UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

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

 

For the quarterly period ended June 30, 2016

 

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		90-0657263
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
269 South Beverly Drive Beverly Hills, California		90212
(Address of principal executive offices)		(Zip Code)

 

(310) 601-2500

(Registrant’s telephone number, including area code)

 

n/a

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

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant is required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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  x 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.

 

Large accelerated filer	¨		Accelerated filer	¨
Non-accelerated filer	¨		Smaller reporting company	x
(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 Exchange Act). Yes  ¨   No  x

   

As of August 13, 2016, there were issued and outstanding 46,558,057 shares of the registrant’s common stock, par value $0.001 per share.

 

  

LOTON, CORP

TABLE OF CONTENTS

 

		Page
PART I ― FINANCIAL INFORMATION		F-1
Item 1.    Financial Statements		F-1
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations		4
Item 3.    Quantitative and Qualitative Disclosures About Market Risk		7
Item 4.    Controls and Procedures		7
PART II   OTHER INFORMATION		8
Item 1.    Legal Proceedings		8
Item 1A. Risk Factors		9
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds		9
Item 3.    Defaults Upon Senior Securities		9
Item 4.    Mine Safety Disclosures		9
Item 5.    Other Information		9
Item 6.    Exhibits		10
Signatures		13

  

  

PART 1. FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Condensed Consolidated Balance Sheets as of June 30, 2016 (unaudited) and March 31, 2016	F-2
Condensed Consolidated Statements of Operations for the three months ended June 30, 2016 and 2015 (unaudited)	F-3
Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2016 and 2015 (unaudited)	F-5
Notes to the condensed consolidated financial statements (unaudited)	F-6

 

  

Loton, Corp

Condensed Consolidated Balance Sheets

 

		June 30,				March 31,
		2016				2016
		(Unaudited)
Assets
Current Assets
Cash and cash equivalents		$	76,613			$	36,898
Prepaid expense to related party			90,000				15,995
Other Current Assets			6,382				-
Total Current Assets			172,995				52,893
Other Assets
Fixed assets, net			75,622				62,569
Investment in affiliate			4,972,699				4,889,515
Note receivable - related party			213,331				213,331
Total Assets		$	5,434,647			$	5,218,308
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable and accrued liabilities		$	329,687			$	481,412
Note payable			265,158				262,042
Due to related parties			50,000				117,124
Accrued interest, related party			283,515				232,733
Note payable, related party, net of discount			1,472,456				2,784,000
Services payable, related party			1,000,000				1,000,000
Total Current Liabilities			3,400,816				4,877,311
Unsecured convertible notes, net of discount			-				110,273
Total Liabilities			3,400,816				4,987,584
Stockholders’ Equity:
Preferred stock, $0.001 par value; 1,000,000 shares authorized; no shares issued or outstanding			-				-
Common stock, $0.001 par value; 75,000,000 shares authorized;  46,758,057 and 45,998,488 shares issued and outstanding, respectively			46,757				45,998
Additional paid in capital			17,637,215				14,030,897
Accumulated deficit			(15,650,141	)			(13,846,171	)
Total stockholders' equity			2,033,831				230,724
Total Liabilities and Stockholders’ Equity		$	5,434,647			$	5,218,308

 

See accompanying notes to the condensed consolidated financial statements.

 

  

Loton, Corp
Condensed Consolidated Statements of Operations

(Unaudited)

 

		Three Months Ended				Three Months Ended
		June 30,				June 30,
		2016				2015
							(as Restated)
Operating expenses:
Selling, general and administrative		$	1,084,886			$	785,793
Related party expenses			90,000				90,000
Total operating expenses			1,174,886				875,793
Loss from operations			(1,174,886	)			(875,793	)
Other income (expense):
Interest income (expense), net			(712,268	)			16,880
Earnings from investment			83,184				74,036
Total non-operating expenses			(629,084	)			90,916
Net loss		$	(1,803,970	)		$	(784,876	)
Net loss per share – basic and diluted		$	(0.04	)		$	(0.02	)
Weighted average common shares – basic and diluted			46,298,459				44,203,669

 

See accompanying notes to the condensed consolidated financial statements.

 

  

Loton, Corp

Condensed Consolidated Statement of Stockholders’ Equity

For the Period Ended June 30, 2016

(Unaudited)

 

		Common Stock								Additional Paid in				Accumulated				Total
		Stock				Amount				Capital				Deficit				Stockholders' Equity
Balance as of March 31, 2016			45,998,488			$	45,998			$	14,030,897			$	(13,846,171	)		$	230,724
Shares issued for cash			250,000				250				1,249,750				-				1,250,000
Fair value of shares issued for services			103,650				103				181,022				-				181,125
Shares issued upon exercise of warrants			302,960				303				727				-				1,030
Share issued upon debt conversion			102,959				103				205,815				-				205,918
Fair value of warrants issued for note extension and to induce conversion of notes											1,917,524								1,917,524
Fair value of beneficial conversion feature											51,480								51,480
Net loss			-				-				-				(1,803,970	)			(1,803,970	)
Balance as of June 30, 2016			46,758,057			$	46,757			$	17,637,215			$	(15,650,141	)		$	2,033,831

 

See accompanying notes to the condensed consolidated financial statements.

 

  

Loton, Corp

Condensed Consolidated Statements of Cash Flows

(Unaudited)

		Three Months Ended				Three Months Ended
		June 30,				June 30,
		2016				2015
						(as Restated)
Cash Flows from Operating Activities:
Net loss		$	(1,803,970	)		$	(784,876	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			5,900				819
Common stock issued for services			181,125				223,958
Amortization of debt discount and debt issuance costs			344,196				-
Fair value for beneficial conversion feature			51,480				-
Fair value for warrants issued for conversion and inducement			256,411				-
Equity in earnings of OCHL			(83,184	)			(74,036	)
Changes in operating assets and liabilities:
(Increase)/Decrease in prepaids			(74,005	)			-
(Increase)/Decrease in other current assets			(6,382	)			(103	)
Decrease/(Increase) in accrued interest			(50,782	)			-
Decrease/(Increase) in accounts payable and accrued liabilities			(41,127	)			6,224
Net cash used in operating activities			(1,220,338	)			(628,014	)
Cash Flows from Investing Activities:
Purchases of fixed assets			(18,953	)			-
Net cash used in investing activities			(18,953	)			-
Cash Flows from Financing Activities:
Proceeds from notes payable, related party			445,100				820,500
Repayment of notes payable, related party			(350,000	)			-
Proceeds from warrant exercise			1,030				1,500
Proceeds from issuance of common stock			1,250,000				150,000
Proceeds from loans, related party			(67,124	)			(53,624	)
Net cash provided by financing activities			1,279,006				918,376
Net Increase/(Decrease) in cash			39,715				290,362
Cash, beginning of period			36,898				36,121
Cash, end of period		$	76,613			$	326,483
Supplemental disclosure of non-cash investing and financing activities:
Fair value of warrants issued for note extension		$	1,661,114			$	-
Common stock issued upon conversion of note payable		$	205,918			$	-

 

See accompanying notes to the condensed consolidated financial statements. 

  

Loton, Corp

For the Three Months Ended June 30, 2016 and 2015

Notes to the Condensed Consolidated Financial Statements

(Unaudited)

 

Note 1 – Organization, Operations and Basis of Presentation; Going Concern

 

Business and Operations 

 

Loton, Corp (“we,” “us,” “our” or the “Company”) was incorporated under the laws of the State of Nevada on December 28, 2009. The Company’s mission is to aggregate live music and content driven by live music through mutually beneficial relationships with the world’s top talent, music companies, festivals and promoters and to provide fans with the opportunity to see their favorite festivals, concerts and experiences on any screen they choose across all video platforms and devices from mobile to home.

 

The Company also owns a 50% interest in Obar Camden Holdings Ltd. ("Obar Camden" or "OCHL"), a private limited company registered in England and Wales that engages in the operations of a nightclub and live music venue “KOKO” in Camden, London, England.

 

Basis of Presentation

 

The interim condensed consolidated financial statements included herein reflect all material adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) which, in the opinion of management, are ordinary and necessary for a fair presentation of results for the interim periods.  Certain information and footnote disclosures required under generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).  The Company believes that the disclosures are adequate to make the information presented not misleading.  The condensed consolidated balance sheet information as of March 31, 2016 was derived from the audited consolidated financial statements included in the Company’s Report on Form 10-K filed with the Securities and Exchange Commission on July 19, 2016.  These condensed consolidated financial statements should be read in conjunction with the audited financial statements for the year ended March 31, 2016 and notes thereto included in the Company’s Report on Form 10-K for the year ended March 31, 2016.

