AfterMaster, Inc. (OTCMKTS:AFTM) Files An 8-K Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim ReviewItem 4.02
Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
On October 12, 2018, the Board of Directors of AfterMaster, Inc. (the “Company”) determined that the Company’s financial statements in each of the Quarterly Reports on Form 10-Q for the quarterly periods ended September 30, 2017, December 31, 2017, and March 31, 2018 (such Quarterly Reports collectively the “Quarterly Reports”), should not be relied upon because of the following issues discovered in the course of the Company’s preparation and audit of its financial statements for the year ended June 30, 2018.
During the September 30, 2017 quarter, the Company sold $400,000 of its product to its manufacturer for $400,000 and recorded it as gross revenue. The transaction eliminated $400,000 in short term debt. During the course of the audit it was determined that the transaction should have been classified as net sales. Accordingly, the Company should not have (i) recognized gross revenue of $400,000 for the sale related to 4,000 units to the Company’s manufacturer, (ii) recognized the cost of sales related to 4,000 units of Company products soldto that manufacturer in the amount of $400,000.
The Company also determined that it erroneously overstated the derivative liability as of September 30, 2017 and it should be reduced by $485,031.
During the December 31, 2017 quarter, the Company sold $90,000 of its product to its manufacturer for $120,000 and recorded it as gross revenue. The transaction eliminated $90,000 in short term debt. During the course of the audit it was determined that the transaction should have been classified as net sales. Accordingly, the Company should not have (i) recognized gross revenue of $120,000 for the sale related to the 1,000 units to the Company’s manufacturer and should have only recognized $30,000 in net revenue, (ii) recognized the cost of sales of $90,000 related to 1,000 units of Company product sold to that manufacturer, or (iii) decreased derivative liabilities by $356,396 by including in the derivative liability calculation convertible debt that did not include elements that would trigger derivative treatment.
During the March 31, 2018 quarter, the Company is (i) recording changes made in the September 30, 2017 and the December 31, 2017 quarters, and (ii)increasing derivative liabilities by $365,803 due to the Company using the incorrect discounted conversion rate to arrive at the conversion price and number of shares that could be issued and using an incorrect maturity date to estimate the useful life on several notes used in the derivative liability calculation.
The Company has contemporaneously filed with this 8-K the amended Quarterly Reports on Form 10-Q/A (the “Amended Quarterly Reports”). The differences between the Quarterly Reports and the Amended Quarterly Reports are identified in the Amended Quarterly Reports.
The Company’s 10-K filed October 15, 2018 reflects the net result of the changes from the restatements.
The Company’s authorized officer discussed with the Company’s independent certifying accountant, Sadler Gibb & Associates, LLC (“Sadler Gibb”) the matters discussed in this report.
About AfterMaster, Inc. (OTCMKTS:AFTM)
Aftermaster, Inc. is an audio technology company. The Company and its subsidiaries are engaged in the development and commercialization of audio and video technologies for professional and consumer use, including AfterMaster audio, ProMaster, Aftermaster Pro and MyStudio. As of June 30, 2016, the Company operated six recording and mastering studios at its Hollywood California facility. AfterMaster Audio Technology is an internally-developed mastering, remastering and audio processing technology. AfterMaster Pro is a personal audio re-mastering device. Aftermaster Pro transforms the audio of television, smartphone, headphones, laptop, tablet, gaming unit, or virtually any audio-enabled device. ProMaster is an online music mastering, streaming and storage service designed for independent artists, which utilizes audio technologies developed by it. ProMaster will master a user’s uploaded music and allows them to compare up to 90 seconds of their original to the newly mastered songs.
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