10-Q 1 f10q1220_livexlivemedia.htm QUARTERLY REPORT

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2020

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to _______________________

Commission File Number: 001-38249

LIVEXLIVE MEDIA, INC.

(Exact name of registrant as specified in its charter)

Delaware |  | 98-0657263
(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
269 S. Beverly Dr., Suite #1450 Beverly Hills, California |  | 90212
(Address of principal executive offices) |  | (Zip Code)

(310) 601-2500

(Registrant’s telephone number, including area code)

9200 Sunset Blvd., Suite #1201

West Hollywood, California 90069

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol(s) |  | Name of each exchange on which registered
Common stock, $0.001 par value per share |  | LIVX |  | The NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant is required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer | ☐ |  | Accelerated filer | ☐
Non-accelerated filer | ☒ |  | Smaller reporting company | ☒
|  | Emerging growth company | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of February 9, 2021, there were 75,478,577 shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.

LIVEXLIVE MEDIA, INC.

TABLE OF CONTENTS

|  | Page
PART I — FINANCIAL INFORMATION | F-1
Item 1. | Financial Statements | F-1
| Condensed Consolidated Balance Sheets as of December 31, 2020 and March 31, 2020 (unaudited) | F-1
| Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2020 and 2019 (unaudited) | F-2
| Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the three and nine months ended December 31, 2020 and 2019 (unaudited) | F-3
| Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2020 and 2019 (unaudited) | F-4
| Notes to the Condensed Consolidated Financial Statements (unaudited) | F-5 – F-34
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 1
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 24
Item 4. | Controls and Procedures | 25
PART II — OTHER INFORMATION | 26
Item 1. | Legal Proceedings | 26
Item 1A. | Risk Factors | 28
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 44
Item 3. | Defaults Upon Senior Securities | 44
Item 4. | Mine Safety Disclosures | 44
Item 5. | Other Information | 44
Item 6. | Exhibits | 45
| Signatures | 48

i

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

LiveXLive Media, Inc.

Condensed Consolidated Balance Sheets

(Unaudited, in thousands, except share and per share amounts)

|  | December 31, |  |  | March 31, |
|  | 2020 |  |  | 2020 |
Assets |  |  |  |  |  |  |  |
Current Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 17,353 |  |  | $ | 5,702 |
Restricted cash |  |  | 235 |  |  |  | 6,735 |
Accounts receivable, net |  |  | 16,210 |  |  |  | 3,889 |
Prepaid expense and other assets |  |  | 2,853 |  |  |  | 1,396 |
Inventories |  |  | 2,750 |  |  |  | - |
Total Current Assets |  |  | 39,401 |  |  |  | 17,722 |
Property and equipment, net |  |  | 4,229 |  |  |  | 3,397 |
Goodwill |  |  | 24,078 |  |  |  | 9,672 |
Intangible assets, net |  |  | 22,395 |  |  |  | 23,198 |
Other assets |  |  | 1,142 |  |  |  | 127 |
Total Assets |  | $ | 91,245 |  |  | $ | 54,116 |
Liabilities and Stockholders’ Equity (Deficit) |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  | $ | 30,702 |  |  | $ | 30,723 |
Accrued royalties |  |  | 13,195 |  |  |  | 13,071 |
Notes payable, net |  |  | 2,242 |  |  |  | 331 |
Deferred revenue |  |  | 1,412 |  |  |  | 949 |
Senior secured convertible debentures, net |  |  | - |  |  |  | 2,720 |
Total Current Liabilities |  |  | 47,551 |  |  |  | 47,794 |
Senior secured convertible debentures, net |  |  | - |  |  |  | 6,505 |
Unsecured convertible notes, net |  |  | 7,280 |  |  |  | 6,794 |
Senior secured convertible notes, net |  |  | 12,830 |  |  |  | - |
Notes payable, net |  |  | 754 |  |  |  | - |
Lease liabilities, noncurrent |  |  | 813 |  |  |  | - |
Other long-term liabilities |  |  | 6,483 |  |  |  | 45 |
Deferred income taxes |  |  | 108 |  |  |  | 108 |
Total Liabilities |  |  | 75,819 |  |  |  | 61,246 |
Commitments and Contingencies |  |  |  |  |  |  |  |
Stockholders’ Equity (Deficit) |  |  |  |  |  |  |  |
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued or outstanding |  |  | - |  |  |  | - |
Common stock, $0.001 par value; 500,000,000 shares authorized; 75,265,970 and 58,984,382 shares issued and outstanding, respectively |  |  | 75 |  |  |  | 59 |
Additional paid in capital |  |  | 169,924 |  |  |  | 120,932 |
Accumulated deficit |  |  | (154,573 | ) |  |  | (128,121 | )
Total stockholders’ equity (deficit) |  |  | 15,426 |  |  |  | (7,130 | )
Total Liabilities and Stockholders’ Equity (Deficit) |  | $ | 91,245 |  |  | $ | 54,116 |

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-1

LiveXLive Media, Inc.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except share and per share amounts)

|  | Three Months Ended December 31, |  |  | Nine Months Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Revenue: |  | $ | 19,123 |  |  | $ | 9,699 |  |  | $ | 44,189 |  |  | $ | 28,780 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales |  |  | 14,564 |  |  |  | 7,638 |  |  |  | 32,524 |  |  |  | 25,104 |
Sales and marketing |  |  | 3,059 |  |  |  | 1,391 |  |  |  | 6,481 |  |  |  | 5,202 |
Product development |  |  | 2,534 |  |  |  | 2,754 |  |  |  | 6,908 |  |  |  | 7,682 |
General and administrative |  |  | 5,162 |  |  |  | 4,473 |  |  |  | 14,762 |  |  |  | 14,401 |
Amortization of intangible assets |  |  | 1,399 |  |  |  | 1,355 |  |  |  | 4,057 |  |  |  | 4,497 |
Total operating expenses |  |  | 26,718 |  |  |  | 17,611 |  |  |  | 64,732 |  |  |  | 56,886 |
Loss from operations |  |  | (7,595 | ) |  |  | (7,912 | ) |  |  | (20,543 | ) |  |  | (28,106 | )
Other income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (998 | ) |  |  | (890 | ) |  |  | (4,097 | ) |  |  | (2,700 | )
Loss on extinguishment of debt |  |  | - |  |  |  | - |  |  |  | (1,488 | ) |  |  | - |
Other income (expense) |  |  | (138 | ) |  |  | (6 | ) |  |  | (320 | ) |  |  | 413 |
Total other income (expense), net |  |  | (1,136 | ) |  |  | (896 | ) |  |  | (5,905 | ) |  |  | (2,287 | )
Loss before provision for income taxes |  |  | (8,731 | ) |  |  | (8,808 | ) |  |  | (26,448 | ) |  |  | (30,393 | )
Provision for income taxes |  |  | - |  |  |  | - |  |  |  | 4 |  |  |  | - |
Net loss |  | $ | (8,731 | ) |  | $ | (8,808 | ) |  | $ | (26,452 | ) |  | $ | (30,393 | )
Net loss per share – basic and diluted |  | $ | (0.12 | ) |  | $ | (0.15 | ) |  | $ | (0.40 | ) |  | $ | (0.55 | )
Weighted average common shares – basic and diluted |  |  | 72,356,093 |  |  |  | 57,927,217 |  |  |  | 66,880,417 |  |  |  | 55,390,589 |

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-2

LiveXLive Media, Inc.

Condensed Consolidated Statement of Stockholders’ Equity (Deficit)

(Unaudited, in thousands, except share and per share amounts)

|  | Common Stock |  |  | Additional Paid in |  |  | Accumulated |  |  | Total Stockholders’ |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Equity |
Balance as of September 30, 2020 |  |  | 71,689,101 |  |  | $ | 72 |  |  | $ | 158,968 |  |  | $ | (145,842 | ) |  | $ | 13,198 |
Shares issued for services to consultants and vendors |  |  | 436,629 |  |  |  | - |  |  |  | 998 |  |  |  | - |  |  |  | 998 |
Stock-based compensation |  |  | - |  |  |  | - |  |  |  | 1,568 |  |  |  | - |  |  |  | 1,568 |
Vested employee restricted stock units |  |  | 706,222 |  |  |  | 1 |  |  |  | (1 | ) |  |  | - |  |  |  | - |
Shares issued in the public offering, net of cost |  |  | - |  |  |  | - |  |  |  | 198 |  |  |  | - |  |  |  | 198 |
Additional shares issued for PodcastOne acquisition |  |  | 203,249 |  |  |  | - |  |  |  | 439 |  |  |  | - |  |  |  | 439 |
Shares issued for CPS acquisition |  |  | 2,230,769 |  |  |  | 2 |  |  |  | 6,389 |  |  |  | - |  |  |  | 6,391 |
Shares to be issued for CPS acquisition |  |  | - |  |  |  | - |  |  |  | 1,365 |  |  |  | - |  |  |  | 1,365 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (8,731 | ) |  |  | (8,731 | )
Balance as of December 31, 2020 |  |  | 75,265,970 |  |  | $ | 75 |  |  | $ | 169,924 |  |  | $ | (154,573 | ) |  | $ | 15,426 |

|  | Common Stock |  |  | Additional Paid in |  |  | Accumulated |  |  | Total Stockholders’ |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Equity |
Balance as of March 31, 2020 |  |  | 58,984,382 |  |  | $ | 59 |  |  | $ | 120,932 |  |  | $ | (128,121 | ) |  | $ | (7,130 | )
Shares issued for services to consultants and vendors |  |  | 3,780,659 |  |  |  | 4 |  |  |  | 11,457 |  |  |  | - |  |  |  | 11,461 |
Stock-based compensation |  |  | - |  |  |  | - |  |  |  | 5,120 |  |  |  | - |  |  |  | 5,120 |
Vested employee restricted stock units |  |  | 1,963,274 |  |  |  | 2 |  |  |  | (2 | ) |  |  | - |  |  |  | - |
Interest paid in kind |  |  | - |  |  |  | - |  |  |  | 9 |  |  |  |  |  |  |  | 9 |
Exercise of employee stock options |  |  | 120,001 |  |  |  | - |  |  |  | 481 |  |  |  | - |  |  |  | 481 |
Shares issued in the public offering, net of cost |  |  | 1,820,000 |  |  |  | 2 |  |  |  | 7,327 |  |  |  | - |  |  |  | 7,329 |
Shares issued for PodcastOne acquisition |  |  | 5,566,885 |  |  |  | 5 |  |  |  | 14,986 |  |  |  | - |  |  |  | 14,991 |
Shares issued for CPS acquisition |  |  | 2,230,769 |  |  |  | 2 |  |  |  | 6,389 |  |  |  | - |  |  |  | 6,391 |
Shares to be issued for CPS acquisition |  |  | - |  |  |  | - |  |  |  | 1,365 |  |  |  | - |  |  |  | 1,365 |
Shares issued in connection with Senior Secured Convertible Notes |  |  | 800,000 |  |  |  | 1 |  |  |  | 1,860 |  |  |  | - |  |  |  | 1,861 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (26,452 | ) |  |  | (26,452 | )
Balance as of December 31, 2020 |  |  | 75,265,970 |  |  | $ | 75 |  |  | $ | 169,924 |  |  | $ | (154,573 | ) |  | $ | 15,426 |

|  | Common Stock |  |  | Additional Paid in |  |  | Accumulated |  |  | Total Stockholders’ Equity |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | (Deficit) |
Balance as of September 30, 2019 |  |  | 57,834,822 |  |  | $ | 58 |  |  | $ | 114,972 |  |  | $ | (110,779 | ) |  | $ | 4,251 |
Shares issued for services to consultants and vendors |  |  | 396,989 |  |  |  | - |  |  |  | 1,050 |  |  |  | - |  |  |  | 1,050 |
Stock-based compensation |  |  | - |  |  |  | - |  |  |  | 1,668 |  |  |  | - |  |  |  | 1,668 |
Offering costs |  |  | - |  |  |  | - |  |  |  | (50 | ) |  |  | - |  |  |  | (50 | )
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (8,808 | ) |  |  | (8,808 | )
Balance as of December 31, 2019 |  |  | 58,231,811 |  |  | $ | 58 |  |  | $ | 117,640 |  |  | $ | (119,587 | ) |  | $ | (1,889 | )

|  | Common Stock |  |  | Additional Paid in |  |  | Accumulated |  |  | Total Stockholders’ Equity |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | (Deficit) |
Balance as of March 31, 2019 |  |  | 52,275,236 |  |  | $ | 52 |  |  | $ | 98,605 |  |  | $ | (89,194 | ) |  | $ | 9,463 |
Shares issued for services to consultants and vendors |  |  | 956,575 |  |  |  | 1 |  |  |  | 3,518 |  |  |  | - |  |  |  | 3,519 |
Stock-based compensation |  |  | - |  |  |  | - |  |  |  | 5,970 |  |  |  | - |  |  |  | 5,970 |
Interest paid in kind |  |  | - |  |  |  | - |  |  |  | 29 |  |  |  | - |  |  |  | 29 |
Shares issued in the public offering, net of cost |  |  | 5,000,000 |  |  |  | 5 |  |  |  | 9,518 |  |  |  | - |  |  |  | 9,523 |
Net loss |  |  |  |  |  |  | - |  |  |  | - |  |  |  | (30,393 | ) |  |  | (30,393 | )
Balance as of December 31, 2019 |  |  | 58,231,811 |  |  | $ | 58 |  |  | $ | 117,640 |  |  | $ | (119,587 | ) |  | $ | (1,889 | )

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-3

LiveXLive Media, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

|  | Nine Months Ended December 31, |
|  | 2020 |  |  | 2019 |
Cash Flows used in Operating Activities: |  |  |  |  |  |
Net loss |  | $ | (26,452 | ) |  | $ | (30,393 | )
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 6,368 |  |  |  | 6,157 |
Common stock issued for services |  |  | 3,092 |  |  |  | 3,639 |
Stock-based compensation |  |  | 4,908 |  |  |  | 5,501 |
Amortization of debt discount |  |  | 1,025 |  |  |  | 522 |
Interest paid in kind |  |  | 453 |  |  |  | 29 |
Change in fair value of bifurcated embedded derivatives |  |  | (827 | ) |  |  | (189 | )
Change in fair value of contingent consideration liability |  |  | (39 | ) |  |  | - |
Loss on extinguishment of debt |  |  | 1,488 |  |  |  | - |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (2,218 | ) |  |  | 637 |
Prepaid expenses and other current assets |  |  | (1,044 | ) |  |  | (380 | )
Inventories |  |  | 5 |  |  |  | - |
Deferred revenue |  |  | 428 |  |  |  | (31 | )
Accounts payable and accrued liabilities |  |  | 4,120 |  |  |  | 9,140 |
Other liabilities |  |  | (407 | ) |  |  | - |
Net cash used in operating activities |  |  | (9,100 | ) |  |  | (5,368 | )
Cash Flows from Investing Activities: |  |  |  |  |  |  |  |
Increase in cash from the acquisitions |  |  | 2,418 |  |  |  | - |
Purchases of property and equipment |  |  | (2,229 | ) |  |  | (1,755 | )
Net cash provided by (used in) investing activities |  |  | 189 |  |  |  | (1,755 | )
Cash Flows from Financing Activities: |  |  |  |  |  |  |  |
Repayment of senior secured convertible debentures |  |  | (10,823 | ) |  |  | (1,989 | )
Proceeds from senior secured convertible notes |  |  | 13,139 |  |  |  | - |
Debt issuance costs |  |  | (190 | ) |  |  | - |
Amendment costs of senior secured debentures |  |  | - |  |  |  | (150 | )
Proceeds from issuance of shares of common stock, net |  |  | 9,395 |  |  |  | 9,523 |
Proceeds from notes payable |  |  | 2,145 |  |  |  | - |
Proceeds from exercise of stock options |  |  | 481 |  |  |  | - |
Payments on capital lease liability |  |  | (85 | ) |  |  | - |
Net cash provided by financing activities |  |  | 14,062 |  |  |  | 7,384 |
Net change in cash, cash equivalents and restricted cash |  |  | 5,151 |  |  |  | 261 |
Cash, cash equivalents and restricted cash, beginning of period |  |  | 12,437 |  |  |  | 13,939 |
Cash, cash equivalents and restricted cash, end of period |  | $ | 17,588 |  |  | $ | 14,200 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |
Cash paid for income taxes |  | $ | - |  |  | $ | - |
Cash paid for interest |  | $ | 651 |  |  | $ | 1,289 |
Supplemental disclosure of non-cash investing and financing activities: |  |  |  |  |  |  |  |
Fair value of options issued to employees, capitalized as internally developed software |  | $ | 212 |  |  | $ | 469 |
Fair value of 5,566,885 shares of common stock issued in connection with the PodcastOne acquisition |  | $ | 14,991 |  |  | $ | - |
Fair value of 2,230,769 shares of common stock issued in connection with the CPS acquisition |  | $ | 6,391 |  |  | $ | - |
Non-cash settlement for issuable or prepaid shares |  | $ | 494 |  |  | $ | - |
2,679,459 shares of common stock issued to consultants and vendors to settle accounts payable |  | $ | 8,657 |  |  | $ | - |

The accompanying notes are an integral part of these condensed consolidated financial statements.

F-4

LiveXLive Media, Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Nine Months Ended December 31, 2020 and 2019

Note 1 — Organization and Basis of Presentation

Organization

LiveXLive Media, Inc. (“LiveXLive”) together with its subsidiaries (“we,” “us,” “our” or the “Company”) is a Delaware corporation headquartered in Beverly Hills, California. The Company is a global platform for livestream and on-demand audio, video and podcast content in music, comedy and pop culture.

On December 29, 2017, LiveXLive 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 LiveXLive. 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 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 100% of the issued and outstanding equity interests of 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 100% of the issued and outstanding equity interests of Custom Personalization Solutions, Inc. (“CPS”). (see Note 4 – Business Combinations).

Basis of Presentation

The presented financial information includes the financial information and activities of React Presents for the three and nine months ended December 31, 2020 (92 days and 275 days) and the three and nine months ended December 31, 2019 (0 days). The presented financial information includes the financial information and activities of PodcastOne for the three and nine months ended December 31, 2020 (92 days and 184 days) and December 31, 2019 (0 days). The presented financial information includes the financial information and activities of CPS for the three and nine months ended December 31, 2020 (10 days and 10 days) and December 31, 2019 (0 days). The financial activities of CPS from December 22, 2020 through December 31, 2020 are included in the Company’s December 31, 2020 financial statements.

The unaudited interim 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, 2020, and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s interim unaudited condensed consolidated financial statements for the three months ended December 31, 2020. The results for the three months ended December 31, 2020 are not necessarily indicative of the results expected for the full fiscal year ending March 31, 2021 (“fiscal 2021”). The condensed consolidated balance sheet as of March 31, 2020 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 26, 2020 (the “2020 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 of 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 2020 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 $17.6 million as of December 31, 2020). As reflected in its condensed consolidated financial statements included elsewhere herein, the Company has a history of losses, and incurred a net loss of $8.7 million during the quarter ended December 31, 2020 and had a working capital deficiency of $8.2 million as of December 31, 2020. 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.

F-5

The Company is currently seeking additional funds, primarily through the issuance of equity and/or debt securities for cash to supplement its operating liquidity for its business. No assurance can be given that any future financing will be available or, if available, that it will 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. The Company may also have to consider reducing certain overhead costs through the reduction of salaries and other means and settle liabilities through negotiation. There can be no assurance that the Company’s attempts at any or all of these endeavors will be successful.

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 continued spread of COVID-19 and uncertain market conditions may limit the Company’s ability to access capital, may continue to or further reduce demand for its services, and may negatively impact its ability to retain key personnel.

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.

Reclassifications

Certain amounts in the Company’s previously issued financial statements have been reclassified to conform to the current year presentation.

Note 2 — Summary of Significant Accounting Policies

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 this impact is expected to continue throughout at least the fiscal year ending March 31, 2021, and possibly longer. The Company’s event and programmatic advertising revenues were directly impacted in the 2021 fiscal year with all on-premise in-person live music festivals and events postponed and mixed demand from historical programmatic advertising partners. Further, one of the Company’s larger customers also experienced a temporary halt to its production as a result of COVID-19, which in turn could adversely impact the Company’s near-term subscriber growth in 2021. During the nine months ended December 31, 2020, the Company enacted several initiatives to counteract these near-term challenges, including salary reductions, obtaining a Paycheck Protection Program 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 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 does not anticipate the associated impacts, 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 second draw Paycheck Protection Program loans and potential eligibility for Employee Retention Credits and does not anticipate the other provisions included will have a material impact on its provision for income taxes.

F-6

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with the United States of America (“US”) generally accepted accounting principles (“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, 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, inventory calculations and reserves, the fair value of the Company’s equity-based compensation awards and convertible 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 subscription 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. 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 subscription service streams and may act as principal or agent for its ticketing/live events, advertising and licensing revenue streams.

F-7

The Company’s revenue is principally derived from the following services:

Subscription Services

Subscription services revenue substantially consist of monthly to annual recurring subscription 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 subscription fees collected in advance and recognizes them in the period earned. Subscription revenue is recognized in the period of services rendered. The Company’s subscription 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 subscription 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 subscription revenue straight-line through the subscription period.

Subscription Services consist of:

Direct subscriber, mobile service provider and mobile app services

The Company generates revenue for subscription services on both a direct basis and through subscriptions sold through certain third-party mobile service providers and mobile app services (collectively the “Mobile Providers”). For subscriptions sold through the Mobile Providers, the subscriber executes an on-line agreement with Slacker outlining the terms and conditions between Slacker and the subscriber upon purchase of the subscription. The Mobile Providers promote the Slacker app through their e-store, process payments for subscriptions, 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 subscriber is Slacker’s customer in the contract and Slacker controls the service prior to the transfer to the subscriber. Subscription revenues from monthly subscriptions 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 subscription is sold on a direct basis or through Mobile Providers. Subscriptions sold on a direct basis require payment before the services are delivered to the customer. The payment terms for subscriptions sold through Mobile Providers vary, but are generally payable within 30 days.

Third-Party Original Equipment Manufacturers

The Company generates revenue for subscription services through subscriptions sold through a third-party Original Equipment Manufacturer (the “OEM”). For subscriptions 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 subscription. 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 the Slacker application installed. 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 audience activity.

Licensing Revenue

Licensing revenue primarily consists of sales of licensing rights to digitally stream its live music services in certain geographies (e.g. China). 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.

F-8

Sponsorship Revenue

Sponsorship revenue primarily consists of sales of sponsorship programs that provide sponsors with opportunities to reach our 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.

Merchandise 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 commissions are expensed as incurred and are recorded in sales and marketing expenses in the condensed consolidated statements of income. 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 30-60 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 December 31, 2020 was $0.1 million.

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”) ticket sales as well as tickets 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 charges collected in advance of the event is recorded as deferred revenue until the event occurs.

Cost of Sales

Cost of Sales principally consist of royalties paid for the right to stream video, music and non-music content to the Company’s customers and the cost of securing the rights to produce and stream live events from venues and promoters. Royalties are calculated using negotiated and regulatory rates documented in content license agreements and are based on usage measures or revenue earned. Music royalties to record labels, professional rights organizations and music publishers relate to the consumption of music listened to on Slacker’s radio services. As of December 31, 2020, and March 31, 2020, the Company accrued $13.2 million and $13.1 million of royalties, respectively, due to artists from use of Slacker’s radio services.

Cost of sales for the Company’s advertising revenue primarily includes PodcastOne direct costs. Cost of sales for the Company’s merchandising revenue includes purchase costs and related direct costs. Direct costs include all costs for personalization, production, planning, quality control, fulfillment and inbound freight.

Sales and Marketing

Sales and Marketing include the direct and indirect costs related to the Company’s product and event advertising and marketing. Additionally, sales and marketing includes merchandising advertising and royalty costs.

Product Development

Product development costs primarily are expenses for research and development, product and content development activities, including internal software development and improvement costs which have not been capitalized by the Company.

F-9

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period, which is the vesting period, on an accelerated basis. The Company accounts for awards with graded vesting as if each vesting tranche is valued as a separate award. The Company uses the Black-Scholes-Merton option pricing model to determine the grant date fair value of stock options. This model requires the Company to estimate the expected volatility and the expected term of the stock options which are highly complex and subjective variables. The variables take into consideration, among other things, actual and projected employee stock option exercise behavior. The Company uses a predicted volatility of its stock price during the expected life of the options that is based on the historical performance of the Company’s stock price as well as including an estimate using guideline companies. The expected term is computed using the simplified method as the Company’s best estimate given its lack of actual exercise history. The Company has selected a risk-free rate based on the implied yield available on U.S. Treasury securities with a maturity equivalent to the expected term of the stock. Stock-based awards are comprised principally of stock options, restricted stock, restricted stock units (“RSUs”), restricted stock awards (“RSAs”) and warrant grants. Forfeitures are recognized as incurred.

Stock option awards issued to non-employees are accounted for at grant date fair value determined using the Black-Scholes-Merton option pricing model. Management believes that the fair value of the stock options is more reliably measured than the fair value of the services received. The Company records the fair value of these equity-based awards and expense at their cost ratably over related vesting periods.

Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Company’s Statements of Operations in the period that includes the enactment date.

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 December 31, 2020 and 2019, the Company had 167,363 warrants outstanding, 4,423,334 and 4,640,001 stock options outstanding, respectively, 3,943,095 and 3,878,287 restricted stock units outstanding, respectively, 0 restricted stock awards outstanding and 5,613,374 and 3,912,671 shares of common stock issuable, respectively, underlying the Company’s convertible notes and senior secured convertible notes.

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 and estimates of terminal values.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with original maturities, when purchased, of three months or less.

F-10

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 nine months ended December 31, (in thousands):

|  | 2020 |  |  | 2019 |
Cash and cash equivalents |  | $ | 17,353 |  |  | $ | 13,965 |
Restricted cash |  |  | 235 |  |  |  | 235 |
Total cash and cash equivalents and restricted cash |  | $ | 17,588 |  |  | $ | 14,200 |

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 December 31, 2020, and March 31, 2020, the Company had restricted cash of $0.2 million and $6.7 million, respectively. The decrease in restricted cash as of December 31, 2020 as compared to March 31, 2020, was a result of the repayment of the senior secured convertible debentures in August 2020 (see Note 10 – Unsecured Convertible Notes).

Accounts Receivable and 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. There were no impairment losses recorded on receivables for the three and nine months ended December 31, 2020 and 2019.

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 subscription receivables. At December 31, 2020, the Company had two customers that made up approximately 43% and 23% of the total gross accounts receivable balance, respectively. At March 31, 2020, the Company had two customers that made up approximately 57% and 22% of the total gross accounts receivable balance, respectively.

The Company’s accounts receivable at December 31, 2020 and March 31, 2020 is as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2020 |  |  | 2020 |
Accounts receivable, gross |  | $ | 16,683 |  |  | $ | 4,109 |
Less: Allowance for doubtful accounts |  |  | (473 | ) |  |  | (220 | )
Accounts receivable, net |  | $ | 16,210 |  |  | $ | 3,889 |

Inventories

Inventories, principally finished goods on hand and partially finished goods awaiting final customization process, are stated at the lower of cost (weighted average) or net realizable value.

Inventory valuation requires the Company to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers and liquidations.

F-11

Property and Equipment

Property and equipment are recorded at cost. Costs of improvements that extend the economic life or improve service potential are also capitalized. Capitalized costs are depreciated over their estimated useful lives. Costs for normal repairs and maintenance are expensed as incurred.

Depreciation is recorded using the straight-line method over the assets’ estimated useful lives, which are generally as follows: buildings and improvements (5 years), furniture and equipment (3 to 5 years) and computer equipment and software (3 to 5 years). Leasehold improvements are depreciated over the shorter of the estimated useful life, based on the estimates above, or the lease term.

The Company evaluates the carrying value of its property and equipment if there are indicators of potential impairment. If there are indicators of potential impairment, the Company performs an analysis to determine the recoverability of the asset group carrying value by comparing the expected undiscounted future cash flows to the net book value of the asset group. If it is determined that the expected undiscounted future cash flows are less than the net book value of the asset group, the excess of the net book value over the estimated fair value is recorded in the Company’s consolidated statements of operations. Fair value is generally estimated using valuation techniques that consider the discounted cash flows of the asset group using discount and capitalization rates deemed reasonable for the type of assets, as well as prevailing market conditions, appraisals, recent similar transactions in the market and, if appropriate and available, current estimated net sales proceeds from pending offers.

Capitalized Internal-Use Software

The Company capitalizes certain costs incurred to develop software for internal use. Costs incurred in the preliminary stages of development are expensed as incurred.

Once software has reached the development stage, internal and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. The Company also capitalizes costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality. Capitalized costs are recorded as part of property and equipment. Costs related to minor enhancements, maintenance and training are expensed as incurred.

Capitalized internal-use software costs are amortized on a straight-line basis over their three- to five-year estimated useful lives. The Company evaluates the useful lives of these assets and test for impairment whenever events or changes in circumstances occur that could impact the recoverability of these assets. During the nine months ended December 31, 2020 and 2019, the Company capitalized $2.3 million and $2.0 million of internal use software, respectively.

Goodwill

Goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. The Company evaluates goodwill for impairment on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. The Company conducts its annual impairment analysis in the fourth quarter of each fiscal year. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and an impairment loss is measured by the resulting amount. No impairment losses have been recorded in the three and nine months ended December 31, 2020 and 2019.

