U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

o 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.

x Yes o 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).

x Yes o 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	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x

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

o Yes x No

At November 15, 2019, the number of shares outstanding of Common Stock, $0.001 par value, was 318,486,038 shares.

AFTERMASTER, INC.

INDEX

PART I - FINANCIAL INFORMATION

		PAGE NUMBER
Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets – September 30, 2019 and June 30, 2019 (unaudited)	3

	Condensed Consolidated Statements of Operations - For the three months ended September 30, 2019 and 2018 (unaudited)	4

	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) - For the three months ended September 30, 2019 and 2018 (unaudited)	5

	Condensed Consolidated Statements of Cash Flows - For the three months ended September 30, 2019 and 2018 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3.	Quantitative and Qualitative Disclosure About Market Risks	28

Item 4T.	Controls and Procedures	28

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 3.	Defaults Upon Senior Securities	29

Item 4.	Submission of Matters to a Vote of Security Holders	29

Item 5.	Other Information	29

Item 6.	Exhibits	30

	SIGNATURES	31

AFTERMASTER, INC.

Condensed Consolidated Balance Sheets

(unaudited)

	September 30,			June 30,
	2019			2019

ASSETS

Current Assets
Cash and cash equivalents	$	64,093		$	366,129
Accounts receivable, net		27,304			24,226
Inventory, net		302,802			306,762
Prepaid expenses		285,909			311,296

Total Current Assets		680,108			1,008,413

Property and equipment, net		52,402			60,817
Right-to-use asset, net		133,520			-
Deposits		24,217			24,217

Total Assets	$	890,247		$	1,093,447

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities
Accounts payable and other accrued expenses	$	2,049,081		$	1,957,550
Accrued interest		935,034			921,033
Deferred revenue		3,921			3,921
Accrued consulting services - related party		194,890			161,124
Lease payable		93,121			-
Derivative Liability		6,267,392			5,009,094
Notes payable - related party		270,000			230,000
Notes payable, net of discount of $1,000 and $992, respectively		1,291,704			1,053,758
Convertible notes payable - related party		119,500			119,500
Convertible notes payable, net of discount of $694,977 and $1,024,700, respectively		4,765,356			4,443,837

Total Current Liabilities		15,989,999			13,899,817

Long-Term Liabilities
Lease payable, net of current portion		46,069			-

Total Liabilities		16,036,068			13,899,817

Commitments and Contingencies

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 2,585,000 shares issued and outstanding, respectively		2,585			2,585
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 H; $0.001 par value; 5 shares authorized, 2 shares issued and outstanding		-			-
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 513,407,666 shares, par value $0.001, 302,851,038 and 275,507,995 shares issued and outstanding, respectively		302,857			275,629
Common stock to be issued, 3,885,000		3,885			3,885
Additional paid In capital		72,268,879			72,770,496
Accumulated Deficit		(87,724,551	)		(85,859,489	)

Total Stockholders’ Deficit		(15,145,821	)		(12,806,370	)

Total Liabilities and Stockholders’ Deficit	$	890,247		$	1,093,447

The accompanying notes are an integral part of these condensed consolidated financial statements.

AFTERMASTER, INC.

Condensed Consolidated Statements of Operations

(unaudited)

	For the Three Months Ended
	September 30,
	2019			2018

REVENUES
AfterMaster Revenues	$	131,880		$	145,413
Product Revenues		8,389			389,109
Total Revenues		140,269			534,522

COSTS AND EXPENSES
Cost of Revenues (Exclusive of Depreciation and Amortization)		114,066			417,757
Depreciation and Amortization Expense		8,416			23,467
Research and Development		-			2,600
Advertising and Promotion Expense		1,997			54,369
Legal and Professional Expense		43,154			11,030
Non-Cash Consulting Expense		25,387			65,116
General and Administrative Expenses		725,886			849,187

Total Costs and Expenses		918,906			1,423,526

Loss from Operations		(778,637	)		(889,004	)

Other Income (Expense)
Interest Expense		(690,374	)		(806,650	)
Derivative Expense		(71,359	)		(1,043,090	)
Change in Fair Value of Derivative		(324,692	)		612,212

Total Other Income (Expense)		(1,086,425	)		(1,237,528	)

Loss Before Income Taxes		(1,865,062	)		(2,126,532	)
Income Tax Expense		-			-
NET LOSS	$	(1,865,062	)	$	(2,126,532	)

Preferred Stock Accretion and Dividends		(56,367	)		(56,367	)

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$	(1,921,429	)	$	(2,182,899	)

Basic and diluted Loss Per Share of Common Stock	$	(0.01	)	$	(0.01	)

Weighted Average Number of Shares Outstanding		281,605,962			171,607,750

The accompanying notes are an integral part of these condensed consolidated financial statements.

AFTERMASTER, INC.

Condensed Consolidated Statements of Stockholders’ Deficit

(unaudited)

									Additional							Total
	Preferred Stock				Common Stock				Paid In		Common Stock to		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital		be Issued		Deficit			Equity

Balance, June 30, 2018		3,109,044	$	3,109		133,446,521	$	133,742	$	68,916,676	$	28,553	$	(76,556,750	)	$	(7,474,670	)

Share-Based Compensation to Directors and Employees- Common shares		-		-		-		-		62,879		2,168		-			65,047

Total Stock Issued for Consulting Services and Rent		-		-		8,000,000		8,000		356,630		1,385		-			366,015

Common stock issued for conversion of debt		-		-		17,326,372		17,326		256,984		-		-			274,310

Common stock issued for interest expense		-		-		3,000,000		3,000		87,000		-		-			90,000

Derivative liability		-		-		-		-		959,587		-		-			959,587

Net loss for the quarter ended September 30, 2018		-		-		-		-				-		(2,126,532	)		(2,126,532	)

Balance, September 30, 2018		3,109,044	$	3,109		161,772,893	$	162,068	$	70,639,756	$	32,106	$	(78,683,282	)	$	(7,846,243	)

AFTERMASTER, INC.

