U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to __________

Commission file number 001-10196

AFTERMASTER, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE	23-2517953
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

6671 Sunset Blvd., Suite 1520

Hollywood, CA 90028

(Address of principal executive offices) (Zip Code)

(310) 657-4886

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  

☒ Yes    ☐ No

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). 

☒ Yes    ☐ No   (Not required)

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

☐ Yes    ☒ No

At May 15, 2017, the number of shares outstanding of Common Stock, $0.001 par value, was 114,472,101 shares.

1

	AFTERMASTER, INC.
	INDEX
	PART I - FINANCIAL INFORMATION
		PAGE NUMBER
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets – March 31, 2017 (unaudited) and June 30, 2016	3
	Condensed Consolidated Statements of Operations - For the three and nine months ended March 31, 2017 and 2016 (unaudited)	4
	Condensed Consolidated Statements of Cash Flows - For the nine months ended March 31, 2017 and 2016 (unaudited)	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosure About Market Risks	32
Item 4T.	Controls and Procedures	32
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Submission of Matters to a Vote of Security Holders	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
	SIGNATURES	35

2

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

AFTERMASTER, INC.
Consolidated Balance Sheets
	March 31,	June 30,
	2017	2016
	(Unaudited)
ASSETS
Current Assets
Cash	$169,454	$394,325
Accounts receivable	118,300	11,389
Inventory	506,566	-
Available for sale securities	63,000	63,600
Prepaid expenses	753,024	1,078,819
Total Current Assets	1,610,344	1,548,133
Property and equipment, net	308,216	294,557
Intangible assets, net	109,674	99,186
Deposits	33,363	33,363
Prepaid expenses, net of current	11,376	18,217
Total Assets	$2,072,973	$1,993,456
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable and other accrued expenses	$500,653	$225,001
Accrued interest	150,132	77,335
Deferred revenue	662,398	740,200
Accrued consulting services - related party	47,930	28,561
Lease payable	13,897	984
Derivative Liability	1,539,737	-
Notes payable - related party	580,000	575,000
Notes payable	40,488	40,488
Convertible notes payable - related party	3,925,000	3,925,000
Convertible notes payable, net of discount of $546,429 and $22,282, respectively	2,052,335	1,029,718
Total Current Liabilities	9,512,570	6,642,287
Total Liabilities	9,512,570	6,642,287
Stockholders' Deficit
Convertible preferred stock, Series A; $0.001 par value; 100,000 shares authorized, 15,500 shares issued and outstanding	16	16
Convertible preferred stock, Series A-1; $0.001 par value; 3,000,000 shares authorized 2,685,000 and 2,185,000 shares issued and outstanding, respectively	2,685	2,185
Convertible preferred stock, Series B; $0.001 par value; 200,000 shares authorized, 3,500 shares issued and outstanding	3	3
Convertible preferred stock, Series C; $0.001 par value; 1,000,000 shares authorized, 13,404 shares issued and outstanding	13	13
Convertible preferred stock, Series D; $0.001 par value; 375,000 shares authorized, 130,000 shares issued and outstanding	130	130
Convertible preferred stock, Series E; $0.001 par value; 1,000,000 shares authorized, 275,000 shares issued and outstanding	275	275
Convertible preferred stock, Series P; $0.001 par value; 600,000 shares authorized, 86,640 shares issued and outstanding	87	87
Convertible preferred stock, Series S; $0.001 par value; 50,000 shares authorized, -0- shares issued and outstanding	-	-
Common stock, authorized 250,000,000 shares,
par value $0.001; 113,531,151 and 102,133,344 shares issued
and outstanding, respectively	113,537	102,140
Additional paid In capital	62,911,907	58,997,912
Stock Subscription Receivable	(80,000)	-
Accumulated other comprehensive income	33,000	33,600
Accumulated Deficit	(70,421,250)	(63,785,192)
Total Stockholders' Deficit	(7,439,597)	(4,648,831)
Total Liabilities and Stockholders' Deficit	$2,072,973	$1,993,456
The accompanying notes are an integral part of these consolidated financial statements.

3

AFTERMASTER, INC.
Consolidated Statements of Operations
(Unaudited)
	For the Three Months Ended		For the Nine Months Ended
	March 31,		March 31,
	2017	2016	2017	2016
REVENUES
AfterMaster Revenues	266,621	19,320	$369,844	$75,254
Licensing Revenues	-	-	-	1,800,000
Total Revenues	266,621	19,320	369,844	1,875,254
COSTS AND EXPENSES
Cost of Revenues (Exclusive of Depreciation and Amortization)	243,628	115,345	563,403	317,428
Depreciation and Amortization Expense	46,322	18,927	131,876	53,928
Research and Development	45,972	177,315	138,987	331,681
Advertising and Promotion Expense	24,865	125,597	42,509	269,982
Legal and Professional Expense	61,360	85,390	116,430	342,803
Non-Cash Consulting Expense	427,499	886,874	1,959,408	3,074,385
General and Administrative Expenses	653,160	841,976	2,281,202	2,869,063
Total Costs and Expenses	1,502,806	2,251,424	5,233,815	7,259,270
Loss from Operations	(1,236,185)	(2,232,104)	(4,863,971)	(5,384,016)
Other Income (Expense)
Interest Expense	(401,829)	(275,449)	(1,149,424)	(706,174)
Derivative Expense	(197,200)	-	(197,200)	-
Change in Fair Value of Derivative	(434,125)	-	(434,699)	4,374,585
Loss on Available for Sale Securities	-	-	-	(1,770,000)
Gain Loss on Extinguishment of Debt	-	-	9,236	143,344
Total Other Income (Expense)	(1,033,154)	(275,449)	(1,772,087)	2,041,755
Loss Before Income Taxes	(2,269,339)	(2,507,553)	(6,636,058)	(3,342,261)
Income Tax Expense	-	-	-	-
NET LOSS	$(2,269,339)	$(2,507,553)	$(6,636,058)	$(3,342,261)
Preferred Stock Accretion and Dividends	(41,999)	(27,565)	(129,855)	(67,712)
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$(2,311,338)	$(2,535,118)	$(6,765,913)	$(3,409,973)
Basic and diluted Loss Per Share of Common Stock	$(0.02)	$(0.03)	$(0.06)	$(0.03)
Weighted Average Number of Shares Outstanding	109,468,240	99,896,132	106,238,848	97,988,045
Other Comprehensive Income, net of tax
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	(2,311,338)	(2,535,118)	(6,765,913)	(3,409,973)
Unrealized loss on AFS Securities	15,000	18,000	(600)	18,000
COMPREHENSIVE LOSS	$(2,296,338)	$(2,517,118)	$(6,766,513)	$(3,391,973)
The accompanying notes are an integral part of these consolidated financial statements.

4

AFTERMASTER, INC.
Consolidated Statements of Cash Flows
(Unaudited)
	For the Nine Months Ended
	March 31,
	2017	2016
OPERATING ACTIVITIES
Net Loss	$(6,636,058)	$(3,342,261)
Adjustments to reconcile net loss to cash from operating activities:
Depreciation and amortization	131,876	53,928
Share-based compensation - Common Stock	328,128	277,012
Share-based compensation - warrants and options	27,607	-
Share-based compensation - warrants	-	525,803
Common stock issued for services and rent	25,383	225,413
Common stock issued for preferred dividends	-	11,981
Common stock issued to extend the maturity dates on debt	184,105	-
Common stock issued as incentive with Convertible debt	127,500	-
Amortization of debt discount and issuance costs	170,168	75,416
Closing fees	-	15,000
(Gain)/Loss on extinguishment of debt	(9,236)	(143,344)
Derivative expense	197,200	-
Gain (loss) remeasurement of derivative	434,699	(4,374,585)
Loss on Available for Sale Securities	-	1,770,000
Licensing Revenue from the issuance of AFS Securities	-	(1,800,000)
Changes in Operating Assets and Liabilities:
Accounts receivables	(106,911)	(4,465)
Inventory	(506,566)	-
Other assets	1,530,910	2,504,823
Accounts payable and accrued expenses	275,651	586,082
Accrued interest	690,844	8,456
Deferred revenue	(77,802)	428,066
Accrued consulting services - related party	19,369	(82,267)
Net Cash Used in Operating Activities	(3,193,133)	(3,264,942)
INVESTING ACTIVITIES
Purchase of property and equipment	(124,223)	(63,420)
Purchase of intangible assets	(31,800)	-
Net Cash Used in Investing Activities	(156,023)	(63,420)
FINANCING ACTIVITIES
Common Stock issued for cash	359,000	-
Common Stock issued for conversion of options/warrants	906,224	155,915
A-1 Preferred Stock issued for cash	353,148	734,089
Proceeds from convertible notes payable - related party	17,500	-
Repayments of convertible notes payable - related party	(12,500)	-
Proceeds from convertible notes payable	1,703,000	845,000
Repayments of convertible notes payable	(215,000)	(17,500)
Lease Payable	12,913	(27,710)
Net Cash Provided by Financing Activities	3,124,285	1,689,794
NET CHANGE IN CASH	(224,871)	(1,638,568)
CASH AT BEGINNING OF PERIOD	394,325	2,185,702
CASH AT END OF PERIOD	$169,454	$547,134
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID FOR:
Interest	$-	$-
NON CASH FINANCING ACTIVITIES:
Beneficial conversion feature	$30,519	$23,236
Conversion of notes and Interest into common stock	$220,164	$990,147
Conversion of preferred stock for common stock	$105	$50
Conversion of Derivative Liability	$95,492	$8,440,357
MTM on AFS securities	$600	$(18,000)
Common stock issued with convertible debt	$33,349	$10,284
Common stock issued for prepaid expenses	$822,233	$-
Original Issue Discount	$88,000	$100,000
Conversion of accrued interest into common stock	$597,882	$-
Warrants issued for prepaid expenses	$376,041	$-
The accompanying notes are an integral part of these consolidated financial statements.

