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EX-31.1 - EXHIBIT 31.1 - LOTON, CORPv329534_ex31-1.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

  x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2012

OR

  ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __________________ TO _______________________

 

Commission file number 333-167219

 

LOTON, CORP

(Exact name of Registrant as Specified in its Charter)

 

Nevada

(State or Other Jurisdiction of

Incorporation or Organization)

90-0657263

(I.R.S. Employer

Identification Number)

 

4751 Wilshire Blvd., 3rd Floor

Los Angeles, California 90010

(Address of Principal Executive Offices including Zip Code)

 

(310) 601-2500

(Registrant’s Telephone Number, Including Area Code)

 

(Former address and telephone, if changed since last report)

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant is required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

 

Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x
    (Do not check if a smaller reporting company)  

  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes x  No ¨

 

Indicate the number of shares outstanding of each of the issuer’s classes of common equity, as of the last practicable date: 5,845,000 shares of common stock, par value $0.001 per share, as of December 3, 2012.

 

 
 

 

TABLE OF CONTENTS

TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2012

 

  Page
   
PART 1. – FINANCIAL INFORMATION 3
   
Item 1. Financial Statements (unaudited) 3
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk 26
   
Item 4. Controls and Procedures 26
   
PART II. OTHER INFORMATION 27
   
Item 1 – Legal Proceedings 27
   
Item 1A – Risk Factors 27
   
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds 27
   
Item 3 – Defaults Upon Senior Securities 27
   
Item 4 – (Reserved) 27
   
Item 5 – Other Information 27
   
Item 6 – Exhibits 27

 

2
 

 

PART 1. – FINANCIAL INFORMATION

 

Item 1. Financial Statements (unaudited) 

Loton, Corp.

 

October 31, 2012 and 2011

 

Index to the Financial Statements

 

Contents   Page(s)
     
Balance Sheets at October 31, 2012 (Unaudited) and April 30, 2012   4
     
Statements of Operations for the Three and Six Months Ended October 31, 2012 and 2011 (Unaudited)   5
     
Statement of Stockholders’ Equity (Deficit) for the Interim Period ended October 31, 2012 (Unaudited)   6
     
Statements of Cash Flows for the Six Months Ended October 31, 2012 and 2011 (Unaudited)   7
     
Notes to the Financial Statements (Unaudited)   8

 

3
 

 

Loton, Corp

Balance Sheets

 

   October 31, 2012   April 30, 2012 
   (Unaudited)     
ASSETS          
CURRENT ASSETS:          
Cash  $142,063   $49,689 
Prepaid management service - related party   60,000    60,000 
           
Total Current Assets   202,063    109,689 
           
OFFICE EQUIPMENT:          
Office equipment   16,077    5,854 
Accumulated depreciation   (1,704)   (192)
           
Office Equipment, net   14,373    5,662 
           
Total Assets  $216,436   $115,351 
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
CURRENT LIABILITIES:          
Accounts payable  $31,754   $11,242 
Note payable - related party   300,000    150,000 
Accrued expenses   8,482    - 
Advances from related party   44,596    59,640 
           
Total Current Liabilities   384,832    220,882 
           
LONG-TERM SERVICE ARRANGEMENT - RELATED PARTY   361,114    194,446 
           
Total Liabilities   745,946    415,328 
           
STOCKHOLDERS' DEFICIT:          
Common stock at $0.001 par value: 75,000,000 shares authorized,
5,645,000 and 5,370,000 shares issued and outstanding, respectively
   5,645    5,370 
Additional paid-in capital   732,277    443,788 
Deficit accumulated   (1,267,432)   (749,135)
           
Total Stockholders' Deficit   (529,510)   (299,977)
           
Total Liabilities and Stockholders' Deficit  $216,436   $115,351 

 

See accompanying notes to the financial statements.

