Notes to Consolidated Financial Statements
For the Years Ended October 31, 2017
and 2016
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, 2017, the Company has a working capital deficiency of $2,955,249 and has an
accumulated deficit of $21,034,249. 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, 2017 or 2016.
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, 2017 and 2016,
there were no dilutive common stock equivalents outstanding.
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, 2017 and 2016. 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:
|
•
|
Level 1
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
•
|
Level 2
|
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
•
|
Level 3
|
Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. (The unobservable inputs are developed based on the best information available in the circumstances and July include the Company's own data.)
|
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, 2017 and
2016:
October 31, 2017:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Convertible Notes Payable, net of discount
|
|
$
|
514,402
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
514,402
|
|
Derivative Liability
|
|
|
1,463,047
|
|
|
|
|
|
|
|
|
|
|
|
1,463,047
|
|
Total
|
|
$
|
1,977,449
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,977,449
|
|
October 31, 2016:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Convertible Notes Payable, net of discount
|
|
$
|
367,323
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
367,323
|
|
Derivative Liability
|
|
|
1,248,689
|
|
|
|
|
|
|
|
|
|
|
|
1,248,689
|
|
Total
|
|
$
|
1,616,012
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,616,012
|
|
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 year ended October 31, 2017, 100% of the Company’s revenues
were from TIKI Live; however, as the revenue base expands, this percentage should decrease. The agreement with TIKI Live was executed
in 2017 and expires in 2027.
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.
Recently Issued Accounting Standards
In March 2016, the FASB issued ASU
2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting”.
The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income
tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 is effective for fiscal years, and interim
periods within those years, beginning after December 15, 2016, and early adoption is permitted. The Company elected to early adopt
the new guidance in the second quarter of fiscal year 2016 which requires us to reflect any adjustments as of January 1, 2016,
the beginning of the annual period that includes the interim period of adoption. The primary impact of adoption was the recognition
of additional stock compensation expense and paid-in capital for all periods in fiscal year 2016. Additional amendments to the
recognition of excess tax benefits, accounting for income taxes and minimum statutory withholding tax requirements had no impact
to retained earnings as of January 1, 2016, where the cumulative effect of these changes is required to be recorded. We have elected
to account for forfeitures as they occur to determine the amount of compensation cost to be recognized in each period.
In November 2016, the FASB issued ASU
No. 2016-18, “Statement of Cash Flows (Topic 230).” ASU No. 2016-18 requires that restricted cash be included with
cash and cash equivalents when reconciling the change in cash flow. This guidance is reflected in these financial statements.
In January 2017, the FASB issued ASU
2017-04, Simplifying the Test for Goodwill Impairment, which removes the second step of the two-step goodwill impairment test.
Under ASU 2017-04, an entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess
of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting
unit. ASU 2017-04 does not amend the optional qualitative assessment of goodwill impairment. Additionally, an entity should consider
income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment
loss, if applicable. ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after
December 15, 2019; early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Company has not elected early adoption of this standard and is currently in the process of evaluating the
impact of adopting ASU 2017-04 and cannot currently estimate the financial statement impact of adoption.
In May 2017, the FASB issued ASU No.
2017-09, “Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting.” The amendments in
this update provide guidance about which changes to the terms or conditions of a share-based award require an entity to apply
modification accounting in Topic 718. The guidance will be effective for the Company for its fiscal year 2018, with early adoption
permitted. The Company does not expect this ASU to materially impact the Company’s consolidated financial statements.
Accounting
standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a
future date are not expected to have a material impact on the consolidated financial statements upon adoption.
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 currently has net operating
loss carryforwards aggregating $3,808,831, (2016: $2,116,676), which expire through 2032. 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, 2017 and 2016:
|
|
|
2017
|
|
2016
|
Deferred tax assets
|
|
|
$
|
1,333,091
|
|
|
$
|
704,837
|
|
Valuation allowance for deferred tax assets
|
|
|
|
(1,333,091
|
)
|
|
|
(740,837
|
)
|
Net deferred tax assets
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOT 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 $439,343
in accrued wages with related parties as of October 31, 2017 includes the following due to officers and directors: Johnny Falcones
$132,781, Alberto Gomez $183,781 and John Sepulveda $122,781. This accrual covered services rendered by the employees for the period
from April, 2016 through October 31, 2017 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 Issuable includes
$3,079,200 and $512,400 in stock payable with related parties as of October 31, 2017 and 2016, respectively. This stock payable
is due to unissued shares earned on the employment agreements and for services performed during the years ended October 31, 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 recorded $1,500 of
donated capital in fiscal 2016 relating to a pre-reverse merger item from the company’s CEO for services and payment of incorporation
fees.
The Company periodically receives cash
advances from officers and directors or their family members for routine working capital purposes. As of October 31, 2017, a balance
of $66,070 was owed to the spouse of the Company’s Chief Executive Officer. The advance is non-interest bearing and payable
on demand.
NOTE 5 – CAPITALIZED SOFTWARE
Capitalized Software was comprised
of the following amounts as of October 31, 2017 and 2016, respectively.
|
|
October 31, 2017
|
|
October 31, 2016
|
Software costs
|
|
$
|
68,553
|
|
|
|
68,553
|
|
Accumulate amortization
|
|
|
(14,035
|
)
|
|
|
(7,131
|
)
|
Total software Costs, net accumulated amortization
|
|
$
|
54,518
|
|
|
$
|
61,422
|
|
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 will reassess the revenue generating potential of the software over the coming months to determine if any impairment is
necessary.
