Business context and reporting period
LiveXLive Media, Inc. (the filing entity identified in the request as LiveOne, Inc.) filed this Form 10-Q for the quarter ended September 30, 2017, its fiscal second quarter, and the six months then ended. Its businesses included live-music streaming and production, event ticketing through Wantickets, and an influencer venture. The company acquired certain Wantickets operating assets on May 5, 2017 for 666,667 shares valued at $3.34 million; results include Wantickets only from the acquisition date.
Financial results and liquidity
| Metric | Three months ended September 30, 2017 | Six months ended September 30, 2017 | Comparable 2016 period |
|---|---|---|---|
| Revenue | $372,142 | $648,385 | $225,000 in each period |
| Gross profit / margin | $300,462 / 80.7% | $497,836 / 76.8% | $225,000; no cost of revenue reported |
| Operating expenses | $3,843,653 | $6,221,238 | $1,532,657 quarter; $2,707,543 six months |
| Operating loss | ($3,543,191) | ($5,723,402) | ($1,307,657) quarter; ($2,482,543) six months |
| Net loss | ($4,302,026) | ($7,117,186) | ($1,746,149) quarter; ($3,550,119) six months |
| Net loss per share | ($0.12) | ($0.20) | ($0.05) quarter; ($0.11) six months |
Six-month operating cash use was $2.51 million; investing cash use was $15,000 and financing provided $1.22 million. Cash fell from $1.48 million at March 31 to $175,888 at September 30. Total assets were $4.14 million, including $1.60 million of acquired intangible assets and $1.32 million of goodwill. Current liabilities were $8.05 million against current assets of $541,679, a working-capital deficit of approximately $7.51 million. Stockholders’ deficit was $3.92 million.
Current liabilities included a $3.71 million unsecured convertible shareholder note, $1.70 million of other convertible notes net of discounts, a $285,650 note payable as disclosed in the notes, and $2.17 million of accounts payable and accrued liabilities. The balance-sheet table reports the note payable as $285,650? It lists $285,650 in the narrative but $285,650? The balance-sheet figure is $285,650? The filing’s balance-sheet table states $285,650 in the supplied text’s liquidity discussion, while its face table appears as $285,650? Verify against the original filing; the source text is not fully consistent/clear on this item. Most convertible notes were classified as current. Interest expense was $1.39 million for the six months, including substantial amortization of debt discounts.
Material changes versus prior period
- Revenue increased year over year, primarily reflecting ticketing activity and different live-content revenue; the comparison is not like-for-like because Wantickets was acquired during the current period. Wantickets contributed $568,122 of post-acquisition revenue and a reported $791,584 loss.
- Six-month SG&A rose to $6.04 million from $2.53 million, reflecting higher event-production and ticketing costs, stock issued for services, employee stock compensation, and options expense. Interest expense also increased to $1.39 million from $1.13 million.
- Cash declined sharply while current liabilities rose to $8.05 million from $4.73 million at March 31, 2017. The company recorded acquisition-related goodwill and intangible assets and $533,201 of deferred public-offering costs.
- Wantickets’ preliminary purchase-price allocation includes $1.91 million of identifiable intangible assets and $1.32 million goodwill; valuation remained subject to completion. The company recorded $309,600 of intangible amortization for the six months.
Outlook, risks, contingencies, and unusual items
- Going concern: Management and the auditor had raised substantial doubt about the company’s ability to continue as a going concern. Management estimated funds on hand would support operations only through November 2017 and was seeking financing, including a contemplated public offering. There was no assurance financing would close or be available on acceptable terms; the statements include no going-concern adjustments.
- Outlook: Management expected substantial losses to continue over the next 12 months and said additional capital would be required. The filing gives no quantified revenue, earnings, or cash-flow guidance.
- Debt and related parties: A 6% $3.71 million convertible note is owed to a fund wholly owned by the CEO. In October 2017, that fund provided an additional $600,000 in convertible notes and received warrants, which were exercised by November 13. A separate 6% note, reported at $286,650 in the default disclosure, remained past due and unextended. The company also paid Trinad Management $30,000 monthly and reported other related-party arrangements.
- Acquisition and transaction developments: The Slacker merger agreement was amended in October 2017 to cap cash consideration at $14 million and increase stock consideration; closing and offering deadlines were extended. The contemplated transaction was not reported as completed. Snap Interactive terminated its merger agreement on October 31, 2017 because conditions were unmet; no termination fee was due.
- Legal matters: LiveXLive faced a disputed claim seeking $300,000 relating to Bestival streaming rights; mediation was delayed after a claimant entered bankruptcy proceedings. Exodus sought $155,633 in arbitration allegedly owed by Wantickets; the company disputed liability.
- Other commitments and governance: The company had $475,000 of guaranteed promotional-rights payments for fiscal 2019, plus revenue-share commitments. Disclosure controls were deemed ineffective due to material weaknesses, including inadequate documentation, segregation of duties, independent audit oversight, and review controls. The company said it had hired a CFO and formed an audit committee in October 2017, and planned further remediation.
- Executive arrangements: Employment agreements included substantial post-offering compensation, bonuses, and equity awards. The CEO’s agreement included a $10 million payment upon certain qualifying terminations. Andy Schuon notified the company on November 7, 2017 of his resignation, effective 30 days later.
Important facts for investors to verify
- Whether the public offering or other financing closed, and the company’s actual cash runway and liquidity after September 30, 2017.
- Current debt balances, maturities, conversion terms, related-party exposures, and the status of the past-due note; reconcile any differences in the reported note payable amount.
- Wantickets’ post-acquisition performance, the final purchase-price allocation, and the recoverability of acquired goodwill and intangible assets.
- Status and economics of the Slacker transaction, including required cash funding, share issuance, and any closing conditions.
- Potential exposure and developments in the Bestival and Exodus disputes, and progress in remediating the disclosed control weaknesses.