The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
The accompanying notes are an integral part of
these condensed consolidated financial statements.
Notes to the Condensed Consolidated Financial
Statements (Unaudited)
For the Three and Six Months Ended September
30, 2022 and 2021
Note 1 — Organization and Basis of Presentation
Organization
LiveOne, Inc. together with
its subsidiaries (“we,” “us,” “our”, the “Company” or “LiveOne”) is a Delaware
corporation headquartered in Beverly Hills, California. The Company is a creator-first, music, entertainment and technology platform focused
on delivering premium experiences and content worldwide through memberships, live and virtual events.
The Company was reincorporated
in the State of Delaware on August 2, 2017, pursuant to a reincorporation merger of Loton, Corp (“Loton”) with and into LiveXLive
Media, Inc., Loton’s wholly owned subsidiary at the time. As a result of the reincorporation merger, Loton ceased to exist as a
separate entity, with LiveXLive Media, Inc. being the surviving entity. Effective as of October 5, 2021, the Company changed its name
to LiveOne, Inc. On December 29, 2017, the Company acquired Slacker, Inc. (“Slacker”), an Internet music and radio streaming
service incorporated in the state of Delaware, and it became a wholly owned subsidiary of LiveOne. On February 5, 2020, the Company acquired
(i) React Presents, LLC a Delaware limited liability company (“React Presents”), and it became a wholly owned subsidiary of
LiveXLive Events, LLC, a wholly owned subsidiary of the Company and (ii) indirectly Spring Awakening, LLC, which is a wholly owned subsidiary
of React Presents, a producer, promoter and manager of in person live music festivals and events. On July 1, 2020, the Company through
its wholly owned subsidiary, LiveXLive PodcastOne, Inc., acquired Courtside Group, Inc. (dba PodcastOne) (“PodcastOne”) (see
Note 4 – Business Combinations). On December 22, 2020, the Company through its wholly owned subsidiary LiveXLive Merchandising,
Inc., acquired Custom Personalization Solutions, Inc. (“CPS”) (see Note 4 – Business Combinations). On October 17, 2021,
the Company through its wholly owned subsidiary LiveXLive PR, Inc., acquired Gramophone Media, Inc. (“Gramophone”) (see Note
4 – Business Combinations).
Basis of Presentation
The unaudited condensed consolidated
financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements for the fiscal
year ended March 31, 2022, and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation
of the Company’s unaudited condensed consolidated financial statements for the six months ended September 30, 2022. The results
for the six months ended September 30, 2022 are not necessarily indicative of the results expected for the full fiscal year ending March
31, 2023 (“fiscal 2023”). The condensed consolidated balance sheet as of March 31, 2022 has been derived from the Company’s
audited balance sheet included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission
(the “SEC”) on June 29, 2022 (the “2022 Form 10-K”).
The interim unaudited condensed
consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States
(“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do
not include all the information and footnotes required by GAAP for complete audited financial statements. Therefore, these financial statements
should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the 2022
Form 10-K.
Going Concern and Liquidity
The Company’s condensed
consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity
of operations, realization of assets, and liquidation of liabilities in the normal course of business.
The Company’s principal
sources of liquidity have historically been its debt and equity issuances and its cash and cash equivalents (which cash, cash equivalents
and restricted cash amounted to $7.4 million as of September 30, 2022). As reflected in its condensed consolidated financial statements
included elsewhere herein, the Company has a history of losses, with the exception of net income of $1.3 million during the quarter ended
June 30, 2022 and had a working capital deficiency of $19.4 million as of September 30, 2022. These factors, among others, raise substantial
doubt about the Company’s ability to continue as a going concern within one year from the date that these financial statements are
filed. The Company’s condensed consolidated financial statements do not include any adjustments related to the recoverability and
classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
The Company’s ability
to continue as a going concern is dependent on its ability to execute its growth strategy and on its ability to raise additional funds.
The Company filed a new universal shelf Registration Statement on Form S-3 (the “New Shelf S-3”) with the SEC, which was declared
effective by the SEC on February 17, 2022. Under the New Shelf S-3, the Company has the ability to raise up to $150.0 million in cash
from the sale of its equity, debt and/or other financial instruments. The continued spread of COVID-19 and uncertain market conditions
may limit the Company’s ability to access capital, may reduce demand for its services and may negatively impact its ability to retain
key personnel. Management may seek additional funds, primarily through the issuance of equity and/or debt securities for cash to operate
the Company’s business. No assurance can be given that any future financing will be available or, if available, that it be on terms
that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain terms that result in
undue restrictions on its operations, in the case of debt financing or cause substantial dilution for its stockholders, in case of equity
and/or convertible debt financing. If the Company is unable to obtain sufficient financing when needed, the Company may also have to reduce
certain overhead costs through the reduction of salaries and other means and settle liabilities through negotiation. There can be no assurance
that management’s attempts at any or all of these endeavors will be successful.
Principles of Consolidation
The condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiaries. Acquisitions are included in the Company’s
condensed consolidated financial statements from the date of the acquisition. The Company uses purchase accounting for its acquisitions,
which results in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates.
All intercompany balances and transactions have been eliminated in consolidation.
Note 2 — Summary of Significant Accounting
Policies
There have been no material
changes in the Company’s significant accounting policies from those previously disclosed in the consolidated financial statements
included in the 2022 Form 10-K, other than those included below.
COVID-19
In March 2020, the World Health
Organization declared the outbreak of the novel coronavirus disease (“COVID-19”) as a pandemic. The global impact of the COVID-19
pandemic has had a negative effect on the global economy, disrupting the financial markets creating increasing volatility and overall
uncertainty. The Company began to experience modest adverse impacts of the COVID-19 pandemic in the fourth quarter of fiscal year ended
March 31, 2020 and became more adverse throughout the fiscal year ended March 31, 2021 and up to the third quarter of fiscal year ended
March 31, 2022. Although the impact has subsided, the Company expects to continue experiencing modest adverse impacts throughout the fiscal
year ending March 31, 2023. The Company’s event and programmatic advertising revenues were directly impacted throughout the 2022
and 2021 fiscal years with all on-premise in-person live music festivals and events postponed in 2021 fiscal year and mixed demand from
historical advertising partners in 2022 fiscal year. Further, one of the Company’s larger customers also experienced a temporary
halt to its production as a result of COVID-19, which negatively impacted the Company’s near-term membership growth in the 2021
fiscal year. During the fiscal year ended March 31, 2021, the Company enacted several initiatives to counteract these near-term challenges,
including salary reductions, obtaining a Paycheck Protection Program (“PPP”) loan (see Note 8 - Notes Payable) and pivoting
its live music production to 100% digital. The Company began producing, curating, and broadcasting digital music festivals and events
across its platform which has resulted in the growth in the number of live events streamed, related sponsorship revenue and overall viewership.
The Company also launched a new pay-per-view (“PPV”) offering in May 2020, enabling new forms of artist revenue including
digital tickets, tipping, digital meet and greet and merchandise sales. However, there is uncertainty as to the duration and overall impact
of the COVID-19 pandemic, which could result in an adverse material change in a future period to the Company’s results of operations,
financial position and liquidity.
On March 27, 2020, the Coronavirus
Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the United States. The CARES Act provides numerous
tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses
and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company evaluated
the provisions of the CARES Act and determined it is eligible for Employee Retention Credits related to payroll taxes paid during the
quarter ended September 30, 2021. In accordance with ASC 105-10-05-02, the Company analogized to International Financial Reporting Standards
(“IFRS”), specifically International Accounting Standards (“IAS”) 20, Accounting for Government Grants and
Disclosures of Government Assistance, and determined that the payroll tax credit will be recognized as a reduction to the payroll
tax expense when it is reasonably assured that the credit will be received. As of March 31, 2022, the Company received confirmation the
credit would be approved and recognized the credit of $1.2 million as a reduction of payroll tax expense for the year ended March 31,
2022. The Company does not anticipate the associated impacts of the other provisions, if any, will have a material effect on its provision
for income taxes.
On December 29, 2020, the
Consolidated Appropriations Act (“CAA”) was enacted in the United States. The CAA provides numerous tax provisions and
most notably for the Company changes the tax treatment of those expenses paid for with a PPP loan from non-deductible to deductible.
The Company is in the process of evaluating the provisions of the CAA including obtaining a second draw Paycheck Protection Program loans
and applying for the potential eligibility for Employee Retention Credits and does not anticipate the provisions included will have a
material impact on its provision for income taxes.
Use of Estimates
The preparation of the Company’s
condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates
and assumptions include revenue, allowance for doubtful accounts, inventory calculations and reserves, the assigned value of acquired
assets and assumed and contingent liabilities associated with business combinations and the related purchase price allocation, useful
lives and impairment of property and equipment, intangible assets, goodwill and other assets, the fair value of the Company’s equity-based
compensation awards and convertible debt and debt instruments, fair values of derivatives, and contingencies. Actual results could differ
materially from those estimates. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends,
which form the basis for making judgments about the carrying value of assets and liabilities. Given the overall uncertainty surrounding
the COVID-19 pandemic, there is a reasonable possibility that actual results could differ from those estimates and such differences could
be material to the financial position and results of operations, specifically in assessing when the collectability of revenue related
consideration is probable, and the impairment assessment of goodwill, indefinite lived assets or long-lived assets that are depreciated
or amortized.
Revenue Recognition Policy
The Company accounts for a
contract with a customer when an approved contract exists, the rights of the parties are identified, payment terms are identified, the
contract has commercial substance and the collectability of substantially all of the consideration is probable. Revenue is recognized
when the Company satisfies its obligation by transferring control of the goods or services to its customers in an amount that reflects
the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company uses the expected value
method to estimate the value of variable consideration on advertising and with original equipment manufacturer contracts to include in
the transaction price and reflect changes to such estimates in periods in which they occur. Variable consideration for these services
is allocated to and recognized over the related time period such advertising and membership services are rendered as the amounts reflect
the consideration the Company is entitled to and relate specifically to the Company’s efforts to satisfy its performance obligation.
The amount of variable consideration included in revenue is limited to the extent that it is probable that the amount will not be subject
to significant reversal when the uncertainty associated with the variable consideration is subsequently resolved.
Practical Expedients
The Company elected the practical
expedient and recognized the incremental costs of obtaining a contract, if any, as an expense when incurred if the amortization period
of the asset that would have been recognized is one year or less.
Gross Versus Net Revenue Recognition
The Company reports revenue
on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction
and is evaluated on a transaction-by-transaction basis. To the extent the Company acts as the principal, revenue is reported on a gross
basis net of any sales tax from customers, when applicable. The determination of whether the Company acts as a principal or an agent in
a transaction is based on an evaluation of whether the Company controls the good or service prior to transfer to the customer. Where applicable,
the Company has determined that it acts as the principal in all of its membership service, sponsorship, and merchandising streams and
may act as principal or agent for its ticketing/live events, advertising and licensing revenue streams.
The Company’s revenue is principally derived
from the following services:
Membership Services
Membership services revenue
substantially consist of monthly to annual recurring membership fees, which are primarily paid in advance by credit card or through direct
billings arrangements. The Company defers the portions of monthly to annual recurring membership fees collected in advance and recognizes
them in the period earned. Membership revenue is recognized in the period of services rendered. The Company’s membership revenue
consists of performance obligations that are satisfied over time. This has been determined based on the fact that the nature of services
offered are membership based where the customer simultaneously receives and consumes the benefit of the services provided regardless of
whether the customer uses the services or not. As a result, the Company has concluded that the best measure of progress toward the complete
satisfaction of the performance obligation over time is a time-based measure. The Company recognizes membership revenue straight-line
through the membership period.