5

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 1 – CONDENSED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2017, and for all periods presented herein, have been made.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's June 30, 2016 audited financial statements.  The results of operations for the periods ended March 31, 2017 and 2016 are not necessarily indicative of the operating results for the full years.

NOTE 2 – GOING CONCERN

The Company's financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has an accumulated deficit of $70,421,250, negative working capital of $7,902,226, and currently has revenues which are insufficient to cover its operating costs, which raises substantial doubt about its ability to continue as a going concern. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.

The future of the Company as an operating business will depend on its ability to (1) obtain sufficient capital contributions and/or financing as may be required to sustain its operations and (2) to achieve adequate revenues from its ProMaster and AfterMaster businesses. Management's plan to address these issues includes, (a) continued exercise of tight cost controls to conserve cash, (b) obtaining additional financing, (c) more widely commercializing the AfterMaster and ProMaster products, and (d) identifying and executing on additional revenue generating opportunities.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates are made in relation to the allowance for doubtful accounts and the fair value of certain financial instruments.  

Principles of Consolidation

The consolidated financial statements include the accounts of AfterMaster, Inc. and its subsidiaries. All significant inter-Company accounts and transactions have been eliminated.

Investments

Our available for securities are considered Level 1. Realized gains and losses on these securities are included in “Other income (expense) – net” in the consolidated statements of income using the specific identification method. Unrealized gains and losses, on available-for-sale securities are recorded in accumulated other comprehensive income (accumulated OCI). Unrealized losses that are considered other than temporary are recorded in other income (expense) – net, with the corresponding reduction to the carrying basis of the investment.

6

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Our short-term investments are recorded at amortized cost, and the respective carrying amounts approximate fair values. Our available for securities maturing within one year are recorded in “Other current assets,” on the balance sheets.

Accounts Receivables

Accounts receivables are stated at amounts management expects to collect. An allowance for doubtful accounts is provided for uncollectible receivables based upon management's evaluation of outstanding accounts receivable at each reporting period considering historical experience and customer credit quality and delinquency status. Delinquency status is determined by contractual terms. Bad debts are written off against the allowance when identified.

Fair Value Instruments

Cash is the Company’s only financial asset or liability required to be recognized at fair value and is measured using quoted prices for active markets for identical assets (Level 1 fair value hierarchy).  The carrying amounts reported in the balance sheets for accounts receivable and accounts payable and accrued expenses approximate their fair market value based on the short-term maturity of these instruments.

The fair value of the Company’s notes payable at March 31, 2017 is approximately $6,597,823.  Market prices are not available for the Company’s loans due to related parties or its other notes payable, nor are market prices of similar loans available.  The Company determined that the fair value of the notes payable based on its amortized cost basis due to the short term nature and current borrowing terms available to the Company for these instruments.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.

Derivative Liabilities

The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares.

Using this sequencing policy, the Company used this sequencing policy, all instruments convertible into common stock, including warrants and the conversion feature of notes payable, issued subsequent to July 5, 2016 until the note was converted on the same day were derivative liabilities. The Company again used this sequencing policy, all instruments convertible into common stock, including warrants and the conversion feature of notes payable, issued subsequent to August 19, 2016 until the note was converted on August 22, 2016 were derivative liabilities.

The Company values these convertible notes payable using the multinomial lattice method that values the derivative liability within the notes based on a probability weighted discounted cash flow model. The resulting liability is valued at each reporting date and the change in the liability is reflected as change in derivative liability in the statement of operations.

Income Taxes

7

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

There is no income tax provision for the nine months ended March 31, 2017 and 2016 due to net operating losses for which there is no benefit currently available.

At March 31, 2017, the Company had deferred tax assets associated with state and federal net operating losses. The Company has recorded a corresponding full valuation allowance as it is more likely than not that some portion of all of the deferred tax assets will not be realized.

Revenue Recognition

The Company applies the provisions of FASB ASC 605, Revenue Recognition in Financial Statements, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. ASC 605 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to goods and services provided when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.

Loss Per Share

Basic earnings (loss) per Common Share is computed by dividing losses attributable to Common shareholders by the weighted-average number of shares of Common Stock outstanding during the period. The losses attributable to Common shareholders was increased for accrued and deemed dividends on Preferred Stock during the three and nine months ended March 31, 2017 and 2016 of $41,999 and $129,855 and $27,565 and $67,712, respectively.

Diluted earnings per Common Share is computed by dividing income (loss) attributable to Common shareholders by the weighted-average number of Shares of Common Stock outstanding during the period increased to include the number of additional Shares of Common Stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding convertible Preferred Stock, stock options, warrants, and convertible debt. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s Common Stock can result in a greater dilutive effect from potentially dilutive securities.

For the nine months ended March 31, 2017 and 2016, all of the Company’s potentially dilutive securities (warrants, options, convertible preferred stock, and convertible debt) were excluded from the computation of diluted earnings per share as they were anti-dilutive.  The total number of potentially dilutive Common Shares that were excluded were 30,383,665 and24,274,055 at March 31, 2017 and 2016, respectively.

Recent Accounting Pronouncements

Management has considered all recent accounting pronouncements issued since the last audit of our consolidated financial statements. The Company’s management believes that these recent pronouncements will not have a material effect on the Company’s consolidated financial statements.

NOTE 4 – SECURITIES AVAILABLE-FOR-SALE

On November 10, 2014, the Company received 600,000 shares of b Booth stock as part of an Asset License agreement with b Booth. The following table presents the amortized cost, gross unrealized gains, gross unrealized losses, and fair market value of available-for-sale equity securities, nearly all of which are attributable to the Company's investment in b Booth stock, as follows:

8

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 4 – SECURITIES AVAILABLE-FOR-SALE - continued

	March 31, 2017
	Amortized cost	Gross unrealized gains	Gross unrealized losses	Gross realized gains	Gross realized losses	Fair value
Equity securities	$63,600	$-	$(600)	$-	$-	$63,000

	June 30, 2016
	Amortized cost	Gross unrealized gains	Gross unrealized losses	Gross realized gains	Gross realized losses	Fair value
Equity securities	$1,800,000	33,600	$-	$-	$(1,770,000)	$63,600

NOTE 5 – INVENTORIES

Inventories are stated at the first in first out and consisted of the following:

	March 31, 2107	June 30, 2016
Components	$506,566	$-
Finished Goods	-	-
Allowance / Reserve	-	-
Totals	$506.566	$-

NOTE 6 – NOTES PAYABLE

Convertible Notes Payable

In accounting for its convertible notes payable, proceeds from the sale of a convertible debt instrument with Common Stock purchase warrants are allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portions of the proceeds allocated to the warrants are accounted for as paid-in capital with an offset to debt discount. The remainder of the proceeds are allocated to the debt instrument portion of the transaction as prescribed by ASC 470-25-20.  The Company then calculates the effective conversion price of the note based on the relative fair value allocated to the debt instrument to determine the fair value of any beneficial conversion feature (“BCF”) associated with the convertible note in accordance with ASC 470-20-30.  The BCF is recorded to additional paid-in capital with an offset to debt discount.  Both the debt discount related to the issuance of warrants and related to a BCF is amortized over the life of the note.

Convertible Notes Payable – Related Parties

Convertible notes payable due to related parties consisted of the following as of March 31, 2017 and June 30, 2016, respectively:

Convertible Notes Payable – Related Parties
	March 31,	June 30,
	2017	2016
Various term notes with total face value of $3,925,000 issued from February 2010 to April 2013, interest rates range from 10% to 15%, net of unamortized discount of $0 as of March 31, 2017 and June 30, 2016.	$3,925,000	$3,925,000
Total convertible notes payable – related parties	3,925,000	3,925,000
Less current portion	3,925,000	3,925,000
Convertible notes payable – related parties, long-term	$-	$-

9

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 6 – NOTES PAYABLE - continued

The notes were amended on February 15, 2016 to March 16, 2016. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt.

