Business context and reporting period
The supplied filing is Loton, Corp.’s unaudited Form 10-Q for the quarter and six months ended October 31, 2012. This does not match the request metadata identifying Liveone, Inc.; verify the issuer and filing before relying on this summary. Loton described itself as an inactive shell company seeking a business combination, with no operating revenue.
Financial results and position
| Metric | Three months ended Oct. 31, 2012 | Six months ended Oct. 31, 2012 | Comparable 2011 period |
|---|---|---|---|
| Revenue | No revenue reported | No revenue reported | No revenue reported, per management; revenue table formatting is unclear |
| Operating expenses | $279,121 | $509,815 | $143,785 and $149,932, respectively |
| Net loss | $283,658 | $518,297 | $143,785 and $149,932, respectively |
| Basic and diluted loss per share | $0.05 | $0.10 | $0.03 for each comparable period |
| Cash from operating activities | Not presented for quarter | $(307,359) | $(123,617) for six months |
At October 31, 2012, cash was $142,063, current assets were $202,063, current liabilities were $384,832, and total liabilities were $745,946. The resulting working-capital deficit was $182,769. Total assets were $216,436, against a stockholders’ deficit of $529,510. Six-month financing cash flow was $409,956, including $275,000 from stock issuance and $150,000 from a related-party note. No margins are meaningful given the absence of revenue.
Material changes and unusual items
- Six-month net loss increased to $518,297 from $149,932. Management-services expense to related parties was $360,432 for the six-month period, versus $60,072 a year earlier; consulting expense also increased.
- Cash rose from $49,689 at April 30, 2012, largely with equity financing and a new $150,000 related-party note. Related-party notes payable totaled $300,000 at October 31, bearing 6% annual interest and due in April and June 2013; accrued interest was $8,482.
- A three-year management agreement with Trinad Management, LLC provides for total fees of $2.08 million, including $90,000 payable in advance each quarter and $1 million due at the end of the term unless terminated earlier, plus a warrant for 1,125,000 shares at $0.15. The filing reports $361,114 as a long-term related-party service arrangement liability.
- During the six months, the company issued 275,000 shares for $275,000. After quarter-end it issued another 100,000 shares for $100,000. The filing also discloses a post-period consulting agreement with director Andrew Schleimer for $30,000 annually and 100,000 restricted stock units vesting January 15, 2013.
Outlook, risks and controls
Management planned to seek a suitable acquisition or merger and said it expected existing working capital, further advances and debt to fund operations for about six months. It also stated it would need additional funds within 12 months, had no specific funding plan, and could not assure financing would be available. The filing identifies substantial doubt about the company’s ability to continue as a going concern. Management’s stated expectation of funding for six months does not resolve that uncertainty.
The company was a shell with nominal assets and no revenue-generating operations; any prospective business combination could involve a high-risk or early-stage target and substantial dilution. Management reported disclosure controls were ineffective and identified material weaknesses: no written internal-control documentation and insufficient segregation of accounting duties. No material legal proceedings or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Confirm the issuer: the filing is for Loton, Corp., not Liveone, Inc.
- Assess near-term liquidity, funding availability, and repayment of the two related-party notes due in 2013.
- Review the full terms, related-party implications, and accumulated obligations under the Trinad management agreement.
- Confirm potential dilution from the outstanding warrant, equity issuances, and post-quarter restricted stock units.
- Evaluate the going-concern disclosure and whether the identified control weaknesses have been remediated.