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Business Combinations

9 Months Ended

Dec. 31, 2020

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.

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

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