LiveXLive Media, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2017; fiscal third quarter of fiscal 2018. The company provides live-music streaming and related media services and acquired Slacker Radio on December 29, 2017. The quarter’s reported results therefore include only two days of Slacker’s operations.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2017 | Nine months ended Dec. 31, 2017 | Comparable 2016 period |
|---|---|---|---|
| Reported revenue | $0 | $80,263 | $0 for quarter; $225,000 for nine months |
| Operating expenses | $2.71 million | $7.72 million | $1.35 million; $4.06 million |
| Operating loss | $2.71 million | $7.64 million | $1.35 million; $3.83 million |
| Net loss | $6.72 million | $13.84 million | $4.54 million; $9.14 million |
| Basic and diluted loss per share | $0.19 | $0.38 | $0.14; $0.29 |
| Cash used in operating activities | $3.28 million for nine months | $2.58 million used |
Nine-month revenue was entirely a license fee for producing a live video event. Consolidated gross margin is not clearly presented in the filing. Interest expense rose to $2.29 million for nine months from $438,000, primarily reflecting greater debt and debt-discount amortization. Selling, general and administrative expense increased to $7.45 million from $3.79 million; reported drivers included stock issued for services and stock-option expense.
At December 31, cash and cash equivalents were $13.75 million, including $2.39 million of restricted cash. Current assets were $18.09 million and current liabilities were $28.37 million, producing a $10.28 million working-capital deficit. Total liabilities were $28.37 million; stockholders’ equity was $40.78 million. Accrued royalties were $13.82 million. The balance sheet also included $50.57 million of Slacker acquisition goodwill/intangible excess purchase price, with the purchase-price allocation still preliminary.
Material changes and transactions
- Slacker acquisition: Closed December 29, 2017 for stated total consideration of $55.26 million, including company shares, $2.5 million cash and assumed liabilities. Slacker had approximately 1.5 million monthly unique users, more than 400,000 subscribers, and a catalog exceeding 13 million tracks, according to the filing. Its unaudited pro forma results, as if acquired April 1, 2016, showed revenue of $6.75 million and net loss of $8.27 million for the quarter, and revenue of $20.06 million and net loss of $18.72 million for nine months. These are illustrative pro forma figures, not reported consolidated results.
- Public offering: The December offering sold 5.0 million shares at $4.00 per share, yielding $16.81 million net. An additional 460,200 shares sold in January 2018 generated $1.71 million net. The company reported total gross proceeds of $22 million from the offering and full over-allotment.
- Ticketing business discontinued: The company shut down LiveXLive Tickets operations effective December 31, 2017, citing weaker demand and loss of significant venue relationships. It reported a $1.12 million operating loss and a $2.79 million impairment/disposal loss for the nine months.
- Common shares issued and outstanding were 49.54 million at December 31, 2017; the filing reported 50.49 million as of February 12, 2018. Slacker acquisition shares, offering shares and other equity awards increased dilution.
Outlook, risks and unusual items
- Going concern: The company reported a $13.84 million nine-month net loss, operating cash use of $3.28 million and a working-capital deficit. It stated these conditions raise substantial doubt about its ability to continue as a going concern within one year. Management believed offering proceeds would fund its business plan through June 30, 2019, but cautioned that revenue growth, profitability and positive operating cash flow were not assured.
- Debt and liquidity: The $2.24 million Slacker revolving credit balance was due March 31, 2018, bore 5.25% interest and had no remaining availability at period-end; the company was discussing an extension. After period-end it drew a further $1.26 million and cash-collateralized the full balance with $3.5 million. A separate $289,934 promissory note was past due and unextended. Convertible notes include related-party debt and maturities through 2018.
- Legal and contractual exposure: Disclosed claims included Bestival damages sought of $300,000; Exodus arbitration concerning $155,633 in alleged event proceeds; Light Nightclub/Daylight Beach Club claims exceeding $287,000 plus fees; and a February 2018 Wynn claim exceeding $600,000. The company disputed the claims. Promotional-right agreements include guaranteed payments of $700,000 in fiscal 2019 and $285,000 in each of fiscal 2020 and 2021, plus revenue shares. Slacker content-provider agreements include guaranteed payments of $690,900 in fiscal 2019 and $160,000 in fiscal 2020.
- Controls: Management concluded disclosure controls were ineffective and identified material weaknesses involving undocumented controls, insufficient segregation of duties, and inadequate monitoring and GAAP/SEC reporting expertise. It planned to add accounting resources and integrate Slacker’s accounting personnel and systems; remediation was not assured.
- Other notable items: Discontinued ticketing assets were impaired; Slacker purchase accounting remained preliminary. The filing also disclosed a $10 million potential termination payment under the CEO’s employment agreement if specified termination conditions are met.
Important facts for investors to verify
- Whether cash availability, including restricted cash and the post-period credit-line collateral, supports operations through management’s June 30, 2019 estimate.
- Progress on extending the Slacker credit line, repayment or conversion of near-term notes, and resolution of the past-due promissory note.
- Slacker’s post-acquisition revenue, subscriber retention, royalty obligations and integration costs; reported quarter results contain only two days of Slacker operations.
- Final Slacker purchase-price allocation and the recoverability of the substantial recorded acquisition value.
- Developments in the disclosed legal claims and any additional liabilities associated with the discontinued ticketing business.
- Whether management remediates the reported material weaknesses and whether subsequent filings show improved controls and operating cash flow.