. JSJ is a ratcheting convertible note (also referred to as toxic notes or dilution funding) lender to small-cap companies. In April and June of 2019, JSJ issued the Company two, one year loans with a combined value of $154,000.00 ($77,000.00 each), backed by ratcheting promissory notes. Although neither loan was due, JSJ issued a notice of default, alleging the Company prevented them from converting their debt on one of the notes, into common shares of the Company. The Company offered to pay the notes with interest atthe maximum rate allowed under Texas law, when they came due. In response, JSJ demanded in writing through their attorney, Mark Fritsche of Hedrick Kring of Dallas Texas, that the Company immediately pay $730,200.00 to redeem the two notes (that had a face value at the time of $154,000.00). The Company refused to pay what it believed to be an outrageous, egregious and usurious amount of money to extinguish the loans that were not yet due. When the Company refused, JSJ sued the Company for $718,200.00. JSJ alleges that the $718,200.00 represents principal, penalties, interest and fees on the $154,000.00 in loans that were not yet due. The Company is vigorously defending its interests and believes that JSJ’s demands and conduct are illegal under Texas law and that JSJ operated in violation of Section 15(a)(1) of the Securities Act of 1934. Further, the Company is actively exploring its legal rights, if any, in Canada where the loans originated and Usury is a Federal Criminal Offense. JSJ is operated and controlled outside of Texas and the US by Sam Hirji, Matthew Hirji and David Hirji, all of Alberta, Canada.