Intangible Assets with Indefinite Useful Lives

The Company’s indefinite-lived intangible assets consist of trade names for Slacker. The Company evaluates indefinite-lived intangible assets for impairment on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. The Company conducts its annual impairment analysis in the fourth quarter of each fiscal year.

F-12

Intangible Assets with Finite Useful Lives

The Company has certain finite-lived intangible assets that were initially recorded at their fair value at the time of acquisition. These intangible assets consist of Trademarks/Trade Names, Intellectual Property, Customer Relationships, Content Creator Relationships, Wholesale Relationships, Domain Names, Customer List and Capitalized Software Development Costs resulting from business combinations. Intangible assets with finite useful lives are amortized using the straight-line method over their respective estimated useful lives, which are generally as follows: Intellectual Property (15 years), Customer, Content Creator and Wholesale Relationships (1.5-6 years), Domain Names (5 years), Customer List (5 years) and Software (5 years).

The Company reviews all finite-lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, the Company recognizes an impairment loss for the excess carrying value over the fair value in its consolidated statements of operations. No impairment losses have been recorded in the three and nine months ended December 31, 2020 and 2019.

Deferred Revenue and Costs

Deferred revenue consists substantially of amounts received from customers in advance of the Company’s performance service period. Deferred revenue is recognized as revenue on a systematic basis that is proportionate to the period that the underlying services are rendered, which in certain arrangements is straight line over the remaining contractual term of an agreement.

In the event the Company receives cash in advance of providing its music services and music streaming services, the Company will defer an amount of such future royalty and costs to 3rd party music labels, publishers and other providers on its balance sheets. Deferred costs are amortized to expense concurrent with the recognition of the related revenue and the expense is included in cost of sales.

Fair Value Measurements - Valuation Hierarchy

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date (i.e., an exit price). The Company uses the three-level valuation hierarchy for classification of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refer broadly to the assumptions that market participants would use in pricing an asset or liability. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect the Company’s own assumptions about the data market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized below:

| Level 1 | Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.

| Level 2 | Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the instrument.

| Level 3 | Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

The classification of assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement in its entirety. Proper classification of fair value measurements within the valuation hierarchy is considered each reporting period. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts.

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.

Seasonality

Our CPS merchandising business is affected by seasonality, which historically has resulted in higher sales volume during our third quarter, which ends December 31.

F-13

Adoption of New Accounting Pronouncements

None.

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 condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes” as part of its initiative to reduce complexity in the accounting standards. The standard eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact that this guidance will have upon its financial position and results of operations, if any.

In August 2020, The Financial Accounting Standards Board issued ASU No. 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). This update simplifies the accounting for convertible debt instruments by removing the beneficial conversion and cash conversion separation models for convertible instruments. Under the update, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums accounted for as paid-in capital. The update also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the computation of diluted EPS. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Note 3 — Revenue

The following table represents a disaggregation of revenue from contracts with customers for the three and nine months ended December 31, 2020 and 2019 (in thousands):

|  | Three Months Ended December 31, |  |  | Nine Months Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Revenue |  |  |  |  |  |  |  |  |  |  |  |
Subscription services |  | $ | 8,346 |  |  | $ | 9,115 |  |  | $ | 24,948 |  |  | $ | 26,665 |
Advertising |  |  | 7,710 |  |  |  | 540 |  |  |  | 13,453 |  |  |  | 1,814 |
Sponsorship and licensing |  |  | 2,087 |  |  |  | 44 |  |  |  | 3,466 |  |  |  | 301 |
Merchandise |  |  | 796 |  |  |  | - |  |  |  | 796 |  |  |  | - |
Ticket/Event |  |  | 184 |  |  |  | - |  |  |  | 1,526 |  |  |  | - |
Total Revenue |  | $ | 19,123 |  |  | $ | 9,699 |  |  | $ | 44,189 |  |  | $ | 28,780 |

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 optional exemption 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.

F-14

The following table summarizes the significant changes in contract liabilities balances during the nine months ended December 31, 2020 (in thousands):

|  | Contract Liabilities |
Balance as of March 31, 2020 |  | $ | 949 |
Revenue recognized that was included in the contract liability at beginning of period |  |  | (618 | )
Increase due to cash received, excluding amounts recognized as revenue during the period |  |  | 1,081 |
Balance as of December 31, 2020 |  | $ | 1,412 |

Note 4 — Business Combinations

Fiscal 2021 Transactions

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 total net consideration was 5,566,885 shares of the Company’s common stock valued at $15.0 million. The shares of the Company’s common stock are subject to a twelve-month lock-up period and 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%. In the future, the fair value of the contingent consideration liability will be remeasured on each balance sheet reported by the Company or on the settlement date of the contingent consideration liability, with changes in fair value reflected in earnings. The contingent consideration liability is classified within Other Long-term Liabilities in the accompanying condensed consolidated balance sheet at December 31, 2020 (see Note 13 - Other Long-term Liabilities).

Goodwill resulted from acquisition as it is intended to augment and diversify the Company’s single reportable segment. 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 initial accounting for the PodcastOne acquisition is incomplete and subject to change which may be significant. The Company recorded provisional accounts and may allocate additional value to identified intangible assets.

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.

F-15

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 are subject to a twelve-month lock-up period from the closing date, such that no such shares can be sold, transferred, assigned, hypothecated, or in any way disposed of, or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise prior to the expiration of such period.

The Company agreed to also issue up to approximately 437,000 additional shares of its restricted common stock, classified as contingent consideration, if (i) CPS reports GAAP revenue of $20.0 million and $1.0 million of EBITDA for its fiscal year ended December 31, 2020, and (ii) at the closing, CPS’ target working capital is $4.0 million (including $0.8 million of cash), with a dollar-for-dollar reduction with respect to each such shortfall with no duplication. Based on their likelihood of achievement, these additional shares were valued at $1.3 million based on the Company’s stock price on the date of acquisition, net of a 25% discount for lack of marketability. This amount is included in accounts payable and accrued liabilities on the December 31, 2020 Condensed Consolidated Balance Sheet. The Company further agreed to issue up to approximately 477,000 additional shares of its restricted common stock to the extent CPS’ final working capital as determined by the parties exceeds $4.0 million. These additional shares were valued at $1.4 million based on the Company’s stock price on the date of acquisition, net of a 25% discount for lack of marketability. This amount is included in additional paid in capital on the December 31, 2020 Condensed Consolidated Balance Sheet. Amounts recorded as consideration for the shares to be issued are provisional and subject to change.

Fair Value of Consideration Transferred: |  |  |
Common stock |  | $ | 6,391 |
Additional paid-in capital – common stock to be issued |  |  | 1,365 |
Contingent consideration |  |  | 1,254 |
Total |  | $ | 9,010 |

Goodwill resulted from acquisition as it is intended to augment and diversify the Company’s single reportable segment. 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 initial accounting for the CPS acquisition is incomplete and subject to change, which may be significant. The Company recorded provisional amounts and may allocate additional value to identified intangible assets and inventory.

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 |  |  |  |  |  |  | 2,756 |
Prepaid expense |  |  |  |  |  |  | 29 |
Property and equipment |  |  |  |  |  |  | 585 |
Wholesale relationship |  |  | 6 |  |  |  | 1,000 |
Domain name |  |  | 10 |  |  |  | 300 |
Customer list |  |  | 5 |  |  |  | 172 |
Goodwill |  |  |  |  |  |  | 2,364 |
Other assets |  |  |  |  |  |  | 53 |
Right of use asset |  |  |  |  |  |  | 1,086 |
Lease liability |  |  |  |  |  |  | (1,086 | )
Accounts payable |  |  |  |  |  |  | (5,067 | )
Other liabilities |  |  |  |  |  |  | (467 | )
Net assets acquired |  |  |  |  |  | $ | 9,010 |

F-16

Revenue of $7.3 million and $0.8 million was included in the Company’s consolidated statements of operations from the date of acquisition for the three months ended December 31, 2020 for PodcastOne and CPS, respectively, and $12.6 million and $0.8 million for the nine months ended December 31,2020 for PodcastOne and CPS, respectively. Net income of $(0.6) million and $(0.1) million was included in the Company’s consolidated statements of operations for the three months ended December 31, 2020 for PodcastOne and CPS, respectively, and $(0.1) million and $(0.1) million for the nine months ended December 31, 2020 for PodcastOne and CPS, respectively.

The Company incurred $0.1 million in transaction costs associated with the CPS acquisition which were expensed and included in General and Administrative in the condensed consolidated statement of operations for the three and nine months ended December 31, 2020. The Company incurred less than $0.2 million in transaction costs associated with the PodcastOne acquisition which were expensed and included in General and Administrative in the condensed consolidated statement of operations for the nine months ended December 31, 2020.

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 operations that would have been achieved from the acquisitions had they taken place at the beginning of the fiscal year ended March 31, 2019.

The following table presents the revenues, net loss and earnings per share of the combined company for the three and nine months ended December 31, 2020 and 2019 as if the acquisition of CPS and PodcastOne had been completed on April 1, 2019 (in thousands, except per share data).

|  | Three Months Ended December 31, (unaudited) |
|  | 2020 |  |  | 2019 |
Revenues |  | $ | 27,205 |  |  | $ | 29,463 |
Net loss |  |  | (7,859 | ) |  |  | (10,586 | )
Net loss per share – basic and diluted |  | $ | (0.11 | ) |  | $ | (0.18 | )

|  | Nine Months Ended December 31, (unaudited) |
|  | 2020 |  |  | 2019 |
Revenues |  | $ | 66,032 |  |  | $ | 80,775 |
Net loss |  |  | (38,970 | ) |  |  | (32,824 | )
Net loss per share – basic and diluted |  | $ | (0.58 | ) |  | $ | (0.59 | )

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 $0.2 million and $0.6 million in the three and nine months ended December 31, 2019, respectively and transaction costs of $0.1 million included in the three and nine months ended December 31, 2019.

Fiscal 2020 Transactions

None

Note 5 — Property and Equipment

The Company’s property and equipment at December 31, 2020 and March 31, 2020 was as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2020 |  |  | 2020 |
Property and equipment, net |  |  |  |  |  |
Production equipment |  | $ | 54 |  |  | $ | 54 |
Computer, machinery, and software equipment |  |  | 1,165 |  |  |  | 707 |
Furniture and fixtures |  |  | 55 |  |  |  | 41 |
Leasehold improvements |  |  | 255 |  |  |  | 41 |
Capitalized internally developed software |  |  | 8,074 |  |  |  | 5,617 |
Total property and equipment |  |  | 9,603 |  |  |  | 6,460 |
Less accumulated depreciation and amortization |  |  | (5,374 | ) |  |  | (3,063 | )
Total property and equipment, net |  | $ | 4,229 |  |  | $ | 3,397 |

Depreciation expense was $0.8 million and $0.6 million for the three months ended December 31, 2020 and 2019, respectively, and was $2.3 million and $1.7 million for the nine months ended December 31, 2020 and 2019, respectively.

F-17

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 nine months ended December 31, 2020 (in thousands):

|  | Goodwill |
Balance as of March 31, 2020 |  | $ | 9,672 |
Acquisitions (Note 4 – Business Combinations) |  |  | 14,406 |
Balance as of December 31, 2020 |  | $ | 24,078 |

Indefinite-Lived Intangible Assets

The following table presents the changes in the carrying amount of indefinite-lived intangible assets, Tradenames, in the Company’s reportable segment for the nine months ended December 31, 2020 (in thousands):

|  | Tradenames |
Balance as of March 31, 2020 |  | $ | 4,637 |
Acquisitions |  |  | - |
Impairment losses |  |  | - |
Balance as of December 31, 2020 |  | $ | 4,637 |

Finite-Lived Intangible Assets

The Company’s finite-lived intangible assets were as follows as of December 31, 2020 (in thousands):

|  | Gross Carrying Value |  |  | Accumulated Amortization |  |  | Net Carrying Value |
Software |  | $ | 19,280 |  |  | $ | 11,569 |  |  | $ | 7,711 |
Intellectual property (patents) |  |  | 5,366 |  |  |  | 1,073 |  |  |  | 4,293 |
Customer relationships |  |  | 6,570 |  |  |  | 5,521 |  |  |  | 1,049 |
Content creator relationships |  |  | 772 |  |  |  | 252 |  |  |  | 520 |
Wholesale relationships |  |  | 1,000 |  |  |  | - |  |  |  | 1,000 |
Domain names |  |  | 329 |  |  |  | 18 |  |  |  | 311 |
Brand and trade names |  |  | 2,571 |  |  |  | 203 |  |  |  | 2,368 |
Customer list |  |  | 172 |  |  |  | - |  |  |  | 172 |
Non-compete agreement |  |  | 250 |  |  |  | 76 |  |  |  | 174 |
Fan database |  |  | 230 |  |  |  | 70 |  |  |  | 160 |
Total |  | $ | 36,540 |  |  | $ | 18,782 |  |  | $ | 17,758 |

The Company’s finite-lived intangible assets were as follows as of March 31, 2020 (in thousands):

|  | Gross Carrying Value |  |  | Accumulated Amortization |  |  | Net Carrying Value |
Software |  | $ | 19,280 |  |  | $ | 8,674 |  |  | $ | 10,606 |
Intellectual property (patents) |  |  | 5,366 |  |  |  | 805 |  |  |  | 4,561 |
Customer relationships |  |  | 6,570 |  |  |  | 5,128 |  |  |  | 1,442 |
Domain names |  |  | 29 |  |  |  | 13 |  |  |  | 16 |
Brand names |  |  | 1,500 |  |  |  | 17 |  |  |  | 1,483 |
Non-compete agreement |  |  | 250 |  |  |  | 14 |  |  |  | 236 |
Fan database |  |  | 230 |  |  |  | 13 |  |  |  | 217 |
Total |  | $ | 33,225 |  |  | $ | 14,664 |  |  | $ | 18,561 |

The Company’s amortization expense on its finite-lived intangible assets was $1.4 million and $1.4 million for the three months ended December 31, 2020 and 2019, respectively, and was $4.1 million and $4.5 million for the nine months ended December 31, 2020 and 2019, respectively.

F-18

The Company expects to record amortization of intangible assets for fiscal years ending March 31, 2021 and future fiscal years as follows (in thousands):

For Years Ending March 31, |  |  |
2021 (remaining three months) |  | $ | 1,452 |
2022 |  |  | 5,736 |
2023 |  |  | 4,211 |
2024 |  |  | 788 |
2025 |  |  | 788 |
Thereafter |  |  | 4,783 |
|  | $ | 17,758 |

Note 7 — Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities (including accrued interest) at December 31, 2020 and March 31, 2020 were as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2020 |  |  | 2020 |
Accounts payable |  | $ | 17,821 |  |  | $ | 26,703 |
Accrued liabilities |  |  | 12,541 |  |  |  | 3,938 |
Lease liabilities, current |  |  | 340 |  |  |  | 82 |
|  | $ | 30,702 |  |  | $ | 30,723 |

Note 8 — Notes Payable

The Company’s notes payable at December 31, 2020 and March 31, 2020 were as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2020 |  |  | 2020 |
Senior promissory note |  | $ | 346 |  |  | $ | 331 |
SBA loan |  |  | 153 |  |  |  | - |
PPP loans |  |  | 2,497 |  |  |  | - |
|  |  | 2,996 |  |  |  | 331 |
Less: Current portion of Notes payable |  |  | (2,242 | ) |  |  | (331 | )
Notes payable |  | $ | 754 |  |  | $ | - |

Senior Promissory Note

On December 31, 2014, the Company converted accounts payable into a Promissory Note (the “Note”) in the aggregate principal amount of $0.2 million. The Note bears interest at 6% per annum and interest is payable on a quarterly basis commencing March 31, 2015 or the Company may elect that the amount of such interest be added to the principal sum outstanding under this Note. The payables arose in connection with professional services rendered by attorneys for the Company prior to and through December 31, 2014, and the Note had an original maturity date of December 31, 2015, which was extended to September 30, 2016 or such later date as the lender may agree to in writing. In February 2018, the Note holder filed a claim for collection of the Note (see Note 14 – Commitments and Contingencies). In February 2019, as part of a settlement agreement, the parties agreed to the repayment of the Note on or before June 30, 2019. As of the date of this Quarterly Report, the Note has not been extended and is currently past due. In addition, the holder of the Note obtained a judgement against the Company for nonpayment of the Note in the State of Delaware in August 2019 and a judgement lien against the Company in the State of California in the third fiscal quarter ended December 31, 2019. As of December 31, 2020, and March 31, 2020, the balance due under the Note was $0.3 million and $0.3 million, respectively, which includes $0.1 million and $0.1 million of accrued interest, respectively.

F-19

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 U.S. Small Business Administration (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.

PPP Loans

On April 13, 2020, the Company received the proceeds from a loan in the amount of less than $2.0 million, pursuant to the Paycheck Protection Program of the CARES Act (“PPP”). The loan matures on April 13, 2022 and bears interest at a rate of 1% per annum. Commencing in November 2020, the Company is required to pay the lender equal monthly payments of principal and interest as required to fully amortize by the maturity date the principal amount outstanding on the loan as of such date. The loan is evidenced by a promissory note, dated as of April 13, 2020 which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. The loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

On July 1, 2020, the Company acquired PodcastOne and the $0.5 million PPP loan originally obtained by PodcastOne is currently outstanding. Monthly payments including principal and interest begin 7 months from the date of the promissory note, April 26, 2020. The balance is payable 2-years from the date of the promissory note, and bears interest at a rate of 1% per annum.

All or a portion of these loans may be forgiven by the SBA upon application by the Company before the maturity date of the loan and upon documentation of expenditures in accordance with the SBA requirements. In the event the loans, or any portion thereof, are forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal. While the Company intends to apply for the forgiveness of the loans, there are no assurances that the Company will obtain forgiveness of the loans in whole or in part. The Company has used the proceeds from the loans for qualifying expenses.

The application for these funds requires the Company to, in good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further requires the Company to take into account its current business activity and its ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The receipt of these funds, and the forgiveness of the loan attendant to these funds, is dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its future adherence to the forgiveness criteria. The Company’s lenders have paused acceptance of applications for forgiveness given recent changes by the SBA, the Company’s forgiveness applications will be completed once the lenders resume acceptance of applications.

Note 9 — Senior Secured Convertible Debentures

The Company’s senior secured convertible debentures at December 31, 2020 and March 31, 2020 were as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2020 |  |  | 2020 |
Senior Secured Convertible Debentures |  |  |  |  |  |
Senior Secured Convertible Debentures |  | $ | - |  |  | $ | 10,118 |
Accrued interest |  |  | - |  |  |  | 101 |
Fair Value of Embedded Derivatives |  |  | - |  |  |  | 524 |
Less: Discount |  |  | - |  |  |  | (1,518 | )
Net |  |  | - |  |  |  | 9,225 |
Less: Senior Secured Convertible Debentures, current |  |  | - |  |  |  | (2,720 | )
Senior Secured Convertible Debentures, long-term |  | $ | - |  |  | $ | 6,505 |

On June 29, 2018, the Company entered into a Securities Purchase Agreement (the “SPA”), with JGB Partners, LP, JGB Capital, LP and JGB (Cayman) Finlaggan Ltd. (each, a “Purchaser” and collectively, the “Purchasers”) pursuant to which the Company sold, in a private placement transaction (the “Financing”), for an aggregate cash purchase price of $10.0 million, $10.64 million in aggregate principal amount, of its 12.75% Original Issue Discount Senior Secured Convertible Debentures due June 29, 2021 (the “June 2018 Debentures”). In conjunction with the Financing, the Company (i) recorded issuance costs of $1.1 million against the liability and (ii) used $3.5 million of the proceeds to pay off 100% of the Company’s revolving line of credit. Issuance costs are being amortized to interest expense over the term of the June 2018 Debentures.

The June 2018 Debentures were to mature on June 29, 2021, accrued interest at 12.75% per year, and were convertible into shares of common stock of the Company at a conversion price of $10.00 per share at the holder’s option, subject to certain customary adjustments such as stock splits, stock dividends and stock combinations (the “Conversion Price”).

F-20

On February 11, 2019, the Company amended the SPA with the Purchasers to obtain additional financing, increasing the cash purchase price of the Debentures by $3.0 million, $3.2 million in aggregate principal amount, of its 12.75% Original Issue Discount Senior Secured Convertible Debentures due June 29, 2021 (the “February 2019 Debentures” and together with the June 2018 Debentures, the “Debentures”).

On August 31, 2020, the Company fully repaid the Debentures issued to its former senior lenders on June 29, 2018, as amended, as provided in such Debentures. In connection with such repayment, all of the agreements among the Company, its subsidiary guarantors and the senior lenders and their collateral agent were terminated, provided, that the Company’s indemnification obligations in the Securities Purchase Agreement, dated as of June 20, 2018, as amended, between the Company and the senior lenders shall survive on the terms therein. Additionally, a prepayment penalty of 8% was paid on repayment of the Debentures in the amount of $0.7 million and is included in the total $1.5 million loss on extinguishment of debt in the accompanying condensed consolidated statement of operations.

Note 10 — Unsecured Convertible Notes

The Company’s unsecured convertible notes payable at December 31, 2020 and March 31, 2020 were as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2020 |  |  | 2020 |
Unsecured Convertible Notes - Related Party |  |  |  |  |  |
(A) 7.5% Unsecured Convertible Note - Due May 31, 2021 |  | $ | 4,322 |  |  | $ | 4,120 |
(B) 7.5% Unsecured Convertible Notes - Due May 31, 2021 |  |  | 1,086 |  |  |  | 1,035 |
Less: Discount |  |  | (15 | ) |  |  | (41 | )
Net |  |  | 5,393 |  |  |  | 5,114 |
Unsecured Convertible Promissory Note |  | $ | 2,000 |  |  | $ | 2,000 |
Accrued Interest |  |  | 144 |  |  |  | 24 |
Less: Discount |  |  | (287 | ) |  |  | (485 | )
Fair Value of Embedded Derivatives |  |  | 30 |  |  |  | 141 |
Net |  |  | 1,887 |  |  |  | 1,680 |
Unsecured Convertible Notes, Net |  |  | 7,280 |  |  |  | 6,794 |
Less: Unsecured Convertible Notes, Current |  |  | - |  |  |  | - |
Unsecured Convertible Notes, Net, Long-term |  | $ | 7,280 |  |  | $ | 6,794 |

Total principal maturities of the Company’s long-term borrowings, including the senior secured convertible notes, unsecured convertible notes, and notes payable are $0.9 million for the year ending March 31, 2021 (remaining three months), $3.7 million for the year ending March 31, 2022 and $19.6 million for the year ending March 31, 2023. Thereafter, the Company’s principal maturities are less than $0.1 million per year consisting of obligations to repay the PPP and SBA loans.

Unsecured Convertible Notes – Related Party

As of December 31, 2020 and March 31, 2020, the Company had outstanding 7.5% (effective as of April 1, 2018, previously 6%) 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 follows:

(A) 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, 2019 and further extended to May 31, 2021 (as discussed below). At December 31, 2020, the balance due of $4.3 million, which included $0.8 million of accrued interest, was outstanding under the first Trinad Note. At March 31, 2020, the balance due of $4.1 million, which included $0.5 million of accrued interest, was outstanding under the first Trinad Note.

F-21

(B) 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 $0.9 million. The notes were due on various dates through December 31, 2018 and were extended to May 31, 2019 and further extended to May 31, 2021 (as discussed below). For the nine months ended December 31, 2020, the Company amortized less than $0.1 million of discount to interest expense, and the unamortized discount as of December 31, 2020 was less than $0.1 million. As of December 31, 2020, $0.3 million of accrued interest was added to the principal balance.

On March 30, 2018, 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 Company’s 6% unsecured convertible notes was extended to May 31, 2019. In consideration of the maturity date extension, the interest rate payable under the notes was increased from 6.0% to 7.5% beginning on April 1, 2018, and the aggregate amount of accrued interest due under all of the Trinad Notes as of March 31, 2018 of $0.3 million was paid. The Company evaluated the Amendment Agreement and the modification was not required to be accounted for as an extinguishment as the instruments are not considered substantially different under ASC 470-50, Debt – Modifications and Extinguishment.

On March 31, 2019, the Company entered into a further Amendment of Notes Agreement (the “Second Amendment Agreement”) with Trinad Capital pursuant to which the maturity dates of all of the Trinad Notes were all extended to May 31, 2021. The Company evaluated the Second Amendment Agreement and the modification was required to be accounted for as Troubled Debt Restructuring under ASC 470-50, Debt – Modifications and Extinguishment as it had been determined that there was substantial doubt about the Company’s ability to continue as a going concern and Trinad Capital granted the Company a concession, as the effective interest rate of the amended Note is less than that of the original Trinad Notes.

On January 11, 2021, the Company entered into an additional Amendment of Notes Agreement (the “Third Amendment Agreement”) with Trinad Capital pursuant to which the maturity dates of all of the Trinad Notes were extended to May 31, 2022, and in consideration of such extension, the interest rate payable under such notes increased to 8.5%, and the Company agreed to issue to Trinad Capital 280,000 shares of its common stock. Accordingly, these notes have been classified as long-term as of December 31, 2020 on the Company’s balance sheet. The Company may not redeem any of the Trinad Notes prior to May 31, 2022 without Trinad Capital’s consent.

Unsecured Convertible Promissory Note

On February 5, 2020, React Presents issued a two-year $2.0 million Convertible Promissory Note (the “Unsecured Note”), bearing annual interest at 8%. The purpose of the Unsecured Note was to fund the acquisition of React Presents. All unpaid and outstanding principal and any unpaid and accrued interest is due on February 5, 2022. The Unsecured Note is 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 Unsecured 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.

The Company has evaluated the Unsecured Note and has determined that it includes two derivative instruments which are bifurcated from the underlying unsecured convertible notes relating to provisions around an event of default and change of control. The Company performed a fair value analysis using a binomial lattice calculation on the event of default derivative instrument using the following assumptions. Coupon Rate: 8.0%, Term: 2.0 years, Volatility: 100.0%, Market Rate: 27.7% and Probability of Default: 33.1%. The Company determined that at issuance, the fair value of the derivative instruments were $0.1 million. The Company has recorded the fair value of the derivatives and corresponding debt discount within the unsecured convertible notes payable on the accompanying condensed consolidated balance sheet.

At December 31, 2020, 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: 1.1 years, Volatility: 102.7%, Market Rate: 31.2% and Probability of Default: 36.45%. The Company determined that as of the assessment date, the fair value is less than $0.1 million. The change in fair value of $0.1 million is recorded in other income (expense) on the accompanying condensed consolidated statements of operations for the nine months ended December 31, 2020.

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Note 11 — Senior Secured Convertible Notes

The Company’s senior secured convertible notes at December 31, 2020 and March 31, 2020 were as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2020 |  |  | 2020 |
Senior Secured Convertible Notes |  | $ | 15,000 |  |  | $ | - |
Accrued interest |  |  | 319 |  |  |  | - |
Fair value of embedded derivatives |  |  | 251 |  |  |  | - |
Less: Discount |  |  | (2,421 | ) |  |  | - |
Net |  |  | 13,119 |  |  |  | - |
Less: Accrued interest |  |  | (319 | ) |  |  | - |
Senior Secured Convertible Notes, long-term |  | $ | 12,830 |  |  | $ | - |

On September 15, 2020 (the “Closing Date”), the Company issued two-year senior secured convertible notes in the aggregate principal amount of $15.0 (the “Senior Notes”) with 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.

In connection with the Senior Notes, the Company paid $0.2 million in certain fees, including direct costs of $0.2 million consisting of $90,000 for Purchaser’s transaction costs which was subtracted from the $15.0 million disbursement, $75,000 to Purchaser’s outside legal counsel as its transaction fees and $25,000 to the Company’s outside legal counsel (collectively, the “Issuance Costs”).

The sale of the Senior Notes was completed pursuant to the Securities Purchase Agreement, dated as of July 2, 2020, as amended on July 30, 2020 (as amended, the “Senior SPA”), and (ii) issued to the Purchaser 800,000 shares (the “Shares”) of the Company’s common stock valued at $2.1 million. The Senior Notes and the Shares were issued as restricted securities in a private placement transaction exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”).

The Senior Notes mature on the second anniversary of the Closing Date, accrue interest at 8.5% per year with interest is 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 Senior Notes prior to their maturity.

The Company’s obligations under the Senior Notes may be accelerated upon the occurrence of certain customary events of default (as defined in the Senior 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 Senior 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 Senior Notes require the Company to maintain aggregate cash deposits of $10.0 million until the Senior Notes are paid in full.