Consolidated Statements of Stockholders’ Deficit

									Additional								Total
	Preferred Stock				Common Stock				Paid In			Common Stock to		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Capital			be Issued		Deficit			Equity

Balance, June 30, 2019		3,109,046	$	3,109		279,507,995	$	275,629	$	72,770,496		$	3,885	$	(85,859,489	)	$	(12,806,370	)

Common Stock Sold for Cash		-		-		18,900,000		18,900		170,100			-		-			189,000

Share-Based Compensation to Directors and Employees- Common shares		-		-		8,328,043		8,328		83,280			-		-			91,608

Derivative liability		-		-		-		-		(754,997	)		-		-			(754,997	)

Net loss for the quarter ended September 30, 2019		-		-		-		-		-			-		(1,865,062	)		(1,865,062	)

Balance, September 30, 2019		3,109,046	$	3,109		306,736,038	$	302,857	$	72,268,879		$	3,885	$	(87,724,551	)	$	(15,145,821	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

AFTERMASTER, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	For the Three Months Ended
	September 30,
	2019			2018

OPERATING ACTIVITIES

Net Loss	$	(1,865,062	)	$	(2,126,532	)
Adjustments to reconcile net loss to cash from operating activities:
Depreciation and amortization		29,437			23,467
Share-based compensation - Common Stock		91,608			65,047
Common stock issued for services		-			366,015
Amortization of debt discount and issuance costs		452,715			500,457
Derivative expense		71,359			1,043,090
(Gain)/Loss remeasurement of derivative		324,692			(612,212	)
Changes in Operating Assets and Liabilities:
Accounts receivables		(3,079	)		(58,838	)
Inventory		3,960			(2,568	)
Other assets		25,387			(300,899	)
Deposits		-			900
Accounts payable and accrued expenses		91,531			(88,615	)
Lease payments		(15,351	)		-
Accrued interest		180,955			293,975
Accrued consulting services - related party		33,766			37,304

Net Cash Used in Operating Activities		(578,082	)		(859,409	)

INVESTING ACTIVITIES

Net Cash Used in Investing Activities		-			-

FINANCING ACTIVITIES

Common Stock issued for cash		189,000			-
Proceeds from notes payable		50,000			125,000
Repayments of notes payable		-			(10,000	)
Proceeds from notes payable - related party		40,000			39,000
Proceeds from convertible notes payable		107,250			577,850
Repayments of convertible notes payable		(110,204	)		(126,759	)
Net Cash Provided by Financing Activities		276,046			605,091

NET CHANGE IN CASH		(302,036	)		(254,318	)
CASH AT BEGINNING OF PERIOD		366,129			390,191

CASH AT END OF PERIOD	$	64,093		$	135,873

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

CASH PAID FOR:
Interest	$	56,703		$	102,217
Taxes	$	-		$	-

NON CASH FINANCING ACTIVITIES:
Beneficial conversion feature	$	-		$	274,310
Conversion of notes and Interest into common stock	$	-		$	90,000
Derivative Liability	$	107,250		$	577,850
Conversion of Derivative Liability	$	120		$	959,587
Market To Market on Available For Sale securities	$	-		$	366,015
Right-to-use asset	$	154,541		$	-
Warrants issued in private placement	$	755,117		$	-
Convertible notes payable issued for prepaid expenses	$	-		$	120,000
Original Issue Discount	$	14,750		$	102,000
Assignment of Debt	$	164,204		$	11,238

The accompanying notes are an integral part of these condensed consolidated financial statements.

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

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 September 30, 2019, 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, 2019 audited financial statements. The results of operations for the period ended September 30, 2019 is not necessarily indicative of the operating results for the full year.

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 $87,724,551, negative working capital of $15,309,891 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.

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

Derivative Liabilities

On February 3, 2017, the company entered into a note payable with an unrelated party at a percentage discount (variable) exercise price which causes the number to be converted into a number of common shares that “approach infinity”, as the underlying stock price could approach zero. Accordingly, all convertible instruments, including standalone warrants, issued after February 3, 2017 are considered derivatives according to the Company’s sequencing policy.

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.

Leases

The Company adopted ASC 842 as of October 1, 2019 using a modified retrospective transition approach for all leases existing at October 1, 2019, the date of the initial application. Consequently, financial information will not be updated, and disclosures required under ASC 842 will not be provided for dates and periods before October 1, 2019.

As of October 1, 2019, the Company recognized operating lease liabilities of $154,541 based on the present value of the remaining minimum rental payments determined under prior lease accounting standards and corresponding ROU assets of $154,541.

The Company determines if a contract is a lease or contains a lease at inception. Right of use assets related to operating type leases are reported in other noncurrent assets and the present value of remaining lease obligations is reported in accrued and other liabilities and other noncurrent liabilities on the Condensed Consolidated Balance Sheets. The Company does not currently have any financing type leases.

Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company’s leases do not provide an implicit rate and the Company could not determine the incremental borrowing rates applicable to the economic environment; therefore, the Company uses the risk free interest rates applicable to the duration of the lease, based on the information available at commencement date, in determining the present value of future payments. The right of use asset for operating leases is measured using the lease liability adjusted for the impact of lease payments made prior to commencement, lease incentives received, initial direct costs incurred and any asset impairments. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the option will be exercised. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

The Company remeasures and reallocates the consideration in a lease when there is a modification of the lease that is not accounted for as a separate contract. The lease liability is remeasured when there is a change in the lease term or a change in the assessment of whether the Company will exercise a lease option. The Company assesses right of use assets for impairment in accordance with its long-lived asset impairment policy.

The Company accounts for lease agreements with contractually required lease and non-lease components on a combined basis. Lease payments made for cancellable leases, variable amounts that are not based on an observable index and lease agreements with an original duration of less than twelve months are recorded directly to lease expense.

Revenue Recognition

The Company applies the provisions of FASB ASC 606, Revenue Recognition in Financial Statements, which provides guidance on the recognition, presentation and disclosure of revenue in financial statements. ASC 606 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 in accordance with that core principle by applying the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance obligation. In general, the Company’s revenues are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

The Company’s revenues are generated from Aftermaster products and services, Aftermaster Pro, sessions revenue, and remastering. Revenues related to Aftermaster Pro sells through consumer retail distribution channels and through our website. For sales through consumer retail distribution channels, revenue recognition occurs when title and risk of loss have transferred to the customer which usually occurs upon shipment to the customers. We established allowances for expected product returns and these allowances are recorded as a direct reduction to revenue. Return allowances are based on our historical experience. Revenues related to sessions and remastering are recognized when the event occurred.

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

Loss Per Share

Basic 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 months ended September 30, 2019 and 2018 of $56,367 and $56,367, respectively.

Diluted earnings per Common Share is computed by dividing net 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 three months ended September 30, 2019 and 2018, 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 656,776,405 and 129,530,326 at September 30, 2019 and 2018, respectively.

Recent Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350). The amendments in this update simplify the test for goodwill impairment by eliminating Step 2 from the impairment test, which required the entity to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining fair value of assets acquired and liabilities assumed in a business combination. The amendments in this update are effective for public companies for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is evaluating the effect that the updated standard will have on its financial statements and related disclosures.

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The new ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The new ASU will be effective for the Company beginning in the fiscal quarter of 2020, and early adoption is permitted. The Company is evaluating the effect that the updated standard will have on its financial statements and related disclosures.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The amendment modifies, removes, and adds certain disclosure requirements on fair value measurements. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. We are currently evaluating the impact of ASU No. 2018-13 on our consolidated financial statements.

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

Management has considered all recent accounting pronouncements issued since the last audit of our consolidated financial statements. The Company’s management has evaluated recent pronouncements and have not included those that were note applicable.

