Filing summary
Entity and period: The supplied filing is a Form 10-Q for Loton, Corp., not Liveone, Inc. It covers the quarter and nine months ended December 31, 2014; the financial statements are unaudited. Loton reports its primary business as the KOKO live music venue in London, held through entities in which it had a 50% interest, alongside plans to pursue digital live-music streaming and other growth opportunities.
Key financial results
| Metric | Three months ended Dec. 31, 2014 | Nine months ended Dec. 31, 2014 |
|---|---|---|
| Revenue | $2.302 million; up 0.7% year over year | $5.739 million; up 12.5% |
| Gross profit / margin | $1.983 million / 86.1% | $4.887 million / 85.2% |
| Operating income (loss) | $21,104 | $(2.850) million |
| Net loss before non-controlling interest | $(2.742) million | $(5.770) million |
| Net loss attributable to Loton stockholders | $(2.962) million | $(5.302) million |
| Basic and diluted loss per share | $(0.07) | $(0.15) |
Quarterly revenue and gross profit improved modestly, but a $2.600 million charge for warrants issued to settle potential investor claims, plus interest expense, drove the quarter to a substantial net loss despite positive operating income. For the nine months, operating expenses rose 91.7% to $7.737 million, including $1.376 million of acquisition-related professional costs and $1.374 million of consulting fees. Nine-month gross margin was broadly stable versus 84.9% a year earlier.
Financial position and cash flow
- At December 31, cash was $1.024 million, total current assets $1.857 million, and current liabilities $3.543 million; management reported negative working capital of $1.686 million.
- Total liabilities were $5.606 million and total equity was negative $2.715 million. Current liabilities included a $1.000 million related-party management-service obligation and $876,124 of related-party notes; non-current liabilities included $700,000 of related-party notes and a $242,498 note payable.
- Nine-month operating cash use was $1.233 million, compared with $40,183 in the prior-year period. Investing activities provided $29,596, and financing activities provided $1.571 million. Cash increased by $292,756 to $1.024 million.
- Financing included related-party borrowing and $725,000 from common-stock sales. The company also settled $477,494 of accounts payable with shares and converted $242,498 of payables into a note.
Changes, outlook, and significant risks
- On April 28, 2014, Loton acquired KoKo Parent in a reverse acquisition for accounting purposes. Its reported results include a 50% non-controlling interest in the KOKO operating group. A proposed share exchange that could have made that group wholly owned was not completed.
- A Forbearance Agreement among the company and related parties paused claims tied to the proposed share exchange and related agreements while the parties explored strategic alternatives for the operating entities. The filing warns that a suitable alternative may not be found and that disputes could resume.
- Management says it needs additional capital and cash generated by the operating business to fund operations, debt service, and its plans. The company explicitly states that its losses, operating cash use, and accumulated deficit raise substantial doubt about its ability to continue as a going concern; there is no assurance that financing will be available.
- The company described plans to pursue streaming rights, sponsorships, acquisitions, and venue expansion, but gave no quantified financial guidance.
- On February 5, 2015, a related-party note amendment eliminated the note’s conversion feature. The filing also describes a December 2014 warrant issuance valued at $2.600 million in exchange for releases of potential claims. Management reported no material legal proceedings.
- Disclosure controls were deemed ineffective. The filing identifies material weaknesses due to lack of written internal-control documentation and inadequate segregation of accounting duties. The company also checked “No” for having filed all required Exchange Act reports during the preceding 12 months.
Important facts for investors to verify
- Confirm the issuer identity: this document names Loton, Corp., while the request identifies Liveone, Inc.
- Reconcile the filing’s loss figures: the statements distinguish loss before non-controlling interest from loss attributable to Loton stockholders, while parts of the MD&A describe the results differently.
- Verify the exact ownership, consolidation, and strategic-sale status of the 50%-owned KOKO operating group, and the status of the Forbearance Agreement and related-party disputes.
- Assess near-term liquidity, debt maturities and related-party obligations, financing availability, and management’s going-concern plans.
- Review dilution and claim-settlement terms, including warrants and shares outstanding: 42,370,821 shares at December 31, 2014 and 43,304,988 as of February 9, 2015.
- Review the status of required SEC filings and remediation of the disclosed material weaknesses.