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, 2021

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

LIVEONE, 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) 601-2505

(Registrant’s telephone number, including area code)

n/a

(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 |  | LVO |  | 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 10, 2022, there were 81,908,983 shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.

LIVEONE, INC.

(formerly LiveXLive Media, Inc.)

TABLE OF CONTENTS

|  |  | Page
PART I — FINANCIAL INFORMATION |  | 1
Item 1. | Financial Statements |  | 1
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 2
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |  | 21
Item 4. | Controls and Procedures |  | 22
PART II — OTHER INFORMATION |  | 23
Item 1. | Legal Proceedings |  | 23
Item 1A. | Risk Factors |  | 24
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |  | 31
Item 3. | Defaults Upon Senior Securities |  | 32
Item 4. | Mine Safety Disclosures |  | 32
Item 5. | Other Information |  | 32
Item 6. | Exhibits |  | 32
| Signatures |  | 35

i

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

|  | Page
Condensed Consolidated Balance Sheets as of December 31, 2021 and March 31, 2021 (unaudited) |  | F-1
Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2021 and 2020 (unaudited) |  | F-2
Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the three and nine months ended December 31, 2021 and 2020 (unaudited) |  | F-3
Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2021 and 2020 (unaudited) |  | F-4
Notes to the Condensed Consolidated Financial Statements (unaudited) |  | F-5 – F-26

1

LIVEONE, INC.

(formerly LiveXLive Media, Inc.)

Condensed Consolidated Balance Sheets

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

|  | December 31, |  |  | March 31, |
|  | 2021 |  |  | 2021 |
Assets |  |  |  |  |  |
Current Assets |  |  |  |  |  |
Cash and cash equivalents |  | $ | 12,396 |  |  | $ | 18,635 |
Restricted cash |  |  | 260 |  |  |  | 135 |
Accounts receivable, net |  |  | 17,868 |  |  |  | 10,567 |
Inventories |  |  | 2,897 |  |  |  | 2,568 |
Prepaid expense and other assets |  |  | 2,115 |  |  |  | 3,366 |
Total Current Assets |  |  | 35,536 |  |  |  | 35,271 |
Property and equipment, net |  |  | 4,752 |  |  |  | 4,367 |
Goodwill |  |  | 23,380 |  |  |  | 22,619 |
Intangible assets, net |  |  | 18,173 |  |  |  | 22,468 |
Other assets |  |  | 802 |  |  |  | 1,044 |
Total Assets |  | $ | 82,643 |  |  | $ | 85,769 |
Liabilities and Stockholders’ Equity (Deficit) |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  | $ | 43,400 |  |  | $ | 32,646 |
Accrued royalties |  |  | 12,629 |  |  |  | 12,349 |
Notes payable, current portion |  |  | 141 |  |  |  | 2,729 |
Deferred revenue |  |  | 1,701 |  |  |  | 1,262 |
Unsecured convertible notes, net |  |  | - |  |  |  | 1,976 |
Total Current Liabilities |  |  | 57,871 |  |  |  | 50,962 |
Secured convertible notes, net |  |  | 13,395 |  |  |  | 13,047 |
Unsecured convertible notes, net |  |  | 5,786 |  |  |  | 5,501 |
Senior secured revolving line of credit |  |  | 6,965 |  |  |  | - |
Notes payable, net |  |  | 620 |  |  |  | 885 |
Lease liabilities, noncurrent |  |  | 540 |  |  |  | 742 |
Due to Music Partner |  |  | - |  |  |  | 3,937 |
Other long-term liabilities |  |  | 174 |  |  |  | 2,422 |
Deferred income taxes |  |  | 137 |  |  |  | 137 |
Total Liabilities |  |  | 85,488 |  |  |  | 77,633 |
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; 81,112,603 and 76,807,898 shares issued and outstanding, respectively |  |  | 81 |  |  |  | 77 |
Additional paid in capital |  |  | 202,093 |  |  |  | 178,000 |
Accumulated deficit |  |  | (205,019 | ) |  |  | (169,941 | )
Total stockholders’ equity (deficit) |  |  | (2,845 | ) |  |  | 8,136 |
Total Liabilities and Stockholders’ Equity (Deficit) |  | $ | 82,643 |  |  | $ | 85,769 |

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

F-1

LIVEONE, INC.

(formerly 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, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Revenue: |  | $ | 32,895 |  |  | $ | 19,123 |  |  | $ | 93,586 |  |  | $ | 44,189 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales |  |  | 27,666 |  |  |  | 14,564 |  |  |  | 74,654 |  |  |  | 32,524 |
Sales and marketing |  |  | 3,466 |  |  |  | 3,059 |  |  |  | 10,814 |  |  |  | 6,481 |
Product development |  |  | 1,657 |  |  |  | 2,534 |  |  |  | 5,990 |  |  |  | 6,908 |
General and administrative |  |  | 8,550 |  |  |  | 5,162 |  |  |  | 27,173 |  |  |  | 14,762 |
Amortization of intangible assets |  |  | 1,524 |  |  |  | 1,399 |  |  |  | 4,547 |  |  |  | 4,057 |
Total operating expenses |  |  | 42,863 |  |  |  | 26,718 |  |  |  | 123,178 |  |  |  | 64,732 |
Loss from operations |  |  | (9,968 | ) |  |  | (7,595 | ) |  |  | (29,592 | ) |  |  | (20,543 | )
Other income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (1,052 | ) |  |  | (998 | ) |  |  | (3,180 | ) |  |  | (4,097 | )
Loss on extinguishment of debt |  |  | - |  |  |  | - |  |  |  | (4,321 | ) |  |  | (1,488 | )
Forgiveness of PPP loans |  |  | - |  |  |  | - |  |  |  | 2,511 |  |  |  | - |
Other income (expense) |  |  | (811 | ) |  |  | (138 | ) |  |  | (528 | ) |  |  | (320 | )
Total other expense, net |  |  | (1,863 | ) |  |  | (1,136 | ) |  |  | (5,518 | ) |  |  | (5,905 | )
Loss before provision for income taxes |  |  | (11,831 | ) |  |  | (8,731 | ) |  |  | (35,110 | ) |  |  | (26,448 | )
Provision for (benefit from) income taxes |  |  | (40 | ) |  |  | - |  |  |  | (32 | ) |  |  | 4 |
Net loss |  | $ | (11,791 | ) |  | $ | (8,731 | ) |  | $ | (35,078 | ) |  | $ | (26,452 | )
Net loss per share – basic and diluted |  | $ | (0.15 | ) |  | $ | (0.12 | ) |  | $ | (0.45 | ) |  | $ | (0.40 | )
Weighted average common shares – basic and diluted |  |  | 78,188,050 |  |  |  | 72,356,093 |  |  |  | 77,670,598 |  |  |  | 66,880,417 |

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

F-2

LIVEONE, INC.