Membership Services consist
of:
Direct member, mobile service provider and
mobile app services
The Company generates revenue
for membership services on both a direct basis and through memberships sold through certain third-party mobile service providers and mobile
app services (collectively the “Mobile Providers”). For memberships sold through the Mobile Providers, the member executes
an on-line agreement with Slacker outlining the terms and conditions between Slacker and the member upon purchase of the membership. The
Mobile Providers promote the Slacker app through their e-store, process payments for memberships, and retain a percentage of revenue as
a fee. The Company reports this revenue gross of the fee retained by the Mobile Providers, as the member is Slacker’s customer in
the contract and Slacker controls the service prior to the transfer to the member. Membership revenues from monthly memberships sold directly
through Mobile Providers are subject to such Mobile Providers’ refund or cancellation terms. Revenues from Mobile Providers are
recognized net of any such adjustments for variable consideration, including refunds and other fees. The Company’s payment terms
vary based on whether the membership is sold on a direct basis or through Mobile Providers. Memberships sold on a direct basis require
payment before the services are delivered to the customer. The payment terms for memberships sold through Mobile Providers vary but are
generally payable within 30 days.
Third-Party Original Equipment Manufacturers
The Company generates revenue
for membership services through memberships sold through a third-party Original Equipment Manufacturer (the “OEM”). For memberships
sold through the OEM, the OEM executes an agreement with Slacker outlining the terms and conditions between Slacker and the OEM upon purchase
of the membership. The OEM installs the Slacker app in their equipment and provides the Slacker service to the OEM’s customers.
The monthly fee charged to the OEM is based upon a fixed rate per vehicle, multiplied by the variable number of total vehicles which have
signed up for a paid membership. The number of customers, or the variable consideration, is reported by OEMs and resolved on a monthly
basis. The Company’s payment terms with OEM are up to 30 days.
Advertising Revenue
Advertising revenue primarily
consist of revenues generated from the sale of audio, video, and display advertising space to third-party advertising exchanges. Revenues
are recognized based on delivery of impressions over the contract period to the third-party exchanges, either when an ad is placed for
listening or viewing by a visitor or when the visitor “clicks through” on the advertisement. The advertising exchange companies
report the variable advertising revenue performed on a monthly basis which represents the Company’s efforts to satisfy the performance
obligation. Additionally, following the acquisition of PodcastOne, the Company began deriving revenue from podcast advertising. PodcastOne
earns advertising revenues primarily for fees earned from advertisement placement purchased by the customer during the time the podcast
is delivered to the viewing audience, under the terms and conditions as set forth in the applicable podcasting agreement calculated using
impressions.
From time to time the Company
enters into barter transactions involving advertising provided in exchange for goods and services. Revenue from barter transactions is
recognized based on delivery of impressions and in the same manner as described above. Services received are charged to expense when received
or utilized. If services are received prior to the delivery of impressions, a liability is recorded. If delivery of impressions has occurred
before the receipt of goods or services, a receivable is recorded. Barter revenue for the three months ended September 30, 2022 and 2021
was $1.8 million and $1.5 million, respectively. Barter revenue for the six months ended September 30, 2022 and 2021 was $3.1 million
and $3.1 million, respectively.
Licensing Revenue
Licensing revenue primarily
consists of sales of licensing rights to digitally stream the Company’s live music services. Licensing revenue is recognized when
the Company satisfies its performance obligation by transferring control of the goods or services to its customers in an amount that reflects
the consideration to which the Company expects to be entitled in exchange for those goods or services, which is typically when the live
event has aired. Any license fees collected in advance of an event are deferred until the event airs.
Sponsorship
Revenue
Sponsorship revenue primarily
consists of sales of sponsorship programs that provide sponsors with opportunities to reach the Company’s customers. Sponsorship
revenue is recognized as the event airs. Any sponsorship fees collected in advance of the contract term (typically an event) are deferred
until the event airs. The Company reports sponsorship revenue on a gross basis as the Company acts as the principal in the underlying
transactions.
Merchandising
Revenue
Revenue is recognized upon
the transfer of control to the customer. The Company recognizes revenue and measures the transaction price net of taxes collected from
customers and remitted to governmental authorities. Sales also include shipping and handling charges billed to customers, with the related
freight costs included in cost of goods sold. Sales commissions are expensed as incurred and are recorded in sales and marketing expenses
in the consolidated statements of operations. The Company’s customer contracts do not have a significant financing component due
to their short durations, which are typically effective for one year or less and have payment terms that are generally 30 to 60 days.
Wholesale revenue is generally recognized when products are shipped, depending on the applicable contract terms. The Company records a
refund liability for expected returns based on prior returns history, recent trends, and projections for returns on sales in the current
period. The refund liability at September 30, 2022 and 2021 was less than $0.1 million, respectively.
Ticket/Event Revenue
Ticket/Event
revenue is primarily from the sale of tickets and promoter fees earned from venues or other co-promoters under one of several formulas,
including a fixed guaranteed amount and/or a percentage of ticket sales or event profits.
Revenue from the promotion
or production of an event is recognized at a point in time when the show occurs. Revenue collected in advance of the event is recorded
as deferred revenue until the event occurs. Revenue collected from sponsorship agreements, which is not related to a single event, is
classified as deferred revenue and recognized over the term of the agreement or operating season as the benefits are provided to the sponsor.
Revenue from the Company’s
ticketing operations primarily consists of service fees charged at the time a ticket for an event is sold in either the primary or secondary
markets, including both online pay-per-view (“PPV”) tickets as well as ticket physically purchased through a ticket sale vendor. For
primary tickets sold to the Company’s PPV and festival events the revenue for the associated ticket service charges collected in
advance of the event is recorded as deferred revenue until the event occurs. For PPV arrangements that include multiple performance obligations,
i.e., delivery of the online stream, sponsorships, digital meet and greet, or physical merchandise, the Company allocates the total contract
consideration to each performance obligation using the standalone selling price. If the standalone selling price is not readily determinable,
it is estimated using observable inputs including an adjusted market-based approach, expected cost plus margin, or the residual approach.
Net Income (Loss) Per Share
Basic earnings (loss) per
share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share
is computed using the weighted-average number of common shares and the dilutive effect of contingent shares outstanding during the period.
Potentially dilutive contingent shares, which primarily consist of stock options issued to employees, directors and consultants, restricted
stock units, warrants issued to third parties and accounted for as equity instruments and convertible notes would be excluded from the
diluted earnings per share calculation because their effect is anti-dilutive.
At September 30, 2022
and 2021, the Company had 3,525,191 and 3,621,124 options outstanding,
respectively, 1,270,193 and 5,212,732 restricted stock units outstanding, respectively,
and 5,960,593 and 5,806,321 shares of common stock issuable, respectively, underlying the Company’s
convertible debt.
Basic earnings per share is
calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding
common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we have a net
loss, stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect.
Business Combinations
The Company accounts for its
business combinations using the acquisition method of accounting where the purchase consideration is allocated to the underlying net tangible
and intangible assets acquired, based on their respective fair values. The excess of the purchase consideration over the estimated fair
values of the net assets acquired is recorded as goodwill. Identifiable assets acquired, liabilities assumed and any noncontrolling interest
in the acquiree are recognized and measured as of the acquisition date at fair value. Additionally, any contingent consideration is recorded
at fair value on the acquisition date and classified as a liability. Goodwill is recognized to the extent by which the aggregate of the
acquisition-date fair value of the consideration transferred and any noncontrolling interest in the acquiree exceeds the recognized basis
of the identifiable assets acquired, net of assumed liabilities. Determining the fair value of assets acquired, liabilities assumed and
noncontrolling interests requires management’s judgment and often involves the use of significant estimates and assumptions, including,
but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses and cash flows, weighted average cost
of capital, discount rates, estimates of customer turnover rates, estimates of terminal values, and royalty rates.
Cash and Cash Equivalents
Cash and cash equivalents
include all highly liquid investments with original maturities, when purchased, of three months or less.
The following table provides
amounts included in cash, cash equivalents and restricted cash presented in the Company’s condensed consolidated statements of cash
flows for the six months ended September 30, 2022 and 2021 (in thousands):
| |
2022 | | |
2021 | |
Cash and cash equivalents | |
$ | 7,151 | | |
$ | 16,478 | |
Restricted cash | |
| 240 | | |
| 260 | |
Total cash and cash equivalents and restricted cash | |
$ | 7,391 | | |
$ | 16,738 | |
Restricted Cash and Cash Equivalents
The Company maintains certain
letters of credit agreements with its banking provider, which are secured by the Company’s cash for periods of less than one year.
As of September 30, 2022 and March 31, 2022, the Company had restricted cash of $0.2 million and $0.3 million, respectively.
Allowance for Doubtful Accounts
The Company evaluates the
collectability of its accounts receivable based on a combination of factors. Generally, it records specific reserves to reduce the amounts
recorded to what it believes will be collected when a customer’s account ages beyond typical collection patterns, or the Company
becomes aware of a customer’s inability to meet its financial obligations.
The Company believes that
the credit risk with respect to trade receivables is limited due to the large and established nature of its largest customers and the
nature of its membership receivables. On September 30, 2022, the Company had one customer that made up 28% of the total accounts
receivable balance. On March 31, 2022, the Company had one customer that made up 24% of the total accounts receivable balance.
The Company’s accounts
receivable at September 30, 2022 and March 31, 2022 is as follows (in thousands):
| | September 30, | | | March 31, | |
| | 2022 | | | 2022 | |
Accounts receivable, gross | | $ | 13,592 | | | $ | 14,404 | |
Less: Allowance for doubtful accounts | | | (634 | ) | | | (717 | ) |
Accounts receivable, net | | $ | 12,958 | | | $ | 13,687 | |
Inventories
Inventories, principally raw
materials awaiting final customization process, are stated at the lower of cost or net realizable value. Inventories are relieved on a
first-in, first-out basis.
The carrying value of inventories
is reduced for any excess and obsolete inventory. Excess and obsolete reductions are determined based on currently available information,
including the likely method of disposition, such as through sales to individual customers and liquidations, and the age of inventory.
Notes Payable – Paycheck Protection Program (“PPP”)
Loans
In response to the COVID-19
pandemic, the PPP was established under the CARES Act and administered by the U.S. Small Business Administration (“SBA”).
Companies who met the eligibility requirements set forth by the PPP could qualify for PPP loans provided by local lenders, which supports
payroll, rent and utility expenses (“qualified expenses”). If the loan proceeds are fully utilized to pay qualified expenses
over the covered period, as further defined by the PPP, the full principal amount of the PPP loan may qualify for loan forgiveness, subject
to potential reduction based on the level of full-time employees maintained by the organization during the covered period as compared
to a baseline period. During the year ended March 31, 2022, the Company received confirmation from the SBA that $3.1 million in PPP loans
(see Note 8 – Notes Payable) were forgiven.
As the loans were forgiven
and we were released from being the primary obligor, the Company recognized income in the amount forgiven in accordance with ASC 470-20.
The Company recognized a gain on forgiveness of the PPP loans of none and $2.5 million during the six months ended September 30, 2022
and 2021, respectively, and is included in total other expense, net in the accompanying condensed consolidated statements of operations.
Concentration of Credit Risk
The Company maintains cash
balances at commercial banks. Cash balances commonly exceed the $250,000 amount insured by the Federal Deposit Insurance Corporation.
The Company has not experienced any losses in such accounts, and management believes that the Company is not exposed to any significant
credit risk with respect to such cash and cash equivalents.
Debt with Warrants
In accordance with ASC Topic
470-20-25, when the Company issues debt with warrants, the Company treats the warrants as a debt discount, recorded as a contra-liability
against the debt, and amortizes the balance over the life of the underlying debt as amortization of debt discount expense in the consolidated
statements of operations. The offset to the contra-liability is recorded as a liability in the Company’s consolidated balance sheets.
The Company determines the value of the warrants using a Monte-Carlo Simulation. If the debt is retired early, the associated debt discount
is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations. The debt is treated
as conventional debt.
Convertible Debt – Derivative Treatment
When the Company issues debt
with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as
follows: (a) one or more underlyings, typically the price of our common stock; (b) one or more notional amounts or payment provisions
or both, generally the number of shares upon conversion; (c) no initial net investment, which typically excludes the amount borrowed;
and (d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily
sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host
instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope
exception applies if the contract is both (a) indexed to its own stock; and (b) classified in stockholders’ equity in its balance
sheet.
If the conversion feature
within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative
using the Monte Carlo Method upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value
of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative
is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The convertible
debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement
of operations. The debt discount is amortized through interest expense over the life of the debt.