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The Company and the Purchaser also entered into a Registration Rights Agreement, dated as of the Closing Date (the “RRA”), which grants 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 is required to file with the SEC a resale Registration Statement on Form S-3 (or another suitable form) as soon as reasonably practical after the Closing Date, but in any event within 30 days after the Closing Date (the “Filing Date”), and have such Registration Statement be declared effective by the SEC on the date (the “Effectiveness Date”) which is the earlier of (i)(x) in the event that the initial Registration Statement is not subject to a full review by the SEC, 45 calendar days after the Filing Date, or (y) in the event that such initial Registration Statement is subject to a full review by the SEC, 90 calendar days after the Filing Date, and (ii) the fifth Business Day after the date the Company is notified by the SEC that such initial Registration Statement will not be reviewed or will not be subject to further review. Upon the occurrence of certain events (each an “Event”), including, but not limited to, that the initial Registration Statement is not filed prior to the Filing Date or is not declared effective by the SEC prior to the Effectiveness Date, the Company will be required to pay liquidated damages in cash to each of the Assignees in the amount of 2.0% of the purchase price of the Notes paid by such Assignee upon the date of the Event and then monthly thereafter until the Event is cured. In no event shall the aggregate amount of liquidated damages payable to each of the Assignees exceed in the aggregate 15% of the purchase price of the Notes paid by such Assignee. 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. Subsequent to the quarter ended December 31, 2020, the Company filed such initial Registration Statement (See Note 19 – Subsequent Events).

In connection with the SPA, 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 is the beneficial owner as of the Closing Date until the Senior Notes are paid in full (subject to certain customary exceptions), without the Purchaser’s prior written consent.

The Senior Notes and the Shares were issued in private placement transaction that will 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.

As of December 31, 2020 and March 31, 2020, the Company had unsecured convertible Trinad Notes outstanding which were issued to Trinad Capital as described in Note 10 – Unsecured Convertible Notes.

Note 12 — Leases

The Company leases a space at a location under a non-cancellable operating lease with a remaining lease term of 1 year, expiring in fiscal year 2022. 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. Rent expense for this operating lease totaled $0.1 million for the three and nine month periods ended December 31, 2020.

Remaining lease commitments at December 31, 2020 is $1.4 million.

Short term leases

Slacker leases its San Diego premises under operating lease which expired on December 31, 2020 and was renewed through December 31, 2021. Rent expense for this operating lease totaled $0.1 million and $0.1 million for the three month periods ending December 31, 2020 and 2019, respectively, and $0.3 million and $0.3 million for the nine month periods ended December 31, 2020 and 2019, respectively.

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Operating lease costs for the nine months ended December 31, 2020 consisted of the following (in thousands):

|  | December 31, 2020 |
Fixed rent cost |  | $ | 123 |
Short term lease cost |  |  | 341 |
Total operating lease cost |  | $ | 464 |

Supplemental balance sheet information related to leases was as follows (in thousands):

Operating leases |  | December 31, 2020 |
Operating lease right-of-use assets |  | $ | 1,154 |
Total operating lease right-of-use assets |  |  | 1,154 |
Operating lease liability, current |  | $ | 341 |
Operating lease liability, noncurrent |  |  | 813 |
Total operating lease liabilities |  | $ | 1,154 |

The operating lease right-of-use assets are included in other assets in the December 31, 2020 condensed consolidated balance sheets, and operating lease liabilities are included in accounts payable and accrued liabilities and lease liabilities non-current in the December 31, 2020 condensed consolidated balance sheets.

Future maturities of operating lease liabilities as of December 31, 2020 were as follows (in thousands):

For Years Ending March 31, |  |  |
2021 (remaining three months) |  | $ | 127 |
2022 |  |  | 582 |
2023 |  |  | 358 |
2024 |  |  | 320 |
2025 |  |  | 93 |
Total lease payments |  |  | 1,480 |
Less: imputed interest |  |  | (326 | )
Present value of operating lease liabilities |  | $ | 1,154 |

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.

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Lease and non-lease components – Non lease components were considered and determined not to be material.

Month to month arrangements

Beginning on August 1, 2017, the Company was given the right to occupy approximately 5,200 square feet of office space in West Hollywood, California. The space was provided to the Company by an unrelated third party and is fully furnished. The Company compensated the landlord in cash at the rate of approximately $38 thousand per month for months that the Company occupies the space. The Company or the third party had the right to terminate the arrangement at any time without prior notice, and the Company terminated this arrangement, effective April 30, 2019.

On May 1, 2019, the Company entered into a month-to-month agreement with a third party to lease certain office space in Los Angeles, California for $20 thousand per month. This agreement was subsequently amended on October 1, 2019 to $14 thousand per month with a termination date of December 31, 2019. Effective January 1, 2020, the Company was given the right to occupy approximately 5,200 square feet of office space in West Hollywood, California. The space was provided to the Company by an unrelated third party and is fully furnished. The Company compensated the landlord in cash at the rate of approximately $40 thousand per month for months that the Company occupied the space, provided, that the Company and the temporary trustee of landlord’s assets agreed that such payments shall be $22.4 thousand per month for the months of December 2019 and January 2020. The Company or the third party has the right to terminate the arrangement at any time without prior notice. Rent expense for the month to month arrangements totaled less than $0.1 million for the three and nine month periods ended December 31, 2020 and $0.1 million and $0.2 million for the three and nine month periods ended December 31, 2019, respectively. The Company vacated this office space as of December 31, 2020.

React Presents leases its Chicago, Illinois premises under a month-to-month operating lease expiring October 9, 2020. Rent expense for the operating leases totaled less than $0.1 million and 0.1 million for the three and nine month periods ended December 31, 2020, respectively.

PodcastOne leases its Los Angeles premises under a month-to-month operating lease. Rent expense for the operating lease totaled $0.1 million and $0.2 million for the three and nine month periods ended December 31, 2020, respectively.

Note 13 — Long-Term Liabilities

On October 30, 2020, Slacker entered into an amendment to existing agreements with a certain licensor of music content (the “Music Partner”) which own and license rights to Slacker to certain sound recordings. Pursuant to this amendment, payment terms on $5.9 million of outstanding balances to the Music Partner were extended over periods between 12 and 24 months, and recorded as other long-term liabilities along with the fair value of the PodcastOne earnout, as follows:

|  | December 31, |  |  | March 31, |
|  | 2020 |  |  | 2020 |
Due to Music Partner |  | $ | 5,422 |  |  | $ | - |
Fair value of contingent consideration liability |  |  | 1,061 |  |  |  | - |
Other long-term liabilities |  | $ | 6,483 |  |  | $ | - |

The Company evaluated the agreements with the Music Partner and it was required to be accounted for as troubled debt restructuring under ASC 470-60, Troubled Debt Restructuring by Debtor. As a result of the evaluation, the Company reclassified the portion of the payable balance due after 12-months to non-current liabilities.

The contingent consideration liability resulted from the business combination with PodcastOne (Note 4- Business Combinations) and is carried at fair value (see Note 18- Fair Value Measurements).

Note 14 — 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 December 31, 2020, the Company has licenses, production and/or distribution agreements to make guaranteed payments as follows: $2.1 million for the fiscal year ending March 31, 2021, $6.8 million for the fiscal year ending March 31, 2022, $5.9 million for the fiscal year ending March 31, 2023 and $4.1 million for the fiscal year ending March 31, 2024. 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.

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Contractual Obligations

As of December 31, 2020, the Company is obligated under agreements with Content Providers and other contractual obligations to make guaranteed payments as follows: $0.3 million for the fiscal year ending March 31, 2021, $0.9 million for the fiscal year ending March 31, 2022 and $0.1 million for the fiscal year ending March 31, 2023.

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 is the period of time 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, subscribers 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. 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 December 31, 2020, 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.

Legal Proceedings

On February 8, 2018, Wynn Las Vegas, LLC (“Wynn”) filed a claim in the District Court, Clark County, Nevada against LXL Tickets claiming total damages in excess of $0.6 million (the “Wynn Claim Amount”) as a result of alleged breach of contract, breach of covenant of good faith and fair dealing and unjust enrichment with respect to that certain Second Amendment and Extension of the Wantickets.com Presale Agreement entered into by and between Wantickets and Wynn on or about December 31, 2016 (the “Wantickets-Wynn Agreement”). In connection with this action, on June 21, 2017, Wynn filed suit in the Eighth Judicial District Court, Clark County, Nevada against RNG Tickets, LLC (d/b/a Wantickets) and Wantickets. That litigation is still pending and active. RNG Tickets has not filed a responsive pleading in the case and Wantickets RDM has defaulted. The Company believes that Wynn’s position is that LXL Tickets acquired Wantickets, including Wantickets’ obligations under the Wantickets-Wynn Agreement (and not just certain assets and liabilities of Wantickets), and as such LXL Tickets should be liable to Wynn for the Wynn Claim Amount pursuant to the Wantickets-Wynn Agreement. The Company further believes that this action against LXL Tickets is without merit and intends to vigorously defend itself against any obligations or liability to Wynn with respect to such claims. In October 2018, pursuant to the terms of the APA (as defined below), 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 April 2019, the parties agreed to informally stay the proceeding for the time being and extend discovery deadlines. On March 27, 2020, Wynn filed an amended complaint adding Schnaier, Danco and Gamtix, LLC (parties unrelated to the Company) as additional defendants in this matter. On July 29, 2020, Wynn submitted a written discovery request to LXL Tickets in this matter. Currently, the discovery proceedings are continuing and the Company is cooperating with Wynn’s discovery request, subject to standard objections. As of December 31, 2020, the potential range of loss related to this matter was not material.

In March 2018, Manatt Phelps & Phillips, LLP (“Manatt”) served the Company with a complaint filed on February 22, 2018 in the Supreme Court of the State of California County of Los Angeles against the Company. The complaint alleges, among other things, breach of contract and breach of promissory note. Plaintiff is seeking damages of $0.2 million, plus interest, attorneys’ fees and costs and other such relief as the court may award. On April 12, 2018, the Company filed an answer that generally denied all the claims in the complaint. On February 19, 2019, in connection with the settlement of the plaintiff’s Delaware action (as discussed below), the parties settled this matter agreeing that the Company would repay this note and accrued interest in full by June 30, 2019. Such settlement was approved by the court on March 4, 2019, and the plaintiff dismissed this action against the Company without prejudice. No additional consideration was paid by the Company to the plaintiff related to this settlement. At December 31, 2020 the promissory note has not been paid and is currently past due.

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On October 11, 2018, Manatt filed a complaint in the Court of Chancery of the State of Delaware against the Company alleging that we have improperly refused to remove the restrictive legend from the shares of the Company’s common stock owned by the plaintiff (the “Manatt DE Action”). Plaintiff is seeking declaratory judgment that all of the statutory prerequisites for removal of the restrictive legend have been met and injunctive relief requiring us to remove such restrictive legend, plus damages and losses suffered by the plaintiff as a result of our alleged conduct, including interest, attorneys’ fees and costs and other such relief as the court may award. On February 19, 2019, the parties entered into a settlement agreement and agreed to release each other from all claims and damages relating to this matter, pending the repayment by the Company of the promissory note discussed above by June 30, 2019 and the sale of such shares by Manatt in compliance with such order. The parties further agreed that within three days after the later of (i) Manatt’s sale of all of their shares pursuant to the court’s order in compliance therewith, and (ii) the note repayment by such due date, Manatt would dismiss this Delaware action and the California action with prejudice. Such settlement was approved by the court on March 4, 2019. Other than the repayment of the note and accrued interest in full, no additional consideration was paid by the Company to the plaintiff related to this settlement. Pursuant to the terms of the settlement agreement, as a result of the note due to Manatt described above having not been paid as of June 30, 2019 and is currently being past due, in August 2019, Manatt obtained a judgement in the Court of Chancery of the State of Delaware against the Company for the amount of $0.3 million, which represents principal and all accrued and unpaid interest on the note through July 5, 2019. The judgement amount will continue to accrue interest at the 6% applicable rate from July 6, 2019 through the date of the judgment’s satisfaction in full. In September 2019, Manatt obtained a related sister-state judgement in the Superior Court of California, County of Los Angeles against the Company for the same amount. In December 2019, Manatt obtained a judgement lien with the Secretary of State of California related to such California sister-state judgment.

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 each of the Company, LXL Tickets, Robert S. Ellin, Alec Ellin, Blake Indursky and Computershare Trust Company, N.A. (“Computershare”). Plaintiffs subsequently voluntarily dismissed all claims against Alec Ellin, and Blake Indursky and Computershare. The complaint alleged multiple causes of action arising out of Schnaier’s investment (through Danco) of $1.3 million into the Company in 2016, the Company’s 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. Plaintiffs seek monetary damages and injunctive relief. Plaintiffs have also sued Computershare for negligence and for injunctive relief relating to the refusal to transfer certain restricted shares of the Company’s common stock owned by the plaintiffs, which claims have been dismissed. Based on the remaining claims, Plaintiffs are seeking injunctive relief, damages, if any, 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 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 the Company 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. The parties are currently engaged in pre-trial proceedings, including continuing discovery efforts with the trial not expected to commence, if any, until the Company’s fiscal year ending March 31, 2022 (unless further delayed as a result of the COVID-19 pandemic). 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. As of December 31, 2020, all of plaintiffs’ claims other than fraudulent inducement have been dismissed or addressed by the parties or the court, subject to plaintiffs currently appealing the dismissal of the breach of the implied covenant of good faith and fair dealing claims related to Mr. Schnaier’s employment agreement with LXL Tickets. On November 10, 2020, the Appellate Division affirmed the dismissal court of appeals of the plaintiffs’ claims for granting the Company’s motion to dismiss plaintiff’s breach of the implied covenant of good faith and fair dealing claims concerning Mr. Schnaier’s employment agreement. As of December 31, 2020, all of plaintiffs’ claims other than fraudulent inducement and breach of the employment agreement have been dismissed or addressed by the parties or the court.

The Company intends to continue to vigorously defend all defendants against any liability to the plaintiffs with respect to the remaining claims. As of December 31, 2020, while the Company has assessed 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.”

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On May 6, 2020, Xcellence, Inc. (dba Xact Data Discovery) filed a claim in the Los Angeles Superior Court against us claiming total damages of approximately of $0.6 million as a result of an alleged breach of contract and breach of warranty under the services agreement entered into between Xcellence and the Company. The Company was previously not made aware of this matter and as a result, on October 26, 2020, the court entered a default judgment against the Company in this matter. On November 13, 2020, the Company filed the motion to set aside the default judgement due to the default being improperly entered into as a result of the plaintiff failing to correctly serve the Company and the default was set aside in December 2020. In December, the Company also filed its answer to the complaint. The Company intends to vigorously defend it in this matter. As of December 31, 2020, the potential range of loss related to this matter was not material.

During each of the nine months ended December 31, 2020 and 2019, the Company recorded aggregate legal settlement expenses relating to potential claims arising in connection with litigation brought against the Company by certain third-parties of $0.1 million.

While the resolution of the above matters cannot be predicted with certainty, other than as set forth above the Company does not believe, based on current knowledge, that the outcome of the currently pending claims or legal proceedings in which the Company is currently involved will have a material adverse effect on the Company’s financial statements.

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. The Company regularly evaluates the status of its commitments and contingencies in which it is involved to (i) assess whether a material loss is probable or there is at least a reasonable possibility that a material loss or an additional material loss in excess of a recorded accrual may have been incurred and (ii) determine if financial accruals are required when appropriate. The Company records an expense accrual for any commitments and loss contingency when it determines that a loss is probable and the amount of the loss can be reasonably estimated. If an expense accrual is not appropriate, the Company further evaluates each matter to assess whether an estimate of possible loss or range of loss can be made and whether or not any such matter requires additional disclosure. There can be no assurance that any proceeding against the Company will be resolved in amounts that will not differ from the amounts of estimated exposures. Legal fees and other costs of defending litigation are expensed as incurred.

Non-Income Related Taxes

In general, the Company has not historically collected state or local sales, use or other similar taxes in any jurisdictions in which the Company does not have a tax nexus, in reliance on court decisions or applicable exemptions that restrict or preclude the imposition of obligations to collect such taxes with respect to online sales of its music subscription services. In addition, the Company has not historically collected state or local sales, use or other similar taxes in certain jurisdictions in which it has a physical presence, in reliance on applicable exemptions. On June 21, 2018, the U.S. Supreme Court decided, in South Dakota v. Wayfair, Inc., that state and local jurisdictions may, at least in certain circumstances, enforce a sales and use tax collection obligation on remote vendors that have no physical presence in such jurisdiction. A number of states have already begun, or have positioned themselves to begin, requiring sales and use tax collection by remote vendors and/or by online marketplaces. The details and effective dates of these collection requirements vary from state to state. The Company evaluated the new requirements, and based upon its assessment determined that its sales tax exposure was not material to the financial results as of December 31, 2020. The Company is in the process of determining how and when its collection practices will need to change in the relevant jurisdictions, including obtaining resale certificates from third party resellers of the Company’s music services, as necessary. Following the CPS acquisition, the Company acquired a $0.4 million sales tax accrual.

Note 15 — 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 made matching contributions of less than $0.1 million and $0.1 million to the 401(k) Plan for the three and nine month periods ended December 31, 2020, respectively, and less than $0.1 million for the three and nine month periods ended December 31, 2019, respectively.

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Note 16 — Stockholders’ Equity

Issuance of Common Stock in Public Offerings

In July 2020, the Company issued directly to a certain institutional investor and another investor a total of 1,820,000 shares of the Company’s common stock for net cash consideration of approximately $7.3 million at a price per share of $4.14. The offering of the shares was made pursuant to the Shelf S-3 and a prospectus supplement related to the offering filed with the SEC on July 23, 2020.

On July 25, 2019, in a registered direct public offering, the Company entered into securities purchase agreements with certain institutional investors pursuant to which the Company sold a total of 5,000,000 shares of its common stock at a price per share of $2.10. The gross proceeds to the Company were $10.5 million. The net proceeds of the offering to the Company were $9.5 million, after deducting placement agent fees and other offering expenses totaling $1.0 million paid by the Company. The offering of the shares was made pursuant to the Shelf S-3 and a prospectus supplement related to the offering filed with the SEC on July 26, 2019.

In August 2020, the Company and Mani Brothers 9200 Sunset (DE), LLC, the landlord of its principal executive offices in West Hollywood, entered into the Occupancy Agreement. Pursuant to the agreement, the Company issued to MBRG Investors, LLC as the designee of the landlord 95,436 shares of the Company’s shares of common stock, at a price per share of $4.14, in full satisfaction of the Company’s payment obligation of approximately $0.4 million to the landlord, which is included in shares issued to consultants and vendors on the Condensed Consolidated Statement of Stockholders Equity (Deficit). The Company did not receive any cash proceeds from the offering of these shares. The offering of these shares was made pursuant to the Shelf S-3 and prospectus supplement related to the offering filed with the SEC on August 11, 2020.

The offering of these shares was made pursuant to the Shelf S-3 and prospectus supplement related to the offering, which was filed with the SEC on August 11, 2020, and the final settlement and issuance of these shares occurred on August 11, 2020.

Issuance of Restricted Shares of Common Stock for Services to Consultants and Vendors

During the nine months ended December 31, 2020, the Company issued 3,780,659 shares of its common stock valued at $11.5 million to certain Company consultants and vendors which includes the shares issued to MBRG Investors, LLC and the shares issued to a certain music partner. Additionally, the Company incurred $1.0 million in accounts payable and accrued liabilities for stock earned by its consultants, but not yet issued. During the three months and nine months ended December 31, 2020, the Company recorded $1.0 million and $11.5 million, respectively, of expense related to stock issuances to its consultants. The remaining unrecognized compensation cost of $0.2 million is expected to be recorded over the next year as the shares vest.

During the nine months ended December 31, 2019, the Company issued 956,575 shares of its restricted common stock valued at $3.5 million to certain Company consultants and vendors. Additionally, the Company had $0.6 million in accounts payable and accrued liabilities for stock earned by its consultants, but not yet issued at December 31, 2019. During the three and nine months ended December 31, 2019, the Company recorded $0.2 million and $0.6 million, respectively, of expense related to stock issuances to its consultants.

Warrants

The table below summarizes the Company’s warrant activities during the nine month’s ended December 31, 2020:

|  | Number of Warrants |  |  | Weighted Average Exercise Price |  |  | Weighted- Average Remaining Contractual Term (in years) |
Balance outstanding, March 31, 2020 |  |  | 167,363 |  |  | $ | 4.01 |  |  |  | 0.94 |
Granted |  |  | - |  |  |  | - |  |  |  | - |
Exercised |  |  | - |  |  |  | - |  |  |  | - |
Forfeited/expired |  |  | - |  |  |  | - |  |  |  | - |
Balance outstanding, December 31, 2020 |  |  | 167,363 |  |  | $ | 4.01 |  |  |  | 0.19 |
Exercisable, December 31, 2020 |  |  | 167,363 |  |  | $ | 4.01 |  |  |  | 0.19 |

At December 31, 2020, the intrinsic value of warrants outstanding and exercisable was $0.

F-30

Issuance of Common Stock to Certain Music Partner

In June 2020, the Company entered into a new two-year license agreement with a certain music partner which owns and license rights to Slacker to certain sound recordings. Pursuant to this agreement, the Company agreed to certain minimum yearly guarantee payments and issued 264,000 shares of its restricted common stock to such music partner in consideration of all payments due to the music partner prior the date of the agreement.

In July 2020, the Company issued to a certain music licensor 2,415,459 shares (the “Shares”) of its common stock at a price of $4.14 per share, to satisfy the Company’s payment obligation in the amount of $10.0 million owed to such music licensor (the “Threshold Amount”). In the event that the value of the Shares as of September 30, 2020 was less than the Threshold Amount, the Company agreed to make an additional cash payment to such music licensor in an amount equal to the difference between (i) the Threshold Amount and (ii) the sum of (x) the net proceeds of any sales of the Shares by the music licensor plus (y) the aggregate value of the Shares not sold by the music licensor as of such date. As of December 31, 2020, the Company accrued $2.1 million related to additional cash payment required. The shares were issued pursuant to the Shelf S-3 and a prospectus supplement related to the offering of these shares filed with the SEC on July 22, 2020. The Company did not receive any cash proceeds from the offering of these shares.

2016 Equity Incentive Plan

On September 17, 2020, our stockholders approved the amendment to the 2016 Equity Incentive Plan, as amended to increase the number of shares available for issuance under the plan by 5,000,000 shares.

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.

Note 17 — Business Segment and Geographic Reporting

Management has determined that the Company has one operating segment. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments.

Customers

The Company has one external customer that accounts for more than 10% of its revenue. Such original equipment manufacturer (the “OEM”) provides premium Slacker service in all of their new vehicles. In the three and nine months ended December 31, 2020 total revenue from the OEM was $5.7 million and $17.0 million, respectively. In the three and nine months ended December 31, 2019 total revenue from the OEM was $6.0 million and $16.6 million, respectively.

Geographic Information

The Company operates as an internet live music streaming platform and produces, distributes and markets podcasts, 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.

F-31

Note 18 — 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):

|  | December 31, 2020 |
|  | Fair |  |  | Hierarchy Level |
|  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration liability from PodcastOne acquisition |  | $ | 1,061 |  |  | $ | - |  |  | $ | - |  |  | $ | 1,061 |
Initial measurement of contingent consideration from CPS acquisition |  |  | 1,254 |  |  |  | - |  |  |  | - |  |  |  | 1,254 |
Bifurcated embedded derivative on senior secured convertible notes payable |  |  | 251 |  |  |  | - |  |  |  | - |  |  |  | 251 |
Bifurcated embedded derivative on unsecured convertible note payable |  |  | 30 |  |  |  | - |  |  |  | - |  |  |  | 30 |
|  | $ | 2,596 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,596 |

|  | March 31, 2020 |
|  | Fair |  |  | Hierarchy Level |
|  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Bifurcated embedded derivative on senior secured convertible debentures |  | $ | 524 |  |  | $ | - |  |  | $ | - |  |  | $ | 524 |
Bifurcated embedded derivative on unsecured convertible note payable |  |  | 141 |  |  |  | - |  |  |  | - |  |  |  | 141 |
|  | $ | 665 |  |  | $ | - |  |  | $ | - |  |  | $ | 665 |

The following table presents a reconciliation of the Company’s financial liabilities that are measured at Level 3 within the fair value hierarchy for the nine month period ended December 31, 2020 (in thousands):

|  | Amount |
Balance as of March 31, 2020 |  | $ | 665 |
Initial measurement of contingent consideration from PodcastOne acquisition on July 1, 2020 |  |  | 1,100 |
Initial measurement of contingent consideration from CPS acquisition on December 22, 2020 |  |  | 1,254 |
Initial measurement of embedded derivatives on senior secured convertible notes issued on September 15, 2020 |  |  | 671 |
Adjustments reported in loss on extinguishment of debt |  |  | (228 | )
Fair value adjustments reported in earnings |  |  | (866 | )
Balance as of December 31, 2020 |  | $ | 2,596 |

The following table presents a reconciliation of the Company’s financial liabilities that are measured at Level 3 within the fair value hierarchy for the nine months ended December 31, 2019 (in thousands):

|  | Amount |
Balance as of March 31, 2019 |  | $ | 586 |
Total fair value adjustments reported in earnings |  |  | (189 | )
Balance as of December 31, 2019 |  | $ | 397 |

Bifurcated embedded derivative on senior secured convertible debentures, senior secured convertible notes payable, unsecured convertible notes payable and contingent consideration

The fair value of the bifurcated embedded derivatives on senior secured convertible debentures, senior secured convertible notes payable, unsecured convertible notes and contingent consideration was determined using the following significant unobservable inputs:

|  | December 31, |  |  | March 31, |
|  | 2020 |  |  | 2020 |
Bifurcated embedded derivative on senior secured convertible debentures Market yield |  |  | - |  |  |  | 27.4 | %
Bifurcated embedded derivative on senior secured convertible notes payable Market yield |  |  | 19.1 | % |  |  | - |
Bifurcated embedded derivative on unsecured convertible note payable Market yield |  |  | 31.2 | % |  |  | 43.9 | %
Contingent consideration Market yield |  |  | 19.1 | % |  |  | - |

F-32

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 $0.3 million. The changes in fair value of $(0.3) million and $(0.4) million are recorded in other income (expense) on the Company’s consolidated statements of operations for the three-month and nine month periods ended December 31, 2020, respectively.

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):

|  | December 31, 2020 |
|  | Carrying |  |  | Hierarchy Level |
|  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 17,353 |  |  | $ | 17,353 |  |  | $ | - |  |  | $ | - |
Restricted cash |  |  | 235 |  |  |  | 235 |  |  |  | - |  |  |  | - |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Notes payable |  |  | 2,996 |  |  |  | - |  |  |  | - |  |  |  | 2,996 |
Senior secured convertible notes payable, net |  |  | 12,830 |  |  |  | - |  |  |  | - |  |  |  | 17,370 |
Unsecured convertible notes payable related party, net |  |  | 5,393 |  |  |  | - |  |  |  | - |  |  |  | 6,485 |
Unsecured convertible notes, payable net |  |  | 1,887 |  |  |  | - |  |  |  | - |  |  |  | 1,996 |

|  | March 31, 2020 |
|  | Carrying |  |  | Hierarchy Level |
|  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 5,702 |  |  | $ | 5,702 |  |  | $ | - |  |  | $ | - |
Restricted cash |  |  | 6,735 |  |  |  | 6,735 |  |  |  | - |  |  |  | - |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Note payable |  |  | 331 |  |  |  | - |  |  |  | - |  |  |  | 331 |
Senior secured convertible debentures, net |  |  | 8,701 |  |  |  | - |  |  |  | - |  |  |  | 9,254 |
Unsecured convertible notes payable related party, net |  |  | 5,114 |  |  |  |  |  |  |  |  |  |  |  | 4,451 |
Unsecured convertible note payable |  |  | 1,539 |  |  |  | - |  |  |  | - |  |  |  | 1,338 |

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of December 31, 2020 and March 31, 2020. 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.

F-33

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:

|  | December 31, |  |  | March 31, |
|  | 2020 |  |  | 2020 |
Senior secured convertible debentures, net (binomial lattice model): |  |  |  |  |  |
Market yield |  |  | - |  |  |  | 27.4 | %
Senior secured convertible notes payable, net (binomial lattice model): |  |  | 19.1 | % |  |  | - |
Market yield |  |  |  |  |  |  |  |
Unsecured convertible notes payable related party, net (yield model with a Black-Scholes-Merton option pricing model): |  |  |  |  |  |  |  |
Market yield |  |  | 31.2 | % |  |  | 41.6 | %
Unsecured convertible note payable (yield model with a Black-Scholes-Merton option pricing model): |  |  |  |  |  |  |  |
Market yield |  |  | 29.17 | % |  |  | 43.9 | %

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 December 31, 2020 and March 31, 2020.

The Company’s outstanding debt is carried at cost, adjusted for discounts. The Company’s note payable is not publicly traded and fair value is estimated to equal carrying value. The Company’s senior convertible notes payable 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 senior convertible notes payable and unsecured convertible notes payable are valued using a binomial lattice model and a yield model with a Black-Scholes-Merton option pricing model, respectively.

Note 19 — Subsequent Events

On January 11, 2021, the Company entered into an Amendment of Notes Agreement (the “Amendment Agreement”) with Trinad Capital Master Fund Ltd. (“TCMF”), a related party, pursuant to which the maturity date of all of the Company’s Unsecured Convertible Notes issued to TCMF was extended to May 31, 2022, and in consideration of such extension, the interest rate payable under such notes increased to 8.5% and the Company shall issue to TCMF 280,000 shares of its common stock.

F-34

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used herein, the “Company,” “we,” “our” or “us” and similar terms include LiveXLive Media, Inc. and its subsidiaries, unless the context indicates otherwise. The following discussion and analysis of our business and results of operations for the three and nine months ended December 31, 2020, and our financial conditions at that date, should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”).