Convertible Notes Payable - Non-Related Parties

Convertible notes payable due to non-related parties consisted of the following as of March 31, 2017 and June 30, 2016, respectively:

	March 31,	June 30,
	2017	2016
$15,000 face value, issued in October 2011, interest rate of 10% and a default rate of 15%, matures in June 2012, net of unamortized discount of $0 as of March 31, 2017 and June 30, 2016, respectively. The note is currently in default.	$15,000	$15,000
$50,000 face value of which $50,000 was converted.	-	50,000

$20,000 face value, issued in June 2014, interest rate of 6%, matures December 2014, net unamortized discount of $0 as of March 31, 2017 and June 30, 2016, respectively. The note is currently in default.	20,000	20,000
$7,000 face value, issued in July 2014, interest rate of 6%, matures October 2014, net unamortized discount of $0 as of March 31, 2017 and June 30, 2016, respectively. The note is currently in default.	7,000	7,000
$100,000 face value, issued in October 2015, interest rate of 6%, matures February 2017.	100,000	100,000
$600,000 face value, issued in November 2015, interest rate of 0%, an OID of $130,000, matures May 2017, net unamortized discount of $15,882 and $0 of March 31, 2017 and June 30, 2016, respectively.	414,118	600,000
$100,000 face value, issued in February 2016, interest rate of 10%, matures February 2017, net unamortized discount of $0 and $2,993 as of March 31, 2017 and June 30, 2016, respectively.	100,000	97,007
$15,000 face value, issued in February 2016, interest rate of 10%, matures February 2017, net unamortized discount of $0 and $462 as of March 31, 2017 and June 30, 2016, respectively.	15,000	14,538
$25,000 face value, issued in February 2016, interest rate of 10%, matures February 2017, net unamortized discount of $0 and $3,354 as of March 31, 2017 and June 30, 2016, respectively.	25,000	21,646
$10,000 face value, issued in February 2016, interest rate of 10%, matures February 2017, net unamortized discount of $0 and $1,382 as of March 31, 2017 and June 30, 2016, respectively.	10,000	8,618
$100,000 face value, issued in March 2016, interest rate of 10%, matures March 2017, net unamortized discount of $0 and $13,765 as of March 31, 2017 and June 30, 2016, respectively.	100,000	86,235
$10,000 face value, issued in March 2016, interest rate of 10%, matures March 2017, net unamortized discount of $0 and $462 and $326 as of March 31, 2017 and June 30, 2016, respectively.	10,000	9,674
$50,000 face value, issued in July 2016, interest rate of 0%, matures January 2017, a gain on extinguishment of debt was recorded totaling $5,418 net unamortized discount of $0 as of March 31, 2017.	50,000	-

10

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 6 – NOTES PAYABLE - continued

$30,000 face value, issued in August 2016, interest rate of 0%, matures January 2017, net unamortized discount of $0 as of March 31, 2017.	15,000	-
$50,000 face value, issued in August 2016, interest rate of 0%, matures August 2017, a gain on extinguishment of debt was recorded totaling $5,418 as of March 31, 2017.	44,582	-
$30,000 face value, issued in August 2016, interest rate of 0%, matures January 2017, a gain on extinguishment of debt was recorded totalling$3,818 net unamortized discount of $0 as of March 31, 2017. The note is currently in default.	26,182	-
$1,000,000 face value, issued in September 2016, interest rate of 10%, matures December 2016, net unamortized discount of $0 as of March 31, 2017.	1,000,000	-
$149,000 face value, issued in February 2017, interest rate of 10%, matures September 23, 2017, net amortized discount of $123,698 as of March 31, 2017.	25,302	-
$224,000 face value, issued in February 2017, interest rate of 10%, matures November 23, 2017, net amortized discount of $194,462 as of March 31, 2017.	29,538	-
$258,000 face value, issued in February 2017, interest rate of 12%, matures August 3, 2017, net amortized discount of $212,387 as of March 31, 2017.	45,613	-
Total convertible notes payable – non-related parties	2,052,335	1,029,718
Less current portion	2,052,335	1,029,718
Convertible notes payable – non-related parties, long-term	$-	$-

On October 27, 2015, the Company issued a convertible note to an unrelated individual for $100,000 that matures on February 27, 2016. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.50 per share.The note was amended on May 23, 2016 to extend the maturity date to July 23, 2016 and amended again on November 15, 2016 to extend the maturity date to January 31, 2017. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt. The note is currently in default.

On July 26, 2016, the Company issued a convertible note to an unrelated individual for $50,000 that matures on September 26, 2016.  The note bears interest rate of 0% per annum and is convertible into shares of the Company’s Common stock at $0.40 per share, as part of the note the company issued options to purchase 35,000 shares of 144 restricted common stock at an exercise price $0.50 for a two-year period. The note was amended on November 21, 2016 to extend the maturity date to January 31, 2017. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did result in significant and consequential changes to the economic substance of the debt and thus resulted in a extinguishment of the debt and not modification of the debt resulting in a gain on extinguishment of debt of $5,418. The note is currently in default.

On August 8, 2016, the Company issued a convertible note to an related individual for $30,000 that matures on October 8, 2016.  The note bears interest rate of 0% per annum and is convertible into shares of the Company’s Common stock at $0.40 per share, as part of the note the company issued options to purchase 21,000 shares of 144 restricted common stock at an exercise price $0.50 for a two-year period. The note was amended on November 21, 2016 to extend the maturity date to January 31, 2017. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a extinguishment of the debt and not modification of the debt resulting in a gain on extinguishment of debt of $3,818. The note is currently in default.

11

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 6 – NOTES PAYABLE - continued

 

On August 11, 2016, the Company issued a convertible note to an related individual for $30,000 that matures on October 11, 2016.  The note bears interest rate of 0% per annum and is convertible into shares of the Company’s Common stock at $0.40 per share, as part of the note the company issued options to purchase 21,000 shares of 144 restricted common stock at an exercise price $0.50 for a two-year period. The Company paid $15,000 of principal. The note was amended on November 15, 2016 to extend the maturity date to January 31, 2017. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt. The note is currently in default.

On August 26, 2016, the Company issued a convertible note to an unrelated individual for $50,000 that matures on August 26, 2017.  The note bears interest rate of 10% per annum and is convertible into shares of the Company’s Common stock at $0.40 per share.

On September 1, 2016, an unrelated individual converted a convertible note entered into on August 21, 2012, with a principal balance of $50,000 and $21,164 in accrued interest at a rate of $0.25 per share of the Company’s Common stock for 280,650 shares.

On September 27, 2016, the Company issued a convertible note to an unrelated individual for $1,000,000 that matures on December 22, 2016. The note was amended subsequently in February 2, 2017 to extend the maturity date to June 30, 2017. The fund will be used for the manufacturing of the companies AfterMaster Pro TV box. The note bears interest rate of 10% per annum and is convertible into shares of the Company’s Common stock at $0.40, per share, as part of the note the company issued 100,000 shares of 144 restricted common stock for a value of $33,349.

On November 20, 2015, the Company issued a convertible note to an unrelated company for $600,000 that matures on May 20, 2016. The company paid $200,000 in principle balance leaving a remain balance of $430,000 including the extension fees  and is not convertible unless the borrower defaults under the amendment agreement dated January 1, 2017. The note bears 0% interest and had an original issue discount (OID) of $100,000. This note is not convertible unless there is a default event, so no BCF was valued. The Company extended the maturity date for the sixth time by issuing additional $30,000 convertible notes on January 1, 2017 to February 15, 2017 and per the terms of the note there are no derivatives until it becomes convertible on the original note, however the $30,000 addition for the extension is to be considered derivatives. The Lender released a clarification of amendments to convertible promissory notes that explained the $30,000 extension fees are the only portion that is to be considered as convertible and converts within 2 days of issuance. The intent of the amendment agreements were to insure the original note dated November 20, 2015 in the amount of $600,000. Due to the conversion into 145,929 shares of common stock on January 1, 2017 (extension date) and January 3, 2017 (conversion date) sequencing is required on other instruments. Because the terms do not dictate a maximum numbers of convertible shares, the ability to settle these obligations with shares would be unavailable causing these obligations to potentially be settled in cash. This condition creates a derivative liability Under ASC 815-40.The Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares. During the extension and conversion day period no additional convertible instruments were issued, therefore on the extension was considered in the derivative calculation. The Company extended the maturity date for the seventh time by increasing the principal balance by $30,000 on February 27, 2017 to May 6, 2017. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt.

On February 2, 2017, the Company amended the convertible note dated September 27, 2016 for $1,000,000 to extend the maturity date to June 30, 2017 and issued 200,000 warrants valued at $31,780. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt.

12

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 6 – NOTES PAYABLE - continued

 

On February 3, 2017, the Company issued a convertible note to an unrelated company for $258,000 that matures on August 3, 2017. The note bears 12% interest per annum and is convertible into shares of the Company’s common stock at 57.5% of the lowest price of the Company’s Common Stock during the thirty (30) trading days immediately prior to the conversion date. Additionally, the note contains a ratchet provision. The Company determined under ASC 815, that the embedded conversion feature (if offering of common stock is at no consideration or at a price that is lower than the effective conversion price on the date shares are offered for sale, then a ratchet down of effective exercise price to price per share offered for common stock would be used to determine additional shares to be issued). The Company has determined that this ratchet provision indicates that these shares, if issued, are not indexed to the Company’s own stock and, therefore, is an embedded derivative financial liability, which requires bifurcation and to be separately accounted for. At each reporting period, the Company will mark this derivative financial instrument to its estimated fair value.

In conjunction with the note, the Company issued to the holder 550,000 refundable shares of restricted Common Stock to be held in a treasury account and will be returned to the company if the note is paid on or before the due date. The value of the debt discount recorded was $163,749 and the debt discount related to the attached relative fair value of the restricted Common Stock was $94,251, for a total debt discount of $258,000, and a derivative expense of $65,750.

On February 23, 2017, the Company issued a convertible note to an unrelated company for $149,000 that matures on November 23, 2017. The note bears 10% interest per annum and is convertible into shares of the Company’s common stock at lesser of 40% of the average three lowest closing bids 20 days prior to the conversion date. Additionally, the note contains a ratchet provision. The Company determined under ASC 815, that the embedded conversion feature (if offering of common stock is at no consideration or at a price that is lower than the effective conversion price on the date shares are offered for sale, then a ratchet down of effective exercise price to price per share offered for common stock would be used to determine additional shares to be issued). The Company has determined that this ratchet provision indicates that these shares, if issued, are not indexed to the Company’s own stock and, therefore, is an embedded derivative financial liability, which requires bifurcation and to be separately accounted for. At each reporting period, the Company will mark this derivative financial instrument to its estimated fair value.

