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EX-32.2 - EXHIBIT 32.2 - LiveXLive Media, Inc.s101637_ex32-2.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

   
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015
OR
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 333-167219

 

LOTON, CORP

(Exact name of Registrant as Specified in its Charter)

         
  Nevada   98-0657263  
  (State or Other Jurisdiction of   (I.R.S. Employer  
  Incorporation or Organization)   Identification Number)  

 

269 South Beverly Drive

Beverly Hills, California 90212

(Address of Principal Executive Offices including Zip Code)

 

(310) 601-2500

(Registrant’s Telephone Number, Including Area Code)

 

(Former address and telephone, if changed since last report) 

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant is required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ☐ No  ☒

 

Indicate by check mark whether each 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☒  No  ☐

 

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 definition of “large accelerated filer”, “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one): 

       
Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company
       
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes  ☐   No  ☒

 

As of August 7, 2015, there were issued and outstanding 45,347,488 shares of the registrant’s common stock, par value $0.001 per share.

 

 

 

LOTON, CORP

TABLE OF CONTENTS

TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015

       
      Page
       
PART 1. FINANCIAL INFORMATION    
       
  Item 1. Financial Statements.   3
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.   33
       
  Item 3. Quantitative and Qualitative Disclosures about Market Risk.   39
       
  Item 4. Controls and Procedures.   39
       
PART II. OTHER INFORMATION    
       
  Item 1. Legal Proceedings.   40
       
  Item 1A Risk Factors   40
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.   40
       
  Item 3. Defaults Upon Senior Securities.   40
       
  Item 4. Mine Safety Disclosures.   40
       
  Item 5. Other Information.   41
       
  Item 6. Exhibits.   41

 

2
 

  

PART 1.    FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Loton, Corp
Consolidated Balance Sheets

               
    June 30, 2015   March 31, 2015  
    (Unaudited)      
ASSETS              
CURRENT ASSETS              
Cash   $ 1,336,706   $ 866,951  
Accounts receivable     46,611     67,876  
Inventories     56,959     161,977  
Prepayments and other current assets     400,994     460,226  
Deferred taxes     38,510     36,345  
               
Total Current Assets     1,879,780     1,593,375  
               
PROPERTY AND EQUIPMENT              
Leasehold improvements     1,315,975     1,241,986  
Furniture, fixtures and office equipment     426,919     402,997  
Production and entertainment equipment     1,447,561     1,343,851  
Accumulated depreciation     (2,192,703 )   (2,038,626 )
               
Property and Equipment, net     997,752     950,208  
               
INTANGIBLE ASSETS              
Trademarks     15,569     14,694  
Website development costs     36,251     34,213  
Accumulated amortization     (41,896 )   (39,356 )
               
Intangible Assets, net     9,924     9,551  
               
Total Assets   $ 2,887,456   $ 2,553,134  
               
LIABILITIES AND DEFICIT              
CURRENT LIABILITIES              
Accounts payable   $ 682,983   $ 843,667  
Deferred rent, current portion     85,508     80,700  
Income taxes payable     317,131     241,813  
Management service obligation - related party     1,000,000     1,000,000  
Notes payable - related parties     2,457,624     1,701,124  
Notes payable     246,143      
VAT tax payable and payroll liabilities     264,293     202,024  
Advances from related parties     94,461     127,467  
Accrued expenses and other current liabilities     508,001     601,324  
               
Total Current Liabilities     5,656,144     4,798,119  
               
NON-CURRENT LIABILITIES              
Note payable         242,498  
Deferred rent     1,090,066     1,049,114  
               
Total Non-Current Liabilities     1,090,066     1,291,612  
               
Total Liabilities     6,746,210     6,089,731  
               
COMMITMENTS AND CONTINGENCIES              
               
DEFICIT              
Preferred stock, par value $0.001: 1,000,000 shares authorized; none issued or outstanding          
Common stock, par value $0.001: 75,000,000 shares authorized; 43,891,655 and 43,275,822 shares issued and outstanding, respectively     43,892     43,276  
Additional paid-in capital     2,815,789     2,440,947  
Accumulated deficit     (6,043,618 )   (5,272,900 )
Accumulated other comprehensive loss:              
Foreign currency translation loss     (26,864 )   (25,932 )
               
Total Loton Corp. Stockholders’ Equity (Deficit)     (3,210,801 )   (2,814,609 )
               
NON-CONTROLLING INTEREST              
Non-controlling interest - capital stock     1     1  
Non-controlling interest - Retained earnings (accumulated deficit)     (621,091 )   (696,058 )
Accumulated other comprehensive loss:              
Foreign currency translation loss     (26,863 )   (25,931 )
               
Total Non-Controlling Interest     (647,953 )   (721,988 )
               
Total Deficit     (3,858,754 )   (3,536,597 )
               
Total Liabilities and Deficit   $ 2,887,456   $ 2,553,134  

 

See accompanying notes to the consolidated financial statements. 

 

3
 

 

Loton, Corp
Consolidated Statements of Operations

               
    For the Three Months
Ended
June 30, 2015
  For the Three Months
Ended
June 30, 2014
 
    (Unaudited)   (Unaudited)  
           
Revenues   $ 1,936,770   $ 1,847,200  
               
Cost of Revenue     277,385     279,676  
               
Gross Margin     1,659,385     1,567,524  
               
Operating Expenses              
Selling expenses     162,677     148,553  
Rent     200,940     207,584  
Professional fees     181,053     201,206  
Management services - related parties     120,609     153,795  
Salary and wages     323,267     330,454  
Consulting fees     402,777     527,975  
Acquisition professional costs         1,376,124  
General and administrative expenses     860,426     715,090  
               
Total operating expenses     2,251,749     3,660,781  
               
Loss from operations     (592,364 )   (2,093,257 )
               
Other (income) expense              
Interest expense     44,077     5,088  
               
Other (income) expense, net     44,077     5,088  
               
Loss before income tax provision     (636,441 )   (2,098,345 )
               
Income tax provison     59,310     45,880  
               
Net income (loss)              
Net loss before non-controlling interest     (695,751 )   (2,144,225 )
Net income (loss) attributable to non-controlling interest     74,967     (617,302 )
               
Net loss attributable to Loton Corp. stockholders     (770,718 )   (1,526,923 )
               
Other comprehensive income (loss)              
FX translation gain (loss)     (1,864 )   8,315  
FX translation gain (loss) attributable to non-controlling interest     (932 )   4,157  
               
Other comprehensive income (loss) attributable to Loton Corp stockholders     (932 )   4,158  
               
Comprehensive loss   $ (771,650 ) $ (1,522,765 )
               
Earnings Per Share:              
- basic and diluted   $ (0.02 ) $ (0.06 )
               
Weighted average common shares outstanding:              
- basic and diluted     44,700,378     35,488,791  

 

See accompanying notes to the consolidated financial statements. 

 

4
 

  

Loton, Corp
Consolidated Statement of Changes in Equity (Deficit)
For the Interim Period Ended June 30, 2015
(Unaudited)

                                                                     
    Loton Corp. Stockholders’ Equity (Deficit)   Non-controlling Interest  
    Common Stock Par Value $0.001   Additional   Retained Earnings   Accumulated Other   Total Loton Corp.       Retained Earnings   Accumulated Other   Total   Total  
    Number of
 Shares
  Amount   Paid-in
 Capital
  (Accumulated
 Deficit)
  Comprehensive
 Income (Loss)
  Stockholders’
 Equity (Deficit)
  Capital
 Stock
  (Accumulated
 Deficit)
  Comprehensive
 Income (Loss)
  Non-controlling
 Interest
  Equity (Deficit)  
                                               
                                               
Balance, March 31, 2014     29,000,000     29,000     (28,998 )   160,026     (21,819 )   138,209     1     160,025     (21,818 )   138,208     276,417  
                                                                     
Reverse acqusition adjustment     8,576,666     8,576     (2,391,224 )               (2,382,648 )                           (2,382,648 )
                                                                     
50% of acquisition related costs recorded as deemed dividend non-controlling interest                                             (1,135,042 )         (1,135,042 )   (1,135,042 )
                                                                     
Amortization of warrants issued to related party for services received                 11,461                 11,461                             11,461  
                                                                     
Issuance of common stock to Advisory members for one year service in October and December 2013 earned during the period     341,667     342     341,325                 341,667                             341,667  
                                                                     
Issuance of common stock to consultants for one year service in October and November 2013 earned during the period     88,750     89     88,661                 88,750                             88,750  
                                                                     
Issuance of common stock to consultants for one year service in February and April 2014 earned during the period     112,917     113     112,804                 112,917                             112,917  
                                                                     
Issuance of common stock to Advisory members for one year service in May and June 2014 earned during the period     129,167     129     129,038                 129,167                             129,167  
                                                                     
Issuance of common stock to Advisory members for one year service in October and November 2014 earned during the period     108,333     108     108,225                 108,333                             108,333  
                                                                     
Issuance of common stock to consultants for one year service in November 2014 earned during the period     56,667     57     56,610                 56,667                             56,667  
                                                                     
Issuances of common shares for warrant exercises at $.01 per share     2,950,000     2,950     26,550                 29,500                             29,500  
                                                                     
Issuance of common shares in settlement of accounts payable     954,988     955     476,539                 477,494                             477,494  
                                                                     
Issuance of common shares for cash at $1.00 per share     825,000     825     824,175                 825,000                             825,000  
                                                                     
Issuance of common stock for services     40,000     40     39,960                 40,000                             40,000  
                                                                     
Issuance of warrants in settlement of potential claim                 2,600,080                 2,600,080                             2,600,080  
                                                                     
Issuance of common stock to consultants for one year service in February and March 2015 earned during the period     25,000     25     12,475                 12,500                             12,500  
                                                                     
Issuance of common stock to Advisory members for one year service in January, February and March 2015 earned during the period     66,667     67     33,266                 33,333                             33,333  
                                                                     
Comprehensive income (loss)                                                                    
Net loss                       (5,432,926 )         (5,432,926 )         278,959           278,959     (5,153,967 )
Foreign currency translation gain                             (4,113 )   (4,113 )               (4,113 )   (4,113 )   (8,226 )
                                                                     
Total comprehensive income (loss)                                   (5,437,039 )                     274,846     (5,162,193 )
                                                                     
Balance, March 31, 2015     43,275,822   $ 43,276   $ 2,440,947   $ (5,272,900 ) $ (25,932 ) $ (2,814,609 ) $ 1   $ (696,058 ) $ (25,931 ) $ (721,988 $ (3,536,597 )
                                                                     
Issuance of common stock to Advisory members for one year service in May and June 2014 earned during the period     20,833     21     20,812                 20,833                                
                                                                     
Issuance of common stock to Advisory members for one year service in October and November 2014 earned during the period     68,750     69     68,681                 68,750                                
                                                                     
Issuance of common stock to Advisory members for one year service in January, February and March 2015 earned during the period     112,500     112     56,138                 56,250                                
                                                                     
Issuance of common stock to consultants for one year service in November 2014 earned during the period     42,500     43     42,457                 42,500                                
                                                                     
Issuance of common stock to consultants for one year service in February and March 2015 earned during the period     50,000     50     24,950                 25,000                                
                                                                     
Issuance of common stock to consultants for one year service in April and June 2015 earned during the period     6,250     6     3,119                 3,125                                
                                                                     
Issuance of common stock to media publishing firm for services     15,000     15     7,485                 7,500                                
                                                                     
Issuance of common shares for cash at $1.00 per share     150,000     150     149,850                 150,000                                
                                                                     
Issuance of common shares for warrant exercises at $.01 per share     150,000     150     1,350                 1,500                                
                                                                     
Comprehensive income (loss)                                                                    
Net loss                       (770,718 )         (770,718 )         74,967           74,967     (695,751 )
Foreign currency translation gain                             (932 )   (932 )               (932 )   (932 )   (1,864 )
                                                                     
Total comprehensive income (loss)                                   (771,650 )                     74,035     (697,615 )
                                                                     
Balance, June 30, 2015     43,891,655   $ 43,892   $ 2,815,789   $ (6,043,618 ) $ (26,864 ) $ (3,210,801 ) $ 1   $ (621,091 ) $ (26,863 ) $ (647,953 ) $ (3,858,754 )
                                                                     

 

See accompanying notes to the consolidated financial statements.

 

5
 

 

Loton, Corp
Consolidated Statements of Cash Flows

               
    For the Three Months
Ended
June 30, 2015
  For the Three Months
Ended
June 30, 2014
 
    (Unaudited)   (Unaudited)  
Cash flows from operating activities              
Net loss before non-controlling interest   $ (695,751 ) $ (2,144,225 )
Adjustments to reconcile net income (loss) before non-controlling interest to net cash used in operating activities              
Depreciation expense     32,114     45,654  
Amortization expense     190     209  
Common shares and warrants issued for services     223,958     190,422  
Changes in operating assets and liabilities:              
Accounts receivable     24,642     13,841  
Inventories     111,650     11,029  
Prepayments and other current assets     84,321     253,198  
Accounts payable     (196,146 )   98,377  
Income tax payable     59,310     45,880  
Payroll liabilities     49,331     60,077  
Accrued interest on notes payable - related party     22,696     5,087  
Accrued interest on notes payable     3,645      
Accrued expenses and other current liabilities     (132,969 )   17,031  
Management service obligation - related party         55,556  
Deferred rent     (20,980 )   (23,068 )
               
Net cash used in operating activities     (433,989 )   (1,370,932 )
               
Cash flows from investing activities              
Cash acquired from business acquisition         85,608  
Purchases of property and equipment     (23,900 )   (17,568 )
               
Net cash provided by (used in) investing activities     (23,900 )   68,040  
               
Cash flows from financing activities              
Advances from (repayments to) related parties     (33,434 )   (414,213 )
Proceeds from notes payable - related parties     820,500     1,401,124  
Proceeds from warrants exercised     1,500      
Repayments of notes payable - related parties     (64,000 )    
Proceeds from sale of common stock     150,000      
               
Net cash provided by financing activities     874,566     986,911  
               
Effect of exchange rate changes on cash     53,078     13,359  
               
Net change in cash     469,755     (302,622 )
               
Cash at beginning of the period     866,951     731,208  
               
Cash at end of the period   $ 1,336,706   $ 428,586  
               
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:              
Interest paid   $ 17,736   $  
Income tax paid   $   $ 187,262  
               

 

See accompanying notes to the consolidated financial statements.