 

The results of operations for the three months ended June 30, 2016 are not necessarily indicative of the results to be expected for the entire fiscal year or for any other period.

 

The condensed consolidated financial statements for the quarter ended June 30, 2015 presented herein have been restated to present the Company’s investment in OCHL on the equity basis of accounting and to correct for other prior errors. Please see Note 3 for details.

 

Going Concern

 

The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, and 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 a working capital deficit of $3,573,811 at June 30, 2016, and incurred a net loss of $1,803,970, and utilized net cash used in operating activities $1,220,338 for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s Independent Public Accounting Firm in their audit report to the March 31, 2016 financial statements expressed substantial doubt about the Company’s ability to continue as a going concern. 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

 

Management estimates that the current funds on hand will be sufficient to continue operations through December 31, 2016. 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. Management is currently seeking additional funds, primarily through the issuance of equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.

 

  

Note 2 - Significant Accounting Policies and Practices

 

Use of 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). 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. Significant estimates include those related to assumptions used in impairment testing of long term assets, accruals for potential liabilities and valuing equity instruments issued for services. Actual results could differ from those estimates.

 

Principles of Consolidation

 

The Company's consolidated subsidiaries and/or entities are 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.		Delaware		February 24, 2015			100	%
KOKO (Camden) Holdings (US), Inc.		Delaware		March 17, 2014			100	%
KOKO (Camden) UK Limited		England and Wales		November 7, 2013			100	%

 

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.

 

Fair Value of Financial Instruments

 

The Company follows the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and to measure the fair value of its financial instruments. The FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of fair value hierarchy 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 carrying amounts of the Company’s financial assets and liabilities, including cash, prepaid expenses, accounts payable, accrued expenses, and other current liabilities, approximate their fair values because of the short maturity of these instruments.

  

Investment in Unconsolidated Subsidiary Under the Equity Method

 

The Company accounts for investments in which the Company owns more than 20% of the investee using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures. Under the equity method, an investor initially records an investment in the investee at cost, and adjusts the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of acquisition. The amount of the adjustment is included in the determination of net income by the investor, and such amount reflects adjustments similar to those made in preparing consolidated statements including adjustments to eliminate intercompany gains and losses, and to amortize, if appropriate, any difference between investor cost and underlying equity in net assets of the investee at the date of investment. The investment of an investor is also adjusted to reflect the investor's share of changes in the investee's capital. Dividends received from an investee reduce the carrying amount of the investment. A series of operating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred which is other than temporary and which should be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of the equity method.

 

 

Stock-Based Compensation

 

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by FASB where the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

 

The fair value of the Company's stock option and warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

 

Income taxes 

 

The Company follows the asset and liability method 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 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 50% likelihood of being realized upon ultimate settlement. 

 

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. The Company’s tax years 2011 to 2014 remain subject to examination by major tax jurisdictions.

 

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.

  

  

Earnings Per Share

 

Basic loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the potential dilution, using the treasury stock method that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the Company. In computing diluted loss per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants.

 

At June 30, 2016 and 2015, the Company had 3,526,377 and 1,475,000 warrants outstanding, respectively, which were excluded from the loss per share calculation as they were anti-dilutive.

  

Recently Issued Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company's financial statements and disclosures.

 

In August, 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted.

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company's financial statements and disclosures.

 

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statement presentation or disclosures.

 

Note 3 – Restatement of Prior Period Financial Statements

 

The financial statements for the three months ended June 30, 2015 have been restated. On July 11, 2016, our Board of Directors, determined that the Agreement with OCHL was erroneously accounted for as a reverse acquisition for accounting purposes and that OCHL was improperly included in consolidation as our subsidiary. OCHL should have been reflected as an investment accounted for under the equity method of accounting. This determination was based on an analysis by our management that we did not have sufficient control of OCHL at the date of the transaction in accordance with the current accounting rules. Therefore, our results for the three months ended June 30, 2015 previously reported in our 10-Q filed on August 18, 2015 are being restated herein to properly present the Merger and our investment in OCHL on the equity basis of accounting and correct the prior period for other errors.

 

Specifically, on April 28, 2014, we entered into an Agreement and Plan of Merger (the “Agreement”), by and among our Company, Loton Acquisition Sub I, Inc., a Delaware corporation and our wholly-owned subsidiary (“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, our Executive Chairman, President, Director and controlling shareholder), and his affiliates (the “Merger”). As a result of the Merger, KOKO Parent became our wholly-owned subsidiary, and our then 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 our common stock.  Since both we and JJAT were controlled by Mr. Ellin at the time of the consummation of the Merger, this reverse merger transaction should have been accounted for as a transaction between entities under common control.  Accordingly, this equity method investment should have been initially measured on our financial statements at its then JJAT's historical basis of $4.2 million. 

 

  

In addition, certain issuances of common stock prior to March 31, 2014 were improperly recorded, and the applicable adjustments to accumulated deficit and additional paid in capital have been made herein. The effects on the previously issued financial statements are as follows:

  

Loton, Corp

Condensed Consolidated Statements of Operations (Unaudited)

 

		Originally Filed, June 30, 2015				Effect of  Deconsolidation of OCHL				Pro Forma After  Deconsolidation,  June 30, 2015				Equity Treatment,  Investment in OCHL				As Restated,  June 30, 2015 (unaudited)				Notes
Revenues		$	1,936,770			$	(1,936,770	)		$	-			$	-			$	-				(1)
											-
Cost of Revenue			277,385				(277,385	)			-				-				-				(2)
Gross Margin			1,659,385				(1,659,385	)			-				-				-
Operating Expenses
Selling, general and administrative			2,131,140				(1,345,347	)			785,793				-				785,793				(1)
Related party expenses			120,609				(30,609	)			90,000				-				90,000				(1)
Total operating expenses			2,251,749				(1,375,956	)			875,793				-				(875,793	)
Income (loss) from operations			(592,364	)			283,429				(875,793	)			-				(875,793	)
Other (income) expense
Compensation expense, investors			-				-				-				-				-
Interest income (expense), net			(44,077	)			(60,958	)			16,880				-				16,880				(1)
Earnings from investment			-				-				-				74,036				74,036				(2)
Other (income) expense, net			(44,077	)			(60,958	)			16,880				74,036				90,916
											-
Net income (loss) before income taxes			(636,441	)			222,471				(858,912	)			74,036				(784,876	)
											-
Income tax provision			59,310				59,310				-				-				-				(1)
											-
Net income (loss) before non-controlling interest			(695,751	)			163,161				(858,912	)			74,036				(784,876	)
											-
Net income (loss) attributable to non-controlling interest			74,967				74,967				-				-				-				(1)
											-
Net income (loss) attributable to Loton Corp. stockholders			(770,718	)			88,194				(858,912	)			74,036				(784,876	)
											-
Other comprehensive income (loss) attributable to Loton Corp stockholders			(932	)			932				-				-				-
											-
Comprehensive income (loss)		$	(771,650	)		$	88,262			$	(858,912	)		$	74,036			$	(784,876	)
Earnings Per Share:
- basic and diluted		$	(0.02	)						$	(0.02	)						$	(0.02	)
Weighted average common shares outstanding:
- basic and diluted			44,700,378								44,304,432								44,304,432

 

Notes:

(1)

To remove balances of previously consolidated investment

(2)

To reflect investment in OCHL under equity method

  

  

Loton, Corp

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

		Originally Filed,				Effect of				Equity Treatment,				As Restated,
		June 30,				deconsolidation				Investment				June 30,
		2015				of OCHL				in OCHL				2015				Notes
														(as Restated)
Cash Flows from Operating Activities
Net loss		$	(695,751	)		$	(163,161	)		$	74,036			$	(784,876	)		(1)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			32,304				(31,485	)			-				819			(1)
Common stock issued for services			223,958				-				-				223,958			(1)
Warrants issued for compensation			-				-				-				-			(1)
Equity in earnings of OCHL			-				-				(74,036	)			(74,036	)		(2)
Changes in operating assets and liabilities:
(Increase)/Decrease in current assets			136,292				(136,395	)			-				(103	)		(1)
(Increase)/Decrease in prepaids			84,321				(84,321	)			-				-			(1)
(Increase)/Decrease in note receivable - related party			26,341				(26,341	)			-				-			(1)
Services payable - related party							-								-			(1)
Decrease/(Increase) in current liabilities, net			(241,454	)			247,677				-				6,223			(1)
Net cash used in operating activities			(433,989	)			(194,025	)			-				(628,014	)		(2)
Cash Flows from Investing Activities:
Purchases of fixed assets			(23,900	)			23,900				-				-			(1)
Net cash used in investing activities			(23,900	)			23,900								-			(2)
Cash Flows from Financing Activities
(Advance to)/proceeds from notes payable, related party			(33,434	)			(20,190	)			-				(53,624	)		(1)
Repayment of note payable			(64,000	)			64,000				-				-			(1)
Proceeds from warrants exercised			1,500				-								1,500
Proceeds from issuance of common stock			150,000				-				-				150,000			(2)
Proceeds from notes payable, related party			820,500				-				-				820,500			(1)
Net cash provided by financing activities			874,566				43,810								918,376
Effect of exchange rate changes on cash			53,078				(53,078	)			-				-			(1)
Net Increase/(Decrease) in cash			469,755				(179,393	)							290,362
Cash, beginning of period			866,951				(830,830	)							36,121			(1)
																		(1)
Cash, end of period		$	1,336,706			$	(1,010,223	)						$	326,483