NOTE 4 – 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 September 30, 2019 and June 30, 2019, respectively:

	September 30,		June 30,
	2019		2019

$30,000 face value, issued in August 2016, interest rate of 0% and is convertible into shares of the Company’s Common stock at $0.40 per share, matured June 30, 2019. The note is currently in default.	$	30,000	$	30,000

Various term notes with total face value of $89,500 issued from September 2017 to February 2018, interest rates of 0% and are convertible into shares of the Company’s common stock at $0.10 per share, matured from January 2019 to June 30, 2019. The notes are currently in default.		89,500		89,500

Total convertible notes payable – related parties		119,500		119,500
Less current portion		119,500		119,500
Convertible notes payable – related parties, long-term	$	-	$	-

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

Convertible Notes Payable - Non-Related Parties

Convertible notes payable due to non-related parties consisted of the following as of September 30, 2019 and June 30, 2019, respectively:

	September 30,		June 30,
	2019		2019
Various term notes with total face value of $2,049,000, issued from July 2014 to March 2018, interest rates from 0% to 10% and are convertible into shares of the Company’s common stock from $0.10 to $0.40 per share, matured from October 2018 to June 2019. One of the notes and accrued interest was assigned to non-related party notes payable in September 2019. The notes are currently in default.	$	2,029,000	$	2,049,000

Two Term notes with total face value of $373,000, issued in February 2017, interest rates of 10% and are convertible into shares of the Company’s common stock at lesser of 40% of the average three lowest closing bids twenty (20) days prior to the conversion date or $0.40 per share, matured June 2018, with additional extension fees of $81,000 added to principal. A total of $187,403 has been converted and $85,654 has been paid. The note is currently in default.		180,943		186,597

$265,000 face value, issued in May 2017, interest rate of 10% and is convertible into shares of the Company’s common stock at the lesser of $0.31 or 60% of the lowest closing bids twenty-five (25) days prior to the conversion date, matured February 2018, of which $116,328 was converted. The note is currently in default.		104,845		104,845

Two term notes with total face value of $131,000 face value, issued on July 2017 and August 2017, interest rates of 12% and are convertible into shares of the Company’s common stock at 61% of the lowest two trading prices during the fifteen (15) trading day period ending to the date of conversion, matured May 2018 and June 2018, of which $72,000 was converted. The note is currently in default.		59,000		59,000

$115,000 face value, issued in November 2017, interest rate of 10% and is convertible into shares of the Company’s common stock at 57.5% of the lowest closing bids thirty (30) days prior to the conversion per share, matured August 2018. The note is currently in default.		115,000		115,000

$115,000 face value, issued in January 2018, interest rate of 10% and is convertible into shares of the Company’s common stock at the lesser of $0.12 and 57.5% of the lowest trading price during the prior thirty (30) days, matured October 2018. The note is currently in default.		115,000		115,000

$150,000 face value, issued in April 2018, interest rate of 10% and is convertible into shares of the Company’s common stock at the lesser of $0.05 or 57.5% of the lowest closing bids twenty (20) days prior to the conversion date, matured January 2019. The note is currently in default.		160,000		160,000

Two term notes with total face value of $415,000 face value, issued from an assignment in April 2018 of $370,000 in principal and an OID of $45,000, interest rates of 10% and are convertible into shares of the Company’s common stock at rate of 55% of the average trading price for the prior three (3) trading days, matured April 2019, of which $223,198 has been converted. The notes are currently in default.		191,802		191,802

Various term notes with total face value of $502,504, issued from May 2018 to June 2018, interest rates of 12% and are convertible into shares of the Company’s common stock at 61% of the lowest two trading prices during the fifteen (15) trading day period ending to the date of conversion, matured from October 2018 to June 2019, of which $69,898 has been converted and $164,499 has been paid. The note is currently in default.		268,137		268,137

$15,651 face value, issued in June 2018, interest rate of 12% and is convertible into shares of the Company’s common stock at 60% of the lowest trading price during the previous twenty (20) days to the date of conversion, matured June 30, 2019. The note is currently in default.		15,651		15,651

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

$120,000 face value, issued in July 2018 for prepaid services, interest rate of 15% and is convertible into shares of the Company’s common stock at 70% of the lowest closing price during the twenty (20) days prior to the conversion per share, matures July 2019. The note is currently in default.		120,000		120,000

$39,759 face value, issued from an assignment in August 2018, interest rate of 12% and is convertible into shares of the Company’s common stock at 55% of the lowest sales price for common stock on principal market during the twenty-five (25) consecutive trading days immediately preceding the conversion date, matured November 2018. The note is currently in default.		39,759		39,759

$23,000 face value, issued in August 2018 of $20,000 in principal and an OID of $3,000, interest rate of 12% and is convertible into shares of the Company’s common stock at 55% of the average of the three (3) lowest closing price during the 25 days prior to the conversion per share, matures August 2019, net unamortized discount of $0 and $3,214 as of September 30, 2019 and June 30, 2019, respectively.		23,000		19,786

Various term notes total value of $1,115,646 face value, issued from August 2018 to December 2018, of which $995,500 in principal and an OID of $160,146, interest rates of 10% and are convertible into shares of the Company’s common stock at equal the lesser of $0.12 and 70% of the lowest trading price for the common stock during the thirty (30) trading day period ending on the latest complete trading day prior to the conversion date, matures from August 2019 to December 2019, net unamortized discount of $69,201 and $273,843 as of September 30, 2019 and June 30, 2019, respectively. One note totaling $575,000 in principal is currently in default.		1,042,695		838,053

Two term notes total value of $64,850, issued in August 2018, of which $61,850 in principal and an OID of $3,000, interest rate of 12% and is convertible into shares of the Company’s common stock at 61% of the lowest trading price for the prior fifteen (15) trading days immediately preceding the conversion date, matures August 2019, net unamortized discount of $0 and $6,998 as of September 30, 2019 and June 30, 2019, respectively, of which $26,000 has been paid.		60,300		57,852

Two term notes total value of $178,000, issued from March 2019 to August 2019, of $160,000 in principal and an OID of $18,000, interest rate of 10% and is convertible into shares of the Company’s common stock at 58% of the lowest trading price for the common stock during the twenty-five (25) trading day period ending on the latest complete trading day prior to the conversion date, matures from March 2020 and August 2020, net unamortized discount of $118,180 and $65,899 as of September 30, 2019 and June 30, 2019, respectively.		59,820		23,101

Various term notes with total value of $562,500, issued from March 2019 to June 2019, of which $535,500 in principal and an OID of $27,000, interest rates of 12% and are convertible into shares of the Company’s common stock at 58% of the lowest trading price for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date, matures from March 2020 and June 2020, net unamortized discount of $367,950 and $509,344 as of September 30, 2019 and June 30, 2019, respectively, of which $100,000 has been paid.		94,550		53,156

Two term notes with total value of $154,000, issued in April 2019 and June 2019,of which $143,000 in principal and an OID of $11,000, interest rates of 12% and is convertible into shares of the Company’s common stock at 60% of the lowest trading price for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date, matures April 2020, net unamortized discount of $95,725 and $134,435 as of September 30, 2019 and June 30, 2019, respectively.		58,275		19,565

Two term notes total value $71,500, issued from April 2019 to July 2019 of $58,750 in principal and an OID of $12,750, interest rate of 12% and is convertible into shares of the Company’s common stock at the lesser of 55% of the lowest trading price for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the issuance date or 55% of the lowest trading price for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date, matures from February 2020 to July 2020, net unamortized discount of $43,921 and $30,967 as of September 30, 2019 and June 30, 2019, respectively.		27,579		7,533

Total convertible notes payable – non-related parties		4,765,356		4,443,837
Less current portion		4,765,356		4,443,837
Convertible notes payable – non-related parties, long-term	$	-	$	-

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

During the three months ended September 30, 2019, one note was amended to extend the maturity dates. The Company evaluated the amendments 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.