Debt Modifications and Extinguishments
When the Company modifies
or extinguishes debt, it first evaluates whether the modification qualifies as a troubled debt restructuring (TDR) under ASC Topic 470-60,
which requires debt modifications to be evaluated if (1) the borrow is experiencing financial difficulty, and (2) the lender grants the
borrower a concession. If a TDR is determined not to have occurred, the Company evaluates the modification in accordance with ASC Topic
470-50-40, which requires modification to debt instruments to be evaluated to assess whether the modifications are considered “substantial
modifications”. A substantial modification of terms shall be accounted for like an extinguishment. Based on the guidance relied
upon and the analysis performed, if the Company believes the embedded conversion feature has no fair value on the date of issuance (measurement
date) and the embedded conversion feature has no beneficial conversion feature, the embedded conversion feature does not meet the criteria
in ASC 470-50-40-10 or 470-20-25 and the issuance of the convertible note payable is considered a modification, and not an extinguishment
that would require the recognition of a gain or loss. If the Company determines the change in terms meet the criteria for substantial
modification under ASC 470 it will treat the modification as extinguishment and recognize a loss from debt extinguishment.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued
ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which
requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It also eliminates the
concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through
an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in
more timely recognition of credit losses. The guidance is effective for fiscal years beginning after December 15, 2022 for SEC filers
that are eligible to be smaller reporting companies under the SEC’s definition, and interim periods within those fiscal years. The
Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements.
In August 2020, the FASB issued
ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s
Own Equity (Subtopic 815-40). The FASB issued this ASU to address issues identified as a result of the complexity associated with
GAAP for certain financial instruments with characteristics of liabilities and equity. Complexity associated with the accounting is a
significant contributing factor to numerous financial statement restatements and results in complexity for users attempting to understand
the results of applying the current guidance. In addressing the complexity, the FASB focused on amending the guidance on convertible instruments
and the guidance on the derivatives scope exception for contracts in an entity’s own equity. For convertible instruments, the FASB
decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting
models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP.
Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not
clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception
from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as
paid-in capital. The FASB concluded that eliminating certain accounting models simplifies the accounting for convertible instruments,
reduces complexity for preparers and practitioners, and improves the decision usefulness and relevance of the information provided to
financial statement users. In addition to eliminating certain accounting models, the FASB also decided to enhance information transparency
by making targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance on the basis of feedback
from financial statement users. The FASB decided to amend the guidance for the derivatives scope exception for contracts in an entity’s
own equity to reduce form-over-substance-based accounting conclusions. The FASB observed that the application of the derivatives scope
exception guidance results in accounting for some contracts as derivatives while accounting for economically similar contracts as equity.
The FASB also decided to improve and amend the related EPS guidance. The amendments in this ASU are effective for fiscal years beginning
after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal
years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should
adopt the guidance as of the beginning of its annual fiscal year. The FASB decided to allow entities to adopt the guidance through either
a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact
this ASU will have on its financial statements and related disclosures, as well as the timing of adoption and the application method.
Other recent accounting pronouncements
issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did
not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement
presentation or disclosures.
Note 3 — Revenue
The following table represents
a disaggregation of revenue from contracts with customers for the three and six months ended September 30, 2022 and 2021 (in thousands):
| |
Three Months Ended September 30, | | |
Six Months Ended September 30, | |
| |
2022 | | |
2021 | | |
2022 | | |
2021 | |
Revenue | |
| | |
| | |
| | |
| |
Membership Services | |
$ | 12,788 | | |
$ | 9,879 | | |
$ | 24,872 | | |
$ | 18,962 | |
Advertising | |
| 8,698 | | |
| 8,808 | | |
| 17,640 | | |
| 16,745 | |
Merchandising | |
| 1,834 | | |
| 2,956 | | |
| 3,682 | | |
| 6,616 | |
Sponsorship and Licensing | |
| 199 | | |
| 168 | | |
| 313 | | |
| 5,304 | |
Ticket/Event | |
| 13 | | |
| 113 | | |
| 248 | | |
| 13,064 | |
Total Revenue | |
$ | 23,532 | | |
$ | 21,924 | | |
$ | 46,755 | | |
$ | 60,691 | |
For some contracts, the Company
may invoice up front for services recognized over time or for contracts in which the Company has unsatisfied performance obligations.
Payment terms and conditions vary by contract type, although terms generally cover monthly payments. In the circumstances where the timing
of invoicing differs from the timing of revenue recognition, the Company has determined its contracts do not include a significant financing
component. The Company has elected to apply the practical expedient under ASC 606-10-50-14 and not provide disclosure of the amount and
timing of performance obligations as the performance obligations are part of a contract that has an original expected duration of one
year or less.
For the three months ended
September 30, 2022 and 2021, one customer accounted for 45% and 35% of the Company’s consolidated revenues, respectively. For the
six months ended September 30, 2022 and 2021, one customer accounted for 44% and 24% of the Company’s consolidated revenues, respectively.
The following table summarizes
the significant changes in deferred revenue balances during the six months ended September 30, 2022 (in thousands):
| |
Contract Liabilities | |
Balance as of March 31, 2022 | |
$ | 1,157 | |
Revenue recognized that was included in the contract liability at beginning of period | |
| (1,018 | ) |
Increase due to cash received, excluding amounts recognized as revenue during the period | |
| 875 | |
Balance as of September 30, 2022 | |
$ | 1,014 | |
Note 4 — Business Combinations
Gramophone
On October 17, 2021, the Company’s
wholly owned subsidiary, LiveXLive PR, Inc., acquired 100% of the equity interests of Gramophone for net consideration of $0.4 million
consisting of 79,365 shares of the Company’s common stock with a fair value of $0.1 million net of a 25% discount for lack of marketability
described below, contingent consideration with a fair value of $0.2 million comprised of shares held in escrow and a cash earnout, and
cash of $0.2 million. The shares of the Company’s common stock were subject to a twelve-month lock-up period and remain subject
to sales volume restrictions.
Fair Value of Consideration Transferred: | |
| |
Cash | |
$ | 150 | |
Common stock | |
| 89 | |
Contingent consideration | |
| 174 | |
Total | |
$ | 413 | |
Contingent consideration in
the form of a cash earnout of $0.3 million will be paid to the seller of Gramophone if, during the period commencing June 1, 2021 and
ending on May 31, 2022 (“First Year Target”), Gramophone reports GAAP revenues of $1.4 million and EBITDA (as defined in the
purchase agreement) of $0.3 million. If the First Year Target is not met, the cash earnout will be paid to the seller of Gramophone if,
during the period commencing June 1, 2022 and ending on May 31, 2023 (“Second Year Target”), Gramophone reports GAAP revenues
of $2 million and EBITDA of $0.5 million. Based on their likelihood of achievement management’s current estimate of the value of
the contingent consideration related to the cash earnout was valued at $0.2 million. The contingent consideration liability of $0.2 million
is classified within Other Long-Term Liabilities in the accompanying condensed consolidated balance sheets at March 31, 2022 (see Note
15 – Other Long-Term Liabilities). The remaining contingent consideration included in the purchase price was not material and is
included in Other Long-Term Liabilities in the accompanying condensed consolidated balance sheet at March 31, 2022. There was no change
in the contingent liability balance attributed to Gramophone during the three and six months ended September 30, 2022.
Goodwill resulted from acquisition
as it is intended to augment and diversify the Company’s reportable segments. The Company accounted for the acquisition as a business
combination. As a result of the acquisition of the stock of Gramophone, the goodwill is not deductible for tax purposes.
The following table summarizes
the fair value of the assets assumed in the Gramophone acquisition (in thousands):
Asset Type | |
Amortization Period (Years) | | |
Fair
Value | |
Cash and cash equivalents | |
| | |
$ | 4 | |
Accounts receivable | |
| | |
| 4 | |
Trade name | |
5 | | |
| 73 | |
Customer list | |
2 | | |
| 94 | |
Goodwill | |
| | |
| 459 | |
Deferred revenue | |
| | |
| (51 | ) |
Deferred tax liability | |
| | |
| (41 | ) |
Accrued liabilities | |
| | |
| (129 | ) |
Net assets acquired | |
| | |
$ | 413 | |
The Company incurred less
than $0.1 million in transaction costs associated with the Gramophone acquisition, which were expensed and included in General and Administrative
in the consolidated statement of operations for fiscal year ended March 31, 2022. No transaction costs were incurred during the three
and six months ended September 30, 2022.
PodcastOne
On July 1, 2020, the Company’s
wholly owned subsidiary, LiveXLive PodcastOne, Inc., acquired 100% of the equity interests of PodcastOne for net consideration of $16.1
million consisting of 5,363,636 shares of the Company’s common stock with a fair value of $14.6 million net of a 24% discount for
lack of marketability described below, contingent consideration with a fair value of $1.1 million and an additional true-up of 203,249
shares during the third quarter of fiscal 2021 valued at $0.4 million, net of a 24% discount for lack of marketability described below,
that was issued as part of the final purchase price consideration. The shares of the Company’s common stock were subject to a twelve-month
lock-up period and remains subject to sales volume restrictions.
Fair Value of Consideration Transferred: | |
| |
Common stock | |
$ | 14,991 | |
Contingent consideration | |
| 1,100 | |
Total | |
$ | 16,091 | |
If, during the period commencing
after May 7, 2020 and ending on July 1, 2022, for five consecutive trading days the closing market price of the Company’s common
stock exceeds $5.00 per share, an additional aggregate payment of $3.0 million in cash shall be paid to the sellers of PodcastOne in accordance
with their respective pro rata percentage within five business days of the second anniversary of the closing date (July 1, 2022). The
fair value of this contingent consideration liability on the closing date of July 1, 2020 was estimated at $1.1 million using a Monte
Carlo simulation and the significant unobservable input included a credit yield of 21.9%. During March 2021, the closing price of the
Company’s common stock exceeded $5.00 per share for the requisite five consecutive days. During the six months ended September 30,
2022, the Company settled the contingent liability with the sellers for $0.4 million of cash and issued 414,137 shares with an accounting
value of $0.4 million, therefore a gain of $2.2 million was recognized in other income during the six months ended September 30, 2022
attributed to the settlement of the contingent consideration liability.
Goodwill resulted from acquisition
as it is intended to augment and diversify the Company’s reportable segments. The Company accounted for the acquisition as a business
combination. As a result of the acquisition of the stock of PodcastOne, the goodwill is not deductible for tax purposes.
The following table summarizes
the fair value of the assets assumed in the PodcastOne acquisition (in thousands):
Asset Type | |
Weighted Average Amortization Period (Years) | | |
Fair Value | |
Cash and cash equivalents | |
| | |
$ | 1,286 | |
Accounts receivable | |
| | |
| 3,951 | |
Prepaid expense and other assets | |
| | |
| 316 | |
Property and equipment | |
| | |
| 119 | |
Content creator relationships | |
1.6 | | |
| 772 | |
Trade name | |
10 | | |
| 1,010 | |
Goodwill | |
| | |
| 12,042 | |
Accounts payable and accrued liabilities | |
| | |
| (2,934 | ) |
Deferred tax asset | |
| | |
| 972 | |
Allowance for deferred tax asset | |
| | |
| (972 | ) |
Note payable | |
| | |
| (471 | ) |
Net assets acquired | |
| | |
$ | 16,091 | |
The fair value of the assets
acquired includes accounts receivable of $4.0 million. The gross amount due under contracts is $4.2 million, of which $0.2 million is
expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisition of PodcastOne.
CPS
On December 22, 2020, the
Company’s wholly owned subsidiary, LiveXLive Merchandising, Inc., acquired 100% of the equity interests of CPS for total consideration
of 2,230,769 shares of the Company’s restricted common stock with a fair value of $6.4 million net of a 25% discount for lack of
marketability described below. The shares of the Company’s common stock issued to the sellers were subject to a twelve-month lock-up
period from the closing date, which expired on December 22, 2021.