(formerly 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/(Deficit) |
Balance as of September 30, 2021 |  |  | 79,001,821 |  |  | $ | 79 |  |  | $ | 195,769 |  |  | $ | (193,228 | ) |  | $ | 2,620 |
Stock-based compensation |  |  | - |  |  |  | - |  |  |  | 2,919 |  |  |  | - |  |  |  | 2,919 |
Vested employee restricted stock units |  |  | 711,274 |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | 1 |
Exercise of employee stock options |  |  | 165,000 |  |  |  | - |  |  |  | 272 |  |  |  | - |  |  |  | 272 |
Shares issued for Gramophone acquisition |  |  | 79,365 |  |  |  | - |  |  |  | 89 |  |  |  | - |  |  |  | 89 |
Shares issued on amendment of unsecured convertible notes |  |  | 1,155,143 |  |  |  | 1 |  |  |  | 3,044 |  |  |  | - |  |  |  | 3,045 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (11,791 | ) |  |  | (11,791 | )
Balance as of December 31, 2021 |  |  | 81,112,603 |  |  | $ | 81 |  |  | $ | 202,093 |  |  | $ | (205,019 | ) |  | $ | (2,845 | )

|  | Common Stock |  |  | Additional Paid in |  |  | Accumulated |  |  | Total Stockholders’ |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Equity/(Deficit) |
Balance as of March 31, 2021 |  |  | 76,807,898 |  |  | $ | 77 |  |  | $ | 178,000 |  |  | $ | (169,941 | ) |  | $ | 8,136 |
Stock-based compensation |  |  | 536,770 |  |  |  | 1 |  |  |  | 13,288 |  |  |  | - |  |  |  | 13,289 |
Vested employee restricted stock units |  |  | 1,247,915 |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | 1 |
Interest paid in kind |  |  | - |  |  |  | - |  |  |  | 35 |  |  |  | - |  |  |  | 35 |
Exercise of employee stock options |  |  | 400,460 |  |  |  | - |  |  |  | 872 |  |  |  | - |  |  |  | 872 |
Shares issued for CPS acquisition |  |  | 791,398 |  |  |  | 1 |  |  |  | 1,825 |  |  |  | - |  |  |  | 1,826 |
Shares issued for Gramophone acquisition |  |  | 79,365 |  |  |  | - |  |  |  | 89 |  |  |  | - |  |  |  | 89 |
Purchase price adjustment in connection with CPS acquisition |  |  | - |  |  |  | - |  |  |  | 301 |  |  |  | - |  |  |  | 301 |
Unsecured convertible note premium |  |  | - |  |  |  | - |  |  |  | 4,199 |  |  |  | - |  |  |  | 4,199 |
Shares issued on amendment of unsecured and secured convertible notes |  |  | 1,248,797 |  |  |  | 1 |  |  |  | 3,484 |  |  |  | - |  |  |  | 3,485 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (35,078 | ) |  |  | (35,078 | )
Balance as of December 31, 2021 |  |  | 81,112,603 |  |  | $ | 81 |  |  | $ | 202,093 |  |  | $ | (205,019 | ) |  | $ | (2,845 | )

|  | 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/(Deficit) |
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 |

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

F-3

LIVEONE, INC.

(formerly LiveXLive Media, Inc.)

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

|  | Nine Months Ended December 31, |
|  | 2021 |  |  | 2020 |
Cash Flows from Operating Activities: |  |  |  |  |  |
Net loss |  | $ | (35,078 | ) |  | $ | (26,452 | )
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 7,230 |  |  |  | 6,368 |
Interest paid in kind |  |  | 35 |  |  |  | 453 |
Stock-based compensation |  |  | 12,059 |  |  |  | 8,033 |
Amortization of debt discount |  |  | 986 |  |  |  | 1,025 |
Change in fair value of bifurcated embedded derivatives |  |  | (110 | ) |  |  | (827 | )
Change in fair value of contingent consideration liability |  |  | (173 | ) |  |  | (39 | )
Forgiveness of PPP Loans |  |  | (2,511 | ) |  |  | - |
Loss on extinguishment of debt |  |  | 4,321 |  |  |  | 1,488 |
Debt conversion expense |  |  | 756 |  |  |  | - |
Deferred income taxes |  |  | (41 | ) |  |  | - |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (7,297 | ) |  |  | (2,218 | )
Prepaid expenses and other current assets |  |  | 921 |  |  |  | (1,044 | )
Inventories |  |  | (328 | ) |  |  | 5 |
Other assets |  |  | 255 |  |  |  | - |
Deferred revenue |  |  | 387 |  |  |  | 428 |
Accounts payable and accrued liabilities |  |  | 8,536 |  |  |  | 4,087 |
Other liabilities |  |  | (174 | ) |  |  | (407 | )
Net cash used in operating activities |  |  | (10,226 | ) |  |  | (9,100 | )
Cash Flows from Investing Activities: |  |  |  |  |  |  |  |
Increase in cash from the acquisition of CPS |  |  | - |  |  |  | 2,418 |
Acquisition of Gramophone |  |  | (150 | ) |  |  |  |
Purchases of property and equipment |  |  | (2,888 | ) |  |  | (2,229 | )
Purchases of intangible assets |  |  | (84 | ) |  |  | - |
Net cash provided by (used in) investing activities |  |  | (3,122 | ) |  |  | 189 |
Cash Flows from Financing Activities: |  |  |  |  |  |  |  |
Repayment of secured convertible debentures |  |  | - |  |  |  | (10,823 | )
Repayment of note payable |  |  | (351 | ) |  |  | - |
Proceeds from secured convertible notes |  |  | - |  |  |  | 13,139 |
Debt issuance costs |  |  | - |  |  |  | (190 | )
Proceeds from issuance of shares of common stock, net |  |  | - |  |  |  | 9,395 |
Payments on capital lease liability |  |  | (252 | ) |  |  | (85 | )
Proceeds from exercise of stock options |  |  | 872 |  |  |  | 481 |
Proceeds from drawdown on senior secured revolving line of credit |  |  | 6,965 |  |  |  | - |
Proceeds from notes payable |  |  | - |  |  |  | 2,145 |
Net cash provided by financing activities |  |  | 7,234 |  |  |  | 14,062 |
Net change in cash, cash equivalents and restricted cash |  |  | (6,114 | ) |  |  | 5,151 |
Cash, cash equivalents and restricted cash, beginning of period |  |  | 18,770 |  |  |  | 12,437 |
Cash, cash equivalents and restricted cash, end of period |  | $ | 12,656 |  |  | $ | 17,588 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |
Cash paid for income taxes |  | $ | 8 |  |  | $ | - |
Cash paid for interest |  | $ | 1,081 |  |  | $ | 651 |
Supplemental disclosure of non-cash investing and financing activities: |  |  |  |  |  |  |  |
Fair value of options issued to employees, capitalized as internally-developed software |  | $ | 148 |  |  | $ | 212 |
Fair value of 5,566,885 shares of the Company’s common stock issued in connection with the PodcastOne acquisition |  |  | - |  |  |  | 14,991 |
Fair value of 60,000 shares of common stock issued in connection with Secured Convertible Notes |  | $ | 320 |  |  |  | - |
Fair value of 33,654 shares of common stock issued in connection with Related Party Unsecured Convertible Notes |  |  | 122 |  |  |  | - |
Fair value of 1,155,143 shares of common stock issued upon conversion of Unsecured Convertible Notes |  |  | 3,045 |  |  |  |  |
Forgiveness of PPP loan |  | $ | 2,511 |  |  |  | - |
Fair value of 2,679,459 shares of common stock issued upon settlement of accounts payable |  | $ | - |  |  | $ | 8,657 |
Fair value of shares issued in connection with CPS acquisition |  | $ | 2,127 |  |  |  | 6,391 |
Fair value of unsecured convertible note premium |  | $ | 4,199 |  |  | $ | - |
Non-cash settlement for issuable or prepaid shares |  | $ | - |  |  | $ | 494 |
Fair value of 79,365 shares of common stock issued in connection with the Gramophone acquisition |  |  | 89 |  |  |  | - |

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

F-4

LIVEONE, INC.

(formerly LiveXLive Media, Inc.)

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Six Months Ended December 31, 2021 and 2020

Note 1 — Organization and Basis of Presentation

Organization

LiveOne, Inc. (formerly LiveXLive Media, Inc.) (“LiveOne”) together with its subsidiaries (“we,” “us,” “our” or the “Company”) is a Delaware corporation headquartered in Beverly Hills, California. The Company is a creator-first, music, entertainment and technology platform focused on delivering premium experiences and content worldwide through memberships, subscriptions and live and virtual events.