 

4
 

 

Loton, Corp
Statements of Operations

 

   For the Three
Months
Ended
October 31, 2012
   For the Three
Months
Ended
October 31, 2011
   For the Six Months
Ended
October 31, 2012
   For the Six Months
Ended
October 31, 2011
 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
                 
Net Revenues Earned   $-   $   $   $- 
Operating Expenses                    
Consulting fees   31,710    6,360    53,310    6,360 
Management services - related party   180,216    60,072    360,432    60,072 
Professional fees   41,255    42,051    56,239    48,198 
Salaries - former officer   -    7,117    -    7,117 
Travel expense   21,646    21,778    34,469    21,778 
General and administrative expenses   4,294    6,407    5,365    6,407 
                     
Total operating expenses   279,121    143,785    509,815    149,932 
Loss from Operations   (279,121)   (143,785)   (509,815)   (149,932)
                     
Other (Income) Expense                    
Interest expense   4,537    -    8,482    - 
                     
Other (income) expense, net   4,537    -    8,482    - 
Loss before Income Tax Provision   (283,658)   (143,785)   (518,297)   (149,932)
                     
Income Tax Provision   -    -    -    - 
                     
Net Loss  $(283,658)  $(143,785)  $(518,297)  $(149,932)
                     
Net Loss Per Common Share:                    
- basic and diluted  $(0.05)  $(0.03)  $(0.10)  $(0.03)
                     
Weighted average common shares outstanding:                    
- basic and diluted   5,427,420    4,970,000    5,398,408    4,970,000 

 

See accompanying notes to the financial statements.

 

5
 

 

Loton, Corp

Statement of Stockholders' Equity (Deficit)

For the Interim Period Ended October 31, 2012

(Unaudited)

 

   Common Stock, $0.001 Par Value   Additional      Total 
   Number of
Shares
   Amount   Paid-in
Capital
   Deficit Accumulated   Stockholders'
Equity (Deficit)
 
Balance, December 28, 2009   -   $-   $-   $-   $- 
                          
Issuance of common shares for cash at $0.001 per share   4,000,000    4,000              4,000 
                          
Net loss                  (208)   (208)
                          
Balance, April 30, 2010   4,000,000    4,000    -    (208)   3,792 
                          
Issuance of common shares for cash at $0.03 per share   970,000    970    28,130         29,100 
                          
Net loss                  (14,439)   (14,439)
                          
Balance, April 30, 2011   4,970,000    4,970    28,130    (14,647)   18,453 
                          
Issuance of warrants to Trinad Management, LLC for future services             82,575         82,575 
                          
Issuance of warrants to Trinad Management, LLC for future services             (82,575)        (82,575)
                          
Amortization of warrants issued to related party for services received             16,058         16,058 
                          
Issuance of common shares for cash at $1.00 per share   400,000    400    399,600         400,000 
                          
Net loss                  (734,488)   (734,488)
                          
Balance, April 30, 2012   5,370,000    5,370    443,788    (749,135)   (299,977)
                          
Amortization of warrants issued to related party for services received             13,764         13,764 
                          
Issuance of common shares for cash at $1.00 per share   275,000    275    274,725         275,000 
                          
Net loss                  (518,297)   (518,297)
                          
Balance, October 31, 2012   5,645,000   $5,645   $732,277   $(1,267,432)  $(529,510)

 

See accompanying notes to the financial statements.

 

6
 

 

Loton, Corp

 

Statements of Cash Flows

 

   For the Six Months
Ended
October 31, 2012
   For the Six Months
Ended
October 31, 2011
 
   (Unaudited)   (Unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(518,297)  $(149,932)
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation expense   1,512    - 
Equity based compensation   13,764    2,294 
Changes in operating assets and liabilities:          
Prepaid expenses   -    7,189 
Prepaid management services - related party   -    (60,000)
Accounts payable   20,512    49,629 
Accrued expenses   8,482    (575)
Accrued stockholder services   166,668    27,778 
           
NET CASH USED IN OPERATING ACTIVITIES   (307,359)   (123,617)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchases of office equipment   (10,223)   - 
           
NET CASH USED IN INVESTING ACTIVITIES   (10,223)   - 
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Advances from (repayment to) related party   (15,044)   (556)
Proceeds from note payable - related party   150,000    - 
Sale of common stock   275,000    250,000 
           
NET CASH PROVIDED BY FINANCING ACTIVITIES   409,956    249,444 
           
NET CHANGE IN CASH   92,374    125,827 
           
Cash at beginning of period   49,689    12,395 
           
Cash at end of period  $142,063   $138,222 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Interest paid  $-   $- 
Income tax paid  $-   $- 

 

See accompanying notes to the financial statements.

 

7
 

 

Loton, Corp

October 31, 2012 and 2011

Notes to the Financial Statements

(Unaudited)

 

Note 1 – Organization and Operations

 

Loton Corp

 

Loton, Corp (the “Company”) was incorporated under the laws of the State of Nevada on December 28, 2009. The Company intends to provide 3D rendering, animation and architectural visualization services to architects, builders, advertising agencies, interior designers, home renovators, home owners and various sectors which have need of 3D visualization in North America.