 

6
 

 

Loton, Corp

June 30, 2015 and 2014

Notes to the Consolidated Financial Statements

(Unaudited)

 

Note 1 – Organization and Operations

 

Loton Corp

 

Loton, Corp (the “Company”) was incorporated under the laws of the State of Nevada on December 28, 2009.

 

LiveXLive, Corp. (formerly FestreamTV, Corp.)

 

LiveXLive, Corp. (“LXL”), a wholly-owned subsidiary of the Company, was incorporated under the laws of the State of Delaware on February 24, 2015.

 

Obar Camden Ltd.

 

Obar Camden Ltd. (“Obar Camden” or “OCL”), an indirect, 50%-owned subsidiary of the Company, was incorporated on November 13, 2003 as a private limited company registered in England and Wales. Obar Camden engages in the operations of the nightclub and live music venue “KOKO” in Camden, London.

 

Obar Camden Holdings Limited

 

Obar Camden Holdings Limited (“OCHL”) was incorporated on October 17, 2012 as a private limited company registered in England and Wales. OCHL was formed by Obar Camden’s stockholders for the sole purpose of acquiring all of the registered and contributed capital of Obar Camden. Upon formation, OCHL issued ten (10) shares of the newly formed corporation’s ordinary shares to a significant stockholder of Obar Camden Ltd. No value was given to the shares issued, therefore, the shares were recorded to reflect the £0.50 par value and paid in capital was recorded as a negative amount of (£0.50).

 

OCHL is a 50%-owned subsidiary of the Company and is the parent of OCL. From October 17, 2012 to November 20, 2012, the date of the recapitalization, OCHL was inactive and had no assets or liabilities.

  

Merger of Obar Camden Ltd.

 

On November 20, 2012, OCHL acquired all of the issued and outstanding ordinary shares of Obar Camden from its stockholders in exchange for issuing 97,746 shares of OCHL’s ordinary shares to such stockholders. The number of shares issued represented 99.99% of the issued and outstanding ordinary shares immediately after the consummation of the Obar Camden acquisition.

 

As a result of the transfer of ownership interests of the former stockholders of Obar Camden, for financial statement reporting purposes, the merger between OCHL and Obar Camden has been treated as a reverse acquisition with Obar Camden deemed the accounting acquirer and OCHL deemed the accounting acquiree under the acquisition method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification. The reverse merger is deemed a capital transaction and the net assets of Obar Camden (the accounting acquirer) were carried forward to OCHL (the legal acquirer and the reporting entity) at their carrying value before the acquisition. The acquisition process utilized the capital structure of OCHL and the assets and liabilities of Obar Camden which were recorded at historical cost. The equity of the combined entity is the historical equity of Obar Camden retroactively restated to reflect the number of shares issued by OCHL in the transaction.

 

Acquisition of Obar Camden Holdings Limited Treated as a Reverse Acquisition

 

On April 28, 2014, Loton, Corp consummated an Agreement and Plan of Merger (the “Merger Agreement”), by and among Loton, Loton Acquisition Sub I, Inc., a Delaware corporation (“Acquisition Sub”) and KoKo (Camden) Holdings (US), Inc. (“KoKo Parent”), a Delaware corporation and wholly-owned subsidiary of JJAT Corp. (“JJAT”), a Delaware corporation wholly-owned by Robert Ellin, the Company’s Executive Chairman, President, Director and controlling shareholder (“Mr. Ellin”), and his affiliates (the “Merger”). As a result of the Merger, KoKo Parent became a wholly-owned subsidiary of Loton, and Loton’s primary business became that of KoKo Parent and its subsidiaries, KoKo (Camden) Limited, a private limited company registered in England and Wales (“KoKo UK”) which owns 50% of OCHL, which in turn wholly-owns its operating subsidiary OBAR Camden. Upon the closing of the Merger, pursuant to the terms of the Merger Agreement, KoKo Parent’s former sole shareholder, JJAT, received 29,000,000 shares of Loton Corp’s common stock, or approximately 77.2% of the issued and outstanding common stock immediately after the consummation of the Merger Agreement.

 

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As a result of the controlling financial interest of the former stockholder of OCHL, for financial statement reporting purposes, the Merger has been treated as a reverse acquisition with OCHL deemed the accounting acquirer and the Company deemed the accounting acquiree under the acquisition method of accounting in accordance with section 805-10-55 of the FASB Accounting Standards Codification. The reverse acquisition is deemed a capital transaction and the net assets of OCHL (the accounting acquirer) are carried forward to the Company (the legal acquirer and the reporting entity) at their carrying value before the acquisition.  The acquisition process utilizes the capital structure of the Company and the assets and liabilities of OCHL which are recorded at their historical cost.  The equity of the Company is the historical equity of OCHL, taking into consideration the 50% non-controlling interest, retroactively restated to reflect the number of shares issued by the Company in the transaction.

 

Note 2 - Significant and Critical Accounting Policies and Practices

 

The management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company’s financial condition and results and require management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain. The Company’s significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.

 

Basis of Presentation - Unaudited Interim Financial Information

 

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Interim results are not necessarily indicative of the results for the full year.  These unaudited interim consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements for the fiscal year ended March 31, 2015 and notes thereto contained in the Company’s Form 10-K filed with the SEC on July 14, 2015.

 

Fiscal Year End

 

On June 30, 2014, in connection with the closing of the Merger, the Company changed its fiscal year-end date from April 30 to March 31.

 

Use of Estimates and Assumptions and Critical Accounting Estimates and Assumptions

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 date(s) of the financial statements and the reported amounts of revenues and expenses during the reporting period(s).

 

Critical accounting estimates are estimates for which (a) the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change and (b) the impact of the estimate on financial condition or operating performance is material. The Company’s critical accounting estimates and assumptions affecting the financial statements were:

 

(i)Assumption as a going concern: Management assumes that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
(ii)Allowance for doubtful accounts: Management’s estimate of the allowance for doubtful accounts is based on historical sales, historical loss levels, and an analysis of the collectability of individual accounts; and general economic conditions that may affect a client’s ability to pay. The Company evaluated the key factors and assumptions used to develop the allowance in determining that it is reasonable in relation to the financial statements taken as a whole.
(iii)Inventory Obsolescence and Markdowns: The Company’s estimate of potentially excess and slow-moving inventories is based on evaluation of inventory levels and aging, review of inventory turns and historical sales experiences. The Company’s estimate of reserve for inventory shrinkage is based on the historical results of physical inventory cycle counts.
(iv)Fair value of long-lived assets: Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives. The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events;

 

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(v)Valuation allowance for deferred tax assets: Management assumes that the realization of the Company’s net deferred tax assets resulting from its net operating loss (“NOL”) carry–forwards for Federal income tax purposes that may be offset against future taxable income was not considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are offset by a full valuation allowance. Management made this assumption based on (a) the Company has incurred recurring losses, (b) general economic conditions, and (c) its ability to raise additional funds to support its daily operations by way of a public or private offering, among other factors;
(vi)Estimates and assumptions used in valuation of equity instruments: Management estimates expected term of share options and similar instruments, expected volatility of the Company’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk free rate(s) to value share options and similar instruments.

 

These significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to these estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

 

Principles of Consolidation

 

The Company applies the guidance of Topic 810 “Consolidation” of the FASB Accounting Standards Codification (“ASC”) to determine whether and how to consolidate another entity. Pursuant to ASC Paragraph 810-10-15-10 all majority-owned subsidiaries—all entities in which a parent has a controlling financial interest—shall be consolidated except (1) when control does not rest with the parent, the majority owner; (2) if the parent is a broker-dealer within the scope of Topic 940 and control is likely to be temporary; (3) consolidation by an investment company within the scope of Topic 946 of a non-investment-company investee. Pursuant to ASC Paragraph 810-10-15-8 the usual condition for a controlling financial interest is ownership of a majority voting interest, and, therefore, as a general rule ownership by one reporting entity, directly or indirectly, of more than 50 percent of the outstanding voting shares of another entity is a condition pointing toward consolidation. The power to control may also exist with a lesser percentage of ownership, for example, by contract, lease, agreement with other stockholders, or by court decree. The Company consolidates all less-than-majority-owned subsidiaries in which the parent’s power to control exists.

 

The Company’s consolidated subsidiary and/or entity is as follows:

 

Name of consolidated subsidiary
or entity
State or other jurisdiction of
incorporation or organization

Date of incorporation or formation
(date of acquisition, if applicable)

Attributable interest
     
LiveXLive, Corp. (formerly FestreamTV, Corp.) Delaware February 24, 2015 100%
       
KoKo (Camden) Holdings (US), Inc. Delaware March 17, 2014 100%
       
Koko (Camden) Limited United Kingdom November 7, 2013 100%
       
Obar (Camden) Holdings Limited United Kingdom October 17, 2012  50%
       
Obar (Camden) Limited United Kingdom November 13, 2003  50%

 

The consolidated financial statements include all accounts of the Company and the consolidated subsidiaries and/or entities as of reporting period ending date(s) and for the reporting period(s) then ended.

 

All inter-company balances and transactions have been eliminated.

 

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Reverse Acquisitions

 

Identification of the Accounting Acquirer

 

The Company considers factors in ASC paragraphs 805-10-55-10 through 55-15 in identifying accounting acquirer. The Company uses the existence of a controlling financial interest to identify the acquirer—the entity that obtains control of the acquiree. Other pertinent facts and circumstances also shall be considered in identifying the acquirer in a business combination effected by exchanging equity interests, including the following: a. The relative voting rights in the combined entity after the business combination. The acquirer usually is the combining entity whose owners as a group retain or receive the largest portion of the voting rights in the combined entity taking into consideration the existence of any unusual or special voting arrangements and options, warrants, or convertible securities. b. The existence of a large minority voting interest in the combined entity if no other owner or organized group of owners has a significant voting interest. The acquirer usually is the combining entity whose single owner or organized group of owners holds the largest minority voting interest in the combined entity. c. The composition of the governing body of the combined entity. The acquirer usually is the combining entity whose owners have the ability to elect or appoint or to remove a majority of the members of the governing body of the combined entity. d. The composition of the senior management of the combined entity. The acquirer usually is the combining entity whose former management dominates the management of the combined entity. e. The terms of the exchange of equity interests. The acquirer usually is the combining entity that pays a premium over the pre-combination fair value of the equity interests of the other combining entity or entities. The acquirer usually is the combining entity whose relative size (measured in, for example, assets, revenues, or earnings) is significantly larger than that of the other combining entity or entities.

 

Pursuant to ASC Paragraph 805-40-05-2 as one example of a reverse acquisition, a private operating entity may arrange for a public entity to acquire its equity interests in exchange for the equity interests of the public entity. In this situation, the public entity is the legal acquirer because it issued its equity interests, and the private entity is the legal acquiree because its equity interests were acquired. However, application of the guidance in paragraphs 805-10-55-11 through 55-15 results in identifying: a. The public entity as the acquiree for accounting purposes (the accounting acquiree) and b. The private entity as the acquirer for accounting purposes (the accounting acquirer).

 

Measuring the Consideration Transferred and Non-controlling Interest

 

Pursuant to ASC Paragraphs 805-40-30-2 and 30-3 in a reverse acquisition, the accounting acquirer usually issues no consideration for the acquiree. Instead, the accounting acquiree usually issues its equity shares to the owners of the accounting acquirer. Accordingly, the acquisition-date fair value of the consideration transferred by the accounting acquirer for its interest in the accounting acquiree is based on the number of equity interests the legal subsidiary would have had to issue to give the owners of the legal parent the same percentage equity interest in the combined entity that results from the reverse acquisition. The fair value of the number of equity interests calculated in that way can be used as the fair value of consideration transferred in exchange for the acquiree. The assets and liabilities of the legal acquiree are measured and recognized in the consolidated financial statements at their pre-combination carrying amounts (see paragraph 805-40-45-2(a)). Therefore, in a reverse acquisition the non-controlling interest reflects the non-controlling shareholders’ proportionate interest in the pre-combination carrying amounts of the legal acquiree’s net assets even though the non-controlling interests in other acquisitions are measured at their fair values at the acquisition date.

 

Acquisition-Related Costs

 

Pursuant to FASB ASC Paragraph 805-10-25-23 acquisition-related costs are costs the acquirer incurs to effect a business combination. Those costs include finder’s fees; advisory, legal, accounting, valuation, and other professional or consulting fees; general administrative costs, including the costs of maintaining an internal acquisitions department; and costs of registering and issuing debt and equity securities. The acquirer shall account for acquisition related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception. The costs to issue debt or equity securities shall be recognized in accordance with other applicable GAAP.

