Filing summary
Entity and period: The supplied filing is Loton, Corp.’s unaudited Form 10-Q for the quarter ended July 31, 2013—not a filing identified as Liveone, Inc. or as “2013 Q1.” Loton describes itself as an inactive shell seeking a business combination. Its former 3D visualization business is not operating. The filing states its fiscal year ends April 30, making this the first quarter of fiscal 2014.
Financial results and position
- Revenue: $0 for the three months ended July 31, 2013 and 2012.
- Expenses and loss: Operating expenses were $371,314, up from $230,694. The largest items were related-party management services of $180,216, consulting fees of $82,420, and general and administrative expenses of $55,634. Net loss was $377,457, versus $234,639; basic and diluted loss per share was $0.06 versus $0.04.
- Cash flow: Operating activities used $159,490, compared with $145,382 used in the prior-year quarter. Financing provided $170,055, including $200,000 in related-party note proceeds, partly offset by $29,945 of related-party advances repaid. Cash increased $10,565 to $12,521.
- Liquidity and liabilities: Current assets were $72,521 and current liabilities $598,180 at July 31, 2013, implying a $525,659 working-capital deficit. Total liabilities were $1,209,296; total assets were $76,713. Stockholders’ deficit was $1,132,583.
- Debt and related-party obligations: Related-party notes payable were $500,000, with $23,551 accrued interest; the notes bear 6% interest. Certain earlier notes were extended to November 1, 2013, while newer notes mature in 2014. A separate $611,116 long-term related-party service-arrangement liability is reported.
- Equity: 6,335,000 common shares were issued and outstanding at July 31. The filing reports 7,005,000 shares outstanding as of September 10.
Changes versus prior comparable period
Revenue remained zero, while net loss increased by $142,818 and operating expenses rose by $140,620 year over year. Consulting, payroll, and general and administrative costs increased; travel expense fell to zero. Cash at quarter-end was higher than the prior-year quarter’s $6,514, but remained very limited. Compared with April 30, 2013, related-party notes payable rose by $200,000 and total liabilities increased by $256,907.
Outlook, risks, and unusual items
- Going concern: The filing says recurring losses, the accumulated deficit, and operating cash use raise substantial doubt about the company’s ability to continue as a going concern. Management says cash may not cover daily operations and plans to seek additional funds through offerings, loans, or advances; it gives no assurance funding will be available.
- Business plan: Management intends to identify a business-combination candidate, without limiting targets by industry or location. No target or transaction is identified, and no revenue guidance is provided.
- Subsequent financing and dilution: On August 28, 2013, the company sold 250,000 shares for $250,000. On August 30, it agreed to issue 100,000 restricted shares for advisory services.
- Related-party costs: The management agreement with Trinad Management, an affiliate of the majority stockholder, runs through September 2014 and provides for $2.08 million in fees plus a warrant for 1,125,000 shares. The quarter included $180,216 of related-party management expense.
- Controls: Management concluded disclosure controls were ineffective and identified material weaknesses concerning missing written control documentation and inadequate segregation of accounting duties.
- Other: The filing reports no material legal proceedings, defaults upon senior securities, or material off-balance-sheet arrangements. It also states that a $100,000 secured convertible note investment was impaired, although the presented balance sheet does not clearly show that investment as an asset.
Important facts to verify
- Confirm the filing belongs to the intended company and reporting period: the document identifies Loton, Corp. and the quarter ended July 31, 2013.
- Reconcile the share count: 6,335,000 shares at July 31, the disclosed subsequent issuances totaling 350,000 shares, and the reported 7,005,000 shares outstanding on September 10 do not readily reconcile.
- Clarify the accounting and balance-sheet presentation of the $100,000 impaired notes receivable/investment.
- Verify note maturities, extensions, accrued interest, and the company’s ability to meet obligations given $12,521 cash and the going-concern warning.
- Review the related-party management agreement, including the reported fee liability and warrant terms; the filing gives differing warrant-duration descriptions.