Notes:

(1)

To remove balances of previously consolidated investment

(2)

To reflect investment in OCHL under equity method

 

  

Note 4 – Equity Investments in OCHL

 

On April 28, 2014, the Company acquired a 50% equity interest in OCHL, an entity that 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 Company acquired its 50% interest through the issuance of 29,000,000 shares of its common stock to the seller, JJAT, an entity wholly owned by Mr. Ellin.  Since both the Company and JJAT were controlled by Mr. Ellin at the time of this transaction, the transaction was accounted for as a transaction between related parties at the related parties’ original basis. Accordingly, the Company recorded the equity method investment at $4.2 million which is JJAT's historical basis in OCHL.

  

As part of the transaction, the Company was to be reimbursed $494,750 by OCHL for legal and other acquisition costs incurred in relation to the acquisition of the 50% interest.  As of June 30, 2016 and March 31, 2016, the outstanding advances due the Company were $213,331 and $213,331, respectively. The note bears interest at 8% per annum and was due April 27, 2015. The note is currently in default.

 

The OCHL Shareholders’ Agreement

 

On February 12, 2014, (1) Mr. Bengough, and (2) KOKO UK, Mr. Ellin and Trinad Capital Master Fund (collectively, the “Ellin Parties”) and (3) OCHL entered into a Shareholders’ Agreement (the “OCHL Shareholders’ Agreement”) pursuant to which, among other terms, the parties agreed that each of Mr. Ellin and Mr. Bengough shall constitute the Board of Directors of OCHL and each shall be restricted from taking actions on behalf of OCHL without the written consent of the other individual, including, but not limited to, changes in the nature of the business, amendments to governing documents, restructuring or recapitalizations, issuances of stock, purchases of material assets, entry into material contracts, incurring or guaranteeing debt, removal of any director or restructure the board of OCHL. Because OCHL is the sole parent of OCL, our ability to manage OCHL and OCL is subject to the terms of the OCHL Shareholders’ Agreement and Mr. Bengough’s consent is required for most material actions to be taken by OCHL and OCL, so long as the OCHL Shareholders’ Agreement remains in effect. Each of Mr. Bengough and Mr. Ellin are entitled to serve on the board of OCHL so long as the OCHL Shareholders’ Agreement is in effect, and the board cannot take action without the consent of both board members. Pursuant to the OCHL Shareholders’ Agreement, any cash distributions by OCHL must be distributed pro rata to each of KOKO UK and Mr. Bengough. Finally, the OCHL Shareholders’ Agreement restricts the transfer of shares in OCHL or OCL by KOKO UK or Mr. Bengough and grants each a right of first refusal and the right to have the proposed shares valued by an independent accounting firm and sold to the other party at a price determined by valuation rather than the price necessarily offered by the prospective purchaser.

 

  

On April 24, 2014, the OCHL Shareholders’ Agreement was amended pursuant to the terms of the Variation to Shareholders Agreement (“Variation Agreement”) among Mr. Bengough, KOKO UK, the Ellin Parties, OCHL, OCL, JJAT and the Company which, amongst other terms, (1) joined OCL, JJAT and the Company as parties to the OCHL Shareholders Agreement, and (2) Mr. Bengough also agreed to transfer all of his interests in OCHL in exchange for 29,000,000 shares of the Company’s common stock to be issued in a private placement transaction, which would constitute no less than 42.5% of the Company’s outstanding capital stock on a fully diluted basis (but before our future issuance of up to 3,200,000 shares of the Company’s common stock to its advisors, consultants and key employees as approved by the Company’s Board of Directors) and pursuant to the OCHL Shareholders’ Agreement, subject to Mr. Bengough’s receipt of satisfactory tax clearances under the tax laws of the United Kingdom. The Company agreed to indemnify Mr. Bengough from any adverse tax expenses and costs required to be paid by Mr. Bengough in connection with the transfer of his interests in OCHL. To date, the parties to the Variation Agreement have been unable to reach an agreement on mutually acceptable documentation to affect the share exchange described above. The Company and Mr. Bengough are presently continuing to co-operate OCHL and OCL with Mr. Bengough leading OCL’s day-to-day business.

 

The Variation Agreement and the related OCHL Shareholders’ Agreement remain in full force and effect, subject to any court mandated changes or orders made with respect to the Petition (for a detailed discussion of the Petition, see Note 10). Pursuant to the terms of the OCHL Shareholders’ Agreement and Variation Agreement, each of Mr. Ellin and Mr. Bengough constitute the Board of Directors of OCHL and each of Mr. Bengough and Mr. Ellin are restricted from taking actions on behalf of OCHL without the written consent of the other individual; provided that pursuant to the Consent Order (as discussed in Note 10 – Commitments and Contingencies), the parties have agreed that Mr. Ellin will resign as a director of OCHL and Obar Camden upon the appointment of a mutually selected independent director on the boards of directors of these companies.

 

As of June 30, 2016, the changes in investments in and advances to equity method investments are summarized as follows:

 

Balance March 31, 2016		$	4,889,515
50% share of net income			83,184
Balance June 30, 2016		$	4,972,699

 

The carrying amounts of the major classes of assets and liabilities of OCHL as of June 30, 2016 and March 31, 2016 are as follows:

 

		June 30, 2016				March 31, 2016
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	845,199			$	386,009
Accounts receivable			38,076				24,743
Inventory			48,274				62,548
Prepaid expenses and other current assets			429,663				533,128
Total current assets			1,361,213				1,006,429
Other assets:
Property and equipment, net of accumulated depreciation			845,501				867,975
Total assets		$	2,206,713			$	1,874,205
Liabilities
Current liabilities:
Accounts payable		$	747,776			$	514,488
Taxes payable			567,142				410,504
Notes payable, current			-				207,978
Other accrued liabilities			423,006				460,290
Total current liabilities			1,737,924				1,593,210
Deferred rent – noncurrent			929,893				937,459
Total Liabilities			2,660,817				2,530,669
Shareholders deficit			(454,103	)			(656,464	)
Total liabilities and shareholders’ deficit		$	2,206,713			$	1,874,205

 

  

Net income for the three months ended June 30, 2016 and 2015 was as follows:

 

		Three Months Ended June 30, 2016 (Unaudited)				Three Months Ended June 30, 2015 (Unaudited)
Revenue		$	1,660,079			$	1,936,770
Cost of revenue			228,496				227,385
Gross profit			1,431,583				1,659,385
Operating expenses:
Selling, general and administrative			1,180,799				1,392,716
Depreciation and amortization			29,885				-
Total operating expenses			1,210,684				1,392,716
Income from operations before other expenses			220,898				266,669
Other expenses:
Interest			-				57,424
Income before provision for taxes			218,992				209,245
Taxes			54,529				59,310
FX translation gain (loss)							(1,864	)
Net Incomes		$	166,369			$	148,071

 

Note 5 – Property and Equipment

 

Value of property and equipment at June 30, 2016 and March 31, 2016 was as follows:

 

		June 30, 2016				March 31, 2016
Production equipment		$	51,304			$	51,304
Computer equipment			42,078				23,125
Total property and equipment			93,382				74,429
Accumulated depreciation			(17,760	)			(11,860	)
Property and equipment, net		$	75,622			$	62,569

  

Depreciation expense was $5,900 and $819 for three months ended June 30, 2016 and 2015, respectively.