 

Presentation of Consolidated Financial Statements Post Reverse Acquisition

 

Pursuant to ASC Paragraphs 805-40-45-1 and 45-2 consolidated financial statements following a reverse acquisition are issued under the name of the legal parent (accounting acquiree) but described in the notes as a continuation of the financial statements of the legal subsidiary (accounting acquirer), with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital to reflect the legal capital of the accounting acquiree. That adjustment is required to reflect the capital of the legal parent (the accounting acquiree). Comparative information presented in those consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent (accounting acquiree). The consolidated financial statements reflect all of the following: a. The assets and liabilities of the legal subsidiary (the accounting acquirer) recognized and measured at their pre-combination carrying amounts. b. The assets and liabilities of the legal parent (the accounting acquiree) recognized and measured in accordance with the guidance in Topic 805 “business combinations”. c. The retained earnings and other equity balances of the legal subsidiary (accounting acquirer) before the business combination. d. The amount recognized as issued equity interests in the consolidated financial statements determined by adding the issued equity interest of the legal subsidiary (the accounting acquirer) outstanding immediately before the business combination to the fair value of the legal parent (accounting acquiree) determined in accordance with the guidance in this Topic applicable to business combinations. However, the equity structure (that is, the number and type of equity interests issued) reflects the equity structure of the legal parent (the accounting acquiree), including the equity interests the legal parent issued to effect the combination. Accordingly, the equity structure of the legal subsidiary (the accounting acquirer) is restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent (the accounting acquiree) issued in the reverse acquisition. e. The non-controlling interest’s proportionate share of the legal subsidiary’s (accounting acquirer’s) pre-combination carrying amounts of retained earnings and other equity interests as discussed in paragraphs 805-40-25-2 and 805-40-30-3.

 

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Pursuant to ASC Paragraphs 805-40-45-4 and 45-5 In calculating the weighted-average number of common shares outstanding (the denominator of the earnings-per-share (“EPS”) calculation) during the period in which the reverse acquisition occurs: a. The number of common shares outstanding from the beginning of that period to the acquisition date shall be computed on the basis of the weighted-average number of common shares of the legal acquiree (accounting acquirer) outstanding during the period multiplied by the exchange ratio established in the merger agreement. b. The number of common shares outstanding from the acquisition date to the end of that period shall be the actual number of common shares of the legal acquirer (the accounting acquiree) outstanding during that period. The basic EPS for each comparative period before the acquisition date presented in the consolidated financial statements following a reverse acquisition shall be calculated by dividing (a) by (b): a. The income of the legal acquiree attributable to common shareholders in each of those periods. b. The legal acquiree’s historical weighted-average number of common shares outstanding multiplied by the exchange ratio established in the acquisition agreement.

 

Fair Value of Financial Instruments

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:

 

Level 1   Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
     
Level 2   Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
     
Level 3   Pricing inputs that are generally observable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, prepaid expenses, accounts payable, accrued expenses, and payroll liabilities approximate their fair values because of the short maturity of these instruments.

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

 

Fair Value of Non-Financial Assets or Liabilities Measured on a Recurring Basis

 

The Company’s non-financial assets include inventories. The Company identifies potentially excess and slow-moving inventories by evaluating turn rates, inventory levels and other factors. Excess quantities are identified through evaluation of inventory aging, review of inventory turns and historical sales experiences. The Company provides lower of cost or market reserves for such identified excess and slow-moving inventories. The Company establishes a reserve for inventory shrinkage, if any, based on the historical results of physical inventory cycle counts.

 

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Carrying Value, Recoverability and Impairment of Long-Lived Assets

 

The Company has adopted Section 360-10-35 of the FASB Accounting Standards Codification for its long-lived assets. Pursuant to ASC Paragraph 360-10-35-17 an impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. Pursuant to ASC Paragraph 360-10-35-20 if an impairment loss is recognized, the adjusted carrying amount of a long-lived asset shall be its new cost basis. For a depreciable long-lived asset, the new cost basis shall be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognized impairment loss is prohibited.

 

Pursuant to ASC Paragraph 360-10-35-21, the Company’s long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The Company considers the following to be some examples of such events or changes in circumstances that may trigger an impairment review: (a) significant decrease in the market price of a long-lived asset (asset group); (b) A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition; (c) A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator; (d) An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group); (e) A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset (asset group); and (f) A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The Company tests its long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

 

Pursuant to ASC Paragraphs 360-10-45-4 and 360-10-45-5, an impairment loss recognized for a long-lived asset (asset group) to be held and used shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amount of that loss. A gain or loss recognized on the sale of a long-lived asset (disposal group) that is not a component of an entity shall be included in income from continuing operations before income taxes in the income statement of a business entity. If a subtotal such as income from operations is presented, it shall include the amounts of those gains or losses.

 

Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Pursuant to FASB ASC paragraph 310-10-35-47, trade receivables that management has the intent and ability to hold for the foreseeable future shall be reported in the balance sheet at outstanding principal adjusted for any charge-offs and the allowance for doubtful accounts. The Company follows FASB ASC paragraphs 310-10-35-7 through 310-10-35-10 to estimate the allowance for doubtful accounts. Pursuant to FASB ASC paragraph 310-10-35-9, losses from uncollectible receivables shall be accrued when both of the following conditions are met: (a) information available before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25) indicates that it is probable that an asset has been impaired at the date of the financial statements, and (b) the amount of the loss can be reasonably estimated. Those conditions may be considered in relation to individual receivables or in relation to groups of similar types of receivables. If the conditions are met, accrual shall be made even though the particular receivables that are uncollectible may not be identifiable. The Company reviews individually each trade receivable for collectability and performs on-going credit evaluations of its customers and adjusts credit limits based upon payment history and the customer’s current credit worthiness, as determined by the review of their current credit information; and determines the allowance for doubtful accounts based on historical write-off experience, customer specific facts and general economic conditions that may affect a client’s ability to pay. Bad debt expense is included in general and administrative expenses, if any.

 

Pursuant to FASB ASC paragraph 310-10-35-41, credit losses for trade receivables (uncollectible trade receivables), which may be for all or part of a particular trade receivable, shall be deducted from the allowance. The related trade receivable balance shall be charged off in the period in which the trade receivables are deemed uncollectible. Recoveries of trade receivables previously charged off shall be recorded when received. The Company charges off its trade account receivables against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

 

There was no allowance for doubtful accounts at June 30, 2015 or March 31, 2015.

 

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Inventories

 

Inventory Valuation

 

The Company values inventories, consisting of consumables and purchased merchandise for resale, at the lower of cost or market. Cost is determined on the first-in and first-out (“FIFO”) method. The Company reduces inventories for the diminution of value, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value.  Factors utilized in the determination of estimated market value include (i) current sales data, (ii) estimates of future demand, (iii) competitive pricing pressures, and (iv) product expiration dates.

 

Inventory Obsolescence and Markdowns

 

The Company evaluates its current level of inventories considering historical sales and other factors and, based on this evaluation, classify inventory markdowns in the statements of income as a component of cost of sales pursuant to Paragraph 420-10-S99 of the FASB Accounting Standards Codification to adjust inventories to net realizable value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations.

 

The Company normally carries approximately four weeks’ worth of pre-packaged and fresh food, soft drinks and liquor supplies and replenishes them when the number of individual items falls below the reorder point.

 

Lower of Cost or Market Adjustments

 

There was no lower of cost or market adjustments for the reporting period ended June 30, 2015 or 2014.

 

Slow-Moving or Obsolescence Markdowns

 

The Company recorded no inventory obsolescence adjustments for the reporting period ended June 30, 2015 or 2014.

 

Property and Equipment

 

Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the estimated useful lives of the respective assets as follows:

    
   Estimated Useful
Life (Years)
      
Leasehold improvement   25 
      
Furniture and fixtures   5 
      
Production and entertainment equipment   10 

 

(*) Amortized on a straight-line basis over the term of the lease or the estimated useful lives, whichever is shorter.

 

Upon sale or retirement, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

 

Leases

 

Lease agreements are evaluated to determine whether they are capital leases or operating leases in accordance with paragraph 840-10-25-1 of the FASB Accounting Standards Codification (“Paragraph 840-10-25-1”). Pursuant to Paragraph 840-10-25-1, a lessee and a lessor shall consider whether a lease meets any of the following four criteria as part of classifying the lease at its inception under the guidance in the Lessees Subsection of this Section (for the lessee) and the Lessors Subsection of this Section (for the lessor): a. Transfer of ownership. The lease transfers ownership of the property to the lessee by the end of the lease term. This criterion is met in situations in which the lease agreement provides for the transfer of title at or shortly after the end of the lease term in exchange for the payment of a nominal fee, for example, the minimum required by statutory regulation to transfer title. b. Bargain purchase option. The lease contains a bargain purchase option. c. Lease term. The lease term is equal to 75 percent or more of the estimated economic life of the leased property. d. Minimum lease payments. The present value at the beginning of the lease term of the minimum lease payments, excluding that portion of the payments representing executory costs such as insurance, maintenance, and taxes to be paid by the lessor, including any profit thereon, equals or exceeds 90 percent of the excess of the fair value of the leased property to the lessor at lease inception over any related investment tax credit retained by the lessor and expected to be realized by the lessor. In accordance with paragraphs 840-10-25-29 and 840-10-25-30, if at its inception a lease meets any of the four lease classification criteria in Paragraph 840-10-25-1, the lease shall be classified by the lessee as a capital lease; and if none of the four criteria in Paragraph 840-10-25-1 are met, the lease shall be classified by the lessee as an operating lease. Pursuant to Paragraph 840-10-25-31 a lessee shall compute the present value of the minimum lease payments using the lessee’s incremental borrowing rate unless both of the following conditions are met, in which circumstance the lessee shall use the implicit rate: a. It is practicable for the lessee to learn the implicit rate computed by the lessor. b. The implicit rate computed by the lessor is less than the lessee’s incremental borrowing rate. Capital lease assets are depreciated on a straight line method, over the capital lease assets estimated useful lives consistent with the Company’s normal depreciation policy for tangible fixed assets. Interest charges are expensed over the period of the lease in relation to the carrying value of the capital lease obligation.

 

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Operating leases primarily relate to the Company’s leases of nightclub and concert performance venue spaces. When the terms of an operating lease include tenant improvement allowances, periods of free rent, rent concessions, and/or rent escalation amounts, the Company establishes a deferred rent liability for the difference between the scheduled rent payment and the straight-line rent expense recognized, which is amortized over the underlying lease term on a straight-line basis as a reduction of rent expense.

 

Intangible Assets Other Than Goodwill

 

The Company has adopted Subtopic 350-30 of the FASB Accounting Standards Codification for intangible assets other than goodwill. Under the requirements, the Company amortizes the acquisition costs of intangible assets other than goodwill on a straight-line basis over their estimated useful lives, the terms of the exclusive licenses and/or agreements, or the terms of legal lives of the patents, whichever is shorter. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

Website Development Costs

 

The Company has adopted Subtopic 350-50 of the FASB Accounting Standards Codification for website development costs. Under the requirements of Sections 350-50-15 and 350-50-25, the Company capitalizes costs incurred to develop a website as website development costs, which are amortized on a straight-line basis over the estimated useful lives of three (3) years. Upon becoming fully amortized, the related cost and accumulated amortization are removed from the accounts.

 

Related Parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to section 850-10-20 the related parties include a) affiliates of the Company (“Affiliate” means, with respect to any specified Person, any other Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act); b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Commitments and Contingencies

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

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If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.

 

Revenue Recognition

 

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. In addition to the aforementioned general policy, the following are the specific revenue recognition policies:

 

Revenue from ticket sales from events and concerts is recognized when the performance occurs. Ticket sales collected in advance of an event date are recorded as deferred revenue.

 

The Company evaluates the criteria outlined in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 605-45, “Revenue Recognition—Principal Agent Considerations,” in determining whether it is appropriate to record the gross amount of revenues and related costs or the net revenues. Under the guidance of ASC Subtopic 605-45, if the Company is the primary obligor to perform the services being sold, has general inventory risk as it pertains to recruiting and compensating the talent, has the ability to control the ticket pricing, has discretion in selecting the talent, is involved in the production of the event, generally bears the majority of the credit or collection risk, or has several but not all of these indicators, revenue is recorded gross. If the Company does not have several of these indicators, it records revenues or losses on a net basis.

 

In accordance with the guidance Subtopic 605-45, for the majority of the Company’s events, the Company has several of the above indicators and therefore it recognizes revenue gross as a principal. Additionally, the Company charges for and collects ticketing and credit card processing surcharges and records the amounts in revenue on a gross basis. Actual expenses paid to the ticket service provider and credit card merchant processors are reflected in expenses.

 

Net sales of products and services represent the invoiced value of goods or services, net of value added taxes (“VAT”). The Company is subject to VAT which is levied on all of the Company’s products and services at the rate of 20% on the invoiced value of sales. Sales or Output VAT is borne by customers in addition to the invoiced value of sales and purchases and Purchase or Input VAT is borne by the Company in addition to the invoiced value of purchases.

 

Stock-Based Compensation for Obtaining Employee Services

 

The Company accounts for share-based payment transactions issued to employees under the guidance of the Topic 718 Compensation—Stock Compensation of the FASB Accounting Standards Codification (“ASC Topic 718”).

 

Pursuant to ASC Section 718-10-20 an employee is an individual over whom the grantor of a share-based compensation award exercises or has the right to exercise sufficient control to establish an employer-employee relationship based on common law as illustrated in case law and currently under U.S. Internal Revenue Service (“IRS”) Revenue Ruling 87-41. A nonemployee director does not satisfy this definition of employee. Nevertheless, nonemployee directors acting in their role as members of a board of directors are treated as employees if those directors were elected by the employer’s shareholders or appointed to a board position that will be filled by shareholder election when the existing term expires. However, that requirement applies only to awards granted to nonemployee directors for their services as directors. Awards granted to nonemployee directors for other services shall be accounted for as awards to non-employees.

 

Pursuant to ASC Paragraphs 718-10-30-2 and 718-10-30-3 a share-based payment transaction with employees shall be measured based on the fair value of the equity instruments issued and an entity shall account for the compensation cost from share-based payment transactions with employees in accordance with the fair value-based method, i.e., the cost of services received from employees in exchange for awards of share-based compensation generally shall be measured based on the grant-date fair value of the equity instruments issued or the fair value of the liabilities incurred/settled.

