Business context and reporting period
The supplied filing is Loton, Corp.’s Form 10-Q for the quarter ended January 31, 2014, the third quarter of its fiscal year (fiscal year-end April 30). The request identifies Liveone, Inc.; that company name does not match the filing. Loton describes itself as inactive, with no revenue, and as a shell seeking a business combination.
Financial results and liquidity
| Metric | Three months ended Jan. 31, 2014 | Nine months ended Jan. 31, 2014 | Comparable 2013 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $854,749 | $1,803,021 | $470,325; $980,140 |
| Net loss | $862,311 | $1,874,288 | $474,862; $993,159 |
| Basic and diluted loss per share | $(0.11) | $(0.26) | $(0.08); $(0.18) |
At January 31, 2014, cash was $350,158 and current assets were $655,036, against current liabilities of $836,361—a working capital deficit of $181,325. Total liabilities were $1,614,145, including $500,000 of related-party notes payable and a $777,784 non-current related-party management-service obligation. Stockholders’ deficit was $953,567. No meaningful margin measure is available because the company had no revenue.
For the nine months, operating cash outflow was $1,026,287, versus $518,146 in the prior-year period. Financing provided $1,426,653, including $1,250,000 from common-stock sales and $200,000 of related-party note proceeds; investing used $52,164. Cash increased from $1,956 to $350,158.
Changes, outlook, risks and unusual items
- Year-over-year nine-month net loss increased to $1,874,288 from $993,159; quarterly loss rose to $862,311 from $474,862. Professional fees, consulting fees, payroll and general and administrative costs increased. Management-service expense remained $540,648 for the nine-month period.
- The company reported a $50,000 impairment of notes receivable during the nine months. It had previously impaired a separate $100,000 note in fiscal 2013. The filing also describes $154,878 advanced for affiliate JJAT Corp. expenses, recorded as prepaid acquisition costs under a reimbursement agreement.
- On February 25, 2014, Loton signed a non-binding letter of intent to acquire KOKO, a London music venue and multimedia/lifestyle brand, with 90 days to reach a definitive agreement. On February 26, it issued 200,000 shares for $200,000. Neither event establishes that the acquisition closed.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. It depends on finding a business-combination candidate and obtaining additional financing; management gave no assurance that funding will be available. Further equity or debt financing could dilute shareholders or carry senior rights.
- Disclosure controls were deemed ineffective, with material weaknesses cited for lack of written control documentation and insufficient segregation of accounting duties. The filing reports no material legal proceedings and no material off-balance-sheet arrangements.
- The statements report nine-month net loss of $1,874,288, but MD&A gives $1,842,395 in one passage. The financial statements also show the nine-month amount as $1,874,288; the filing does not reconcile the discrepancy.
Important facts for investors to verify
- Confirm the issuer and reporting period: this filing is for Loton, Corp., not Liveone, Inc.
- Reconcile the MD&A net-loss discrepancy and review the underlying financial statements.
- Check the status, definitive terms, financing and closing conditions of the proposed KOKO acquisition.
- Assess near-term liquidity, repayment dates and terms for related-party notes, and the company’s dependence on further financing.
- Review dilution and potential share-count changes: 7,847,083 shares were outstanding at January 31, while the filing reports 8,895,000 as outstanding on March 5, 2014.
- Evaluate related-party arrangements, including management fees, the management-service obligation, and the JJAT reimbursement receivable, as well as remediation of the disclosed control weaknesses.