 

Change in Control

 

On September 9, 2011, Trinad Capital Master Fund, a Cayman Island exempted company (“Trinad”), entered into and consummated (the “Closing”) a Securities Purchase Agreement (the “Purchase Agreement”) with Alex Kuznetsov, a shareholder and the sole director and executive officer of Loton, Corp, a Nevada corporation.  Pursuant to the terms of the Purchase Agreement, Mr. Kuznetsov sold Trinad an aggregate of 4,000,000 shares (the “Shares”) of the Company’s common stock (“Common Stock”), which represented approximately 80% of the then issued and outstanding Common Stock of the Company.  In consideration for the purchase of the Shares, Trinad paid an aggregate amount of $311,615.

 

The Company is currently inactive and is seeking a suitable candidate for a business combination.

 

Note 2 – Summary of Significant Accounting Policies

 

Basis of Presentation – Unaudited Interim Financial Information

 

The accompanying unaudited interim consolidated financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim consolidated financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These unaudited interim consolidated financial statements should be read in conjunction with the financial statements of the Company for the fiscal year ended April 30, 2012 and notes thereto contained in the information as part of the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on August 14, 2012.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reporting amounts of revenues and expenses during the reporting period.

 

The Company’s significant estimates and assumptions include the fair value of financial instruments; the carrying value, recoverability and impairment, if any, of long-lived assets, including the values assigned to and the estimated useful life of office equipment; underlying assumptions to estimate the fair value of warrants and options; income tax rate, income tax provision, deferred tax assets and the valuation allowance of deferred tax assets; and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

 

8
 

 

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

 

Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting Standards Codification are described below:

 

Level 1   Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.
     
Level 2   Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.
     
Level 3   Pricing inputs that are generally observable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts payable and accrued expenses, approximate their fair values because of the short maturity of these instruments.

 

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated.

 

9
 

 

It is not, however, practical to determine the fair value of advances from stockholders and management services from stockholder, if any, due to their related party nature.

 

Carrying Value, Recoverability and Impairment of Long-Lived Assets

 

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets which include office equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

 

The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

 

The impairment charges, if any, is included in operating expenses in the accompanying statements of operations.

 

Fiscal Year End

 

The Company elected April 30 as its fiscal year ending date.

 

Cash Equivalents

 

The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

 

Office Equipment

 

Office equipment is recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation of office equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful life of five (5) years. Upon sale or retirement of office equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

 

Related Parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

10
 

 

Pursuant to section 850-10-20 the related parties include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Commitments and Contingencies

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s consolidated financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon information available at this time, that these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

 

Revenue Recognition

 

The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

 

11
 

 

Stock-Based Compensation for Obtaining Employee Services

 

The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

 

· Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-50-S99-1, it may be appropriate to use the simplified method, if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

· Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

· Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

 

· Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Department of the Treasury’s daily treasury yield curve rates in effect at the time of grant for periods within the expected term of the share options and similar instruments.

 

12
 

 

The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

 

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

 

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

 

Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

 

· Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments will be used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

· Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of the Company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

· Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

 

· Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Department of the Treasury’s daily treasury yield curve rates in effect at the time of grant for periods within the expected term of the share options and similar instruments.

 

13
 

 

Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

 

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.

 

Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

 

Income Tax Provision

 

The Company follows paragraph 740-10-30-2 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.

 

The Company adopted the provisions of paragraph 740-10-25-13 of the FASB Accounting Standards Codification. Paragraph 740-10-25-13 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.

 

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying consolidated balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its consolidated balance sheets and provides valuation allowances as management deems necessary.

 

14
 

 

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

 

Uncertain Tax Positions

 

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the interim period ended October 31, 2012 or 2011.

 

Limitation on Utilization of NOLs due to Change in Control

 

Pursuant to the Internal Revenue Code Section 382 (“Section 382”), certain ownership changes may subject the NOL’s to annual limitations which could reduce or defer the NOL. Section 382 imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of its stock at the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. The imposition of this limitation on its ability to use the NOLs to offset future taxable income could cause the Company to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.

 

Net Income (Loss) per Common Share

 

Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through contingent shares issuance arrangement, stock options or warrants.