 

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Pursuant to ASC Paragraphs 718-10-30-6 and 718-10-30-9 the measurement objective for equity instruments awarded to employees is to estimate the fair value at the grant date of the equity instruments that the entity is obligated to issue when employees have rendered the requisite service and satisfied any other conditions necessary to earn the right to benefit from the instruments (for example, to exercise share options). That estimate is based on the share price and other pertinent factors, such as expected volatility, at the grant date. As such, the fair value of an equity share option or similar instrument shall be estimated using a valuation technique such as an option pricing model. For this purpose, a similar instrument is one whose fair value differs from its intrinsic value, that is, an instrument that has time value.

 

If the Company’s common shares are traded in one of the national exchanges the grant-date share price of the Company’s common stock will be used to measure the fair value of the common shares issued, however, if the Company’s common shares are thinly traded the use of share prices established in its most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

Pursuant to ASC Paragraph 718-10-55-21, if an observable market price is not available for a share option or similar instrument with the same or similar terms and conditions, an entity shall estimate the fair value of that instrument using a valuation technique or model that meets the requirements in paragraph 718-10-55-11 and takes into account, at a minimum, all of the following factors:

 

a. The exercise price of the option.

 

b. The expected term of the option, taking into account both the contractual term of the option and the effects of employees’ expected exercise and post-vesting employment termination behavior: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding.  Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

c. The current price of the underlying share.

 

d. The expected volatility of the price of the underlying share for the expected term of the option.  Pursuant to ASC Paragraph 718-10-55-25 a newly publicly traded entity might base expectations about future volatility on the average volatilities of similar entities for an appropriate period following their going public. A nonpublic entity might base its expected volatility on the average volatilities of otherwise similar public entities. For purposes of identifying otherwise similar entities, an entity would likely consider characteristics such as industry, stage of life cycle, size, and financial leverage. Because of the effects of diversification that are present in an industry sector index, the volatility of an index should not be substituted for the average of volatilities of otherwise similar entities in a fair value measurement.  Pursuant to paragraph 718-10-S99-1 if shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.  The Company uses the average historical volatility of the comparable companies over the expected term of the share options or similar instruments as its expected volatility.

 

e. The expected dividends on the underlying share for the expected term of the option.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

 

f. The risk-free interest rate(s) for the expected term of the option. Pursuant to ASC 718-10-55-28 a U.S. entity issuing an option on its own shares must use as the risk-free interest rates the implied yields currently available from the U.S. Treasury zero-coupon yield curve over the contractual term of the option if the entity is using a lattice model incorporating the option’s contractual term. If the entity is using a closed-form model, the risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model.

 

Pursuant to ASC Paragraphs 718-10-30-11 and 718-10-30-17, a restriction that stems from the forfeitability of instruments to which employees have not yet earned the right, such as the inability either to exercise a non-vested equity share option or to sell non-vested shares, is not reflected in estimating the fair value of the related instruments at the grant date. Instead, those restrictions are taken into account by recognizing compensation cost only for awards for which employees render the requisite service and a non-vested equity share or non-vested equity share unit awarded to an employee shall be measured at its fair value as if it were vested and issued on the grant date.

 

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Pursuant to ASC Paragraphs 718-10-35-2 and 718-10-35-3, the compensation cost for an award of share-based employee compensation classified as equity shall be recognized over the requisite service period, with a corresponding credit to equity (generally, paid-in capital). The requisite service period is the period during which an employee is required to provide service in exchange for an award, which often is the vesting period. The total amount of compensation cost recognized at the end of the requisite service period for an award of share-based compensation shall be based on the number of instruments for which the requisite service has been rendered (that is, for which the requisite service period has been completed). An entity shall base initial accruals of compensation cost on the estimated number of instruments for which the requisite service is expected to be rendered. That estimate shall be revised if subsequent information indicates that the actual number of instruments is likely to differ from previous estimates. The cumulative effect on current and prior periods of a change in the estimated number of instruments for which the requisite service is expected to be or has been rendered shall be recognized in compensation cost in the period of the change. Previously recognized compensation cost shall not be reversed if an employee share option (or share unit) for which the requisite service has been rendered expires unexercised (or unconverted).

 

Under the requirement of ASC Paragraph 718-10-35-8, the Company made a policy decision to recognize compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

 

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

 

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under the guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

 

Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services.

 

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has the right to exercise expires unexercised.

 

Pursuant to ASC Paragraphs 505-50-30-2 and 505-50-30-11, share-based payment transactions with nonemployees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The issuer shall measure the fair value of the equity instruments in these transactions using the stock price and other measurement assumptions as of the earlier of the following dates, referred to as the measurement date: (a) The date at which a commitment for performance by the counterparty to earn the equity instruments is reached (a performance commitment); or (b) The date at which the counterparty’s performance is complete. If the Company’s common shares are traded in one of the national exchanges the grant-date share price of the Company’s common stock will be used to measure the fair value of the common shares issued, however, if the Company’s common shares are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

Pursuant to ASC Paragraph 718-10-55-21, if an observable market price is not available for a share option or similar instrument with the same or similar terms and conditions, an entity shall estimate the fair value of that instrument using a valuation technique or model that meets the requirements in paragraph 718-10-55-11 and takes into account, at a minimum, all of the following factors:

 

a. The exercise price of the option.

 

b. The expected term of the option, taking into account both the contractual term of the option and the effects of employees’ expected exercise and post-vesting employment termination behavior: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments.  The Company uses historical data to estimate holder’s expected exercise behavior.  If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

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c. The current price of the underlying share.

 

d. The expected volatility of the price of the underlying share for the expected term of the option.  Pursuant to ASC Paragraph 718-10-55-25 a newly publicly traded entity might base expectations about future volatility on the average volatilities of similar entities for an appropriate period following their going public. A nonpublic entity might base its expected volatility on the average volatilities of otherwise similar public entities. For purposes of identifying otherwise similar entities, an entity would likely consider characteristics such as industry, stage of life cycle, size, and financial leverage. Because of the effects of diversification that are present in an industry sector index, the volatility of an index should not be substituted for the average of volatilities of otherwise similar entities in a fair value measurement.  Pursuant to paragraph 718-10-S99-1 if shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.  The Company uses the average historical volatility of the comparable companies over the expected term of the share options or similar instruments as its expected volatility.

 

e. The expected dividends on the underlying share for the expected term of the option.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

 

f. The risk-free interest rate(s) for the expected term of the option. Pursuant to ASC 718-10-55-28 a U.S. entity issuing an option on its own shares must use as the risk-free interest rates the implied yields currently available from the U.S. Treasury zero-coupon yield curve over the contractual term of the option if the entity is using a lattice model incorporating the option’s contractual term. If the entity is using a closed-form model, the risk-free interest rate is the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model.

 

Pursuant to ASC paragraph 505-50-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

 

Deferred Tax Assets and Income Tax Provision

 

The Company follows paragraph 740-10-30-2 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.

 

The Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

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Tax years that remain subject to examination by major tax jurisdictions

 

The Company’s tax years 2011 to 2014 remain subject to examination by major tax jurisdictions pursuant to the ASC Paragraph 740-10-50-15.

 

Limitation on Utilization of NOLs due to Change in Control

 

Pursuant to the Internal Revenue Code Section 382 (“Section 382”), certain ownership changes may subject the NOL’s to annual limitations which could reduce or defer the NOL. Section 382 imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. The imposition of this limitation on its ability to use the NOLs to offset future taxable income could cause the Company to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.

 

Foreign Currency Translation

 

The Company follows Section 830-10-45 of the FASB Accounting Standards Codification (“Section 830-10-45”) for foreign currency translation to translate the financial statements of the foreign subsidiary from the functional currency, generally the local currency, into U.S. Dollars.  Section 830-10-45 sets out the guidance relating to how a reporting entity determines the functional currency of a foreign entity (including of a foreign entity in a highly inflationary economy), re-measures the books of record (if necessary), and characterizes transaction gains and losses. Pursuant to Section 830-10-45, the assets, liabilities, and operations of a foreign entity shall be measured using the functional currency of that entity. An entity’s functional currency is the currency of the primary economic environment in which the entity operates; normally, that is the currency of the environment, or local currency, in which an entity primarily generates and expends cash.

 

The functional currency of each foreign subsidiary is determined based on management’s judgment and involves consideration of all relevant economic facts and circumstances affecting the subsidiary. Generally, the currency in which the subsidiary transacts a majority of its transactions, including billings, financing, payroll and other expenditures, would be considered the functional currency, but any dependency upon the parent and the nature of the subsidiary’s operations must also be considered.  If a subsidiary’s functional currency is deemed to be the local currency, then any gain or loss associated with the translation of that subsidiary’s financial statements is included in accumulated other comprehensive income. However, if the functional currency is deemed to be the U.S. Dollar, then any gain or loss associated with the re-measurement of these financial statements from the local currency to the functional currency would be included in the consolidated statements of income and comprehensive income (loss). If the Company disposes of foreign subsidiaries, then any cumulative translation gains or losses would be recorded into the consolidated statements of income and comprehensive income (loss).  If the Company determines that there has been a change in the functional currency of a subsidiary to the U.S. Dollar, any translation gains or losses arising after the date of change would be included within the statement of income and comprehensive income (loss).

 

Based on an assessment of the factors discussed above, the management of the Company determined the relevant subsidiaries’ local currencies to be their respective functional currencies.

 

The financial records of the Company’s UK operating subsidiary are maintained in their local currency, the British Pound (“GBP”), which is the functional currency.  Assets and liabilities are translated from the local currency into the reporting currency, U.S. dollars, at the exchange rate prevailing at the balance sheet date.  Revenues and expenses are translated at weighted average exchange rates for the period to approximate translation at the exchange rates prevailing at the dates those elements are recognized in the consolidated financial statements.  Foreign currency translation gain (loss) resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining accumulated other comprehensive income in the consolidated statement of stockholders’ equity.

 

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Unless otherwise noted, the rate presented below per U.S. $1.00 was the midpoint of the interbank rate as quoted by OANDA Corporation (www.oanda.com) contained in its consolidated financial statements.  Management believes that the difference between GBP vs. U.S. dollar exchange rate quoted by the Bank of England and GBP vs. U.S. dollar exchange rate reported by OANDA Corporation were immaterial.  Translations do not imply that the GBP amounts actually represent, or have been or could be converted into, equivalent amounts in U.S. dollars.  Translation of amounts from GBP into U.S. dollars has been made at the following exchange rates for the respective periods:

 

   June 30, 2015    March 31, 2015    June 30, 2014    March 31, 2014  
                     
Balance sheets   0.6362    0.6741    0.5870    0.6009 
                     
Statements of operations and comprehensive income (loss)   0.6534    0.6209    0.5943    0.6297 

 

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Earnings per Share

 

Earnings per share (“EPS”) is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic EPS is computed by dividing earnings by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing earnings by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

 

Pursuant to ASC Paragraphs 260-10-45-45-22 and 23, the dilutive effect of outstanding call options and warrants (and their equivalents) issued by the reporting entity shall be reflected in diluted EPS by application of the treasury stock method unless the provisions of paragraphs 260-10-45-35 through 45-36 and 260-10-55-8 through 55-11 require that another method be applied. Equivalents of options and warrants include non-vested stock granted to employees, stock purchase contracts, and partially paid stock subscriptions (see paragraph 260–10–55–23). Anti-dilutive contracts, such as purchased put options and purchased call options, shall be excluded from diluted EPS. Under the treasury stock method: a. Exercise of options and warrants shall be assumed at the beginning of the period (or at time of issuance, if later) and common shares shall be assumed to be issued. b. The proceeds from exercise shall be assumed to be used to purchase common stock at the average market price during the period. (See paragraphs 260-10-45-29 and 260-10-55-4 through 55-5.) c. The incremental shares (the difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted EPS computation.

 

The Company’s contingent shares issuance arrangement, warrants are as follows:

               
    Contingent shares issuance
arrangement, warrants
 
           
    For the
Reporting Period
Ended
June 30, 2015
  For the
Reporting Period
Ended
June 30, 2014
 
               
Warrant Shares              
               
Upon consummation of the reverse merger on April 28, 2014, the Company assumed the September 23, 2011 warrant to purchase 1,125,000 shares of the Company’s common stock with an exercise price of $0.15 per share expiring ten (10) years from date of issuance     1,125,000     1,125,000  
               
Warrants to purchase 350,000 shares of the Company’s common stock with an exercise price of $0.01 per share expiring four (4) years from date of issuance on December 1, 2014, March 19, 2014 and March 20, 2014     350,000      
               
Total contingent share issuance arrangements, stock options or warrants     1,475,000     1,125,000  

 

There were approximately 1,133,912 and 956,250 incremental common shares under the Treasury Stock Method for the reporting period ended June 30, 2015 and 2014, respectively, which were excluded from the diluted earnings per share calculation as they were anti-dilutive.

 

Cash Flows Reporting

 

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

 

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Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

Recently Issued Accounting Pronouncements

 

In May 2014, the FASB issued the FASB Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”)

 

This guidance amends the existing FASB Accounting Standards Codification, creating a new Topic 606, Revenue from Contracts with Customer. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

 

To achieve that core principle, an entity should apply the following steps:

     
  1. Identify the contract(s) with the customer
  2. Identify the performance obligations in the contract
  3. Determine the transaction price
  4. Allocate the transaction price to the performance obligations in the contract
  5. Recognize revenue when (or as) the entity satisfies performance obligations

 

The ASU also provides guidance on disclosures that should be provided to enable financial statement users to understand the nature, amount, timing, and uncertainty of revenue recognition and cash flows arising from contracts with customers. Qualitative and quantitative information is required about the following:

     
  1. Contracts with customers – including revenue and impairments recognized, disaggregation of revenue, and information about contract balances and performance obligations (including the transaction price allocated to the remaining performance obligations)
  2. Significant judgments and changes in judgments – determining the timing of satisfaction of performance obligations (over time or at a point in time), and determining the transaction price and amounts allocated to performance obligations
  3. Assets recognized from the costs to obtain or fulfill a contract.