On February 23, 2017, the Company issued a convertible note to an unrelated company for $224,000 that matures on November 23, 2017. The note bears 10% interest per annum and is convertible into shares of the Company’s common stock at lesser of 40% of the average three lowest closing bids 20 days prior to the conversion date. Additionally, the note contains a ratchet provision. The Company determined under ASC 815, that the embedded conversion feature (if offering of common stock is at no consideration or at a price that is lower than the effective conversion price on the date shares are offered for sale, then a ratchet down of effective exercise price to price per share offered for common stock would be used to determine additional shares to be issued). The Company has determined that this ratchet provision indicates that these shares, if issued, are not indexed to the Company’s own stock and, therefore, is an embedded derivative financial liability, which requires bifurcation and to be separately accounted for. At each reporting period, the Company will mark this derivative financial instrument to its estimated fair value.

13

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 6 – NOTES PAYABLE - continued

Notes Payable – Related Parties

Notes payable due to related parties consisted of the following as of March 31, 2017 and June 30, 2016, respectively:

	March 31,	June 30,
	2017	2016
Various term notes with total face value of $627,500, of which, $610,000 was issued from April 2011 to January 2014 with a maturity date of June 2015, and $17,500 issued in November 2016 payable on demand, interest rates range from 0% to 15%, net of unamortized discount of $0 as of March 31, 2017 and June 30, 2016, respectively, of which $52,500 has been paid. $5,000 extinguishment of loan (modification). The notes issued from April 2011 to January 2014 are currently in default.	$580,000	$575,000
Total notes payable – related parties	580,000	575,000
Less current portion	580,000	575,000
Notes payable - related parties, long term	$-	$-

Notes Payable – Non-Related Parties

Notes payable due to non-related parties consisted of the following as of March 31, 2017 and June 30, 2016, respectively:

	March 31,	June 30,
	2017	2016
Various term notes with total face value of $40,488 due upon demand, interest rates range from 0% to 14%.	$40,488	$40,488
Total note payable – non-related parties	40,488	40,488
Less current portion	40,488	40,488
Notes payable – non-related parties, long-term	$-	$-

NOTE 7 – CONVERTIBLE PREFERRED STOCK

The Company has authorized 10,000,000 shares of $0.001 par value per share Preferred Stock, of which the following were issued outstanding:

	Shares	Shares	Liquidation
	Allocated	Outstanding	Preference
Series A Convertible Preferred	100,000	15,500	-
Series A-1 Convertible Preferred	3,000,000	2,685,000	2,796,152
Series B Convertible Preferred	200,000	3,500	35,000
Series C Convertible Preferred	1,000,000	13,404	-
Series D Convertible Preferred	375,000	130,000	-
Series E Convertible Preferred	1,000,000	275,000	-
Series P Convertible Preferred	600,000	86,640	-
Series S Convertible Preferred	50,000	-	-
Total Preferred Stock	6,325,000	3,209,044	2,861,152

14

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 7 – CONVERTIBLE PREFERRED STOCK - continued

The Company's Series A Convertible Preferred Stock ("Series A Preferred") is convertible into Common Stock at the rate of 0.025 share of Common stock for each share of the Series A Preferred. Dividends of $0.50 per share annually from date of issue, are payable from retained earnings, but have not been declared or paid.

The Company’s Series A-1 Senior Convertible Redeemable Preferred Stock (“Series A-1 Preferred”) is convertible at the rate of 2 shares of Common Stock per share of Series A-1 Preferred. The dividend rate of the Series A-1 Senior Convertible Redeemable Preferred Stock is 6% per share per annum in cash, or commencing on June 30, 2009 in shares of the Company’s Common Stock (at the option of the Company).

Due to the fact that the Series A-1 Preferred has certain features of debt and is redeemable, the Company analyzed the Series A-1 Preferred in accordance with ASC 480 and ASC 815 to determine if classification within permanent equity was appropriate.  Based on the fact that the redeemable nature of the stock and all cash payments are at the option of the Company, it is assumed that payments will be made in shares of the Company’s Common Stock and therefore, the instruments are afforded permanent equity treatment.

The Company's Series B Convertible 8% Preferred Stock ("Series B Preferred") is convertible at the rate of 0.067 share of Common Stock for each share of Series B Preferred. Dividends from date of issue are payable on June 30 from retained earnings at the rate of 8% per annum but have not been declared or paid.

The Company's Series C Convertible Preferred Stock ("Series C Preferred") is convertible at a rate of 0.007 share of Common Stock per share of Series C Preferred.  Holders are entitled to dividends only to the extent of the holders of the Company’s Common Stock receive dividends.

The Company's Series D Convertible Preferred Stock ("Series D Preferred") is convertible at a rate of 0.034 share of Common Stock per share of Series D Preferred.  Holders are entitled to a proportionate share of any dividends paid as though they were holders of the number of shares of Common Stock of the Company into which their shares of are convertible as of the record date fixed for the determination of the holders of Common Stock of the Company entitled to receive such distribution.

The Company's Series E Convertible Preferred Stock ("Series E Preferred") is convertible at a rate of 0.034 share of Common Stock per share of Series E Preferred. Holders are entitled to a proportionate share of any dividends paid as though they were holders of the number of shares of Common Stock of the Company into which their shares of are convertible as of the record date fixed for the determination of the holders of Common Stock of the Company entitled to receive such distribution.

The Company's Series P Convertible Preferred Stock ("Series P Preferred") is convertible at a rate of 0.007 share of Common Stock for each share of Series P Preferred. Holders are entitled to dividends only to the extent of the holders of the Company’s Common Stock receive dividends.

In the event of a liquidation, dissolution or winding up of the affairs of the Company, holders of Series A Preferred Stock, Series P Convertible Preferred Stock, Series C Convertible Preferred Stock have no liquidation preference over holders of the Company’s Common Stock.  Holders of Second Series B Preferred Stock have a liquidation preference over holders of the Company’s Common Stock and the Company’s Series A Preferred Stock.  Holders of Series D Preferred Stock are entitled to receive, before any distribution is made with respect to the Company’s Common Stock, a preferential payment at a rate per each whole share of Series D Preferred Stock equal to $1.00.  Holders of Series E Preferred Stock are entitled to receive, after the preferential payment in full to holders of outstanding shares of Series D Preferred Stock but before any distribution is made with respect to the Company’s Common Stock, a preferential payment at a rate per each whole share of Series E Preferred Stock equal to $1.00.  Holders of Series A-1 Preferred Stock are superior in rank to the Company’s Common Stock and to all other series of Preferred Stock heretofore designated with respect to dividends and liquidation.

15

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 7 – CONVERTIBLE PREFERRED STOCK - continued

 

The activity surrounding the issuances of the Preferred Stock is as follows: 

During the nine months ended March 31, 2017 the Company issued 550,000 shares of Series A-1 Preferred Stock for $550,000 in cash and paid $196,853 in cash offering costs.  The Company had one conversion of 50,000 shares of Series A-1 Preferred Stock for 100,000 shares of Common Stock, and issued 5,162 shares of Common Stock of payment of $2,581 in accrued dividends.

During the fiscal years ended June 30, 2016 the Company issued 1,669,000 shares of Series A-1 Preferred Stock for $1,382,390 in cash, net of $286,610 of issuance costs, respectively. The Company had two conversions of 100,000 shares of Series A-1 Preferred Stock for 200,000 shares of Common Stock, and issued 59,326 shares of Common Stock of payment of $26,769 in accrued dividends.

During the nine months ended March 31, 2017 and 2016, the outstanding Preferred Stock accumulated $129,855 and $67,712 in dividends on outstanding Preferred Stock. The cumulative dividends in arrears as of March 31, 2017 were approximately $857,831.

NOTE 8 – COMMON STOCK

The Company has authorized 250,000,000 shares of $0.001 par value per share Common Stock, of which 113,531,151 and 102,133,344 were issued outstanding as of March 31, 2017 and June 30, 2016, respectively. The Company amended its articles of incorporation on August 28, 2015 to increase the number of authorized shares to 250,000,000. The activity surrounding the issuances of the Common Stock is as follows:

For the Nine Months Ended March 31, 2017

The Company issued 1,463,334 shares of Common Stock for cash valued at $359,000 which includes a $80,000 subscription payable.

The Company issued 994,684 shares of Common Stock for the conversion of notes and accrued interest valued at $220,164.

The Company also issued 650,000 shares of Common Stock as incentive to notes valued at $127,600. The Beneficial Conversion was valued at $30,519.

The Company also issued 100,000 shares of Common Stock for the conversion of 50,000 shares of Series A-1 Preferred Stockand issued 5,162 shares of Common Stock of payment of $2,581 in accrued dividends.

The Company issued 2,667,876 shares of Common Stock as payment for services and rent valued at $847,616.

The Company issued 3,020,750 shares of Common Stock for the conversion warrants valued at $906,224.

The Company issued 12,500 shares of Common Stock for the extension of two convertible notes valued at $3,749.

As share-based compensation to employees and non-employees, the Company issued 880,366 shares of common stock valued at $328,128, based on the market price of the stock on the date of issuance. As interest expense on outstanding notes payable, the Company issued 1,603,135, shares of common stock valued at $569,020 based on the market price on the date of issuance.

Fiscal Year Ended June 30, 2016

The Company issued 2,667,919 shares of Common Stock for the conversion of notes and accrued interest valued at $446,757.

The Company also issued 200,000 shares of Common Stock for the conversion of 100,000 shares of Series A-1 Preferred Stockand issued 59,326 shares of Common Stock of payment of $26,769 in accrued dividends.

The Company also issued 886,098 shares of Common Stock for the conversion warrants valued at $175,914.

