Business context and reporting period
LiveXLive Media, Inc. (formerly Loton, Corp.) filed this unaudited Form 10-Q for the three months ended June 30, 2017, its fiscal first quarter, with comparison to the three months ended June 30, 2016. The company operates a live-music and music-video platform. Ticketing revenue began after its May 5, 2017 acquisition of selected Wantickets assets. The company changed its name and reincorporated in Delaware on August 2, 2017, after quarter-end.
Financial performance and position
| Metric | Three months ended June 30, 2017 | Comparable 2016 period / balance-sheet date |
|---|---|---|
| Revenue | $276,243 | $0 |
| Cost of revenue; gross profit | $78,869; $197,374 | $0; $0 |
| Gross margin | 71.4% | Not meaningful |
| Operating expenses | $2,377,585 | $1,174,886 |
| Operating loss | $(2,180,211) | $(1,174,886) |
| Interest expense, net | $634,949 | $712,268 |
| Net loss; loss per share | $(2,815,160); $(0.03) | $(1,803,970); $(0.02) |
| Cash from operating activities | $(1,462,949) | $(1,220,338) |
| Cash at period end | $1,514,513 | $76,613 |
| Total assets; total liabilities | $5,243,830; $6,041,307 | March 31, 2017: $1,556,205; $4,961,897 |
| Current assets; current liabilities | $1,719,201; $5,692,157 | March 31, 2017: $1,498,798; $4,729,689 |
Ticketing generated all reported quarterly revenue; the acquired business contributed $276,243 of revenue and a $195,118 loss from the acquisition date through June 30. Financing provided $1,515,233 of net cash, principally from $1,695,000 of convertible notes and $50,000 of related-party notes, partly offset by $239,993 of deferred offering costs. The company reported a stockholders’ deficit of $797,477 at quarter-end.
Material changes, outlook and risks
- Revenue was new versus no revenue in the prior-year quarter, reflecting the Wantickets acquisition. Operating expenses more than doubled, and net loss widened by $1,011,190. The filing reports lower net interest expense year over year, notwithstanding management’s statement that the increased net loss primarily reflected higher operating expenses and interest expense.
- The Wantickets assets were acquired for 2,000,000 shares valued at $3,340,000. The preliminary purchase-price allocation included $1,798,700 of net intangible assets and $1,321,300 of goodwill; valuation remained subject to change. Amortization expense on acquired intangibles was $111,000 in the quarter.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. It estimated cash on hand would fund operations only through September 2017 and said continued operations depended on executing its strategy and raising capital, including completing a contemplated underwritten public offering. Completion and availability of other financing were not assured; financing could dilute shareholders or impose restrictions.
- Debt and liquidity are significant risks: current liabilities substantially exceeded current assets. A $281,429 6% senior note was past due and had not been extended as of the filing. The $3,657,015 shareholder convertible note was due March 31, 2018; other convertible notes also included conversion rights and substantial discounts recorded as interest expense.
- Guaranteed promotional-rights payments totaled $700,000 for fiscal 2018 and $475,000 for fiscal 2019, in addition to revenue shares. Legal matters included a $300,000 damages claim relating to Bestival (contested by the company’s subsidiary) and a post-quarter arbitration demand alleging $155,633 owed by Wantickets, which the company disputed.
- Disclosure controls were deemed ineffective because of material weaknesses, including inadequate documentation, insufficient segregation of duties, no independent audit committee, and weaknesses in financial-close monitoring and GAAP expertise. Management described planned remediation, but gave no assurance it would be sufficient.
- Management expected substantial losses to continue over the next 12 months. The filing provides no specific revenue or earnings guidance.
Most important facts for investors to verify
- Whether the contemplated public offering or other financing was completed, on what terms, and whether liquidity improved beyond management’s September 2017 estimate.
- The status, maturity terms and conversion or dilution implications of the shareholder and other convertible notes, and resolution of the past-due $281,429 note.
- Whether Wantickets met operating expectations, whether its preliminary asset valuations changed, and the status of amounts allegedly owed to Exodus and the funding obligations attributed to its former executive.
- Developments in the Bestival litigation, Exodus arbitration and guaranteed promotional-payment commitments.
- Progress in addressing control weaknesses and whether subsequent filings report restatements or other financial-reporting issues.