From July 12, 2019 through August 2, 2019, the Company issued two convertible notes to non-related parties for a total of $122,000, of which $107,250 in principal and $14,750 in OID, that mature from July 12, 2020 to August 2, 2020. The notes bear between 10% to 12% interest per annum.

During the three months ended September 30, 2019, the Company made cash payment of $110,204 toward principal various notes discussed above and assigned one note for 20,000 in principal and $3,468 in accrued interest into a non-related party note payable.

Notes Payable – Related Parties

Notes payable due to related parties consisted of the following as of September 30, 2019 and June 30, 2019, respectively:

	September 30,		June 30,
	2019		2019

$5,000 face value, issued in November 2016, interest rate of 0%, which is due on demand.	$	5,000	$	5,000

Various term notes with total face value of $213,000, issued from February 2017 to April 2019, interest rates of 0%, matured June 30, 2019. The notes are currently in default.		213,000		213,000

$52,000 face value, issued from June 2019 to August 2019, interest rate of 0%, matures June 2020.		52,000		12,000

Total notes payable – related parties		270,000		230,000
Less current portion		270,000		230,000
Notes payable – related parties, long term	$	-	$	-

From July 15, 2019 through August 30, 2019, the Company issued notes to a related party for a total of $40,000 that all mature on June 30, 2020. The notes bear 0% interest per annum. The Company evaluated the notes for imputed interest and found it to be immaterial.

Notes Payable – Non-Related Parties

Notes payable due to non-related parties consisted of the following as of September 30, 2019 and June 30, 2019, respectively:

	September 30,		June 30,
	2019		2019
Various term notes with a total face value of $252,250 issued from August 2017 to September 2019, of which $300,000 in principal, $2,750 of extension fees, and an OID of $3,250, interest rate of 0%, matured from December 2018 to October 2019 net of unamortized discount of $1,000 and $992 as of September 30, 2019 and June 30, 2019, respectfully. A total of $41,500 has been paid on principal. All but two notes are currently in default.	$	263,500	$	209,758

Two term notes with a total face value of $102,000 issued from August 2017 to March 2018, interest rate of 10%, matured from December 2018 through February 2019 net of unamortized discount of $0 as of September 30, 2019 and June 30, 2019. The notes are currently in default.		102,000		102,000

Two term notes with total face value of $107,000, issued from September 2017 through March 2019, interest rate of 8% per month, matured from September 2018 and April 2019 net of unamortized discount of $0 as of September 30, 2019 and June 30, 2019. One of the notes and accrued interest were assigned in September 2019. The note is currently in default.		26,000		107,000

$225,000 face value, issued in March 2018, interest rate of 30%, matured March 2019 net of unamortized discount of $0 as of September 30, 2019 and June 30, 2019. The note and accrued interest were assigned in September 2019.		-		225,000

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

$260,000 face value, issued in June 2018, an additional $21,000 was added to principal by the noteholder, interest rate of 0%, matured December 2018 net of unamortized discount of $0 as of September 30, 2019 and June 30, 2019, of which $31,000 has been paid. The note and accrued interest were assigned in September 2019.		-		250,000

$160,000 face value, issued in November 2018, interest rate of 5% per month, matured February 2019 net of unamortized discount of $0 as of September 30, 2019 and June 30, 2019. The note and accrued interest were assigned in September 2019.		-		160,000

Four notes and one convertible note were assigned totaling $900,204 were issued in September 2019, interest rate of 15%, matures April 2020 net of unamortized discount of $0 as of September 30, 2019.		900,204		-

Total note payable – non-related parties		1,291,704		1,053,758
Less current portion		1,291,704		1,053,758
Notes payable – non-related parties, long-term	$	-	$	-

During the three months ended September 30, 2019, two notes were amended to extend the maturity dates for payments totaling $2,750. The Company evaluated the amendments 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 September 30, 2019, the Company issued a note to non-related parties for a total of $51,000, of which $50,000 in principal and $1,000 in OID, that matures October 14, 2019. The notes bear a 0% interest per annum. The Company evaluated the notes for imputed interest and found it to be immaterial.

During the three months ended September 30, 2019, the Company assigned five non-related party notes totaling $716,000 in principal and $160,736 in accrued interest as well as a non-related party convertible note for 20,000 in principal and $3,468 in accrued interest into a non-related party note payable totaling $900,204.

NOTE 5 – 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		2,585,000		3,663,824
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 H Preferred		5		2		-
Series P Convertible Preferred		600,000		86,640		-
Series S Convertible Preferred		50,000		-		-
Total Preferred Stock		6,325,005		3,109,046	$	3,698,824

The Company’s Series A Convertible Preferred Stock (“Series A Preferred”) is convertible into Common Stock at the rate of 0.025 per 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, 2019 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 per 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.

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

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 H Preferred Stock shall not be convertible into the Corporation’s Common Stock, nor shall such shares have any liquidation or dividend preference over the Corporation’s Common Stock. Series H Preferred Stock shall have the right to take action by written consent or vote based on the number of votes equal to four times the number of votes of all outstanding shares of capital stock of the Corporation such that the holders of outstanding shares of Series H Preferred Stock shall always constitute eighty percent (80%) of the voting rights of the Corporation.

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 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.

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

During the three months ended September 30, 2019, the Company has not issued any shares of Series A-1 Preferred.

During the year ended June 30, 2019, the Company has not issued any shares of Series A-1 Preferred.

On February 5, 2019, the Company issued 1 share of its Series H Preferred Stock to both the Company’s CEO and director and the Company’s Senior Vice President and director in consideration of $50,000 of accrued and unpaid wages, the Company’s failure to timely pay current and past salaries. The issuance was made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act as there was no general solicitation, and the transaction did not involve a public offering. The shares were valued at $198,116 and the remaining $148,116 was recorded as additional compensation. The Company used an outside valuation firm who applied traditional valuation techniques and methodologies in determining the fair value of the Company’s Series H Preferred Stock, including market, income, and cost valuation approaches. The valuation firm also utilized commonly accepted allocation methods in determining the final value of the Company’s Series H Preferred Stock.

During the three months ended September 30, 2019 and 2018, the outstanding Preferred Stock accumulated $56,367 and $56,367 in dividends on outstanding Preferred Stock. The cumulative dividends in arrears as of September 30, 2019 were approximately $1,417,468.