 

Note 6 – Related Party Notes Payable

 

As of June 30, 2016 and March 31, 2016, the Company had the following outstanding notes payable to Trinad Capital Master Fund (“Trinad Capital”), a fund wholly owned by Mr. Ellin, the Company’s Executive Chairman, President, director and majority stockholder, for both short and long term working capital requirements:

 

		June 30, 2016				March 31, 2016
First Senior Note		$	1,000,000			$	1,000,000
Second Senior Note			1,879,100				1,784,000
Total			2,879,100				2,784,000
Less valuation discount			(1,406,644	)			-
Net			1,472,456				2,784.000

 

  

First Senior Note - Trinad Capital Master Fund

 

On December 31, 2014, the Company entered into a senior convertible promissory note (the “First Senior Note”) with 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.

 

At the time the First Senior Note was made, Trinad Capital advanced $700,000 to the Company and had accrued $70,151 in unpaid interest. Pursuant to the terms of the Senior Note, all outstanding unpaid principal and accrued interest was 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 First 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 First Senior Note. Subsequent to the making of the First Senior Note:

 

·

On January 27, 2015, the Company and Trinad Capital entered into an amendment to the First Senior Note, effective as of December 31, 2014, pursuant to which: (1) the term of the First 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 First Senior Note, effective as of December 31, 2014, pursuant to which the convertibility feature of the note was eliminated in its entirety; and

 

·

On April 21, 2016, the First Senior Note was amended to extend the maturity date to June 30, 2017, or such later date as Trinad Capital may agree to in writing. For extending the due date of the Second Senior Note to June 30, 2017, the Company issued to Trinad Capital warrants to purchase 572,493 shares of its common stock, with an exercise price of $0.01 per share and expiration date of April 21, 2020. The aggregate fair value of the 572,473 warrants issued upon extension of the note were valued at $567,282 using the Black-Scholes Option Pricing model with the following average assumptions: risk-free interest rate of 1.30%; dividend yield of 0%; volatility rate of 100%; and an expected life of four years (statutory term).  The value of the warrants of $567,282 was considered as debt discount and is being amortized over the remaining term of the note. During the quarter ended June 30, 2016, the Company amortized $91,287 of such discount to interest expense, and the unamortized discount as of June 30, 2016 was $475,995.

  

As of June 30, 2016 and March 31, 2016, $1,000,000 of principal was outstanding under the First Senior Note. Accrued interest of $155,514 and $140,555 is reflected on the balance sheet as accrued interest payable, related party as of June 30, 2016 and March 31, 2016, respectively,

 

Second Senior Note - Trinad Capital Master Fund

 

On April 8, 2015, the Company entered into a second senior promissory note (the “Second Senior Note”) with Trinad Capital in the amount of $195,500. The Second Senior 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. During the year ended March 31, 2016, Trinad Capital made advances to the Company totaling $1,784,000. Subsequent to the making of the Second Senior Note:

 

·

On July 10, 2015, the Company and Trinad Capital amended and restated the Second Senior Note from $195,500 to the lesser of (i) $1,000,000 (the “Maximum Advance Amount”), or (ii) the aggregate unpaid principal amount of the advances;

 

·

On November 23, 2015, the Company and Trinad Capital amended the Second Senior Note to increase the Maximum Advance Amount to $2,000,000; and

 

·

On April 26, 2016, the Second Senior Note was amended to increase the Maximum Advance Amount to $3,000,000 and to extend the maturity date to June 30, 2017 or such later date as Trinad Capital may agree to in writing. For extending the due date of the Second Senior Note to June 30, 2017, the Company issued to Trinad Capital warrants to purchase 1,103,884 shares of its common stock, with an exercise price of $0.01 per share and expiration date of April 21, 2020 The aggregate fair value of the 1,103,884 warrants issued upon extension of the note were valued at $1,093,832 using the Black-Scholes Option Pricing model with the following average assumptions: risk-free interest rate of 1.30%; dividend yield of 0%; volatility rate of 100%; and an expected life of four years (statutory term).  The value of the warrants of $1,093,832 was considered as debt discount and is being amortized over the remaining term of the note. During the quarter ended June 30, 2016, the Company amortized $163,182 of such discount to interest expense, and the unamortized discount as of June 30, 2016 was $930,649.

 

  

The amount due Trinad Capital under this note was $1,784,000 at March 31, 2016. During the quarter ended June 30, 2016, Trinad Capital made additional advances to us under the Second Senior Note totaling $445,100. The Company also made a repayment of $350,000 during three months ended June 30, 2016. As of June 30, 2016 $1,879,100 of principal was outstanding under the Second Senior Note. Accrued interest of $128,001 and $87,048 is reflected on the balance sheet as accrued interest payable, related party as of June 30, 2016 and March 31, 2016, respectively,

 

Note 7 – Other 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 or such later date as the lender may agree to in writing. As of the date of this Quarterly Report on Form 10-Q (this “Quarterly Report”), the Note had not been extended and is currently in default.

 

As of June 30, 2016 and March 31, 2016, $265,158 and $262,040 of principal, which include $22,660 and $19,542 of accrued interest, respectively, were outstanding under the Note.

 

Note 8 – Unsecured Convertible Notes Payable

 

Unsecured Convertible notes payable at June 30, 2016 and March 31, 2016 were as follows:

 

		June 30, 2016				March 31, 2016
8% Unsecured Convertible Notes		$	-				200,000
Less accumulated amortization of Valuation Discount			-				(89,727	)
Net		$	-				110,373

 

On January 19, 2016, the Company issued three 8% unsecured notes payable to investors (the “Lenders”) for an aggregate amount of $200,000. These notes will be payable upon the date that is 24 months from the date of issuance. In addition, the Lenders were issued 200,000 warrants to purchase the Company’s shares of common stock at an exercise price of $0.01 per share. The aggregate relative fair value of the 200,000 warrants issued along with the notes was valued at $99,915 using the Black-Scholes Option Pricing model with the following average assumptions: risk-free interest rate of 1.30%; dividend yield of 0%; volatility rate of 100%; and an expected life of four years (statutory term).  The value of the warrants of $99,915 was considered as debt discount upon issuance and was being amortized as interest over the term of the notes or in full upon the conversion of the corresponding notes. During the year ended March 31, 2016, the Company amortized $9,818 of such discount to interest expense, and the unamortized discount as of March 31, 2016 was $89,727. During the quarter ended June 30, 2016, debt discount was fully amortized to interest expense.

 

The notes were subject to an automatic conversion feature if the Company raises a minimum of 2,500,000 (excluding the amount converting pursuant to the notes) in the aggregate in gross proceeds from an equity financing led by a reputable institutional investor in one or more closings (a “Qualified Equity Financing”) prior to the maturity date, the Lenders will have the right to convert all outstanding principal and interest into the same equity securities (the “Investor Stock”) issued in the Qualified Equity Financing at 75% of the issuance price of the Investor Stock in such offering. The holders of the notes shall receive the same rights, privileges and protections as the Investor Stock issued in connection with the Qualified Equity Financing including, but not limited to, registration rights. On June 6, 2016, the Lenders converted $200,000 of principal and $5,918 of interest into 102,959 shares of the Company’s common stock at a conversion price of $2 per share. As the market price of the shares on the date of conversion approximated $2.50 per share, the Company recognized a beneficial conversion cost of $51,480.

 

In addition, the Lenders were issued 102,960 warrants to purchase shares of the Company’s common stock at an exercise price of $0.01 per share as inducement of this conversion. The aggregate fair value of the 102,960 warrants issued at the time of the note conversion was $256,411 using the Black-Scholes Option Pricing model with the following average assumptions: risk-free interest rate of 1.20%; dividend yield of 0%; volatility rate of 100%; and an expected life of three years (statutory term).  The value of the warrants of $256,411 was considered as additional interest expense. The warrants were exercised immediately into 102,960 shares of the Company’s common stock with net proceeds of $1,030 to the Company.

 

  

Note 9 – Related Party Transactions

 

Management Services from Trinad Management LLC

 

Pursuant to a Management Agreement with Trinad Management LLC (“Trinad LLC”) entered into on September 23, 2011, Trinad LLC has 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.

 

During the year ended March 31, 2015, the Company accrued $180,000 related to the remaining portion due under the Management Agreement. The total amount of $1,000,000 due Trinad LLC is reflected as a liability on the accompanying June 30, 2016 and March 31, 2016 balance sheets. Trinad LLC continues to provide services to the Company at a fee of $30,000 per month on a month-to-month basis. For the quartera ended June 30, 2016 and 2015 , the Company incurred $90,000 and $90.000, respectively, of such costs. As of June 30, 2016 the Company had prepaid $90,000 of such fees which have been reflected as a prepaid asset, related party on the accompanying June 30, 2016 balance sheet.