The Company agreed to also
issue up to approximately 577,000 additional shares of its restricted common stock, classified as contingent consideration, as CPS reported
GAAP revenue of at least $20.0 million and $1.0 million of EBITDA (as defined in the purchase agreement) for its fiscal year ended December
31, 2020. Based on their likelihood of achievement this number of shares reflected management’s current estimate and were valued
at $1.7 million based on the Company’s stock price on the date of acquisition, net of a 25% discount for lack of marketability.
On July 7, 2021, the Company issued 576,923 shares of its restricted common stock to the sellers of CPS as consideration for CPS having
satisfied such targets. Accordingly, the Company recorded a $0.2 million benefit to other income (expense) which is included in the consolidated
statement of operations for the year ended March 31, 2022.
The Company further agreed
to issue up to approximately 214,000 additional shares of its restricted common stock to the extent CPS’ final working capital as
determined by the parties exceeds $4.0 million. This number of shares is based on actual achievement under the terms of the purchase agreement
and mutual agreement with the sellers. These additional shares were valued at $0.6 million based on the Company’s stock price on
the date of acquisition, net of a 25% discount for lack of marketability. Included in the total amount of $0.6 million is a purchase price
adjustment of $0.3 million related to the resolution of provisional amounts previously recorded based on estimates, which was accounted
for as a purchase price adjustment within the measurement period as an increase to goodwill related to the CPS acquisition. On July 7,
2021, the Company issued 214,475 shares of its restricted common stock to the sellers of CPS as consideration for CPS having satisfied
such target.
Fair Value of Consideration Transferred: | |
| |
Common stock | |
$ | 6,391 | |
Additional paid-in capital – common stock to be issued | |
| 615 | |
Contingent consideration | |
| 1,654 | |
Total | |
$ | 8,660 | |
Goodwill resulted from acquisition
as it is intended to augment and diversify the Company’s reportable segments. The Company accounted for the acquisition as a business
combination. As a result of the acquisition of the stock of CPS, the goodwill is not deductible for tax purposes.
The following table summarizes
the fair value of the assets assumed in the CPS acquisition (in thousands):
Asset Type | |
Weighted Average Amortization Period (Years) | | |
Fair Value | |
Cash and cash equivalents | |
| | | |
$ | 1,132 | |
Accounts receivable | |
| | | |
| 6,153 | |
Inventories | |
| | | |
| 2,600 | |
Prepaid expense | |
| | | |
| 29 | |
Property and equipment | |
| | | |
| 585 | |
Wholesale relationship | |
| 6 | | |
| 2,500 | |
Domain name | |
| 10 | | |
| 400 | |
Customer list | |
| 5 | | |
| 172 | |
Goodwill | |
| | | |
| 1,207 | |
Other assets | |
| | | |
| 53 | |
Right of use asset | |
| | | |
| 1,086 | |
Lease liability | |
| | | |
| (1,086 | ) |
Accounts payable | |
| | | |
| (5,067 | ) |
Deferred tax liability | |
| | | |
| (388 | ) |
Other liabilities | |
| | | |
| (716 | ) |
Net assets acquired | |
| | | |
$ | 8,660 | |
The fair value of the assets
acquired includes accounts receivable of $6.2 million. The gross amount due under contracts is $6.5 million, of which $0.3 million is
expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisition of CPS.
Supplemental Pro Forma Information (Unaudited)
The pro forma financial information
as presented below is for informational purposes only and is not indicative of the Company’s operations that would have been achieved
from the acquisitions had they taken place at the beginning of the fiscal years ended March 31, 2022.
The following table presents
the revenues, net loss and earnings per share of the combined company for the three and six months ended September 30, 2021 as if the
acquisition of Gramophone had been completed on April 1, 2021 (in thousands, except per share data).
| |
Three Months Ended September 30, 2021 (unaudited) | |
Revenues | |
$ | 22,208 | |
Net loss | |
| (15,302 | ) |
Net loss per share – basic and diluted | |
$ | (0.20 | ) |
| |
Six Months Ended September 30, 2021 (unaudited) | |
Revenues | |
$ | 80,865 | |
Net loss | |
| (23,154 | ) |
Net loss per share – basic and diluted | |
$ | (0.30 | ) |
The Company’s unaudited
pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and reflect amortization
of intangible assets as a result of the acquisition. The pro forma results are not necessarily indicative of the results that would have
been realized had the acquisitions been consummated as of the beginning of the periods presented. The pro forma amounts include the historical
operating results of the Company, with adjustments directly attributable to the acquisition which included amortization of acquired intangible
assets of $0.1 and $0.2 million during the three and six months ended September 30, 2021 and 2022, respectively.
Note 5 — Property and Equipment
The Company’s property
and equipment at September 30, 2022 and March 31, 2022 was as follows (in thousands):
| |
September 30, | | |
March 31, | |
| |
2022 | | |
2022 | |
Property and equipment, net | |
| | |
| |
Computer, machinery, and software equipment | |
$ | 6,626 | | |
$ | 6,609 | |
Furniture and fixtures | |
| 559 | | |
| 556 | |
Leasehold improvements | |
| 531 | | |
| 531 | |
Capitalized internally developed software | |
| 13,517 | | |
| 12,344 | |
Total property and equipment | |
| 21,233 | | |
| 20,040 | |
Less accumulated depreciation and amortization | |
| (17,142 | ) | |
| (15,352 | ) |
Total property and equipment, net | |
$ | 4,091 | | |
$ | 4,688 | |
Depreciation expense was $0.9 million
and $1.8 million for the three and six months ended March 31, 2022 and September 30, 2022, respectively, and $0.9 million and
$1.8 million for the three and six months ended September 2021, respectively.
Note 6 — Goodwill and Intangible Assets
Goodwill
The Company currently has
one reporting unit. The following table presents the changes in the carrying amount of goodwill for the six months ended September
30, 2022 (in thousands):
| |
Goodwill | |
Balance as of March 31, 2022 | |
$ | 23,379 | |
Acquisitions | |
| - | |
Balance as of September 30, 2022 | |
$ | 23,379 | |
Indefinite-Lived Intangible Assets
The following table presents
the changes in the carrying amount of indefinite-lived intangible assets for the six months ended September 30, 2022 (in thousands):
| |
Tradenames | |
Balance as of March 31, 2022 | |
$ | 4,637 | |
Acquisitions | |
| - | |
Impairment losses | |
| - | |
Balance as of September 30, 2022 | |
$ | 4,637 | |
Finite-Lived Intangible Assets
The Company’s finite-lived
intangible assets were as follows as of September 30, 2022 (in thousands):
| |
Gross Carrying Value | | |
Accumulated Amortization | | |
Net Carrying Value | |
Software | |
$ | 19,281 | | |
$ | 18,317 | | |
$ | 964 | |
Intellectual property (patents) | |
| 5,366 | | |
| 1,699 | | |
| 3,667 | |
Customer relationships | |
| 6,570 | | |
| 6,439 | | |
| 131 | |
Content creator relationships | |
| 772 | | |
| 772 | | |
| - | |
Domain names | |
| 523 | | |
| 111 | | |
| 412 | |
Brand and trade names | |
| 1,143 | | |
| 295 | | |
| 848 | |
Customer lists | |
| 2,767 | | |
| 804 | | |
| 1,963 | |
Total | |
$ | 36,422 | | |
$ | 28,437 | | |
$ | 7,985 | |
The Company’s finite-lived
intangible assets were as follows as of March 31, 2022 (in thousands):
| |
Gross Carrying Value | | |
Accumulated Amortization | | |
Net Carrying Value | |
Software | |
$ | 19,281 | | |
$ | 16,389 | | |
$ | 2,892 | |
Intellectual property (patents) | |
| 5,366 | | |
| 1,520 | | |
| 3,846 | |
Customer relationships | |
| 6,570 | | |
| 6,177 | | |
| 393 | |
Content creator relationships | |
| 772 | | |
| 772 | | |
| - | |
Domain names | |
| 514 | | |
| 83 | | |
| 431 | |
Brand and trade names | |
| 2,643 | | |
| 454 | | |
| 2,189 | |
Non-compete agreement | |
| 250 | | |
| 181 | | |
| 69 | |
Customer lists | |
| 2,998 | | |
| 735 | | |
| 2,263 | |
Total | |
$ | 38,394 | | |
$ | 26,311 | | |
$ | 12,083 | |
The Company’s amortization
expense on its finite-lived intangible assets was $1.3 million and $2.7 million for the three and six months ended September
30, 2022, respectively, and $1.5 million and $3.0 million for the three and six months ended 2021, respectively. The Company
recorded an impairment charge of $1.4 million for the three and six months ended September 30, 2022 which is classified under impairment
of intangible assets within the statement of operations. The impairment was the result of a reduction in the events held within React
Presents, therefore the Company has stopped marketing the brand name.
The Company expects to record
amortization of intangible assets for fiscal years ending March 31, 2023 and future fiscal years as follows (in thousands):
For Years Ending March 31, | |
| |
2023 (remaining six months) | |
$ | 1,589 | |
2024 | |
| 985 | |
2025 | |
| 985 | |
2026 | |
| 977 | |
2027 | |
| 842 | |
Thereafter | |
| 2,607 | |
| |
$ | 7,985 | |
Note 7 — Accounts Payable and Accrued
Liabilities
Accounts payable and accrued
liabilities at September 30, 2022 and March 31, 2022 were as follows (in thousands):
| |
September 30, | | |
March 31, | |
| |
2022 | | |
2022 | |
Accounts payable | |
$ | 19,036 | | |
$ | 29,640 | |
Accrued liabilities | |
| 10,055 | | |
| 15,505 | |
Lease liabilities, current | |
| 273 | | |
| 273 | |
| |
$ | 29,364 | | |
$ | 45,418 | |
Note 8 — Notes Payable
| |
September 30, | | |
March 31, | |
| |
2022 | | |
2022 | |
Promissory Note – related party | |
$ | 300 | | |
$ | - | |
SBA loan | |
| 163 | | |
| 160 | |
| |
| 463 | | |
| 160 | |
Less: Current portion of Notes payable | |
| (315 | ) | |
| (12 | ) |
Notes payable | |
$ | 148 | | |
$ | 148 | |
Promissory Note – Related Party
Effective as of September
2022, the Company’s subsidiary issued a promissory note in the amount of $300,000 in consideration of a loan in the same amount
made to such subsidiary, which loan matured on October 17, 2022. The loan was made by an affiliate of Robert Ellin, the Company’s
Chief Executive Officer, Chairman, director and principal stockholder. The note was paid off in October 2022 in full, see Note 21 - Subsequent
Events.
SBA Loan
On June 17, 2020, the Company
received the proceeds from a loan in the amount of less than $0.2 million from the SBA. Installment payments, including principal and
interest, begin 12-months from the date of the promissory note. The balance is payable 30-years from the date of the promissory note,
and bears interest at a rate of 3.75% per annum. The Company was in compliance with all debt covenants associated with the SBA loan as
of September 30, 2022.
PPP Loans
In April 2020, the Company
received proceeds of $2.0 million from a PPP loan. In April 2021, the Company received confirmation from the SBA that the entire balance
of such PPP loan was forgiven as a result of the Company’s application and acceptance under the terms of the CARES Act. On July
1, 2020, the Company acquired PodcastOne that had previously obtained a PPP loan, which had a balance of $0.5 million as of March 31,
2021. On May 11, 2021, the Company received confirmation from the SBA that the entire balance of such PPP loans was forgiven as a result
of the Company’s application and acceptance under the terms of the CARES Act.
On March 20, 2021, the Company
received proceeds of $0.6 million from a second loan (the “Second PPP Loan”) under the PPP of the CARES Act, which the Company
intends to use to retain employees and for other qualifying expenses. The Second PPP Loan matures on March 20, 2026 and bears annual interest
at a rate of 1.0%. In March 2022, the Company received confirmation from the SBA that the entire balance of the Second PPP Loan was forgiven
as a result of the Company’s application and acceptance under the terms of the CARES Act.
The Company recognized a $2.5
million gain on forgiveness of PPP loans, included in total other expense, net in the accompanying condensed consolidated statement of
operations as a result of the balance of the first PPP loan being forgiven during the six months ended September 30, 2021.
