Liveone, Inc. (identified in the filing as Loton, Corp.) — Form 10-Q Summary
Reporting period: Quarter and six months ended October 31, 2013; fiscal year ends April 30. The filing identifies the registrant as Loton, Corp., not Liveone, Inc.; investors should verify the issuer and filing identity.
Business context and financial results
The company reported that it was inactive, had no revenue, and was seeking a business combination. It described itself as a blank-check and shell company. Unless otherwise noted, amounts are in U.S. dollars.
| Metric | Three months ended Oct. 31, 2013 | Six months ended Oct. 31, 2013 | Prior-year comparable period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $576,958 | $948,272 | $279,121 quarter; $509,815 six months |
| Net loss | $634,520 | $1,011,977 | $283,658 quarter; $518,297 six months |
| Loss per share, basic and diluted | $0.09 | $0.14 | $0.05 quarter; $0.10 six months |
| Net cash used in operating activities | Not presented for quarter | $592,957 | $307,359 used in six months |
There was no revenue or positive operating margin. Six-month expenses included $360,432 of related-party management services, $240,253 of consulting fees, $146,180 of professional fees, and a $50,000 impairment charge on notes receivable. Interest expense was $13,705 for the six months.
Liquidity, debt, and capital
- At October 31, 2013, cash was $795,940 and current assets were $930,306, compared with $1,956 and $65,895, respectively, at April 30, 2013.
- Current liabilities were $623,706, including $500,000 of related-party notes payable, $68,365 of accounts payable, $31,113 of accrued interest, and $24,228 of related-party advances. The company also reported a $694,450 long-term related-party service arrangement liability.
- Stockholders’ deficit was $381,888; accumulated deficit was $3,285,671. Six-month cash provided by financing was $1,439,105, principally from $1,250,000 in stock sales and $200,000 in related-party borrowing.
- Common shares outstanding at October 31 were 7,588,333; the filing reports 8,575,000 outstanding as of December 6, 2013. The October 2013 agreement for a further $1,000,000 stock purchase had not closed because the investor failed to pay on time.
Changes, outlook, and key risks
- Compared with the prior-year six-month period, net loss nearly doubled, operating expenses increased by $438,457, and operating cash use increased by $285,598. The filing attributes increased costs to consulting, professional and general and administrative expenses, as well as the notes-receivable impairment.
- Management planned to continue seeking an acquisition or merger and anticipated funding operating costs through existing cash, deferred service-provider fees, equity issuance, and related-party or other financing. It gave no financial guidance and cautioned that additional funding was not assured.
- The filing states that recurring losses, accumulated deficit, and operating cash use raise substantial doubt about the company’s ability to continue as a going concern. Management said cash might not support daily operations; failure to secure funding or a business combination could require cessation of operations.
- Related-party exposure is significant: Trinad-related entities were the majority stockholder, lender, and management-services provider. The three-year management agreement provides for $2,080,000 in fees, including $1,000,000 due at the end of the term unless terminated earlier, plus a warrant to purchase 1,125,000 shares at $0.15 per share.
- Disclosure controls were deemed ineffective. Management identified material weaknesses from missing written internal-control documentation and insufficient segregation of accounting duties. The company reported no material legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether this Loton, Corp. filing is in fact the intended filing for Liveone, Inc.; the issuer name in the document does not match the request metadata.
- Current cash needs, the availability and terms of further financing, and whether any acquisition or merger candidate has been identified.
- Status and collectability of the secured convertible notes receivable, including the $50,000 impairment recorded in this period and the earlier $100,000 impairment.
- Terms, maturity, accrued interest, and repayment expectations for related-party debt and the management-services obligation.
- Whether the unpaid $1,000,000 stock purchase agreement was later funded, cancelled, or renegotiated, and the resulting share count and dilution.
- Remediation of the disclosed material weaknesses in internal controls and the company’s continuing ability to meet SEC reporting and operating costs.