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

NOTE 6 – COMMON STOCK

On February 8, 2019, the Company increased the number of authorized shares of Common Stock from 250,000,000 up to 1,000,000,000 shares in the sole discretion of the board. The Company has authorized 503,407,666 shares of $0.001 par value per share Common Stock, of which 306,736,038 issued (of which 3,885,000 are to be issued) as of September 30, 2019. The activity surrounding the issuances of the Common Stock is as follows:

For the Three Months Ended September 30, 2019

The Company issued 18,900,000 shares of Common Stock for $189,000 in cash as part of a private placement. in conjunction with the private placements, the Company issued 75,600,000 warrants valued at $755,117.

As share-based compensation to employees and non-employees, the Company issued 8,328,043 shares of common stock valued at $91,608, based on the market price of the stock on the date of issuance.

For the Three Months Ended September 30, 2018

The Company issued 17,326,372 shares of Common Stock for the conversion of notes and accrued interest valued at $274,310.

The Company issued 9,385,000 shares of Common Stock as payment for services valued at $366,015.

As share-based compensation to employees and non-employees, the Company issued 2,168,226 shares of common stock valued at $65,047, based on the market price of the stock on the date of issuance.

As part of a provision in a note payable, the Company issued 3,000,000 shares of common stock valued at $90,000 based on the market price on the date of issuance.

NOTE 7 – 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 three months ended September 30, 2019, the Company did not issue any stock purchase options.

During the three months ended September 30, 2018, the Company did not issue any stock purchase options, and 25,000 expired.

The following table summarizes the changes in options outstanding of the Company during the three months ended September 30, 2019.

Date Issued	Number of Options		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Expiration Date (yrs)		Value if Exercised
Balance June 30, 2019		500,000	$	0.05	$	0.17		3.00	$	25,000
Granted		-		-		-		-		-
Exercised		-		-		-		-		-
Cancelled/Expired		-		-		-		-		-
Outstanding as of September 30, 2019		500,000	$	0.05	$	0.16		2.75	$	25,000

During the three months ended September 30, 2019, the Company issued three-year warrants to purchase a total of 100,000 with an exercise price of $0.10 per shares into the Company’s Common Stock, in conjunction with issuance of a promissory notes, valued at $648. The Company also issue 75,600,000 five-year warrants with exercise prices of $0.02 and $0.05 per shares into the Company’s Common Stock, in conjunction with issuance of 17 private placements, valued at $755,117. The warrants are considered derivative liabilities under ASC 815-40 under the Company’s sequencing policy and were valued using the multinomial lattice model.

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

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

	September 30, 2019
Expected volatility		149-222%
Expected dividends		0%
Expected term		0-5 Years
Risk-free interest rate		1.32-1.97%

The following table summarizes the changes in warrants outstanding issued to employees and non-employees of the Company during the three months ended September 30, 2019.

	Number of			Weighted Average		Weighted Average		Expiration Date
	Warrants			Exercise Price		Grant Date Fair Value		(yrs)		Value if Exercised
Balance as of June 30, 2019		41,900,718		$	0.15	$	0.36		3.43	$	6,308,991
Granted		75,700,000			0.04		0.01		5.00		2,656,000
Exercised		-			-		-		-		-
Cancelled/Expired		(1,115,000	)		0.36		-		-		(403,250	)
Outstanding as of September 30, 2019		116,485,718		$	0.07	$	0.13		4.34	$	8,561,741

NOTE 8 – 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 September 30, 2019 and June 30, 2019. For amounts over proceeds in the initial derivative measurement, the Company recorded a derivative expense of $71,359 and $1,043,090 during the three months ended September 30, 2019 and 2018, respectively. The fair values of the derivative instruments are measured each quarter, which resulted in a (loss)gain of ($324,692) and $612,212 during the three months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, and June 30, 2019, the fair market value of the derivatives aggregated $6,267,392 and $5,009,094, respectively, using the following assumptions: estimated 5-0 year term, estimated volatility of 221.69 – 149.39 %, and a discount rate of 1.97 – 1.32%.

Financial instruments measured at fair value on a recurring basis at September 30, 2019, are summarized as follows:

	Level 1		Level 2		Level 3		Total
Fair value of derivatives	$	-	$	-	$	6,267,392	$	6,267,392

Liabilities measured at fair value on a recurring basis at June 30, 2019, are summarized as follows:

	Level 1		Level 2		Level 3		Total
Fair value of derivatives	$	-	$	-	$	5,009,094	$	5,009,094
Series H Preferred Stock	$	-	$	198,116	$	-	$	198,116

NOTE 10 – COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company may become involved in certain legal proceedings and claims which arise in the normal course of business.

1. The Company became a defendant in an employment related lawsuit filed by a former employee, who was terminated for cause in October 2018. The Company believes it is without merit and has filed a defense and a Motion to move the matter to Arbitration. The Motion to move the matter to arbitration was subsequently granted. The complaint revolves around alleged unpaid commissions and the Company does not consider it to be material.

2. On May 2019, a Company subsidiary was named in a lawsuit filed in the Superior Court of Arizona County of Maricopa by the Company’s prior manufacturer, Infinity Power and Controls, LLC. (Infinity), alleging non-payment of invoices totaling $414,000 and an undetermined amount of parts inventory. On July 5, 2019, the Company was added as a defendant in the action. Infinity was the Company’s manufacturer until they were dismissed in December 2018, due to quality and reliability issues, which resulted in unacceptable product returns. On July 2, 2019, the Company commenced an action against Infinity Power and Controls LLC in the United States District Court Central District of California for Breach of Contract, Negligence and Fraud. The lawsuit asks for direct and punitive damages of $30 million from Infinity. As a both plaintiff and defendant in matters relating to its prior manufacturer, the Company believes it sustained substantial damage from the poor-quality product manufactured by Infinity.

3. A lender for two term notes with total value of $154,000, issued in April 2019 and June 2019, has issued an notice of default on the conversion of the notes into stock.

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

Lease Agreements

The Company has operating type leases for real estate. As of September 30, 2019, the Company had no finance type leases. The Company’s leases have remaining lease terms of up to 1.58 years, some of which may include options to extend the leases for up to 5 years. Operating lease expense was $21,021 for the three months ended September 30, 2019, inclusive of period cost for short-term, cancellable and variable leases, not included in lease liabilities, of $63,054 for the three months ended September 30, 2019.

Supplemental cash flow information related to operating leases:

		Three Months Ended
		September 30, 2019
Operating cash paid to settle lease liabilities		$	15,351
Right of use asset additions in exchange for lease liabilities			154,541

Supplemental balance sheet information related to operating leases:

	Balance Sheet	September 30,
	Location	2019
Right of use assets	Other noncurrent assets	$	133,520

Lease payable	Current liabilities	$	93,121
Lease payable	Long-term liabilities		46,069
Total lease payable		$	139,190

		September 30,
		2019
Weighted average remaining lease term (in years)			1.58
Weighted average discount rate			12.15	%

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 expired on December 31, 2017 and now is on a month to month basis. The total lease expense for the facility is approximately $20,574 per month, and the total remaining obligations under these leases at September 30, 2019, were approximately $0.