 

The following table shows the potentially outstanding dilutive common shares excluded from the diluted net income (loss) per common share calculation as they were anti-dilutive:

 

   Potentially Outstanding Dilutive
Common Shares
 
   For the interim
period ended
October 31, 2012
   For the interim
period ended
October 31, 2011
 
         
On September 23, 2011, a warrant issued to Trinad Management LLC as compensation to purchase 1,125,000 shares of the Company’s common stock with an exercise price of $0.15 per share expiring ten (10) years from date of issuance   1,125,000    - 
           
Sub-total – Warrants   1,125,000    - 
           
Total potentially outstanding dilutive common shares   1,125,000    - 

 

15
 

 

Cash Flows Reporting

 

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

 

Recently Issued Accounting Pronouncements

 

FASB Accounting Standards Update No. 2011-08

 

In September 2011, the FASB issued the FASB Accounting Standards Update No. 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” (“ASU 2011-08”). This Update is to simplify how public and nonpublic entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

 

The guidance is effective for interim and annual periods beginning on or after December 15, 2011. Early adoption is permitted.

 

FASB Accounting Standards Update No. 2011-11

 

In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.

 

The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.

 

FASB Accounting Standards Update No. 2012-02

 

In July 2012, the FASB issued the FASB Accounting Standards Update No. 2012-02 “Intangibles—Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”).

 

This Update is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. This guidance builds upon the guidance in ASU 2011-08, entitled Testing Goodwill for Impairment. ASU 2011-08 was issued on September 15, 2011, and feedback from stakeholders during the exposure period related to the goodwill impairment testing guidance was that the guidance also would be helpful in impairment testing for intangible assets other than goodwill. 

 

The revised standard allows an entity the option to first assess qualitatively whether it is more likely than not (that is, a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired, thus necessitating that it perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired.

 

16
 

 

This Update is effective for annual and interim impairment tests performed in fiscal years beginning after September 15, 2012.  Earlier implementation is permitted.

 

Other Recently Issued, but not yet Effective Accounting Pronouncements

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

Note 3 – Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

 

As reflected in the accompanying financial statements, the Company had a deficit accumulated at October 31, 2012 and a net loss and net cash used in operating activities for the interim period then ended. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

While the Company is attempting to commence explorations and generate sufficient revenues, the Company’s cash position may not be sufficient enough to support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to commence explorations and generate sufficient revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues.

 

The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Note 4 – Office Equipment

 

Office equipment, stated at cost, less accumulated depreciation consisted of the following:

 

   Estimated Useful
Life (Years)
  October 31, 2012   April 30, 2012 
            
Office equipment  5  $16,077   $5,854 
              
       16,077    5,854 
              
Less accumulated depreciation      (1,704)   (192)
              
      $14,373   $5,662 

 

Depreciation Expense

 

Depreciation expense for the interim period ended October 31, 2012 and 2011 was $1,512 and $0, respectively.

 

17
 

 

Note 5 – Related Party Transactions

 

Related Parties

 

Related parties with whom the Company had transactions are:

 

Related Parties   Relationship
     
Trinad Capital Master Fund   Majority stockholder of the Company
     
Trinad Management, LLC   An entity owned and controlled by majority stockholder of the Company

 

Advances from Stockholders

 

From time to time, stockholders of the Company advance funds to the Company for working capital purpose. Those advances are unsecured, non-interest bearing and due on demand.

 

Advances from stockholders consisted of the following:

 

   October 31,
2012
   April 30, 2012 
         
Advances from related party  $44,596   $59,640 
           
   $44,596   $59,640 

 

Note Payable from Related Party

 

On April 2, 2012, the Company signed a promissory note with the Trinad Capital Master Fund for the amount of $150,000, with interest at 6% per annum, with principle due on April 1, 2013.

 

On June 21, 2012, the Company signed a promissory note with the Trinad Capital Master Fund for the amount of $150,000, with interest at 6% per annum, with principle due on June 20, 2013.

 

As of October 31, 2012, the Company recorded accrued interest on the notes of $8,482.