Forward-Looking Statements

Certain statements contained in this Quarterly Report that are not statements of historical fact constitute “forward-looking statements” within the meaning of the Securities Litigation Reform Act of 1995, notwithstanding that such statements are not specifically identified. These forward-looking statements relate to expectations or forecasts for future events, including without limitation our earnings, revenues, expenses or other future financial or business performance or strategies, or the impact of legal or regulatory matters on our business, results of operations or financial condition. These statements may be preceded by, followed by or include the words “may,” “might,” “will,” “would,” “could,” “should,” “will likely result,” “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “continue,” “target” or the negative or other variations thereof or comparable terminology. These forward-looking statements are not guarantees of future performance and are based on information available to us as of the date of this Quarterly Report and on our current expectations, forecasts and assumptions, and involve substantial risks and uncertainties. Actual results may vary materially from those expressed or implied by the forward-looking statements herein due to a variety of factors, including: our reliance on one key customer for a substantial percentage of our revenue; our ability to consummate announced acquisition and/or financing transactions, including the risks that a condition to closing would not be satisfied within the expected timeframe or at all or that the closing of the proposed transaction will not occur; our ability to continue as a going concern; if and when required, our ability to obtain additional capital, including to fund our current debt obligations and to fund potential acquisitions and capital expenditures; our ability to consummate announced acquisitions; our reliance on one key customer for a substantial percentage of our revenue; our ability to attract, maintain and increase the number of our users and paid subscribers; our ability to identify, acquire, secure and develop content; our ability to successfully implement our growth strategy, our ability to acquire and integrate our acquired businesses, the ability of the combined business to grow, including through acquisitions which we are able to successfully integrate, and the ability of our executive officers to manage growth profitably; the outcome(s) of any legal proceedings pending or that may be instituted against us, our subsidiaries, or third parties to whom we owe indemnification obligations; changes in laws or regulations that apply to us or our industry; our ability to recognize and timely implement future technologies in the music and live streaming space; our ability to capitalize on investments in developing our service offerings, including LiveXLive App to deliver and develop upon current and future technologies; significant product development expenses associated with our technology initiatives; our ability to deliver end-to-end network performance sufficient to meet increasing customer demands; our ability to timely and economically obtain necessary approval(s), releases and or licenses on a timely basis for the use of our music content on our service platform; our ability to obtain and maintain international authorizations to operate our service over the proper foreign jurisdictions our customers utilize; our ability to expand our service offerings and deliver on our service roadmap; our ability to timely and cost-effectively produce, identify and or deliver compelling content that brands will advertise on and or customers will purchase and or subscribe to across our platform; general economic and technological circumstances in the music and live streaming digital markets; our ability to obtain and maintain licenses for content used on legacy music platforms; the loss of, or failure to realize benefits from, agreements with our music labels, publishers and partners; unfavorable economic conditions in the airline industry and economy as a whole; our ability to expand our domestic or international operations, including our ability to grow our business with current and potential future music labels, festivals, publishers, or partners; the effects of service interruptions or delays, technology failures, material defects or errors in our software, damage to our equipment or geopolitical restrictions; costs associated with defending pending or future intellectual property infringement actions and other litigation or claims; increases in our projected capital expenditures due to, among other things, unexpected costs incurred in connection with the roll out of our technology roadmap or our plans of expansion in North America and internationally; fluctuation in our operating results; the demand for live and music streaming services and market acceptance for our products and services; our ability to generate sufficient cash flow to make payments on our indebtedness; our incurrence of additional indebtedness in the future; our ability to repay the convertible notes at maturing or to repurchase the convertible nets upon a fundamental chance or at specific repurchase dates; the effect of the conditional conversion feature of the convertible notes; our compliance with the covenants in our credit agreement; the effects of the global Covid-19 pandemic; and other risks and uncertainties set forth herein. Other factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those set forth below in Part II – Item 1A. Risk Factors of this Quarterly Report and in Part I – Item 1A. Risk Factors of our 2020 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 26, 2020 (the “2020 Form 10-K”), as well as other factors and matters described herein or in the annual, quarterly and other reports we file with the SEC. Except as required by law, we do not undertake any obligation to update forward-looking statements as a result of as a result of new information, future events or developments or otherwise.

1

Overview of the Company

We are a pioneer in the acquisition, distribution and monetization of live music, Internet radio, podcasting and music-related streaming and video content. Our principal operations and decision-making functions are located in North America. We manage and report our businesses as a single operating segment. Our chief operating decision maker regularly reviews our operating results, principally to make decisions about how we allocate our resources and to measure our segment and consolidated operating performance. We currently generate a majority of our revenue through subscription services from our streaming radio and music services, and to a lesser extent through advertising and licensing across our music platform. In the fourth quarter of our fiscal year ended March 31, 2020, we began generating ticketing, sponsorship, and promotion-related revenue from live music events through our February 2020 acquisition of React Presents, LLC (“React Presents”), a leading live entertainment and promoter of electronic dance music (“EDM”) festivals and events. In May 2020 we launched a new pay-per-view (“PPV”) offering in May 2020, enabling new forms of artist revenue including digital tickets, tipping, digital meet and greets, merchandise sales and sponsorship. Effective July 2020, we entered the podcasting business with the acquisition of Courtside Group, Inc. (dba PodcastOne) (“PodcastOne”). Effective December 22, 2020, we entered the merchandising business with the acquisition of Custom Personalization Solutions, Inc. (“CPS”).

For the nine months ended December 31, 2020 and 2019, we reported revenue of $44.2 million and $28.8 million, respectively. For the nine months ended December 31, 2020, one customer accounted for 38% of our consolidated revenues. For the nine months ended December 31, 2019, two customers accounted for 13% and 58% of our consolidated revenues, respectively.

Key Corporate Developments for the Quarter Ended December 31, 2020

During the three months ended December 31, 2020, we successfully produced and livestreamed 52 live events, generating over 28.4 million live views, with 323 Artists livestreamed and 231 hours of live programming.

We ended the December 31, 2020 quarter with approximately 1,006,000 paid subscribers on our music platform, up from approximately 820,000 at December 31, 2019, representing 23% annual growth and had approximately 0.9 million monthly active users (“MAUs”). Included in the total number as of December 31, 2020 are certain subscribers which are the subject of a contractual dispute. We are currently not recognizing revenue related to these subscribers.

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 are subject to a twelve-month lock-up period from the closing date, such that no such shares can be sold, transferred, assigned, hypothecated, or in any way disposed of, or any right or interest therein, whether voluntarily or by operation of law, or by gift or otherwise prior to the expiration of such period.

We agreed to also issue up to approximately 437,000 additional shares of our restricted common stock if (i) CPS reports GAAP revenue of $20.0 million and $1.0 million of EBITDA for its fiscal year ended December 31, 2020, and (ii) at the closing, CPS’ target working capital is $4.0 million (including $0.8 million of cash), with a dollar-for-dollar reduction with respect to each such shortfall with no duplication. We further agreed to issue up to approximately 477,000 additional shares of our restricted common stock to the extent CPS’ final working capital as determined by the parties exceeds $4.0 million. Based on their likelihood of achievement, the Company accrued for these additional shares at December 31, 2020 and valued at $2.6 million, net of 25% discount for lack of marketability.

2

Basis of Presentation

The following discussion and analysis of our business and results of operations and our financial conditions is presented on a consolidated basis. In addition, a brief description is provided of significant transactions and events that have an impact on the comparability of the results being analyzed.

Opportunities, Challenges and Risks

Today, we derive the majority of our revenue through music subscription services and advertising, and secondarily from sponsorship and licensing (including PPV events) and ticketing. For our three months ended December 31, 2020, approximately 46% and 42% of our revenue was generated from paid customer subscriptions and advertising, respectively, and 11% and 1% of our revenue was generated from sponsorship and licensing, and ticketing, respectively. Additionally, we generated 4% of our revenue from custom merchandise sales. Beginning in February 2020, we began diversifying our revenue mix and product offerings, including (i) acquisition of React Presents, a producer, promoter and manager of in person live music festivals and events, (ii) with the acquisition of PodcastOne in July 2020, accelerating our entry into the podcasting services and providing substantial advertising revenue and capabilities across our platform beginning with the quarter ended September 30, 2020 and beyond, (iii) accelerating the number of live events digitally live streamed across our platform to 52 live events for quarter ended December 31, 2020, as compared to 42 for the entire fiscal year ended March 31, 2020, (iv) substantially increasing our sponsorship revenue from live events when compared to any prior fiscal period, (v) successfully launching our PPV platform, allowing us to charge customers directly to access and watch certain live events digitally on our music platform, and (vi) with the acquisition of CPS in December 2020, accelerating our entry into the merchandise personalization industry and providing substantial merchandise revenue and capabilities across our platform beginning with the quarter ended December 31, 2020 and beyond. When we aggregate the combined impact of all of these events, we expect the percentage mix of our advertising versus subscription revenue to be substantially higher throughout the remainder of our fiscal year ending March 31, 2021 (“fiscal year 2021”) versus our fiscal year ended March 31, 2020 (“fiscal year 2020”).

Conversely, the COVID-19 pandemic adversely impacted our on-premise live events, concerts and festivals through React Presents and our programmatic advertising, as more fully discussed below. Until the impact of COVID-19 eases around the world and related government actions are relaxed in the markets in which we operate, we do not expect to produce on-premise live music events and generate revenue through co-promotion fees, sponsorships, food and beverage and ticket sales of on-premise live events in the near term.

We believe there is substantial near and long-term value in our live music content. We also believe that the monetary value of broadcasting live music follows a similar evolution to sporting events such as the National Football League, Major League Baseball and the National Basketball Association, whereby sports broadcasting rights became more valuable as the demand for live sporting events increased over the past 20 years. As the thought leader in live music, we plan to acquire the broadcasting rights to as many of the top live music events and festivals that are available to us. During the three months ended December 31, 2020 and 2019, we livestreamed 52 and 9 major festivals and live music events, respectively. With the acceleration in livestreamed events during the three months ended December 31, 2020, we also experienced significant increases in monetization of these events from paid sponsorships and pay per view ticket purchases. In the near term, we will continue aggregating our digital traffic across these festivals and monetizing the live broadcasting of these events through advertising, brand sponsorships and licensing of certain broadcasting rights within and outside of North America. The long-term economics of any future agreement involving on-premise in-person festivals, programming, production, broadcasting, streaming, advertising, sponsorships, and licensing could positively or negatively impact our liquidity, growth, margins, relationships, and ability to deploy and grow our future services with current or future customers, and are heavily dependent upon the easing and elimination of the COVID-19 pandemic.

With the acceleration of our live events, we have also begun to package, produce and broadcast our live music content on a 24/7/365 basis across our music platform and grow our paid subscribers. Recently, we have entered into distribution relationships with a variety of platforms, including liner OTT platforms such as XUMO (45 million households), Sinclair’s Stirr and SLING TV. As we continue to acquire more distribution channels, rights and viewership and expand our original programming capabilities, we believe there is a substantial opportunity to increase our brand, advertising, viewership and subscription capabilities and corresponding revenue, domestically and globally.

We believe our operating results and performance are, and will continue to be, driven by various factors that affect the music industry. Our ability to attract, grow and retain users to our platform is highly sensitive to rapidly changing public music preferences and technology and is dependent on our ability to maintain the attractiveness of our platform, content and reputation to our customers. Beyond fiscal year 2020, the future revenue and operating growth across our music platform will rely heavily on our ability to grow our subscriber base, continue to develop and deploy quality and innovative new music services such as PPV, provide unique and attractive content to our customers, continue to grow the number of listeners on our platform and live music festivals we stream, grow and retain customers and secure sponsorships to facilitate future revenue and margin growth from advertising and e-commerce across our platform.

3

As our music platform continues to evolve, we believe that there are opportunities to expand our services by adding more content in a greater variety of formats such as podcasts and video podcasts (“vodcasts”), extending our distribution to include pay television and social channels, deploying new services for our subscribers such as PPV, artist merchandise and live music event ticket sales, and licensing user data across our platform. In 2019 we combined our Slacker audio and LiveXLive video services into a single platform – LiveXLive Powered by Slacker, including offering a greater variety of exclusive and unique music content across our platform. For example, we acquired Slacker in December 2017 to accelerate our paid subscription platform, and secondarily to gain synergies across product development initiatives. In 2018 and more recently in 2020, we integrated resources and improved our live music streaming app across Apple TV, Samsung TV, Roku and Amazon Fire platforms. We acquired React Presents in February 2020, which gives us the ability to produce both on premise and virtual live music events and festivals along with increasing our original music content. In May 2020 we launched our first PPV performances across our platform, allowing artists and fans to access a new digital compliment to live concerts and events. In July 2020, we acquired PodcastOne and we now own one of the largest networks of podcast content in North America, including over 300 new podcasts per week and over 2.0 billion downloads annually. Conversely, the evolution of technology presents an inherent risk to our business. Today, we see large opportunities to expand our music services within North America and other parts of the world where we will need to make substantial investments to improve our current service offerings. As a result, and during the fiscal year ending March 31, 2021, we will continue to invest in product and engineering to further develop our future music apps and services, and we expect to continue making significant product development investments to our existing technology solutions over the next 12 to 24 months to address these opportunities. In December 2020, we acquired CPS and we now own a group of fast-growing web-oriented businesses specializing in the merchandise personalization industry. CPS develops, manufactures, and distributes personalized products for wholesale and direct-to-consumer distribution. The company offers over 10,000 exclusive personalized gift items for family, home, seasonal holidays, and special events. CPS is also one of the largest distributors of personalized jewelry in the U.S. Wholesale clients include Walmart, Zulily, Zales, Petco, and Bed, Bath, and Beyond. From embroidery to laser engraving to direct-to-garment printing, CPS utilizes ten types of personalization methods resulting in a one- stop shop for anyone's personalization /print on demand needs.

Historically, we produced and digitally distributed live music performances of many of these large global music events to fans all around the world. Prior to March 31, 2020, our live events business had not generated enough direct revenue to cover the costs to produce such events, and as a result generated negative contribution margins* and operating losses. Further and beginning in late March 2020, the COVID-19 pandemic had an adverse impact on on-premise live music events and festivals. Major global music festivals such as Coachella, EDC Las Vegas, Rock-in-Rio, Austin City Limits were postponed to 2021 or indefinitely. With the elimination of any fan-attended music events, festivals and concerts, we shifted our operating model beginning in April 2020 towards self-producing live music events that were 100% digital (e.g., artists not performing in front of live fans and solely for digital purposes). This shift had a positive impact on our business in the near and long term, and as our platform continues to evolve, we also expect our contribution margins* and Adjusted Operating Loss (“AOL”)* to improve in the near and long term. Lastly, we are forecasting our cost per live event over near term to decrease substantially when compared to prior periods. When combined, the aggregate financial impact of these new events is improvements in both contribution margins* and AOL*in the near- and long-term. For example, during the three months ended December 31, 2020 and 2019, our contribution margins* improved to 24% from 21%, respectively. Our AOL* improved by $0.2 million, to $(1.9) million from $(2.1) million, during the three months ended December 31, 2020 as compared to the three months ended December 31, 2019.

Growth in our music services is also dependent upon the number of customers that use and pay for our services, the attractiveness of our music platform to sponsors and advertisers and our ability to negotiate favorable economic terms with music labels, publishers, artists and/or festival owners, and the number of passengers who use our services. Growth in our margins is heavily dependent on our ability to grow, coupled with the managing the costs associated with implementing and operating our services, including the costs of licensing music with the music labels, and producing, streaming and distributing video and audio content. Our ability to attract and retain new and existing customers will be highly dependent on our abilities to implement and continually improve upon our technology and services on a timely basis and continually improve our network and operations as technology changes and as we experience increased network capacity constraints as we continue to grow.

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For the majority of our agreements with festival owners, we acquire the global broadcast rights. Moreover, the digital rights we acquire principally include any format and screen, and future rights to VR and AR. For the years ended March 31, 2020 and 2019, all material amounts of our revenue were derived from customers located in the United States. Moreover, and during the nine months ended December 31, 2020, one of our customers accounted for 39% of our consolidated revenue. This significant concentration of revenue from one customer poses risks to our operating results, and any change in the means this customer utilizes our services beyond December 31, 2020 could cause our revenue to fluctuate significantly. Moreover, and with the addition of PodcastOne and CPS in July and December 2020, respectively, the percentage of this customer revenue concentration decreased substantially and this trend is expected to continue in the fourth quarter of fiscal year ending March 31, 2021. While our revenue is primarily generated through music subscription services based in the United States today, we believe that there is a substantial opportunity in the longer term for us to significantly diversify our subscriber base and expand our service offerings to customers based in countries outside of the United States. Historically, we have sold certain licensing rights to stream live music in Latin America and China to third parties. In the long term, we plan to expand our business further internationally in places such as Europe, Asia Pacific and Latin America, and as a result will continue to incur significant incremental upfront expenses associated with these growth opportunities.

Effects of COVID-19

An outbreak of a novel strain of coronavirus, COVID-19 in December 2019 subsequently became a pandemic after spreading globally, including the United States. While the COVID-19 pandemic did not materially adversely affect our financial results and business operations during the fiscal year ended March 31, 2020, it did adversely impact parts of our business during the first half of fiscal March 31, 2021, namely our live events and programmatic advertising. Due to the global pandemic and government actions taking in response, since March 2020, all in person festivals, concerts and events have either been canceled or suspended, and it is uncertain when they will be permitted to resume, and as a result, the COVID-19 pandemic had an adverse impact on on-premise live music festivals, concerts and events. Major global music festivals such as Coachella, EDC Las Vegas, Rock-in-Rio, Austin City Limits have been postponed until 2021 or indefinitely. With our acquisition of React Presents in February 2020, we are presently unable to produce and promote more than 200 forecasted live events in fiscal year ending March 31, 2021, including our flagship live event Spring Awakening festival, which is typically annually produced in June. However, in January 2021, we announced our first-ever expansion of Spring Awakening music festival (“SAMF”) outside of Chicago with its first edition of "Spring Awakening Excursions'' Cancun Awakening music festival which is a live event scheduled from April 28 to May 2, 2021. However, further outbreaks of COVID-19 could cause the postponement or cancelation of this event.” Moreover, our programmatic advertising is presently adversely impacted as COVID-19 caused a subset of our legacy advertising mix and demand to decline and as a result, overall advertising cost per thousand impressions/rates across our platform were subsequently reduced. Further, as of the date of this Quarterly Report, we are not livestreaming any fan attended live festivals, concerts or other in-person live events on our platform or channels and it is unclear when streaming of fan attended live festivals, concerts or other in-person live events will again become regularly available to us. Conversely, while the economic and health conditions in the United States and across the globe have changed rapidly since the end of our fiscal year ended March 31, 2020, we are presently experiencing growth in certain parts of our core business, including (i) growth in the number of live music events produced digitally and livestreamed since April 1, 2020 through December 31, 2020 (140 live events) as compared to fiscal year March 31, 2020 (42 live events), (ii) improvement in the monetization of these digital livestreams, which is currently on pace to exceed prior fiscal year by over 300% and (iii) new growth opportunities across our music platform, including PPV. In addition, the outbreak and any preventative or protective actions that governments, other third parties or we may take in respect of the coronavirus may result in a period of business disruption and reduced operations. For example, our largest customer was ordered to keep its main U.S. factory closed for a substantial amount of time.

The extent to which COVID-19 impacts our results will depend on future developments, including new information which may emerge concerning the severity of the coronavirus and the actions taken by us and our partners to contain the coronavirus or treat its impact, among others. The impact of the suspension or cancellation of in-person live festivals, concerts or other live events, and any other continuing effects of COVID-19 on our business operations (such as general economic conditions and impacts on the advertising, sponsorship and ticketing marketplace and our partners), may result in a decrease in our revenues, and if the global COVID-19 epidemic continues for an extended period, our business, financial condition and results of operations could be materially adversely affected.

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Key Components of Consolidated Statements of Operations

The following briefly describes certain key components of revenue and expenses as presented in our consolidated statements of operations.

Revenue

We have historically generated revenue through advertising, sponsorship of our live events, paid subscriptions across our music platform, and secondarily through the licensing of non-US broadcasting rights for our live events. With the acquisition of React Presents in the fourth quarter of our fiscal year ended March 31, 2020 and the launch of our PPV platform we now generate ticket and event revenue, and beginning in the second quarter of our fiscal year ending March 31, 2021 and with the acquisition of PodcastOne, we generate higher advertising revenue when compared to prior periods and as a percentage mix of our consolidated revenue. The acquisition of CPS has further diversified revenue with a merchandise revenue stream being added. Our advertising revenue is based upon the number of impressions or active listeners we deliver across our music and podcasting platform. Our subscription revenue is driven by the number of paid subscribers across our music platforms, who pay up to $9.99 per month for a premium music subscription. Licensing revenue is driven by certain broadcasting rights we own and license to third parties. Ticket/event revenue is primarily derived 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.

We report revenue on a gross or net basis based on management’s assessment of whether we act as a principal or agent in the transaction. To the extent we act as the principal, revenue is reported on a gross basis net of any sales tax from customers, when applicable. The determination of whether we act as a principal or an agent in a transaction is based on an evaluation of whether we control the good or service prior to transfer to the customer. Where applicable, we have determined that we act as the principal in all of our subscription service streams and may act as principal or agent for our advertising and licensing revenue streams.

Operating Expenses

Operating expenses consist of cost of sales, sales and marketing, product development, general and administrative, and amortization of intangible assets. Included in our operating expenses are stock-based compensation and depreciation expenses associated with our capital expenditures.

Cost of Sales

Costs of sales principally consist of the costs of licensing our services across our music platform, including producing audio and live music content; music licensing costs paid to labels such as Universal Music, Warner Music and Sony Music, publishers and digital rights organizations such as SoundExchange and BMI; programming, DJ’s, hosts and streaming costs; revenue recognized by us and shared with others as a result of our revenue-sharing arrangements including podcasts, vodcasts and PPV events; platform operating expenses, including depreciation of the systems and hardware used to build and operate our platform; personnel costs related to our network operations, production teams, customer service and information technology. As we continue to grow our revenue base, build out our music services platform and expand our coverage globally, we anticipate that our service costs will increase when compared to historical periods. Our services cost of sales is dependent on a number of factors, including the amount of premium music downloaded, live festivals we stream in a given period, the amount of content and programming required to operate our services and the number of partners we share our corresponding revenue with. Cost of sales for merchandising revenue are for finished goods, which includes the purchase costs and related direct costs. Direct costs include all costs for personalization, production, planning, quality control, fulfillment and inbound freight.

Sales and Marketing

Sales and marketing expenses consist primarily of sales and marketing personnel costs, sales support, public relations, advertising, marketing and general promotional expenditures. Fluctuations in our sales and marketing expenses are generally the result of our efforts to support the growth in our businesses, including expenses required to support the expansion of our direct sales force. We currently anticipate that our sales and marketing expenses will continue to increase throughout fiscal year 2021, most notably in the second and third quarters of fiscal year 2021 with the acquisition of PodcastOne and CPS, respectively, and fluctuate as a percent of revenue when compared to 2020, as we continue to grow our advertising and sponsorship base, invest in new subscriber growth initiatives and sales and marketing organizations and invest in marketing activities to support the growth of our businesses. Additionally, sales and marketing includes merchandising advertising and has royalty costs.

Product Development

Product development expenses consist primarily of expenses incurred in our software engineering, product development and app and web portal design activities and related personnel costs. Fluctuations in our product development expenses are generally the result of hiring personnel to support and develop our music platform, new music product offerings and network operations. We currently anticipate that our product development expenses will increase in the near term and more significantly in fiscal year 2021, as we also continue to hire more product development personnel and further develop our products and offerings to support the growth of our business. We expect our fiscal year 2021 product development expense as a percentage of revenue to fluctuate accordingly when compared to fiscal year 2020.

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General and Administrative

General and administrative expenses consist primarily of personnel costs from our executive, legal, finance, human resources and information technology organizations and facilities related expenditures, as well as third party professional fees, insurance and bad debt expenses. Professional fees are largely comprised of outside legal, accounting, audit, information technology consulting and legal settlements. With the full year of React Presents expenses in fiscal year 2021 versus partial year in fiscal year 2020, coupled with the expected addition of new personnel from PodcastOne and CPS to support our planned growth in fiscal year 2021 and beyond, we anticipate general and administrative expenses to increase overall in fiscal year 2021 as compared to fiscal year 2020.

Amortization of Intangibles

We determine the appropriate useful life of intangible assets by performing an analysis of expected cash flows based on our historical experience of intangible assets of similar quality and value. We expect amortization expense to increase in the near term as a result of the React Presents acquisition made in the fourth quarter of fiscal year ended March 31, 2020, and the PodcastOne and CPS acquisitions which closed in the second and third quarters of fiscal year ending March 31, 2021, respectively. Amortization as a percentage of revenue will depend upon a variety of factors, such as the amounts and mix of our identifiable intangible assets acquired in business combinations.

Stock-based Compensation

Included in our operating expenses are expenses associated with stock-based compensation, which are allocated and included in costs of sales, sales and marketing, product development and general and administrative expenses as necessary. Stock-based compensation expense is largely comprised of costs associated with stock options and restricted stock units granted to employees and certain non-employees including directors and consultants. We record the fair value of these equity-based awards and expense at their cost ratably over related vesting periods. In addition, stock-based compensation expense includes the cost of warrants to purchase common stock issued to certain non-employees.

As of December 31, 2020, we had approximately $5.9 million of unrecognized employee related stock-based compensation, which we expect to recognize over a weighted-average period of approximately 2.2 years. Stock-based compensation expense is expected to increase throughout fiscal year 2021 compared to fiscal year 2020 as a result of our existing unrecognized stock-based compensation and as we issue additional stock-based awards to continue to attract and retain employees and non-employee directors.

Other Income (Expense)

Other income (expense) principally consists of changes in the fair value of our derivative financial instruments, interest on outstanding debt associated with our notes payable, convertible notes and loans, gain on bargain purchase and certain unrealized transaction gains, loss on extinguishment of debt and losses on foreign currency denominated assets and liabilities. We typically invest our available cash balances in money market funds and short-term United States Treasury obligations.

Provision for Income Taxes

Since our inception, we have been subject to income taxes principally in the United States. We anticipate that as we continue to expand our operations outside the United States, we will become subject to taxation based on the foreign statutory rates and our effective tax rate could fluctuate accordingly.

Income taxes are computed using the asset and liability method, under which deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

As of December 31, 2020, we had approximately $118.3 million of federal and $82.1 million of state net operating losses (“NOLs”). These NOL carryforwards are available to us to offset future taxable income which expire in varying amounts beginning in 2024 if unused. We obtained $136.0 million and $2.6 million of federal NOL and federal tax credit carryforwards, respectively, through the acquisition of Slacker in December 2017. Utilization of these losses and tax credits is limited by Section 382 of the Internal Revenue Code (the “Code”) in fiscal year end March 31, 2018 and each taxable year thereafter. We have estimated a limitation and revalued the losses and credits at $22.0 million and $0 million, respectively. We obtained $6.4 million of federal NOL carryforwards through the acquisition of PodcastOne in July 2020. It is possible that the utilization of these NOL carryforwards and tax credits may be further limited. We are undertaking a study to determine the applicable limitations, if any. We currently believe that based on available information, it is not more likely than not that our deferred tax assets will be realized, and accordingly we have recorded a valuation allowance against our federal, state and foreign deferred tax assets.

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On March 27, 2020, 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 does not anticipate the associated impacts, 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 second draw Paycheck Protection Program loans and potential eligibility for Employee Retention Credits and does not anticipate the other provisions included will have a material impact on its provision for income taxes.

Critical Accounting Policies and Estimates

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. A summary of our critical accounting policies is presented in Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates of our 2020 Form 10-K.

There were no material changes to our critical accounting policies and estimates during the three months ended December 31, 2020.

Recent Accounting Pronouncements

See Note 2 – Summary of Significant Accounting Policies to our unaudited condensed consolidated financial statements included in this Quarterly Report for a discussion of the recent accounting pronouncements.

Non-GAAP Measures

Contribution Margin

Contribution Margin is a non-GAAP financial measure defined as Revenue less Cost of Sales.

Reconciliation of Adjusted Operating Loss

Adjusted Operating Income (“AOI”) and AOL is a non-GAAP financial measure that we define as operating income (loss) before (a) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (b) legal, accounting and other professional fees directly attributable to acquisition activity, (c) employee severance payments and third party professional fees directly attributable to acquisition or corporate realignment activities, (d) certain non-recurring expenses associated with legal settlements or reserves for legal settlements in the period that pertain to historical matters that existed at acquired companies prior to their purchase date, (e) any charges in the period pursuant to formal plans to shut down and abandon LXL Tickets, (f) depreciation and amortization (including goodwill impairment, if any), and (g) certain stock-based compensation expense. We use AOI/(AOL) to evaluate the performance of our operating segment. We believe that information about AOI/(AOL) assists investors by allowing them to evaluate changes in the operating results of our business separate from non-operational factors that affect net income (loss), thus providing insights into both operations and the other factors that affect reported results. AOI/(AOL) is not calculated or presented in accordance with GAAP. A limitation of the use of AOI/(AOL) as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business. Accordingly, AOI/(AOL) should be considered in addition to, and not as a substitute for, operating income (loss), net income (loss), and other measures of financial performance reported in accordance with GAAP. Furthermore, this measure may vary among other companies; thus, AOI/(AOL) as presented herein may not be comparable to similarly titled measures of other companies.