Note 9 – PodcastOne Bridge Loan
PodcastOne’s Private Placement
On July 15, 2022 (the “Closing
Date”), PodcastOne completed a private placement offering (the “PC1 Bridge Loan”) of PodcastOne’s unsecured convertible
notes with an original issue discount of 10% (the “OID”) in the aggregate principal amount of $8.8 million (the “PC1
Notes”) to certain accredited investors and institutional investors (collectively, the “Purchasers”), for gross proceeds
of $8.0 million pursuant to the Subscription Agreements entered into with the Purchasers (the “Subscription Agreements”).
In connection with the sale of the PC1 Notes, the Purchasers received warrants (the “PC1 Warrants”) to purchase a number of
shares (the “PC1 Warrant Shares”) of PodcastOne’s common stock, par value $0.00001 per share. The PC1 Notes mature one
year from the Closing Date, subject to a one-time three-month extension at PodcastOne’s election (the “Maturity Date”).
The PC1 Notes bear interest at a rate of 10% per annum payable on maturity. The PC1 Notes shall automatically convert into the securities
of PodcastOne sold in a Qualified Financing or Qualified Event (as defined in the Subscription Agreements), as applicable, upon the closing
of a Qualified Financing or Qualified Event, as applicable, at a price per share equal to the lesser of (i) the price equal to $60.0 million
divided by the aggregate number of shares of PodcastOne’s common stock outstanding immediately prior to the closing of a Qualified
Financing or Qualified Event, as applicable (assuming full conversion or exercise of all convertible and exercisable securities of PodcastOne
then outstanding, subject to certain exceptions), and (ii) 70% of the offering price of the shares (or whole units, as applicable) in
the Qualified Financing or 70% of the initial listing price of the shares on a national securities exchange in the Qualified Event, as
applicable.
Warrants
The PC1 Warrants are classified as liabilities as they represent an
obligation to deliver a variable number of shares of common stock in the future and are therefore required to be initially and subsequently
measured at fair value each reporting period. The Company recorded a warrant liability in the amount of $1.7 million (and reduced the
proceeds allocated to the PC1 Notes accordingly). The fair value of the PC1 Warrant liability is remeasured each reporting period using
a Monte Carlo simulation model, and the change in fair value is recorded as an adjustment to the PC1 Warrant liability with the unrealized
gains or losses reflected in other income (expense).
The fair value of the PC1
Warrants is measured in accordance with ASC 820 “Fair Value Measurement”, using “Monte Carlo simulation” modeling,
incorporating the following inputs:
| |
September 30,
2022 | |
| |
| |
Expected dividend yield | |
| 0.00 | % |
Expected stock-price volatility | |
| 83.5 | % |
Risk-free interest rate | |
| 3.10 | % |
Stock price | |
$ | 5.92 | |
Exercise price | |
$ | 5.92 | |
Total unrealized gains of
$0.4 million for warrant liabilities accounted for as derivatives have been recorded in other expense for the year ended September 30,
2022 in the accompanying statements of operations.
Redemption Features
The Company determined that
the redemption features associated with the PC1 Bridge Loan meet the accounting definition of an embedded derivative that must be separated
from the PC1 Bridge Loan and initially and subsequently be reported as a liability (“the Redemption Liability”) and measured
at fair value. The fair value of the Redemption Liability was determined using a Monte Carlo simulation model.
The fair value of the redemption
features are measured in accordance with ASC 820 “Fair Value Measurement”, using “Monte Carlo simulation” modeling,
incorporating the following inputs:
| |
September 30,
2022 | |
| |
| |
Expected dividend yield | |
| 0.00 | % |
Expected stock-price volatility | |
| 83.5 | % |
Risk-free interest rate | |
| 3.10 | % |
Stock price | |
$ | 5.92 | |
Exercise price | |
$ | 5.92 | |
The fair value of the Redemption
Liability of $1.1 million at July 15, 2022 was recorded as a derivative liability and included in other liabilities in the consolidated
balance sheet. The fair value of the Redemption Liability at September 30, 2022 is $0.9 million. The $0.2 million change in the fair value
of the Redemption Liability derivative is recorded as a gain and included in other non-operating expenses in the accompanying consolidated
statements of operations at September 30, 2022.
The resulting discount from
the OID, underwriting fees, PC1 Warrants, and embedded Redemption Liability derivative of $2.8 million is being amortized to interest
expense through July 15, 2023, the expected term of the Bridge Loan, using the effective interest method. Interest expense resulting from
the amortization of the discount for the three and six months ended September 30, 2022 was $0.2 million.
In connection with the Financing,
the Company announced that it intends to spin-out PodcastOne as a separate public company before the end of its current fiscal year and
plans to dividend a portion of PodcastOne’s common equity to the Company’s stockholders as of a future to be determined record
date, in each case subject to obtaining applicable approvals and consents, complying with applicable rules and regulations and satisfying
applicable public market trading and listing requirements. Among other things, the Company agreed not to effect any Qualified Financing
or Qualified Event (each as defined below), as applicable, unless PodcastOne’s post-money valuation at the time of the Qualified
Event is at least $150 million.
Interest expense with respect
to the PC1 Bridge Loan for the three and six months ended September 30, 2022 was $0.1 million. There are no covenants associated with
the PC1 Bridge Loan
Note 10 — Unsecured Convertible Notes
Unsecured Convertible Notes
– Related Party
The Company’s unsecured
convertible notes payable at September 30, 2022 and March 31, 2022 were as follows (in thousands):
|
|
September 30,
2022 |
|
|
March 31,
2022 |
|
Unsecured Convertible Notes - Related Party |
|
|
|
|
|
|
8.5% Unsecured Convertible Note - Due July 1, 2024 |
|
$ |
4,854 |
|
|
$ |
4,702 |
|
8.5% Unsecured Convertible Notes - Due July 1, 2024 |
|
|
1,190 |
|
|
|
1,177 |
|
Less: Discount |
|
|
(747 |
) |
|
|
- |
|
Net |
|
|
5,297 |
|
|
|
5,879 |
|
Less: Unsecured Convertible Notes, Current |
|
|
- |
|
|
|
- |
|
Unsecured Convertible Notes, Net, Long-term |
|
$ |
5,297 |
|
|
$ |
5,879 |
|
The Company incurred interest
expense of $0.1 million and $0.2 million attributed to its unsecured convertible notes for the three months ended September 30, 2022 and
2021, respectively. The Company incurred interest expense of $0.2 million and $0.3 million attributed to its unsecured convertible notes
for the six months ended September 30, 2022 and 2021, respectively. Total principal maturities of the Company’s unsecured convertible
notes are $6.0 million for the year ending March 31, 2024.
As of September 30, 2022 and
March 31, 2022, the Company had outstanding 8.5% unsecured convertible notes payable (the “Trinad Notes”) issued to Trinad
Capital Master Fund Ltd. (“Trinad Capital”), a fund controlled by Mr. Ellin, the Company’s Chief Executive Officer,
Chairman, director and principal stockholder, as discussed below. The Trinad Notes are convertible into shares of the Company’s
common stock at a fixed conversion price of $3.00 per share.
The first Trinad Note was
issued on February 21, 2017, to convert aggregate principal and interest of $3.6 million under the first senior promissory note and second
senior promissory note with Trinad Capital previously issued on December 31, 2014 and April 8, 2015, respectively. The first Trinad Note
was due on March 31, 2018 and was extended to May 31, 2023, and in July 2022 the Trinad Notes were extended until July 1, 2024. At September
30, 2022, the balance due of $6.0 million, which included $1.5 million of accrued interest, was outstanding under the first Trinad Note.
At March 31, 2022, the balance due of $5.9 million, which included $1.4 million of accrued interest, was outstanding under the first Trinad
Note.
Between October 27, 2017 and
December 18, 2017, the Company issued six unsecured convertible notes payable to Trinad Capital for aggregate total principal amount of
$1.1 million and were charged an 8.5% interest rate. The notes were due on various dates through December 31, 2018 and were extended to
May 31, 2023. As of September 30, 2022 and March 31, 2022, $0.3 million and $0.3 million of accrued interest was included in the principal
balance, respectively.
In July 2022, the Company
entered into the amendment with Trinad Capital pursuant to which the maturity date of all of the Trinad Notes was extended to July 1,
2024, and in consideration of such extension, the Company issued to Trinad Capital 500,000 shares of the Company’s restricted common
stock. The Company evaluated the Amendment Agreement and the amendment was not required to be accounted for as a TDR under ASC 470-60
as no concession was granted to the Company. The Company then evaluated the Amendment Agreement and the amendment was not required to
be accounted for as an extinguishment under ASC 470-50, Debt – Modifications and Extinguishment. The Company recorded the debt as
a modification and recorded the derivative associated with the conversion feature as a debt discount. The Company determined the value
of the derivative to be $0.2 million using the Black-Scholes option pricing model based on the following assumptions: common share price
of $0.71 per share; expected exercise price of $3.00 per share; volatility of 84.8%; expected dividend yield of zero; and annual risk-free
interest rate of 4.09%. The derivative has been recorded within other long-term liabilities on the consolidated balance sheet.
On August 11, 2021, the Company
entered into an Amendment of Notes Agreement (the “Amendment Agreement”) with Trinad Capital pursuant to which the maturity
date of all of the Trinad Notes was extended to May 31, 2023, and in consideration of such extension, the Company issued to Trinad Capital
33,654 shares of its restricted common stock. The Company evaluated the Amendment Agreement and the amendment was required to be accounted
for as an extinguishment under ASC 470-50, Debt – Modifications and Extinguishment. As a result, we recorded the amended debt instrument
at fair value which included the consideration in common stock transferred. The resulting loss on extinguishment recorded of $4.3 million
is included in loss on extinguishment of debt in the Company’s condensed consolidated statement of operations for the year ended
March 31, 2022. In addition, the Company recorded a $4.2 million benefit to additional paid in capital as a result of the excess of the
deemed fair value of the Trinad Notes over the principal and accrued interest outstanding at the time of extinguishment.
The Company may not redeem
any of the Trinad Notes prior to maturity without Trinad Capital’s consent.
Unsecured Convertible Promissory Note
On February 5, 2020, React
Presents issued a two-year $2 million Convertible Promissory Note (the “Note”), bearing annual interest at 8%. The purpose
of the Note was to fund the acquisition of React Presents. All unpaid and outstanding principal and any unpaid and accrued interest was
due on February 5, 2022. At issuance, the Note was convertible by the holder at any time prior to maturity in part or in whole with the
unpaid interest and principal convertible at a conversion price equal to $4.50 per share of the Company’s common stock, subject
to certain protective adjustments. The Note may be prepaid in whole or in part in cash without penalty at any time prior to maturity.
Any such prepayment will be applied to accrued interest first and then the principal.
At June 30, 2021, the Company
performed a fair value analysis using a binomial lattice calculation on the derivative instruments using the following assumptions: Coupon
Rate: 8.0%, Term: 0.6 years, Volatility: 85.2%, Market Rate: 5.1% and Probability of Default: 7.1%. The Company determined that as of
the assessment date, the fair value is $0.1 million. The change in fair value of less than $0.1 million is recorded in other income (expense)
on the Company’s consolidated statements of operations for the six months ended September 30, 2021.
Effective December 31,
2021, the Note holder converted the Note in whole pursuant to an exchange agreement entered into during the year ended March 31, 2022,
which provided for an exchange of the Note into shares of the Company’s common stock at a price of $2.10 per share, resulting in
1,155,143 shares issued upon the exchange. As a result of the effective exchange incentives offered to the Note holder, the Company recorded
a $0.8 million expense to Other Income (expense) in the condensed consolidated statement of operations for the year ended March 31, 2022.