 

As of June 30, 2016 and March 31, 2016, amounts due to related parties were $50,000 and $117,124, respectively, payable to Mr. Ellin, our Executive Chairman, President, director and majority stockholder. These amounts were provided for working capital as needed and are unsecured, non-interest bearing advances with no formal terms of repayment.

 

Rent

 

During the quarter ended June 30, 2016 and the fiscal year ended March 31, 2016, we subleased office space from Trinad LLC for no cost to us. Management estimates such amounts to be immaterial. We anticipate continuing to sublease such space at no cost to us for the foreseeable future. We believe that such property is in good condition and is suitable for the conduct of our business.

 

Note 10 – Commitments and Contingencies

 

Legal Proceedings

 

On May 20, 2016, Mr. Oliver Bengough filed a Petition for Relief (the “Petition”) in the High Court of Justice, Chancery Division (the “Court”) against OCHL, OCL, KOKO UK and Mr. Ellin (collectively, the “Respondents”). In connection with the Petition, effective as of May 20, 2016, Mint Group terminated the Management Services Agreement with OCL pursuant to which Mint Group served as a contracted service provider to KOKO, a nightclub and live music venue “KOKO” in Camden, London owned by KOKO UK. The Petitioner claims certain breaches of duty by Mr. Ellin in connection with the corporate operations of the Respondents, as well as a “deterioration” of the relationship between the parties. The Petitioner further claims that his interests have been unfairly prejudiced by the conduct of the Respondents and the breakdown of trust and confidence between himself and Mr. Ellin. In connection with such termination, we demanded the resignation of Mr. Bengough (a significant shareholder of Mint Group) from the board of OCHL due to what we strongly believe to be performance and management concerns on behalf of Mint Group and its non-payment of certain funds. OCHL was formed by OCL’s stockholders for the sole purpose of acquiring all of the registered and contributed capital of OCL, is a 50%-owned subsidiary of the Company and is the parent of OCL.

 

Among other things, the Petitioner is seeking an order by the Court for the sale by KOKO UK of its shares in OCHL to the Petitioner at a fair market value to be determined by the Court or an independent third party valuation with a discount to reflect the losses claimed to be suffered by the Petitioner. The Petitioner is further seeking, if required, an order terminating Mr. Ellin’s directorship of OCHL and OCL, permission to bring a derivative action against Mr. Ellin alleging breaches of certain duties set forth in the Petition, for the Court to set aside the Senior Note and Junior Note (as each defined below) or alternatively such part of those notes which the Petitioner alleges are expenses for which Respondents OCL and OCHL should not be liable and for the Court to declare that OCL and OCHL have no liability for such expenses to us, JJAT or any other person connected with Mr. Ellin. As part of the initial hearing, the Court granted Petitioner’s request for interim relief to allow the Petitioner to continue running OCL’s business as it was conducted prior to the filing of the Petition, subject to Mr. Ellin’s approval of any expenditures exceeding $15,000 in amount (the “Interim Injunction”). This interim relief was granted pending a final decision on the Interim Injunction at the next hearing.

 

As part of the Merger consummated on April 28, 2014, OCHL and OCL became additional promisors under 2 promissory notes, a promissory note, dated as of April 28, 2014 (the “Senior Note”), issued in favor of JJAT, and a promissory note, dated as of April 28, 2014 (the “Junior Note”), issued in our favor. Pursuant to the Senior Note, OCHL and OCL are jointly liable for the principal amount of $1,376,124 and interest at 8% per annum. Pursuant to the Junior Note, OCHL and OCL are jointly liable to us for a principal amount of $494,749 and interest at 8% per annum. In the event the Court denies the Petitioner’s relief summarized above, a request was made by the Petitioner for an order by the Court for the “winding up” of OCL and OCHL based upon deadlock of its board and members.

 

  

The Respondents have retained UK counsel in this matter and categorically deny all allegations in the Petition and intend to aggressively defend this action, to refute the allegations set forth therein and to file a substantive counter-complaint in answer to the Petition. A 2-day hearing has been set by the Court for July 28 and 29, 2016, consisting of a procedural hearing on the Petition and to rule on the Interim Injunction.

 

Subsequently, the Petitioner and the Respondents entered into a Consent Order, dated as of July 20, 2016, as approved by the Court on July 22, 2016 (the “Order”), pursuant to which they agreed that:

 

·

Mr. Ellin will resign as a director of OCHL and OCL effective upon the appointment of a non-executive director on the boards of directors of the 2 companies (the “NED Appointment”).  As of the date of this Quarterly Report, Mr. Ellin and Mr. Bengough have not yet agreed on who such independent non-executive director shall be;

·

pending the hearing of the Petition, Mr. Ellin shall not exercise any of his consent rights under Sections 4(j), (l), (m), (n) and (t) of the Shareholders’ Agreement in Relation to Obar Camden Holdings Limited, dated as of February 12, 2014, as amended by the Variation to Shareholders Agreement, dated as of April 24, 2014 (the “Rights”);

·

if the Court dismisses the Petition, upon Mr. Ellin’s request, Mr. Bengough shall reinstate Mr. Ellin as a director of OCHL and OCL (assuming the NED Appointment takes place), and Mr. Ellin’s ability to exercise the Rights shall be reinstated as well;

·

the newly appointed non-executive director shall provide information and reports to Mr. Ellin regarding OCHL’s and OCL’s business and financial operations and such other information as Mr. Ellin shall reasonably request;

·

Mr. Bengough shall provide to the Company and Mr. Ellin unaudited management accounts of OCHL and OCL within 3 weeks of the end of each calendar month, as well as such additional information that Mr. Ellin may reasonably request;

·

Mr. Ellin can apply to the Court with 48 hours’ notice if it appears that the terms of the Order are not being complied with; and

·

the hearing of the Interim Injunction will be dismissed.

 

Note 11 – Stockholders’ Equity

 

Sale of Common Stock or Equity Units

 

During the three months ended June 30, 2016, the Company entered into securities purchase agreements with certain accredited investors, pursuant to which the Company sold an aggregate of 250,000 units at a purchase price of $5.00 per share for $1,250,000 in cash proceeds. Each unit consisted of one share of the Company’s common stock and one warrant to purchase a share of the Company’s common stock, exercisable for a period of three years from the date of original issuance at an exercise price of $0.01 per share.

 

Issuance of Common Stock for Services

 

During the three months ended June 30, 2016, the Company issued 103,650 shares of its common stock valued at $181,125 to various consultants. The Company valued these shares at prices from $1 to $2.50 per share, the most recent price of the sale of its common stock near the date of grant.

 

Warrants

 

During the three months ended June 30, 2016, the Company issued warrants to acquire 102,960 shares of the Company’s common valued at $256,411 as an inducement to convert a convertible note. These warrants, along with 200,000 warrants issued to the note holder upon issuance of the note, were exercised during the period at an exercise price of $0.01 per share, resulting in net proceeds to the Company of $1,030.

 

During the three months ended June 30, 2016, the Company issued warrants to Trinad Capital, a related party, to acquire 1,676,377 shares of the Company’s common valued at $1,661,114 at an exercise price of $0.01 to extend the maturity dates of certain notes.

  

The table below summarizes the Company’s warrant activities:

 

		Number of Warrants				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term
Balance outstanding, March 31, 2016			1,800,000			$	0.10				4.16
Granted			2,029,337				0.01				3.66
Exercised			(302,960	)			0.01				3.34
Forfeited/expired			-				-				-
Balance outstanding, June 30, 2016			3,526,377			$	0.10				4.03
Exercisable, June 30, 2016			3,526,377			$	0.10				4.03

 

  

Note 12 – Subsequent Events

 

 Additional Advances from Trinad

 

Subsequent to quarter ended June 30, 2016, Trinad Capital advanced an additional $175,000 to us under the terms and conditions of the Second Senior Note.

 

  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Special Note Regarding Forward-Looking Statements

 

The following management’s discussion and analysis section should be read in conjunction with our financial statements as of June 30, 2016 and 2015, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the three months then ended, and the related notes thereto contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”). This management’s discussion and analysis section contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions “will,” “may,” “could,” “should,” etc., or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. These factors include those contained in “Item 1A — Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended March 31, 2016. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of these factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this prospectus.