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The following table sets forth the reconciliation of AOI and AOL to Operating Income (loss), the most comparable GAAP financial measure (in thousands):

The following table sets forth the reconciliation of AOL* to Operating Income (loss), the most comparable GAAP financial measure (in thousands), for each of the three and nine-month periods ended December 31, 2020 and 2019:

|  | Contribution Margin |  |  | Loss from Operations |  |  | Depreciation and Amortization |  |  | Stock-Based Compensation |  |  | Non- Recurring Acquisition and Realignment Costs |  |  | Other Non- Operating Costs |  |  | Adjusted Operating Loss |
Three Months Ended December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations |  | $ | 4,559 |  |  | $ | (4,636 | ) |  | $ | 2,173 |  |  | $ | 1,630 |  |  | $ | - |  |  | $ | 256 |  |  | $ | (577 | )
Corporate |  |  | - |  |  |  | (2,959 | ) |  |  | - |  |  |  | 1,062 |  |  |  | 50 |  |  |  | 478 |  |  |  | (1,369 | )
Total |  | $ | 4,559 |  |  | $ | (7,595 | ) |  | $ | 2,173 |  |  | $ | 2,692 |  |  | $ | 50 |  |  | $ | 734 |  |  | $ | (1,946 | )
Three Months Ended December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations |  | $ | 2,061 |  |  | $ | (4,668 | ) |  | $ | 1,941 |  |  | $ | 1,329 |  |  | $ | - |  |  | $ | 201 |  |  | $ | (1,197 | )
Corporate |  |  | - |  |  |  | (3,224 | ) |  |  | 1 |  |  |  | 1,606 |  |  |  | - |  |  |  | 702 |  |  |  | (935 | )
Total |  | $ | 2,061 |  |  | $ | (7,912 | ) |  | $ | 1,942 |  |  | $ | 2,935 |  |  | $ | - |  |  | $ | 903 |  |  | $ | (2,132 | )

|  | Contribution Margin |  |  | Loss from Operations |  |  | Depreciation and Amortization |  |  | Stock-Based Compensation |  |  | Non-Recurring Acquisition and Realignment Costs |  |  | Other Non- Operating Costs |  |  | Adjusted Operating Income (Loss) |
Nine months Ended December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations |  | $ | 11,665 |  |  | $ | (11,069 | ) |  | $ | 6,368 |  |  | $ | 4,148 |  |  | $ | - |  |  | $ | 963 |  |  | $ | 410 |
Corporate |  |  | - |  |  |  | (9,474 | ) |  |  | - |  |  |  | 3,885 |  |  |  | 421 |  |  |  | 1,367 |  |  |  | (3,801 | )
Total |  | $ | 11,665 |  |  | $ | (20,543 | ) |  | $ | 6,368 |  |  | $ | 8,033 |  |  | $ | 421 |  |  | $ | 2,330 |  |  | $ | (3,391 | )
Nine months Ended December 31, 2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations |  | $ | 3,676 |  |  | $ | (17,753 | ) |  | $ | 6,154 |  |  | $ | 4,470 |  |  | $ | - |  |  | $ | 246 |  |  | $ | (6,883 | )
Corporate |  |  | - |  |  |  | (10,353 | ) |  |  | 3 |  |  |  | 4,342 |  |  |  | - |  |  |  | 2,469 |  |  |  | (3,539 | )
Total |  | $ | 3,676 |  |  | $ | (28,106 | ) |  | $ | 6,157 |  |  | $ | 8,812 |  |  | $ | - |  |  | $ | 2,715 |  |  | $ | (10,422 | )

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Operating Results

Three Months Ended December 31, 2020, as compared to Three Months Ended December 31, 2019

Operations

Our Operations operating results were, and discussions of significant variances are, as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Revenue |  | $ | 19,123 |  |  | $ | 9,699 |  |  |  | 97 | %
Cost of Sales |  |  | 14,564 |  |  |  | 7,638 |  |  |  | 91 | %
Sales & Marketing, Product Development and G&A |  |  | 7,796 |  |  |  | 5,374 |  |  |  | 45 | %
Intangible Asset Amortization |  |  | 1,399 |  |  |  | 1,355 |  |  |  | 3 | %
Operating Loss |  |  | (4,636 | ) |  |  | (4,668 | ) |  |  | 1 | %
Operating Margin |  |  | -24 | % |  |  | -48 | % |  |  | 50 | %
AOL* |  | $ | (577 | ) |  | $ | (1,197 | ) |  |  | 52 | %
AOL Margin* |  |  | -3 | % |  |  | -12 | % |  |  | 75 | %

* | See “—Non-GAAP Measures” above for the definition and reconciliation of AOL.

Revenue

Revenue increased $9.4 million, or 97%, during the three months ended December 31, 2020, as compared to $9.7 million for the three months ended December 31, 2019, primarily due to the inclusion of PodcastOne advertising revenue which contributed to an increase of $7.3 million in the three months ended December 31, 2020, an increase of $2.0 million in ticket sales and sponsorship revenue in the current year period compared to the prior year period and the inclusion of CPS merchandising revenue which contributed to an increase of $0.8 million in the three months ended December 31, 2020. This increase was partially offset by a decrease in subscriber revenue of $0.8 million in the current year period compared to the prior year period as a result of certain subscribers subject to a contractual dispute.

Operating Loss

Operating loss decreased less than $0.1 million, or 1%, to ($4.6) million for the three months ended December 31, 2020, as compared to $(4.7) million for the three months ended December 31, 2019, as a result of $2.5 million improvement in contribution margins from operations primarily due to the acquisition of PodcastOne during the current year period as compared to the prior year period, offset by $2.4 million increase in sales & marketing, product development and G&A during the current year period, as compared to the prior year period.

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Adjusted Operating Loss

AOL* decreased ($0.6) million, or 52%, from a ($1.2) million AOL for the three months ended December 31, 2019, to ($0.6) million AOL for the three months ended December 31, 2020, primarily as a result of a $2.5 million improvement in contribution margins from operations primarily due to the acquisition of PodcastOne during the current year period as compared to the prior year comparable period.

Adjusted Operating Loss Margin

AOL Margin* at December 31, 2020 improved to (3%), from (12%) for the three months ended December 31, 2019.

Corporate expense

Our Corporate expense results were, and discussions of significant variances are, as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
G&A Expenses |  | $ | 2,959 |  |  | $ | 3,244 |  |  |  | -9 | %
Operating Loss |  | $ | (2,959 | ) |  | $ | (3,244 | ) |  |  | 9 | %
Operating Margin |  |  | 100 | % |  |  | -100 | % |  |  | - | %
AOL* |  | $ | (1,369 | ) |  | $ | (935 | ) |  |  | -46 | %

* | See “—Non-GAAP Measures” above for the definition and reconciliation of AOL.

Corporate Operating Loss

Operating loss decreased ($0.3) million, or 9%, from a ($3.2) million loss for the three months ended December 31, 2019, to a ($3.0) million loss for the three months ended December 31, 2020. The decrease was primarily due to a reduction in legal costs incurred during the quarter ended December 31, 2019 which did not recur in the quarter ended December 31, 2020, the vast majority of which is to support legal defense costs related to a prior period asset acquisition.

Adjusted Operating Loss

Corporate AOL* increased ($0.3) million, or 46%, from a ($0.9) million AOL* for the three months ended December 31, 2019, to a ($1.4) million AOL for the three months ended December 31, 2020. The increase was largely due to a decrease in stock-based compensation and other non-operating costs add-backs during the three months ended December 31, 2020, as compared to the prior year comparable period.

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Nine Months Ended December 31, 2020 as compared to Nine Months Ended December 31, 2019

Operations

Our Operations operating results were, and discussions of significant variances are, as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Revenue |  | $ | 44,189 |  |  | $ | 28,780 |  |  |  | 54 | %
Cost of Sales |  |  | 32,524 |  |  |  | 25,104 |  |  |  | 30 | %
Sales & Marketing, Product Development and G&A |  |  | 18,677 |  |  |  | 16,932 |  |  |  | 10 | %
Intangible Asset Amortization |  |  | 4,057 |  |  |  | 4,497 |  |  |  | -10 | %
Operating Loss |  | $ | (11,069 | ) |  | $ | (17,753 | ) |  |  | 38 | %
Operating Margin |  |  | -25 | % |  |  | -62 | % |  |  | 59 | %
AOI (AOL)* |  | $ | 410 |  |  | $ | (6,883 | ) |  |  | 106 | %
AOI (AOL) Margin* |  |  | 1 | % |  |  | -24 | % |  |  | 104 | %

* | See “—Non-GAAP Measures” above for the definition and reconciliation of AOL.

Revenue

Revenue increased $15.4 million, or 54%, during the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019, primarily due to the inclusion of PodcastOne advertising revenue which contributed to an increase of $12.6 million in the nine months ended December 31, 2020, an increase of $3.2 million in ticket sales and sponsorship revenue in the current year period compared to the prior year and the inclusion of CPS merchandising revenue which contributed to an increase of $0.8 million in the nine months ended December 31, 2020. This increase was partially offset by a decrease in subscriber revenue of $1.7 million in the current year period compared to the prior year as a result of certain subscribers subject to a contractual dispute.

Operating Loss

Operating loss decreased $6.7 million, or 38%, to ($11.1) million for the nine months ended December 31, 2020, as compared to $(17.8) million for the nine months ended December 31, 2019, primarily as a result of $8.0 million improvement in contribution margins* from operations primarily due to the acquisition of PodcastOne during the nine month period ended December 31, 2020, as compared to the prior year comparable period, and COVID-19 related cost savings initiated in the first quarter of the fiscal year ending March 31, 2021.

Adjusted Operating Income (Loss)

AOI* increased $7.1 million, or 106%, from a ($6.9) million AOL* for the nine months ended December 31, 2019, to a $0.4 million AOI* for the nine months ended December 31, 2020, primarily as a result of a $8.0 million improvement in contribution margins* from operations primarily due to the acquisition of PodcastOne during the nine month period ended December 31, 2020, as compared to the same period in the prior year, and due to COVID-19 related cost savings initiated in the first quarter of the fiscal year ending March 31, 2021, offset by a $1.7 million increase in sales & marketing, product development and G&A during the nine months ended December 31, 2020, as compared to the same period in the prior year.

Adjusted Operating Income (Loss) Margin

AOI Margin* for the nine months ended December 31, 2020 improved to 1%, from (24%) for the nine months ended December 31, 2019.

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Corporate

Our Corporate results were, and discussions of significant variances are, as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
G&A Expenses |  | $ | 9,474 |  |  | $ | 10,353 |  |  |  | -8 | %
Operating Loss |  | $ | (9,474 | ) |  | $ | (10,353 | ) |  |  | 8 | %
Operating Margin |  |  | -100 | % |  |  | -100 | % |  |  | - | %
AOL* |  | $ | (3,801 | ) |  | $ | (3,539 | ) |  |  | -7 | %

* | See “—Non-GAAP Measures” above for the definition and reconciliation of AOL.

Corporate Operating Loss

Corporate operating loss decreased ($0.9) million, or 8%, from a ($10.4) million loss for the nine months ended December 31, 2019, to a ($9.5) million loss for the nine months ended December 31, 2020. The decrease was primarily due by one-time personnel and related costs largely due to COVID-19 cost restructuring initiatives instituted during the quarter ended June 30, 2020.

Adjusted Operating Loss

Corporate AOL* increased ($0.3) million, or 7%, from a ($3.5) million AOL for the nine months ended December 31, 2019, to a ($3.8) million AOL for the nine months ended December 31, 2020. The increase was largely due to a decrease in other non-operating costs and stock-based compensation add-backs during the nine months ended December 31, 2020 as compared to the prior year comparable period.

Consolidated Results of Operations

Three Months Ended December 31, 2020, as compared to Three Months Ended December 31, 2019

The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results (in thousands):

|  | Three Months Ended December 31, |  |  | Three Months Ended December 31, |
|  | 2020 |  |  | 2019 |
Revenue: |  | $ | 19,123 |  |  | $ | 9,699 |
Operating expenses: |  |  |  |  |  |  |  |
Cost of sales |  |  | 14,564 |  |  |  | 7,638 |
Sales and marketing |  |  | 3,059 |  |  |  | 1,391 |
Product development |  |  | 2,534 |  |  |  | 2,754 |
General and administrative |  |  | 5,162 |  |  |  | 4,473 |
Amortization of intangible assets |  |  | 1,399 |  |  |  | 1,355 |
Total operating expenses |  |  | 26,718 |  |  |  | 17,611 |
Loss from operations |  |  | (7,595 | ) |  |  | (7,912 | )
Other income (expense): |  |  |  |  |  |  |  |
Interest expense, net |  |  | (998 | ) |  |  | (890 | )
Other expense |  |  | (138 | ) |  |  | (6 | )
Total other income (expense) |  |  | (1,136 | ) |  |  | (896 | )
Loss before provision for income taxes |  |  | (8,731 | ) |  |  | (8,808 | )
Provision for income taxes |  |  | - |  |  |  | - |
Net loss |  | $ | (8,731 | ) |  | $ | (8,808 | )
Net loss per share – basic and diluted |  | $ | (0.12 | ) |  | $ | (0.15 | )
Weighted average common shares – basic and diluted |  |  | 72,356,093 |  |  |  | 57,927,217 |

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The following table sets forth the depreciation expense included in the above line items (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Depreciation expense |  |  |  |  |  |  |  |  |  |  |  |
Sales and marketing |  | $ | 51 |  |  | $ | 39 |  |  |  | 33 | %
Product development |  |  | 575 |  |  |  | 505 |  |  |  | 6 | %
General and administrative |  |  | 174 |  |  |  | 43 |  |  |  | 305 | %
Total depreciation expense |  | $ | 800 |  |  | $ | 587 |  |  |  | 30 | %

The following table sets forth the stock-based compensation expense included in the above line items (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Stock-based compensation expense |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales |  | $ | 492 |  |  | $ | 16 |  |  |  | 2975 | %
Sales and marketing |  |  | 439 |  |  |  | 575 |  |  |  | -24 | %
Product development |  |  | 517 |  |  |  | 693 |  |  |  | -25 | %
General and administrative |  |  | 1,244 |  |  |  | 1,651 |  |  |  | -25 | %
Total stock-based compensation expense |  | $ | 2,692 |  |  | $ | 2,935 |  |  |  | -8 | %

The following table sets forth our results of operations, as a percentage of revenue, for the periods presented:

|  | Three Months Ended December 31, |
|  | 2020 |  |  | 2019 |
Revenue |  |  | 100 | % |  |  | 100 | %
Operating expenses |  |  |  |  |  |  |  |
Cost of sales |  |  | 76 | % |  |  | 79 | %
Sales and marketing |  |  | 16 | % |  |  | 14 | %
Product development |  |  | 13 | % |  |  | 28 | %
General and administrative |  |  | 27 | % |  |  | 46 | %
Amortization of intangible assets |  |  | 7 | % |  |  | 14 | %
Total operating expenses |  |  | 140 | % |  |  | 182 | %
Loss from operations |  |  | -39 | % |  |  | -82 | %
Other income (expense) |  |  | -6 | % |  |  | -9 | %
Loss before income taxes |  |  | -46 | % |  |  | -91 | %
Income tax provision |  |  | - | % |  |  | - | %
Net loss |  |  | -46 | % |  |  | -91 | %

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Revenue

Revenue was as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Subscription services |  | $ | 8,346 |  |  | $ | 9,115 |  |  |  | -8 | %
Advertising |  |  | 7,710 |  |  |  | 540 |  |  |  | 1,328 | %
Sponsorship and licensing |  |  | 2,087 |  |  |  | 44 |  |  |  | 4,643 | %
Merchandising |  |  | 796 |  |  |  | - |  |  |  | 100 | %
Ticket/Event |  |  | 184 |  |  |  | - |  |  |  | 100 | %
Total Revenue |  | $ | 19,123 |  |  | $ | 9,699 |  |  |  | 97 | %

Subscription Services Revenue

Subscription services revenue decreased to $8.3 million during the three months ended December 31, 2020 as compared to $9.1 million during the three months ended December 31, 2019, a decrease of $0.8 million or 8% primarily as a result of certain subscribers subject to a contractual dispute.

Advertising Revenue

Advertising revenue increased to $7.7 million during the three months ended December 31, 2020, as compared to $0.5 million during the three months ended December 31, 2019, an increase of $7.2 million or 1,328% due to the acquisition of PodcastOne on July 1, 2020.

Sponsorship and Licensing

Sponsorship and licensing revenue increased to $2.1 million from less than $0.1 million for the three months ended December 31, 2020, as compared to the three months ended December 31, 2019, there was less than $0.1 million comparable revenue in the prior year period. The increase was primarily due to 62 events livestreamed by us during the three months ended December 31, 2020 as compared to 8 events livestreamed during the prior year comparable period, and by additional sponsorship deals associated with our digital livestream offerings.

Merchandising

Merchandising revenue increased to $0.8 million from $0 million for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019, due to the acquisition of CPS on December 22, 2020.

Cost of Sales

Cost of sales was as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Subscription |  | $ | 4,381 |  |  | $ | 4,650 |  |  |  | -6 | %
Advertising |  |  | 5,695 |  |  |  | 1,658 |  |  |  | 243 | %
Production |  |  | 4,109 |  |  |  | 1,330 |  |  |  | 209 | %
Merchandising |  |  | 379 |  |  |  | - |  |  |  | 100 | %
Total Cost of Sales |  | $ | 14,564 |  |  | $ | 7,638 |  |  |  | 91 | %

Subscription

Subscription cost of sales decreased $0.3 million, or 6%, to $4.4 million for the three months ended December 31, 2020, as compared to $4.7 million for the three months ended December 31, 2019. The decrease was in line with the lower subscription revenues noted above.

Advertising

Advertising cost of sales increased $4.0 million, or 243%, to $5.7 million for the three months ended December 31, 2020, as compared to $1.7 million for the three months ended December 31, 2019. The increase was primarily due to the acquisition of PodcastOne on July 1, 2020.

15

Production

Production cost of sales increased $2.8 million, or 209%, to $4.1 million for the three months ended December 31, 2020, as compared to $1.3 million for the three months ended December 31, 2019. The increase was primarily due to the increase in events livestreamed by us and our podcast production during the three months ended December 31, 2020 as compared to the prior year comparable period.

Merchandising

Merchandising cost of sales increased to $0.4 million from $0 million for the three months ended December 31, 2020 as compared to the three months ended December 31, 2019, due to the acquisition of CPS on December 22, 2020.

Other Operating Expenses

Other operating expenses were as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Sales and marketing expenses |  | $ | 3,059 |  |  | $ | 1,391 |  |  |  | 120 | %
Product development |  |  | 2,534 |  |  |  | 2,754 |  |  |  | -8 | %
General and administrative |  |  | 5,162 |  |  |  | 4,473 |  |  |  | 15 | %
Amortization of intangible assets |  |  | 1,399 |  |  |  | 1,355 |  |  |  | 3 | %
Total Other Operating Expenses |  | $ | 12,154 |  |  | $ | 9,973 |  |  |  | 22 | %

Sales and Marketing Expenses

Sales and marketing expenses increased $1.7 million, or 120% to $3.1 million for the three months ended December 31, 2020, as compared to $1.4 million for the three months ended December 31, 2019. The increase of $1.7 million was largely due to the inclusion of PodcastOne during the three months ended December 31, 2020, as compared to the three months ended December 31, 2019.

Product Development

Product development expenses decreased $0.2 million, or 8%, to $2.5 million for the three months ended December 31, 2020, as compared to $2.8 million for the three months ended December 31, 2019. The decrease of $0.2 million was largely due to decreased personnel-related expenses during the three months ended December 31, 2020, as compared to the three months ended December 31, 2019.

General and Administrative

General and administrative expenses increased $0.7 million, or 15%, to $5.2 million for the three months ended December 31, 2020, as compared to $4.5 million for the three months ended December 31, 2019. The increase was primarily due to the inclusion of PodcastOne during the quarter ended December 31, 2020.

Total Other Income (Expense)

Total other income (expense) was as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Total other income (expense), net |  | $ | (1,136 | ) |  | $ | (896 | ) |  |  | -27 | %

Total other expense increased $0.2 million to $1.1 million for the three months ended December 31, 2020, as compared to $(0.9) million for the three months ended December 31, 2019. The increase was primarily due to change in fair value of bifurcated embedded derivatives. The balances primarily represent interest expense related to senior secured convertible debentures, senior secured convertible notes, non-secured convertible notes, amortization of debt discounts and late fees on outstanding payables.

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Nine Months Ended December 31, 2020, as compared to Nine Months Ended December 31, 2019

The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results (in thousands):

|  | Nine Months Ended December 31, |  |  | Nine Months Ended December 31, |
|  | 2020 |  |  | 2019 |
Revenue: |  | $ | 44,189 |  |  | $ | 28,780 |
Operating expenses: |  |  |  |  |  |  |  |
Cost of sales |  |  | 32,524 |  |  |  | 25,104 |
Sales and marketing |  |  | 6,481 |  |  |  | 5,202 |
Product development |  |  | 6,908 |  |  |  | 7,682 |
General and administrative |  |  | 14,762 |  |  |  | 14,401 |
Amortization of intangible assets |  |  | 4,057 |  |  |  | 4,497 |
Total operating expenses |  |  | 64,732 |  |  |  | 56,886 |
Loss from operations |  |  | (20,543 | ) |  |  | (28,106 | )
Other income (expense): |  |  |  |  |  |  |  |
Interest expense, net |  |  | (4,097 | ) |  |  | (2,700 | )
Loss on extinguishment of debt |  |  | (1,488 | ) |  |  | - |
Other income (expense) |  |  | (320 | ) |  |  | 413 |
Total other income (expense) |  |  | (5,905 | ) |  |  | (2,287 | )
Loss before provision for income taxes |  |  | (26,448 | ) |  |  | (30,393 | )
Provision for income taxes |  |  | 4 |  |  |  | - |
Net loss |  | $ | (26,452 | ) |  | $ | (30,393 | )
Net loss per share – basic and diluted |  | $ | (0.40 | ) |  | $ | (0.55 | )
Weighted average common shares – basic and diluted |  |  | 66,880,417 |  |  |  | 55,390,589 |

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The following table provides the depreciation expense included in the above line items (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Depreciation expense |  |  |  |  |  |  |  |  |
Sales and marketing |  | $ | 157 |  |  | $ | 134 |  |  |  | 17 | %
Product development |  |  | 1,634 |  |  |  | 1,393 |  |  |  | 17 | %
General and administrative |  |  | 520 |  |  |  | 133 |  |  |  | 291 | %
Total depreciation expense |  | $ | 2,311 |  |  | $ | 1,660 |  |  |  | 39 | %

The following table provides the stock-based compensation expense included in the above line items (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Stock-based compensation expense |  |  |  |  |  |  |  |  |
Cost of sales |  | $ | 614 |  |  | $ | 59 |  |  |  | 941 | %
Sales and marketing |  |  | 1,641 |  |  |  | 1,780 |  |  |  | -8 | %
Product development |  |  | 1,271 |  |  |  | 1,490 |  |  |  | -15 | %
General and administrative |  |  | 4,507 |  |  |  | 5,483 |  |  |  | -18 | %
Total stock-based compensation expense |  | $ | 8,033 |  |  | $ | 8,812 |  |  |  | -9 | %

The following table provides our results of operations, as a percentage of revenue, for the periods presented:

|  | Nine Months Ended December 31, |
|  | 2020 |  |  | 2019 |
Revenue |  |  | 100 | % |  |  | 100 | %
Operating expenses |  |  |  |  |  |  |  |
Cost of sales |  |  | 74 | % |  |  | 87 | %
Sales and marketing |  |  | 15 | % |  |  | 18 | %
Product development |  |  | 16 | % |  |  | 27 | %
General and administrative |  |  | 33 | % |  |  | 50 | %
Amortization of intangible assets |  |  | 9 | % |  |  | 16 | %
Total operating expenses |  |  | 146 | % |  |  | 198 | %
Loss from operations |  |  | -46 | % |  |  | -98 | %
Other income (expense) |  |  | -13 | % |  |  | -8 | %
Loss before income taxes |  |  | -60 | % |  |  | -106 | %
Income tax provision |  |  | - | % |  |  | - | %
Net loss |  |  | -60 | % |  |  | -106 | %

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Revenue

Revenue was as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Subscription services |  | $ | 24,948 |  |  | $ | 26,665 |  |  |  | -6 | %
Advertising |  |  | 13,453 |  |  |  | 1,814 |  |  |  | 642 | %
Sponsorship and licensing |  |  | 3,466 |  |  |  | 301 |  |  |  | 1051 | %
Merchandising |  |  | 796 |  |  |  | - |  |  |  | 100 | %
Ticket/Event |  |  | 1,526 |  |  |  | - |  |  |  | 100 | %
Total Revenue |  | $ | 44,189 |  |  | $ | 28,780 |  |  |  | 54 | %

Subscription Services Revenue

Subscription services revenue decreased $1.7 million, or 6%, during the nine months ended December 31, 2020, to $24.9 million as compared to $26.7 million during the nine months ended December 31, 2019, primarily as a result of certain subscribers subject to a contractual dispute.

Advertising Revenue

Advertising revenue increased to $13.5 million during the nine months ended December 31, 2020, as compared to $1.8 million during the nine months ended December 31, 2019, an increase of $11.6 million, or 642%, primarily due to the acquisition of PodcastOne on July 1, 2020.

Sponsorship and licensing

Sponsorship and licensing revenue increased $3.2 million from $0.3 million for the nine months ended December 31, 2019 to $3.5 million for the nine months ended December 31, 2020. The increase was primarily due to more events livestreamed by us during the three months ended December 31, 2020 as compared to the number of events livestreamed during the prior year comparable period, and by additional sponsorship deals associated with our digital livestream offerings.

Merchandising

Merchandising revenue increased to $0.8 million from $0 million for the nine months ended December 31, 2020 as compared to the nine months ended December 31, 2019, due to the acquisition of CPS on December 22, 2020.

Ticket/Event Revenue

Ticket/Event revenue increased $1.5 million to $1.5 million for the nine months ended December 31, 2020, as compared to $0 for the nine months ended December 31, 2019. The increase was due to the roll-out of PPV on our platform in May 2020 with no comparable revenue in the same period in the prior year.

Cost of Sales

Cost of sales was as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Subscription |  | $ | 15,620 |  |  | $ | 17,270 |  |  |  | -10 | %
Advertising |  |  | 9,943 |  |  |  | 1,684 |  |  |  | 490 | %
Production |  |  | 6,582 |  |  |  | 6,150 |  |  |  | 7 | %
Merchandising |  |  | 379 |  |  |  | - |  |  |  | 100 | %
Total Cost of Sales |  | $ | 32,524 |  |  | $ | 25,104 |  |  |  | 30 | %

Subscription

Subscription cost of sales decreased $1.7 million, or 10%, to $15.6 million for the nine months ended December 31, 2020, as compared to $17.3 million for the nine months ended December 31, 2019. The decrease was in line with the lower subscription revenues noted above.

19

Advertising

Advertising cost of sales increased $8.3 million, or 490%, to $9.9 million for the nine months ended December 31, 2020, as compared to $1.7 million for the nine months ended December 31, 2019. The increase was primarily due to the acquisition of PodcastOne on July 1, 2020.

Production

Production cost of sales increased $0.4 million, or 7%, to $6.6 million for the nine months ended December 31, 2020, as compared to $6.2 million for the nine months ended December 31, 2019. The increase was largely due to the increase in events and podcast production during the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019.

Merchandising

Merchandising cost of sales increased to $0.4 million from $0 million for the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019, due to the acquisition of CPS on December 22, 2020.

Other Operating Expenses

Other operating expenses were as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Sales and marketing expenses |  | $ | 6,481 |  |  | $ | 5,202 |  |  |  | 25 | %
Product development |  |  | 6,908 |  |  |  | 7,682 |  |  |  | -10 | %
General and administrative |  |  | 14,762 |  |  |  | 14,401 |  |  |  | 3 | %
Amortization of intangible assets |  |  | 4,057 |  |  |  | 4,497 |  |  |  | -10 | %
Total Other Operating Expenses |  | $ | 32,208 |  |  | $ | 31,782 |  |  |  | 21 | %

Sales and Marketing Expenses

Sales and marketing expenses increased $1.3 million, or 25%, to $6.5 million for the nine months ended December 31, 2020, as compared to $5.2 million for the nine months ended December 31, 2019. The $1.3 million increase was largely due to the inclusion of PodcastOne during the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019.

Product Development

Product development expenses decreased $0.8 million, or 10%, to $6.9 million for the nine months ended December 31, 2020, as compared to $7.7 million for the nine months ended December 31, 2019. The decrease of $0.8 million was largely due to decreased personnel-related expenses during the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019.

General and Administrative

General and administrative expenses increased $0.4 million, or 3%, to $14.8 million for the nine months ended December 31, 2020, as compared to $14.4 million for the nine months ended December 31, 2019. The increase was primarily due to the inclusion of PodcastOne during the nine months ended December 31, 2020, as compared to the nine months ended December 31, 2019, and decreased non-recurring legal fees, the vast majority of which is to support legal defense costs related to a prior period asset acquisition.

