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Fair Value Measurements
 12 Months Ended
Mar. 31, 2022
Fair Value Disclosures [Abstract]  
Fair Value Measurements

Note 20 — Fair Value Measurements

 

The following table presents the fair value of the Company’s financial liabilities that are measured at fair value on a recurring basis (in thousands):

 

    March 31, 2022  
    Fair     Hierarchy Level  
    Value     Level 1     Level 2     Level 3  
Liabilities:                        
Contingent consideration liability from PodcastOne acquisition   $ 2,965     $          -     $        -     $ 2,965  
Contingent consideration liability from Gramophone acquisition     174       -       -       174  
Bifurcated embedded derivative on senior secured convertible note payable     18       -       -       18  
    $ 3,157     $ -     $ -     $ 3,157  

 

   March 31, 2021 
   Fair   Hierarchy Level 
   Value   Level 1   Level 2   Level 3 
Liabilities:                
Contingent consideration liability from PodcastOne acquisition  $2,423   $
        -
   $
        -
   $2,423 
Contingent consideration liability from CPS acquisition   2,513    
-
    
-
    2,513 
Bifurcated embedded derivative on senior secured convertible notes payable   118    
-
    
-
    118 
Bifurcated embedded derivative on unsecured convertible note payable   13    
-
    
-
    13 
   $5,067   $
-
   $
-
   $5,067 

 

The following table presents a reconciliation of the Company’s financial liabilities that are measured at Level 3 within the fair value hierarchy (in thousands):

 

   Amount 
Balance as of April 1, 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   1,654 
Initial measurement of embedded derivatives on senior secured convertible notes issued on September 15, 2020   671 
Total fair value adjustments reported in earnings   977 
Balance as of March 31, 2021   5,067 
Change in fair value of bifurcated embedded derivatives, reported in earnings   (113)
Change in fair value of contingent consideration liabilities, reported in earnings   (145)
Common stock settlement of contingent consideration liability from CPS acquisition   (1,826)
Initial measurement of contingent consideration for Gramophone acquisition   174 
Balance as of March 31, 2022  $3,157 

 

Convertible debt and beneficial conversion features

 

When the Company issues debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative, as follows: a) one or more underlyings, typically the price of our common stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. An embedded equity-linked component that meets the definition of a derivative does not have to be separated from the host instrument if the component qualifies for the scope exception for certain contracts involving an issuer’s own equity. The scope exception applies if the contract is both a) indexed to its own stock; and b) classified in shareholders’ equity in its statement of financial position.

 

If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using the yield model with a black-scholes option pricing model upon the date of issuance. If the fair value of the convertible debt derivative is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the convertible debt derivative is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The convertible debt derivative is revalued at the end of each reporting period and any change in fair value is recorded as a gain or loss in the statement of operations. The debt discount is amortized through interest expense over the life of the debt.

 

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

 

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

 

   March 31,   March 31, 
   2022   2021 
         
Bifurcated embedded derivative on senior secured convertible notes payable Market yield   4.7%   17.0%
Bifurcated embedded derivative on unsecured convertible note payable Market yield   NA%   26.5%

 

Significant increases or decreases in the inputs noted above in isolation would result in a significantly lower or higher fair value measurement.

 

The Company did not elect the fair value measurement option for the following financial assets and liabilities. The fair values of certain financial instruments and the hierarchy level the Company used to estimate the fair values are shown below (in thousands):

 

   March 31, 2022 
   Carrying   Hierarchy Level 
   Value   Level 1   Level 2   Level 3 
Liabilities:                
Senior secured convertible notes payable, net   13,650    
-
    
-
    15,448 
Unsecured convertible notes payable related party, net   5,879    
-
    
-
    6,084 

 

   March 31, 2021 
   Carrying   Hierarchy Level 
   Value   Level 1   Level 2   Level 3 
Liabilities:                
Senior secured convertible notes payable, net   13,047    
-
    
-
    20,228 
Unsecured convertible notes payable related party, net   5,501    
-
    
-
    9,216 
Unsecured convertible note payable   1,976    
-
    
-
    2,167 

 

The fair values of financial assets and liabilities not included in these tables are estimated to be equal to their carrying values as of March 31, 2022 and 2021. The Company’s estimates of the fair values were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop the estimated fair values.

 

The fair value of the financial assets and liabilities, where the Company did not elect the fair value measurement option and carried at amortized cost, were determined using the following significant unobservable inputs:

 

   Year Ended March 31, 
   2022   2021 
Senior secured convertible notes payable, net (binomial lattice model):        
Market yield   6.3%   17.0%
           
Unsecured convertible notes payable related party, net (yield model with a Black-Scholes-Merton option pricing model):          
Market yield   6.6%   23.0%
           
Unsecured convertible note payable (yield model with a Black-Scholes-Merton option pricing model):          
Market yield   
-
%   26.5%

  

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 and accrued expenses approximated their fair values at March 31, 2022 and 2021.

 

The Company’s note payable is not publicly traded and fair value is estimated to equal carrying value. The Company’s debentures, senior secured line of credit 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 are valued using a binomial lattice model and a yield model with a Black-Scholes-Merton option pricing model, respectively. The Company has estimated the fair value of contingent consideration related to the acquisitions of PodcastOne, CPS and Gramophone based on the number of shares issuable based on the achievement of certain provisions within the purchase agreement, as detailed in Note 4 – Business Combinations, using the quoted price of the Company’s common stock. The inputs used to fair value the contingent consideration on the date of acquisition were also used as of the balance sheet date.