 

Management Services from a Related Party

 

On September 23, 2011, the Company entered into a Management Agreement (“Management Agreement”) with Trinad Management, LLC (“Trinad LLC”).  Pursuant to the Management Agreement, Trinad LLC has agreed to provide certain management services to the Company for a period of three (3) years expiring September 22, 2014, including without limitation the sourcing, structuring and negotiation of a potential business combination transaction involving the Company.  Under the  Management Agreement the Company will compensate Trinad LLC for its services with (i) a fee equal to $2,080,000, with  $90,000 payable in advance of each  consecutive three-month calendar period during the term of the Agreement and  with $1,000,000 due at the end of the three (3) year term unless the Management Agreement  is otherwise  terminated earlier in accordance with its terms, and (ii) issuance of a Warrant to purchase 1,125,000 shares of the Company’s common stock at an exercise price of $0.15 per share (“Warrant”). The Company valued the warrant granted, using the Black-Scholes - pricing model with the following weighted-average assumptions:

 

Expected life (year)   10 
      
Expected volatility   118.18%
      
Expected annual rate of quarterly dividends   0.00%
      
Risk-free interest rate   1.84%

 

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The expected life is based on the expiration term of the warrants. As a thinly traded public entity it is not practicable for the Company to estimate the expected volatility of its share price. The Company selected five (5) comparable public companies listed on NYSE Amex or NASDAQ Capital Market within computer data service industry which the Company plans to engage in to calculate the expected volatility. The Company calculated those five (5) comparable companies’ historical volatility over the expected life of the options or warrants and averaged them as its expected volatility. Expected annual rate of quarterly dividends is based on the Company’s dividend history and anticipated dividend policy. The risk-free interest rate is based on a yield curve of U.S. treasury interest rates on the date of valuation based on the contractual life of the warrant.

 

The fair value of the warrant granted, estimated on the date of grant, was $82,575 and is being amortized over the period of service of three (3) years.

 

The Company (i)(a) recorded $30,000 per month for the $1,080,000 portion of the management services to be paid on a quarterly basis, accrued (i)(b) $27,778 per month for the $1,000,000 portion of the management services, due at the end of the three (3) year term; and (ii) recorded amortization of $2,294 per month for the fair value of the warrant portion of the management services issued on September 23, 2011 in connection with the Management Agreement, or $60,072 of management services per month in aggregate.

 

The management services from the related party were as follows:

 

   For the Interim
Period Ended
October 31, 2012
   For the Interim
Period Ended
October 31, 2011
 
         
(i) (a) Management services billed or accrued on a quarterly basis  $180,000   $30,000 
           
(i) (b) Long-term management services due at the end of the term accrued   166,668    27,778 
           
(ii) Amortization of the fair value of the warrant issued   13,764    2,294 
           
   $360,432   $60,072 

 

Note 6 – Stockholders’ Equity (Deficit)

 

Shares Authorized

 

Upon formation the total number of shares of all classes of stock which the Company is authorized to issue is Seventy Five Million (75,000,000) shares which shall be Common Stock, par value $.0001 per share.

 

Common Stock

 

On April 21, 2010, the Company issued 4,000,000 shares of its common stock at $0.001 per share, to its sole Director, or $4,000 in cash.

 

In January 2011, the Company issued 430,000 shares of its common stock to an unrelated third party at $0.03 per share, or $12,900 in cash.

 

In February and March, 2011, the Company issued 540,000 shares of common stock to an unrelated third party at $0.03 per share, or $16,200 in cash.

 

During the fiscal year ended April 30, 2012, the Company issued 400,000 shares of its common stock to an unrelated third party at $1.00 per share, or $400,000 in cash.

 

During the interim period ended October 31, 2012, the Company issued 275,000 shares of its common stock to an unrelated third party at $1.00 per share, or $275,000 in cash.

 

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Warrants

 

(i) Warrants Issued in September 2011

 

On September 23, 2011, pursuant to the Management Agreement, the Company issued Trinad LLC a Warrant to purchase 1,125,000 shares of the Company’s common stock at an exercise price of $0.15 per share expiring five (5) years from the date of issuance.

 

Summary of Warrant Activities

 

The table below summarizes the Company’s warrant activities:

 

   Number of
Warrant Shares
   Exercise Price Range
Per Share
   Weighted Average
Exercise Price
   Fair Value at Date
of Issuance
   Aggregate
Intrinsic
Value
 
                     
Balance, April 30, 2012   1,125,000   $0.15   $0.15   $82,575   $- 
                          
Granted   -   $-   $-   $-    - 
                          
Canceled for cashless exercise   (-)   -    -    -    - 
                          
Exercised (Cashless)   (-)   -    -    -    - 
                          
Exercised   (-)   -    -    -    - 
                          
Expired   -    -    -    -    - 
                          
Balance, October 31, 2012   1,125,000   $0.15   $0.15   $82,575    - 
                          
Earned and exercisable, October 31, 2012   406,250   $0.15   $0.15   $29,822    - 
                          
