Would you pay $150 for a ticket to see a virtual Monsta X concert if it included a 20-second digital meet and greet with the band?
Plenty of the Monbebes (the nickname for the K-pop group’s fans) would gladly pay, according to a press release from LiveXLive, one of five announcements the company has sent out since it dismal annual earnings report came out last week. Besides announcing LiveXLive had sold out of the VIP passes, LiveXLive is hoping to convince investors it is on sound financial footing as it goes into the second quarter. With live events on hold for the rest of the year, the company is hoping pay-per-view concerts and podcasts will help the streaming company reign in growing losses, a high-interest loan that’s restricted a large chunk of its cash and expensive lawsuits the company has struggled to defend.
Yesterday company officials issued a cryptic press release on its acquisition of PodcastOne that included a subhead noting that LiveXLive had potentially increased its cash to “$18.5 million, up from $12.4 million,” from March 31 (the end of its fiscal year) without any further explanation or mention in the release.
The announcement was welcome news for investors which saw LiveXLive’s 15% gain in revenue for the year gobbled up by $38 million in losses, a record for the company that has lost $128 million since 2015. While LiveXLive’s balance sheet showed $12.4 million in cash at the end of the fiscal year, chairman and chief executive Robert Ellin only had access to $5.7 million because $6.7 million was sitting in a “locked bank account” mostly as collateral after the company breached revenue covenants connected to a $10 million, 12.75% interest loan from investment firm JGB Partners. (Billboard reached out to LiveXLive for this story, but company officials declined to comment).
By waiting to announce the lousy Q4 numbers until just five days before the end of the Q1, LiveXLive was able to buoy its stock with the mysterious announcement that it had suddenly improved its cash position by $6.1 million. But where did the new money come from, and how much of it was restricted?
We won’t likely know until August when the first quarter results are made public, but the company has previously disclosed that it accepted $2 million in loans in the first quarter from the federal Paycheck Protection Program meant for small businesses. LiveXLive’s CFO Mike Zemetra told investors on a recent earnings call that the company planned to apply for 100% forgiveness of the loan, despite outcry that the money was not meant for publicly traded companies. LiveXLive also likely generated cash from its purchase of PodcastOne — the podcast service reportedly had about $2.5 million in cash on hand at the time the acquisition closed.
Wherever the $6 million came from, it’s not likely enough to get the company through the year. LiveXLive is “dependent upon the receipt of capital investment and other financing to fund our ongoing operations,” according to its most recent annual report. The company’s losses and assets to liability deficit “raise substantial doubt about our ability to continue as a going concern within one year from (now).”
One of the company’s biggest challenges is that it heavily depends on automaker Tesla as its main source of paid subscriptions. When LiveXLive purchased the Slacker streaming music app in 2017, it inherited an agreement with the automaker which pays to bundle Slacker (now LiveXLive) with other offerings for each car it sells. Nearly two-thirds of LiveXLive’s subscription revenue comes from the Tesla agreement.
“Our business is dependent, and we believe that it will continue to depend, on our customer relationship with Tesla,” LiveXLive’s earnings report reads. “If Tesla terminates our agreement,” or seeks to renegotiate the terms of its deal, “our business, financial condition and results of operations would be materially adversely affected.”
Another challenge for the company is debt. Ellin’s hedge fund holds about $7 million in debt, while JGB holds $10 million in debentures. Besides having to lock up $6.5 million after falling far short of its $15 million revenue requirement for the company’s third quarter last year, LiveXLive has to pay a hefty penalty to JGB. In order to secure a waiver for the breach, LiveXLive agreed to transfer 400,000 common stock shares to JGB worth $1.2 million in exchange for a reduction of only $10,000 in principal from its loan.
LiveXLive’s most costly liability is the millions it might have to pay if it loses a lawsuit brought by former business partner and investor Joe Schnaier. The former Wantickets owner has compiled dozens of taunting and threatening texts from Ellin as evidence. In fact, Ellin’s use of insulting profanity is so well known that Schnaier’s lawyer issued a subpoena to Ellin for all communications using the words “idiot,” “jerkoff,” “cockroach” and four different spellings of “douchebag.”
Lawyers for Schnaier also plan to utilize a text message exchange as evidence where Ellin allegedly brags “Make this crystal clear you will never get your shares blocked til death do us part” and “You watch crook you going to jail.” When Schnaier warns “You are not going to get away with stealing my money,” Ellin responds “See you in hell and suing (you) for defamation as well.”
Schnaier’s attorneys want to include evidence that “Ellin has been arrested three times between 2006 and 2013 for alcohol- or vehicle-related offenses, including a DUI in 2013,” noting “Ellin has an alcohol or drug problem that fuels his fraudulent conduct.”
LiveXLive is struggling to defend the lawsuit — two lawyers quit because of lack of payment, and the company is now facing a new lawsuit over unpaid legal bills. Schnaier’s attorney Joshua Wurtzel said the delays over unpaid bills unfairly hurt his client’s legal claims.
“LiveXLive Media’s own disclosures show that Mr. Ellin and his cronies are looting the company and evading creditors with much smaller claims than (Schnaier). And so the longer this action drags on, the less likely it is that (Schnaier) will be able to collect on a judgment against LiveXLive Media,” Wurtzel writes. “(T)hat LiveXLive Media is leaving a trail of creditors across the country and claiming poverty before this Court shows that it is critical that (Schnaier) be able to have their day in court against (LiveXLive) as soon as possible.”
While the challenges the company faces are daunting, Ellin told investors on a recent earnings call that the PodcastOne acquisition and pay-per-view shift are expected to help the company finally begin its path toward profitability.
“LiveXLive today is a different company than it was six months ago at the time,” he said, later saying that “having numerous new and potentially significant revenue opportunities, we now squarely focus on driving revenue and positive EBITDA.”