On December 29, 2017, LiveOne acquired Slacker, Inc. (“Slacker”), an Internet music and radio streaming service incorporated in the state of Delaware, and it became a wholly owned subsidiary of LiveOne. On February 5, 2020, the Company acquired (i) React Presents, LLC a Delaware limited liability company (“React Presents”), and it became a wholly owned subsidiary of LiveXLive Events, LLC, a wholly owned subsidiary 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). On October 17, 2021, the Company through its wholly owned subsidiary LiveXLive PR, Inc., acquired 100% of the issued and outstanding equity interests of Gramophone Media, Inc. (“Gramophone”) (see Note 4 – Business Combinations).

Basis of Presentation

The presented financial information includes the financial information and activities of PodcastOne for the three and nine months ended December 31, 2021 (91 days and 274 days, respectively) and for the three months and nine months ended December 31, 2020 (91 days and 184 days, respectively). The presented financial information includes the financial information and activities of CPS for the three and nine months ended December 31, 2021 (91 days and 274 days, respectively) and for the three and nine months ended December 31, 2020 (10 days and 10 days, respectively). The presented financial information includes the financial information and activities of Gramophone for the three and nine months ended December 31, 2021 (75 days and 75 days, respectively) and December 31, 2020 (0 days).

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, 2021, 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 and nine months ended December 31, 2021. The results for the three and nine months ended December 31, 2021 are not necessarily indicative of the results expected for the full fiscal year ending March 31, 2022 (“fiscal 2022”). The condensed consolidated balance sheet as of March 31, 2021 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 July 14, 2021 (the “2021 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 2021 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 $12.7 million as of December 31, 2021). As reflected in its condensed consolidated financial statements included elsewhere herein, the Company has a history of losses, and incurred a net loss of $11.8 million during the quarter ended December 31, 2021 and had a working capital deficiency of $22.3 million as of December 31, 2021. 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’s ability to continue as a going concern is dependent on its ability to execute its growth strategy and on its ability to raise additional funds. The Company filed a universal shelf Registration Statement on Form S-3 which became effective in February 2019 pursuant to which as of the date of this Quarterly Report the Company has the ability to raise up to $150.0 million in cash from the sale of equity, debt and/or other financial instruments, of which $121.5 million during the period equal to the shorter of (i) 6 months from February 7, 2022 and (ii) the date when the New Shelf S-3 is declared effective by the SEC. The Company also filed a replacement universal shelf Registration Statement on Form S-3 (the “New Shelf S-3”) with the SEC on February 4, 2022, pursuant to which, if declared effective by the SEC, the Company will have the ability to raise up to $150.0 million in cash from the sale of its equity, debt and/or other financial instruments. The continued spread of COVID-19 and uncertain market conditions may limit the Company’s ability to access capital, may reduce demand for its services and may negatively impact its ability to retain key personnel. During the quarter ended June 30, 2021, the Company entered into a $7.0 million senior secured revolving credit facility (see Note 11 – Senior Secured Revolving Line of Credit ). Management may seek additional funds, primarily through the issuance of equity and/or debt securities for cash to operate the Company’s business. No assurance can be given that any future financing will be available or, if available, that the Company will be on terms that are satisfactory to it. Even if the Company is able to obtain additional financing, it may contain terms that result in undue restrictions on its operations, in the case of debt financing or cause substantial dilution for its stockholders, in case of equity and/or convertible debt financing. If the Company is unable to obtain sufficient financing when needed, the Company may also have to reduce certain overhead costs through the reduction of salaries and other means and settle liabilities through negotiation. There can be no assurance that management’s attempts at any or all of these endeavors will be successful.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Acquisitions are included in the Company’s condensed consolidated financial statements from the date of the acquisition. The Company uses purchase accounting for its acquisitions, which results in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates. All intercompany balances and transactions have been eliminated in consolidation.

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

There have been no material changes in the Company’s significant accounting policies from those previously disclosed in the consolidated financial statements included in the 2021 Form 10-K, other than those included below.

COVID-19

In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease (“COVID-19”) as a pandemic. The global impact of the COVID-19 pandemic has had a negative effect on the global economy, disrupting the financial markets creating increasing volatility and overall uncertainty. The Company began to experience modest adverse impacts of the COVID-19 pandemic in the fourth quarter of fiscal year ended March 31, 2020 and became more adverse throughout the fiscal year ended March 31, 2021. Although the impact has subsided, the Company expects to continue experiencing modest adverse impacts throughout the fiscal year ending March 31, 2022. The Company’s event and programmatic advertising revenues were directly impacted throughout the 2021 fiscal year with all on-premise in-person live music festivals and events postponed and mixed demand from historical 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 negatively impacted the Company’s near-term subscriber growth in the 2021 fiscal year. During the fiscal year ended March 31, 2021, the Company enacted several initiatives to counteract these near-term challenges, including salary reductions, obtaining a Paycheck Protection Program loan (see Note 8 - Notes Payable) and pivoting its live music production to 100% digital. The Company began producing, curating, and broadcasting digital music festivals and events across its platform which has resulted in the growth in the number of live events streamed, related sponsorship revenue and overall viewership. The Company also launched a new pay-per-view (“PPV) offering in May 2020, enabling new forms of artist revenue including digital tickets, tipping, digital meet and greet and merchandise sales. However, there is uncertainty as to the duration and overall impact of the COVID-19 pandemic, which could result in an adverse material change in a future period to the Company’s results of operations, financial position and liquidity.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in the United States. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company evaluated the provisions of the CARES Act and determined it is eligible for Employee Retention Credits related to payroll taxes paid within the quarter ended September 30, 2021. In accordance with ASC 105-10-05-02, the Company analogized to International Financial Reporting Standards (“IFRS”), specifically International Accounting Standards (“IAS”) 20, Accounting for Government Grants and Disclosures of Government Assistance, and determined that the payroll tax credit will be recognized as a reduction to the payroll tax expense when it is reasonably assured that the credit will be received. As of September 30, 2021, the Company determined that it is reasonably assured that the credit will be received and recognized the credit of $1.2 million as a reduction of payroll tax expense for the quarter ended September 30, 2021. The Company does not anticipate the associated impacts of the other provisions, if any, will have a material effect on its provision for income taxes.

F-6

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.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue, allowance for doubtful accounts, inventory calculations and reserves, the assigned value of acquired assets and assumed and contingent liabilities associated with business combinations and the related purchase price allocation, useful lives and impairment of property and equipment, intangible assets, goodwill and other assets, the fair value of the Company’s equity-based compensation awards and convertible debt and debenture 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.

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, 2021 and 2020, the Company had 3,438,624 and 4,423,334 options outstanding, respectively, 3,970,118 and 3,943,095 restricted stock units outstanding, respectively, 0 and 167,363 warrants outstanding, respectively, and 5,403,693 and 5,613,374 shares of common stock issuable, respectively, underlying the Company’s convertible debt.

Business Combinations

The Company accounts for its business combinations using the acquisition method of accounting where the purchase consideration is allocated to the underlying net tangible and intangible assets acquired, based on their respective fair values. The excess of the purchase consideration over the estimated fair values of the net assets acquired is recorded as goodwill. Identifiable assets acquired, liabilities assumed and any noncontrolling interest in the acquiree are recognized and measured as of the acquisition date at fair value. Additionally, any contingent consideration is recorded at fair value on the acquisition date and classified as a liability. Goodwill is recognized to the extent by which the aggregate of the acquisition-date fair value of the consideration transferred and any noncontrolling interest in the acquiree exceeds the recognized basis of the identifiable assets acquired, net of assumed liabilities. Determining the fair value of assets acquired, liabilities assumed and noncontrolling interests requires management’s judgment and often involves the use of significant estimates and assumptions, including, but not limited to, the selection of appropriate valuation methodology, projected revenue, expenses and cash flows, weighted average cost of capital, discount rates, estimates of customer turnover rates, estimates of terminal values, and royalty rates.