The Company also issued 26,000 shares of Common Stock as incentive to notes valued at $10,284 and recorded $22,375 in beneficial conversion features related to new issuances of debt.

The Company issued 496,137 shares of Common Stock as payment for services and rent valued at $225,413.

16

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

NOTE 8 – COMMON STOCK - continued

 

As share-based compensation to employees and non-employees, the Company issued 812,804 shares of common stock valued at $364,851, based on the market price of the stock on the date of issuance. As interest expense on outstanding notes payable, the Company issued 1,704,803 shares of common stock valued at $762,076 based on the market price on the date of issuance.

NOTE 9 – STOCK PURCHASE OPTIONS AND WARRANTS

The Board of Directors on June 10, 2009 approved the 2009 Long-Term Stock Incentive Plan.  The purpose of the 2009 Long-term Stock Incentive Plan is to advance the interests of the Company by encouraging and enabling acquisition of a financial interest in the Company by employees and other key individuals.  The 2009 Long-Term Stock Incentive Plan is intended to aid the Company in attracting and retaining key employees, to stimulate the efforts of such individuals and to strengthen their desire to remain with the Company.  A maximum of 1,500,000 shares of the Company's Common Stock is reserved for issuance under stock options to be issued under the 2009 Long-Term Stock Incentive Plan.  The Plan permits the grant of incentive stock options, nonstatutory stock options and restricted stock awards.  The 2009 Long-Term Stock Incentive Plan is administered by the Board of Directors or, at its direction, a Compensation Committee comprised of officers of the Company.

Stock Purchase Options

During the nine months ended March 31, 2017 and fiscal year ended June 30, 2016, the Company did not issue any stock purchase options.  

The following table summarizes the changes in options outstanding of the Company during the nine months ended March 31, 2017.

Date Issued	Number of Options	Weighted Average Exercise Price	Weighted Average Grant Date Fair Value	Expiration Date (yrs)	Value if Exercised
Balance June 30, 2016	25,000	$0.15	$0.24	2.00	$3,750
Granted	-	-	-	-	-
Exercised	-	-	-	-	-
Cancelled/Expired	-	-	-	-	-
Outstanding as of March 31, 2017	25,000	$0.15	$0.24	1.25	$3,750

The following table summarizes the changes in options outstanding of the Company during the fiscal year ended June 30, 2016.

Date Issued	Number of Options	Weighted Average Exercise Price	Weighted Average Grant Date Fair Value	Expiration Date (yrs)	Value if Exercised
Balance June 30, 2015	80,000	$0.66	$0.59	1.20	$52,900
Granted	-	-	-	-	-
Exercised	-	-	-	-	-
Cancelled/Expired	(55,000)	0.89	-	-	(49,150)
Outstanding as of June 30, 2016	25,000	$0.15	$0.24	2.00	$3,750

Stock Purchase Warrants

During the nine months ended March 31, 2017, the Company issued warrants to purchase a total of 5,865,668. The Company issued 100,000 warrants in conjunction with two promissory notes executed in February 2017. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.

17

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

 

NOTE 9 – STOCK PURCHASE OPTIONS AND WARRANTS - continued

 

During the fiscal year ended June 30, 2016, the Company issued warrants to purchase a total of 5,172,000. The Company issued 100,000 warrants in conjunction to an employment agreement entered into in July 2015 and 1,244,000 warrants in conjunction with a consulting agreement entered into December 2015 to June 2016. The Company issued 75,000 warrants in conjunction with a promissory note executed in October 2015. The Company issued 50,000 warrants as part of a commission’s agreement, 175,000 warrants as part of four advisory agreements. The Company also issued 3,338,000 warrants as part of a private placement and 190,000 warrants as part a finder’s fee agreement. The warrants were valued using the Black-Scholes pricing model under the assumptions noted below. The Company apportioned value to the warrants based on the relative fair market value of the Common Stock and warrants.

The following table presents the assumptions used to estimate the fair values of the stock warrants and options granted:

	March 31, 2017	June 30, 2016
Expected volatility	98-104%	106-114%
Expected dividends	0%	0%
Expected term	2-3 Years	2-5 Years
Risk-free interest rate	0.81-1.61%	0.71-1.01%

The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the nine months ended March 31, 2017.

	Number of Warrants	Weighted Average Exercise Price	Weighted Average Grant Date Fair Value	Expiration Date (yrs)	Value if Exercised
Outstanding as of June 30, 2016	35,034,550	$0.36	$0.45	4.31	$12,767,108
Granted	5,865,668	0.45	0.28	2.09	2,263,767
Exercised	(3,020,750)	-	-	-	-
Cancelled/Expired	(2,068,533)	0.34	-	-	(1,826,838)
Outstanding as of March 31, 2017	35,810,935	$0.37	$0.49	3.78	$13,204,037

The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the fiscal year ended June 30, 2016.

	Number of Warrants	Weighted Average Exercise Price	Weighted Average Grant Date Fair Value	Expiration Date (yrs)	Value if Exercised
Outstanding as of June 30, 2015	31,981,778	$0.43	$0.50	4.98	$13,585,289
Granted	5,172,000	0.45	0.33	3.52	2,316,000
Exercised	(813,360)	-	-	-	(630,364)
Cancelled/Expired	(1,175,868)	0.53	-	-	(2,513,817)
Outstanding as of June 30, 2016	35,034,550	$0.36	$0.45	4.31	$12,767,108

NOTE 10 – FINANCIAL INSTRUMENTS

The Company has financial instruments that are considered derivatives or contain embedded features subject to derivative accounting. Embedded derivatives are valued separately from the host instrument and are recognized as derivative liabilities in the Company’s balance sheet. The Company measures these instruments at their estimated fair value and recognizes changes in their estimated fair value in results of operations during the period of change. The Company has estimated the fair value of these embedded derivatives for convertible debentures and associated warrants using a multinomial lattice model as of March 31, 2017 and 2016. The fair values of the derivative instruments are measured each quarter, which resulted in a gain (loss) of $434,699 and $4,374,585, and derivative expense of $197,199 and $0 during the nine months ended March 31, 2017 and 2016, respectively. As of March 31, 2017 and June 30, 2016, the fair market value of the derivatives aggregated $1,539,737 and $0, respectively, using the following assumptions: estimated 0.12 5.02 year term, estimated volatility of 86.22-112.56%, and a discount rate of 0.44-1.87%.

18

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

 

NOTE 11 – FAIR VALUE MEASUREMENTS

For asset and liabilities measured at fair value, the Company uses the following hierarchy of inputs:

● Level one — Quoted market prices in active markets for identical assets or liabilities;

● Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

● Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Liabilities measured at fair value on a recurring basis at March 31, 2017, are summarized as follows:

	Level 1	Level 2	Level 3	Total
Fair value of derivatives	$-	$1,539,737	$-	$1,539,737
Securities available-for-sale	$63,000	$-	$-	$63,000

Liabilities measured at fair value on a recurring basis at June 30, 2016, are summarized as follows:

	Level 1	Level 2	Level 3	Total
Fair value of derivatives	$-	$-	$-	$-
Securities available-for-sale	$63,600	$-	$-	$63,600

NOTE 12 – COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company may become involved in certain legal proceedings and claims which arise in the normal course of business. The Company is not a party to any litigation. To the best of the knowledge of our management, there are no material litigation matters pending or threatened against us.

Lease Agreements

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 expires on December 31, 2017.  The total lease expense for the facility is approximately $15,375 per month, and the total remaining obligations under these leases at March 31, 2017, were approximately 180,644

19

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

March 31, 2017 and June 30, 2016

 

NOTE 12 – COMMITMENTS AND CONTINGENCIES - continued

 

We lease a warehouse space located at 8260 E Gelding Drive, Suite 102, Scottsdale, Arizona, 85260.  The lease expires on February 28, 2019.  The total lease expense for the facility is approximately $1,821 per month, and the total remaining obligations under these leases at March 31, 2017, were approximately $56,685.

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 $7,148 per month, and the total remaining obligations under these leases at March 31, 2017, were approximately $437,455

Below is a table summarizing the annual operating lease obligations over the next 5 years:

Year	Lease Payments
2017	289,882
2018	244,517
2019	145,668
2020	133,347
2021	137,315
Total	$950,729

Other

The Company has not declared dividends on Series A or B Convertible Preferred Stock or its Series A-1 Convertible Preferred Stock. The cumulative dividends in arrears through March 31, 2017 were approximately $857,831.

As of the date of this filing, the Company has not filed its tax return for the fiscal year ended 2015 and 2016.

NOTE 13 - SUBSEQUENT EVENTS

In accordance with ASC 855, Company’s management reviewed all material events through the date of this filing and determined that there were the following material subsequent events to report:

On November 20, 2015, the Company issued a convertible note to an unrelated company for $600,000 that matures on May 20, 2016. The company paid $200,000 in principle balance leaving a remain balance of $430,000 including the extension fees  and is not convertible unless the borrower defaults under the amendment agreement dated January 1, 2017. The note bears 0% interest and had an original issue discount (OID) of $100,000. This note is not convertible unless there is a default event, so no BCF was valued. The Company extended the maturity date for the sixth time by issuing additional $30,000 convertible notes on January 1, 2017 to February 15, 2017 and per the terms of the note there are no derivatives until it becomes convertible on the original note, however the $30,000 addition for the extension is to be considered derivatives. The Lender released a clarification of amendments to convertible promissory notes that explained the $30,000 extension fees are the only portion that is to be considered as convertible and converts within 2 days of issuance. The intent of the amendment agreements were to insure the original note dated November 20, 2015 in the amount of $600,000. Due to the conversion into 145,929 shares of common stock on January 1, 2017 (extension date) and January 3, 2017 (conversion date) sequencing is required on other instruments. Because the terms do not dictate a maximum numbers of convertible shares, the ability to settle these obligations with shares would be unavailable causing these obligations to potentially be settled in cash. This condition creates a derivative liability Under ASC 815-40.The Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares. During the extension andconversion day period no additional convertible instruments were issued, therefore on the extension was considered in the derivative calculation. The Company extended the maturity date for the seventh time by increasing the principal balance by $30,000 on February 27, 2017 to May 6, 2017. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt.

