OTTV Viva Entertainment Group Inc (CE)

NOTE 1 – NATURE OF OPERATIONS  

Description of Business and History

The Company was incorporated on October 26, 2009 in the State of Nevada. The Company originally engaged in the development of a website and also the design and development of a catalogue to sell over the counter and prescription medications, and supplements. In 2012, the Company undertook a change in focus to the natural resources sector where it was engaged in the acquisition and exploration of base metals and mineral mining properties.

On April 5, 2016, the Company completed the purchase of Viva Entertainment Group, Inc. (“Viva Entertainment”), a Delaware corporation, from EMS Find, Inc. (“EMS”) pursuant to a stock purchase agreement. Viva Entertainment’s Chief Executive Officer, Johnny Falcones, was appointed as the Company’s sole director, President and Chief Executive Officer to manage the development and marketing of Viva Entertainment’s over the top (IPTV/OTT) application for connected TV’s, desktop computers, tablets, and smart phones.

Pursuant to the stock purchase agreement, the Company and EMS agreed to transfer control of Viva Entertainment to the Company through the purchase of all outstanding shares of stock of Viva Entertainment by the Company in exchange for the issuance to EMS of a 10% promissory note in the principal amount of $100,000, due six months from the Closing (the “EMS Note”), and the issuance of 22,000,000 shares of common stock to Johnny Falcones. For accounting purposes, the transaction was treated as a reverse merger since the acquired entity now forms the basis for operations and the transaction resulted in a change in control, with the acquired company electing to become the successor issuer for reporting purposes. The accompanying financial statements have been prepared to reflect the assets, liabilities and operations of Viva Entertainment Group, Inc. exclusive of Black River Petroleum since all predecessor operations were discontinued. As part of the transaction, stock payable and amounts due to former officers were forgiven, with the balances recorded as Contributed Capital. For equity purposes, additional paid-in capital and retained deficit shown are those of Viva, exclusive of Black River Petroleum. Viva had no operations prior to the quarter ended April 30, 2016.

In management’s opinion, all adjustments necessary for a fair statement of the results for the presented periods have been made.  All adjustments made were of a normal recurring nature.

Viva Entertainment Group Inc. (F/K/A Black River Petroleum Corp.) (the “Company”) develops and markets Viva Entertainment’s over the top (IPTV/OTT) application for connected TV’s, desktop computers, tablets, and smart phones. The Company is based in Briarwood, New York.

Going Concern

These financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year.  Realization value may be substantially different from carrying values as shown and these financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.  As of October 31, 2018, the Company has a working capital deficiency of $5,159,012 and has an accumulated deficit of $27,966,725.  The continuation of Viva Entertainment Group as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations.  These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying audited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim information Regulation S-K. Accordingly, they include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments consisting of a normal and recurring nature considered necessary for a fair presentation have been included. 

Use of Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with original maturities of three months or less when acquired, to be cash equivalents. There are no cash equivalents as of October 31, 2018 and 2017.  

Income Taxes

The Company accounts for income taxes under the provisions issued by the FASB which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference 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. The Company computes tax asset benefits for net operating losses carried forward. The potential benefit of net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

Loss Per Common Share

The Company reports net loss per share in accordance with provisions of the FASB.  The provisions require dual presentation of basic and diluted loss per share. Basic net loss per share excludes the impact of common stock equivalents. Diluted net loss per share utilizes the average market price per share when applying the treasury stock method in determining common stock equivalents. As of October 31, 2018 and 2017, there were no dilutive common stock equivalents outstanding due to net loses causing their exclusion.

Fair Value of Financial Instruments

Pursuant to ASC No. 820, “Fair Value Measurements and Disclosures”, the Company is required to estimate the fair value of all financial instruments included on its balance sheet as of October 31, 2018 and 2017 . The Company’s financial instruments consist of cash and derivative liabilities.  The Company considers the carrying value of such amounts in the financial statements to approximate their fair value due to the short-term nature of these financial instruments.

The Company adopted ASC No. 820-10 (ASC 820-10), Fair Value Measurements.  ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.

ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property as defined in SFAS 13. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:

The following presents the Company's fair value hierarchy for those assets and liabilities measured at fair value on a non-recurring basis as of October 31, 2018 and 2017: 

Derivative Financial Instruments

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.

Reverse Split

On October 12, 2018, the Company’s shareholders approved a reverse split of the issued and outstanding common stock on a 1:500 basis, which resulted in the cancellation of 7,255,764,887 shares of common stock. Immediately after effectuating the reverse split, there were 14,511,538 shares issued and outstanding. As a result of the reverse split, 644 shares of common stock were issued due to rounding. For comparative purposes, all share amounts reported in the accompanying financial statements have been shown retroactive of the reverse split for all periods presented.

Recently Issued Accounting Standards

In July 2015, FASB issued ASU No. 2015-11, “Inventory (Topic 330): Simplifying the Measurement of Inventory” more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS).  The amendments in this ASU do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure inventory within the scope of this Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. For public business entities, this ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. The amendments in this ASU should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

In August 2015, FASB issued ASU No.2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” defers the effective date ASU No. 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities should apply the guidance in Update 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. All other entities may apply the guidance in ASU No. 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, including interim reporting periods within that reporting period. All other entities also may apply the guidance in Update 2014-09 earlier as of an annual reporting period beginning after December 15, 2016, and interim reporting periods within annual reporting periods beginning one year after the annual reporting period in which the entity first applies the guidance in ASU No. 2014-09. We are currently reviewing the provisions of this ASU to determine if there will be any impact on our results of operations, cash flows or financial condition.

