Liveone, Inc. (identified in the filing as Loton, Corp.) — Form 10-Q summary
Business context and reporting period
The filing is for the quarter and nine months ended December 31, 2015; the interim financial statements are unaudited. The registrant is Loton, Corp., which reports a wholly owned LiveXLive subsidiary developing a live-music streaming business, alongside its 50% interest in the UK KOKO nightclub and live-music venue. The filing’s company name differs from the request metadata.
Financial performance and position
| Metric | Three months ended Dec. 31, 2015 | Nine months ended Dec. 31, 2015 |
|---|---|---|
| Revenue | $2.186 million | $5.323 million |
| Gross profit / gross margin | $1.906 million / 87.2% | $4.588 million / 86.2% |
| Operating loss | $456,546 | $2.847 million |
| Net loss before non-controlling interest | $567,964 | $3.149 million |
| Net loss attributable to Loton shareholders | $758,461 | $3.416 million |
| Basic and diluted loss per share | $0.01 | $0.07 |
For the nine-month period, operating cash outflow was $1.561 million, investing cash outflow was $61,396, and financing cash inflow was $2.076 million. Cash rose to $1.315 million from $866,951 at March 31, 2015. No operating cash flow was provided for the quarter alone.
At December 31, 2015, current assets were $1.757 million and current liabilities were $6.752 million, a working-capital deficit of approximately $4.995 million and a current ratio of approximately 0.26. Total liabilities were $7.738 million; total assets were $2.672 million. The balance sheet shows $3.186 million of current related-party notes, $253,507 of current notes payable, and a $1.000 million related-party management-service obligation. Total deficit was $5.065 million.
Changes versus comparable periods
- Quarterly revenue fell 5% year over year; nine-month revenue fell 7%. Management attributed the declines mainly to fewer live shows and lower revenue per event, including club and corporate events.
- Quarterly gross profit declined 4%; nine-month gross profit declined 6%. Gross margin increased to about 87.2% from 86.1% in the quarter and to 86.2% from 85.2% for nine months.
- Quarterly operating results shifted from $21,104 income to a $456,546 loss, as operating expenses rose 20% to $2.362 million. Nine-month operating loss was broadly unchanged at $2.847 million; lower expenses versus the prior period reflected the absence of prior-year merger-related costs.
- Share count increased: 45,697,072 shares were outstanding at December 31, 2015, versus 43,275,822 at March 31, 2015. The filing reports 45,697,072 outstanding as of February 19, 2016.
Outlook, risks, contingencies and unusual items
- Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, operating cash outflows and dependence on additional financing. It said it believed in its strategy and ability to raise funds, but gave no assurance. No numerical guidance was provided.
- Funding came in part from related-party borrowing and equity-unit sales. The filing reports $1.924 million of related-party note proceeds and $612,500 from common-stock sales during the nine months. Related-party notes generally mature June 30, 2016; confirm terms and amounts carefully.
- The company’s strategy was to build LiveXLive’s live-music streaming platform. It reported an exclusive streaming partnership for Rock in Rio festivals from 2015 through 2018, an agreement with Verizon Digital Media Services for delivery, and ongoing discussions about other multi-year arrangements. These are plans and commercial arrangements, not reported evidence of a profitable streaming operation.
- Management cited risks including limited cash, losses, the need for capital, execution of the streaming business, competition, venue seasonality and UK currency and operating exposure. The filing states there were no material changes to previously disclosed risk factors.
- Ongoing related-party costs included $270,000 billed by Trinad Management and $92,578 by Mint Group for nine months. A separate $1 million management-service obligation remained on the balance sheet.
- A legal challenge concerning neighboring redevelopment near KOKO was resolved favorably: the planning permission was quashed on September 8, 2015, and Camden Council was ordered to pay £35,000 in costs.
- Disclosure controls were deemed ineffective. The company identified material weaknesses in undocumented internal-control procedures and insufficient segregation of accounting duties. It also checked “No” for having filed all required Exchange Act reports during the preceding 12 months.
- The filing reports no material capital-expenditure commitments or off-balance-sheet arrangements. It reports no subsequent events requiring disclosure through issuance.
Most important facts for investors to verify
- Confirm the issuer identity and reporting history: this filing is for Loton, Corp., not a registrant named Liveone, Inc.; the filing also indicates required reports had not all been filed on time.
- Review the going-concern disclosure, cash runway, financing availability and the June 2016 note maturities, including related-party terms and any subsequent amendments or repayments.
- Assess the size and persistence of the approximately $5.0 million working-capital deficit and the company’s ability to fund operating cash burn without further dilution or debt.
- Verify the economics, performance obligations and revenue contribution of the Rock in Rio and other LiveXLive arrangements; the filing does not provide a separate LiveXLive revenue or profitability figure.
- Reconcile figures and narrative before relying on them: the MD&A’s quarterly net-loss discussion conflicts with the statements of operations, and its G&A comparison appears inconsistent with the reported values. The filing also contains differing descriptions of some note balances and equity-unit allocations.