In April 2017, the Company issued 458,332 shares of Common Stock for $137,500 in cash as part of a private placement. The Company also issued 916,664 warrants as part of a private placement valued at $102,620. The warrants are considered derivative liabilities under ASC 815-40 under the Company’s sequencing policy and were valued using the multinomial lattice model.

On October 27, 2015, the Company issued a convertible note to an unrelated individual for $100,000 with an extended maturity date on January 31, 2017. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.40 per share.  The note holder elected to convert the principal of $100,000 at a modified rate of $0.30 per share for 333,333 shares of Common stock. In addition the note holder received 666,666 warrants valued at $93,582. The warrants are considered derivative liabilities under ASC 815-40 under the Company’s sequencing policy and were valued using using the multinomial lattice model.

20

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

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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

 

All references in this report to “we,” “our,” “us,” the “Company” or “AfterMaster” refer to AfterMaster, Inc., and its subsidiary and predecessors.

General

Corporate Background

We are a Delaware corporation, incorporated on about May 12, 1988, traded on the Over-The-Counter Bulletin Board (ticker symbol: AFTM). As of February 14, 2017, there were 109,540,477 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, 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 wholly-owned 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 productsfor professional and consumer use, including AfterMaster® audio, ProMaster™, Aftermaster Pro™ and MyStudio®. The Company also operates recording and mastering studios at its Hollywood facilities.

AfterMaster holds an unparalleled position in the audio technology industry and it is operated by a world-class team of experts with and extensive experience in music and audio technology. The AfterMaster team has produced, engineered and mastered more hit music than any other audio company in the world. We believe that our expertise and technical skills have led us to develop audio technologies unmatched in the audio industry. Aftermaster technologies are both patented and patent pending and have won several awards.www.aftermaster.com

Mission Statement

Aftermaster's goal is to become one of the most important and valuable audio companies in the world through the development and licensing of proprietary audio technologies, the development and sales of leading-edge consumer electronics products and through its contributions in the production, mixing and mastering of music, television and film audio.

Quarterly Summary

The Company is pleased to report that during the quarter ending March 31, 2017, it has recorded its highest quarterly cash revenues since developing its Aftermaster technology. The revenues were generated from the sale of its proprietary Aftermaster Pro consumer electronics product and from its on-line and professional mastering services. To date, the Company has generated over $1,000,000 in sales from its Aftermaster Pro and we expect that revenues will continue to increase in the coming months both from the sales of the Aftermaster Pro and growth in the Company’s other divisions.

The Company has developed an aggressive marketing and sales plan for the Aftermaster Pro, which is the Company's first consumer electronics product completely developed in-house. The Aftermaster Pro recently debuted on national television on the Home Shopping Network (HSN) television show on April 15, 2017. It will soon be sold in Crate and Barrel's "CB2" stores (see below) and several other prominent retail outlets in the near future.

The Company has engaged a manufacturer in Arizona for our Aftermaster Pro who is now both actively fulfilling our presale commitments and ramping up production for our retail distribution channel which includes multiple retailers. The Company has issued an initial purchase order and paid a substantial deposit for the electronic components and manufacturing of the first 100,000 circuit boards. 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued 

During the quarter, the Company engaged Mr. Bruce Pivic as Director of Manufacturing. Bruce has over 45 years of experience in manufacturing and broadcasting. Mr. Pivic has a degree in electrical engineering from the University of Wyoming specializing in electronics and product development. His experience with Honeywell/GE product development brings experience in development and manufacturing quality. Mr. Pivic for the past 20 years has been the CEO and manufacturing specialist for Infinity Power and Controls. Bruce is also the owner and CEO of Big Thicket Broadcasting operating 3 FM Radio stations (KQSW, KMRZ, KSIT) and one AM radio station KRKK. KQSW presently is the first terrestrial radio station using the Aftermaster Pro in their everyday radio broadcasting.

The Company also recently announced that after an extensive renovation, it has opened 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 next to its existingstudios in Hollywood at Crossroads of the World. 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 musicians. The Company considers it to be one of the finest recording studios in the US and it began generating revenue in the first quarter of 2017. It is the largest of the six studios that Aftermaster now operates at its studio facilities in Hollywood.  www.aftermaster.com/studios

Investment Bankers

The recent successful introduction of our Aftermaster pro has led the Company to engage a respected investment banking firm that specializes in small cap stocks, Maxim Group of New York, to assist the Company in concurrently raising the capital to both extinguish its current debt and to provide the additional capital required for the company to complete an up-listing of its shares to a larger trading platform. Such financing is contingent on market conditions, share price and the performance of the company over the next two quarters and there is no guarantee that we will raise such capital or complete such an uplisting.

AfterMaster AudioTechnology

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, Paul Wolff, Andrew Wuepper and Shelly Yakus. See www.AfterMaster.com/.

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 (mobile, home, business and VoIP); headphones; televisions; stereo speakers; stereos (home, portable, commercial and automobile); and computers (desktop, laptop and tablets).    

AfterMaster audio is also the only commercial audio enhancement technology available that is 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Home Shopping Network

On April 15, 2017, the Company introduced its Aftermaster Pro personal re-mastering device, on national television on the Home Shopping Network (HSN) show, during two 15-minute infomercials. Home Shopping Network is one of the world’s largest television retailers. HSN purchased 1,000 Aftermaster Pro's and considered the launch to be a big success. HSN provides a unique format which provides the Company with the opportunity to explain the features and operation of its Aftermaster Pro in detail on national television. The Company expects that Aftermaster Pro will continue to be featured on HSN and by other television, on-line and store based retailers.

CB2 Marketing Agreement

CB2 (a division of Crate and Barrel), an industry leading lifestyle furniture retailer, and the Company, have entered into a partnership tobring music and lifestyle spaces together like never before. CB2 has unique positioning in the furnishings industry as a modern, affordable and socially responsible brand who regularly offers its sophisticated clientele new and exciting opportunities to better their lifestyle and living environments. 

Under the partnership, CB2 customers will receive the chance to obtain unprecedented leading-edge audio through Aftermaster’s revolutionary technology to be showcased with the CB2 platforms in a myriad of ways. The multi-tier collaboration will span throughout 2017 and beyond. As part of their collaborative strategic venture, CB2 will offer the Company's AftermasterPropersonal audio remastering devices, at key store locations across North America: West Hollywood, New York: Soho, South Beach, Chicago, and Austin. They will go on sale in June, and will retail at $189.99 in stores and on-line at CB2's website.

In addition, Aftermaster will now be a part of powering the CB2“After Hours” concert series. The “After Hours”events transform CB2 locales into intimate nocturnal music experiences. Just after closing time, the stores play host to a bevy of notable artists as they perform a one-of-a-kind show to an exclusive audience sipping on cocktails in a chic and sophisticated atmosphere. Aftermaster provides audio capability for these shows, with its proprietary technology and offers unrivaled sound in real-time. Attendees may also try the Aftermaster Pro at demo stations throughout the stores during these events.

Extending this partnership, CB2 will also be outfitting AfterMaster's famous music recording studios at Crossroads of the World in Hollywood, with a complete makeover of new furniture including "first-to-be-seen" pieces from their latest collection.

Icon Health and Fitness

In December of 2016, the Company entered into a Consulting and License Agreement with ICON Health & Fitness, Inc. (“ICON”), pursuant to which the Company would act as audio technology development consultant to develop an Aftermaster based sound module for use or integration with ICON’s exercise equipment and provide audio tuning services to provide improved sound quality for ICON’s audio enabled equipment, and pursuant to which ICON would pay the Company a per module fee and receive a license from the Company to use or sell the modules and use the software relating to each module. 

The Company has agreed with ICON on a product development schedule and the companies currently expect to complete an Aftermaster equipped premium fitness product for debut in the 2017 Holiday season. 

ICON Health and Fitness, Inc. is the world’s largest manufacturer and marketer of home fitness equipment. ICON manufactures treadmills, elliptical trainers, stationary bicycles, weight machines and benches, and yoga and Pilates equipment. ICON has a wide range of brands, products and technologies, and sells home fitness and health club equipment under the following brands: NordicTrack®, ProForm®, Weider®, Gold's Gym® Home Fitness and FreeMotion®. Their fitness technology brand, including Wi-Fi-enabled fitness equipment and fitness wearables, is iFit®.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued 

AfterMaster Professional Music Mastering and TuneCore Agreement

Aftermaster offers world-class, professional and hands-on mastering services for music, TV and film customers in its facilities in Hollywood, California. The Pro Mastering division is headed up by Mr. Peter Doell, one of the world's foremost mastering engineers. 

Currently TuneCore is one of the world's largest independent digital music distribution and publishing administration service. Under the agreement, Aftermaster has become the new professional mastering service for TuneCore artists on an exclusive basis. TuneCore has one of the highest artist revenue-generating music catalogs in the world, earning TuneCore Artists $733 million from over 36.5 billion downloads and streams since inception. TuneCore 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 artists have direct access to Aftermaster's world-class senior mastering engineers, and within 72 hours, they get their tracks mastered, returned and ready for distribution. The partnership builds upon TuneCore's mission to provide independent artists with key tools to build their careers, by granting access to unparalleled mastering that meets the industry's highest standards. 