Unvested, October 31, 2012   718,750   $0.15   $0.15   $52,753    - 

 

The following table summarizes information concerning outstanding and exercisable warrants as of October 31, 2012:

 

    Warrants Outstanding   Warrants Exercisable 
Range of Exercise Prices   Number
Outstanding
   Average
Remaining
Contractual Life
(in years)
   Weighted
Average
Exercise Price
   Number
Exercisable
   Average
Remaining
Contractual
Life (in years)
   Weighted
Average
Exercise Price
 
                          
$0.15    1,125,000    3.90   $0.15    1,125,000    3.90   $0.15 
                                 
$0.15    1,125,000    3.90   $0.15    1,125,000    3.90   $0.15 

 

Note 7 – Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

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On November 15, 2012, the Company entered into a securities purchase agreement with an investor pursuant to which the Company issued the investor 100,000 shares of common stock for an aggregate purchase price of $100,000. The proceeds will be used for general administrative purposes.

 

On November 15, 2012, the Company entered into a consulting agreement with Andrew Schleimer pursuant to which Mr. Schleimer was awarded consulting fees of $30,000 per year, paid monthly and 100,000 restricted stock units of the Company which shall fully vest on January 15, 2013. Mr. Schleimer is also a director of the Company and an employee of Trinidad Capital Management, which is a substantial stockholder in the Company.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

Certain statements made in this Quarterly Report on Form 10-Q (“Quarterly Report”) are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995). Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving judgments with respect to, among other things, future economic, market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “may,” “could,” “should,” and similar expressions are intended to identify forward-looking statements.

 

The forward-looking statements are based on various factors and were derived using numerous assumptions. Although we believe that our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements included in this Quarterly Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, particularly in view of the current state of our operations, the inclusion of such information should not be regarded as a statement by us or any other person that our objectives and plans will be achieved. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

 

References to “Company,” “we” or “us” refer to Loton, Corp, unless the context requires otherwise.

 

Description of Business

 

Loton, Corp was incorporated in the State of Nevada on December 28, 2009 to provide 3D rendering, animation and architectural visualization services using advanced computer technology to produce photo realistic 3D rendering, walk-through animation and 360 degree panorama.

 

On September 9, 2011, Trinad Capital Master Fund, a Cayman Island exempted company, (“Trinad”), entered into a Securities Purchase Agreement with Alex Kuznetsov, a shareholder and the sole director and executive officer of the Company (the “Purchase Agreement”). Pursuant to the terms of the Purchase Agreement, Mr. Kuznetsov sold to Trinad an aggregate of 4,000,000 shares of the Company’s common stock $.001 par value per share, representing 80% of the issued and outstanding Common Stock of the Company as of October 31, 2011 (the “Closing”). Trinad paid $311,615 for the shares. The managing member of Trinad Management, LLC, the investment manager of Trinad, is Robert S. Ellin. In accordance with the Purchase Agreement, effective upon the closing (a) Alex Kuznetsov resigned as the Company’s Chief Executive Officer, President and sole director, (b) Robert S. Ellin was appointed as the sole director of the Board to serve until the next annual stockholders meeting and until his successor is duly elected and qualified, and (c) Robert S. Ellin was appointed President, Chairman and Chief Executive Officer of the Company. Mr. Ellin became the Chief Financial Officer and Secretary on April 26, 2012. In addition, Jay Krigsman and Andrew Schleimer were appointed as directors of the Board to serve until the next annual stockholders meeting and until their successors are duly elected and qualified on April 26, 2012.

 

At present, the Company has no sources of revenue and we are an inactive company. The Company is currently considered to be a blank check company. The SEC defines those companies as any development stage company that is issuing a penny stock, within the meaning of Section 3(a)(51) and Rule 3a51-1 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies. Under SEC Rule 12b-2 under the Exchange Act, the Company also qualifies as a shell company because it has no or nominal assets (other than cash) and no or nominal operations. Many states have enacted statutes, rules and regulations limiting the sale of securities of blank check companies in their respective jurisdictions. Management does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long as it is subject to those requirements.

 

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Our principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with a business rather than immediate, short-term earnings. The Company will not restrict our potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.

 

The Company currently does not engage in any business activities that provide cash flow. During the next twelve months we anticipate incurring costs related to:

 

  (i) filing Exchange Act reports, and

 

  (ii) investigating, analyzing and consummating an acquisition.