 

ASU 2014-09 is effective for periods beginning after December 15, 2016, including interim reporting periods within that reporting period for all public entities. Early application is not permitted.

 

In June 2014, the FASB issued the FASB Accounting Standards Update No. 2014-12 “Compensation—Stock Compensation (Topic 718) : Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period” (“ASU 2014-12”).

 

The amendments clarify the proper method of accounting for share-based payments when the terms of an award provide that a performance target could be achieved after the requisite service period. The Update requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.

 

The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted.

 

In August 2014, the FASB issued the FASB Accounting Standards Update No. 2014-15 “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).

 

In connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable). Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). The term probable is used consistently with its use in Topic 450, Contingencies.

 

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When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern, management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate the substantial doubt. The mitigating effect of management’s plans should be considered only to the extent that (1) it is probable that the plans will be effectively implemented and, if so, (2) it is probable that the plans will mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

 

If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, but the substantial doubt is alleviated as a result of consideration of management’s plans, the entity should disclose information that enables users of the financial statements to understand all of the following (or refer to similar information disclosed elsewhere in the footnotes):

     
  a. Principal conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern (before consideration of management’s plans)
  b. Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations
  c. Management’s plans that alleviated substantial doubt about the entity’s ability to continue as a going concern.

 

If conditions or events raise substantial doubt about an entity’s ability to continue as a going concern, and substantial doubt is not alleviated after consideration of management’s plans, an entity should include a statement in the footnotes indicating that there is substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). Additionally, the entity should disclose information that enables users of the financial statements to understand all of the following:

     
  a. Principal conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern
  b. Management’s evaluation of the significance of those conditions or events in relation to the entity’s ability to meet its obligations
  c. Management’s plans that are intended to mitigate the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.

 

The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.

 

In November 2014, the FASB issued the FASB Accounting Standards Update No. 2014-16 “ Derivatives and Hedging (Topic 815) : Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity” (“ASU 2014-16”).

 

The amendments in ASU No. 2014-16 clarify that an entity must take into account all relevant terms and features when reviewing the nature of the host contract. Additionally, the amendments state that no one term or feature would define the host contract’s economic characteristics and risks. Instead, the economic characteristics and risks of the hybrid financial instrument as a whole would determine the nature of the host contract.

 

The amendments in this Update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption, including adoption in an interim period, is permitted.

 

In January 2015, the FASB issued the FASB Accounting Standards Update No. 2015-01 “Income Statement—Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” (“ASU 2015-01”).

 

This Update eliminates from GAAP the concept of extraordinary items and the requirements in Subtopic 225-20 for reporting entities to separately classify, present, and disclose extraordinary events and transactions.

 

The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption.

 

In February 2015, the FASB issued the FASB Accounting Standards Update No. 2015-02 “ Consolidation (Topic 810) - Amendments to the Consolidation Analysis” (“ASU 2015-02”) to improve certain areas of consolidation guidance for reporting organizations (i.e., public, private, and not-for-profit) that are required to evaluate whether to consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (e.g., collateralized debt/loan obligations).

 

All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments:

     
  · Eliminating the presumption that a general partner should consolidate a limited partnership.

 

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  · Eliminating the indefinite deferral of FASB Statement No. 167, thereby reducing the number of Variable Interest Entity (VIE) consolidation models from four to two (including the limited partnership consolidation model).
  · Clarifying when fees paid to a decision maker should be a factor to include in the consolidation of VIEs. Note: a VIE is a legal entity in which consolidation is not based on a majority of voting rights.
  · Amending the guidance for assessing how related party relationships affect VIE consolidation analysis.
  · Excluding certain money market funds from the consolidation guidance.

 

The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period.

 

Management does not believe that any recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying consolidated financial statements.

 

Note 3 – Going Concern

 

The Company elected to adopt early application of Accounting Standards Update No. 2014-15, “Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”).

 

The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the consolidated financial statements, the Company had an accumulated deficit at June 30, 2015, a net loss and net cash used in operating activities for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

Prior to the Merger, the Company was seeking a suitable candidate for a business combination; however, notwithstanding the Company’s cash position may not be sufficient to support the Company’s daily operations. While the Company believes in the viability of its strategy and in its ability to raise additional funds, there can be no assurance to that effect. The ability of the Company to continue as a going concern is dependent on the Company’s ability to execute its strategy and in its ability to raise additional funds.

 

The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 4 – Prepayments and Other Current Assets

 

Prepayments and other current assets consist of the following:

               
    June 30, 2015   March 31, 2015  
               
Rent   $ 215,474   $ 203,359  
Taxes     88,297     111,110  
Insurance     69,506     115,475  
Other     27,717     30,282  
               
Total   $ 400,994   $ 460,226  

 

Note 5 – Property and Equipment

 

(i)  Impairment

 

The Company completed the annual impairment testing of property and equipment and determined that there was no impairment as the fair value of the property and equipment, exceeded their carrying values at March 31, 2015.

 

(ii)  Depreciation Expense

 

Depreciation expense was $32,114 and $45,654 for the reporting period ended June 30, 2015 and 2014, respectively.

 

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Note 6 – Related Party Transactions

 

Related Parties

 

Related parties with whom the Company had transactions are:

             
Related Parties   Relationship   Related Party Transactions   Business Purpose of transactions
             
Management and significant stockholder            
             
Trinad Capital Master Fund   Significant stockholder   Advances/Loans to the Company   Working capital
             
Entity controlled by significant stockholder            
             
Trinad Management, LLC   An entity owned and controlled by the significant stockholder   Consulting services   Consulting services
             
JJAT Corp.   An entity principally owned and controlled by the Executive Chairman, President and significant stockholder   Advances/Loans to the Company   Working capital
             
Mint Group Holdings, Ltd.   An entity owned and controlled by a non-controlling interest holder of OCHL and OCL   (i) Advances to the Company; (ii) Management Services   (i) Working capital; (ii) Management services

 

Reimbursement Agreement

 

The Company was previously a party to a Reimbursement Agreement, dated January 29, 2014 with JJAT Corp., an affiliate principally owned by an officer, director and majority stockholder of the Company, for advancing funds for expenses of JJAT Corp., totaling $195,502 for the acquisition of KoKo Parent by JJAT. Because the Company ultimately acquired KoKo Parent from JJAT as a result of the Merger, the Reimbursement Agreement was terminated, and the $195,502 was deemed to be part of the Company’s acquisition costs in acquiring KoKo Parent.

 

Advances from Stockholders

 

From time to time, stockholders of the Company advance funds to the Company for working capital purposes. Those advances are unsecured, non-interest bearing and due on demand.

 

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Notes Payable - Related Party

 

Notes Payable - Trinad Capital Master Fund

 

On December 31, 2014, the Company entered into a Senior Convertible Promissory Note (the “Senior Note”) with Trinad Capital Master Fund (“Trinad Capital”) allowing for advances up to a maximum loan amount of $1,000,000, plus interest at the rate of six percent (6%) per annum on the unpaid principal amount of outstanding advances.

 

Prior to December 31, 2014, Trinad Capital advanced $700,000 to the Company in various term loans during the period between April 2, 2012 and November 30, 2014. The aggregate principal and accrued interest payable to Trinad Capital through December 31, 2014 under the prior loans was $770,151 and this amount constitutes a portion of the outstanding loan balance under the Senior Note. Upon entry into the Senior Note, each of the prior loans was cancelled. Pursuant to the terms of the Senior Note, all outstanding unpaid principal and accrued interest is due and payable on June 30, 2016 or such later date as Trinad Capital may agree to in writing unless, prior to such date, the Senior Note has been repaid in full or Trinad Capital elects to convert all or any portion of the then-outstanding loan balance into common stock of the Company in connection with the Company consummating an equity financing in excess of $5,000,000 or greater as set forth in the terms of the Senior Note .

 

On January 27, 2015, the Company and Trinad Capital entered into an amendment to the Senior Note, effective as of December 31, 2014, pursuant to which: (1) the term of the Senior Note was extended to June 30, 2016 and (2) the conversion price for conversion of the unpaid balance and interest outstanding in connection with an equity financing was amended to be the price per share equal to the average price per share paid by investors in the equity financing.

 

On February 5, 2015, the Company and Trinad Capital entered into an amendment and restatement of the Senior Note, effective as of December 31, 2014, pursuant to which the convertibility feature of the note was eliminated in its entirety.

 

As of June 30, 2015, $1,000,000 principal and $95,350 accrued interest payable was outstanding under the Senior Note.

 

On April 8, 2015, the Company entered into a second senior promissory note with Trinad Capital in the amount of $195,500. The note bears interest at the rate of eight percent (8%) per annum and all outstanding unpaid principal and accrued interest is due and payable on June 30, 2016 or such later date as Trinad Capital may agree to in writing, unless prior to such date this note has been prepaid in full. Trinad Capital made additional advances to the Company in April, May and June 2015 totaling $450,000. On July 10, 2015, the Company and Trinad Capital amended and restated the above senior promissory note from $195,500 to $645,500, which was the principal amount outstanding as of June 30, 2015, to include these additional advances.

 

Note Payable – JJAT

 

OCHL entered into a Senior Promissory Note (the “OCHL Senior Promissory Note”), dated April 28, 2014 to repay $1,376,124 of transaction expenses of the Merger to JJAT, due October 28, 2015 that accrues interest at 8% per annum, or $11,802, as of June 30, 2015 after payment of interest noted below. Outstanding interest payable under the OCHL Senior Promissory Note is due on the first anniversary of the note with the balance payable upon maturity of the note. On November 3, 2014, $500,000 of principal under the OCHL Senior Promissory Note was repaid pursuant to the Forbearance Agreement described below.

 

On October 30, 2014, the Company entered into a Forbearance Agreement (the “Forbearance Agreement”) with Mr. Bengough, Mr. Ellin, and JJAT whereby the parties agreed to forbear, pursuant to any claims relating to the Share Exchange, the Variation Agreement, the related Shareholders Agreement amongst the parties dated February 12, 2014 (the “Shareholders Agreement”), and the promissory notes (the “Notes”) and other documents entered into pursuant to the Shareholder’s Agreement during the term of the Forbearance Agreement, which is terminable by any party upon fifteen days prior written notice following a 90-day period from October 30, 2014.

 

Pursuant to the terms of the Forbearance Agreement, OCL made a payment to JJAT in the amount of $500,000 to be applied to the principal under the OCHL Senior Promissory Note. Following entry into the Forbearance Agreement, a total of $876,124 of principal remained outstanding under the OCHL Senior Promissory Note. Interest continues to accrue under the OCHL Senior Promissory Note.

 

On April 28, 2015, OCL made a payment to JJAT in the amount of $90,995 to be applied to the interest under the OCHL Senior Promissory Note. On June 10, 2015, OCL made a payment to JJAT in the amount of $64,000 to be applied to the principal under the OCHL Senior Promissory Note. As of June 30, 2015, a total of $812,124 of principal remained outstanding under the OCHL Senior Promissory Note.

 

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Management Services from Trinad Management LLC

 

Upon consummation of the reverse merger on April 28, 2014, the Company assumed the September 23, 2011 Management Agreement (“Management Agreement”) with Trinad Management, LLC (“Trinad LLC”). Pursuant to the Management Agreement, Trinad LLC had agreed to provide certain management services to the Company through September 22, 2014, including, without limitation, the sourcing, structuring and negotiation of potential business acquisitions and customer contracts for the Company. Under the Management Agreement, the Company compensated Trinad LLC for its services with (i) a fee equal to $2,080,000, with $90,000 payable in advance of each consecutive three-month calendar period during the term of the Agreement and with $1,000,000 due at the end of the three (3) year term, and (ii) issuance of a Warrant to purchase 1,125,000 shares of the Company’s common stock at an exercise price of $0.15 per share (“Warrant”). The Warrant may be exercised in whole or in part by Trinad LLC at any time for a period of ten (10) years.

 

The payment of the $1,000,000 fee accrued on the books at the end of the term has been deferred. Trinad LLC continues to provide service at $30,000 per month on a month to month basis.

 

Management Fee to Mint Group Holdings Ltd.

 

From time to time, the Company engages the Mint Group to provide management services for the Company. For the three months ended June 30, 2015 and 2014 the Company was billed $30,609 and $33,651, respectively.

 

Advances to/from Mint Group Holdings Ltd.

 

From time to time, the Company provides or receives funds from Mint Group Holdings Ltd. for working capital purposes. These advances are unsecured, non-interest bearing and due on demand.

 

Note 7 – Note Payable

 

On December 31, 2014, the Company converted accounts payable into a Senior Promissory Note (the “Note”) in the aggregate principal amount of $242,498. The Note bears interest at 6% per annum and interest is payable on a quarterly basis commencing March 31, 2015 or the Company may elect that the amount of such interest be added to the principal sum outstanding under this Note. The payables arose in connection with professional services rendered by attorneys for the Company prior to and through December 31, 2014, and the Note had an original maturity date of December 31, 2015 which was amended to June 30, 2016. As of June 30, 2015, $246,143 principal was outstanding under the Note.