Amortization of Intangible Assets

Amortization of intangible assets decreased by $0.4 million, or 10%, to $4.1 million for the nine months ended December 31, 2020, as compared to $4.5 million for the nine months ended December 31, 2019. The decrease was primarily due to certain customer relationships fully amortized in prior periods thus resulting in further reductions of amortization.

20

Total Other Income (Expense)

Total other income (expense) was as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2020 |  |  | 2019 |  |  | % Change |
Total other income (expense), net |  | $ | (5,905 | ) |  | $ | (2,287 | ) |  |  | 158 | %

Total other expense increased $3.6 million to $5.9 million for the nine months ended December 31, 2020, as compared to $2.3 million for the nine months ended December 31, 2019. The increase was primarily due to a $1.5 million loss from extinguishment of debt and $0.9 million of interest accrued in connection with such extinguishment in the current year period not in the comparable prior year period, and a $0.7 million prepayment penalty for the repayment of the convertible debentures in the current year period not in the comparable prior year period. The balances primarily represent interest expense related to senior secured convertible notes, non-secured convertible notes, amortization of debt discounts and late fees on outstanding payables.

Liquidity and Capital Resources

Current Financial Condition

As of December 31, 2020, our principal sources of liquidity were our cash and cash equivalents in the amount of $17.6 million, which includes $0.2 million of restricted cash, and are invested in cash in banking institutions in the U.S. The vast majority of our cash proceeds were received as a result of the issuance of our convertible notes since 2014 (including in fiscal years 2020 and 2021), public offerings, bank debt financing in fiscal year 2018 and the Debentures financing in June 2018 and February 2019. As of December 31, 2020, we had notes payable balance of $3.0 million, in secured convertible notes with aggregate principal amount of $15.0 million and unsecured convertible notes with aggregate principal balances of $7.6 million.

As of December 31, 2020 and March 31, 2020, we had an outstanding note payable of $0.3 million issued in connection with certain professional services performed for us through March 2015, and outstanding unsecured convertible notes (the “Trinad Notes”) of $5.3 million in principal and accrued interest, issued to Trinad Capital Master Fund Ltd. (“Trinad Capital”), a fund controlled by Mr. Ellin, our Chief Executive Officer, Chairman, director and principal stockholder. As of December 31, 2020, the Trinad Notes were classified as a noncurrent liability on the Company’s balance sheet as a result of entering into an Amendment of Notes Agreement (the “Amendment Agreement”) with Trinad Capital on January 11, 2021, pursuant to which the maturity dates of all of the Trinad Notes were extended to May 31, 2022.

As reflected in our condensed consolidated financial statements included elsewhere in this Quarterly Report, we have a history of losses and incurred a net loss of $26.5 million and used cash of $8.7 million from operating activities for the nine months ended December 31, 2020 and had a working capital deficiency of $8.2 million as of December 31, 2020. These factors, among others, raise substantial doubt about our ability to continue as a going concern within one year from the date that the financial statements are issued. Our 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 we be unable to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to execute our strategy and on our ability to raise additional funds through the sale of equity and/or debt securities via public and/or private offerings.

Our long-term ability to continue as a going concern is dependent upon our ability to increase revenue, reduce costs, achieve a satisfactory level of profitable operations, and obtain additional sources of suitable and adequate financing. Our ability to continue as a going concern is also dependent its ability to further develop and execute on our business plan. We 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.

On August 31, 2020, we fully repaid the senior secured convertible debentures. In connection with such repayment, all of the agreements among us, our subsidiary guarantors and the senior lenders and their collateral agent were terminated, provided, that our indemnification obligations in the Securities Purchase Agreement, dated as of June 20, 2018, as amended, between us and the senior lenders survive on the terms therein. Additionally, a prepayment penalty of 8% was paid on repayment of the senior secured convertible debentures in the amount of $0.7 million as interest expense in the Statement of Operations.

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On July 25, 2019, we completed a registered offering with certain institutional investors pursuant to which we sold 5,000,000 shares of our common stock at a price per share of $2.10 to such investors (the “2019 Offering”). The gross proceeds of the 2019 Offering to us were $10.5 million. The net proceeds of the 2019 Offering to us were approximately $9.5 million, after deducting placement agent fees and other estimated offering expenses payable by us. The use of these proceeds was for redemption of our senior secured convertible debentures, working capital needs and general corporate purposes, including without limitation future acquisitions, purchases of outstanding warrants and capital expenditures. The 2019 Offering was made pursuant to our existing shelf Registration Statement on Form S-3 (File No. 333-228909), which was filed with the SEC on December 19, 2018 and went effective on February 7, 2019, and a prospectus supplement relating to the 2019 Offering, which was filed with the SEC on July 26, 2019.

Our cash flows from operating activities are significantly affected by our cash-based investments in our operations, including acquiring live music events and festivals rights, our working capital, and corporate infrastructure to support our ability to generate revenue and conduct operations through cost of services, product development, sales and marketing and general and administrative activities. Cash used in investing activities has historically been, and is expected to be, impacted significantly by our investments in business combinations, our platform, our infrastructure and equipment for our business offerings, and sale of our investments. We expect to make additional strategic acquisitions to further grow our business, which may require significant investments, capital raising and/or acquisition of additional debt in the near and long term. Over the next twelve to eighteen months, our net use of our working capital could be substantially higher or lower depending on the number and timing of new live festivals and paid subscribers that we add to our businesses.

Subject to applicable limitations in the instruments governing our outstanding indebtedness, we may from time to time repurchase our debt, including the unsecured convertible notes, in the open market, through tender offers, through exchanges for debt or equity securities, in privately negotiated transactions or otherwise.

In September 2019, we issued to one of our Music Partners $0.4 million in restricted shares of our common stock, at a price of approximately $4.51 per share, as full payment of certain amounts due under such agreement.

In February 2020, we acquired React Presents in exchange for $2.0 million in convertible debt. The convertible debt has a term of 2 years, bears interest at 8% per year and has a conversion price of $4.50 per share.

In April 2020, we received approximately $2.0 million pursuant to the PPP promulgated under the CARES Act (the “PPP Loan”). The PPP Loan matures on April 13, 2022 and bears interest at a rate of 1% per annum. Commencing in November 2020, we are required to pay the lender equal monthly payments of principal and interest as required to fully amortize by the maturity date the principal amount outstanding on the PPP Loan as of such date. All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon our application and upon documentation of expenditures in accordance with the SBA requirements. While we intend to apply for the forgiveness of the PPP Loan, there is no assurance that we will obtain forgiveness of the PPP Loan in whole or in part. We used the proceeds from the PPP Loan for qualifying expenses and intend to apply for forgiveness of the loan.

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In June 2020, we entered into a new two-year license agreement with a certain Music Partner which owns and license rights to Slacker to certain sound recordings. Pursuant to this agreement, we agreed to certain minimum yearly guarantee payments and issued 264,000 shares of our common stock so such Music Partner in consideration of all payments due to the Music Partner prior the date of the agreement.

On July 1, 2020, we acquired PodcastOne and the $0.5 million PPP loan originally obtained by PodcastOne is currently outstanding. Monthly payments including principle and interest begin 12 months from the date of the promissory note April 26, 2020. The balance is payable 2 years from the date of the promissory note, and bears interest at a rate of 1% per annum. While we intend to apply for the forgiveness of the loan, there is no assurance that we will obtain forgiveness of the loan in whole or in part.

In July 2020, we completed a registered offering with an existing institutional investor, another investor and a music partner pursuant to which we sold 1,820,000 shares of our common stock to the investors for gross proceeds of $7.5 million and issued 2,415,459 shares of our common stock to partially satisfy a $10.0 million vendor payment obligation to such music partner, each at a price of $4.14 per share (the “July 2020 Offering”). The July 2020 Offering was made pursuant to our existing shelf Registration Statement on Form S-3 (File No. 333-228909).

On August 31, 2020, we fully repaid the Debentures. In connection with such repayment, all of the agreements among us, our subsidiary guarantors and the senior lenders and their collateral agent were terminated, provided, that our indemnification obligations in the Securities Purchase Agreement, dated as of June 20, 2018, as amended, between us and the senior lenders survive on the terms therein. Additionally, a prepayment penalty of 8% was paid on repayment of the Debentures in the amount of $0.7 million as interest expense in the accompanying condensed consolidated statement of operations.

Effective as of September 15, 2020, we completed the sale and issuance of our Senior Notes in the aggregate principal amount of $15.0 million to designees of a certain existing institutional investor, for cash gross proceeds of $15.0 million. The Senior Notes mature on September 15, 2022, accrue interest at 8.5% per year with interest is payable quarterly in cash in arrears, and are convertible into shares of our common stock at a conversion price of $4.50 per share at the holder’s option, subject to certain customary adjustments such as stock splits, stock dividends and stock combinations.

On January 11, 2021, we entered into an additional Amendment of Notes Agreement (the “Third Amendment Agreement”) with Trinad Capital pursuant to which the maturity dates of all of the Trinad Notes were extended to May 31, 2022, and in consideration of such extension, the interest rate payable under such notes increased to 8.5%, and we agreed to issue to Trinad Capital 280,000 shares of our common stock. We may not redeem the any of the Trinad Notes prior to May 31, 2022 without Trinad Capital’s consent.

Sources and Uses of Cash

The following table provides information regarding our cash flows for the nine months ended December 31, 2020 and 2019 (in thousands):

|  | Nine Months Ended December 31, |
|  | 2020 |  |  | 2019 |
Net cash used in operating activities |  | $ | (8,689 | ) |  | $ | (5,368 | )
Net cash provided by (used in) investing activities |  |  | 189 |  |  |  | (1,755 | )
Net cash provided by financing activities |  |  | 13,651 |  |  |  | 7,384 |
Net change in cash, cash equivalents and restricted cash |  | $ | 5,151 |  |  | $ | 261 |

Cash Flows Used In Operating Activities

For the nine months ended December 31, 2020

Net cash used in our operating activities of $8.7 million primarily resulted from our net loss during the period of ($26.5) million, which included non-cash charges of $16.2 million largely comprised of the accretion of our debt discount on our unsecured convertible notes, depreciation and amortization, change in fair value of embedded derivatives, loss on extinguishment of debt and stock-based compensation. The remainder of our sources of cash used in operating activities of $1.6 million was from changes in our working capital, primarily from timing of accounts payable and accrued expenses, accounts receivable, prepaid expenses and other current assets and other long term liabilities.

For the nine months ended December 31, 2019

Net cash used in our operating activities of ($5.4) million primarily resulted from our net loss during the period of ($30.4) million, which included non-cash charges of $15.7 million largely comprised of the accretion of our debt discount on our unsecured convertible notes, depreciation and amortization, interest paid in kind, change in fair value of embedded derivatives and stock-based compensation. The remainder of our sources of cash provided by operating activities of $9.3 million was from changes in our working capital, including $0.6 million from timing of accounts receivable, ($0.4) million in prepaid expenses and other assets and $9.1 million from timing of accounts payable, accrued expenses and other long-term liabilities.

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Cash Flows Used In Investing Activities

For the nine months ended December 31, 2020

Net cash provided by investing activities of $0.2 million was primarily due to $2.4 million of cash acquired from the stock purchase of PodcastOne and CPS, net of ($2.2) million cash used for the purchase of capitalized internally developed software costs during the nine months ended December 31, 2020.

For the nine months ended December 31, 2019

Net cash used in investing activities of $(1.8) million was principally due to the ($1.8) million cash used for the purchase of capitalized internally developed software costs during the nine months ended December 31, 2019.

Cash Flows Provided by Financing Activities

For the nine months ended December 31, 2020

Net cash provided by financing activities of $13.7 million was primarily due to $13.1 million of proceeds from secured convertible notes net of ($10.8) million to repay the senior secured debentures, $9.0 million proceeds from the issuance of shares of common stock, $2.1 million proceeds from notes payable and $0.5 million proceeds from exercises of stock options.

For the nine months ended December 31, 2019

Net cash provided by financing activities of $7.4 million primarily due to net proceeds of $9.5 million from the registered public offering, partially offset by repayment of Debentures of $2.0 million and amendment costs of Debentures of $0.2 million.

Debt Covenants

Our Senior Notes contain a number of restrictions that, among other things, restrict our and our subsidiaries’ ability to incur additional secured or guaranteed debt, repurchase our stock and prepay certain indebtedness, enter into agreements with affiliates, modify the nature of our business, transfer and sell material assets, merge or consolidate, and pay dividends and make distributions (with the exception of subsidiary dividends or distributions to the parent company or other subsidiaries on at least a pro-rata basis with any noncontrolling interest partners) and require us to maintain on deposit in one or more of our bank accounts the required amount of free cash. Non-compliance with one or more of these restrictions could result in the full or partial principal balance of the Senior Notes becoming immediately due and payable.

As of December 31, 2020, we were in full compliance with these covenants.

Contractual Obligations and Commitments

During the three months ended December 31, 2020, we have entered into new licenses, production and/or distribution agreements for digital broadcast rights across certain events. These new agreements have not added any future minimum commitments for the fiscal year 2021, or for the fiscal year ending March 31, 2022.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not required for smaller reporting companies.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.

As of the end of the period covered by this Quarterly Report, we carried out an evaluation (the “Evaluation”), under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, as a result of the material weaknesses identified in our 2020 Form 10-K along with a material weakness identified at December 31, 2020, the Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were not effective. The following material weakness was identified as of December 31, 2020: our controls over business combinations were not operating effectively to allow management to timely identify errors related to the recording of those transactions. Specifically, we did not have sufficient technical resources to appropriately identify errors in the accounting and classification of consideration transferred in a business combination.

Limitations of Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to reasonably ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well designed and operated, can provide only reasonable assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.

Changes in Internal Control over Financial Reporting

We continue to be in the process of implementing changes, as more fully described in our 2020 Form 10-K, to our internal control over financial reporting to remediate the material weaknesses as described in our 2020 Form 10-K.

During the quarter ended December 31, 2020, we identified an additional material weakness in internal control described above in further detail. Further, during the current quarter, we continued the process of integrating the operations of PodcastOne and began integration the operations of CPS into our control environment. Certain transaction cycles have been migrated to existing processes and controls. We are in the processes of evaluating the design and operating effectiveness of controls in place around new transaction cycles and will implement any remediations if necessary. Other than this, there have been no changes in our internal control over financial reporting, during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

CEO and CFO Certifications

Exhibits 31.1 and 31.2 to this Quarterly Report are the Certifications of our Chief Executive Officer and the Chief Financial Officer, respectively. These Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act (the “Section 302 Certifications”). This Item 4 of this Quarterly Report, which you are currently reading, is the information concerning the Evaluation referred to above and in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. Other than as set forth below, we are not aware of any other pending material legal proceedings.

On February 8, 2018, Wynn Las Vegas, LLC (“Wynn”) filed a claim in the District Court, Clark County, Nevada against LXL Tickets claiming total damages in excess of $0.6 million (the “Wynn Claim Amount”) as a result of alleged breach of contract, breach of covenant of good faith and fair dealing and unjust enrichment with respect to that certain Second Amendment and Extension of the Wantickets.com Presale Agreement entered into by and between Wantickets and Wynn on or about December 31, 2016 (the “Wantickets-Wynn Agreement”). In connection with this action, on June 21, 2017, Wynn filed suit in the Eighth Judicial District Court, Clark County, Nevada against RNG Tickets, LLC (d/b/a Wantickets) and Wantickets. That litigation is still pending and active. RNG Tickets has not filed a responsive pleading in the case and Wantickets RDM has defaulted. The Company believes that Wynn’s position is that LXL Tickets acquired Wantickets, including Wantickets’ obligations under the Wantickets-Wynn Agreement (and not just certain assets and liabilities of Wantickets), and as such LXL Tickets should be liable to Wynn for the Wynn Claim Amount pursuant to the Wantickets-Wynn Agreement. The Company further believes that this action against LXL Tickets is without merit and intends to vigorously defend itself against any obligations or liability to Wynn with respect to such claims. In October 2018, pursuant to the terms of the APA (as defined below), 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 April 2019, the parties agreed to informally stay the proceeding for the time being and extend discovery deadlines. On March 27, 2020, Wynn filed an amended complaint adding Schnaier, Danco and Gamtix, LLC (parties unrelated to the Company) as additional defendants in this matter. On July 29, 2020, Wynn submitted a written discovery request to LXL Tickets in this matter. Currently, the discovery proceedings are continuing and the Company is cooperating with Wynn’s discovery request, subject to standard objections. As of December 31, 2020, the potential range of loss related to this matter was not material.

In March 2018, Manatt Phelps & Phillips, LLP (“Manatt”) served the Company with a complaint filed on February 22, 2018 in the Supreme Court of the State of California County of Los Angeles against the Company. The complaint alleges, among other things, breach of contract and breach of promissory note. Plaintiff is seeking damages of $0.2 million, plus interest, attorneys’ fees and costs and other such relief as the court may award. On April 12, 2018, the Company filed an answer that generally denied all the claims in the complaint. On February 19, 2019, in connection with the settlement of the plaintiff’s Delaware action (as discussed below), the parties settled this matter agreeing that the Company would repay this note and accrued interest in full by June 30, 2019. Such settlement was approved by the court on March 4, 2019, and the plaintiff dismissed this action against the Company without prejudice. No additional consideration was paid by the Company to the plaintiff related to this settlement. At December 31, 2020, the promissory note has not been paid and is currently past due.

On October 11, 2018, Manatt filed a complaint in the Court of Chancery of the State of Delaware against the Company alleging that we have improperly refused to remove the restrictive legend from the shares of the Company’s common stock owned by the plaintiff (the “Manatt DE Action”). Plaintiff is seeking declaratory judgment that all of the statutory prerequisites for removal of the restrictive legend have been met and injunctive relief requiring us to remove such restrictive legend, plus damages and losses suffered by the plaintiff as a result of our alleged conduct, including interest, attorneys’ fees and costs and other such relief as the court may award. On February 19, 2019, the parties entered into a settlement agreement and agreed to release each other from all claims and damages relating to this matter, pending the repayment by the Company of the promissory note discussed above by June 30, 2019 and the sale of such shares by Manatt in compliance with such order. The parties further agreed that within three days after the later of (i) Manatt’s sale of all of their shares pursuant to the court’s order in compliance therewith, and (ii) the note repayment by such due date, Manatt would dismiss this Delaware action and the California action with prejudice. Such settlement was approved by the court on March 4, 2019. Other than the repayment of the note and accrued interest in full, no additional consideration was paid by the Company to the plaintiff related to this settlement. Pursuant to the terms of the settlement agreement, as a result of the note due to Manatt described above having not been paid as of June 30, 2019 and is currently being past due, in August 2019, Manatt obtained a judgement in the Court of Chancery of the State of Delaware against the Company for the amount of $0.3 million, which represents principal and all accrued and unpaid interest on the note through July 5, 2019. The judgement amount will continue to accrue interest at the 6% applicable rate from July 6, 2019 through the date of the judgment’s satisfaction in full. In September 2019, Manatt obtained a related sister-state judgement in the Superior Court of California, County of Los Angeles against the Company for the same amount. In December 2019, Manatt obtained a judgement lien with the Secretary of State of California related to such California sister-state judgment.

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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 each of the Company, LXL Tickets, Robert S. Ellin, Alec Ellin, Blake Indursky and Computershare Trust Company, N.A. (“Computershare”). Plaintiffs subsequently voluntarily dismissed all claims against Alec Ellin, and Blake Indursky and Computershare. The complaint alleged multiple causes of action arising out of Schnaier’s investment (through Danco) of $1.3 million into the Company in 2016, the Company’s 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. Plaintiffs seek monetary damages and injunctive relief. Plaintiffs have also sued Computershare for negligence and for injunctive relief relating to the refusal to transfer certain restricted shares of the Company’s common stock owned by the plaintiffs, which claims have been dismissed. Based on the remaining claims, Plaintiffs are seeking injunctive relief, damages, if any, 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 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 the Company 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. The parties are currently engaged in pre-trial proceedings, including continuing discovery efforts with the trial not expected to commence, if any, until the Company’s fiscal year ending March 31, 2022 (unless further delayed as a result of the COVID-19 pandemic). 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. As of December 31, 2020, all of plaintiffs’ claims other than fraudulent inducement have been dismissed or addressed by the parties or the court, subject to plaintiffs currently appealing the dismissal of the breach of the implied covenant of good faith and fair dealing claims related to Mr. Schnaier’s employment agreement with LXL Tickets. On November 10, 2020, the Appellate Division affirmed the dismissal court of appeals of the plaintiffs’ claims for granting the Company’s motion to dismiss plaintiff’s breach of the implied covenant of good faith and fair dealing claims concerning Mr. Schnaier’s employment agreement. As of December 31, 2020, all of plaintiffs’ claims other than fraudulent inducement and breach of the employment agreement have been dismissed or addressed by the parties or the court. The Company intends to continue to vigorously defend all defendants against any liability to the plaintiffs with respect to the remaining claims. As of December 31, 2020, while the Company has assessed 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.

The Company intends to continue to vigorously defend all defendants against any liability to the plaintiffs with respect to such claims. As of December 31, 2020, while the Company has assessed 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 May 6, 2020, Xcellence, Inc. (dba Xact Data Discovery) filed a claim in the Los Angeles Superior Court against us claiming total damages of approximately of $0.6 million as a result of an alleged breach of contract and breach of warranty under the services agreement entered into between Xcellence and the Company. The Company was previously not made aware of this matter and as a result, on October 26, 2020, the court entered a default judgment against the Company in this matter. On November 13, 2020, the Company filed the motion to set aside the default judgement due to the default being improperly entered into as a result of the plaintiff failing to correctly serve the Company and the default was set aside in December 2020. In December, the Company also filed its answer to the complaint. The Company intends to vigorously defend it in this matter. As of December 31, 2020, the potential range of loss related to this matter was not material.

During each of the nine months ended December 31, 2020 and 2019, the Company recorded aggregate legal settlement expenses relating to potential claims arising in connection with litigation brought against the Company by certain third-parties of $0.1 million.

While the resolution of the above matters cannot be predicted with certainty, other than as set forth above the Company does not believe, based on current knowledge, that the outcome of the currently pending claims or legal proceedings in which the Company is currently involved will have a material adverse effect on the Company’s financial statements.

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Many of these proceedings may be at preliminary stages and/or seek an indeterminate amount of damages. We regularly evaluate the status of our commitments and contingencies in which we are involved to (i) assess whether a material loss is probable or there is at least a reasonable possibility that a material loss or an additional material loss in excess of a recorded accrual may have been incurred and (ii) determine if financial accruals are required when appropriate. We record an expense accrual for any commitments and loss contingency when it determines that a loss is probable and the amount of the loss can be reasonably estimated. If an expense accrual is not appropriate, we further evaluate each matter to assess whether an estimate of possible loss or range of loss can be made and whether or not any such matter requires additional disclosure. There can be no assurance that any proceeding against our Company will be resolved in amounts that will not differ from the amounts of estimated exposures. Legal fees and other costs of defending litigation are expensed as incurred.

Item 1A. Risk Factors.

We have set forth in Item 1A. Risk Factors in our 2020 Form 10-K, risk factors relating to our business and industry, our acquisition strategy, our company, our subsidiaries, our technology and intellectual property, and our common stock. Readers of this Quarterly Report are referred to such Item 1A. Risk Factors in our 2020 Form 10-K for a more complete understanding of risks concerning us. There have been no material changes in our risk factors since those published in our 2020 Form 10-K other than as set forth below.

Risks Related to Our Business and Industry

We rely on one key customer for a substantial percentage of our revenue. The loss of our largest customer or the significant reduction of business or growth of business from our largest customer could significantly adversely affect our business, financial condition and results of operations.

Our business is dependent, and we believe that it will continue to depend, on our customer relationship with Tesla, which accounted for 38% of our consolidated revenue for the nine months ended December 31, 2020, and 58% of our consolidated revenue for the nine months ended December 31, 2019. Our existing agreement with Tesla governs our music services to its car user base in North America, including our audio music streaming services. If we fail to maintain certain minimum service level requirements related to our service with Tesla or other obligations related to our technology or services, Tesla may terminate our agreement to provide them with such service. Tesla may also terminate our agreement for convenience at any time. If Tesla terminates our agreement, requires us to renegotiate the terms of our existing agreement or we are unable to renew such agreement on mutually agreeable terms, no longer makes our music services available to Tesla’s car user base, becomes a native music service provider, replaces our music services with one or more of our competitors and/or we experience a significant reduction of business from Tesla, our business, financial condition and results of operations would be materially adversely affected.

In addition, a significant amount of the subscription revenue we generate from Tesla is indirectly subsidized by Tesla to its customers, which Tesla is not committed to carry indefinitely, including the ability to terminate and/or change our music services for convenience at any time. Should our subscription revenue services no longer be subsidized by and/or made available by Tesla to its customers or if Tesla reclassifies or renegotiates with us the definition of a paid subscriber or demands credit for past subscribers that no longer meet such requirement, there can be no assurance that we will continue to maintain the same number of paid subscribers or receive the same levels of subscription service revenue and subscription revenue may substantially fluctuate accordingly. There is no assurance that we would be able to replace Tesla or lost business with Tesla with one or more customers that generate comparable revenue. Furthermore, there could be no assurance that our revenue from Tesla continues to grow at the same rate or at all. Any revenue growth will depend on our success in growing such customer’s revenues on our platform and expanding our customer base to include additional customers.

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Tesla has also integrated Spotify Premium to the car’s in-dash touchscreen for its Model S, Model X and Model 3 vehicles. Tesla owners now have access to our music streaming services, Spotify and TuneIn natively. There is no assurance that our music streaming services will be available in every current and/or future Tesla model. Furthermore, our current and future competitors like Spotify, Apple Music, Tesla (if it becomes a native music service provider) and others may have more well-established brand recognition, more established relationships with, and superior access to content providers and other industry stakeholders, greater financial, technical and other resources, more sophisticated technologies or more experience in the markets in which we compete. If we are unable to compete successfully for users against our competitors by maintaining and increasing our presence and visibility, the number of users of our network may fail to increase as expected or decline and our advertising sales, subscription fees and other revenue streams will suffer.

In addition, we have derived, and we believe that we will continue to derive, a substantial portion of our revenues from a limited number of other customers. Any revenue growth will depend on our success in growing our customers’ revenues on our platform and expanding our customer base to include additional customers. If we were to lose one or more of our key customers, there is no assurance that we would be able to replace such customers or lost business with new customers that generate comparable revenue, which would significantly adversely affect our business, financial condition and results of operations.

We have incurred significant operating and net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future; our auditors have included in their audit report for the fiscal year ended March 31, 2020 an explanatory paragraph as to substantial doubt as to our ability to continue as a going concern.

As reflected in our condensed consolidated financial statements included elsewhere herein, we have a history of losses, incurred significant operating and net losses in each year since our inception, including net losses of $26.5 million and $30.4 million for the nine months ended December 31, 2020 and 2019, respectively, and cash (provided by) used in operating activities of ($8.7) million and $5.4 million for the nine months ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of ($154.6) million and a working capital deficiency of ($8.2) million. We anticipate incurring additional losses until such time that we can generate significant increases to our revenues, and/or reduce our operating costs and losses. To date, we have financed our operations exclusively through the sale of equity and/or debt securities (including convertible securities). The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to significantly grow our business and increase our revenues. We expect to continue to incur substantial and increased expenses as we grow our business. We also expect a continued increase in our expenses associated with our operations as a publicly-traded company. We may incur significant losses in the future for a number of other reasons, including unsuccessful acquisitions, costs of integrating new businesses, expenses, difficulties, complications, delays and other unknown events. As a result of the foregoing, we expect to continue to incur significant losses for the foreseeable future and we may not be able to achieve or sustain profitability.

Our auditors have included in their audit report for the fiscal year ended March 31, 2020 a “going concern” explanatory paragraph raising substantial doubt as to our ability to continue as a going concern. Our ability to meet our total liabilities of $77.2 million as of December 31, 2020, and to continue as a going concern, is dependent on our ability to increase revenue, reduce costs, achieve a satisfactory level of profitable operations, obtain additional sources of suitable and adequate financing and further develop and execute on our business plan. We may never achieve profitability, and even if we do, we may not be able to sustain being profitable. As a result of the going concern uncertainty, there is an increased risk that you could lose the entire amount of your investment in our company, which assumes the realization of our assets and the satisfaction of our liabilities and commitments in the normal course of business.

We depend upon third-party licenses for most of the content we stream and an adverse change to, loss of, or claim that we do not hold any necessary licenses may materially adversely affect our business, operating results, and financial condition.

To secure the rights to stream content, we enter into license agreements to obtain licenses from rights holders such as record labels, aggregators, artists, music publishers, performing rights organizations, collecting societies, podcasters and podcast networks, and other copyright owners or their agents, and pay royalties or other consideration to such parties or their agents around the world. We cannot guarantee that our efforts to obtain all necessary licenses to stream content will be successful, nor that the licenses available to us now will continue to be available in the future at rates and on terms that are favorable or commercially reasonable or at all. The terms of these licenses, including the royalty rates that we are required to pay pursuant to them, may change as a result of changes in our bargaining power, the industry, laws and regulations, or for other reasons. Increases in royalty rates or changes to other terms of these licenses may materially impact our business, operating results, and financial condition.