 

General and Business Operations Overview

 

We are a holding company primarily engaged in the emerging live and digital music space, including live music events, through LXL, our operating subsidiary. LXL intends to be the world's first premium live music streaming network that will deliver around the clock live music to viewers on any connected device as an authentic and experiential platform. The platform plans to offer the world's leading music festivals with multiday and multistage coverage, unique concerts, intimate performances and cutting edge programming. We plan to extend the live experience to fans on desktop, laptop, mobile, tablets, consoles, connected TVs and virtual reality platforms. The LiveXLive 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, backstage access and both fan and artist perspectives. We intend 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’s website is www.livexlive.com.

 

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. 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. These fans will 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.

 

In addition, on April 28, 2014, we consummated the Merger. As a result of the Merger and our resulting 50% ownership in OCHL and indirect, 50%-owned investment ownership of OCL, we indirectly engage in the operations of KOKO. KOKO provides live shows, club nights, corporate and other events at KOKO and broadcasted digitally. The venue has been used to record live performances which have been broadcast to an international audience.

 

We plan 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. We will need additional capital to drive this process and address present working capital expenditures.

 

Results of Operations

 

As of June 30, 2016, we had accumulated an accumulated deficit of $15,650,141. We anticipate that we will continue to incur substantial losses in the next 12 months. Our consolidated financial statements have been prepared assuming that we will continue as a going concern. We will require additional capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity and/or debt securities.

 

Three Months Ended June 30, 2016 as Compared to Three Months Ended June 30, 2015

 

Revenues ― We had no revenues for the quarter ended June 30, 2016 or for the quarter ended June 30, 2015 from the operations of LXL.

 

Selling, General and Administrative Expenses ― Selling, general and administrative expenses primarily consist of outside services, advertising, public relations and travel and entertainment expense. Selling, general and administrative expenses for the quarter ended June 30, 2016 increased by $299,093 to $1,084,886, as compared to $785,793 in the quarter ended June 30, 2015, which reflects an increase in production cost incurred in the three months ended June 30, 2016.

 

  

Management Services – Related Parties ― Management services – related party costs consisted of management fees paid and accrued by us under agreements with Trinad Management. For each of the quarters ended June 30, 2016 and June 30, 2015, we incurred management fees to Trinad Management of $90,000.

 

Other (Income) Expense ― Other (income) expense increased by $729,148 to $712,268 for the quarter ended June 30, 2016, as compared to interest income of $16,880 for the quarter ended June 30, 2015. Earnings from investment represents our 50% interest in OCHL. For the quarters ended June 30, 2016 and 2015, we recorded net earnings of $83,184 and $74,036, respectively. The increase for the quarter ended June 30, 2016 over the same period in 2015 was due to improved operating margins by the facility.

 

Liquidity and Capital Resources

 

As of June 30, 2016, we had total assets of $5,434,647, comprised primarily of cash of $76,613, prepayments of $90,000 and net property and equipment of $75,622. Our principal asset, our investment in OCHL, was valued at $4,972,699. This compares with total assets of $5,218,308, comprised primarily of cash of $36,898, prepayments of $15,995 and net property and equipment of $62,569 as of March 31, 2016. Our principal asset, our investment in OCHL, was valued at $4,889,515 as of March 31, 2016.

 

We had current liabilities of $3,400,816 comprised of accounts payable and accrued liabilities of $329,687, short-term notes of $265,158 amounts due to related parties of $50,000, accrued interest due to related parties of $283,515, note payables due to related party of $1,472,456, and management service obligation to related party of $1,000,000, as of June 30, 2016. This compares with current liabilities of $4,877,311, comprised of accounts payable and accrued liabilities of $481,412, short-term notes of $262,042 amounts due to related parties of $117,124, accrued interest due to related parties of $232,733, note payables due to related parties of $2,784,000, and management service obligation to related party of $1,000,000, as of March 31, 2016.

 

On June 8, 2016 and June 10, 2016, we sold certain of our securities to an accredited investor (the “Investor”) for total gross proceeds of $1,250,000. The securities consisted of (i) 250,000 shares of our common stock at a purchase price of $5.00 per share, and (ii) a 3-year warrant to purchase 250,000 shares of our common stock exercisable at $0.01 per share. The net proceeds of the sale of these securities will be used for general working capital.

 

Subsequent to the quarter ended June 30, 2016, Trinad Capital advanced to us an additional $175,000 under the terms and conditions of the Second Senior Note.

 

We depend upon debt and equity financing to fund our ongoing operations and to execute its business plan. If continued funding and capital resources are unavailable at reasonable terms we may curtail our plan of operations. We 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.

 

Going Concern

 

The Company’s consolidated financial statements have been prepared assuming that it will continue as a going concern, and 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 a working capital deficit of $3,573,811 at June 30, 2016, and incurred a net loss of $1,803,970, and utilized net cash used in operating activities $1,220,338 for the reporting period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s Independent Public Accounting Firm in their audit report to the March 31, 2016 financial statements expressed substantial doubt about the Company’s ability to continue as a going concern. 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

 

Management estimates that the current funds on hand will be sufficient to continue operations through December 31, 2016. 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. Management is currently seeking additional funds, primarily through the issuance of equity securities for cash to operate our business. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stock holders, in case or equity financing.

 

  

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies and Estimates

 

Critical accounting policies are defined as those most important to the portrayal of a company’s financial condition and results and that require the most difficult, subjective or complex judgments. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. The estimates that we make include assumption as a going concern, fair value of long-lived assets, valuation allowance for deferred tax assets and estimates and assumptions used in valuation of equity instruments. Estimates are based on historical experience, where applicable or other assumptions that management believes are reasonable under the circumstances. We have identified the policies described in Note 2 – Significant Accounting Policies and Practices to our consolidated financial statements as our critical accounting policies. However, actual results may differ from those estimates under different assumptions or conditions.

 

Investment in Unconsolidated Subsidiary Under the Equity Method

 

We account for investments in which we own more than 20% of the investee, using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures. Under the equity method, an investor initially records an investment in the stock of an investee at cost, and adjusts the carrying amount of the investment to recognize the investor's share of the earnings or losses of the investee after the date of acquisition. The amount of the adjustment is included in the determination of net income by the investor, and such amount reflects adjustments similar to those made in preparing consolidated statements including adjustments to eliminate intercompany gains and losses, and to amortize, if appropriate, any difference between investor cost and underlying equity in net assets of the investee at the date of investment. The investment of an investor is also adjusted to reflect the investor's share of changes in the investee's capital. Dividends received from an investee reduce the carrying amount of the investment. A series of operating losses of an investee or other factors may indicate that a decrease in value of the investment has occurred which is other than temporary and which should be recognized even though the decrease in value is in excess of what would otherwise be recognized by application of the equity method.

 

Carrying Value, Recoverability and Impairment of Long-Lived Assets

 

An impairment loss will 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 is based on the carrying amount of the asset (asset group) at the date it is tested for recoverability. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. If an impairment loss is recognized, the adjusted carrying amount of a long-lived asset will be its new cost basis. For a depreciable long-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Restoring a previously recognized impairment loss is prohibited.

 

Our long-lived asset (asset group) is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. We test our long-lived assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

 

Stock-Based Compensation

 

We periodically issue stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We account for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by FASB where the value of the award is measured on the date of grant and recognized as compensation expense on the straight-line basis over the vesting period. We account for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the FASB where the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Options granted to non-employees are revalued each reporting period to determine the amount to be recorded as an expense in the respective period. As the options vest, they are valued on each vesting date and an adjustment is recorded for the difference between the value already recorded and the then current value on the date of vesting. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.

 

The fair value of our stock option and warrant grants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model, and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods

 

  

Recent Accounting Policies

 

See Note 2 – Significant Accounting Policies and Practices to the accompanying consolidated financial statements for Managements discussion of recent accounting policies.

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

Not required for smaller reporting companies.

 

Item 4.

Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our Chief Executive Officer and Interim 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 interim principal financial officer concluded that, as of June 30, 2016, our disclosure controls and procedures were not effective. We had neither the resources, nor the personnel, to provide an adequate control environment.

 

Due to our limited resources, the following material weaknesses in our internal control over financial reporting existed at June 30, 2016:

 

(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 fiscal years ended March 31, 2016 and 2017. 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.

  

(iii)      Lack of independent audit committee of our Board of Directors.

 

(iv)      Insufficient monitoring and review controls over the financial reporting closing process, including the lack of individuals with current knowledge of generally accepted accounting principles that led to the restatement of our previously issued financial statements. We have outsourced an interim Principal Financial Officer to assist us in implementing the necessary financial controls over the financial reporting and the utilization of internal management and staff to effectuate these controls. 