Note 11 — Senior Secured Convertible
Notes
The Company’s senior
secured convertible notes at September 30, 2022 and March 31, 2022 were as follows (in thousands):
| |
September 30, 2022 | | |
March 31, 2022 | |
Senior Secured Convertible Notes | |
$ | 15,000 | | |
$ | 15,000 | |
Fair value of embedded derivatives | |
| 122 | | |
| 18 | |
Less: Discount | |
| (1,388 | ) | |
| (1,368 | ) |
Net | |
| 13,734 | | |
| 13,650 | |
Less: Current Portion, accrued interest | |
| - | | |
| - | |
Senior Secured Convertible Notes, long-term | |
$ | 13,734 | | |
$ | 13,650 | |
On September 15, 2020 (the
“Closing Date”), the Company issued two-year senior secured convertible notes in the aggregate principal amount of $15.0 million
(the “Harvest Notes”) to Harvest Small Cap Partners, L.P. and Harvest Small Cap Partners, Ltd. (collectively, the “Purchaser”).
The Purchaser are funds affiliated with No Street Capital, a San Francisco-based investment firm.
The Harvest Notes, as amended,
mature on June 3, 2024, accrue interest at 8.5% per year with interest payable quarterly in cash in arrears, and are convertible into
shares of the Company’s common stock at a conversion price of $4.50 per share at the applicable Purchaser’s option, subject
to certain customary adjustments such as stock splits, stock dividends and stock combinations (the “Conversion Price”). The
Company does not have the right to prepay any or all of the Harvest Notes prior to their maturity.
The current portion of accrued
interest related to the Harvest Notes is included in Accounts payable and accrued liabilities in the accompanying condensed consolidated
balance sheets.
The Company’s obligations under the Harvest Notes may be accelerated
upon the occurrence of certain customary events of default (as defined in the Harvest Notes) and are guaranteed under a Subsidiary Guarantee,
dated as of the Closing Date (the “Subsidiary Guarantee”), entered into by all of the Company’s subsidiaries (the “Guarantors”)
in favor of the Purchaser. The Company’s obligations under the Harvest Notes and the Guarantors’ obligations under the Subsidiary
Guarantee are secured under a Security Agreement, dated as of the Closing Date (the “Security Agreement”), and an Intellectual
Property Security Agreement, dated as of the Closing Date (the “IP Security Agreement”), by a lien on all of the Company’s
and the Guarantors’ assets and intellectual property, subject to certain exceptions. The Harvest Notes require the Company to maintain
aggregate cash deposits of $7.0 million until the Harvest Notes are paid in full. In May 2021 and in connection with the Company entering
into a $7 million secured revolving credit facility, the holders of the Harvest Notes subordinated their security interest and extended
the maturity date of the notes to June 3, 2023. In consideration of the above, the Company issued 60,000 shares of its common stock valued
at $0.3 million to the Purchaser. In July 2022, the holders of the Harvest Notes extended the maturity date of the notes to June 3, 2024.
In May 2021, the Company evaluated
this agreement and determined that it was required to be accounted for as troubled debt restructuring under ASC 470-60, Troubled
Debt Restructurings by Debtors. As a result, the Company recorded the shares of common stock issued to the Purchaser as an increase
to Additional Paid In Capital and a corresponding debt discount included in Secured Convertible Notes, net in the accompanying condensed
consolidated balance sheets.
The Company and the Purchaser
also entered into a Registration Rights Agreement, dated as of the Closing Date (the “RRA”), which granted the Assignees “demand”
and “piggyback” registration rights to register the shares of Common Stock issuable upon the conversion of the Notes and the
Shares (collectively, the “Registrable Securities”) with the SEC for resale or other disposition. Pursuant to the RRA, the
Company filed a resale Registration Statement on Form S-3 on October 14, 2020, and it was declared effective by the SEC on October 21,
2020. The Company also agreed to keep the initial Registration Statement continuously effective until the earliest to occur of (i) the
date on which all of the Registrable Securities registered thereunder have been sold and (ii) the date on which all of the Registrable
Securities covered by such Registration Statement may be sold without volume restriction pursuant to Rule 144 under the Securities Act
of 1933, as amended (the “Securities Act”).
In connection with the SPA,
and the Harvest Notes subsequent extension, Robert S. Ellin, the Company’s CEO, Chairman, director and principal stockholder, agreed
not to dispose of any equity securities of the Company owned by Mr. Ellin or any entity of which he is the beneficial owner and not to
cease to be the beneficial owner of any other equity securities of the Company of which Mr. Ellin was the beneficial owner as of June
3, 2021 until the Harvest Notes are paid in full (subject to certain customary exceptions), without the Purchaser’s prior written
consent.
The Harvest Notes and the
Shares were issued in private placement transaction that was not registered under the Securities Act, in reliance upon applicable exemptions
from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder.
In
July 2022, the Company entered into an amendment of notes agreement (collectively, the “Amendments”) with each of the holders
of the Harvest Notes (the “Noteholders”) pursuant to which the parties agreed to (i) extend the maturity date of the Harvest
Notes to June 3, 2024, (ii) defer the June 30, 2022 quarterly cash interest payment to July 18, 2022, and defer the quarterly cash interest
payment for the fiscal quarter ending September 30, 2022 to be due and payable at the same time as the quarterly cash interest payment
due and payable to the Noteholders for the fiscal quarter ending December 31, 2022, (iii) reduce the amount of Free Cash (as defined in
the Harvest Notes) as follows (x) $7,000,000 from the Effective Date through December 31, 2022 (inclusive), (y) $8,000,000 from January
1, 2023 and until June 30, 2023 (inclusive), and (z) $10,000,000 from July 1, 2023 and until the Harvest Notes are repaid in full at their
new maturity date of June 3, 2024; provided, that in the event that the Harvest Notes are repaid or prepaid by the Company, the amount
of required Free Cash shall be then permanently reduced to the amount equal to the product of the aggregate principal amount of the Harvest
Notes then outstanding multiplied by 2/3, and (iv) permit the Company to prepay the Harvest Notes at any time without any repayment/prepayment
penalties and without the written consent of the Noteholders, subject to approval from the Company’s senior secured lender, which
approval was subsequently obtained; provided, that the Company shall give the Noteholders at least five days prior written notice of any
such prepayment or repayment (collectively, “Loan Modification”).
The
Company and the Noteholders also agreed that if (i) at least $5,000,000 of the original principal amount of the Harvest Notes is not repaid
by the Company on or prior to January 1, 2023, the conversion price of the Harvest Notes shall be amended to $3.00 per share, and the
Company shall issue to the Noteholders in aggregate an additional 250,000 shares of the Company’s restricted common stock; (ii)
at least $7,500,000 of the original principal amount of the Harvest Notes is not repaid by the Company on or prior to June 30, 2023, the
conversion price of the Harvest Notes shall be further amended to $2.50 per share, and the Company shall then issue to the Noteholders
in aggregate an additional 500,000 shares of the Company’s common stock; and (iii) the entire principal amount of the Harvest Notes
then outstanding is not repaid by the Company on or prior to January 1, 2024, the conversion price of the Harvest Notes shall be further
amended to $2.25 per share, and the Company shall then issue to the Noteholders in aggregate an additional 750,000 shares of the Company’s
restricted common stock. In addition, in consideration of the Loan Modification, the Company issued to the Noteholders in aggregate 500,000
shares of the Company’s restricted common stock.
The
Company and the Noteholders further agreed to certain Harvest Note repayment conditions as provided in the Amendments in the event that
the Company or any of its subsidiaries completes an equity or debt financing in the future or if Mr. Ellin ceases to be the Company’s
Chief Executive Officer and unless an equally or better qualified CEO, as determined by the majority of the Company’s then-independent
directors is appointed within the time provided by the Amendments, in each case prior to the full repayment of the Harvest Notes.
In July 2022, the Company
evaluated the Amendments and determined that it was not required to be accounted for as troubled debt restructuring under ASC 470-60,
Troubled Debt Restructurings by Debtors. The Company also evaluated if the Amendments were required to be accounted for as an extinguishment
under ASC 470-50, Debt – Modifications and Extinguishment. The Company recorded the debt as a modification and recorded the derivative
associated with the conversion feature as a derivative. The Company determined the value of the derivative to be $0.1 million.
The Company recorded $0.4
million and $0.3 million in interest expense associated with the Harvest Notes for the three months ended September 30, 2022 and 2021,
respectively, of which $0.2 million and $0.1 million was attributed to the accretion of the debt discount associated with the senior secured
convertible notes. The Company recorded $0.5 million and $0.6 million in interest expense associated with the Harvest Notes for the six
months ended September 30, 2022 and 2021, respectively, of which $0.3 million and $0.2 million, respectively, was attributed to the accretion
of the debt discount associated with the senior secured convertible notes.
The Company was in compliance
with all debt covenants associated with their senior secured convertible debt as of September 30, 2022.
Note 12 — Senior Secured Revolving Line
of Credit
On June 2, 2021, the Company
entered into a Business Loan Agreement with East West Bank (the “Senior Lender”), which provides for a revolving credit facility
collateralized by all the assets of the Company and its subsidiaries. In connection with the Business Loan Agreement, the Company entered
into a Promissory Note with the Senior Lender and established the revolving line of credit in the amount of $7.0 million (the “Revolving
Credit Facility”), maturing on June 2, 2023.
In July2022, the Company extended
the maturity date of its revolving credit facility to June 2024 and its variable interest rate was increased to 2.5%. The Revolving Credit
Facility bears interest at a variable rate equal to the Wall Street Journal Prime Rate, plus 2.5%. The interest rate for the period ended
September 30, 2022 was 8.75%
The principal balance under
the Revolving Credit Facility as of September 30, 2022 was $7.0 million. The Company was in compliance with all debt covenants associated
with the senior secured revolving line of credit as of September 30, 2022.
Note 13 — Related Party Transactions
As of September 30, 2022 and
March 31, 2022, the Company had unsecured convertible Trinad Notes outstanding which were issued to Trinad Capital as described in Note
10 – Unsecured Convertible Notes.
Effective as of September
2022, a subsidiary of the Company issued a promissory note in the amount of $300,000 in consideration of a loan in the same amount made
to such subsidiary by an affiliate of Robert Ellin, the Company’s Chief Executive Officer, Chairman, director and principal stockholder,
which loan matured on October 17, 2022. The loan was repaid in October 2022
Note 14 — Leases
The Company leases a space
at a location under a non-cancellable operating lease with a remaining lease term of 1 year, which originally expired in fiscal year 2022
and was renewed for an additional year. On December 22, 2020, the Company acquired CPS which included the assumption of an operating lease
for a 55,120 square foot light manufacturing facility located in Addison Illinois, expiring June 30, 2024.
The Company leases several
office locations with lease terms that are less than 12 months or are on month-to-month terms. Rent expense for these leases totaled less
than $0.1 million and $0.2 million for the three and six months ended September 30, 2022, respectively. Operating leases with
lease terms of greater than 12 months are capitalized in operating lease right-of-use assets and operating lease liabilities in the accompanying
condensed consolidated balance sheets. Rent expense for these operating leases totaled $0.2 million during each of the three months ended
September 30, 2022 and 2021, respectively. Rent expense for these operating leases totaled $0.3 million and $0.4 million during
the six months ended September 30, 2022, respectively.
Operating lease costs for
six months ended September 30, 2022 and 2021 consisted of the following (in thousands):
|
|
Six Months Ended
September 30, |
|
|
|
2022 |
|
|
2021 |
|
Fixed rent cost |
|
$ |
312 |
|
|
$ |
532 |
|
Short term lease cost |
|
|
27 |
|
|
|
168 |
|
Total operating lease cost |
|
$ |
339 |
|
|
$ |
700 |
|
Supplemental balance sheet
information related to leases was as follows (in thousands):
Operating leases |
|
September 30,
2022 |
|
|
March 31,
2022 |
|
Operating lease right-of-use assets |
|
$ |
580 |
|
|
$ |
728 |
|
|
|
|
|
|
|
|
|
|
Operating lease liability, current |
|
$ |
273 |
|
|
$ |
273 |
|
Operating lease liability, noncurrent |
|
|
320 |
|
|
|
468 |
|
Total operating lease liabilities |
|
$ |
593 |
|
|
$ |
741 |
|
The operating lease right-of-use
assets are included in other assets and operating lease liabilities are included in accounts payable and accrued liabilities and lease
liabilities non-current in the accompanying condensed consolidated balance sheets.
