Business Context and Reporting Period
Courtside Group, Inc., doing business as PodcastOne, is a podcast platform and publisher offering advertising-supported audio, video, branded content, merchandise, live events and the LaunchpadOne self-publishing platform. The company was a wholly owned subsidiary of LiveOne as of June 30, 2023 and expected to become a majority-owned, separately traded company following a proposed spin-out and direct listing.
This unaudited Form 10-Q covers the three months ended June 30, 2023, the first quarter of fiscal 2024. The filing identifies the registrant as Courtside Group, Inc., although the request metadata refers to PodcastOne, Inc.
Financial Performance and Position
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Revenue | $10.637 million | $8.716 million | 22% increase |
| Cost of sales | $8.222 million | $6.581 million | 25% increase |
| Operating income (loss) | $0.193 million | $(0.481) million | Improved by $0.674 million |
| Net income (loss) | $(0.210) million | $(0.481) million | Loss narrowed by $0.271 million |
| Net loss per share | $(0.01) | $(0.01) | No stated change |
| Operating cash flow | $(0.046) million | $0.868 million | Declined by $0.914 million |
| Adjusted EBITDA | $0.363 million | $(0.120) million | Improved by $0.483 million |
| Contribution margin | $2.416 million | $2.135 million | 13% increase |
Operating margin improved to approximately 1.8% from negative 5.5%, while net margin improved to approximately negative 2.0% from negative 5.5%. Contribution margin was approximately 22.7% of revenue versus 24.5% in the prior-year quarter. Adjusted EBITDA margin was approximately 3.4%, compared with negative 1.4% in the prior-year quarter.
- Sales and marketing expense decreased 21% to $1.250 million.
- Product development expense decreased 58% to $27,000.
- General and administrative expense decreased 2% to $920,000.
- Interest expense was $1.593 million, substantially offset by a $1.190 million gain from changes in derivative fair values.
- Barter revenue increased to $4.1 million from $1.3 million, representing a significant portion of reported revenue growth.
Liquidity, Cash Flow and Debt
| Balance-sheet item | June 30, 2023 | March 31, 2023 |
|---|---|---|
| Cash and cash equivalents | $0.468 million | $3.562 million |
| Accounts receivable, net | $8.794 million | $6.876 million |
| Total assets | $27.211 million | $28.227 million |
| Bridge loan, net | $5.630 million | $7.155 million |
| Derivative liabilities | $3.577 million | $4.767 million |
| Total liabilities | $20.218 million | $21.108 million |
| Accumulated deficit | $12.876 million | $12.666 million |
Cash declined by $3.094 million during the quarter, primarily because the company repaid $3.0 million of bridge-loan principal. Operating activities used $46,000 and investing activities used $48,000, principally for internally developed software and equipment.
The company reported a working-capital deficiency of approximately $9.0 million and an approximate current ratio of 0.5. Management stated that these conditions, the accumulated deficit and dependence on financing raise substantial doubt about the company’s ability to continue as a going concern within one year of the filing date. The filing contains inconsistent liquidity runway statements: one note states that existing cash may be insufficient beyond August 2024, while MD&A states that cash may be insufficient beyond February 2024.
The bridge notes carried a 10% interest rate, were convertible upon a qualified financing or listing, and matured July 15, 2023, subject to a one-time three-month extension. The notes included warrants and redemption-related derivatives, producing significant non-cash interest and fair-value effects. LiveOne held $3.0 million of the outstanding bridge notes as of June 30, 2023.
Material Changes Versus the Prior Comparable Period
- Revenue grew 22%, driven primarily by higher barter revenue and advertising inventory.
- Operating results turned positive despite a 25% increase in cost of sales, reflecting lower sales and marketing, product development and general and administrative expenses.
- Net loss narrowed, but interest and debt-discount amortization remained substantial.
- Operating cash flow changed from a $0.868 million inflow to a $0.046 million outflow, largely because accounts receivable increased by approximately $2.0 million.
- Podcast downloads declined 48% year over year to approximately 93.5 million, despite management citing 4.8 million or more monthly unique listeners and more than 20 million IAB monthly downloads.
- Weighted-average shares declined to 20.0 million from 148.0 million following the cancellation of 127.984 million shares in connection with the anticipated spin-out.
- Stock-based compensation declined to $84,000 from $286,000.
Guidance, Outlook, Risks and Unusual Items
Management did not provide formal revenue or earnings guidance. Management expects additional financing to be necessary to maintain current operations and satisfy obligations, and it was seeking interim financing after completion of the proposed direct listing or national-exchange listing. The company warned that financing may not be available on acceptable terms, may be dilutive, or may not be sufficient.
- Going-concern uncertainty is substantial, with limited cash, recurring losses, negative working capital and significant near-term obligations.
- LiveOne was not in compliance with a financial covenant under its revolving credit facility as of June 30, 2023 and was seeking a waiver. A default or acceleration of LiveOne debt could materially affect PodcastOne.
- The company had approximately $1.8 million of guaranteed content-provider payments for the fiscal year ending March 31, 2024.
- A California employment-related lawsuit seeks damages, fees and other relief. Management believes the claims are without merit and has assessed a loss as not probable, but the potential loss range could be material.
- Derivative liabilities were measured using Level 3 Monte Carlo valuations and totaled $3.577 million at quarter-end. Changes in these estimates materially affected reported earnings.
- Management disclosed ineffective disclosure controls and procedures and an unresolved material weakness involving the identification and accounting for significant and unusual transactions, including business combinations and push-down accounting.
- Subsequent developments included proposed acquisitions of assets related to Kast Media and Guru Fantasy Reports, subject to closing conditions and, in the latter case, consideration payable in PodcastOne shares. The filing also describes a July 15, 2023 bridge-loan private placement or financing event; investors should reconcile the timing and terms against the subsequent-event disclosures and related filings.
Most Important Facts to Verify
- Whether the proposed direct listing or national-exchange listing was completed and the actual status, maturity, conversion or repayment of the bridge notes after July 15, 2023.
- Which liquidity runway is correct: the filing states either February 2024 or August 2024 in different sections.
- Whether LiveOne obtained the required waiver for its revolving-credit-facility covenant noncompliance and whether any parent-level debt could be accelerated against the company.
- The composition and collectability of the $8.794 million accounts receivable balance, including the effect of the $4.1 million of barter revenue.
- The sensitivity of reported earnings to the $1.190 million derivative fair-value gain and $1.475 million of debt-discount amortization.
- The status and potential exposure from the Cherri Bell litigation and the $1.8 million of content-provider guarantees.
- Progress in remediating the disclosed material weakness and the reliability of interim financial reporting.