F-7

Cash and Cash Equivalents

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

The following table provides amounts included in cash, cash equivalents and restricted cash presented in the Company’s condensed consolidated statements of cash flows for the nine months ended December 31, 2021 and 2020 (in thousands):

|  | 2021 |  |  | 2020 |
Cash and cash equivalents |  | $ | 12,396 |  |  | $ | 17,353 |
Restricted cash |  |  | 260 |  |  |  | 235 |
Total cash and cash equivalents and restricted cash |  | $ | 12,656 |  |  | $ | 17,588 |

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, 2021 and March 31, 2021, the Company had restricted cash of $0.3 million and $0.1 million, respectively.

Allowance for Doubtful Accounts

The Company evaluates the collectability of its accounts receivable based on a combination of factors. Generally, it records specific reserves to reduce the amounts recorded to what it believes will be collected when a customer’s account ages beyond typical collection patterns, or the Company becomes aware of a customer’s inability to meet its financial obligations.

The Company believes that the credit risk with respect to trade receivables is limited due to the large and established nature of its largest customers and the nature of its subscription receivables. At December 31, 2021, the Company had two customers that made up 17% and 15%, respectively, of the total accounts receivable balance. At March 31, 2021, the Company had two customers that made up 21% and 15%, respectively, of the total accounts receivable balance.

The Company’s accounts receivable at December 31, 2021 and March 31, 2021 is as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2021 |  |  | 2021 |
Accounts receivable, gross |  | $ | 18,382 |  |  | $ | 10,679 |
Less: Allowance for doubtful accounts |  |  | 514 |  |  |  | 112 |
Accounts receivable, net |  | $ | 17,868 |  |  | $ | 10,567 |

Inventories

Inventories, principally raw materials awaiting final customization process, are stated at the lower of cost or net realizable value. Inventories are relieved on a first-in, first-out basis.

The carrying value of inventories is reduced for any excess and obsolete inventory. Excess and obsolete reductions are determined based on currently available information, including the likely method of disposition, such as through sales to individual customers and liquidations, and the age of inventory.

Notes Payable – Paycheck Protection Program (“PPP”) Loans

In response to the COVID-19 pandemic, the PPP was established under the CARES Act and administered by the U.S. Small Business Administration (“SBA”). Companies who met the eligibility requirements set forth by the PPP could qualify for PPP loans provided by local lenders, which supports payroll, rent and utility expenses (“qualified expenses”). If the loan proceeds are fully utilized to pay qualified expenses over the covered period, as further defined by the PPP, the full principal amount of the PPP loan may qualify for loan forgiveness, subject to potential reduction based on the level of full-time employees maintained by the organization during the covered period as compared to a baseline period. During the quarter ended June 30, 2021, the Company received confirmation from the SBA that $2.5 million in PPP loans (see Note 8 – Notes Payable) were forgiven.

As the loans were forgiven and we were released from being the primary obligor, we recognized income in the amount forgiven in accordance with ASC 470-20. The Company recognized a gain on forgiveness of the PPP loans during the quarter ended June 30, 2021 and is included in Other income (expense) in the accompanying condensed consolidated Statement of Operations for the nine months ended December 31, 2021.

F-8

Adoption of New Accounting Pronouncements

In August 2018, the FASB issued ASU No. 2018-15. Intangibles - Goodwill and Other – Internal-Use Software, related to accounting for implementation costs incurred in hosted cloud computing service arrangements. Under the new guidance, implementation costs incurred in a hosting arrangement that is a service contract should be expensed or capitalized based on the nature of the costs and the project stage during which such costs are incurred. If the implementation costs qualify for capitalization, they must be amortized over the term of the hosting arrangement and assessed for impairment. Companies must disclose the nature of any hosted cloud computing service arrangements. This ASU also provides guidance for balance sheet and income statement presentation of capitalized implementation costs and statement of cash flows presentation for the related payments. This ASU was effective beginning in the first quarter of the Company’s fiscal year 2021. The Company prospectively adopted this guidance in the first quarter of fiscal year 2021. The adoption of this standard did not have, and is not expected to have, a material impact to the condensed consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18 which clarified the interaction between Topic 808 and Topic 606, which makes targeted improvements for collaborative arrangements as follows: (a) clarifies that certain transactions between collaborative arrangement participants are within the scope of ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. (b) adds unit-of-account (i.e., distinct good or service) guidance to ASC 808 to align with the guidance in ASC 606 to determine whether the collaborative arrangement, or a part of the arrangement, is within the scope of ASC 606, and c) specifies that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, if the collaborative arrangement participant is not a customer, an entity is precluded from presenting the transaction together with revenue recognized under ASC 606. The ASU was effective for public business entities for fiscal years ending after December 15, 2019. For all other entities, the ASU was effective for annual reporting periods ending after December 15, 2020. The Company adopted this guidance in the first quarter of fiscal year 2021. The adoption of this standard did not have, and is not expected to have, a material impact to the condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The Company adopted this ASU in the first quarter of fiscal 2022 and has identified no material effect on its financial statements or disclosures.

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides additional guidance on measuring revenue contracts with customers acquired in a business combination. Under current GAAP, an acquirer generally recognizes assets acquired and liabilities assumed in a business combination, including contract assets and contract liabilities arising from revenue contracts with customers and other similar contracts that are accounted for in accordance with Topic 606, at fair value on the acquisition date. The amendments in this update require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments in this update improve comparability for both the recognition and measurement of acquired revenue contracts with customers at the date of and after a business combination. The amendments in this ASU are effective and applied prospectively for public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company prospectively adopted this guidance in the current quarter. The adoption of this standard did not have a material impact to the condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in more timely recognition of credit losses. The guidance is effective for fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, and interim periods within those fiscal years. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements.

F-9

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40). The FASB issued this ASU to address issues identified as a result of the complexity associated with GAAP for certain financial instruments with characteristics of liabilities and equity. Complexity associated with the accounting is a significant contributing factor to numerous financial statement restatements and results in complexity for users attempting to understand the results of applying the current guidance. In addressing the complexity, the FASB focused on amending the guidance on convertible instruments and the guidance on the derivatives scope exception for contracts in an entity’s own equity. For convertible instruments, the FASB decided to reduce the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models results in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The FASB concluded that eliminating certain accounting models simplifies the accounting for convertible instruments, reduces complexity for preparers and practitioners, and improves the decision usefulness and relevance of the information provided to financial statement users. In addition to eliminating certain accounting models, the FASB also decided to enhance information transparency by making targeted improvements to the disclosures for convertible instruments and earnings-per-share (EPS) guidance on the basis of feedback from financial statement users. The FASB decided to amend the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. The FASB observed that the application of the derivatives scope exception guidance results in accounting for some contracts as derivatives while accounting for economically similar contracts as equity. The FASB also decided to improve and amend the related EPS guidance. The amendments in this ASU are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The FASB decided to allow entities to adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. The Company is currently evaluating the impact this ASU will have on its financial statements and related disclosures, as well as the timing of adoption and the application method.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), to increase the transparency of government assistance for accounting for transactions with governments by applying a grant or contribution model by analogy to other accounting guidance (for example, a grant model within IAS 20, Accounting for Government Grants and Disclosure of Government Assistance), including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. Diversity currently exists in the recognition, measurement, presentation, and disclosure of government assistance received by business entities because of the lack of specific authoritative guidance in GAAP. The amendments in this ASU will provide comparable and transparent information to financial statement users. The amendments in this ASU are effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021. Early adoption is permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.