We lease warehouse space located at 8260 E Gelding Drive, Suite 102, Scottsdale, Arizona, 85260. The lease expired on January 31, 2019 and now is on a month to month basis. The total lease expense for the facility is approximately $1,993 per month, and the total remaining obligations under this lease at September 30, 2019, were approximately $0.

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 $7,799 per month, and the total remaining obligations under this lease at September 30, 2019, were approximately $171,570.

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

Year	Lease Payments
2020	$	92,558
2021		79,012
2022		-
2023		-
2024		-
Total	$	171,570

AFTERMASTER, INC.

Notes to Consolidated Financial Statements

September 30, 2019 (Unaudited)

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 September 30, 2019 were approximately $1,417,468.

NOTE 11 – RELATED PARTY TRANSACTIONS

On August 8, 2016, the Company issued a convertible note to a daughter of a director of the Company, for $30,000 as of September 30, 2019 and June 30, 2019. The note bears an interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.40 per share.

From September 2017 to June 2019, the Company issued convertible notes to a director and officer of the Company for $89,500 as of September 30, 2019 and June 30, 2019. The notes bear an average interest rate of 0% per annum and is convertible into shares of the Company’s Common Stock at $0.10 per share.

On November 15, 2016, the Company issued notes to a director and officer of the Company, for $5,000. The note bears an average interest rate of 0% per annum.

From February 2017 to August 2019, the Company issued notes to a director and officer of the Company for $270,000 and $255,000 as of September 30, 2019 and June 30, 2019, respectively. The notes bear an average interest rate of 0% per annum.

As share-based compensation to employees and non-employees, the Company issued 9,328,043 and 2,168,226 shares of common stock valued at $91,068 and $65,407 for three months ended September 30, 2019 and 2018, respectively, based on the market price of the stock on the date of issuance.

The company has accrued consulting services in the amount of $194,890 and $161,124 payable to directors for services rendered as of September 30, 2019 and June 30, 2019, respectively.

NOTE 12 - 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:

From October through November 2019, the Company issued 3,500,000 shares of Common Stock for $35,000 in cash as part of a private placement. As part of a private placement the Company also issued 14,000,000 warrants to purchase shares of Common Stock. As share-based compensation to employees and non-employees, the Company issued 6,000,000 shares of common stock valued at $60,000, based on the market price of the stock on the date of issuance. The Company also issued 1,000,000 warrants as part of a 90-day advisory agreement. The Company also paid $5,000 in cash and issued 2,500,000 shares of Common Stock valued at $32,250 for settlement of $22,500 in accrued legal services.

From October through November 2019, various holders of the unrelated convertible notes converted $54,000 of principal and $3,537 of accrued interest into 11,083,692 shares of common stock.

On October 16, 2019, the Company issued a convertible note to an unrelated company for $419,355, which includes proceeds of $356,500 and $62,855 in OID, that matures in October 2020. The note bears 10% interest per annum and is convertible into shares of the Company’s common stock at equal the lesser of $0.12 and 70% of the lowest Trading Price for the Common Stock during the thirty (30) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. As additional consideration the Company also issued 2,818,244 warrants.

On October 15, 2019, the Company issued a note to an unrelated party for $15,125, which includes proceeds of $14,000 and $1,125 in OID that matures in October 2020. The notes bear 0% interest per annum

From August 2017 to October 2017, the Company issued three convertible notes to unrelated parties totaling $185,000 that matured in February 2019. The notes bear interest rates from 0% to 10% per annum and are convertible into shares of the Company’s common stock for $0.10 per share. From August 2018 to March 2019, the Company issued two notes to an unrelated party totaling $78,000 that matured from February 2019 to April 2019. The notes bear interest rates from 0% to 8% per annum. On October 18, 2019, the Company assigned a convertible note to an unrelated party for $263,000 face value that that is due March 18, 2020. The note bears interest rate of 10% per month and is convertible into shares of the Company’s common stock for $0.02 per share.

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.

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

Corporate Background

We are a Delaware corporation, incorporated on about May 12, 1988, and traded on an over the counter market (ticker symbol OTCQB: AFTM). As of September 30, 2019, there were 306,736,038 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 USA, 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 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 products for professional and consumer use, including Aftermaster® Audio, ProMaster™, Aftermaster Pro™, HearClearTV, the Superbar™, Aftermaster Studio Pro and MyStudio®. The Company also operates recording and mastering studios at its Hollywood facilities.

The name Aftermaster was derived from our technology being primarily utilized to remaster and improve audio that has already been mastered. The Aftermaster audio process remasters an audio event to our standards, that has previously been finished or mastered, hence “Aftermaster”. Aftermaster is unique among audio processes as it greatly enhances the entire frequency range without distortion or changing the underlying intent of the audio. The Aftermaster process is also popular for mastering previously un-mastered audio such as new recordings or live events.

Aftermaster, Inc. is an award-winning audio laboratory whose unique expertise and approach to its audio technologies and products, is rooted in its world class expertise in music related audio engineering, processing and mastering. The music industry has been responsible for the biggest breakthroughs in audio techniques, inventions and technologies for over a century. Aftermaster’s team of audio engineers and music industry veterans have produced, engineered and mastered more hit records than any other audio company in the world, providing it with its leading edge expertise. The Aftermaster team includes well known industry veterans such as Ari Blitz, Pete Doell, Rodney Jerkins, Larry Ryckman, Justin Timberlake, Andrew Wuepper and Shelly Yakus. For more information visit. www.Aftermaster.com/team

Mission Statement

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

Summary

The Company continued to underperform during the quarter ended September 30, 2019, due to the ongoing delay in having its products available to sell. High return rates and quality and reliability issues with the Company’s Aftermaster Pro product, led the Company to suspend sales and dismiss its manufacturer in December 2018. The suspension of manufacturing has put substantial financial strain on the company as it has had no meaningful revenues from product sales since that time. The Company commenced an action against the manufacturer, Infinity Power and Controls, LLC of Rock Springs, Wyoming for $30 million to recover direct and punitive damages in the United States District Court for the Central District of California. The Company expects to resume sales sometime in the next two calendar quarters.