The Company had an arrangement with
Axor for $4,000 in monthly payments and, at October 31, 2016, $17,075 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, 2017 and 2016, 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, 2018. The notes are summarized as follows:
Total convertible notes payable at October 31, 2017
|
|
$
|
897,524
|
|
Less: Current portion of notes payable
|
|
|
(897,524
|
)
|
Long term portion of notes payable
|
|
|
—
|
|
The following table summarized the convertible
note activity in the years ended October 31, 2017 and 2016:
|
|
Principal Balance
|
|
Loan Discount
|
|
Accrued interest
|
October 31, 2015
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Issued in the year
|
|
$
|
975,100
|
|
|
$
|
(975,100
|
)
|
|
|
—
|
|
Amortization of debt discount
|
|
|
—
|
|
|
|
367,323
|
|
|
|
—
|
|
Accrued interest
|
|
|
—
|
|
|
|
—
|
|
|
$
|
43,426
|
|
October 31, 2016
|
|
$
|
975,100
|
|
|
$
|
(607,777
|
)
|
|
$
|
43,426
|
|
Issued in the year
|
|
|
1,026,202
|
|
|
|
(1,111,092
|
)
|
|
|
—
|
|
Converted into stock or repaid
|
|
|
(1,013,778
|
)
|
|
|
—
|
|
|
|
(28,765
|
)
|
Amortization of debt discount
|
|
|
—
|
|
|
|
1,335,747
|
|
|
|
—
|
|
Interest accrued
|
|
|
—
|
|
|
|
—
|
|
|
|
46,589
|
|
October 31, 2017
|
|
$
|
897,524
|
|
|
$
|
(383,122
|
)
|
|
$
|
61,250
|
|
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:
October 31, 2015
|
|
|
Issuance of derivative
|
|
$
|
1,731,426
|
|
Change in fair value
|
|
|
(428,737
|
)
|
October 31, 2016
|
|
|
1,248,689
|
|
Issuance of derivative
|
|
|
1,086,089
|
|
Conversion into stock or assignment
|
|
|
(1,827,309
|
)
|
Extinguishment of debt
|
|
|
(10,590
|
)
|
Change in fair value
|
|
|
966,168
|
|
October 31, 2017
|
|
$
|
1,463,047
|
|
NOTE 7 – NOTES PAYABLE
Pursuant to the Stock Purchase Agreement,
the Company issued to EMS a promissory note in the principal amount of $100,000, due six months from the Closing, which represents
the purchase price paid by the Company for Viva Entertainment. The note bears interest at the rate of 10% per annum. During the
year ended October 31, 2017, all principal and interest was converted into common stock (see Note 11).
NOTE 8 – 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
$150,000 in accrued expenses to account for the potential exposure in the event either a settlement is reached or the Company loses
in litigation.
NOTE 9 – 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 year ended October 31, 2017, 100% of the Company’s revenues were from TIKI Live; however, as the revenue base expands,
this percentage should decrease. The agreement with TIKI Live was executed in 2017 and expires in 2027.
NOTE 10 – 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 11 - COMMON STOCK
During the year ended October
31, 2016, the Company had the following common stock transactions:
|
·
|
33,085,629 shares issued to various individuals for consulting services previously rendered with a total value of $2,743,585 using the closing stock price on the date of the service agreement. These were common shares issued for services that occurred between April and October of 2016.
|
|
|
|
|
·
|
On April 6, 2016, 2,000,000 shares issued as part of loan origination fees valued at $100,000 valued by using the stock date on the debt issuance date. The remaining balance was discounted by $45,000 due to the beneficial conversion feature.
|
|
|
|
|
·
|
On April 5, 2016, following the resignation of our former officers and directors, the Company received forgiveness of stock payable of $3,390,000 and amounts due to former CEO of $132,854.
|
|
|
|
|
·
|
On April 6, 2016, 22,000,000 common shares issued for the reverse merger to current President, Johnny Falcone.
|
|
|
|
|
·
|
The Company recorded $1,500 of donated capital as a pre-reverse merger item from the company’s CEO for services and payment of incorporation fees.
|
|
|
|
|
·
|
On June 10, 2016, 150,000 shares previously issued for services were cancelled as the individual was paid in cash for the services.
|
Each of these issuances was made pursuant
to an exemption from registration under Rule 144 of the Securities Act of 1933.
During the year ended October
31, 2017, the Company had the following common stock transactions:
|
·
|
A total of 3,892,073,313 shares were issued on the conversion of convertible debt and associated interest totaling $1,285,688.
|
|
|
|
|
·
|
14,500,000 shares were issued for cash proceeds of $12,000.
|
|
|
|
|
·
|
98,050,000 shares were issued for services rendered. Based on the stock price on the date of issuance, the Company recorded compensation an expense of $12,279,795 associated with the shares.
|
|
|
|
Each of these issuances was made
pursuant to an exemption from registration under Rule 144 of the Securities Act of 1933.
NOTE 12 – SUBSEQUENT EVENTS
Subsequent to October 31, 2017, the Company noted the
following material events:
|
·
|
A total of 753,419,093 shares of restricted common stock were issued on the conversion of notes payable.
|
|
|
|
|
·
|
177,817,500 shares were issued under Form S-8 for services rendered to the Company.
|
|
|
|
|
·
|
Convertible notes payable totaling $295,000 were issued with varying terms and conditions.
|