Note 3 — Revenue

The following table represents a disaggregation of revenue from contracts with customers for the three and nine months ended December 31, 2021 and 2020 (in thousands):

|  | Three Months Ended December 31, |  |  | Nine Months Ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Revenue |  |  |  |  |  |  |  |  |  |  |  |
Subscription Services |  | $ | 10,698 |  |  | $ | 8,346 |  |  | $ | 29,660 |  |  | $ | 24,948 |
Advertising |  |  | 8,541 |  |  |  | 7,710 |  |  |  | 25,286 |  |  |  | 13,453 |
Merchandising |  |  | 6,442 |  |  |  | 796 |  |  |  | 13,058 |  |  |  | 796 |
Sponsorship and Licensing |  |  | 1,194 |  |  |  | 2,087 |  |  |  | 6,498 |  |  |  | 3,466 |
Ticket/Event |  |  | 6,020 |  |  |  | 184 |  |  |  | 19,084 |  |  |  | 1,526 |
Total Revenue |  | $ | 32,895 |  |  | $ | 19,123 |  |  | $ | 93,586 |  |  | $ | 44,189 |

F-10

For some contracts, the Company may invoice up front for services recognized over time or for contracts in which the Company has unsatisfied performance obligations. Payment terms and conditions vary by contract type, although terms generally cover monthly payments. In the circumstances where the timing of invoicing differs from the timing of revenue recognition, the Company has determined its contracts do not include a significant financing component. The Company has elected to apply the practical expedient under ASC 606-10-50-14 and not provide disclosure of the amount and timing of performance obligations as the performance obligations are part of a contract that has an original expected duration of one year or less.

The following table summarizes the significant changes in contract liabilities balances during the nine months ended December 31, 2021 (in thousands):

|  | Contract Liabilities |
Balance as of March 31, 2021 |  | $ | 1,262 |
Revenue recognized that was included in the contract liability at beginning of period |  |  | (456 | )
Increase due to cash received, excluding amounts recognized as revenue during the period |  |  | 895 |
Balance as of December 31, 2021 |  | $ | 1,701 |

Note 4 — Business Combinations

Gramophone

On October 17, 2021, the Company’s wholly owned subsidiary, LiveXLive PR, Inc., acquired 100% of the equity interests of Gramophone for net consideration of $0.4 million consisting of 250,000 shares of the Company’s common stock with a fair value of $0.1 million net of a 25% discount for lack of marketability described below, contingent consideration with a fair value of $0.2 million comprised of shares held in escrow and a cash earnout, and cash of $0.2 million. The shares of the Company’s common stock were subject to a twelve-month lock-up period and remain subject to sales volume restrictions.

Fair Value of Consideration Transferred: |  |  |
Cash |  | $ | 150 |
Common stock |  |  | 89 |
Contingent consideration |  |  | 174 |
Total |  | $ | 413 |

Contingent consideration in the form of a cash earnout of $0.3 million will be paid to the seller of Gramophone if, during the period commencing June 1, 2021 and ending on May 31, 2022 (“First Year Target”), Gramophone reports GAAP revenues of $1.4 million and EBITDA (as defined in the purchase agreement) of $0.3 million. If the First Year Target is not met, the cash earnout will be paid to the seller of Gramophone if, during the period commencing June 1, 2022 and ending on May 31, 2023 (“Second Year Target”), Gramophone reports GAAP revenues of $2 million and EBITDA of $0.5 million. Based on their likelihood of achievement management’s current estimate of the value of the contingent consideration related to the cash earnout was valued at $0.1 million. The contingent consideration liability of $0.1 million is classified within Other Long-Term Liabilities in the accompanying condensed consolidated balance sheets at December 31, 2021 (see Note 14 – Other Long-Term Liabilities). The remaining contingent consideration included in the purchase price was not material and is included in Other Long-Term Liabilities in the accompanying condensed consolidated balance sheets at December 31, 2021.

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 Gramophone, the goodwill is not deductible for tax purposes. The initial accounting for the Gramophone acquisition is incomplete and subject to change, which may be significant.

The following table summarizes the fair value of the assets assumed in the Gramophone acquisition (in thousands):

Asset Type |  | Amortization Period (Years) |  | Fair Value |
Cash and cash equivalents |  |  |  | $ | 4 |
Accounts receivable |  |  |  |  | 4 |
Trade name |  | 5 |  |  | 73 |
Customer list |  | 2 |  |  | 94 |
Goodwill |  |  |  |  | 460 |
Deferred revenue |  |  |  |  | (51 | )
Deferred tax liability |  |  |  |  | (41 | )
Accrued liabilities |  |  |  |  | (130 | )
Net assets acquired |  |  |  | $ | 413 |

F-11

PodcastOne

On July 1, 2020, the Company’s wholly owned subsidiary, LiveXLive PodcastOne, Inc., acquired 100% of the equity interests of PodcastOne for net consideration of $16.1 million consisting of 5,363,636 shares of the Company’s common stock with a fair value of $14.6 million net of a 24% discount for lack of marketability described below, contingent consideration with a fair value of $1.1 million and an additional true-up of 203,249 shares during the third quarter of fiscal 2021 valued at $0.4 million, net of a 24% discount for lack of marketability described below, that was issued as part of the final purchase price consideration. The shares of the Company’s common stock were subject to a twelve-month lock-up period and remain subject to sales volume restrictions.

Fair Value of Consideration Transferred: |  |  |
Common stock |  | $ | 14,991 |
Contingent consideration |  |  | 1,100 |
Total |  | $ | 16,091 |

If, during the period commencing after May 7, 2020 and ending on July 1, 2022, for five consecutive trading days the closing market price of the Company’s common stock exceeds $5.00 per share, an additional aggregate payment of $3.0 million in cash shall be paid to the sellers of PodcastOne in accordance with their respective pro rata percentage within five business days of the second anniversary of the closing date (July 1, 2022). The fair value of this contingent consideration liability on the closing date of July 1, 2020 was estimated at $1.1 million using a Monte Carlo simulation and the significant unobservable input included a credit yield of 21.9%. During March 2021, the closing price of the Company’s common stock exceeded $5.00 per share for the requisite five consecutive days. The Company recorded a $0.5 million charge to other income (expense) in the accompanying condensed consolidated statement of operations for the nine months ended December 31, 2021. The contingent consideration liability of $2.9 million is classified within accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets at December 31, 2021.

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, which expired on December 22, 2021.

The Company agreed to also issue up to approximately 577,000 additional shares of its restricted common stock, classified as contingent consideration, as CPS reported GAAP revenue of at least $20.0 million and $1.0 million of EBITDA (as defined in the purchase agreement) for its fiscal year ended December 31, 2020. Based on their likelihood of achievement these number of shares reflected management’s current estimate and were valued at $1.7 million based on the Company’s stock price on the date of acquisition, net of a 25% discount for lack of marketability. On July 7, 2021, the Company issued 576,923 shares of its restricted common stock to the sellers of CPS as consideration for CPS having satisfied such targets. Accordingly, the Company recorded a $0.2 million benefit to other income (expense) which is included in the accompanying condensed consolidated statement of operations for the nine months ended December 31, 2021.

The Company further agreed to issue up to approximately 214,000 additional shares of its restricted common stock to the extent CPS’ final working capital as determined by the parties exceeds $4.0 million. These number of shares are based on actual achievement under the terms of the purchase agreement and mutual agreement with the sellers. These additional shares were valued at $0.6 million based on the Company’s stock price on the date of acquisition, net of a 25% discount for lack of marketability. Included in the total amount of $0.6 million is a purchase price adjustment of $0.3 million related to the resolution of provisional amounts previously recorded based on estimates, which was accounted for as a purchase price adjustment within the measurement period as an increase to goodwill related to the CPS acquisition. On July 7, 2021, the Company issued 214,475 shares of its restricted common stock to the sellers of CPS as consideration for CPS having satisfied such target. These amounts are included in additional paid in capital in the accompanying condensed consolidated balance sheets.

F-12

Supplemental Pro Forma Information for CPS and PodcastOne Acquisitions (Unaudited)

The pro forma financial information as presented below is for informational purposes only and is not indicative of the Company’s results that would have been achieved from the acquisitions had they taken place at the beginning of the fiscal year ended March 31, 2021.