 

Note 8 – Commitments and Contingencies

 

Operating Lease - Obar Camden Limited

 

On February 19, 2004 OCL entered into a non-cancellable lease for premises for a period of 25 years expiring November 27, 2028. On October 22, 2004, OCL entered into a deed of variation to the original non-cancellable lease for the premises with an annual rent of £473,000 per year plus valued added taxes for the first five (5) years and with an annual rent of £548,337 per year plus valued added taxes for the remainder of the lease, with free rent for the first fifteen (15) months of the occupancy. The lease provides for a rent review every fifth anniversary of the effective date whereby the principal rent may be increased at each such review date to the open market rent (as defined) if that is a greater than the amount of the principal rent under the lease immediately before the review date. In conjunction with the signing of the deed of variation the landlord (i) provided consideration of £175,000, and (ii) contributed an additional £175,000 towards improvements upon execution of the deed of variation.

 

Future minimum lease payments under the non-cancelable operating lease are as follows:

               
Year ending March 31:   £   $  
               
2016 (Remainder of the fiscal year)   £ 411,253   $ 646,421  
               
2017     548,337     861,894  
               
2018     548,337     861,894  
               
2019     548,337     861,894  
               
2020     548,337     861,894  
               
2021 and after     4,748,749     7,464,239  
               
    £ 7,353,350   $ 11,558,236  

 

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Deferred Rent

 

To induce OCL to enter into the operating lease and the deed of variation for a period of 25 years, the landlord granted free rent for the first fifteen (15) months of the occupancy and consideration/contribution of £350,000 in aggregate, which will be recognized on a straight-line basis over the duration of the initial lease term of 25 years.

 

Legal Proceedings

 

The judicial review is being brought by Obar Camden Limited. The current judicial review claim (case number CO/738/2015) was filed in the High Court by Obar Camden Limited on February 16, 2015. (Judicial review is the process by which the Courts review the exercise of statutory functions by public bodies in England and Wales). The claim is a legal challenge to the decision by the London Borough of Camden Council to grant planning permission reference 2014/2621 on January 6, 2015 for the redevelopment of the former Hope & Anchor public house as 8 residential units. This is the neighboring property to the Koko Club and the grounds of challenge relate to legal flaws in the way that the Council assessed noise and heritage impacts of the proposed development as part of its decision. The relief sought is a Court Order to quash the planning permission that has been granted. Whilst the Council is defending the claim, the applicant is playing no active role in the proceedings. 

 

Judicial review is a two stage process, where the case is first considered by a judge on the papers to decide whether it should get permission to proceed to a substantive hearing. The Court granted permission for the claim to proceed on March 27, 2015. A one-day hearing occurred in the High Court on August 5, 2015 and the Court has taken the matter under submission.

 

The case has been brought because the Council has granted a planning permission for a multiple occupancy residential development adjacent to KOKO. Obar Camden believes that the Council did not properly seek to understand and consider the potential for conflict between the venue and new residents being in such close proximity to each other and without requiring adequate sound insulation measures to be in place to ensure that the parties can co-exist peacefully. The grant of the permission in its current form leaves the venue potentially vulnerable to complaints, which in turn could have adverse consequences for KOKO’s premises licence. If successful, the planning permission will be quashed.

 

Note 9 –Deficit

 

Shares Authorized

 

Upon formation, the total number of shares of all classes of stock which the Company is authorized to issue is Seventy Five Million (75,000,000) shares which shall be common stock, par value $.001 per share.

 

Common Stock

 

Upon consummation of the Merger on April 28, 2014, the Company issued 29,000,000 shares of its common stock to JJAT, a related party, for the acquisition of 100% of the issued and outstanding capital stock of KoKo US.

 

Sale of Common Stock or Equity Units

 

For the period between September 10, 2014 and September 17, 2014, the Company issued an aggregate of 150,000 shares of its common stock at $1.00 per share for $150,000 in cash.

 

On November 17 and December 19, 2014, and March 19 and March 20, 2015, the Company entered into four separate securities purchase agreements with four accredited investors, pursuant to which the Company agreed to issue an aggregate of 675,000 Units (each, a “Unit”) at a purchase price per Unit of $1.00 per share for an aggregate purchase price of $675,000 with each unit consisting of one common share in the capital of the Company (each, a “Share”) and one warrant to purchase a share of Company common stock exercisable for a period of four (4) years from the date of original issuance at an exercise price of $0.01 per share (each, a “Warrant”), $338,850 ($0.50 per common share) and $336,150 ($0.50 per warrant share) were allocated as the relative fair value of the common stock and warrants, respectively.

 

On June 19, 2015, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company agreed to issue an aggregate of 150,000 Units (each, a “Unit”) at a purchase price per Unit of $1.00 per share for an aggregate purchase price of $150,000 with each unit consisting of one common share in the capital of the Company (each, a “Share”) and one warrant to purchase a share of Company common stock exercisable for a period of four (4) years from the date of original issuance at an exercise price of $0.01 per share (each, a “Warrant”), $75,525 ($0.50 per common share) and $74,325 ($0.50 per warrant share) were allocated as the relative fair value of the common stock and warrants, respectively.

 

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Issuance of Common Stock to Parties Other Than Employees for Acquiring Goods or Services

 

Advisory Board Agreements

 

Upon consummation of the Merger on April 28, 2014, the Company assumed the Advisory Board Agreements entered into by Loton prior to the Merger with seven (7) individuals. Pursuant to the Advisory Board Agreements, the Advisory Board members agreed to provide advisory service to the Board and officers of the Company on various business matters for one (1) year in exchange for 100,000 shares each or 700,000 shares in the aggregate of restricted common stock of the Company. The restricted stock will vest after one (1) year, and is subject to a lock-up period of one (1) year after vesting. These restricted shares were valued at $1.00 per share or $700,000 on the date of grant and were amortized over the service period.

 

During the fiscal year ended March 31, 2015, the Company entered into Advisory Board Agreements with nine (9) additional individuals. Pursuant to the Advisory Board Agreements, these additional Advisory Board Members agreed to provide advisory service to the Board and officers of the Company on various business matters for one (1) year in exchange for 875,000 shares in the aggregate of restricted common stock of the Company. The restricted stock vests after one (1) year, and is subject to a lock-up period of one (1) year after vesting. A total of 425,000 of these restricted shares were valued at $1.00 per share and 450,000 of these restricted shares were valued at $0.50 per share, the most recent Private Placement Memorandum (“PPM”) price as of date of grant.

 

For the three months ended June 30, 2015, 89,583 common shares, valued on the date of grant at $1.00 per share, or $89,583, were earned and recorded as consulting fees.

 

For the three months ended June 30, 2015, 112,500 common shares, valued on the date of grant at $0.50 per share, or $56,250, were earned and recorded as consulting fees.

 

Authorization of Stock Grants to Consultants/Professionals

 

Upon consummation of the Merger on April 28, 2014, the Company assumed eight (8) Consulting Services Agreements (“2014 Consulting Agreements”) entered into by Loton prior to the Merger with eight (8) consultants. Pursuant to the Consulting Agreements, the Company agreed to issue a total of 315,000 shares of the Company’s restricted common stock to the consultants for services to be performed for one (1) year. These shares will vest in two (2) years, and are subject to a lock-up period of two (2) years after vesting. These restricted shares were valued at $1.00 per share or $315,000 on the date of grant and were amortized over the service period.

 

During the fiscal year ended March 31, 2015, the Company entered into seven (7) Consulting Services Agreements with five (5) additional individuals. Pursuant to the Consulting Agreements, the Company agreed to issue a total of 370,000 shares of the Company’s restricted common stock to the consultants for services to be performed for one (1) year. These shares will vest in two (2) years, and are subject to a lock-up period of two (2) years after vesting. A total of 170,000 of these restricted shares were valued at $1.00 per share and 200,000 of these restricted shares were valued at $0.50 per share, the most recent PPM price as of date of grant.

 

For the three months ended June 30, 2015, 42,500 common shares, valued on the date of grant at $1.00 per share, or $42,500, were earned and recorded as consulting fees.

 

For the three months ended June 30, 2015, 50,000 common shares, valued on the date of grant at $0.50 per share, or $25,000, were earned and recorded as consulting fees.

 

During the three months ended June 30, 2015, the Company entered into two (2) Consulting Services Agreements with two (2) additional individuals. Pursuant to the Consulting Agreements, the Company agreed to issue a total of 75,000 shares of the Company’s restricted common stock to the consultants for services to be performed for one (1) year. These shares will vest in two (2) years, and are subject to a lock-up period of two (2) years after vesting. These restricted shares were valued at $0.50 per share, the most recent PPM price as of date of grant and are being amortized over the service period. For the three months ended June 30, 2015, 6,250 common shares, valued at $0.50 per share, or $3,125, were earned and recorded as consulting fees.

 

During the fiscal year ended March 31, 2015, the Company entered into a capital markets advisory and placement agent agreement with Merriman Capital, Inc. (the “Agreement”). Pursuant to the Agreement, Merriman Capital agreed to provide capital markets advisory services to the Company for three months, subject to written extensions thereafter, in exchange for 10,000 shares of restricted common stock of the Company for the first three engaged months of advisory services. Merriman will receive capital market advisory fees of $5,000 in cash and $5,000 in equity-in-lieu of cash per engaged month thereafter, upon written confirmation of renewal. Either party may terminate the relationship at any time by providing thirty (30) calendar days written notice to the other party. For the fiscal year ended March 31, 2015, 40,000 common shares, valued on the date of grant at $1.00 per share, or $40,000, were earned and recorded as consulting fees relating to this Agreement.

 

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During the fiscal year ended March 31, 2015, the Company entered into a Subscription Agreement with its legal advisors (the “Subscription Agreement”). Pursuant to the Subscription Agreement, the advisors agreed to subscribe to the purchase of 954,988 shares of the Company’s common stock, at the price of $0.50 per share, in exchange for legal services previously rendered to the Company in the aggregate amount of $477,494. During the fiscal year ended March 31, 2015, 954,988 common shares, valued on the date of grant at $0.50 per share, or $477,494, were earned and recorded as a reduction in accounts payable relating to this Agreement.

 

During the fiscal quarter ended June 30, 2015, in return for receiving certain discounts on legal fees in the future the Company has granted a stock option to its legal advisors pursuant to which such legal advisors may purchase up to $750,000 of the Company’s equity securities issued in the Company’s next financing round at the same price per security paid by other investors in such financing round (or if no qualifying financing round occurs by December 31, 2015, then at valuation equal to the valuation of the Company at the time the stock option was granted, to be agreed upon by the parties in good faith). Such stock option, which has a five-year term, becomes exercisable in proportion to the discount earned up to a maximum discount.

 

During the fiscal quarter ended June 30, 2015, the Company entered into a services agreement with a media publishing firm (the “Media Agreement”). Pursuant to the Media Agreement, the firm agreed to provide certain creative services in connection with the name, logo and brand identity for the Company’s wholly-owned subsidiary LiveXLive, Corp., in exchange for $35,000 in cash and $15,000 in equity-in-lieu of cash. For the three months ended June 30, 2015, 15,000 common shares, valued on the date of grant at $0.50 per share, or $7,500, were earned and recorded as consulting fees related to the Media Agreement.

 

Warrants

 

Assumed Warrants Issued in September 2011 by Loton

 

Upon consummation of the Merger on April 28, 2014, the Company assumed the September 23, 2011warrant issued to Trinad LLC, pursuant to the Management Agreement, to purchase 1,125,000 shares of the Company’s common stock at an exercise price of $0.15 per share expiring ten (10) years from the date of original issuance.

 

June 2015 Issuances

 

On June 19, 2015, the Company issued warrants to purchase an aggregate of 150,000 shares with an exercise price of $0.01 per share expiring four years from the date of issuance as part of the sale of equity units.

 

The Company estimated the fair value of the warrants on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions: 

        
        
Expected life (year)   4 
      
Expected volatility (*)   37.67%
      
Expected annual rate of quarterly dividends   0.00%
      
Risk-free rate(s)   1.29%

 

*As a thinly traded public entity it is not practicable for the Company to estimate the expected volatility of its share price. The Company selected three (3) comparable public companies listed on NYSE MKT and NASDAQ Capital Market within live entertainment industry which the Company engages in to calculate the expected volatility. The Company calculated those three (3) comparable companies’ historical volatility over the expected life of the options or warrants and averaged them as its expected volatility.

 

The estimated relative fair value of the warrants was $0.50 per warrant share or $74,325, at the date of issuance using the Black-Scholes Option Pricing Model.

 

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Summary of Warrant Activities

 

The table below summarizes the Company’s warrant activities:

                                    
   Number of
Warrant Shares
  Exercise
Price Range
Per Share
Weighted Average
Exercise Price
  Fair Value at
Date of
Issuance
  Aggregate
Intrinsic
Value
                                    
Balance, March 31, 2015   1,475,000   $0.01 - 0.15   $0.12   $256,875   $ 
                          
Granted   150,000    0.01    0.01    74,325     
                          
Canceled for cashless exercise   (—)                
                          
Exercised (Cashless)   (—)                
                          
Exercised   (150,000)   0.01    0.01    (74,325)    
                          
Expired                    
                          
Balance, June 30, 2015   1,475,000   $0.01 - 0.15   $0.12   $256,875     
                          
Amortized, June 30, 2015   1,475,000    0.01 - 0.15    0.12    256,875     
                          
Unamortized, June 30, 2015      $   $   $     

 

The following table summarizes information concerning outstanding and exercisable warrants as of June 30, 2015:

                                                     
        Warrants Outstanding     Warrants Exercisable  
Range of
Exercise Prices
    Number
Outstanding
    Average
Remaining
Contractual
Life (in years)
    Weighted
Average
Exercise Price
    Number
Exercisable
    Average
Remaining
Contractual
Life (in years)
    Weighted
Average
Exercise Price
 
                                                     
$ 0.01 - 0.15       1,475,000       5.59     $ 0.12       1,475,000       5.59     $ 0.12  

 

Note 10 - Concentration of Credit Risk

 

Credit Risk Arising from Financial Instruments

 

Financial instruments that potentially subject the Company to significant concentration of credit risk consist primarily of cash and cash equivalents.