Since suspending production, the Company undertook a complete redesign of its Aftermaster Pro unit and developed two new products, HearClear TV and the “Superbar” soundbar. The Aftermaster Pro has new features including Bluetooth, optical in/out and a handheld remote. It’s sister unit “HearClearTV” is designed to significantly improve television audio for those that are hard of hearing. They all join the Aftermaster Studio Pro which is the Company’s first product aimed primarily at commercial applications. www.aftermaster.com/products

During the quarter, in order to address its ongoing financing and manufacturing challenges, the Company entered into a groundbreaking, multi-year, Financing, Licensing, Manufacturing and Distribution agreement with Ritika Research Labs Pvt. Ltd. of Mumbai India. Ritika is a private company which has interests in manufacturing, electronics and product distribution and marketing. The agreement calls for Ritika to finance engineering, product development, manufacturing, inventory and the marketing and distribution of all Aftermaster’s products worldwide (excluding the US and Canada). The Company will receive tiered royalty payments on worldwide sales excluding the US and Canadian markets, which are retained by the Company. The agreement is expected to save the Company significant resources both financially and operationally while raising the quality and reliability of all its products in markets worldwide. The financing and manufacturing agreement that the Company entered into with Ritika is expected to significantly reduce the requirement for the financing of product inventory and manufacturing going forward. During the quarter, the Company bundled several high interest rate notes into one note for $900,204 at 15%, with interest payments deferred until 2020.

Business and Products

Aftermaster Consumer and Professional Electronics Products

The Company has assembled a talented branding, technical and design team who design and develop the Company’s consumer and professional electronics products. The first consumer electronic product to be introduced was the Aftermaster Pro, designed to dramatically improve the quality of TV audio. Aftermaster Pro is the world’s 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 quality, especially the need to continually adjust the volume because of the difficulty in hearing dialogue in programming.

Smaller than an iPhone, the Aftermaster Pro transforms the audio of a TV to sound clearer, fuller, deeper, and more exciting. Aftermaster Pro connects easily via HDMI cables with virtually any A/V media source (i.e., cable, satellite box, etc.). Aftermaster Pro raises and clarifies TV dialogue in programming while significantly enhancing the quality of the overall audio content. This solves the longstanding need to continually adjust volume during a TV show to hear the dialogue.

Once the Company receives inventory of its products, Aftermaster Pro is for sale on HSN TV and HSN.com and other online retail outlets as well as through the Company’s own website, Aftermasterpro.com.

The Company has also developed a new portable TV audio remastering product called HearClear TV™, which is based on its Aftermaster Pro product. HearClear is aimed at people with hearing loss and will initially be available through audiological clinics www.hearclear.tv. In addition, the Company also completed the development of a product called the Superbar™ which is the Company’s first soundbar product. The new Superbar™ will include Aftermaster’s award winning and patented Aftermaster audio technology. The Company expects to begin manufacturing the Superbar™ late this year.

The Company has also recently designed and developed its first professional hardware product dubbed the “Aftermaster Studio Pro” which is the Company’s first product designed for use in commercial audio applications. The new product is a 1 U, 19” rack-mount Aftermaster audio processor that allows a user to enhance any audio playback with Aftermaster to make any sound fuller, clearer, louder and deeper. It is expected to retail for $3,995 and can be seen at www.aftermastermaster.com/products. The Company believes that the worldwide market for its new product is significant, as it can be used in potentially hundreds of thousands of facilities worldwide: radio stations, private and public recording studios, places of worship, restaurants and bars, sports facilities, high-end residential, live concerts and concert facilities, hospitals – virtually any place where a business wants the audio to sound significantly better than anything that they can currently do. The product is expected to be available for pre-sale in the near future.

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

ON Semiconductor/Aftermaster Audio Chip and Software

The Company jointly developed a unique semi-conductor chip with ON Semiconductor (“ON”) of Phoenix, Arizona, to commercialize its Aftermaster technology through audio semiconductor chips. ON is a multi-billion-dollar, multi-national semiconductor designer and manufacturer.

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.

In conjunction with ON, we also completed the development of an Aftermaster software algorithm that is designed to be a standalone software product. We believe the sound quality from our algorithm provides a superior audio experience relative to other products on the market.

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. We hope to generate significant revenues through the sale of the ON/Aftermaster chips and software licensing.

Promaster On-line Music Mastering

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 online 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. The service also offers additional features such as file storage. Based on the enormous addressable market for this product, we believe that with effective marketing Promaster has the potential to generate significant revenues for the Company. www.promasterhd.com

TuneCore

Aftermaster offers both world-class, professional hands-on mastering services and instant online mastering through its Promaster brand for music, TV and film in its facilities in Hollywood, California. The Professional Mastering division is headed up by Peter Doell, one of the world’s foremost mastering engineers. The Company has a partnership with TuneCore Digital Music Services to provide both professional hands-on mastering services and on-line instant mastering services through its Promaster on-line to TuneCore’s customers.

Currently, TuneCore is one of the world’s largest independent digital music distribution and publishing administration service. Under our agreement, Aftermaster has become the platform for both hands-on professional and online instant mastering services for TuneCore’s artists on an exclusive basis. TuneCore has one of the highest artist revenue-generating music catalogs in the world, earning TuneCore Artists over a billion dollar from downloads and streams. TuneCore’s 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’s artists have direct access to Aftermaster’s world-class senior mastering engineers and unmatched technologies and can get their tracks hand mastered for a premium price or instantly electronically mastered through Aftermaster’s Promaster, returned and ready for distribution. The partnership builds upon TuneCore’s mission to provide independent artists with key tools to build their careers and gain broad fan exposure, by granting access to unparalleled mastering that meets the industry’s highest standards.

Muzik Headphones

The Company is party to an agreement with headphone manufacturer Muzik, Inc., to license its Aftermaster technology (through both its Company’s proprietary DSP chip and software application). Known as the “smartphone” of headphones, award-winning Muzik has created one of the worlds most advanced wireless headphones. Muzik’s proprietary voice command and multiple “hot keys” allow a user to access Spotify, Siri and connect their headphones to over 300 apps from fitness, news, and productivity to the connected home, commerce, automotive, and social media. Muzik is considered one of the most important new headphone designer and manufacturer. The Company expects its technology to be implemented in Muzik products in the future.

Recording Studios

The Company operates 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 adjacent to the Company’s existing studios in Hollywood at the Crossroads of the World complex. 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 prominent musicians. It is the largest of the six recording studios that Aftermaster operates at its studio facilities in Hollywood. www.aftermaster.com/studios

Aftermaster Audio Technology

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, Andrew Wuepper and Shelly Yakus. See www.Aftermaster.com.

The name Aftermaster was derived by our technology being primarily utilized to remaster and improve audio that has already been mastered. The Aftermaster audio process pulls an audio event apart that has previously been finished or mastered and then remasters it to our standards, hence “Aftermaster”. Aftermaster is unique among audio processes as it enhances the entire frequency range without distortion or changing the underlying intent of the audio. The Aftermaster process is also popular for mastering previously un-mastered audio such as new recordings or live events.

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

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

Intellectual Property and Licensing

The Company has been awarded eight patents and multiple 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. We rigorously control access to our proprietary technologies. The Company has engaged Morgan Chu of Irell and Manella, to represent its intellectual property interests along with its existing IP attorneys Farjami & Farjami LLP and Arnold Weintraub of the Weintraub Group. Mr. Weintraub serves on the Board of Directors of the Company.

Employees

As of September 30, 2019, we employed nine full-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 are good. None of our employees are members of any union, nor have they entered into any collective bargaining agreements.