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 as if the acquisition of CPS and PodcastOne had been completed on April 1, 2020 (in thousands, except per share data).

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

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

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 along with interest expense associated with the promissory note issued as consideration. 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.

Supplemental Pro Forma Information for Gramophone Acquisition (Unaudited)

The pro forma financial information as presented below is for informational purposes only and is not indicative of the Company’s results that would have been achieved from the acquisitions had they taken place at the beginning of the fiscal year ended March 31, 2022.

The following table presents the revenues, net loss and earnings per share of the combined company for the three and nine months ended December 30, 2021 and 2020 as if the acquisition of Gramophone had been completed on April 1, 2021 (in thousands, except per share data).

|  | Three Months Ended December 31, (unaudited) |
|  | 2021 |  |  | 2020 |
Revenues |  | $ | 33,001 |  |  | $ | 19,325 |
Net loss |  |  | (11,742 | ) |  |  | (8,883 | )
Net loss per share – basic and diluted |  | $ | (0.15 | ) |  | $ | (0.12 | )

|  | Nine Months Ended December 31, (unaudited) |
|  | 2021 |  |  | 2020 |
Revenues |  | $ | 94,190 |  |  | $ | 44,835 |
Net loss |  |  | (34,757 | ) |  |  | (26,624 | )
Net loss per share – basic and diluted |  | $ | (0.45 | ) |  | $ | (0.40 | )

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.

F-13

Note 5 — Property and Equipment

The Company’s property and equipment at December 31, 2021 and March 31, 2021 was as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2021 |  |  | 2021 |
Property and equipment, net |  |  |  |  |  |
Computer, machinery, and software equipment |  | $ | 5,496 |  |  | $ | 5,277 |
Furniture and fixtures |  |  | 141 |  |  |  | 141 |
Leasehold improvements |  |  | 531 |  |  |  | 531 |
Capitalized internally developed software |  |  | 13,003 |  |  |  | 10,154 |
Total property and equipment |  |  | 19,171 |  |  |  | 16,103 |
Less accumulated depreciation and amortization |  |  | (14,419 | ) |  |  | (11,736 | )
Total property and equipment, net |  | $ | 4,752 |  |  | $ | 4,367 |

Depreciation expense was $0.9 million and $2.7 million for the three and nine months ended December 31, 2021, respectively, and $0.8 million and $2.3 million for the three and nine months ended December 2020, respectively.

Note 6 — Goodwill and Intangible Assets

Goodwill

The Company currently has one reporting unit. The following table presents the changes in the carrying amount of goodwill for the nine months ended December 31, 2021 (in thousands):

|  | Goodwill |
Balance as of March 31, 2021 |  | $ | 22,619 |
Acquisitions |  |  | 460 |
Impairment losses |  |  | - |
Purchase price adjustment (See Note 4 – Business Combinations) |  |  | 301 |
Balance as of December 30, 2021 |  | $ | 23,380 |

Indefinite-Lived Intangible Assets

The following table presents the changes in the carrying amount of indefinite-lived intangible assets in the Company’s reportable segment for the nine months ended December 31, 2021 (in thousands):

|  | Tradenames |
Balance as of March 31, 2021 |  | $ | 4,637 |
Acquisitions |  |  | - |
Impairment losses |  |  | - |
Balance as of December 31, 2021 |  | $ | 4,637 |

F-14

Finite-Lived Intangible Assets

The Company’s finite-lived intangible assets were as follows as of December 31, 2021 (in thousands):

|  | Gross Carrying Value |  |  | Accumulated Amortization |  |  | Net Carrying Value |
Software |  | $ | 19,281 |  |  | $ | 15,425 |  |  | $ | 3,856 |
Intellectual property (patents) |  |  | 5,366 |  |  |  | 1,430 |  |  |  | 3,936 |
Customer relationships |  |  | 6,570 |  |  |  | 6,046 |  |  |  | 524 |
Content creator relationships |  |  | 772 |  |  |  | 726 |  |  |  | 46 |
Domain names |  |  | 514 |  |  |  | 70 |  |  |  | 444 |
Brand and trade names |  |  | 2,643 |  |  |  | 403 |  |  |  | 2,240 |
Non-compete agreement |  |  | 250 |  |  |  | 160 |  |  |  | 90 |
Customer lists |  |  | 2,998 |  |  |  | 598 |  |  |  | 2,400 |
Total |  | $ | 38,394 |  |  | $ | 24,858 |  |  | $ | 13,536 |

The Company’s finite-lived intangible assets were as follows as of March 31, 2021 (in thousands):

|  | Gross Carrying Value |  |  | Accumulated Amortization |  |  | Net Carrying Value |
Software |  | $ | 19,281 |  |  | $ | 12,533 |  |  | $ | 6,748 |
Intellectual property (patents) |  |  | 5,366 |  |  |  | 1,163 |  |  |  | 4,203 |
Customer relationships |  |  | 6,570 |  |  |  | 5,652 |  |  |  | 918 |
Content creator relationships |  |  | 772 |  |  |  | 371 |  |  |  | 401 |
Domain names |  |  | 429 |  |  |  | 31 |  |  |  | 398 |
Brand and trade names |  |  | 2,571 |  |  |  | 253 |  |  |  | 2,318 |
Non-compete agreement |  |  | 250 |  |  |  | 97 |  |  |  | 153 |
Customer lists |  |  | 2,903 |  |  |  | 211 |  |  |  | 2,692 |
Total |  | $ | 38,142 |  |  | $ | 20,311 |  |  | $ | 17,831 |

The Company’s amortization expense on its finite-lived intangible assets was $1.5 million and $4.6 million for the three and nine months ended December 31, 2021, respectively, and $1.4 million and $4.1 million for the three and nine months ended 2020, respectively.

The Company expects to record amortization of intangible assets for fiscal years ending March 31, 2022 and future fiscal years as follows (in thousands):

For Years Ending March 31, |  |  |
2022 (remaining three months) |  | $ | 1,479 |
2023 |  |  | 4,543 |
2024 |  |  | 1,074 |
2025 |  |  | 1,073 |
2026 |  |  | 1,099 |
Thereafter |  |  | 4,268 |
|  | $ | 13,536 |

Note 7 — Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities of the Company at December 31, 2021 and March 31, 2021 were as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2021 |  |  | 2021 |
Accounts payable |  | $ | 27,196 |  |  | $ | 18,541 |
Accrued liabilities |  |  | 15,931 |  |  |  | 13,786 |
Lease liabilities, current |  |  | 273 |  |  |  | 319 |
|  | $ | 43,400 |  |  | $ | 32,646 |

At December 31, 2021, the Company’s accrued liabilities includes the fair value of the contingent consideration payable to the sellers of PodcastOne in the amount of $2.8 million.

F-15

Note 8 — Notes Payable

|  | December 31, |  |  | March 31, |
|  | 2021 |  |  | 2021 |
Senior promissory note |  | $ | - |  |  | $ | 351 |
PPP loans |  |  | 603 |  |  |  | 3,110 |
SBA loan |  |  | 158 |  |  |  | 153 |
|  |  | 761 |  |  |  | 3,614 |
Less: Current portion of Notes payable |  |  | (141 | ) |  |  | (2,729 | )
Notes payable |  | $ | 620 |  |  | $ | 885 |

Senior Promissory Note

As of December 31, 2021 the promissory note and related Delaware and California judgments have been satisfied substantially in full.

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

In April 2020, the Company received proceeds of $2.0 million from a loan under the Paycheck Protection Program (the “PPP”) of the CARES Act. In April 2021, the Company received confirmation from the SBA that the entire balance of such PPP loan was forgiven as a result of the Company’s application and acceptance under the terms of the CARES act. On July 1, 2020, the Company acquired PodcastOne that had previously obtained a PPP loan, which had a balance of $0.5 million as of March 31, 2021. On May 11, 2021, the Company received confirmation from the SBA that the entire balance of such PPP loan was forgiven as a result of the Company’s application and acceptance under the terms of the CARES act.