 

As of June 30, 2015, substantially all (76%) of the Company’s cash was held by major financial institutions in the United Kingdom and the balance at certain accounts may exceed the maximum amount insured by the Financial Services Compensation Scheme (FSCS) (£85,000 per account, per authorized institution as of December 31, 2010).  However, the Company has not experienced losses on these accounts and management believes that the Company is not exposed to significant risks on such accounts.

 

Note 11 - Foreign Operations

 

Foreign Operations

 

The Company’s operations are primarily carried out in the United Kingdom (“UK”). Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the UK. The Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency fluctuation and remittances and methods of taxation, among other things.

 

Note 12 – Subsequent Events

 

The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The management of the Company determined that there were certain reportable subsequent event(s) to be disclosed as follows.

 

On July 14, 2015, OCL made a payment to JJAT in the amount of $125,550 to be applied to the principal under the OCHL Senior Promissory Note.

 

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On July 23 and July 28, 2015, the Company entered into a securities purchase agreement with two investors pursuant to which the Company agreed to issue an aggregate of 62,500 Units (each, a “Unit”) at a purchase price per Unit of $2.00 for an aggregate purchase price of $125,000, with each Unit consisting of one common share in the capital of the Company (each, a “Share”) and one warrant to purchase a share of Company common stock (each, a “Warrant”). The Warrants are exercisable for a period of four (4) years from the date of original issuance at an exercise price of $0.01 per share.

 

On July 20, 2015, the Company entered into one additional Consulting Services Agreement. Pursuant to the Consulting Agreement, the Company agreed to issue 10,000 shares of the Company’s restricted common stock to the consultant for services to be performed for three (3) months.

 

On July 1 and August 1, 2015, the Company entered into Advisory Board Agreements with two (2) additional individuals. Pursuant to the Advisory Board Agreements, the Company agreed to issue a total of 150,000 shares of the Company’s restricted common stock to the Advisory Board Members for services to be performed for one (1) year.

 

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

 

Forward-Looking Information

 

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “may,” “could,” “should,” “if,” “estimates,” and similar expressions are intended to identify forward-looking statements. We claim the protection of the safe harbor contained in the Private Securities Litigation Reform Act of 1995.

 

The forward-looking statements are based on various factors and were derived using numerous beliefs and assumptions. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date.

  

Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include the following:

 

·     a change in the business of the Company, due to any sale of the Company’s operating subsidiaries or the divestiture of the Company’s material assets;

 

·limited cash and a history of losses;

 

·our need to raise additional capital for our business;

 

·our ability to open and operate venues in the United States and internationally;

 

·seasonality of ticket sales at our concert venue in London and our ability to attract successful musical acts to perform there;

 

·success of our competitors;

 

·our ability to hire and retain professionals experienced in the concert venue and digital media business;

 

·our ability to develop a successful streaming festival business;

 

·the current worldwide economic uncertainty; and

 

·      other factors, including, but not limited to, those set forth under Item 1A “Risk Factors” in our Annual Report on Form 10-K for the period ended March 31, 2015 filed with the Securities and Exchange Commission (the “SEC”) on July 14, 2015.

 

This Quarterly Report and all subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to our forward-looking statements to reflect events or circumstances after the date of this Quarterly Report. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on known results and trends at the time they are made, to anticipate future results or trends.

 

Description of Business

 

On April 28, 2014, we entered into the Merger Agreement, by and among the Company, Acquisition Sub and KoKo Parent, a wholly-owned subsidiary of JJAT a corporation wholly-owned by Mr. Ellin, the Company’s Executive Chairman, President, Director and controlling shareholder, and his affiliates and completed the Merger. As a result of the Merger, KoKo Parent became a wholly-owned subsidiary of the Company, and the Company’s primary business became that of KoKo Parent and its subsidiaries, KoKo UK which owns 50% of OCHL, which in turn wholly-owns its operating subsidiary OBAR Camden. Upon the closing of the Merger, pursuant to the terms of the Merger Agreement, KoKo Parent’s former sole shareholder, JJAT, received 29,000,000 shares of Company common stock, or approximately 73.9% of the shares of the Company outstanding post-merger. On May 1, 2014, Olly Bengough was appointed to our Board as a Director and was appointed our Chief Executive Officer. On September 23, 2014, Mr. Bengough resigned as Chief Executive Officer and from the Board of Directors of the Company.

 

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Our principal business through the operation of OCHL and its wholly-owned subsidiary OCL, is the operation of the live music venue and nightclub known as KOKO in Camden, London. KOKO provides live shows, club nights, corporate and other events at KOKO and broadcasts digitally. The venue has been used to record live performances which have been broadcast to an international audience. OCHL and OCL are 50% co-owned by Olly Bengough, who was our former Chief Executive Officer and Director.

 

We continue to expand into live music and in February 2015, we formed a new 100% owned subsidiary FestreamTV which subsequently changed its name to LiveXLive (“LXL”) in May 2015. LXL’s mission is to aggregate thousands of hours of live music and content driven by live music through mutually beneficially relationships with the world’s top talent, music companies, festivals and promoters. LXL plans to showcase professionally produced, innovative, immersive and experiential live broadcasts in HD. We expect that fans will have the opportunity to see their favorite festivals, concerts and experiences on any screen they choose across all video platforms and devices from mobile to the home. We intend for these fans to be able to view concert experiences from any connected device with exclusive access only LXL brings from the stage to backstage, inside dressing rooms, and places previously off limits to anyone but VIPs and artists.

 

The Company’s strategy is to provide the first independent global live music and lifestyle streaming network delivering around the clock live music to viewers on any connected device as an authentic and experiential platform to grow revenue, earnings and cash flow. LXL has entered into an agreement with POSSIBLE Mobile to develop the LXL mobile video and web experience. We understand that POSSIBLE Mobile has developed the mobile app experience for leading live content companies including Major League Soccer, the PGA TOUR and other popular sports leagues. LXL is taking a ‘mobile first” approach to streaming live music experiences. LXL expects to provide consumers with the opportunity to view the most sought after live music around the globe via any distribution channel on a 24/7/365 basis. We anticipate that the platform will offer the world’s leading music festivals with multi-day and multi-stage coverage, unique concerts, intimate performances and cutting edge programming. 

 

The LXL network expects to provide compelling and curated content that showcases the entire spectrum of music to include music inspired fashion, food, and lifestyle content and showcase interviews, back stage access and both fan and artist perspectives. We plan to extend the live experience to fans on desktop, laptop, mobile, tablets, consoles, connected TV’s and virtual reality platforms. LXL intends to feature all genres of music including rock, pop, indie, alternative, EDM, country and feature major festival headliners as well as emerging artists performing at clubs and venues around the globe. LXL is also developing key strategic relationships in technology, distribution, advertising, mobile and virtual reality to augment its network delivery strategy.

 

In addition, the Company plans to leverage KOKO’s success and brand in live entertainment and relationships with fans, artists and advertisers to capture originated content, create owned/co-owned branded activity and develop new and complimentary brand extensions and intellectual property. The Company is seeking capital to drive this process and address present working capital expenditures, including exploring strategic alternatives for OCHL and OCL.

 

OCHL

 

OCHL was incorporated in England and Wales on October 17, 2012 to become a comprehensive digital music and entertainment company. OCHL wholly-owns Obar Camden, a music and entertainment company whose principal business is the operation of a live music venue and nightclub known as KOKO located in Camden, London. KOKO provides live shows, club nights, corporate and other events at KOKO. The venue has been used to record live performances which have been broadcast to an international audience.

 

Obar Camden’s present business model is to operate with a relatively small internal team of key personnel. Obar Camden also engages the Mint Group, a related-party contractor controlled by Mr. Bengough, to provide management services. In addition, Obar Camden engages the services of technical security functions through external contractors.

 

KOKO has a single, well-established venue.

 

Digital Media and Content Streaming

 

During the first quarter of fiscal 2016, the Company primarily focused on negotiating contracts to obtain rights to broadcast live music events over the Internet and to generate revenues from securing advertising and promotions for such events. Our vision is to become the first independent global live music and lifestyle network delivered across all digital platforms. We aim to accomplish this by aggregating and leveraging hundreds of hours of live music and lifestyle content acquired through mutually beneficial relationships with the world’s top festivals and promoters.

 

The Company continues to seek expansion through acquisition of other live concert or event or media companies and licensing opportunities and hiring skilled personnel in the concert venue and media operations industries to help it oversee its new acquisitions and business ventures in the U.S., and internationally.

 

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The Company’s strategy is to grow and innovate through the initiatives listed below:

 

  · Selectively expanding into additional top global music markets, both internationally and domestically, with new venues that host artists from emerging talent to global super-stars, offer a stunning lifestyle and VIP services, and deliver premium consumer music experiences.

  ·

Identifying, developing and growing key sponsorship and strategic advertising partnerships. The Company’s goal is to continue to drive growth in this area and capture a larger share of the music sponsorship market. It will focus on expanding and developing new relationships with corporate sponsors to provide them with targeted strategic programs through the Company’s unique relationship with fans and artists, its distribution network of venues, and its online presence. The Company will continue to look for innovative new products and offerings that give its sponsors and advertisers a unique ability to reach consumers through the power of live music.

 

During the first quarter of fiscal 2016, the Company announced its agreement with LiveOne, a digital audience engagement company seeking to revolutionize the way people interact with each other around live media. Aligning with LiveOne will allow us to give our viewers a more intimate, connected viewing experience. It also provides us the opportunity to engage with the audience in a much deeper, focused way which ultimately benefits not only the fans but our partners and sponsors.

 

In July 2015, LXL announced that it selected Verizon Digital Media Services (“VDMS”) to deliver its live music streaming network. VDMS would allow LXL to give music fans everywhere an immersive experience through delivery and distribution of LXL’s streaming of the world’s leading music festivals, concerts and performances on any screen, any platform and any device in high-definition and with social media integration.

 

Also during July 2015, the Company filed a trademark application for “LIVEXLIVE” in the U.S. Patent and Trademark office, stating its intention to use this mark in commerce.

 

Management is in active discussions with leading entertainment presenters in the world, independent promoters in the U.S., international festivals and venues regarding establishing multi-year streaming arrangements for their respective festivals and venues in 2016 and beyond. In addition, LXL continues to engage large world-wide music and distribution companies in an effort to forge strategic relationships for streaming live music and content.

 

Management Agreement

 

Upon consummation of the reverse merger on April 28, 2014, the Company assumed the September 23, 2011 Management Agreement (“Management Agreement”) with Trinad Management, LLC (“Trinad LLC”) from Loton.  Pursuant to the Management Agreement, Trinad LLC had agreed to provide certain management services to the Company through September 22, 2014, including, without limitation, the sourcing, structuring and negotiation of potential business acquisitions and customer contracts for the Company. Under the Management Agreement, the Company compensated Trinad LLC for its services with (i) a fee equal to $2,080,000, with $90,000 payable in advance of each consecutive three-month period during the term of the Agreement and with $1,000,000 due at the end of the 3 year term, and (ii) issuance of a Warrant to purchase 1,125,000 shares of the Company common stock at an exercise price of $0.15 per share (“Warrant”). The Warrant may be exercised in whole or in part by Trinad LLC at any time for a period of ten (10) years. The payment of the $1,000,000 fee accrued on the books at the end of the term has been deferred. Trinad LLC continues to provide service at $30,000 per month on a month to month basis.

 

Liquidity and Capital Resources

 

The Company’s working capital requirements and capital for general corporate purposes, including capital expenditures, are funded from operations or from borrowings.

 

As of June 30, 2015, the Company had total assets of $2,887,456, comprised primarily of cash of $1,336,706, accounts receivable of $46,611, inventories of $56,959, prepayments and other current assets of $400,994, and net property and equipment of $997,752. This compares with total assets of $2,553,134, comprised primarily of cash of $866,951, accounts receivable of $67,876, inventories of $161,977, prepayments and other current assets of $460,226 and net property and equipment of $950,208 as of March 31, 2015. The Company had current liabilities of $5,656,144 comprised of accounts payable of $682,983, management service obligation to related party of $1,000,000, short term notes of $2,703,767 outstanding to investors and accrued expenses and other current liabilities of $1,269,394 as of June 30, 2015. This compares with current liabilities of $4,798,120, comprised of accounts payable of $843,668, management service obligation to related party of $1,000,000, short term notes of $1,701,124 outstanding to investors and accrued expenses and other current liabilities of $1,253,328 as of March 31, 2015.

 

 The Company depends upon debt and equity financing and, as of June 30, 2015, net cash generated from operations of OCHL, to fund its ongoing operations and to execute its business plan. If continued funding and capital resources are unavailable at reasonable terms, or if cash generated from operations of OCHL is inadequate to satisfy our working capital, capital expenditure and debt service requirements, the Company may curtail its plan of operations. The Company may be required to obtain alternative or additional financing from financial institutions or otherwise, in order to maintain and expand our existing operations. The failure by us to obtain such financing, if needed, would have a material adverse effect upon our business, financial condition and results of operations.

 

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On April 8, 2015, the Company entered into a second senior promissory note with Trinad Capital in the amount of $195,500. The note bears interest at the rate of eight percent (8%) per annum and all outstanding unpaid principal and accrued interest is due and payable on June 30, 2016 or such later date as Trinad Capital may agree to in writing, unless prior to such date this note has been prepaid in full. Trinad Capital made additional advances to the Company in April, May and June 2015 totaling $450,000. On July 10, 2015, the Company and Trinad Capital amended and restated the above senior promissory note from $195,500 to $645,500, which was the principal amount outstanding as of June 30, 2015, to include these additional advances.