Maturities of operating lease
liabilities as of September 30, 2022 were as follows (in thousands):
For Years Ending March 31, |
|
|
|
2023 (remaining six months) |
|
$ |
189 |
|
2024 |
|
|
320 |
|
2025 |
|
|
93 |
|
Total lease payments |
|
|
602 |
|
Less: imputed interest |
|
|
(9 |
) |
Present value of operating lease liabilities |
|
$ |
593 |
|
Significant judgments
Discount rate – the
Company’s lease is discounted using the Company’s incremental borrowing rate of 8.5% as the rate implicit in the lease
is not readily determinable.
Options – the lease
term is the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determined it is
reasonably certain of exercising the option at inception or when a triggering event occurs.
Lease and non-lease components
– Non lease components were considered and determined not to be material
Note 15 — Other Long-Term Liabilities
Other long-term liabilities
consisted of the following (in thousands):
|
|
September 30,
2022 |
|
|
March 31,
2022 |
|
Contingent consideration from Gramophone acquisition |
|
$ |
174 |
|
|
$ |
174 |
|
Accrued royalties |
|
|
4,257 |
|
|
|
- |
|
Embedded derivative – unsecured convertible note – related party |
|
|
177 |
|
|
|
- |
|
Total other long-term liabilities |
|
$ |
4,608 |
|
|
$ |
174 |
|
Note 16 — Commitments and Contingencies
Promotional Rights
Certain of the Company’s
content acquisition agreements contain minimum guarantees and require that the Company makes upfront minimum guarantee payments. As of
September 30, 2022, the Company has licenses, production and/or distribution agreements to make guaranteed payments as follows: $0.1 million
for the fiscal year ending March 31, 2023. These agreements also provide for a revenue share that ranges between 35% and 50% of net revenues.
In addition, there are other licenses, production and/or distribution agreements that provide for a revenue share of 50% on net revenues;
however, without a requirement to make future minimum guaranteed payments irrespective to the execution and results of the planned events.
Contractual Obligations
As of September 30, 2022,
the Company is obligated under agreements with Content Providers and other contractual obligations to make guaranteed payments as follows:
$3.9 million for the fiscal year ending March 31, 2023, $1.8 million for the fiscal year ending March 31, 2024, $0.3 million for the fiscal
year ending March 31, 2025 and $0.2 million for the fiscal year ending March 31, 2026.
On a quarterly basis, the
Company records the greater of the cumulative actual content acquisition costs incurred or the cumulative minimum guarantee based on forecasted
usage for the minimum guarantee period. The minimum guarantee period of time is the period that the minimum guarantee relates to, as specified
in each agreement, which may be annual or a longer period. The cumulative minimum guarantee, based on forecasted usage, considers factors
such as listening hours, revenue, members, and other terms of each agreement that impact the Company’s expected attainment or recoupment
of the minimum guarantees based on the relative attribution method.
Several of the Company’s
content acquisition agreements also include provisions related to the royalty payments and structures of those agreements relative to
other content licensing arrangements, which, if triggered, could cause the Company’s payments under those agreements to escalate,
which included payments to be made in common stock. In addition, record labels, publishers and performing rights organizations with whom
the Company has entered into direct license agreements have the right to audit the Company’s content acquisition payments, and any
such audit could result in disputes over whether the Company has paid the proper content acquisition costs. However, as of September 30,
2022, the Company does not believe it is probable that these provisions of its agreements discussed above will, individually or in the
aggregate, have a material adverse effect on its business, financial position, results of operations or cash flows.
On August 4, 2022, the Company
entered into a settlement agreement with a certain music partner attributed to past royalties owed. The Company issued 800,000 shares
of its common stock to the music partner and settled $0.4 million of accounts payable with the remaining value of the shares attributed
to prepayment for future royalties. The fair value of the shares was determined to be $1.0 million based on the Company’s share
price at the date the shares were issued. As of September 30, 2022, $0.6 million was recorded as a prepaid asset related to this transaction
in order to fund future amounts owed for royalties. If the agreement is not terminated by the music partner after one year, the Company
will issue an additional 200,000 shares as prepayment of future royalties.
Employment Agreements
As of September 30, 2022,
the Company has employment agreements with three named executive officers (“Section 16 Officers”) that provide salary payments of
$0.5 million and target bonus compensation of up to $0.5 million on an annual basis. Furthermore, such employment agreements contain severance
clauses that could require severance payments in the aggregate amount of $10.5 million (excluding the value of potential payouts of discretionary
bonuses, pro-rata bonuses, and potential accelerated vesting of equity awards granted to such executive officers).
Legal Proceedings
On April 10, 2018, Joseph
Schnaier, Danco Enterprises, LLC (an entity solely owned by Mr. Schnaier, “Danco”), Wantmcs Holdings, LLC (Mr. Schnaier is
the managing member) and Wantickets (Mr. Schnaier is the 90% beneficial owner) filed a complaint in the Supreme Court of the State of
New York, County of New York against the Company, LiveXLive Tickets, Inc. (“LXL Tickets”), Robert S. Ellin and certain other
defendants. Plaintiffs subsequently voluntarily dismissed all claims against the other defendants. The complaint alleged multiple causes
of action arising out of Schnaier’s investment (through Danco) into the Company in 2016, LXL Tickets’ purchase of certain
operating assets of Wantickets pursuant to the Asset Purchase Agreement, dated as of May 5, 2017, and Mr. Schnaier’s employment
with LXL Tickets, including claims for fraudulent inducement, breach of contract, conversion, and defamation. Based on the remaining claims,
plaintiffs are seeking damages of approximately $10.0 million as shall be determined at trial, if any, plus interest, attorneys’
fees and costs and other such relief as the court may award. The Company has denied and continue to deny plaintiffs’ claims. The
Company believes that the complaint is an intentional act by the plaintiffs to publicly tarnish the Company’s and its senior management’s
reputations through the public domain in an effort to obtain by threat of litigation certain results for Mr. Schnaier’s self-serving
and improper purposes. The Company is vigorously defending this lawsuit and believes that the allegations are without merit and that it
has strong defenses. On June 26, 2018, the Company and LXL Tickets, filed counterclaims against the plaintiffs for breach of contract
(including under the Asset Purchase Agreement), fraudulent inducement, and other causes of action, seeking injunctive relief, damages,
attorneys’ fees and expenses and such other relief as the court may award. In October 2018, pursuant to the terms of the APA, the
Company submitted a formal demand to Wantickets, Mr. Schnaier and Danco to indemnify the Company, among other things, for its costs and
expenses incurred in connection with this matter. In November 2021, the court denied the Company’s summary judgment motion to dismiss
plaintiffs’ fraudulent inducement claim and dismissed plaintiff’s breach of the employment agreement claim with respect to
the Company. On October 6, 2022, New York Appellate Division reversed the trial court’s decision and ordered that defendants’
motion for summary judgment dismissing the first and second causes of action should be granted. As of September 30, 2022, all of plaintiffs’
claims were dismissed or addressed by the parties or the court other than plaintiffs’ claims for fraudulent inducement related to
payment of Wantickets’ audit costs, breach of contract based on Mr. Schnaier’s employment agreement with LXL Tickets, and
fraudulent inducement due to plaintiffs alleged inability to sell their shares of Company’s common stock acquired pursuant to the
APA. The trial has been scheduled for April 2023. The Company intends to continue to vigorously defend all remaining defendants against
any liability to the plaintiffs with respect to the remaining claims, and the Company believes that the allegations are without merit
and that it has strong defenses. As of September 30, 2022, while the Company has assessed that the likelihood of a loss, if any, is not
probable, the outcome of this lawsuit is inherently uncertain and the potential range of loss could have a material adverse effect on
the Company’s business, financial condition and results of operations.
On June 28, 2022, SoundExchange,
Inc. (“SX”) filed a complaint in the U.S. District Court, Central District of California, against the Company and Slacker.
The complaint alleges that the defendants have failed to make the necessary music royalty payments and corresponding late fees required
under the Digital Millennium Copyright Act late allegedly due to SX. SX filed an application for an order to file the complaint under
seal. On October 8, 2022, the court entered a default against the defendants for the sum of $9,765,396.70. On October 13, 2022, the court
entered a judgment against the defendants for the same amount. On October 19, 2022, the defendants filed ex parte application with the
court to either (i) set aside such default and vacate such default judgment, or (ii) shorten time to hear defendants’ motion to
set aside such default and vacate such default judgment and stay the consent order, and to convene a status and mandatory settlement conference.
On October 25, 2022, SX filed an opposition to such application. The Company believes it has already adequately reserved for the amounts
due to SX in the Company’s financial statements included in this Quarterly Report. The Company is currently continuing to negotiate
with SX to settle this matter and otherwise intends to vigorously defend the defendants in this matter.
During each of the quarters
ended September 30, 2022 and 2021, the Company recorded legal settlement expenses relating to potential claims arising in connection with
litigation brought against the Company by certain third parties were not material and were included in general and administrative expenses
in the accompanying condensed consolidated statement of operations.
From time to time, the Company
is involved in legal proceedings and other matters arising in connection with the conduct of its business activities. Many of these proceedings
may be at preliminary stages and/or seek an indeterminate amount of damages. In the opinion of management, after consultation with legal
counsel, such routine claims and lawsuits are not significant and we do not currently expect them to have a material adverse effect on
our business, financial condition, results of operations, or liquidity.
Note 17 — Employee Benefit Plan
Effective March 2019, the
Company sponsors a 401(k) plan (the “401(k) Plan”) covering all employees. Prior to March 31, 2019, only Slacker employees
were eligible to participate in the 401(k) Plan. Employees are eligible to participate in the 401(k) Plan the first day of the calendar
month following their date of hire. The Company may make discretionary matching contributions to the 401(k) Plan on behalf of its
employees up to a maximum of 100% of the participant’s elective deferral up to a maximum of 5% of the employees’ annual compensation.
The Company’s matching contributions were not material to the financial statements for the three- and six-month periods ended September
30, 2022 and 2021.
Note 18 — Stockholders’ Equity
Issuance of Restricted Shares of Common
Stock for Services to Consultants and Vendors
During the six months ended
September 30, 2022, the Company has $0.4 million outstanding within accounts payable and accrued liabilities for stock earned by
its consultants, but not yet issued. The remaining unrecognized compensation cost of $0.4 million is expected to be recorded over
the next year as the shares vest.
2016 Equity Incentive Plan
The Company’s board of directors and stockholders approved the
Company’s 2016 Equity Incentive Plan, as amended (the “2016 Plan”) which reserved a total of 12,600,000 shares
of the Company’s common stock for issuance. On September 17, 2020, the Company’s stockholders approved the amendment to the
2016 Plan to increase the number of shares available for issuance under the plan by 5,000,000 shares increasing the total up
to 17,600,000 shares, which increase was formally adopted by the Company on June 29, 2021. Incentive awards authorized under
the 2016 Plan include, but are not limited to, nonqualified stock options, incentive stock options, restricted stock awards, restricted
stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”),
and stock appreciation rights. If an incentive award granted under the 2016 Plan expires, terminates, is unexercised or is forfeited,
or if any shares are surrendered to the Company in connection with the exercise of an incentive award, the shares subject to such award
and the surrendered shares will become available for further awards under the 2016 Plan.
The Company recognized share-based
compensation expense of $2.2 million and $9.9 million during the six months ended September 30, 2022 and 2021, respectively,
and $1.4 million and $4.8 million during the three months ended September 30, 2022 and 2021, respectively. The total tax benefit
recognized related to share-based compensation expense was $0 for the three and six months ended September 30,
2022 and 2021, respectively.
Authorized Common Stock and Authority to Create Preferred Stock
The Company has the authority
to issue up to 510,000,000 shares, consisting of 500,000,000 shares of the Company’s common stock, $0.001 par value per share, and
10,000,000 shares of the Company’s preferred stock, $0.001 par value per share (the “preferred stock”).