 

We believe we will be able to meet these costs through use of funds in our treasury, through deferral of fees by certain service providers and additional amounts, as necessary, to be loaned to or invested in us by our stockholders, management or other investors. There are no assurances that the Company will be able to secure any additional funding as needed. Currently, however our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Our ability to continue as a going concern is also dependent on our ability to find a suitable target company and enter into a possible reverse merger with such company. Management’s plan includes obtaining additional funds by equity financing through a reverse merger transaction and/or related party advances; however there is no assurance of additional funding being available.

 

The Company may consider acquiring a business which has recently commenced operations, is a developing company in need of additional funds for expansion into new products or markets, is seeking to develop a new product or service, or is an established business which may be experiencing financial or operating difficulties and is in need of additional capital. In the alternative, a business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires to establish a public trading market for its shares while avoiding, among other things, the time delays, significant expense, and loss of voting control which may occur in a public offering.

 

Any target business that is selected may be a financially unstable company or an entity in its early stages of development or growth, including entities without established records of sales or earnings. In that event, we will be subject to numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. In addition, we may effect a business combination with an entity in an industry characterized by a high level of risk, and, although our management will endeavor to evaluate the risks inherent in a particular target business, there can be no assurance that we will properly ascertain or assess all significant risks. Our management anticipates that it will likely be able to effect only one business combination, due primarily to our limited financing and the dilution of interest for present and prospective stockholders, which is likely to occur as a result of our management’s plan to offer a controlling interest to a target business in order to achieve a tax-free reorganization. This lack of diversification should be considered a substantial risk in investing in us, because it will not permit us to offset potential losses from one venture against gains from another.

 

The Company anticipates that the selection of a business combination will be complex and extremely risky. Because of general economic conditions, rapid technological advances being made in some industries and shortages of available capital, our management believes that there are numerous firms seeking even the limited additional capital which we will have and/or the perceived benefits of becoming a publicly traded corporation. Such perceived benefits of becoming a publicly traded corporation include, among other things, facilitating or improving the terms on which additional equity financing may be obtained, providing liquidity for the principals of and investors in a business, creating a means for providing incentive stock options or similar benefits to key employees, and offering greater flexibility in structuring acquisitions, joint ventures and the like through the issuance of stock. Potentially available business combinations may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.

 

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Management Agreement

 

On September 23, 2011, the Company entered into a Management Agreement (“Management Agreement”) with Trinad Management, LLC (“Trinad Management”). Pursuant to the Management Agreement, Trinad has agreed to provide certain management services to the Company for a period of three (3) years, including without limitation the sourcing, structuring and negotiation of a potential business combination transaction involving the Company. Under the Management Agreement the Company will compensate Trinad Management for its services with (i) a fee equal to $2,080,000, with $90,000 payable in advance of each consecutive three-month period during the term of the Agreement and with $1,000,000 due at the end of the 3 year term unless the Management Agreement is otherwise terminated earlier in accordance with its terms, and (ii) issuance of a Warrant to purchase 1,125,000 shares of the Company common stock at an exercise price of $0.15 per share. The warrant may be exercised in whole or in part by Trinad Management at any time for a period of ten (10) years.

 

Liquidity and Capital Resources

 

As of October 31, 2012, the Company had total current assets of $202,063 comprising of cash and prepaid management fees in comparison with that of $109,689 comprising of cash and prepaid expenses as of April 30, 2012. The Company had total current liabilities of $384,832, mainly comprised of notes payable of $300,000 outstanding due investors, accounts payable of $31,754 and accrued expenses of $8,482, and an advance from our Chief Executive Officer of $44,596 as of October 31, 2012 in comparison with current liabilities of $220,882 as of April 30, 2012, mainly comprised of notes payable of $150,000 outstanding due investors, accounts payable of $11,242, and an advance from our Chief Executive Officer of $59,640 as of April 30, 2012.

 

On November 8, 2011, the Company entered into a securities purchase agreement with an investor pursuant to which the Company issued the investor 250,000 shares of common stock for an aggregate purchase price of $250,000. The proceeds are used for general administrative purposes.

 

On December 27, 2011, the Company entered into a second securities purchase agreement with the same investor pursuant to which the Company issued the investor 150,000 shares of common stock for an aggregate purchase price of $150,000. The proceeds are for general administrative purposes.

 

On April 2, 2012, the Company issued a promissory note in the amount of $150,000 to Trinad Master Fund. The note matures on April 1, 2013, and is subject to interest at an annual rate of 6%. The Company will use the proceeds from the note issuance for general administrative expenses.