 

On June 19, 2015, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company agreed to issue an aggregate of 150,000 Units (each, a “Unit”) at a purchase price per Unit of $1.00 per share for an aggregate purchase price of $150,000 with each unit consisting of one common share in the capital of the Company (each, a “Share”) and one warrant to purchase a share of Company common stock exercisable for a period of four (4) years from the date of original issuance at an exercise price of $0.01 per share.

 

During the period ended June 30, 2015, the Company issued 150,000 shares of common stock for an aggregate purchase price of $1,500 in connection with the exercise of warrants to purchase shares of the Company’s commons stock at $0.01 per share.

 

On July 23 and 28, 2015, the Company entered into a securities purchase agreement with two investors pursuant to which the Company agreed to issue an aggregate of 62,500 Units (each, a “Unit”) at a purchase price per Unit of $2.00 for an aggregate purchase price of $125,000, with each Unit consisting of one common share in the capital of the Company (each, a “Share”) and one warrant to purchase a share of Company common stock (each, a “Warrant”). The Warrants are exercisable for a period of four (4) years from the date of original issuance at an exercise price of $0.01 per share.

 

Net cash used in operating activities was $433,990 and $1,370,932 for the periods ended June 30, 2015 and 2014, respectively.

 

Cash used in investing activities was $23,900 for the period ended June 30, 2015, consisting of purchases of property and equipment and cash provided by investing activities was $68,040 for the period ended June 30, 2014, consisting of cash acquired from business acquisition of $85,608 which was partially offset by $17,568 for purchases of property and equipment.

 

Cash provided by financing activities was $874,566 and $986,911 for the periods ended June 30, 2015 and 2014, respectively. Cash provided by financing activities primarily reflects: (i) proceeds received from related parties during the periods ended June 30, 2015 and 2014 and (ii) proceeds received from sales of common stock during the period ended June 30, 2015.

 

Results of Operations

 

Pursuant to ASC Paragraphs 805-40-45-1 and 45-2 consolidated financial statements following a reverse acquisition are issued under the name of the legal parent (accounting acquiree) but described in the notes as a continuation of the financial statements of the legal subsidiary (accounting acquirer), with one adjustment, which is to retroactively adjust the accounting acquirer’s legal capital to reflect the legal capital of the accounting acquiree. That adjustment is required to reflect the capital of the legal parent (the accounting acquiree). Comparative information presented in those consolidated financial statements also is retroactively adjusted to reflect the legal capital of the legal parent (accounting acquiree). The consolidated financial statements reflect all of the following: a. The assets and liabilities of the legal subsidiary (the accounting acquirer) recognized and measured at their pre-combination carrying amounts. b. The assets and liabilities of the legal parent (the accounting acquiree) recognized and measured in accordance with the guidance in Topic 805 “business combinations”. c. The retained earnings and other equity balances of the legal subsidiary (accounting acquirer) before the business combination. d. The amount recognized as issued equity interests in the consolidated financial statements determined by adding the issued equity interest of the legal subsidiary (the accounting acquirer) outstanding immediately before the business combination to the fair value of the legal parent (accounting acquiree) determined in accordance with the guidance in this Topic applicable to business combinations. However, the equity structure (that is, the number and type of equity interests issued) reflects the equity structure of the legal parent (the accounting acquiree), including the equity interests the legal parent issued to effect the combination. Accordingly, the equity structure of the legal subsidiary (the accounting acquirer) is restated using the exchange ratio established in the acquisition agreement to reflect the number of shares of the legal parent (the accounting acquiree) issued in the reverse acquisition. e. The non-controlling interest’s proportionate share of the legal subsidiary’s (accounting acquirer’s) pre-combination carrying amounts of retained earnings and other equity interests as discussed in paragraphs 805-40-25-2 and 805-40-30-3.

 

Revenues

 

OCHL’s revenues increased by $89,570, or 4.9%, to $1,936,770 for the three months ended June 30, 2015 from $1,847,200 in the corresponding period of the prior year. The increase in revenues for the three months ended June 30, 2015 reflects higher sales for live events as there was an increase of 7 live events compared with the same period of the previous year and a luxury club event, Music On, in the first week of the current fiscal year period which eclipsed the luxury club event in the same period of the previous year. Partially offsetting the increase were lower revenues from timing of corporate events, Saturday nights revenue per event and the effect of fluctuation in the average rates of exchange used in translating U.K. sales to their U.S. dollar equivalent.

 

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Cost of Revenue

 

Cost of revenue of OCHL decreased by $2,291, or 0.8%, for the three months ended June 30, 2015, compared with the corresponding period of the prior year. The decrease reflects an improvement in the mix and price of drink sales and the effect of fluctuation in the average rates of exchange used in translating U.K. costs to their U.S. dollar equivalent. The year-to-date overall mix of events was similar between the current and prior year period with a cost of revenue percentage of 14.3% and 15.1% of revenues for the three months ended June 30, 2015 and 2014, respectively.

 

Gross Margin

 

Gross margin of OCHL increased by $91,861, or 5.8%, to $1,659,385 (85.7% of revenues) for the three months ended June 30, 2015 from $1,567,524 (84.9% of revenues) in the corresponding period of the prior year. The increase in gross margin for the three months ended June 30, 2015 primarily reflects an improvement in the mix and price of drink sales noted above. The year-to-date overall mix of events was similar between the current and prior year period with a gross margin percentage of 85.7% and 84.9% of revenues for the three months ended June 30, 2015 and 2014, respectively.

 

Selling and Marketing Expenses

 

Selling and marketing expenses primarily consist of outside services, advertising, public relations and travel and entertainment expense.

 

Selling and marketing expenses for the three months ended June 30, 2015 increased by $14,124 to $162,677 from $148,553 in the corresponding period of the prior year. The increase in selling and marketing expenses is due mainly to higher costs involved in the Music On luxury club event in the current year period compared with the luxury club event in the same period of the previous year. Selling and marketing expenses represented 8.4% and 8.0% of revenues for the three months ended June 30, 2015 and 2014, respectively.

 

Management Services – Related Parties Expenses

 

Management services – related parties consist of management fees paid and accrued by the Company under agreements with Trinad Management, LLC and Mint Group Holdings Limited (“Mint Group”)(see Note 6). During the three months ended June 30, 2015, the Company paid management fees to Trinad Management, LLC of $90,000 and Mint Group of $30,609.

 

General and Administrative Expenses

 

General and administrative expenses primarily consist of employee costs, depreciation and amortization, licenses, outside contractor’s costs, travel and entertainment and insurance. Certain costs associated with being a publicly held corporation are also included in general and administrative expenses, as well as bad debts expense.

 

General and administrative expenses increased by $145,336, or 20.3%, to $860,427 for the three months ended June 30, 2015 from $715,091 in the corresponding period of the prior year. The increase in general and administrative expense for the three months ended June 30, 2015 compared with the corresponding period of the prior year was primarily due to higher wages and promotional costs associated with the Company’s digital streaming business plan and commencement of its wholly-owned subsidiary, LiveXLive, partially offset by the effect of fluctuation in the average rates of exchange used in translating U.K. expenses to their U.S. dollar equivalent. General and administrative expenses represented 44.4% and 38.7% of revenue for the three months ended June 30, 2015 and 2014, respectively.

 

Operating Expenses

 

Total operating expenses decreased by $1,409,032, or 38.5%, to $2,251,750 for the three months ended June 30, 2015 from $3,660,782 in the corresponding period of the prior year. The decrease in operating expenses for the three months ended June 30, 2015 compared with the corresponding period of the prior year was due mainly to lower professional fees associated with the Merger.

 

Other (Income) Expense

 

Other expense increased by $38,989 for the three months ended June 30, 2015 compared with the corresponding period of the prior year which reflects interest incurred in connection with the Company’s notes payable.

 

Income Tax Provision

 

The income tax provision increased by $13,430 for the three months ended June 30, 2015 compared with the corresponding period of the prior year due mainly to the increase in pretax income of OCHL and the effect of fluctuation in the average rates of exchange used in translating U.K. expenses to their U.S. dollar equivalent.

 

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Net Income (Loss)

 

The net results attributable to the Company’s stockholders were a net loss of $770,719 and $1,526,923 for the three months ended June 30, 2015 and 2014, respectively. The net results attributable to non-controlling interest was net income of $74,967 and a net loss of $617,303 for the three months ended June 30, 2015 and 2014, respectively.

 

Capital Expenditures

 

Capital expenditures are associated with renewal and improvement of existing venues and technology systems, web development, major renovations to existing buildings and technology enhancements. Certain capital expenditures such as major renovations to existing buildings are made to increase net sales and/or improve operating income.

 

The Company has no material commitments for capital expenditures at this time.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

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Item 3.   Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 4.   Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our principal executive officer and principal financial officer performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2015, our disclosure controls and procedures were not effective for the period ended June 30, 2015 for the reasons discussed below.

 

The following two material weaknesses in our internal control over financial reporting existed on June 30, 2015:

 

(i)      We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the quarter ended June 30, 2015. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

(ii)     We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures, and concluded that the control deficiency that resulted represented a material weakness.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

The judicial review is being brought by Obar Camden Limited. The current judicial review claim (case number CO/738/2015) was filed in the High Court by Obar Camden Limited on February 16, 2015.  (Judicial review is the process by which the Courts review the exercise of statutory functions by public bodies in England and Wales).  The claim is a legal challenge to the decision by the London Borough of Camden Council to grant planning permission reference 2014/2621 on January 6, 2015 for the redevelopment of the former Hope & Anchor public house as 8 residential units.  This is the neighboring property to the Koko Club and the grounds of challenge relate to legal flaws in the way that the Council assessed noise and heritage impacts of the proposed development as part of its decision.  The relief sought is a Court Order to quash the planning permission that has been granted.  Whilst the Council is defending the claim, the applicant is playing no active role in the proceedings. 

 

Judicial review is a two stage process, where the case is first considered by a judge on the papers to decide whether it should get permission to proceed to a substantive hearing.  The Court granted permission for the claim to proceed on March 27, 2015. A one-day hearing occurred in the High Court on August 5, 2015 and the Court has taken the matter under submission.

 

The case has been brought because the Council has granted a planning permission for a multiple occupancy residential development adjacent to KOKO.  Obar Camden believes that the Council did not properly seek to understand and consider the potential for conflict between the venue and new residents being in such close proximity to each other and without requiring adequate sound insulation measures to be in place to ensure that the parties can co-exist peacefully.   The grant of the permission in its current form leaves the venue potentially vulnerable to complaints, which in turn could have adverse consequences for KOKO’s premises licence.  If successful, the planning permission will be quashed.

 

Item IA. Risk Factors.

 

There have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K for our fiscal year ended March 31, 2015. 

 

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

 

On June 19, 2015, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the Company agreed to issue an aggregate of 150,000 Units (each, a “Unit”) at a purchase price per Unit of $1.00 per share for an aggregate purchase price of $150,000 with each unit consisting of one common share in the capital of the Company (each, a “Share”) and one warrant to purchase a share of Company common stock exercisable for a period of four (4) years from the date of original issuance at an exercise price of $0.01 per share.

 

During the period ended June 30, 2015, the Company issued 150,000 shares of common stock for an aggregate purchase price of $1,500 in connection with the exercise of warrants to purchase shares of the Company’s commons stock at $0.01 per share.

 

On July 23 and 28, 2015, the Company entered into a securities purchase agreement with two investors pursuant to which the Company agreed to issue an aggregate of 62,500 Units (each, a “Unit”) at a purchase price per Unit of $2.00 for an aggregate purchase price of $125,000, with each Unit consisting of one common share in the capital of the Company (each, a “Share”) and one warrant to purchase a share of Company common stock (each, a “Warrant”). The Warrants are exercisable for a period of four (4) years from the date of original issuance at an exercise price of $0.01 per share.

 

During the fiscal quarter ended June 30, 2015, in return for receiving certain discounts on legal fees in the future the Company has granted a stock option to its legal advisors pursuant to which such legal advisors may purchase up to $750,000 of the Company’s equity securities issued in the Company’s next financing round at the same price per security paid by other investors in such financing round (or if no qualifying financing round occurs by December 31, 2015, then at valuation equal to the valuation of the Company at the time the stock option was granted, to be agreed upon by the parties in good faith). Such stock option, which has a five-year term, becomes exercisable in proportion to the discount earned up to a maximum discount.

 

We relied on Section 4(2) of the Securities Act, as providing an exemption from registering the sale of these shares of common stock under the Securities Act because, among other reasons, the offerees/issuees were accredited investors who were not subject to any general solicitation. 

 

Item 3. Defaults Upon Senior Securities.

 

Not applicable.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

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Item 5. Other Information.

 

Not applicable.

 

Item 6. Exhibits.

 

Exhibit

No.

  Description
     
10.1   Form of Amended and Restated Senior Promissory Note, dated as of July 10, 2015, between the Registrant and Trinad Capital Master Fund (previously filed as Exhibit 10.44 to the Registrant’s Annual Report on Form 10-K, filed with the SEC on July 14, 2015, and incorporated herein by reference).

 

31.1

 

 

Certification of Executive Chairman and President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     
31.2   Certification of Interim Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of Executive Chairman and President pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)
     
32.2   Certification of Interim Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

(1)          In accordance with Securities and Exchange Commission Release No. 33-8212, these exhibits are being furnished, are not being filed as part of this Report on Form 10-Q or as a separate disclosure document, and are not being incorporated by reference into any Securities Act of 1933 registration statement.

 

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SIGNATURES

 

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

     
  LOTON, CORP
     
Date: August 18, 2015 By: /s/ Robert Ellin
    Robert Ellin
    Executive Chairman and President
    (Principal Executive Officer)
     
  By: /s/ Barry Regenstein
    Barry Regenstein
    Interim Chief Financial Officer
(Principal Financial Officer)

 

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