 

Limitations on Effectiveness of Controls and Procedures

 

Our management, including our Chief Executive Officer and Interim Principal Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our control systems are designed to provide such reasonable assurance of achieving their objectives. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes in Internal Control over Financial Reporting

 

An evaluation was performed under the supervision of our management, including our Chief Executive Officer and Interim Principal Financial Officer, of whether any change in our internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) occurred during the quarter ended June 30, 2016. Based on that evaluation, our management, including our Chief Executive Officer and Interim Principal Financial Officer, concluded that there were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

  

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings.

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.

 

A judicial review claim (case number CO/738/2015) was filed in the High Court by OCL on February 16, 2015.  The claim was a legal challenge to the decision by the London Borough of Camden Council (the “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 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 High Court order to quash the planning permission that has been granted.  Whilst the Council defended the claim, the applicant played 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 case was brought because the Council has granted a planning permission for a multiple occupancy residential development adjacent to KOKO.  OCL believed 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 would have left the venue potentially vulnerable to complaints, which in turn could have adverse consequences for KOKO’s premises license.  If successful, the planning permission will be quashed. The Court ultimately found in favor of OCL on all the above grounds and quashed the planning commission’s grant of planning permission. This claim is no longer pending.

 

On May 20, 2016, Mr. Oliver Bengough filed a Petition for Relief (the “Petition”) in the High Court of Justice, Chancery Division (the “Court”) against OCHL, OCL, KoKo UK and Mr. Ellin (collectively, the “Respondents”). In connection with the Petition, effective as of May 20, 2016, Mint Group terminated the Management Services Agreement with OCL pursuant to which Mint Group served as a contracted service provider to KOKO, a nightclub and live music venue “KOKO” in Camden, London owned by KoKo UK. The Petitioner claims certain breaches of duty by Mr. Ellin in connection with the corporate operations of the Respondents, as well as a “deterioration” of the relationship between the parties. The Petitioner further claims that his interests have been unfairly prejudiced by the conduct of the Respondents and the breakdown of trust and confidence between himself and Mr. Ellin. In connection with such termination, we demanded the resignation of Mr. Bengough (a significant shareholder of Mint Group) from the board of OCHL due to what we strongly believe to be performance and management concerns on behalf of Mint Group and its non-payment of certain funds. OCHL was formed by OCL’s stockholders for the sole purpose of acquiring all of the registered and contributed capital of OCL, is a 50%-owned subsidiary of the Company and is the parent of OCL.

 

Among other things, the Petitioner is seeking an order by the Court for the sale by KOKO UK of its shares in OCHL to the Petitioner at a fair market value to be determined by the Court or an independent third party valuation with a discount to reflect the losses claimed to be suffered by the Petitioner. The Petitioner is further seeking, if required, an order terminating Mr. Ellin’s directorship of OCHL and OCL, permission to bring a derivative action against Mr. Ellin alleging breaches of certain duties set forth in the Petition, for the Court to set aside the Senior Note and Junior Note (as each defined below) or alternatively such part of those notes which the Petitioner alleges are expenses for which Respondents OCL and OCHL should not be liable and for the Court to declare that OCL and OCHL have no liability for such expenses to us, JJAT or any other person connected with Mr. Ellin. As part of the initial hearing, the Court granted Petitioner’s request for interim relief to allow the Petitioner to continue running OCL’s business as it was conducted prior to the filing of the Petition, subject to Mr. Ellin’s approval of any expenditures exceeding $15,000 in amount (the “Interim Injunction”). This interim relief was granted pending a final decision on the Interim Injunction at the next hearing.

 

As part of the Merger consummated on April 28, 2014, OCHL and OCL became additional promisors under 2 promissory notes, a promissory note, dated as of April 28, 2014 (the “Senior Note”), issued in favor of JJAT, and a promissory note, dated as of April 28, 2014 (the “Junior Note”), issued in our favor. Pursuant to the Senior Note, OCHL and OCL are jointly liable for the principal amount of $1,376,124 and interest at 8% per annum. Pursuant to the Junior Note, OCHL and OCL are jointly liable to us for a principal amount of $494,750 and interest at 8% per annum. In the event the Court denies the Petitioner’s relief summarized above, a request was made by the Petitioner for an order by the Court for the “winding up” of OCL and OCHL based upon deadlock of its board and members.

 

The Respondents have retained UK counsel in this matter and categorically deny all allegations in the Petition and intend to aggressively defend this action, to refute the allegations set forth therein and to file a substantive counter-complaint in answer to the Petition. A 2-day hearing has been set by the Court for July 28 and 29, 2016, consisting of a procedural hearing on the Petition and to rule on the Interim Injunction.

 

Subsequently, the Petitioner and the Respondents entered into a Consent Order, dated as of July 20, 2016, as approved by the Court on July 22, 2016 (the “Order”), pursuant to which they agreed that:

 

  

·

Mr. Ellin will resign as a director of OCHL and OCL effective upon the appointment of a non-executive director on the boards of directors of the 2 companies (the “NED Appointment”).  As of the date of this Quarterly Report, Mr. Ellin and Mr. Bengough have not yet agreed on who such independent non-executive director shall be;

·

pending the hearing of the Petition, Mr. Ellin shall not exercise any of his consent rights under Sections 4(j), (l), (m), (n) and (t) of the Shareholders’ Agreement in Relation to Obar Camden Holdings Limited, dated as of February 12, 2014, as amended by the Variation to Shareholders Agreement, dated as of April 24, 2014 (the “Rights”);

·

if the Court dismisses the Petition, upon Mr. Ellin’s request, Mr. Bengough shall reinstate Mr. Ellin as a director of OCHL and OCL (assuming the NED Appointment takes place), and Mr. Ellin’s ability to exercise the Rights shall be reinstated as well;

·

the newly appointed non-executive director shall provide information and reports to Mr. Ellin regarding OCHL’s and OCL’s business and financial operations and such other information as Mr. Ellin shall reasonably request;

·

Mr. Bengough shall provide to the Company and Mr. Ellin unaudited management accounts of OCHL and OCL within 3 weeks of the end of each calendar month, as well as such additional information that Mr. Ellin may reasonably request;

·

Mr. Ellin can apply to the Court with 48 hours’ notice if it appears that the terms of the Order are not being complied with; and

·

the hearing of the Interim Injunction will be dismissed.

 

Item 1A.

Risk Factors.

 

In addition to other information set forth in this Quarterly Report, you should carefully consider the factors discussed in the section captioned “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on July 19, 2016, which could materially affect our business, financial condition and/or results of operations.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

Issuance of Unregistered Securities

 

During the three months ended June 30, 2016, the Company entered into securities purchase agreements with certain accredited investors, pursuant to which the Company sold an aggregate of 250,000 units at a purchase price of $5.00 per share for $1,250,000 in cash proceeds. Each unit consisted of one share of the Company’s common stock and one warrant to purchase a share of the Company’s common stock, exercisable for a period of three years from the date of original issuance at an exercise price of $0.01 per share. The net proceeds of the sale of these securities will be used for general working capital.

 

During the three months ended June 30, 2016, the Company issued 103,650 shares of its common stock valued at $181,125 to various consultants.

 

On June 6, 2016, the Lenders converted $200,000 of principal and $5,918 of interest into 102,959 shares of common stocks.

 

During the three months ended June 30, 2016, the Company issued 302,960 shares of the Company’s common stock upon exercise of 302,960 warrants at an exercise price of $0.01 per share, resulting in net proceeds to the Company of $1,030.

 

Securities reported above were issued in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D promulgated thereunder and involved a transaction by an issuer not involving any public offering. 

 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

None.

 

Item 3.

Defaults Upon Senior Securities.

  

None.

 

Item 4.

Mine Safety Disclosures.

 

Not applicable.

 

Item 5.

Other Information.

 

None.

 

  

Item 6.

Exhibits.

