# LiveOne, Inc.: Form 10-Q for the period ended Jun 30, 2015

- Company: [LiveOne, Inc.](/companies/lvo.md) (CIK 1491419)
- Form: 10-Q
- Filed: 2015-08-18
- Accepted by EDGAR: Aug 18, 2015, 14:51 ET
- Period: 2015-06-30
- Accession: 0001615774-15-002286
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1491419/000161577415002286/s101637_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1491419/000161577415002286/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2015-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2015-04-01 to 2015-06-30 | $1.9m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2015-04-01 to 2015-06-30 | $277.4k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2015-04-01 to 2015-06-30 | $1.7m | us-gaap:GrossProfit |
| Operating income | 3 months, 2015-04-01 to 2015-06-30 | −$592.4k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2015-04-01 to 2015-06-30 | $44.1k | us-gaap:InterestExpense |
| Income tax | 3 months, 2015-04-01 to 2015-06-30 | $59.3k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2015-04-01 to 2015-06-30 | −$770.7k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2015-04-01 to 2015-06-30 | −$0.02 | us-gaap:EarningsPerShareBasicAndDiluted |
| Diluted shares (weighted) | 3 months, 2015-04-01 to 2015-06-30 | 1,133,912 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2015-04-01 to 2015-06-30 | −$434.0k | us-gaap:NetCashProvidedByUsedInOperatingActivitiesContinuingOperations |
| Capital expenditure | 3 months, 2015-04-01 to 2015-06-30 | $23.9k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2015-06-30 | $1.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2015-06-30 | $1.9m | us-gaap:AssetsCurrent |
| Total assets | at 2015-06-30 | $2.9m | us-gaap:Assets |
| Current liabilities | at 2015-06-30 | $5.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2015-06-30 | $6.7m | us-gaap:Liabilities |
| Shareholders' equity | at 2015-06-30 | −$3.2m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 28,246 characters.

### Forward-Looking Information

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

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

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

- a change in the business of the Company, due to any sale of the Company’s operating subsidiaries or the divestiture of the Company’s material assets;
- limited cash and a history of losses;
- our need to raise additional capital for our business;
- our ability to open and operate venues in the United States and internationally;
- seasonality of ticket sales at our concert venue in London and our ability to attract successful musical acts to perform there;
- success of our competitors;
- our ability to hire and retain professionals experienced in the concert venue and digital media business;
- our ability to develop a successful streaming festival business;
- the current worldwide economic uncertainty; and
- other factors, including, but not limited to, those set forth under Item 1A “Risk Factors” in our Annual Report on Form 10-K for the period ended March 31, 2015 filed with the Securities and Exchange Commission (the “SEC”) on July 14, 2015.

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

### Description of Business

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

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

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

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

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

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

#### OCHL

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

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

KOKO has a single, well-established venue.

#### Digital Media and Content Streaming

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

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

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

- Selectively expanding into additional top global music markets, both internationally and domestically, with new venues that host artists from emerging talent to global super-stars, offer a stunning lifestyle and VIP services, and deliver premium consumer music experiences.
- Identifying, developing and growing key sponsorship and strategic advertising partnerships. The Company’s goal is to continue to drive growth in this area and capture a larger share of the music sponsorship market. It will focus on expanding and developing new relationships with corporate sponsors to provide them with targeted strategic programs through the Company’s unique relationship with fans and artists, its distribution network of venues, and its online presence. The Company will continue to look for innovative new products and offerings that give its sponsors and advertisers a unique ability to reach consumers through the power of live music.

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

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

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

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

### Management Agreement

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

### Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

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

### Results of Operations

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

Revenues

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

Cost of Revenue

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

Gross Margin

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

Selling and Marketing Expenses

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

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

Management Services – Related Parties Expenses

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

General and Administrative Expenses

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

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

Operating Expenses

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

Other (Income) Expense

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

Income Tax Provision

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

Net Income (Loss)

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

### Capital Expenditures

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

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

### Off-Balance Sheet Arrangements

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

## Controls and procedures

As filed, 3,422 characters.

### Evaluation of Disclosure Controls and Procedures

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

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

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

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

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

### Changes in Internal Control over Financial Reporting

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

Filed Aug 18, 2015.
Source: SEC EDGAR, the filing index for accession 0001615774-15-002286. Last ingested by Listed: Nov 4, 2026, 18:43 ET. No prices; not investment advice.