The Company recognized a $2.5 million gain on forgiveness of PPP loans, included in other income (expense) in the accompanying condensed consolidated statement of operations as a result of the balance of PPP loans forgiven during the nine months ended December 31, 2021.

On March 20, 2021, the Company received proceeds of $0.6 million from a second loan (the “PPP loan”) under the PPP of the CARES Act, which the Company intends to use to retain employees and for other qualifying expenses. The PPP Loan matures on March 20, 2026 and bears annual interest at a rate of 1.0%. Commencing on March 31, 2022, the Company is required to pay the lender equal monthly payments of principal and interest as required to fully amortize by March 20, 2026 any principal amount outstanding on the PPP Loan as of such date (Refer to Note 20 – Subsequent Events).

Note 9 — Unsecured Convertible Notes

The Company’s unsecured convertible notes payable at December 31, 2021 and March 31, 2021 were as follows (in thousands):

|  | December 31, 2021 |  |  | March 31, 2021 |
Unsecured Convertible Notes - Related Party |  |  |  |  |  |
8.5% Unsecured Convertible Note - Due May 31, 2023 |  | $ | 4,626 |  |  | $ | 4,397 |
8.5% Unsecured Convertible Notes - Due May 31, 2023 |  |  | 1,160 |  |  |  | 1,104 |
Less: Discount |  |  | - |  |  |  | - |
Net |  |  | 5,786 |  |  |  | 5,501 |
Unsecured Convertible Promissory Note |  | $ | - |  |  | $ | 2,000 |
Accrued Interest |  |  | - |  |  |  | 186 |
Less: Discount |  |  | - |  |  |  | (223 | )
Fair Value of Embedded Derivatives |  |  | - |  |  |  | 13 |
Net |  |  | - |  |  |  | 1,976 |
Unsecured Convertible Notes, Net |  |  | 5,786 |  |  |  | 7,477 |
Less: Unsecured Convertible Notes, Current |  |  | - |  |  |  | (1,976 | )
Unsecured Convertible Notes, Net, Long-term |  | $ | 5,786 |  |  | $ | 5,501 |

F-16

Total principal maturities of the Company’s long-term borrowings, including the secured convertible debentures, unsecured convertible notes, senior secured revolving line of credit, and notes payable are less than $1.0 million for the year ending March 31, 2022 (remaining three months), $0.1 million for the year ending March 31, 2023, and $26.7 million for the year ending March 31, 2024. For the year ended March 31, 2025 and thereafter, the total principal maturities of $0.4 million consist of obligations to repay the PPP and SBA loans.

Unsecured Convertible Notes – Related Party

As of December 31, 2021 and March 31, 2021, the Company had outstanding 8.5% unsecured convertible notes payable (the “Trinad Notes”) issued to Trinad Capital Master Fund Ltd. (“Trinad Capital”), a fund controlled by Mr. Ellin, the Company’s Chief Executive Officer, Chairman, director and principal stockholder, as follows below. The Trinad Notes are convertible into shares of the Company’s common stock at a fixed conversion price of $3.00 per share.

The first Trinad Note was issued on February 21, 2017, to convert aggregate principal and interest of $3.6 million under the first senior promissory note and second senior promissory note with Trinad Capital previously issued on December 31, 2014 and April 8, 2015, respectively. The first Trinad Note was due on March 31, 2018 and was extended to May 31, 2023 (as discussed below). At December 31, 2021, the balance due of $4.6 million, which included $1.0 million of accrued interest, was outstanding under the first Trinad Note. At March 31, 2021, the balance due of $4.4 million, which included $1.0 million of accrued interest, was outstanding under the first Trinad Note.

Between October 27, 2017 and December 18, 2017, the Company issued six unsecured convertible notes payable to Trinad Capital for aggregate total principal amount of $1.1 million. The notes were due on various dates through December 31, 2018 and were extended to May 31, 2023 (as discussed below). As of December 31, 2021, $0.2 million of accrued interest was included in the principal balance.

On August 11, 2021, the Company entered into an Amendment of Notes Agreement (the “Amendment Agreement”) with Trinad Capital pursuant to which the maturity date of all of the Trinad Notes was extended to May 31, 2023, and in consideration of such extension, the Company issued to Trinad Capital 33,654 shares of its common stock. The Company evaluated the Amendment Agreement and the amendment was required to be accounted for as an extinguishment under ASC 470-50, Debt – Modifications and Extinguishment. As a result, we determined that the amendment should be accounted for as an extinguishment and we recorded the amended debt instrument at fair value which included the consideration in common stock transferred. The resulting loss on extinguishment recorded of $4.3 million is included in “Loss on extinguishment of debt” in the accompanying condensed consolidated statement of operations for the nine months ended December 31, 2021.

The Company may not redeem any of the Trinad Notes prior to May 31, 2023 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 “Note”), bearing annual interest at 8%. The purpose of the Note was to fund the acquisition of React Presents. All unpaid and outstanding principal and any unpaid and accrued interest are due on February 5, 2022. At issuance, the Note was convertible by the holder at any time prior to maturity in part or in whole with the unpaid interest and principal convertible at a conversion price equal to $4.50 per share of the Company’s common stock, subject to certain protective adjustments. The Note may be prepaid in whole or in part in cash without penalty at any time prior to maturity. Any such prepayment will be applied to accrued interest first and then the principal.

Effective December 31, 2021, the Note holder converted the Note in whole pursuant to an exchange agreement entered into during the current quarter which provided for an exchange of the Note into shares of the Company’s common stock at a price of $2.10 per share, resulting in 1,155,143 shares issued upon the exchange. As a result of the effective exchange incentives offered to the Note holder, the Company recorded a $0.8 million expense to Other Income (expense) in the accompanying condensed consolidated statement of operations for the three months ended December 31, 2021.

F-17

Note 10 — Secured Convertible Notes

The Company’s secured convertible notes at December 31, 2021 and March 31, 2021 were as follows (in thousands):

|  | December 31, 2021 |  |  | March 31, 2021 |
Secured Convertible Notes |  | $ | 15,000 |  |  | $ | 15,000 |
Accrued interest |  |  | 319 |  |  |  | 319 |
Fair value of embedded derivatives |  |  | 21 |  |  |  | 118 |
Less: Discount |  |  | (1,626 | ) |  |  | (2,071 | )
Net |  |  | 13,714 |  |  |  | 13,366 |
Less: Current Portion, accrued interest |  |  | (319 | ) |  |  | (319 | )
Secured Convertible Notes, long-term |  | $ | 13,395 |  |  | $ | 13,047 |

On September 15, 2020 (the “Closing Date”), the Company issued two-year secured convertible notes in the aggregate principal amount of $15.0 million (the “Harvest Notes”) to Harvest Small Cap Partners, L.P. and Harvest Small Cap Partners, Ltd. (collectively, the “Purchaser”). The Purchaser are funds affiliated with No Street Capital, a San Francisco-based investment firm.

The Harvest Notes 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 Harvest Notes prior to their maturity.

The current portion of accrued interest related to the Harvest Notes is included in Accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets.

The Company’s obligations under the Harvest Notes may be accelerated upon the occurrence of certain customary events of default (as defined in the Harvest Notes) and are guaranteed under a Subsidiary Guarantee, dated as of the Closing Date (the “Subsidiary Guarantee”), entered into by all of the Company’s subsidiaries (the “Guarantors”) in favor of the Purchaser. The Company’s obligations under the Harvest Notes and the Guarantors’ obligations under the Subsidiary Guarantee are secured under a Security Agreement, dated as of the Closing Date (the “Security Agreement”), and an Intellectual Property Security Agreement, dated as of the Closing Date (the “IP Security Agreement”), by a lien on all of the Company’s and the Guarantors’ assets and intellectual property, subject to certain exceptions. The Harvest Notes require the Company to maintain aggregate cash deposits of $10.0 million until the Harvest Notes are paid in full. In May 2021 and in connection with the Company entering into a $7.0 million senior secured revolving credit facility, the holders of the Harvest Notes subordinated their security interest and extended the maturity date of the notes to June 3, 2023. In consideration of the above, the Company issued 60,000 shares of its common stock to the Purchaser.

