Business context and reporting period
This is Loton, Corp.’s unaudited Form 10-Q for the quarter ended June 30, 2015, its first quarter of fiscal 2016—not a filing under the name Liveone, Inc. LiveXLive, Corp. was formed in February 2015 and renamed in May; the company’s principal operating business remained the KOKO live music venue in Camden, London. Loton owns 50% of the KOKO holding and operating entities and consolidates them. The reported revenue primarily reflects KOKO, not an established LiveXLive streaming operation.
Financial performance and position
| Metric | Quarter ended June 30, 2015 | Prior-year quarter |
|---|---|---|
| Revenue | $1.937 million | $1.847 million |
| Gross profit / margin | $1.659 million / 85.7% | $1.568 million / 84.9% |
| Operating expenses | $2.252 million | $3.661 million |
| Operating loss | $(592,364) | $(2.093) million |
| Net loss attributable to Loton stockholders | $(770,718); $(0.02) per share | $(1.527) million; $(0.06) per share |
| Net cash used in operating activities | $(433,989) | $(1.371) million |
Revenue increased 4.9%, attributed mainly to seven additional live events and a strong Music On club event; timing of corporate events, lower Saturday-night revenue per event, and currency translation partly offset the gain. Cost of revenue declined slightly, lifting gross margin. Operating expenses fell 38.5%, largely because the prior-year quarter included $1.376 million of merger-related professional costs that did not recur. General and administrative expense rose about 20%, with higher wages and promotional costs associated with the streaming plan and LiveXLive launch. Interest expense increased to $44,077 from $5,088.
Cash was $1.337 million at June 30, versus $866,951 at March 31. Cash increased despite operating and investing outflows, chiefly because financing provided $874,566, including related-party borrowing and $150,000 from a stock sale. Current assets were $1.880 million and current liabilities $5.656 million, a working-capital deficit of approximately $3.776 million. Total liabilities were $6.746 million; total deficit was $3.859 million. Current notes payable totaled approximately $2.704 million, including related-party notes. The company also reported a $1.000 million related-party management-service obligation. The filing reports no material capital-expenditure commitments.
Material changes, outlook and risks
- Management said substantial doubt exists about the company’s ability to continue as a going concern, citing accumulated losses, the quarter’s net loss and operating cash use. Continued operations depend on executing the business plan, financing, and cash generated by KOKO; management said funding may not be available on reasonable terms. No specific financial guidance was provided.
- LiveXLive was developing a digital live-music streaming strategy, negotiating content and distribution arrangements, and working with POSSIBLE Mobile on a mobile and web experience. Management described discussions with festivals, promoters and music companies; these plans were not presented as established revenue streams. Verizon Digital Media Services was selected after quarter-end to support streaming delivery.
- The company’s debt includes related-party financing. At June 30, Trinad Capital principal included $1.0 million under a 6% note and $645,500 under an 8% note; the latter was amended in July to reflect advances made by quarter-end. A separate $812,124 principal balance was owed to JJAT under the OCHL note. Terms and payments to related parties merit review.
- A High Court hearing on Obar Camden’s challenge to nearby residential redevelopment took place August 5, 2015; the decision was pending. The company said the development could lead to noise complaints and adversely affect KOKO’s premises licence.
- Disclosure controls were deemed ineffective. Management identified material weaknesses due to the absence of written internal-control documentation and insufficient segregation of accounting duties.
- Risk factors included limited cash and a history of losses, dependence on additional capital, venue seasonality and competition, and the uncertain ability to develop a streaming business. The cover page also indicated the company had not filed all required reports during the preceding 12 months.
Important facts for investors to verify
- Confirm the correct issuer and period: the supplied filing is Loton, Corp.’s June 30, 2015 10-Q, while LiveXLive was a subsidiary and the metadata identifies Liveone, Inc.
- Review the company’s financing runway, maturities, related-party note terms, accrued interest and any subsequent funding; operating cash flow remained negative and current liabilities substantially exceeded current assets.
- Assess whether the streaming strategy secured binding content, distribution and monetization agreements, and distinguish post-quarter announcements from arrangements in effect at June 30.
- Check the outcome and potential operating or licensing effects of the KOKO planning-permission litigation.
- Track remediation of the two disclosed material weaknesses and the company’s reporting compliance, including the cover-page indication of late or missing reports.
- Reconcile share counts and dilution: the filing reported 43,891,655 shares outstanding at June 30 and 45,347,488 as of August 7, alongside warrants and subsequent equity issuances.