LiveOne, Inc. (filing registrant: Loton, Corp.) — FY2017 Form 10-K
Reporting period: Fiscal year ended March 31, 2017; comparative period is the year ended March 31, 2016. The filing was signed June 14, 2017. Although the request identifies LiveOne, the filing is by Loton, Corp. and describes its LiveXLive business. The Wantickets acquisition occurred after year-end and is not included in the reported FY2017 results.
Business context and financial performance
The company was developing an online network for live music and music-related video, with planned monetization through advertising, sponsorship, subscriptions, pay-per-view, ticketing and e-commerce. Management described the business as early-stage, with minimal revenue to date.
| Metric | FY ended Mar. 31, 2017 | FY ended Mar. 31, 2016 |
|---|---|---|
| Revenue | $225,000 | $0 |
| Operating expenses | $5,709,801 | $3,979,000 |
| Operating loss | $5,484,801 | $3,979,000 |
| Net loss | $14,249,719 | $3,746,944 |
| Net loss per share | $0.15 | $0.04 |
| Net cash used in operating activities | $3,123,169 | $2,999,942 |
FY2017 revenue was entirely a license fee for producing a live video event. Gross margin is not meaningfully stated for the company’s reported revenue. SG&A rose $1.73 million to $5.35 million. The larger net loss also reflected financing-related warrant and beneficial-conversion costs, interest expense, and the disposal of the OCHL investment.
Liquidity, debt and cash flow
- At March 31, 2017, cash was $1,477,229, total assets $1,556,205, total liabilities $4,961,897, and stockholders’ deficit $3,405,692. Accumulated deficit was $28,095,890.
- Current assets of $1,498,798 compared with current liabilities of $4,729,689, implying negative working capital of approximately $3.23 million.
- Current liabilities included a $3,603,446 shareholder note payable to Trinad Capital, an affiliate of Executive Chairman Robert Ellin. The filing also reports $277,270 of note payable, described as past due, and unsecured convertible notes.
- Operating cash outflow was $3.12 million; investing activities provided $2.16 million, principally from the OCHL sale; financing activities provided $2.40 million. Cash increased by $1.44 million for the year.
- The auditor’s report and management state that losses, operating cash use and the stockholders’ deficit raise substantial doubt about the company’s ability to continue as a going concern. Management estimated funds on hand would support operations through September 2017 and said additional financing was needed.
Material changes, outlook and notable items
- OCHL divestiture: The company sold its 50% interest in Obar Camden Holdings Limited, which owned the KOKO venue, for $2,182,274 in proceeds. It recorded a $2,790,073 loss on sale and impaired a related-party note receivable by $213,331.
- Wantickets acquisition after year-end: On May 5, 2017, the company acquired certain Wantickets operating assets for 2 million shares valued at $3.34 million and assumption of certain liabilities. Purchase-price allocation was still being completed. Unaudited pro forma figures show revenue of $3.97 million and net loss of $15.76 million for FY2017 as if the acquisition had occurred at the start of the year; these are not reported historical results.
- Financing and dilution: After year-end, the company issued eight 6% convertible notes for $1.595 million and warrants covering 797,500 shares. The notes may convert at a discount in qualifying equity financing. The company also planned a public offering, but gave no assurance it would be completed.
- Content commitments: Management reported guaranteed payments of $710,000 for FY2018, $515,000 for FY2019 and $25,000 for FY2020, assuming planned events occur and contractual conditions are met. Related agreements include revenue-sharing provisions, generally 35%–50% of net revenue.
- Execution plans: Management planned to launch the iOS LXL App in summer 2017, followed by Android and connected-TV applications later in 2017. Subscription and pay-per-view revenue were prospective plans, not established revenue streams.
- Controls and reporting: Management concluded disclosure controls and internal control over financial reporting were ineffective at March 31, 2017. Disclosed material weaknesses included missing written control procedures, insufficient segregation of duties, no independent audit committee, and inadequate financial-close review. The filing also refers to a restatement of previously issued financial statements.
- Litigation: LiveXLive faced a Bestival licensing-contract claim seeking $300,000; it contested the claim and had filed a cross-complaint. Mediation was scheduled for June 2017 and trial for March 2018.
Key facts for investors to verify
- Confirm the issuer and reporting period: the filing is Loton, Corp.’s FY ended March 31, 2017, not a calendar-year or standalone Q4 report.
- Review the going-concern disclosure, cash runway estimate, subsequent financing, and whether the planned public offering closed on acceptable terms.
- Reconcile the shareholder and convertible-note balances, maturities, conversion discounts, warrants, and resulting potential dilution.
- Check the final Wantickets purchase-price allocation, liabilities assumed, integration results, and whether its pro forma economics were realized.
- Track remediation of the material weaknesses and assess the effect of the prior financial-statement restatement.
- Verify the status and outcome of the Bestival litigation and the timing and conditions of committed content payments.