 

Exhibit Number		Description
2.1		Agreement and Plan of Merger, dated as of April 28, 2014, among the Registrant, Loton Acquisition Sub I, Inc. and KOKO (Camden) Holdings (US), Inc. (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 2.1)
3.1		Articles of Incorporation of the Registrant (incorporated by reference from the Registrant’s Registration Statement on Form S-1, filed with the SEC on June 1, 2010, Exhibit 3.1).
3.2		Bylaws of the Registrant (incorporated by reference from the Registrant’s Registration Statement on Form S-1, filed with the SEC on June 1, 2010, Exhibit 3.2).
3.3		First Amendment to the Bylaws of the Registrant (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 3.3)
4.1		Senior Promissory Note, dated as of April 28, 2014, issued by OCHL to JJAT (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 4.1)
4.2		Promissory Note, dated as of April 28, 2014, issued by OCHL to the Registrant (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 4.2)
4.3		Form of Warrant to Purchase Common Stock, dated as of September 23, 2011, issued by the Registrant to Trinad Management, LLC (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on September 28, 2011, Exhibit 10.1).
4.4		Promissory Note, dated as of April 2, 2012, issued by the Registrant to Trinad Capital Master Fund, Ltd. (incorporated by reference from the Registrant’s Annual Report on Form 10-K filed with the SEC on August 15, 2012, Exhibit 10.3).
4.5		Promissory Note, dated as of June 21, 2012, issued by the Registrant to Trinad Capital Master Fund, Ltd. (incorporated by reference from the Registrant’s Annual Report on Form 10-K filed with the SEC on August 15, 2012, Exhibit 10.4).
4.6		Form of Common Stock Warrant issued on November 18, 2014 (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on February 17, 2015, Exhibit 4.1).
4.7		Form of Common Stock Warrant issued on December 19, 2014 (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on February 17, 2015, Exhibit 4.2).
4.8		Form of Promissory Notes, dated as of May 13, May 23, June 17 and July 3, 2013 (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on July 29, 2013, Exhibit 10.1).
4.9		Promissory Note, dated as of April 24, 2014, issued by Oliver Bengough to KOKO (Camden) Limited (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.9).
4.10		Promissory Note, dated as of April 24, 2014, issued by Oliver Bengough to JJAT Corp. (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.10).
4.11		Form of Common Stock Warrant issued by the Registrant to certain investors on December 1, 2014 (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on February 12, 2015, Exhibit 10.1).
4.12		Form of Senior Promissory Note, dated as of December 31, 2014, issued by the Registrant to Trinad Capital Master Fund, Ltd. (incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on February 17, 2015, Exhibit 10.5).
4.13		Form of Senior Convertible Promissory Note, dated as of December 31, 2014, issued by the Registrant to Trinad Capital Master Fund, Ltd. (incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on February 17, 2015, Exhibit 10.6).
4.14		Form of Amendment No. 1 to Senior Convertible Promissory Note, dated as of January 27, 2015, entered into between the Registrant and Trinad Capital Master Fund, Ltd. (incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on February 17, 2015, Exhibit 10.7).
4.15		Form of Amended and Restated Senior Promissory Note, dated as of February 5, 2015, issued by the Registrant to Trinad Capital Master Fund, Ltd. (incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on February 17, 2015, Exhibit 10.8).
4.16		Form of Amended and Restated Senior Promissory Note, dated as of July 10, 2015, issued by the Registrant to Trinad Capital Master Fund, Ltd. (incorporated by reference from the Registrant’s Annual Report on Form 10-K filed with the SEC on July 14, 2015, Exhibit 10.44).
4.17		Amendment No. 2 to Senior Convertible Promissory Note, dated as of April 21, 2016, entered into between the Registrant and Trinad Capital Master Fund, Ltd. (incorporated by reference from the Registrant’s Annual Report on Form 10-K filed with the SEC on July 19, 2015, Exhibit 4.17).
4.18		Amended and Restated Senior Promissory Note, dated as of April 27, 2016, issued by the Registrant to Trinad Capital Master Fund, Ltd. (incorporated by reference from the Registrant’s Annual Report on Form 10-K filed with the SEC on July 19, 2015, Exhibit 4.18).
4.19		Form of Common Stock Warrant with respect to warrants issued by the Registrant to certain accredited investors on June 19, July 23 and July 28, August 6, August 31, September 21, December 24 and December 31, 2015 and certain warrants issued by the Registrant to purchase an aggregate of 281,250 shares (incorporated by reference from the Registrant’s Annual Report on Form 10-K filed with the SEC on July 19, 2015, Exhibit 4.19).

 

  

10.1		Share Purchase Agreement, dated as of February 13, 2014, among Alex Rutherford, KOKO (Camden) Limited and certain Guarantors (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.1).
10.2		Share Sale Agreement, dated as of February 13, 2014, among Hugh Doherty, Laurence Seymour, KOKO (Camden) Limited and certain Guarantors (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.2).
10.3		Shareholders Agreement in Relation to Obar Camden Holdings Limited, dated as of February 12, 2014, among Oliver Bengough, KOKO (Camden) Limited, Robert Ellin, Obar Camden Holdings Limited and Trinad Capital Master Fund Limited (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.3).
10.4		Deed of Reimbursement, dated February 2014, among KOKO (Camden) Limited, Alex Rutherford, Oliver Bengough, Hugh Doherty, Laurence Seymour and Mint Group Holdings Limited (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.4).
10.5		Deed of Subordination, dated February 2014, among Alex Rutherford, Hugh Doherty, Laurence Seymour, KOKO (Camden) Limited, Trinad Capital Master Fund, Ltd. and JJAT Corp. (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.5).
10.6		Variation to Shareholders Agreement, dated as of April 24, 2014, among Oliver Bengough, KOKO (Camden) Limited, Robert Ellin, Trinad Capital Master Fund LTD, Obar Camden Holdings Limited, Obar Camden Limited, JJAT Corp. and the Registrant (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.6).
10.7		Share Purchase Agreement, dated as of April 24, 2014, relating to certain shares of Obar Camden Holdings Limited between JJAT Corp and Oliver Bengough (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.7).
10.8		Share Charge, dated as of April 24, 2014, in respect of Ordinary Shares of Obar Camden Holdings Limited between Oliver Bengough and JJAT Corp. (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.8).
10.9		Reimbursement Agreement, dated as of January 29, 2014, between the Registrant and JJAT Corp. (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.11).
10.10		Letter re Termination of Reimbursement Agreement, dated as of April 25, 2014, between the Registrant and JJAT Corp. (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.12).
10.11		Contribution Agreement, dated as of April 24, 2014, between JJAT Corp. and KOKO (Camden) Holdings (US), Inc.  (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.13).
10.12		Form of Director/Officer Indemnification Agreement (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2014, Exhibit 10.14).
10.13†		Form of Restricted Stock Grant Agreement (incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on March 21, 2013, Exhibit 10.4).
10.14†		Form of Advisory Board Consulting Agreement (incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on March 21, 2013, Exhibit 10.5).
10.15		Form of Consulting Agreement between the Registrant and a consultant to the Registrant (incorporated by reference from the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on March 21, 2013, Exhibit 10.6).
10.16		Form of Note Extension Agreement, dated as of July 15, 2013 entered into in connection with those that certain Promissory Note, dated as of April 3, 2012, and that certain Promissory Note, dated as of June 21, 2012, each between the Registrant and Trinad Capital Master Fund Ltd. (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on July 29, 2013, Exhibit 10.2).
10.17		Management Agreement, dated as of September 23, 2011, between the Registrant and Trinad Management, LLC (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on September 28, 2011, Exhibit 10.2).
10.18		Forbearance Agreement, dated as of October 30, 2014, between the Registrant, Olly Bengough, Robert Ellin and JJAT (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on November 5, 2014, Exhibit 10.1).
10.19		Assignment Agreement, dated as of March 4, 2015, between LiveXLive, Corp. (f/k/a FestreamTV, Corp.) and Bulldog DM, LLC (incorporated by reference from the Registrant’s Current Report on Form 8-K filed with the SEC on March 9, 2015, Exhibit 10.1).
10.20		Form of Subscription Agreement, dated as of June 19, July 23 and July 28, August 6, August 31, September 21, December 24 and December 31, 2015 between the Registrant and certain accredited investors (incorporated by reference from the Registrant’s Annual Report on Form 10-K filed with the SEC on July 19, 2015, Exhibit 10.20).
10.21†		Consulting Agreement, dated as of October 1, 2015, between LiveXLive, Corp. (f/k/a FestreamTV, Corp.) and Schuyler Hoversten (incorporated by reference from the Registrant’s Annual Report on Form 10-K filed with the SEC on July 19, 2015, Exhibit 10.21).
10.22†		Employment Agreement, dated as of October 6, 2015, between the Registrant and Blake Indursky (incorporated by reference from the Registrant’s Annual Report on Form 10-K filed with the SEC on July 19, 2015, Exhibit 10.22).

 

  

31.1*		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2*		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1**		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.INS*		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

 

†	Management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to the requirements of Item 15(a)(3) of Form 10-K.
*	Filed herewith.
**	Furnished herewith.

 

  

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 19, 2016	By:	/s/ Robert S. Ellin
		Robert S. Ellin
		Executive Chairman and President
		(Principal Executive Officer)
	By:	/s/ David R. Wells
		David R. Wells
		Interim Principal Financial Officer (Interim Principal Accounting Officer)