All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable. 

  NOTE 3 – INCOME TAXES

Deferred income taxes arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. The Company does not have any uncertain tax positions.

The Company as of October 31, 2018 has net operating loss carryforwards aggregating $5,855,969 (2017: $3,808,831), which expire through 2033. The deferred tax asset related to the carryforwards has been fully reserved. 

The Company has deferred income tax assets, which have been fully reserved, as follows as of October 31, 2018 and 2017:  

NOTE 4 – RELATED PARTY TRANSACTIONS 

In connection with the acquisition of Viva Entertainment and the resignation of our former officers and directors, the Company received forgiveness of stock payable of $3,390,000 and amounts due to directors of $132,854. These amounts were written off prior to closing and have therefore not been included in the Statement of Equity. 

The detail composition of the $535,338 in accrued wages with related parties as of October 31, 2018 includes the following due to officers and directors: Johnny Falcones $186,331 and John Sepulveda $165,226. In addition, $183,781 is owed to Alberto Gomes, a former director, for prior wages. This accrual covered services rendered by the employees for the period from April 2016 through October 31, 2018, less payments made to such employees during the period.

We issued to Edwin Batiz 2,500,000 restricted common shares, upon the execution of a services agreement, as fully paid and non-assessable shares restricted common stock for services rendered under this agreement.

Common Stock Payable includes $1,808,250 and $3,079,200 in stock payable with related parties as of October 31, 2018 and 2017, respectively. This stock payable is due to unissued shares earned on the employment agreements and for services performed during the years ended October 31, 2018, 2017 and 2016. 

John Sepulveda, a Company director, funded $10,000 to the Company for working capital during the year ended October 31, 2016. This amount was repaid during the 2017 fiscal year.

The Company periodically receives cash advances from officers and directors or their family members for routine working capital purposes. As of October 31, 2018 and 2017, a balance of $64,270 and $66,070 was owed to the spouse of the Company’s Chief Executive Officer. The advance is non-interest bearing and payable on demand.

The above-mentioned software was purchased during the year ending October 31, 2016 by way of a series of payments made to a software developer called Axor. The beta stage software is for development of over the top technology, abbreviated as OTT in the industry, to air wireless live television, movies, on demand content and radio. The software application was launched prior to October 31, 2017 and began generating revenues.

The Company had an arrangement with Axor for $4,000 in monthly payments and, at October 31, 2018, $29,850 was due to Axor. No future monthly commitments exist under the month-to-month arrangement.

NOTE 6 – CONVERTIBLE NOTES PAYABLE

During the fiscal years ended October 31, 2018 and 2017, the Company issued multiple convertible notes payable to several entities. The notes bear interest at rates between 8% and 15% and are convertible at rates between 40-60% of the lowest trading price of company’s common stock over a period ranging from 5-20 days prior to the date of conversion. All of the outstanding notes are either currently due or become due on or before October 30, 2019. The notes are summarized as follows:

The following table summarized the convertible note activity in the years ended October 31, 2018 and 2017:

The Company evaluated the terms of the conversion features of its convertible debentures in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and determined they are indexed to the Company's common stock and the conversion features meet the definition of a liability, and therefore bifurcated the conversion features and accounted for them as a separate derivative liability.

Changes in Derivative Liabilities were as follows: 

Interest expense for the years ended October 31, 2018 and 2017 was $184,170 and $46,589, respectively. Accrued interest payable on notes payable was $160,392 and $61,520 for the years ended October 31, 2018 and 2017, respectively.

The Company incurred a loss on the conversion of principal and interest during the years ended October 31, 2018 and 2017 of $143,197 and $328,903, respectively.

NOTE 7 – GOING CONCERN

The losses, negative cash flows from operations, accumulated deficit and negative working capital deficiency sustained by the Company raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence. 

NOTE 8 - COMMON STOCK 

During the year ended October 31, 2017, the Company had the following common stock transactions:

 Each of these issuances was made pursuant to an exemption from registration under Rule 144 of the Securities Act of 1933. 

During the years ended October 31, 2018, the Company had the following common stock transactions:

Each of these issuances was made pursuant to an exemption from registration under Rule 144 of the Securities Act of 1933.

NOTE 9 – LITIGATION

The Company has been involved in a protracted dispute with one of its creditors regarding the conversion of notes payable, applicable penalties and interest. As a result, the Company is the subject of a lawsuit filed in December 2017 in New York. Management believes that all obligations to the creditor have been met and that additional claims are usurious and unjustified. The Company has recorded a liability of $55,175 in Convertible Notes Payable for the value of the notes the creditor considers outstanding and has recorded an additional $200,000 in accrued expenses to account for the potential exposure in the event either a settlement is reached or the Company loses in litigation.

NOTE 10 – REVENUE RECOGNITION

The Company is a OTT service provider. It provides both pay-per-view and live streaming solutions for customers who subscribe to the services. The Company has engaged a third party, TIKI Live, to process the receipt of customer payments, which are then remitted to the Company in batches. Payments received from customers are deemed earned when received since the service (i.e., access to the OTT content) has been provided at the point of sale. Accordingly, the Company records revenues as proceeds are forwarded from TIKI Live. This same service provider also provides approximately 40% of the Company’s OTT content. During the years ended October 31, 2018 and 2017, 50% and 100% of the Company’s revenues were from TIKI Live; however, as the revenue base expands, this percentage should continue to decrease. The agreement with TIKI Live was executed in 2017 and expires in 2027.