Filing identity and reporting period
The supplied filing is for Loton, Corp., not LiveOne, Inc.; investors should verify that this is the intended filing. It is an unaudited Form 10-Q for the fiscal quarter and nine months ended January 31, 2012. Loton describes itself as a development-stage company and, in the MD&A, as inactive and a shell company seeking a business combination. Its original stated business was 3D rendering and visualization services.
Key financial metrics
| Metric | Period or date | Reported value |
|---|---|---|
| Revenue | Three and nine months ended January 31, 2012 | $0 |
| Net loss | Three months ended January 31, 2012 | $285,791; loss per share $0.06 |
| Net loss | Nine months ended January 31, 2012 | $435,723; loss per share $0.09 |
| Operating cash used | Nine months ended January 31, 2012 | $348,011 |
| Cash | January 31, 2012 | $66,691 |
| Total assets | January 31, 2012 | $126,691 |
| Current liabilities | January 31, 2012 | $23,673 |
| Total liabilities | January 31, 2012 | $134,785 |
| Stockholders’ equity (deficit) | January 31, 2012 | $(8,094) |
There was no gross profit or meaningful operating margin because the company reported no revenue in the current quarter or nine-month period. The filing reports no interest paid, no income tax paid, and no bank credit line. It reports related-party advances of $2,863, unsecured, non-interest-bearing and due on demand; no conventional interest-bearing debt is identified.
Changes versus comparable periods and balance-sheet movement
- Quarterly net loss rose from $132 in the prior-year quarter to $285,791; nine-month net loss rose from $4,367 to $435,723. Revenue was zero in both comparable periods.
- Cash increased from $12,395 at April 30, 2011 to $66,691 at January 31, 2012. The nine-month cash increase of $54,296 reflected $402,307 of financing cash inflows, primarily $400,000 from common-stock sales, offset by operating cash use.
- Assets increased from $19,584 to $126,691, including $60,000 of prepaid related-party management services. Total liabilities rose from $1,131 to $134,785, including a $111,112 long-term related-party service arrangement. Equity moved from $18,453 to a deficit of $8,094.
- Common shares outstanding increased from 4,970,000 at April 30, 2011 to 5,370,000 at January 31, 2012. The company issued 400,000 shares for $400,000 during the period. A further 1,125,000-share warrant was issued to the management-services provider.
Outlook, related-party arrangements, risks and controls
- Business plan: Management’s stated priority is to find and complete a business combination, with no target or specific industry identified. It anticipates potentially completing only one combination and notes the risk of limited diversification.
- Funding and going concern: The filing states that recurring losses, operating cash use and limited resources raise substantial doubt about the company’s ability to continue as a going concern. Management plans to seek additional financing, including equity, debt, related-party advances or financing associated with a reverse merger; it gives no assurance funding will be available. The filing says existing resources are expected to fund operations for six months, but also says it cannot assure cash requirements can be met for the next 12 months and that further funds will be needed.
- Management agreement: A three-year agreement with Trinad Management, LLC, an entity controlled by the majority stockholder, provides for $2.08 million in fees, including $90,000 payable in advance for each successive three-month period and $1 million due at the end of the term unless the agreement is terminated earlier. It also includes a warrant for 1,125,000 shares at $0.15 per share. The filing recorded $240,288 of related-party management expense for the nine-month period.
- Ownership change: In September 2011, Trinad Capital Master Fund acquired 4,000,000 shares, approximately 80% of the then-outstanding shares, from the former controlling shareholder for $311,615. The filing notes that ownership changes may limit use of tax-loss carryforwards under Section 382.
- Other risks and contingencies: Management describes risks of selecting an early-stage or financially unstable acquisition target, dilution from future financing, and possible inability to implement the plan. The company reports no material legal proceedings and no material off-balance-sheet arrangements.
- Disclosure controls: Management concluded controls were ineffective at January 31, 2012, citing two material weaknesses: lack of written internal-control documentation and inadequate segregation of accounting duties. No material changes to internal control were identified during the period.
Important facts for investors to verify
- Confirm the filing’s issuer identity: the document names Loton, Corp., while the request identifies LiveOne, Inc.
- Resolve the revenue inconsistency: the statements show $14,866 of cumulative revenue from inception through January 31, 2012, while the MD&A says no revenue has been generated since inception.
- Check the warrant disclosures: the activity table says 125,000 warrants were earned and 1,000,000 remained unvested, while another table labels all 1,125,000 as exercisable. The filing’s stated ten-year warrant term also appears inconsistent with its reported 4.65-year remaining contractual life.
- Assess the full cost, termination terms and cash-payment schedule of the $2.08 million related-party agreement, and the company’s ability to meet those commitments while cash is limited.
- Verify financing sufficiency and timing against management’s differing six-month and 12-month liquidity statements, and monitor any subsequent business-combination or fundraising developments.