Adobe Audition

Aftermaster's ProMaster on-line audio mastering service has been chosen to be included with Adobe® Audition® CC, a professional audio workstation for mixing, finishing and editing audio/video. The integration of ProMaster will allow Adobe Audition CC users to instantly master their original work directly within Adobe Creative Cloud®. ProMaster infuses the clearest, deepest sound quality into any recording, which elevates that audio to a studio remastered sound experience. Adobe's Audition CC with ProMaster HD will enable its users to substantially cut editing time and enhance original audio work into fuller, deeper, louder and clearer tracks. When ready, users will install the ProMaster extension from the Adobe Add-ons marketplace. 

The integration of ProMaster into Adobe Audition has been delayed due the Company undertaking a complete redesign of its ProMaster website including adding many new features to the platform. The Company expects to complete the integration in the coming months.

Aftermaster Consumer Electronics Products

The Company has assembled a world-class branding and design team who has designed the first consumer electronics product developed by the Company, "Aftermaster Pro". AfterMaster Pro is the worlds 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, especially about having to continually adjust the volume because they have difficulty hearing dialogue in certain programming. Documented feedback from thousands of TV owners have provided the company with valuable data that confirms that no manufacturer is delivering the audio solutions and the sound quality of our Aftermaster Pro. 

Smaller than an iPhone, Aftermaster Pro transforms the audio of your TV, smartphone, headphones, laptop, tablet, gaming unit, or virtually any audio-enabled device to sound clearer, fuller, deeper, and more exciting. AfterMaster Pro connects easily via HDMI or 3.5mm audio cables with virtually any media source (cable, satellite box, cell phone, computer, tablet, etc.). When used with a Television, Aftermaster Pro raises and clarifies dialogue in programming while significantly enhancing the quality of the overall audio content. This solves the longstanding issue with TV audio of having to continually adjust volume during a TV show to hear dialogue. When used portable with its built-in battery, Aftermaster transforms music and video to standards that we believe are superior to any portable audio enhancement device. 

The Company has sold thousands of Aftermaster Pro's to buyers in 65 countries, and has generated revenues over $1,000,000. A majority of the sales were at $150 per unit. www.aftermasterpro.com. The Company recently engaged a new manufacturer and is beginning to manufacture units in commercially significant numbers.

25

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Additional Aftermaster branded products are under development, which we expect to introduce in the coming year.

ON Semiconductor/AfterMaster Audio Chip and Software

The Company is party to a multi-year joint development and marketing agreement with ON Semiconductor ("ON") of Phoenix, Arizona, to commercialize its technology through audio semiconductor chips. ON is a multi-billion dollar, multi-national semiconductor designer and manufacturer.

The agreement calls for ON to implement and support our AfterMaster technology in a Digital Signal Processor (DSP) semiconductor chip that is being marketed to their current OEM customers, distributors and others. We selected ON for its technical capabilities, sales support and deep customer pool.

In conjunction with ON, we have completed the development of an AfterMaster software algorithm that is designed to be used in semiconductor chips or as a standalone software product. We believe the sound quality from our algorithm provides a superior audio experience relative to other products on the market.

Now 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. 

Since entering into the agreement, both the Company and ON have identified a large number of prospective customers that will be key targets for this new and unprecedented technology. 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. Through the combined relationships of the Company and ON, we hope to generate significant revenues for both parties through the sale of the ON/AfterMaster chips and software licensing. 

The sales efforts of our semiconductor chips and Aftermaster software have been substantially delayed, as the sales plans and efforts relied on the completion of the Aftermaster Pro, which was just recently completed. Despite the delay, the Company currently has several sales and licensing agreements pending which it expects to finalize during the year.

ProMaster

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 on-line 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. Based on the enormous addressable market for this product, we believe that ProMaster has the potential to generate significant revenues for the Company.

Our ProMaster on-line music mastering product is in the final stages of a complete redesign including the addition of new features. The current website will remain active until the new website is launched in the coming months. www.promasterhd.com

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued 

Recording and Mastering Studios

Aftermaster operates 6 recording and mastering studios at its Hollywood California facility. The Company’s engineers mix and master music for both independent and high profile artists and they are currently mastering the music for the hit TV show "Empire". 

The Company recently took over the former recording studio built by music legends Crosby, Stills and Nash in 1977, which is located next to its existing studios. The Company recently completely renovated the studio and installed state-of-the-art equipment. The Company considers the new studio to be one of the finest recording studios in the US and expects it to begin generating revenues in the first quarter of 2017. www.aftermaster.com/studios

Intellectual Property and Licensing

The Company has been awarded six patents and six 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, and we rigorously control access to proprietary technology. During the year, the Company engaged Mr. Morgan Chu of Irell and Manella, to represent its intellectual property interests along with IP attorneys Farjami & Farjami LLP, and, Arnold Weintraub, of the Weintraub Group. Mr. Weintraub serves on the Board of the Company.

Employees

As of March 31, 2017, we employed thirteen full-time and one part-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 is 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 expires on December 31, 2017.  The total lease expense for the facility is approximately $15,375 per month, and the total remaining obligations under these leases at March 31, 2017, were approximately 180,644

We lease a warehouse space located at 8260 E Gelding Drive, Suite 102, Scottsdale, Arizona, 85260.  The lease expires on February 28, 2019.  The total lease expense for the facility is approximately $1,821 per month, and the total remaining obligations under these leases at March 31, 2017 were approximately $51,224

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 $7,148 per month, and the total remaining obligations under these leases at March 31, 2017 were approximately $437,455.

RESULTS OF OPERATIONS 

Revenues
	Three Months Ended
	March 31,
	2017	2016
AfterMaster Revenues	$266,621	$19,320
Total Revenues	$266,621	$19,320

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

Revenues
	Nine Months Ended
	March 31,
	2017	2016
AfterMaster Revenues	$369,844	$75,254
Licensing Revenues	-	1,800,000
Total Revenues	$369,844	$1,875,254

We currently generate revenue from our operations through two activities: AfterMaster revenues, and licensing 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. AfterMaster revenues for the quarter ending March 31, 2017, increased to $266,621, as compared to $19,320 for the comparable quarter ending March 31, 2016, the increases were due primarily to an increase in the mastering and remastering of music and licensing by our customers and recognition of deferred revenues from sales.

Licensing revenues are generated by licensing certain technologies, intellectual property, and patents to third parties.  Our licensing revenues were $0 and $1,800,000 during the quarter ending March 31, 2017 and March 31, 2016, respectively.

In the aggregate, total Company revenues decreased to $369,844 for the quarter ending March 31, 2017, as compared to total revenues of $1,875,254 for the quarter ending March 31, 2016, due to the licensing contract revenue with bBooth in the prior period.

Cost of Revenues
	Three Months Ended
	March 31,
	2017	2016
Cost of Revenues (excluding depreciation and amortization)	$243,628	$115,345

Cost of Revenues

	Nine Months Ended
	March 31,
	2017	2016
Cost of Revenues (excluding depreciation and amortization)	$563,403	$317,428

Cost of sales consists primarily of AfterMaster Studio Rent, Consultants, senior engineers, and Internet connectivity and excludes depreciation and amortization on the studios. The increase in cost of sales for the nine months ended March 31, 2017, over the comparable period for the prior fiscal year, is attributable, primarily, to the Company hiring a new senior engineer and increase in studio rent for new state-of-the-art recording studio.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued 

Other Operating Expenses
	Three Months Ended
	March 31,
	2017	2016
Depreciation and Amortization Expense	$46,322	$18,927
Research and Development	45,972	177,315
Advertising and Promotion Expense	24,865	125,597
Legal and Professional Expense	61,360	85,390
Non-Cash Consulting Expense	427,499	886,874
General and Administrative Expenses	653,160	841,976
Total	$1,259,178	2,136,079

Other Operating Expenses
	Nine Months Ended
	March 31,
	2017	2016
Depreciation and Amortization Expense	$131,876	$53,928
Research and Development	138,987	331,681
Advertising and Promotion Expense	42,509	269,982
Legal and Professional Expense	116,430	342,803
Non-Cash Consulting Expense	1,959,408	3,074,385
General and Administrative Expenses	2,281,202	2,869,063
Total	$4,670,412	$6,941,842

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; advertising and promotion expenses; rent and facilities; and expenses related to the issuance of stock compensation.

During the three months ending March 31, 2017, Research and Development costs decreased by $131,343, Advertising and Promotion decreased by $100,732, Legal and Professional fees decreased by $24,030 and consulting services decreased by $459,375, as compared to the three months ending March 31, 2016. The decreases in Research and Development, Advertising and Promotion, and consulting services are primarily due to the design, development and marketing of its Aftermaster Pro consumer hardware product. Legal and Professional fees decrease are primarily to the company only using one attorney on a monthly retainer to handle all the company’s legal needs.