The Company may issue shares
of preferred stock from time to time in one or more series, each of which will have such distinctive designation or title as shall be
determined by the Company’s board of directors and will have such voting powers, full or limited, or no voting powers, and such
preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof,
as shall be stated in the resolution or resolutions providing for the issue of such class or series of preferred stock as may be adopted
from time to time by the Company’s board of directors. The Company’s board of directors will have the power to increase
or decrease the number of shares of preferred stock of any series after the issuance of shares of that series, but not below the number
of shares of such series then outstanding. In case the number of shares of any series shall be decreased, the shares constituting
such decrease will resume the status of authorized but unissued shares of preferred stock.
While the Company does not
currently have any plans for the issuance of preferred stock, the issuance of such preferred stock could adversely affect the rights of
the holders of common stock and, therefore, reduce the value of the common stock. It is not possible to state the actual effect of the
issuance of any shares of preferred stock on the rights of holders of the common stock until and unless the Company’s board of directors
determines the specific rights of the holders of the preferred stock; however, these effects may include: restricting dividends on the
common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock, or delaying or preventing
a change in control of the Company without further action by the stockholders.
Stock Repurchase Program
In December 2020, we announced that our board of directors has authorized
the repurchase up to two million shares of our outstanding common stock from time to time. The timing, price, and quantity of purchases
under the program will be at the discretion of our management and will depend upon a variety of factors including share price, general
and business market conditions, compliance with applicable laws and regulations, corporate and regulatory requirements, and alternative
uses of capital. The program may be expanded, suspended, or discontinued by our board of directors at any time. Although our board of
directors has authorized this stock repurchase program, there is no guarantee as to the exact number of shares, if any, that will be repurchased
by us, and we may discontinue purchases at any time that management determines additional purchases are not warranted. We cannot guarantee
that the program will be consummated, fully or all, or that it will enhance long-term stockholder value. The program could affect the
trading price of our common stock and increase volatility, and any announcement of a termination of this program may result in a decrease
in the trading price of our common stock. In addition, this program could diminish our cash reserves. The Company purchased 2,000,000
and no shares of its common stock under the stock repurchase program for the six months ended September 30, 2022 and 2021, for a total
of $1.9 million and none, respectively.
Note 19 — Business Segment and Geographic
Reporting
The Company determined its
operating segments in accordance with ASC 280, “Segment Reporting” (“ASC 280”).
Beginning in the second quarter
of fiscal 2023, management has determined that the Company has two operating segments (Audio Group and Media Group). As a result
of the PC1 Bridge Loan and the potential for a spin-off of PodcastOne the Company’s chief operating decision maker (“CODM”)
began to make decisions based on two operating segments of the business (Audio and Media). The Company’s reporting segments reflects
the manner in which its CODM reviews results and allocates resources. The CODM reviews operating segment performance exclusive of: share-based
compensation expense, amortization of intangible assets, depreciation, and other expenses (including legal fees, expenses, and accruals)
related to acquisitions, associated integration activities, and certain other non-cash charges. As a result, the segment information for the prior periods has been recast to confirm with the current period
presentation.
The Company’s two operating
segments are also consistent with its internal organizational structure, the way the Company assesses operating performance and allocate
sources.
Customers
The Company has one external
customer within their audio segment that accounts for more than 10% of its revenue during the six months ended September 30, 2022
and 2021. Such customer is an original equipment manufacturer (the “OEM”) who provides premium Slacker service in all of their
new vehicles. Total revenues for this customer were 44% and 24% of the Company’s consolidated revenues for the six months
ended September 30, 2022 and 2021, respectively. For the three months ended September 30, 2022 and 2021, one external customer
accounted for 45% and 35%, respectively of the Company’s consolidated revenues.
Geographic Information
The Company’s operations
are based in the United States. All material revenues of the Company are derived from the United States. All long-lived assets of the
Company are located in the United States.
We manage our working capital
on a consolidated basis. Accordingly, segment assets are not reported to, or used by, our management to allocate resources to or assess
performance of our segments, and therefore, total segment assets and related depreciation and amortization have not been presented.
The following table presents
the results of operations for our reportable segments for the three and six months ended September 30, 2022 and 2021:
|
|
Three Months Ended
September 30, 2022 |
|
|
|
Audio |
|
|
Media |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
21,180 |
|
|
$ |
2,352 |
|
|
$ |
23,352 |
|
Net income (loss) |
|
$ |
2,845 |
|
|
$ |
(6,254 |
) |
|
$ |
(3,409 |
) |
|
|
Three Months Ended
September 30, 2021 |
|
|
|
Audio |
|
|
Media |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
18,686 |
|
|
$ |
3,238 |
|
|
$ |
21,924 |
|
Net income (loss) |
|
$ |
(769 |
) |
|
$ |
(14,467 |
) |
|
$ |
(15,236 |
) |
| |
Six Months Ended September 30, 2022 | |
| |
Audio | | |
Media | | |
Total | |
| |
| | |
| | |
| |
Revenue | |
$ | 41,987 | | |
$ | 4,768 | | |
$ | 46,755 | |
Net income (loss) | |
$ | 4,953 | | |
$ | (7,014 | ) | |
$ | (2,061 | ) |
|
|
Six Months Ended
September 30, 2021 |
|
|
|
Audio |
|
|
Media |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
35,694 |
|
|
$ |
24,997 |
|
|
$ |
60,691 |
|
Net income (loss) |
|
$ |
(3,132 |
) |
|
$ |
(20,155 |
) |
|
$ |
(23,287 |
) |
Note 20 — Fair Value Measurements
The following table presents
the fair value of the Company’s financial liabilities that are measured at fair value on a recurring basis (in thousands):
| |
September
30, 2022 | |
| |
Fair | | |
Hierarchy
Level | |
| |
Value | | |
Level
1 | | |
Level
2 | | |
Level
3 | |
Assets: | |
| | |
| | |
| | |
| |
Prepaid
expenses - common stock issued subject to market adjustment at settlement | |
$ | 187 | | |
$ | 187 | | |
$ | - | | |
$ | - | |
| |
$ | 187 | | |
$ | 187 | | |
$ | - | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Liabilities: | |
| | | |
| | | |
| | | |
| | |
Contingent
consideration liability from Gramophone acquisition | |
$ | 174 | | |
$ | - | | |
$ | - | | |
$ | 174 | |
Warrant
liability on PodcastOne bridge loan | |
| 932 | | |
| - | | |
| - | | |
| 932 | |
Bifurcated
embedded derivative on PodcastOne bridge loan | |
| 1,342 | | |
| - | | |
| - | | |
| 1,342 | |
Bifurcated
embedded derivative on senior secured convertible note payable | |
| 177 | | |
| - | | |
| - | | |
| 177 | |
| |
$ | 2,625 | | |
$ | - | | |
$ | - | | |
$ | 2,625 | |
| |
March 31, 2022 | |
| |
Fair | | |
Hierarchy Level | |
| |
Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Liabilities: | |
| | |
| | |
| | |
| |
Contingent consideration liability from PodcastOne acquisition | |
$ | 2,965 | | |
$ | - | | |
$ | - | | |
$ | 2,965 | |
Contingent consideration liability from Gramophone acquisition | |
| 174 | | |
| - | | |
| - | | |
| 174 | |
Bifurcated embedded derivative on senior secured convertible note payable | |
| 18 | | |
| - | | |
| - | | |
| 18 | |
| |
$ | 3,157 | | |
$ | - | | |
$ | - | | |
$ | 3,157 | |
The following table presents
a reconciliation of the Company’s financial liabilities that are measured at Level 3 within the fair value hierarchy (in thousands):
| |
Amount | |
Balance as of March 31, 2022 | |
$ | 3,157 | |
Embedded derivative and warrant issued in connection with PodcastOne bridge loan | |
| 3,966 | |
Change in fair value of bifurcated embedded derivatives, reported in earnings | |
| (1,692 | ) |
Settlement of PodcastOne contingent consideration | |
| (3,000 | ) |
Change in fair value of contingent consideration liabilities, reported in earnings | |
| 194 | |
Balance as of September 30, 2022 | |
$ | 2,625 | |
Bifurcated embedded
derivative on secured convertible notes payable and unsecured convertible notes payable
The fair value of the bifurcated
embedded derivatives on secured convertible notes payable and unsecured convertible notes payable was determined using the following significant
unobservable inputs:
| |
September 30, | | |
March 31, | |
| |
2022 | | |
2022 | |
Bifurcated embedded derivative on secured convertible notes payable: | |
| | |
| |
Market yield | |
| 11.9 | % | |
| 4.7 | % |
Significant increases or decreases
in the inputs noted above in isolation would result in a significantly lower or higher fair value measurement.
The Company determined that
as of the assessment date, the fair value of the bifurcated embedded derivatives is less than $0.2 million. The change in fair value
of $0.2 million is recorded in other income (expense) on the Company’s condensed consolidated statements of operations for
the six month period ended September 30, 2022.
The Company did not elect
the fair value measurement option for the following financial assets or liabilities. The fair values of certain financial instruments
measured at amortized cost and the hierarchy level the Company used to estimate the fair values are shown below (in thousands):
| |
September 30, 2022 | |
| |
Carrying | | |
Hierarchy Level | |
| |
Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Liabilities: | |
| | |
| | |
| | |
| |
Secured convertible notes payable, net | |
$ | 13,734 | | |
$ | - | | |
$ | - | | |
$ | 14,446 | |
Unsecured convertible notes payable related party, net | |
| 5,297 | | |
| - | | |
| - | | |
| 5,633 | |
PodcastOne bridge loan | |
| 2,634 | | |
| - | | |
| - | | |
| 5,317 | |
| |
March 31, 2022 | |
| |
Carrying | | |
Hierarchy Level | |
| |
Value | | |
Level 1 | | |
Level 2 | | |
Level 3 | |
Liabilities: | |
| | |
| | |
| | |
| |
Secured convertible notes payable, net | |
$ | 13,650 | | |
$ | - | | |
$ | - | | |
$ | 15,448 | |
Unsecured convertible notes payable related party, net | |
| 5,879 | | |
| - | | |
| - | | |
| 6,084 | |
The fair values of financial
instruments not included in these tables are estimated to be equal to their carrying values as of September 30, 2022 and March 31, 2022.
The Company’s estimates of the fair values were determined using available market information and appropriate valuation methods.
Considerable judgment is necessary to interpret market data and develop the estimated fair values.
The fair value of the financial
assets and liabilities, where the Company did not elect the fair value measurement option, were determined using the following significant
unobservable inputs:
| |
September 30, | | |
March 31, | |
| |
2022 | | |
2022 | |
Secured convertible notes payable, net (binomial lattice model): | |
| | |
| |
Market yield | |
| 11.9 | % | |
| 6.3 | % |
| |
| | | |
| | |
Unsecured convertible notes payable related party, net (yield model with a Black-Scholes-Merton option pricing model): | |
| | | |
| | |
Market yield | |
| 12.6 | % | |
| 6.6 | % |
Significant increases or decreases
in the inputs noted above in isolation would result in a significantly lower or higher fair value measurement.
Cash equivalents and restricted
cash equivalents primarily consisted of short-term interest-bearing money market funds with maturities of less than 90 days and time deposits.
The estimated fair values were based on available market pricing information of similar financial instruments.
Due to their short maturity,
the carrying amounts of the Company’s accounts receivable, accounts payable, accrued expenses and other long-term liabilities approximated
their fair values as of September 30, 2022 and March 31, 2022.
The Company’s note payable
is not publicly traded and fair value is estimated to equal carrying value. The Company’s senior secured line of credit, senior
secured convertible notes and unsecured convertible notes payable with fixed rates are not publicly traded and the Company has estimated
fair values using a variety of valuation models and market rate assumptions detailed above. The convertible notes payable and unsecured
convertible notes are valued using a binomial lattice model and a yield model with a Black-Scholes-Merton option pricing model, respectively.
The Company has estimated the fair value of contingent consideration related to the acquisitions of PodcastOne and CPS based on the number
of shares issuable based on the achievement of certain provisions within the purchase agreement, as detailed in Note 4 – Business
Combinations, using the quoted price of the Company’s common stock on the balance sheet date.
Note 21 — Subsequent Events
In October of 2022, the Company
repaid in full the $300,000 promissory note that was issued as discussed in Note 8 — Notes Payable.