14. RESTATEMENT OF INTERIM CONDENSED FINANCIAL STATEMENTS

6 Months Ended

Dec. 31, 2017

Restatement Of Interim Condensed Financial Statements

14. CORRECTION OF INTERIM CONDENSED FINANCIAL STATEMENTS

During the September 30, 2017 quarter, the Company sold $400,000 of its product to its manufacturer for $400,000 and recorded it as gross revenue. The transaction eliminated $400,000 in short term debt. During the course of the audit it was determined that the transaction should have been classified as net sales. Accordingly, the Company should not have (i) recognized gross revenue of $400,000 for the sale related to 4,000 units to the Company’s manufacturer, (ii) recognized the cost of sales related to 4,000 units of Company products sold to that manufacturer in the amount of $400,000.

The Company also determined that it erroneously overstated the derivative liability as of September 30, 2017 and it should be reduced by $485,031. The change in derivative calculation also affected total debt discount, amortization of the debt discount, change in fair value of derivatives, and derivative expense.

During the December 31, 2017 quarter, the Company sold $90,000 of its product to its manufacturer for $120,000 and recorded it as gross revenue. The transaction eliminated $90,000 in short term debt. During the audit it was determined that the transaction should have been classified as net sales. Accordingly, the Company should not have (i) recognized gross revenue of $120,000 for the sale related to the 1,000 units to the Company’s manufacturer and should have only recognized $30,000 in net revenue, (ii) recognized the cost of sales of $90,000 related to 1,000 units of Company product sold to that manufacturer, or (iii) decreased derivative liabilities by $356,396 by including in the derivative liability calculation convertible debt that did not include elements that would trigger derivative treatment.

As mentioned above, the Company determined that it erroneously overstated the derivative liability as of December 31, 2017 and it should be reduced by $356,396. The change in derivative calculation also affected total debt discount, amortization of the debt discount, change in fair value of derivatives, and derivative expense.

The effects of these corrections on the interim consolidated financial statements were:

AFTERMASTER, INC.
Consolidated Balance Sheets
	December 31,		December 31,
	2017		2017
	As Reported	Correction	As Restated
Derivative Liability	2,461,034	$          (356,396)	$             2,104,638
Notes payable, net of discount of $15,319 and $0, respectively	449,169	$              (5,850)	443,319
Convertible notes payable - related party, net of discount of $3,750 and $0, respectively	3,990,000	$              (3,750)	3,986,250
Convertible notes payable, net of discount of $790,455 and $549,737, respectively	2,877,295	$               1,349	2,878,644
Total Current Liabilities	11,723,125	$          (364,647)	11,358,478
Total Liabilities	11,723,125	$          (364,647)	11,358,478
Additional Paid in Capital Accumulated Deficit	(75,157,060)	$           375,647	$          (74,799,413)
Total Stockholders' Deficit	(10,322,788)	$           364,647	(9,958,141)

AFTERMASTER, INC.
Consolidated Statements of Operations and Comprehensive Loss (Unaudited)
	For the six		For the six
	Months Ended		Months Ended
	December 31,		December 31,
	2017		2017
	As Reported	Correction	As Restated
Product Revenues	710,843	$               (490,000)	220,843
Total Revenues	950,462	$               (490,000)	460,462
Cost of Revenues (Exclusive of Depreciation and Amortization)	1,001,340	$               (490,000)	511,340
Total Costs and Expenses	2,839,963	$               (490,000)	2,349,963
Interest Expense	(1,476,739)	$                  11,251	(1,465,488)
Derivative Expense	(345,133)	$                    4,854	(340,279)
Change in Fair Value of Derivative	767,822	$                341,542	1,109,364
Total Other Expense	(964,008)	$                357,647	(606,361)
Loss Before Income Taxes	(2,853,509)	$                357,647	(2,495,862)
NET LOSS	(2,853,509)	$                357,647	(2,495,862)
NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	(2,966,243)	$                357,647	(2,608,596)
COMPREHENSIVE LOSS	(3,031,043)	$                357,647	(2,673,396)

AFTERMASTER, INC.
Consolidated Statements of Cash Flows (Unaudited)
	For the six					For the six
	Months Ended					Months Ended
	December 31,					December 31,
	2017					2017
	As Reported			Correction		As Restated
Net Loss	(2,853,509	)	$	357,647		(2,495,862	)
Amortization of debt discount and issuance costs	885,633		$	(1,763,015	)	(877,382	)
Derivative expense	345,133		$	(4,854	)	340,279
(Gain)/Loss remeasurement of derivative	(767,823	)	$	(341,541	)	(1,109,364	)
Accounts payable and accrued expenses	273,241		$	(3,001	)	270,240