During the nine months ending March 31, 2017, Research and Development costs decreased by $192,694, Advertising and Promotion decreased by $227,473, Legal and Professional fees decreased by $226,373 and consulting services decreased by $1,114,977, as compared to the nine months ending March 31, 2016. The decreases in Research and Development, and decreases in Advertising and Promotion, and consulting services are primarily due to the design, development and marketing of its Aftermaster Pro consumer hardware product. Legal and Professional fees decrease are primarily to the company only using one attorney on a monthly retainer to handle all the company’s legal needs.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued 

Other Income (Expense)
	Three Months Ended
	March 31,
	2017	2016
Interest Expense	$(401,829)	$(275,449)
Derivative Expense	(197,200)	-
Change in Fair Value of Derivatives	(434,125)	-
Total	$(1,033,154)	$(275,449)

Other Income (Expense)
	Nine Months Ended
	March 31,
	2017	2016
Interest Expense	$(1,149,424)	$(706,174)
Derivative Expense	(197,200)	-
Change in Fair Value of Derivative	(434,699)	4,374,585
Loss on Available for Sale Securities	-	(1,770,000)
Gain (Loss) on Extinguishment of Debt	9,236	143,344
Total	(1,772,087)	2,041,755

The other income (expense) during the quarter ended March 31, 2017 totaling $(1,772,087) of net expenses, which consists of change in fair value of derivative and interest. During the comparable period in 2016, other income and expenses totaled $(2,041,755). Interest expense has increased primarily due to an increase in non-cash interest expense relating to warrants attached to recent debt discount.  These additional borrowings have been used in the development of the AfterMaster HD. Derivative expense has increased and change in fair value of derivatives has decreased due to the issuance of derivative instruments in the current period and the company revaluing the instruments at the end of the current period. Gain on extinguishment of debt decreased in the current period due to having less notes extinguished in the current period.

Net Loss
	Three Months Ended
	March 31,
	2017	2016
Net Loss	$(2,269,339)	$(2,507,553)

Net Loss
	Nine Months Ended
	March 31,
	2017	2016
Net Loss	$(6,636,058)	$(3,342,261)

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

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” , these non-cash issuances are expensed at the equity instruments fair market value. 

LIQUIDITY AND CAPITAL RESOURCES

The Company had revenues of $369,844 during the nine months ended March 31, 2017 as compared to $1,875,254 in the comparable period of 2016.  The Company has incurred losses since inception of $70,421,250.  At March 31, 2017, the Company has negative working capital of $7,902,226, which was a decrease in working capital of $2,808,072 from June 30, 2016.  

The Company had cash of $169,454 as of March 31, 2017, as compared to $394,325 as of June 30, 2016.  The company entered into twenty-three (23) Share Purchase Agreements with individual accredited investors resulting in net proceeds of $712,148 to the Company compared to eleven (11) Share Purchase Agreements with individual accredited investors resulting in net proceeds of $373,588 to the Company from the prior period. This amount was partially offset by operational costs, purchases of assets, and payments of obligations from convertible notes, notes, and lease payables.

The Company had prepaid expense of $764,400 as of March 31, 2017, as compared to $1,097,036 as of June 30, 2016.  The decrease is due to the Company amortizing the prepaid expenses totaling $1,959,408 over the nine months ended March 31, 2017, partially offset by the issuance of nine consulting agreements entered into in the current year.

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, 2017, 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.  

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued

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.  

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

ITEM 4T.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer, President, and Chief Financial Officer (the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for the Company.  The Certifying Officers have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this Report was prepared.

The Certifying Officers responsible for establishing and maintaining adequate internal control over financial reporting for the Company used the “Internal Control over Financial Reporting Integrated Framework” issued by Committee of Sponsoring Organizations (“COSO”) to conduct an extensive review of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act, Rules 13a-15(e) and 15-d-15(e)) as of the end of each of the periods covered by this Report (the “Evaluation Date”).  Based upon that evaluation, the Certifying Officers concluded that, as of March 31, 2017, and June 30, 2016, our disclosure controls and procedures were not effective in ensuring that the information we were required to disclose in reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission (“SEC”) rules and forms.

The Certifying Officers based their conclusion on the fact that the Company has identified material weaknesses in controls over financial reporting, detailed below.  In order to reduce the impact of these weaknesses to an acceptable level, hawse have contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  However, even with the added expertise of these consultants, we still expect to be deficient in our internal controls over disclosure and procedures until sufficient capital is available to hire the appropriate internal accounting staff and individuals with requisite GAAP and SEC financial reporting knowledge.  There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  Management used the “Internal Control over Financial Reporting Integrated Framework” issued by COSO to conduct an extensive review of the Company’s internal controls over financial reporting to make that evaluation.  As of June 30, 2016 and June 30, 2015, the Company had identified deficiencies in internal controls that constituted material weaknesses in internal controls. Due to these material weaknesses, management concluded that internal controls over financial reporting as of March 31, 2017 and June 30, 2016 were not effective, based on COSO’s framework.  

The deficiencies are attributed to the fact that the Company does not have adequate resources to address complex accounting issues, as well as an inadequate number of persons to whom it can segregate accounting tasks within the Company so as to ensure the segregation of duties between those persons who approve and issue payment from those persons who are responsible to record and reconcile such transactions within the Company’s accounting system.  These control deficiencies will be monitored and attention will be given to the matter as we continue to accelerate through our current growth stage.

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ITEM 4T.  CONTROLS AND PROCEDURES - continued

 

Management has concluded that these control deficiencies constitute a material weakness that continued throughout fiscal year 2017.  In order to reduce the impact of these weaknesses to an acceptable level, we have contracted with consultants with expertise in U.S. GAAP and SEC financial reporting standards to review and compile all financial information prior to filing that information with the SEC.  However, even with the added expertise of these consultants, we still expect to be deficient in our internal controls over disclosure and procedures until sufficient capital is available to hire the appropriate internal accounting staff and individuals with requisite GAAP and SEC financial reporting knowledge. There were no significant changes in our internal control over financial reporting or in other factors that occurred during our most recent fiscal year that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Legal Proceedings

The Company may become involved in certain legal proceedings and claims which arise in the normal course of business. The Company is not a party to any litigation. To the best of the knowledge of our management, there are no material litigation matters pending or threatened against us.

ITEM 1A - RISK FACTORS

Not required.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the nine months ended March 31, 2017, no matters were submitted to the shareholders for a vote.

ITEM 5. OTHER INFORMATION

Subsequent Events

On November 20, 2015, the Company issued a convertible note to an unrelated company for $600,000 that matures on May 20, 2016. The company paid $200,000 in principle balance leaving a remain balance of $430,000 including the extension fees  and is not convertible unless the borrower defaults under the amendment agreement dated January 1, 2017. The note bears 0% interest and had an original issue discount (OID) of $100,000. This note is not convertible unless there is a default event, so no BCF was valued. The Company extended the maturity date for the sixth time by issuing additional $30,000 convertible notes on January 1, 2017 to February 15, 2017 and per the terms of the note there are no derivatives until it becomes convertible on the original note, however the $30,000 addition for the extension is to be considered derivatives. The Lender released a clarification of amendments to convertible promissory notes that explained the $30,000 extension fees are the only portion that is to be considered as convertible and converts within 2 days of issuance. The intent of the amendment agreements were to insure the original note dated November 20, 2015 in the amount of $600,000. Due to the conversion into 145,929 shares of common stock on January 1, 2017 (extension date) and January 3, 2017 (conversion date) sequencing is required on other instruments. Because the terms do not dictate a maximum numbers of convertible shares, the ability to settle these obligations with shares would be unavailable causing these obligations to potentially be settled in cash. This condition creates a derivative liability Under ASC 815-40. The Company has a sequencing policy regarding share settlement wherein instruments with the earliest issuance date would be settled first. The sequencing policy also considers contingently issuable additional shares, such as those issuable upon a stock split, to have an issuance date to coincide with the event giving rise to the additional shares. During the extension and conversion day period no additional convertible instruments were issued, therefore on the extension was considered in the derivative calculation. The Company extended the maturity date for the seventh time by increasing the principal balance by $30,000 on February 27, 2017 to May 6, 2017. The Company evaluated amendment under ASC 470-50, “Debt - Modification and Extinguishment”, and concluded that the extension did not result in significant and consequential changes to the economic substance of the debt and thus resulted in a modification of the debt and not extinguishment of the debt.

33

ITEM 5. OTHER INFORMATION - continued

In April 2017, the Company issued 458,332 shares of Common Stock for $137,500 in cash as part of a private placement. The Company also issued 916,664 warrants as part of a private placement valued at $102,620. The warrants are considered derivative liabilities under ASC 815-40 under the Company’s sequencing policy and were valued using the multinomial lattice model.

On October 27, 2015, the Company issued a convertible note to an unrelated individual for $100,000 with an extended maturity date on January 31, 2017. The note bears interest rate of 6% per annum and is convertible into shares of the Company’s Common stock at $0.40 per share.  The note holder elected to convert the principal of $100,000 at a modified rate of $0.30 per share for 333,333 shares of Common stock. In addition the note holder received 666,666 warrants valued at $93,582. The warrants are considered derivative liabilities under ASC 815-40 under the Company’s sequencing policy and were valued using the multinomial lattice model.

ITEM 6. EXHIBITS

a) The following Exhibits are filed herein:

NO. TITLE

31.1 Certification of Chief Executive Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer pursuant to the Securities Exchange Act of 1934, Rules 13a-14 and 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 Certification of Chief Executive Officer and of Chief Financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

34

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	AFTERMASTER, INC.
Date: May 15, 2017	By:	/s/ Larry Ryckman
		Larry Ryckman,
		Title:   President and Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

	AFTERMASTER, INC.
Date: May 15, 2017	By:	/s/ Larry Ryckman
		Larry Ryckman,
		Title:  Director, President, Chief Executive Officer

	AFTERMASTER, INC.
Date: May 15, 2017	By:	/s/ Mirella Chavez
		Mirella Chavez
		Title:   Chief Financial Officer, Secretary

35