 

On June 21, 2012, the Company issued a promissory note in the amount of $150,000 to Trinad Master Fund. The note matures on June 20, 2013, and is subject to interest at an annual rate of 6%. The Company will use the proceeds from the note issuance for general administrative expenses.

 

On September 11 and September 20, 2012, the Company entered into two separate securities purchase agreements with two accredited investors, pursuant to which the Company agreed to issue an aggregate of 275,000 shares of its common stock for an aggregate purchase price of $275,000.

 

The Company has nominal assets and has generated no revenues since inception. The Company is dependent upon the receipt of capital investment or other financing to fund its ongoing operations and to execute its business plan of seeking a combination with a private operating company. If continued funding and capital resources are unavailable at reasonable terms, the Company may not be able to implement its plan of operations. The Company can provide no assurance that it can continue to satisfy its cash requirements for at least the next twelve months.

 

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Existing working capital, further advances and debt instruments, and anticipated cash flow are expected to be adequate to fund our operations over the next six months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures. We intend to finance these expenses with further issuances of securities and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations. We will have to raise additional funds in the next twelve months in order to sustain and expand our operations. We currently do not have a specific plan of how we will obtain such funding.

 

Results of Operations

 

Only nominal revenue has been generated by the Company from December 28, 2009 (Inception) through October 31, 2012. It is unlikely the Company will have any significant revenues unless it is able to effect an acquisition or merger with an operating company, of which there can be no assurance. These circumstances may hinder the Company’s ability to continue as a going concern. The Company’s plan of operation for the next twelve months is to continue its efforts to locate suitable acquisition candidates.

 

For the three months ended October 31, 2012, the Company had a net loss of $283,658, including consulting fees and professional fees, management fees of $253,181, travel expenses of $21,646 and general administrative expenses and consulting fees of $4,294.

 

For the three months ended October 31, 2011, the Company had a net loss of $143,785, including consulting fees and professional fees, management fees and salaries of $115,600, travel expenses of $21,778 and general administrative expenses and consulting fees of $6,407.

 

For the period from December 28, 2009 (Inception) through October 31, 2012, the Company had a deficit accumulated of $1,267,432, comprised professional fees, including of consulting fees, professional fees and general and administrative expenses incurred in relation to the formation of the Company, the filing of the Company’s Registration Statement on Form S-1, and the filing of the Company’s periodic reports, consulting fees, and management services fees.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Contractual Obligations

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

Going Concern

 

Our financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have a history of recurring losses that are likely to continue in the future. Our financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. We may be required to cease operations which could result in our stockholders losing almost all of their investment.

 

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our principal executive officer and principal financial officer performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of October 31, 2012, our disclosure controls and procedures were not effective for the period ended October 31, 2012 for the reasons discussed below.

 

The following two material weaknesses in our internal control over financial reporting existed on October 31, 2012:

 

(i)      We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the quarter ended October 31, 2012. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

 

(ii)     We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures, and concluded that the control deficiency that resulted represented a material weakness.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1 – Legal Proceedings

 

There are no material legal proceedings to which we are a party, or of which any of our property is subject, and we are not aware of any threatened legal proceedings against us.

 

Item 1A – Risk Factors

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

 

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3 – Defaults Upon Senior Securities

 

None.

 

Item 4 – (Reserved)

 

Item 5 – Other Information

 

On November 15, 2012, the Company entered into a securities purchase agreement with an investor pursuant to which the Company issued the investor 100,000 shares of common stock for an aggregate purchase price of $100,000. The proceeds will be used for general administrative purposes.

 

On November 15, 2012, the Company entered into a consulting agreement with Andrew Schleimer pursuant to which Mr. Schleimer was awarded consulting fees of $30,000 per year, paid monthly and 100,000 restricted stock units of the Company which shall fully vest on January 15, 2013. Mr. Schleimer is also a director of the Company and an employee of Trinad Capital Management, which is a substantial stockholder in the Company.

 

Item 6 – Exhibits

 

Exhibit

No.

  Description
     
10.1   Form of Securities Purchase Agreement, dated September 11 and September 20, 2012, between the Company and certain investors.
     
31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1   Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

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SIGNATURES

 

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  LOTON, CORP
     
Date: December 12, 2012 By: /s/ Robert Ellin
    Robert Ellin
    Chief Executive Officer
    (Principal Executive Officer)

 

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