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We enter into license agreements to obtain rights to stream sound recordings, including from the major record labels who hold the rights to stream a significant number of sound recordings, such as Universal Music Group, Sony Music Entertainment, and Warner Music Group, as well as others. If we fail to obtain these licenses, the size and quality of our catalog may be materially impacted and our business, operating results, and financial condition could be materially harmed.

We generally obtain licenses for two types of rights with respect to musical compositions: mechanical rights and public performance rights.

With respect to mechanical rights, in the United States, the rates we pay are, to a significant degree, a function of a ratemaking proceeding conducted by an administrative agency called the Copyright Royalty Board. The rates that the Copyright Royalty Board set apply both to compositions that we license under the compulsory license in Section 115 of the Copyright Act of 1976 (the “Copyright Act”), and to a number of direct licenses that we have with music publishers for U.S. rights, in which the applicable rate is generally pegged to the statutory rate set by the Copyright Royalty Board. The rates set by the Copyright Royalty Board are also subject to further change as part of any future Copyright Royalty Board proceedings. If any such rate change increases our content acquisition costs and impacts our ability to obtain content on pricing terms favorable to us, it could negatively harm our business, operating results, and financial condition and hinder our ability to provide interactive features in our services, or cause one or more of our services not to be economically viable.

In the United States, public performance rights are generally obtained through intermediaries known as performing rights organizations (“PROs”), which negotiate blanket licenses with copyright users for the public performance of compositions in their repertory, collect royalties under such licenses, and distribute those royalties to copyright owners. The royalty rates available to us today may not be available to us in the future. Licenses provided by two of these PROs, the American Society of Composers, Authors and Publishers (“ASCAP”) and Broadcast Music, Inc. (“BMI”), cover the majority of the music we stream and are governed by consent decrees relating to decades-old litigations. In 2019, the U.S. Department of Justice indicated that it was formally reviewing the relevance and need of these consent decrees. Changes to the terms of or interpretation of these consent decrees, up to and including the dissolution of the consent decrees, could affect our ability to obtain licenses from these PROs on reasonable terms, which could harm our business, operating results, and financial condition. In addition, an increase in the number of compositions that must be licensed from PROs that are not subject to the consent decrees, or from copyright owners that have withdrawn public performance rights from the PROs, could likewise impede our ability to license public performance rights on favorable terms.

With respect to podcasts and other non-music content, we produce or commission the content ourselves or obtain distribution rights directly from rights holders. In the former scenario, we employ various business models to create original content. In the latter scenario, we and/or Podcast One negotiates licenses directly with individuals that enable creators to post content directly to our service after agreeing to comply with the applicable terms and conditions. We are dependent on those who provide content on our service complying with the terms and conditions of our license agreements as well as the PodcastOne Terms and Conditions of Use (the “Terms and Conditions of Use”). However, we cannot guarantee that rights holders or content providers will comply with their obligations, and such failure to do so may materially impact our business, operating results, and financial condition.

There is also no guarantee that we have all of the licenses we need to stream content, as the process of obtaining such licenses involves many rights holders, some of whom are unknown, and myriad complex legal issues across many jurisdictions, including open questions of law as to when and whether particular licenses are needed. Additionally, there is a risk that rights holders, creators, performers, writers and their agents, or societies, unions, guilds, or legislative or regulatory bodies will create or attempt to create new rights or regulations that could require us to enter into license agreements with, and pay royalties to, newly defined groups of rights holders, some of which may be difficult or impossible to identify.

Even when we are able to enter into license agreements with rights holders, we cannot guarantee that such agreements will continue to be renewed indefinitely. For example, from time to time, our license agreements with certain rights holders and/or their agents expire while we negotiate their renewals and, per industry custom and practice, we may enter into brief (for example, month-, week-, or even days-long) extensions of those agreements or provisional licenses and/or continue to operate on an at will basis as if the license agreement had been extended, including by our continuing to make content available. During these periods, we may not have assurance of long-term access to such rights holders’ content, which could have a material adverse effect on our business and could lead to potential copyright infringement claims.

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It is also possible that such agreements will never be renewed at all. The lack of renewal, or termination, of one or more of our license agreements, or the renewal of a license agreement on less favorable terms, could have a material adverse effect on our business, operating results, and financial condition.

We generate a substantial portion of our revenues from podcast and advertising sales. If we fail to maintain or grow podcasting and advertising revenue, our financial results may be adversely affected.

For the nine months ended December 31, 2020, we generated $12.6 million of our revenues from podcasting and advertising services, representing 29% of our total revenues for the same period. Our financial results could be adversely affected if we fail to maintain or grow our podcasting and advertising revenue in the future. In addition, if we fail to collect our receivable balance from our key customers in our podcasting and advertising business, our financial results may be adversely affected.

We generate a substantial portion of our revenues from ecommerce merchandise sales. If we fail to maintain or grow ecommerce merchandise sales revenue, our financial results may be adversely affected.

For the nine months ended December 31, 2020, we generated $0.8 million of our revenues from ecommerce merchandise sales, representing 2% of our total revenues for the same period. Our financial results could be adversely affected if we fail to maintain or grow our ecommerce merchandise revenue in the future. In addition, if we fail to collect our receivables balance from our customers in our ecommerce merchandising business, our financial results may be adversely affected.

The COVID-19 pandemic is adversely impacting our ability to produce on-premise live events, and to a lesser extent portions of our programmatic advertising revenue; the pandemic is also adversely affecting our global economy, which could adversely impact other parts of our business, including our ability to access capital markets, if and when required. Additional factors could exacerbate such negative consequences and/or cause other and potentially materially adverse effects.

An outbreak of a novel strain of coronavirus, COVID-19 in December 2019 subsequently became a pandemic after spreading globally, including the United States, and continues as of the date of this Quarterly Report. While the COVID-19 pandemic did not materially adversely affect our financial results and business operations during the fiscal year ended March 31, 2020, it did adversely impact parts of our business during the first quarter of fiscal March 31, 2021, namely our live events and programmatic advertising. We began to experience modest adverse impacts of the COVID-19 pandemic in the fourth quarter of fiscal year ended March 31, 2020 and this impact is expected to become more adverse and to continue throughout at least the fiscal year ending March 31, 2021, and possibly longer. Due to the global pandemic and government actions taking in response, since March 2020, all in person festivals, concerts and events have either been canceled or suspended, and it is uncertain when they will be permitted to resume. With our acquisition of React Presents in February 2020, we are presently unable to produce and promote more than 200 forecasted live events in fiscal year ending March 31, 2021, including our flagship live event Spring Awakening festival which is typically annually produced in June. Moreover, our programmatic advertising is presently adversely impacted as COVID-19 caused advertising demand to decline and as a result, overall advertising cost per thousand impressions rates across our platform were subsequently reduced. Furthermore, as of the date of this Quarterly Report, we are not livestreaming any fan attended live festivals, concerts or other in-person live events on our platform or channels and it is unclear when streaming of fan attended live festivals, concerts or other in-person live events will again become available to us. In addition, the outbreak and any preventative or protective actions that governments, other third parties or we may take in respect of the coronavirus may result in a period of business disruption and reduced operations. For example, our largest customer was ordered to keep its main U.S. factory closed for a substantial amount of time.

The extent to which the coronavirus impacts our results will depend on future developments, including new information which may emerge concerning the severity of the coronavirus and the actions taken by us and our partners to contain the coronavirus or treat its impact, among others. The impact of the suspension or cancellation of in-person live festivals, concerts or other live events, and any other continuing effects of COVID-19 on our business operations (such as general economic conditions and impacts on the advertising, sponsorship and ticketing marketplace and our partners), may result in a decrease in our revenues, and if the global COVID-19 epidemic continues for an extended period, our business, financial condition and results of operations could be materially adversely affected.

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Our new distribution agreements are dependent upon our compliance with their contractual obligations. Our distribution agreements generally require us to meet certain content criteria, such as availability of a minimum threshold for event content streaming throughout the year for our distributors. If we were unable to meet these criteria due to the suspension of in person festivals and live events, we could become subject to remedies available to the distributors. In addition, the absence of in person festivals and live events could impact our ability to renew expiring agreements on terms as attractive as our existing terms or at all. We may also be forced develop a significant number of additional digital events and festivals and/or more rapidly than we originally anticipated to fill the content requirements on our platform, including those required by our distributors. Furthermore, government actions or regulations applicable to our business or our distributors in response to COVID-19 could have an adverse effect on our revenues.

Our estimate of the ultimate impact of the coronavirus pandemic, including the extent of any adverse impacts on our business, revenues, results of operations, cash flows and financial condition, which will depend on, among other things, the duration and spread of coronavirus, the impact of federal and local government actions that have been and continue to be taken in response, and the effectiveness of actions taken to contain or mitigate the pandemic and economic conditions is subject to significant uncertainty.

Depending on the duration and severity of the current COVID-19 pandemic, it may also have the effect of heightening many of the other risks described in this Quarterly Report and our other filings with the SEC, such as risks relating to our ability to further develop and execute on our business plan; our ability to access capital markets to obtain additional sources of suitable and adequate financing; restricted access to capital and increased borrowing costs; our ability to fund our current debt obligations and complying with the covenants contained in the agreements that govern our existing indebtedness; our ability to fund potential acquisitions and capital expenditures; and our ability to maintain adequate internal controls in the event that our employees are restricted from accessing our regular offices for a significant period of time.

We cannot reasonably estimate the ultimate impact and duration of the coronavirus pandemic, including the extent of any adverse impacts on our business, revenues, results of operations, cash flows and financial condition, which cannot currently be predicted and will depend on, among other things, the duration and spread of coronavirus, the impact of federal and local government actions that have been and continue to be taken in response, and the effectiveness of actions taken to contain or mitigate the pandemic and economic conditions.

The ability of our employees to work may be significantly impacted by the coronavirus.

As of the date of this Quarterly Report, the COVID-19 pandemic continues. Our employees are being affected by the COVID-19 pandemic. Operationally, all of our employees and consultants are working remotely, and we have restricted our production activities and business travel. The health of our workforce is of primary concern and we may need to enact further precautionary measures to help minimize the risk of our employees being exposed to the coronavirus. If significant portions of our workforce, including key personnel, are unable to work effectively because of illness, government actions or other restrictions in connection with the COVID-19 pandemic, any adverse impact of the pandemic on our businesses could be exacerbated. Furthermore, our management team is focused on mitigating the adverse effects of the COVID-19 pandemic, which has required and will continue to require a large investment of time and resources across our entire Company, thereby diverting their attention from other priorities that existed prior to the outbreak of the pandemic. If these conditions worsen, or last for an extended period of time, our ability to manage our business may be impaired, and operational risks, cybersecurity risks and other risks facing us even prior to the pandemic may be elevated.

We cannot predict the impact of the COVID-19 pandemic on our customers, suppliers, vendors, and other business partners, and the full effects of the COVID-19 pandemic are highly uncertain and cannot be predicted.

The COVID-19 pandemic is partially affecting our revenue, sponsorship and advertiser partners, vendors and other business partners, and we are not able to assess the full extent of the current impact nor predict the ultimate consequences that will result therefrom. For example, as a result of COVID-19 pandemic, our largest customer experienced a government ordered halt to its production in part of the quarter ended March 31, 2020 and early quarter ended September 30, 2020 related to COVID-19, but resumed its production as of the date of this Quarterly Report which temporary halt will in turn slow subscriber growth in the first quarter of fiscal year 2021 and potentially beyond. In addition, as a result of COVID-19, certain of our advertising and sponsor partners have been forced to reduce their marketing budgets. If our revenue and/or sales channels are substantially impaired for an extended period of time, our revenues will be materially reduced.

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We are continuously monitoring our own operations and intend to take appropriate actions to mitigate the risks arising from the COVID-19 pandemic to the best of our abilities, but there can be no assurances that we will be successful in doing so. To the extent we are able to obtain information about and maintain communications with our revenue, sponsorship and advertiser partners, vendors and other business partners, we will seek to minimize disruptions to our revenue, content and distribution channels, but many circumstances will be beyond our control. Governmental action and/or regional quarantines may further result in labor shortages and work stoppages. All of these factors may have far reaching direct and indirect impacts on our business, operations, and financial results and condition. The ultimate extent of the effects of the COVID-19 pandemic on our Company is highly uncertain and will depend on future developments which cannot be predicted. Even after the COVID-19 outbreak has subsided, we may continue to experience material adverse impact on our business as a result of its global economic impact, including any related recession, as well as lingering impact on demand for our services, our customers, suppliers, vendors and other business partners.

Our quarterly operating results may be volatile and are difficult to predict in the future, and our stock price may decline if we fail to meet the expectations of securities analysts or investors.

Our revenue, margins and other operating results could vary significantly in the future from quarter-to-quarter and year-to-year and may fail to match our past performance due to a variety of factors, including many factors that are outside of our control, including, as a result of our acquisition of React Presents in February 2020 and PodcastOne in July 2020 and expected acquisition of CPS, and our entry into holding, promoting and managing our live festivals and events, and podcasting, respectively, and our expected entry into the merchandise personalization industry. Factors that may contribute to the variability of our operating results and cause the market price of our common stock to fluctuate include:

| ● | the entrance of new competitors or competitive products in our market, whether by established or new companies;
| ● | our ability to retain and grow the number of our active user base and increase engagement among new and existing users;
| ● | our ability to maintain effective pricing practices, in response to the competitive markets in which we operate or other macroeconomic factors, such as inflation or increased product taxes;
| ● | our revenue mix, which drives gross profit;
| ● | seasonal or other shifts in festival, event and advertising revenue;
| ● | the timing of the launch of our new or updated festivals, events, products, platforms, channels, podcasts or features;
| ● | the addition or loss of popular content;
| ● | the popularity of EDM and EDM festivals, events, concerts and clubs;
| ● | the popularity of podcasts and specifically our podcast content;
| ● | an increase in costs associated with protecting our intellectual property, defending against third-party intellectual property infringement allegations or procuring rights to third-party intellectual property.

Our gross margins are expected to vary across our offerings. Festival and event revenue have a lower gross margin compared to platform revenue derived through our arrangements with advertising, content distribution, billing and licensing activities. In addition, our gross margin and operating margin percentages, as well as overall profitability, may be adversely impacted as a result of a shift in music taste, geographic or sales mix, price competition, or the introduction of new technology and EDM festivals and events. We may in the future strategically reduce our Slacker gross margin in an effort to increase our active accounts and/or maintain our OEM relationships and agreements. As a result, our subscription revenue may not increase as consistently as it has historically, or at all, and, unless we are able to adequately increase our other revenues, including festival and event revenue through RP, and grow our active user base, we may be unable to maintain or grow our margins and revenues and our business will be harmed. If a reduction in margins does not result in an increase in our active user base and revenues, our financial results may suffer, and our business may be harmed.

We cannot guarantee that our stock repurchase program will be consummated, fully or all, or that it will enhance long-term shareholder value. Stock repurchases could also increase the volatility of the trading price of our stock and could diminish our cash reserves.

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.

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Risks Related to Our Indebtedness

We may not have sufficient cash flow from our business operations to make payments on our indebtedness.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness depends on our performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt and/or obtaining additional equity capital on terms that may be onerous or highly dilutive. In the event of an acceleration of amounts due under our debt instruments as a result of an event of default, including upon the occurrence of an event that would reasonably be expected to have a material adverse effect on our business, operations, properties, assets or condition or a failure to pay any amount due, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments. There is no guarantee that we will be able to generate sufficient cash flow or sales to meet the financial covenants or pay the principal and interest under our debt agreements or to satisfy all of the financial covenants. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. Capital markets have been volatile in the recent past; a downturn could negatively impact our ability to access capital should the need arise. As a result, the inability to meet our debt obligations could cause us to default on those obligations. Any such defaults could materially harm our financial condition and liquidity.

We may incur substantially more debt or take other actions that would intensify the risks discussed above.

In addition to our current outstanding debt and notes, we and our subsidiaries may incur substantial additional debt, subject to restrictions contained in our existing and future debt instruments, some or all of which may be secured debt. In August 2020, we repaid in full our senior secured convertible debentures, and in September 2020 we issued 8.5% Senior Secured Convertible Notes in the aggregate principal amount of $15.0 million due September 15, 2022 (the “Senior Notes”). The Senior Notes contain certain restrictive covenants that limit our ability to merge with other companies or consummate certain changes of control, make certain investments, pay dividends or repurchase shares of our common stock, transfer or dispose of assets or enter into various specified transactions. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of the lender or terminate our existing debt agreements. The Senior Notes also contain certain covenants, including maintaining a minimum free cash amount at all times and are secured by substantially all of our and our subsidiaries’ assets.

We may not have the ability to repay the amounts then due under the Senior Notes and/or convertible notes at maturity.

At maturity, the entire outstanding principal amount of the Senior Notes and convertible notes will become due and payable by us. As of December 31, 2020, $1.5 million of our total indebtedness (excluding interest and unamortized debt discount and debt issuance costs) is due in fiscal 2021, $9.3 million is due in in fiscal 2022, $16.3 million is due in in fiscal 2023 and $0.1 million thereafter.

Our failure to repay any outstanding amount of the Senior Notes or convertible notes would constitute a default under such indentures. A default would increase the interest rate to the default rate under the Senior Notes or the maximum rate permitted by applicable law until such amount is paid in full. A default under the Senior Notes or the fundamental change itself could also lead to a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the Senior Notes or convertible notes or make cash payments thereon. Furthermore, upon the occurrence and during the continuation of any event of default, the agent, for the benefit of the holders of the Senior Notes, shall have the right to, among other things, take possession of our and our subsidiaries’ assets and property constituting the collateral thereunder and the right to assign, sell, lease or otherwise dispose of all or any part of the collateral. We do not have the right to prepay the Senior Notes prior to their maturity.

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The conditional conversion feature of our convertible notes or the Senior Notes , if triggered, may adversely affect our financial condition and operating results, particularly our earnings per share.

In the event the conditional conversion feature of the Senior Notes or convertible notes is triggered, holders, as applicable, will be entitled to convert at any time during specified periods at their option. In addition, even if holders do not elect to convert the Senior Notes or convertible notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Senior Notes as a current rather than long-term liability, which may result in a material reduction of our net working capital and potential impact on our going concern status. Any conversion of the Senior Notes and/or convertible notes in shares of our common stock may cause dilution to our earnings per share.

Our debt agreements contain restrictive and financial covenants that may limit our operating flexibility, and our substantial indebtedness may limit cash flow available to invest in the ongoing needs of our business.

We have a significant amount of indebtedness. Our total outstanding consolidated indebtedness as of December 31, 2020 was $23.4 million, net of fees and discounts. While we have certain restrictions and covenants with our current indebtedness, we could in the future incur additional indebtedness beyond such amount. Our existing debt agreements with the holders of the Senior Notes contain certain restrictive covenants that limit our ability to merge with other companies or consummate certain changes of control, make certain investments, pay dividends or repurchase shares of our common stock, transfer or dispose of assets, or enter into various specified transactions. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of the holders of the Senior Notes or terminate our existing debt agreements. Our debt agreements also contain certain financial covenants, including maintaining a minimum cash amount at all times and achieving certain financial covenants and are secured by substantially all of our assets. There is no guarantee that we will be able to generate sufficient cash flow or sales to meet the financial covenants or pay the principal and interest under our debt agreements or to satisfy all of the financial covenants. We may also incur significant additional indebtedness in the future.

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Our substantial debt combined with our other financial obligations and contractual commitments could have other significant adverse consequences, including:

| ● | requiring us to dedicate a substantial portion of cash flow from operations to the payment of interest on, and principal of, our debt, which will reduce the amounts available to fund working capital, capital expenditures, product development efforts and other general corporate purposes;
| ● | increasing our vulnerability to adverse changes in general economic, industry and market conditions;
| ● | obligating us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing;
| ● | limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and
| ● | placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options.

We intend to satisfy our current and future debt service obligations with our existing cash and cash equivalents and marketable securities and funds from external sources, including equity and/or debt financing. However, we may not have sufficient funds or may be unable to arrange for additional financing to pay the amounts due under our existing debt. Funds from external sources may not be available on acceptable terms, if at all. In the event of an acceleration of amounts due under our debt instruments as a result of an event of default, including upon the occurrence of an event that would reasonably be expected to have a material adverse effect on our business, operations, properties, assets or condition or a failure to pay any amount due, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments.

If we do not comply with the provisions of the Senior Notes, our lenders may terminate their obligations to us and require us to repay all outstanding amounts owed thereunder.

The Senior Notes contain provisions that limit our operating activities, including covenant relating to the requirement to maintain a certain amount of Free Cash (as defined in the Senior Notes). If an event of default occurs and is continuing, the lenders may among other things, terminate their obligations thereunder and require us to repay all amounts thereunder. As of December 31, 2020, we were in full compliance with these covenants.

Conversion of the Senior Notes and/or convertible notes will dilute the ownership interest of our existing stockholders, including holders who had previously converted their convertible notes, or may otherwise depress the price of our common stock.

The conversion of some or all of the Senior Notes and/or convertible notes in shares of our common stock will dilute the ownership interests of our existing stockholders to the extent we deliver shares of our common stock upon conversion. Any sales in the public market of the shares of our common stock issuable upon such conversion and/or any anticipated conversion of the Senior Notes or convertible notes into shares of our common stock could adversely affect prevailing market prices of our common stock.

Risks Related to Our Company

Slacker depends upon third-party licenses for sound recordings and musical compositions and an adverse change to, loss of, or claim that Slacker does not hold any necessary licenses may materially adversely affect Slacker’s business, operating results and financial condition.

To secure the rights to stream sound recordings and the musical compositions embodied therein, Slacker enters into license agreements to obtain licenses from rights holders such as record labels, music publishers, performing rights organizations, collecting societies and other copyright owners or their agents, and pays substantial royalties to such parties or their agents around the world. Though Slacker works diligently in its efforts to obtain all necessary licenses to stream sound recordings and the musical compositions embodied therein, there is no guarantee that the licenses available to Slacker now will continue to be available in the future at rates and on terms that are favorable or commercially reasonable or at all. The terms of these licenses, including the royalty rates that Slacker is required to pay pursuant to them, may change as a result of changes in its bargaining power, changes in the industry, changes in the law, or for other reasons. Increases in royalty rates or changes to other terms of these licenses may materially impact Slacker’s business, operating results, and financial condition.

Slacker enters into license agreements to obtain rights to stream sound recordings, including from the major record labels that hold the rights to stream a significant number of sound recordings. If Slacker fails to obtain these licenses, the size and quality of its catalog may be materially impacted and its business, operating results and financial condition could be materially harmed.

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Slacker generally obtains licenses for two types of rights with respect to musical compositions: mechanical rights and public performance rights.

With respect to mechanical rights, for example, in the United States, the rates Slacker pays are, to a significant degree, a function of a ratemaking proceeding conducted by an administrative agency called the Copyright Royalty Board. The rates that the Copyright Royalty Board set apply both to compositions that we license under the compulsory license in Section 115 of the Copyright Act of 1976 (the “Copyright Act”), and to a number of direct licenses that we have with music publishers for U.S. rights, in which the applicable rate is generally pegged to the statutory rate set by the Copyright Royalty Board. The most recent proceeding before the Copyright Royalty Board (the “Phonorecords III Proceedings”) set the rates for the Section 115 compulsory license for calendar years 2018 to 2022. The Copyright Royalty Board issued its initial written determination on January 26, 2018. The rates set by the Copyright Royalty Board may still be modified if a party appeals the determination and are subject to further change as part of future Copyright Royalty Board proceedings. Based on management’s estimates and forecasts for the next two fiscal years, we currently believe that the proposed rates will not materially impact Slacker’s business, operating results, and financial condition. However, the proposed rates are based on a variety of factors and inputs which are difficult to predict in the long-term. If Slacker’s business does not perform as expected or if the rates are modified to be higher than the proposed rates, its content acquisition costs could increase and impact its ability to obtain content on pricing terms favorable to us, which could negatively harm Slacker’s business, operating results and financial condition and hinder its ability to provide interactive features in its services, or cause one or more of Slacker’s services not to be economically viable.

In the United States, public performance rights are generally obtained through intermediaries known as performing rights organizations (“PROs”), which negotiate blanket licenses with copyright users for the public performance of compositions in their repertory, collect royalties under such licenses, and distribute those royalties to copyright owners. The royalty rates available to Slacker today may not be available to it in the future. Licenses provided by two of these PROs, ASCAP and BMI are governed by consent decrees relating to decades-old litigations. Changes to the terms of or interpretation of these consent decrees could affect Slacker’s ability to obtain licenses from these PROs on favorable terms, which could harm its business, operating results, and financial condition. As of December 31, 2020, Slacker owed $0.7 million in aggregate royalty payments to such PROs.

In other parts of the world, including Europe, Asia, and Latin America, Slacker obtains mechanical and performance licenses for musical compositions either through local collecting societies representing publishers or from publishers directly, or a combination thereof. Slacker cannot guarantee that its licenses with collecting societies and its direct licenses with publishers provide full coverage for all of the musical compositions we make available to Slacker’s users in such countries. In Asia and Latin America, we are seeing a trend of movement away from blanket licenses from copyright collectives, which is leading to a fragmented copyright licensing landscape. Publishers, songwriters, and other rights holders choosing not to be represented by collecting societies could adversely impact Slacker’s ability to secure favorable licensing arrangements in connection with musical compositions that such rights holders own or control, including increasing the costs of licensing such musical compositions, or subjecting Slacker to significant liability for copyright infringement.

There also is no guarantee that Slacker has all of the licenses it needs to stream content, as the process of obtaining such licenses involves many rights holders, some of whom are unknown, and myriad complex legal issues across many jurisdictions, including open questions of law as to when and whether particular licenses are needed. Additionally, there is a risk that aspiring rights holders, their agents, or legislative or regulatory bodies will create or attempt to create new rights that could require Slacker to enter into license agreements with, and pay royalties to, newly defined groups of rights holders, some of which may be difficult or impossible to identify.

Even when Slacker is able to enter into license agreements with rights holders, it cannot guarantee that such agreements will continue to be renewed indefinitely. For example, from time to time, Slacker’s license agreements with certain rights holders and/or their agents may expire while Slacker negotiates their renewals and, per industry custom and practice, Slacker may enter into brief (for example, month-, week-, or even days-long) extensions of those agreements and/or continue to operate as if the license agreement had been extended, including by our continuing to make music available. During these periods, Slacker may not have assurance of long-term access to such rights holders’ content, which could have a material adverse effect on its business and could lead to potential copyright infringement claims.

It also is possible that such agreements will never be renewed at all. The lack of renewal, or termination, of one or more of Slacker’s license agreements, or the renewal of a license agreement on less favorable terms, also could have a material adverse effect on its business, financial condition, and results of operations.

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Risks Related to Our PodcastOne Business

We face and will continue to face competition for ad-supported users, premium subscribers, and user listening time.

We also compete with providers of podcasts that offer an on-demand catalog of podcast content that is similar to ours. We face increasing competition from a growing variety of podcast providers that seek to differentiate their service by content offering and product features, and they may be more successful than us in predicting user preferences, providing popular content, and innovating new features.

Our competitors also include providers of internet radio, terrestrial radio, and satellite radio. Internet radio providers may offer more extensive content libraries than we offer and some may be offered internationally more broadly than our PodcastOne service. In addition, internet radio providers may leverage their existing infrastructure and content libraries, as well as their brand recognition and user base, to augment their services by offering competing on-demand podcast features to provide users with more comprehensive podcast service delivery choices. Terrestrial radio providers often offer their content for free, are well-established and accessible to consumers, and offer media content that we currently do not offer. In addition, many terrestrial radio stations have begun broadcasting digital signals, which provide high-quality audio transmission. Satellite radio providers, such as Sirius XM and iHeartRadio, may offer extensive and exclusive news, comedy, sports and talk content, and national signal coverage.

We believe that companies with a combination of technical expertise, brand recognition, financial resources, and digital media experience also pose a significant threat of developing competing on-demand audio distribution technologies. In particular, if known incumbents in the digital media space such as Facebook choose to offer competing services, they may devote greater resources than we have available, have a more accelerated time frame for deployment, and leverage their existing user base and proprietary technologies to provide services that our users and advertisers may view as superior. Furthermore, Amazon Music, Apple Music, Apple Podcasts, Spotify, iHeartMusic and others have competing podcast services, which may negatively impact our business, operating results, and financial condition. Our current and future competitors may have higher brand recognition, more established relationships with content licensors and mobile device manufacturers, greater financial, technical, and other resources, more sophisticated technologies, and/or more experience in the markets in which we compete. Our current and future competitors may also engage in mergers or acquisitions with each other, as Sirius XM and Pandora have done, or to acquire smaller podcasting services, such as Spotify has done, to combine and leverage their audiences. Our current and future competitors may innovate new features or introduce new ways of consuming or engaging with content that cause our users, especially the younger demographic, to switch to another product, which would negatively affect our user retention, growth, and engagement. In addition, Apple and Google also own application store platforms and are charging in-application purchase fees, which are not being levied on their own applications, thus creating a competitive advantage for themselves against us. If other competitors that own application store platforms and competitive services adopt similar practices, we may be similarly impacted. As the market for on-demand audio on the internet and mobile and connected devices increases, new competitors, business models, and solutions are likely to emerge.