Facilities

RESULTS OF OPERATIONS

Revenues

	For the Three Months Ended
	September 30,
	2019		2018
AfterMaster Revenues	$	131,880	$	145,413
Product Revenues		8,389		389,109
Total Revenues	$	140,269	$	534,522

We currently generate revenue from our operations through two activities: AfterMaster revenues and AfterMaster product 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. Product revenues for the three months ended September 30, 2019, decreased to $8,389, as compared to $389,109 for the comparable the three months ended September 30, 2018, respectively. The decrease in product revenues are due to the company selling fewer Aftermaster Pro through our website (www.Aftermasterpro.com) and through consumer retail distribution channels.

In the aggregate, total Company revenues decreased to $140,269 for the three months ended September 30, 2018, as compared to total revenues of $534,522 for the three months ended September 30, 2018, the decrease is due to the company acquiring new overseas manufacturer and the redesign of the Aftermaster Pro in order to lower the cost of goods sold.

Cost of Revenues

	For the Three Months Ended
	September 30,
	2019		2018
Cost of Revenues (excluding depreciation and amortization)	$	114,066	$	417,757

Cost of sales consists primarily of manufacturing cost of the Aftermaster Pro TV consumer electronic product, Aftermaster Studio Rent, Consultants, senior engineers, and excludes depreciation and amortization on fixed assets. The decrease in cost of sales for the three months ending September 30, 2019, over the comparable quarter, is attributable, primarily, to the decrease in product revenue therefore the company had lower manufacturing cost of the Aftermaster Pro. The company had cost of revenues in the amount of $114,066 for the three months ending September 30, 2019, as compared to $417,757 for the three months ending September 30, 2018.

Other Operating Expenses

	For the Three Months Ended
	September 30,
	2019		2018
Depreciation and Amortization Expense	$	8,416	$	23,467
Research and Development		-		2,600
Advertising and Promotion Expense		1,997		54,369
Legal and Professional Expense		43,154		11,030
Non-Cash Consulting Expense		25,387		65,116
General and Administrative Expenses		725,886		849,187
Total	$	804,840	$	1,005,769

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; rent and facilities; and expenses related to the issuance of stock compensation. During the three months ended September 30, 2019, General and administrative expenses decrease by $123,301 as compared to the three months ended September 30, 2018. The decrease is primarily due to the company using a third-party consultant to help with the business operations in the prior period, which did not occur in the current period.

During the three months ended September 30, 2019, Research and Development costs decreased to $0 from $2,600, Advertising and Promotion decreased to $1,997 from $54,369, Legal and Professional fees increased to $43,154 from $11,030 and consulting services decreased to $25,387 from $65,116, as compared to the three months ended September 30, 2018. The decrease is primarily due to the company using social media advertising to help generate sales. The decrease in Research and Development was not material compared to the three months ended September 30, 2018. The decreases in Advertising and Promotion for the three months ended September 30, 2019, are primarily due to the design, development and marketing of its Aftermaster Pro consumer hardware product in the three months ended September 30, 2018. Legal and Professional fees increases are primarily to the company only using one attorney on a monthly retainer to handle all the company’s legal needs in the prior period compared to five in the three months ended September 30, 2019. The decreases in consulting expenses are primarily due to issuing fewer stock for services compared to the three months ended September 30, 2018.

Other Expense

	For the Three Months Ended
	September 30,
	2019			2018
Interest Expense	$	(690,374	)	$	(806,650	)
Derivative Expense		(71,359	)		(1,043,090	)
Change in Fair Value of Derivative		(324,692	)		612,212
Total	$	(1,086,425	)	$	(1,237,528	)

The other expenses during the quarter ended September 30, 2019, totaling $1,086,425 of expenses, which consists of interest expense, derivative expense, change in fair value of derivative. During the comparable period in 2018, other expenses totaled $1,237,528. Interest expense has decreased primarily due to a decrease in non-cash interest expense relating to amortization of recent debt discount. These additional borrowings have been used in the development of the Aftermaster HD. Derivative expense and change in fair value of derivatives has increased due to the issuance of derivative instruments in the current period and the company revaluing the instruments at the end of the current period.

Net Loss

	For the Three Months Ended
	September 30,
	2019			2018
Net Loss	$	(1,865,062	)	$	(2,126,532	)

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” and ASC 505, Equity Based Payments to Non-Employees”, these non-cash issuances are expensed at the equity instruments fair market value. Absent these large stock-based compensation of $25,387 and $65,116, derivative expense of $71,359 and $1,043,090, gain (loss) on the change in the derivative liability of $(324,692) and $612,212 for the three months ended September 30, 2019 and 2018, our net loss would have been $1,443,624 and $1,630,538 for three months ended September 30, 2019 and 2018, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company had revenues of $140,269 during the three months ended September 30, 2019 as compared to $534,522 in the comparable quarter of 2018. The Company has incurred losses since inception of $87,724,551. At September 30, 2019, the Company has negative working capital of $15,309,891, which was a decrease in working capital of $2,418,487 from June 30, 2019.

The Company had cash of $64,093 as of September 30, 2019, as compared to $366,129 as of June 30, 2019. The decrease is a result of the Company making payments on convertible notes payable totaling $110,204, which was partially offset by the Company entered into seventeen (17) Share Purchase Agreements with individual accredited investors resulting in net proceeds of $189,000, one (1) note payable resulting in net proceeds of $50,000, three (3) related notes payable resulting in net proceeds of $40,000, and two (2) convertible notes payable resulting in net proceeds of $107,250 during the three months ended September 30, 2019. The cash provided by financing activities decreased by $329,045 during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018. This amount was also decreased by operational costs, payments of obligations from convertible notes, notes, and lease payables. The company had more expenses during the quarter than the funding which resulted in a decrease in cash. The decrease is related to the company having less funding during the quarter ending September 30, 2019 as compared to June 30, 2019.

The Company had prepaid expense of $285,909 as of September 30, 2019, as compared to $311,296 as of June 30, 2019. The decrease is due to the Company amortizing the prepaid expenses totaling $25,387 over the three months ended September 30, 2019.

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 September 30, 2019, 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.

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 September 30, 2019, 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, we 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.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred in the three months ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our 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.

3. A lender for two term notes with total value of $154,000, issued in April 2019 and June 2019, has issued an notice of default on the conversion of the notes into stock.

ITEM 1A - RISK FACTORS

Not required.

ITEM 2. RECENT SALE OF UNREGISTERED SECURITIES

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION

Subsequent Events

From October through November 2019, various holders of the unrelated convertible notes converted $54,000 of principal and $3,537 of accrued interest into 11,083,692 shares of common stock.

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

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: November 14, 2019	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: November 14, 2019	By:	/s/ Larry Ryckman
		Larry Ryckman,
		Title: Director, President, Chief Executive Officer


	AFTERMASTER, INC.

Date: November 14, 2019	By:	/s/ Mirella Chavez
		Mirella Chavez
		Title: Chief Financial Officer, Secretary

AFTERMASTER, INC. 10-Q