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We also compete for users based on our presence and visibility as compared with other businesses and platforms that deliver audio content through the internet and connected devices. We face significant competition for users from companies promoting their own digital audio content online or through application stores, including several large, well-funded, and seasoned participants in the digital media market. Device application stores often offer users the ability to browse applications by various criteria, such as the number of downloads in a given time period, the length of time since an application was released or updated, or the category in which the application is placed. The websites and applications of our competitors may rank higher than our website and our PodcastOne application, and our application may be difficult to locate in device application stores, which could draw potential users away from our service and toward those of our competitors. If we are unable to compete successfully for users against other digital media providers by maintaining and increasing our presence, ease of use, and visibility online, on devices, and in application stores, our number of premium subscribers, ad-supported users, and the amount of content streamed on our service may fail to increase or may decline and our subscription fees and advertising sales may suffer.

We compete for a share of advertisers’ overall marketing budgets with other content providers on a variety of factors, including perceived return on investment, effectiveness and relevance of our advertising products, pricing structure, and ability to deliver large volumes or precise types of advertisements to targeted user demographic pools. We also compete for advertisers with a range of internet companies, including major internet portals, search engine companies, social media sites, and mobile applications, as well as traditional advertising channels such as terrestrial radio and television.

Large internet companies with strong brand recognition, such as Facebook, Google, Amazon, and Twitter, have significant numbers of sales personnel, substantial advertising inventory, proprietary advertising technology solutions, and traffic across web, mobile, and connected devices that provide a significant competitive advantage and have a significant impact on pricing for reaching these user bases. Failure to compete successfully against our current or future competitors could result in the loss of current or potential advertisers, a reduced share of our advertisers’ overall marketing budget, the loss of existing or potential users, or diminished brand strength, which could adversely affect our pricing and margins, lower our revenue, increase our research and development and marketing expenses, and prevent us from achieving or maintaining profitability.

Minimum guarantees required under certain of our podcast license agreements may limit our operating flexibility and may adversely affect our business, operating results, and financial condition.

Certain of our podcast license agreements contain minimum guarantees and/or require that we make minimum guarantee payments. As of December 31, 2020, we have estimated future minimum guarantee commitments of $18.9 million, primarily under license agreements for sound recordings and musical compositions (both for mechanical rights and public performance rights) but also under license agreements for podcasts. Such minimum guarantees related to our content acquisition costs are not always tied to our revenue and/or user growth forecasts (e.g., number of users, active users, premium subscribers), or the number of podcasts used on our service. We may also be subject to minimum guarantees to rights holders with respect to certain strategic partnerships we enter into that may not produce all of the expected benefits. Accordingly, our ability to achieve and sustain profitability and operating leverage on our service in part depends on our ability to increase our revenue through increased sales of premium service and advertising sales on terms that maintain an adequate gross margin. The duration of our license agreements for podcast content that contain minimum guarantees is frequently between one and two years, but our premium subscribers may cancel their subscriptions at any time. If our forecasts of premium subscriber acquisition or retention do not meet our expectations or the number of our premium subscribers or advertising sales decline significantly during the term of our license agreements, our margins may be materially and adversely affected. To the extent our premium service revenue growth or advertising sales do not meet our expectations, our business, operating results, and financial condition could also be adversely affected as a result of such minimum guarantees. In addition, the fixed cost nature of these minimum guarantees may limit our flexibility in planning for, or reacting to, changes in our business and the market segments in which we operate.

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We rely on estimates of the market share of streaming content owned by each content provider, as well as our own user growth and forecasted advertising revenue, to forecast whether such minimum guarantees could be recouped against our actual content acquisition costs incurred over the duration of the license agreement. To the extent that this revenue and/or market share estimates underperform relative to our expectations, leading to content acquisition costs that do not exceed such minimum guarantees, our margins may be materially and adversely affected.

Expansion of our operations to deliver podcasts subjects us to increased business, legal, financial, reputational, and competitive risks.

Expansion of our operations to deliver podcasts and other non-music content involves numerous risks and challenges, including increased capital requirements, new competitors, and the need to develop new strategic relationships. Growth in these areas may require additional changes to our existing business model and cost structure, modifications to our infrastructure, and exposure to new regulatory, legal and reputational risks, including infringement liability, any of which may require additional expertise that we currently do not have. There is no guarantee that we will be able to generate sufficient revenue from podcasts or other non-music content to offset the costs of creating or acquiring this content. Further, we have initially established a reputation as a music streaming service and our ability to gain acceptance and listenership for podcasts or other non-music content, and thus our ability to attract users and advertisers to this content, is not certain. Failure to successfully monetize and generate revenues from such content, including failure to obtain or retain rights to podcasts or other non-music content on acceptable terms, or at all, or to effectively manage the numerous risks and challenges associated with such expansion could adversely affect our business, operating results, and financial condition.

In addition, we enter into multi-year commitments for original content that we produce or commission. Given the multiple-year duration and largely fixed cost nature of such commitments, if our user growth and retention do not meet our expectations, our margins may be adversely impacted. Payment terms for certain content that we produce or commission will typically require more upfront cash payments than other content licenses or arrangements whereby we do not pay for the production of such content. To the extent our user and/or revenue growth do not meet our expectations, our liquidity and results of operations could be adversely affected as a result of such content commitments. The long-term and fixed cost nature of certain content commitments may also limit our flexibility in planning for or reacting to changes in our business, as well as our ability to adjust our content offering if our users do not react favorably to the content we produce. Any such event could adversely impact our business, operating results, and financial condition.

Increases in the costs in relation to podcast content creators, such as higher hosts’ compensation and costs of discovering and cultivating a top podcast content creator, may have an adverse effect on our business, financial condition and results of operations.

We depend upon podcast content creators to continuously provide a large variety of high-quality content on our platform, which is a key factor of engaging and satisfactory user experience that ensures long-term user stickiness. We compete with other audio platforms for active, popular or celebrity content creators. To attract and retain top content creators and maintain the high level of content quality, we enter into contracts with our podcast content creators under which such creators are usually paid a certain percentage of the ad sales and other revenue that we generate related to their podcast. The compensation to a top podcast content creator may increase as the competition intensifies. If our content creators become too costly, we will not be able to produce high quality content at commercially acceptable costs. If our competitors’ platforms offer higher revenue sharing percentage with an intent to attract our popular podcast content creators, costs to retain such content creators may increase. Furthermore, as our business and user base further expands, we may have to devote more resources in encouraging our podcast content creators to produce content that meets the evolving interests of a diverse user base, which would increase the costs of content on our platform. If we are unable to generate sufficient revenues that outpace our increased costs in relation to content creators, our business, financial condition and results of operations may be materially and adversely affected.

We use third-party services and technologies in connection with our PodcastOne business, and any disruption to the provision of these services and technologies to us could result in adverse publicity and a slowdown in the growth of our PodcastOne users, which could materially and adversely affect our business, financial condition and results of operations.

Our PodcastOne business depends upon services provided by, and relationships with, third parties. PodcastOne currently engages third-party service providers in certain areas of its operations such as monitoring of its podcasts. If such third-party service providers fail to detect the illegal or inappropriate activities or content in our podcasts, we may be subject to regulator’s disapproval or penalties as well as adverse media exposure which could materially and adversely affect our business, financial condition and results of operations. In addition, some third-party software we use in our operations is currently publicly available without charge. If the owner of any such software decides to make claims against us, charge users, or no longer makes the software publicly available, we may need to enter into settlement with such owners, incur significant cost to license the software, find replacement software or develop it on our own. If we are unable to find or develop replacement software at a reasonable cost, or at all, our business and operations may be adversely affected.

Our overall network relies on bandwidth connections provided by third-party operators and we expect this dependence on third parties to continue. The networks maintained and services provided by such third parties are vulnerable to damage or interruption, which could impact our business, financial condition and results of operations.

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We also depend on the third-party online payment systems for sales of our products and services. If any of these third-party online payment systems suffer from security breaches, users may lose confidence in such payment systems and refrain from purchasing our virtual gifts online, in which case our results of operations would be negatively impacted.

We exercise no control over the third-parties with whom we have business arrangements. For some of services and technologies such as online payment systems, we rely on a limited number of third-party providers with limited access to alternative networks or services in the event of disruptions, failures or other problems. If such third-parties increase their prices, fail to provide their services effectively, terminate their service or agreements or discontinue their relationships with us, we could suffer service interruptions, reduced revenues or increased costs, any of which may have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Ecommerce Merchandising Business

Our business is affected by seasonality, which could result in fluctuations in our operating results.

Our CPS merchandising business is affected by seasonality. Historically, we generated higher sales revenues in the third fiscal quarter ending December 31. However, the mix of product sales may vary considerably from time to time as a result of changes in seasonal demand and change in preferences or popularity of certain of our merchandise. As a result, we may not be able to accurately predict our quarterly sales. Accordingly, our results of operations are likely to fluctuate materially from period to period. This seasonality, along with other factors that are beyond our control, including general economic conditions, changes in consumer preferences, weather conditions, availability of inventory and transportation disruptions, could adversely affect our business and cause our results of operations to fluctuate. Our operating margins are also sensitive to a number of additional factors that are beyond our control, including manufacturing and transportation costs, shifts in product sales mix and geographic sales trends, all of which we expect to continue. Results of operations in any period should not be considered indicative of the results to be expected for any future period.

Failure to accurately forecast consumer demand could lead to excess inventories or inventory shortages, which could result in decreased operating margins, reduced cash flows and harm to our business.

To meet anticipated demand for our products, we purchase certain materials, which we hold in inventory. There is a risk we may be unable to sell excess products ordered from manufacturers. Inventory levels in excess of customer demand may result in inventory write-downs, and the sale of excess inventory at discounted prices could significantly impair CPS’ image and have an adverse effect on our operating results, financial condition and cash flows. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply products that we require at the time we need them, we may experience inventory shortages. Inventory shortages might delay shipments to customers, negatively impact retailer and consumer relationships and negatively impact our reputation. The difficulty in forecasting demand also makes it difficult to estimate our future results of operations, financial condition and cash flows from period to period. A failure to accurately predict the level of demand for our products could adversely affect our net revenues and net income, and we are unlikely to forecast such effects with any certainty in advance.

We are subject to data security and privacy risks that could negatively affect our results, operations or reputation.

In addition to our own sensitive and proprietary business information, we collect transactional and personal information about our customers, which include online distribution channels. Hackers and data thieves are increasingly sophisticated and operate large-scale and complex automated attacks. Any breach of our network, or other vendor systems, may result in the loss of confidential business and financial data, misappropriation of our consumers’ or employees’ personal information or a disruption of our business. Any of these outcomes could have a material adverse effect on our business, including unwanted media attention, impairment of our consumer and customer relationships, damage to our reputation; resulting in lost sales and consumers, fines, lawsuits, or significant legal and remediation expenses. We also may need to expend significant resources to protect against, respond to and/or redress problems caused by any breach.

In addition, we must comply with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the U.S and elsewhere. Compliance with existing, proposed and recently enacted laws and regulations can be costly; any failure to comply with these regulatory standards could subject us to legal and reputational risks. Misuse of or failure to secure personal information could also result in violation of data privacy laws and regulations, proceedings against us by governmental entities or others, damage to our reputation and credibility and could have a negative impact on our results of operations, financial condition and cash flows from period to period.

The success of our business depends, in part, on high-quality employees, including key personnel.

Our success depends in part on the continued service of high-quality employees, including key executive officers and personnel. The loss of the services of key individuals, or any negative perception with respect to these individuals, could harm our business. Our success also depends on our ability to recruit, retain and engage our personnel sufficiently, both to maintain our current business and to execute our strategic initiatives. We may not be successful in attracting and retaining such personnel.

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Our business may be adversely affected if we are unable to provide our customers a cost-effective shopping platform that is able to respond and adapt to rapid changes in technology.

The number of people who access the Internet through devices other than personal computers, including mobile phones, smartphones, handheld computers such as notebooks and tablets, video game consoles, and television set-top devices, has increased dramatically in the past few years. We continually upgrade existing technologies and business applications to keep pace with these rapidly changing and continuously evolving technologies, and we may be required to implement new technologies or business applications in the future. The implementation of these upgrades and changes requires significant investments and as new devices and platforms are released, it is difficult to predict the problems we may encounter in developing applications for these alternative devices and platforms. Additionally, we may need to devote significant resources to the support and maintenance of such applications once created. Our results of operations may be affected by the timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure to accommodate such alternative devices and platforms. Further, in the event that it is more difficult or less compelling for our customers to buy products from us on their mobile or other devices, or if our customers choose not to buy products from us on such devices or to use mobile or other products that do not offer access to our sites, our customer growth could be harmed and our business, financial condition and operating results may be materially adversely affected.

Significant merchandise returns could harm our business.

We allow our customers to return products, subject to our return policy. If merchandise returns are significant, our business, prospects, financial condition and results of operations could be harmed. Further, we modify our policies relating to returns from time to time, which may result in customer dissatisfaction or an increase in the number of product returns. Some of our products require special handling and delivery. From time to time our products are damaged in transit, which can increase return rates and harm our brand.

Our business relies heavily on email and other messaging services, and any restrictions on the sending of emails or messages or an inability to timely deliver such communications could materially adversely affect our net revenue and business.

Our business is highly dependent upon email and other messaging services for promoting our sites and products. Daily promotions offered through emails and other messages sent by us generate a significant portion of our net revenue. We provide daily emails and "push" communications to customers and other visitors informing them of what is available for purchase on our sites, and we believe these messages are an important part of our customer experience and help generate a substantial portion of our net revenue. If we are unable to successfully deliver emails or other messages to our email subscribers, or if our email subscribers decline to open our emails or other messages, our net revenue and profitability would be materially adversely affected. Changes in how webmail applications organize and prioritize email may also reduce the number of subscribers opening our emails. For example, in 2013 Google Inc.'s Gmail service began offering a feature that organizes incoming emails into categories (for example, primary, social and promotions). Such categorization or similar inbox organizational features may result in our emails being delivered in a less prominent location in a subscriber's inbox or viewed as “spam” by our subscribers and may reduce the likelihood of that subscriber opening our emails. Actions by third parties to block, impose restrictions on or charge for the delivery of emails or other messages could also adversely impact our business. From time to time, Internet service providers or other third parties may block bulk email transmissions or otherwise experience technical difficulties that result in our inability to successfully deliver emails or other messages to third parties. Changes in the laws or regulations that limit our ability to send such communications or impose additional requirements upon us in connection with sending such communications would also materially adversely impact our business. Our use of email and other messaging services to send communications about our products and site or other matters may also result in legal claims against us, which may cause us increased expenses, and if successful might result in fines and orders with costly reporting and compliance obligations or might limit or prohibit our ability to send emails or other messages. We also rely on social networking messaging services to send communications and to encourage customers to send communications. Changes to the terms of these social networking services to limit promotional communications, any restrictions that would limit our ability or our customers' ability to send communications through their services, disruptions or downtime experienced by these social networking services or decline in the use of or engagement with social networking services by customers and potential customers could materially adversely affect our business, financial condition and operating results.

We are subject to risks related to online payment methods.

We accept payments using a variety of methods, including credit card, debit card, PayPal, credit accounts and gift cards. As we offer new payment options to consumers, we may be subject to additional regulations, compliance requirements and fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We are also subject to payment card association operating rules and certification requirements, including the Payment Card Industry Data Security Standard and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. As our business changes, we may also be subject to different rules under existing standards, which may require new assessments that involve costs above what we currently pay for compliance. If we fail to comply with the rules or requirements of any provider of a payment method we accept, if the volume of fraud in our transactions limits or terminates our rights to use payment methods we currently accept, or if a data breach occurs relating to our payment systems, we may, among other things, be subject to fines or higher transaction fees and may lose, or face restrictions placed upon, our ability to accept credit card and debit card payments from consumers or to facilitate other types of online payments. If any of these events were to occur, our business, financial condition and operating results could be materially adversely affected. We occasionally receive orders placed with fraudulent credit card data. We may suffer losses as a result of orders placed with fraudulent credit card data even if the associated financial institution approved payment of the orders. Under current credit card practices, we may be liable for fraudulent credit card transactions. If we are unable to detect or control credit card fraud, our liability for these transactions could harm our business, financial condition and results of operations.

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Government regulation of the Internet and e-commerce is evolving, and unfavorable changes or failure by us to comply with these regulations could substantially harm our business and results of operations.

We are subject to general business regulations and laws as well as regulations and laws specifically governing the Internet and e-commerce. Existing and future regulations and laws could impede the growth of the Internet, e- commerce or mobile commerce. These regulations and laws may involve taxes, tariffs, privacy and data security, anti-spam, content protection, electronic contracts and communications, consumer protection, Internet neutrality and gift cards. It is not clear how existing laws governing issues such as property ownership, sales and other taxes and consumer privacy apply to the Internet as the vast majority of these laws were adopted prior to the advent of the Internet and do not contemplate or address the unique issues raised by the Internet or e-commerce. It is possible that general business regulations and laws, or those specifically governing the Internet or e-commerce, may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. We cannot be sure that our practices have complied, comply or will comply fully with all such laws and regulations. Any failure, or perceived failure, by us to comply with any of these laws or regulations could result in damage to our reputation, a loss in business and proceedings or actions against us by governmental entities or others. Any such proceeding or action could hurt our reputation, force us to spend significant amounts in defense of these proceedings, distract our management, increase our costs of doing business, decrease the use of our sites by consumers and suppliers and may result in the imposition of monetary liability. We may also be contractually liable to indemnify and hold harmless third parties from the costs or consequences of non-compliance with any such laws or regulations. In addition, it is possible that governments of one or more countries may seek to censor content available on our sites or may even attempt to completely block access to our sites. Adverse legal or regulatory developments could substantially harm our business. In particular, in the event that we are restricted, in whole or in part, from operating in one or more countries, our ability to retain or increase our customer base may be adversely affected, and we may not be able to maintain or grow our net revenue and expand our business as anticipated. Further, as we enter into new market segments or geographical areas and expand the products and services we offer, we may be subject to additional laws and regulatory requirements or prohibited from conducting our business, or certain aspects of it, in certain jurisdictions. We will incur additional costs complying with these additional obligations and any failure or perceived failure to comply would adversely affect our business and reputation.

Changes in tax treatment of companies engaged in e-commerce may adversely affect the commercial use of our sites and our financial results.

Due to the global nature of the Internet, it is possible that various states might attempt to impose additional or new regulation on our business or levy additional or new sales, income or other taxes relating to our activities. Tax authorities at the federal, state and local levels are currently reviewing the appropriate treatment of companies engaged in e-commerce. New or revised international, federal, state or local tax regulations or court decisions may subject us or our customers to additional sales, income and other taxes. For example, on June 21, 2018, the U.S. Supreme Court rendered a 5-4 majority decision in South Dakota v. Wayfair Inc., 17-494 where the Court held, among other things, that a state may require an out-of-state seller with no physical presence in the state to collect and remit sales taxes on goods the seller ships to consumers in the state, overturning existing court precedent. While we do not expect the Court's decision to have a significant impact on our business, other new or revised taxes and, in particular, sales taxes and similar taxes could increase the cost of doing business online and decrease the attractiveness of selling products over the Internet. New taxes and rulings could also create significant increases in internal costs necessary to capture data and collect and remit taxes. Any of these events could have a material adverse effect on our business, financial condition and operating results.

Risks Related to the Ownership of Our Common Stock

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plan and any acquisition agreement, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.

We expect that significant additional capital will be needed in the future to continue our planned operations. To the extent we raise additional capital by issuing equity and/or convertible securities, our stockholders may experience substantial dilution. We may sell or otherwise issue our common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell or issue our common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent issuances. These issuances may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders. We may pay for future acquisitions with additional issuances of shares of our common stock as well, which would result in further dilution for existing stockholders.

Pursuant to our 2016 Equity Incentive Plan (as amended, the “2016 Plan”), there are 17,600,000 shares of our common stock reserved for future issuance to our employees, directors and consultants, of which 408,433shares have been issued, 6,227,297 restricted stock units have been granted and options to purchase 4,423,334 shares of our common stock have been granted and are outstanding as of December 31, 2020. On September 17, 2020, our 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, and we formally increased the size of the 2016 Plan during the quarter ending March 31, 2021. If our board of directors elects to issue additional shares of our common stock, stock options, restricted stock units and/or other equity-based awards under the 2016 Plan, as amended, our stockholders may experience additional dilution, which could cause our stock price to fall.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuance of Unregistered Securities

Other than as set forth below and as reported in our Current Reports on Form 8-K, there have been no other sales or issuances of unregistered securities during the period covered by this Quarterly Report that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).

During the three months ended December 31, 2020, we issued 436,630 shares of our restricted common stock valued at $1.0 million to various consultants. We valued these shares at prices between $2.01 and $3.89 per share, the market price of our common stock on the date of issuance.

During the three months ended December 31, 2020, we issued 706,221 restricted stock units to various employees and consultants.

We believe the offers, sales and issuances of the securities described above were made in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder and involved a transaction by an issuer not involving any public offering. Each of the recipients of securities in any transaction exempt from registration either received or had adequate access, through employment, business or other relationships, to information about us.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None.

Item 3. Defaults Upon Senior Securities.

On December 31, 2014, we converted accounts payable into a senior promissory note (the “Note”) in the aggregate principal amount of $0.2 million. The Note bears interest at 6% per annum and interest is payable on a quarterly basis commencing March 31, 2015 or we may elect that the amount of such interest be added to the principal sum outstanding under this Note. The payables arose in connection with professional services rendered by our former attorneys for us prior to and through December 31, 2014, and the Note had an original maturity date of December 31, 2015, which was extended to December 31, 2016 or such later date as the lender may agree to in writing. As of the date of this Quarterly Report, the Note has not been extended and is in default. In addition, the holder of the Note obtained a judgement against us for nonpayment of the Note in the State of Delaware in August 2019 and in the State of California in September 2019, and filed a judgement lien in December 2019 with the Secretary of State of California related to the California judgement. As of December 31, 2020 and March 31, 2020, the balance due of $0.3 million and $0.3 million includes $0.1 million and $0.1 million of accrued interest, respectively, outstanding under the Note.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits

Exhibit Number |  | Description
3.1 |  | Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 8, 2017).
3.2 |  | Certificate of Amendment to the Certificate of Incorporation of the Company, dated as of September 30, 2017 (Incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-1, Amendment No. 3, filed with the SEC on October 6, 2017).
3.3 |  | Bylaws of the Company (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the SEC on August 8, 2017).
3.4 |  | Amendment No. 1 to the Bylaws of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on January 14, 2021).
4.1 |  | Convertible Promissory Note, dated as of February 5, 2020, between React Presents, LLC and LiveStyle NA Live Holdings, Inc. (Incorporated by reference to Exhibit 4.3 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 26, 2020).
4.2 |  | 8.5% Senior Secured Convertible Note, dated as of September 15, 2020, issued by the Company to Harvest Small Cap Partners, L.P. (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on September 21, 2020).
4.3 |  | 8.5% Senior Secured Convertible Note, dated as of September 15, 2020, issued by the Company to Harvest Small Cap Partners Master, Ltd. (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the SEC on September 21, 2020).
10.1† |  | Form of Director/Officer Indemnification Agreement (Incorporated by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K, filed with the SEC on April 30, 2014).
10.2† |  | The Company’s 2016 Equity Incentive Plan (Incorporated by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 14, 2016).
10.3† |  | Amendment No. 1 to the LiveXLive Media, Inc. 2016 Equity Incentive Plan (Incorporated by reference to Exhibit 10.23 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on February 13, 2019).
10.4† |  | Form of Director Option Agreement under 2016 Equity Incentive Plan (Incorporated by reference to Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 14, 2016).
10.5† |  | Form of Employee Option Agreement under 2016 Equity Incentive Plan (Incorporated by reference to Exhibit 10.25 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 14, 2016).
10.6† |  | Employment Agreement, dated as of September 7, 2017, between the Company and Robert S. Ellin (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on September 8, 2017).
10.7† |  | Amendment No. 1 to Employment Agreement, dated as of December 15, 2017, between the Company and Robert Ellin (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 15, 2017).
10.8† |  | Amended and Restated Employment Agreement, dated as of September 1, 2017, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on September 8, 2017).
10.9† |  | Amendment No. 1 to Employment Agreement, dated as of December 15, 2017, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on December 15, 2017).
10.10† |  | Amendment No. 2 to Employment Agreement, dated as of April 27, 2018 and effective as of April 16, 2018, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 29, 2018).

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Exhibit Number |  | Description
10.11† |  | Amendment No. 3 to Employment Agreement, dated as of March 31, 2019, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 24, 2019).
10.12† |  | Amendment No. 4 to Employment Agreement, dated as of April 16, 2019, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.14 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 24, 2019).
10.13† |  | Amendment No. 5 to Amended and Restated Employment Agreement, dated as of December 20, 2019, between the Company and Jerome N. Gold (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 26, 2019).
10.14† |  | Employment Agreement, dated as of April 13, 2018, between the Company and Michael Zemetra (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 19, 2018).
10.15† |  | Amendment No. 1 to Employment Agreement, dated as of March 31, 2019, between the Company and Michael Zemetra (Incorporated by reference to Exhibit 10.15 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 24, 2019).
10.16† |  | Amendment No. 2 to Employment Agreement, dated as of April 16, 2020 and effective as of April 1, 2020, between the Company and Michael Zemetra (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on April 17, 2020).
10.17†£ |  | Employment Agreement, dated as of January 28, 2019, between the Company and Michael Bebel (Incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 24, 2019).
10.18† |  | Employment Agreement, dated as of July 15, 2019, between the Company and Dermot McCormack (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 19, 2019).
10.19 |  | Amendment, dated as of September 20, 2019, to the Interactive Radio Agreement between Slacker, Inc. and a certain licensor of music content (Incorporated by reference to Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 8, 2019).
10.20£ |  | Amendment, dated as of September 27, 2019, to the Amended and Restated Interactive Radio and Music Services Agreement between Slacker, Inc. and a certain licensor of music content (Incorporated by reference to Exhibit 10.27 to the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 8, 2019).
10.21 |  | Membership Interest Purchase Agreement, dated as of February 5, 2020, among the Company, LiveXLive Events, LLC and LiveStyle NA Live Holdings, Inc. (Incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 26, 2020).
10.22 |  | Promissory Note, dated as of April 13, 2020, between the Company and MidFirst Bank (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on April 17, 2020).
10.23 |  | Stock Purchase Agreement, dated as of May 7, 2020, by and among the Company, Courtside Group, Inc., LiveXLive PodcastOne, Inc., the persons identified as “Sellers” on the signature pages thereto, and Norman Pattiz, as the representative of the Sellers (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on May 8, 2020).
10.24 |  | Shares Issuance Agreement, dated as of July 17, 2020, between the Company and music label (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 22, 2020).
10.25 |  | Occupancy Agreement, dated as of August 5, 2020, by and between the Company and Mani Brothers 9200 Sunset (DE), LLC (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 11, 2020).
10.26£ |  | Securities Purchase Agreement, dated as of July 2, 2020, between the Company and the Purchaser (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 6, 2020).
10.27£ |  | Amendment No. 1 to Securities Purchase Agreement, dated as of July 30, 2020, between the Company and the Purchaser (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 5, 2020).
10.28 |  | Subsidiary Guarantee, dated as of September 15, 2020, made by each of the Guarantors, in favor of the Secured Party (as defined therein) (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on September 21, 2020).

46

Exhibit Number |  | Description
10.29 |  | Security Agreement, dated as of September 15, 2020, among the Company, the Guarantors and the Secured Party (as defined therein) (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the SEC on September 21, 2020).
10.30 |  | Intellectual Property Security Agreement, dated as of September 15, 2020, among the Company, the Guarantors and the Secured Party (as defined therein) (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the SEC on September 21, 2020).
10.31 |  | Registration Rights Agreement, dated as of September 15, 2020, among the Company and the Buyer (as defined therein). (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed with the SEC on September 21, 2020).
10.32£ |  | Transition Services and General Release Agreement, dated as of October 7, 2020, between the Company and Michael Zemetra (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on October 8, 2020).
10.33† |  | Employment Agreement, dated as of November 16, 2020, between the Company and Michael Quartieri (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on November 20, 2020).
10.34 |  | Stock Purchase Agreement, dated as of December 22, 2020, among the Company, Custom Personalization Solutions, Inc., LiveXLive Merchandising, Inc., the persons identified as “Sellers” on the signature pages thereto, and Scott R. Norman, as the representative of the Sellers (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on December 30, 2020).
31.1* |  | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2* |  | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1** |  | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2** |  | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* |  | XBRL Instance Document
101.SCH* |  | XBRL Taxonomy Extension Schema Document
101.CAL* |  | XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* |  | XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* |  | XBRL Taxonomy Extension Label Linkbase Document
101.PRE* |  | XBRL Taxonomy Extension Presentation Linkbase Document

† | Management contract or compensatory plan or arrangement.
£ | Certain confidential information has been omitted or redacted from these exhibits that is not material and would likely cause competitive harm to the Company if publicly disclosed.
* | Filed herewith.
** | Furnished herewith.

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SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

| LIVEXLIVE MEDIA, INC.
Date: February 16, 2021 | By: | /s/ Robert S. Ellin
|  | Robert S. Ellin
|  | Chief Executive Officer and Chairman
|  | (Principal Executive Officer)
Date: February 16, 2021 | By: | /s/ Michael A. Quartieri
|  | Michael A. Quartieri
|  | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

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