The Company evaluated this agreement and it was required to be accounted for as troubled debt restructuring under ASC 470-60, Troubled Debt Restructurings by Debtors. As a result, the Company recorded the shares of common stock issued to the Purchaser as an increase to Additional Paid In Capital and a corresponding debt discount included in Secured Convertible Notes, net in the accompanying condensed consolidated balance sheets.

F-18

The Company and the Purchaser also entered into a Registration Rights Agreement, dated as of the Closing Date (the “RRA”), which granted the Assignees “demand” and “piggyback” registration rights to register the shares of Common Stock issuable upon the conversion of the Notes and the Shares (collectively, the “Registrable Securities”) with the SEC for resale or other disposition. Pursuant to the RRA, the Company filed a resale Registration Statement on Form S-3 on October 14, 2020, and it was declared effective by the SEC on October 21, 2020. The Company also agreed to keep the initial Registration Statement continuously effective until the earliest to occur of (i) the date on which all of the Registrable Securities registered thereunder have been sold and (ii) the date on which all of the Registrable Securities covered by such Registration Statement may be sold without volume restriction pursuant to Rule 144 under the Securities Act.

In connection with the SPA, and the Harvest Notes subsequent extension, Robert S. Ellin, the Company’s CEO, Chairman, director and principal stockholder, agreed not to dispose of any equity securities of the Company owned by Mr. Ellin or any entity of which he is the beneficial owner and not to cease to be the beneficial owner of any other equity securities of the Company of which Mr. Ellin is the beneficial owner as of June 3, 2021 until the Harvest Notes are paid in full (subject to certain customary exceptions), without the Purchaser’s prior written consent.

The Harvest Notes and the Shares were issued in private placement transaction that was not registered under the Securities Act, in reliance upon applicable exemptions from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder.

Note 11 — Senior Secured Revolving Line of Credit

On June 7, 2021, the Company entered into a Business Loan Agreement with East West Bank (the “Senior Lender”), which provides for a revolving credit facility collateralized by all of the assets of the Company and its subsidiaries. In connection with the Business Loan Agreement, the Company entered into a Promissory Note with the Senior Lender and established the revolving line of credit in the amount of $7.0 million (the “Revolving Credit Facility”), maturing on June 2, 2023. Under the terms of the Promissory Note, the Revolving Credit Facility bears interest at a variable rate equal to the Wall Street Journal Prime Rate, plus 0.5%. The interest rate for the quarter ended December 31, 2021 was 3.75%.

The principal balance under the Revolving Credit Facility as of December 31, 2021 was $7.0 million.

Note 12 — Related Party Transactions

As of December 31, 2021 and March 31, 2021, the Company had unsecured convertible Trinad Notes outstanding which were issued to Trinad Capital as described in Note 9 – Unsecured Convertible Notes.

Note 13 — 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.

The Company leases several office locations with lease terms that are less than 12 months or are on month to month terms. Rent expense for these leases totaled less than $0.1 million and $0.2 million for the three and nine months ended December 31, 2021, respectively. Operating leases with lease terms of greater than 12 months are capitalized in operating lease right-of-use assets and operating lease liabilities in the accompanying condensed consolidated balance sheets. Rent expense for these operating leases totaled $0.1 million and $0.7 million during the three and nine months ended December 31, 2021, respectively.

Operating lease costs for nine months ended December 31, 2021 and 2020 consisted of the following (in thousands):

|  | Nine Months Ended December 31, |
|  | 2021 |  |  | 2020 |
Fixed rent cost |  | $ | 679 |  |  |  | 123 |
Short term lease cost |  |  | 217 |  |  |  | 341 |
Total operating lease cost |  | $ | 896 |  |  |  | 464 |

F-19

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

Operating leases |  | December 31, 2021 |  |  | March 31, 2021 |
Operating lease right-of-use assets |  | $ | 802 |  |  |  | 1,057 |
Operating lease liability, current |  | $ | 273 |  |  |  | 319 |
Operating lease liability, noncurrent |  |  | 540 |  |  |  | 742 |
Total operating lease liabilities |  | $ | 813 |  |  |  | 1,061 |

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

Maturities of operating lease liabilities as of December 31, 2021 were as follows (in thousands):

For Years Ending March 31, |  |  |
2022 (remaining three months) |  |  | 88 |
2023 |  |  | 358 |
2024 |  |  | 320 |
2025 |  |  | 93 |
Total lease payments |  |  | 859 |
Less: imputed interest |  |  | (46 | )
Present value of operating lease liabilities |  | $ | 813 |

Significant judgments

Discount rate – the Company’s lease is discounted using the Company’s incremental borrowing rate of 8.5% as the rate implicit in the lease is not readily determinable.

Options – the lease term is the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determined it is reasonably certain of exercising the option at inception or when a triggering event occurs.

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

F-20

Note 14 — Other 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.

|  | December 31, 2021 |  |  | March 31, 2021 |
Due to Music Partner |  | $ | - |  |  | $ | 3,937 |
Other long-term liabilities |  |  | 174 |  |  |  | 2,422 |

The amount included in Other long-term liabilities at December 31, 2021 and March 31, 2021 is comprised of a contingent consideration liability resulting from the business combinations with Gramophone and PodcastOne, respectively (Note 4 - Business Combinations) and is carried at fair value (see Note 19 - Fair Value Measurements). At December 31, 2021 the contingent consideration liability resulting from the business combination with PodcastOne is classified as current in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets.

Note 15 — 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, 2021, the Company has licenses, production and/or distribution agreements to make guaranteed payments as follows: $0.3 million for the fiscal year ending March 31, 2022 (remaining three months), $0.7 million for the fiscal year ending March 31, 2023, and $0.3 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.

Contractual Obligations

As of December 31, 2021, the Company is obligated under agreements with Content Providers and other contractual obligations to make guaranteed payments as follows: $2.0 million for the fiscal year ending March 31, 2022 (remaining three months), $6.7 million for the fiscal year ending March 31, 2023, and $5.7 million for the fiscal year ending March 31, 2024.

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, 2021, 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.

F-21

Legal Proceedings

On April 10, 2018, Joseph Schnaier, Danco Enterprises, LLC (an entity solely owned by Mr. Schnaier, “Danco”), Wantmcs Holdings, LLC (Mr. Schnaier is the managing member) and Wantickets (Mr. Schnaier is the 90% beneficial owner) filed a complaint in the Supreme Court of the State of New York, County of New York against each of the Company, LiveXLive Tickets, Inc. (“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, Blake Indursky and Computershare. The complaint alleged multiple causes of action arising out of Schnaier’s investment (through Danco) into the Company in 2016, LXL Tickets’ purchase of certain operating assets of Wantickets pursuant to the Asset Purchase Agreement, dated as of May 5, 2017, and Mr. Schnaier’s employment with LXL Tickets, including claims for fraudulent inducement, breach of contract, conversion, and defamation. Based on the remaining claims, plaintiffs are seeking damages of approximately $10.0 million as shall be determined at trial, if any, plus interest, attorneys’ fees and costs and other such relief as the court may award. The Company has denied and continue to deny plaintiffs’ claims. The Company believes that the complaint is an intentional act by the plaintiffs to publicly tarnish the Company’s and its senior management’s reputations through the public domain in an effort to obtain by threat of litigation certain results for Mr. Schnaier’s self-serving and improper purposes. The Company is vigorously defending this lawsuit and believes that the allegations are without merit and that it has strong defenses. On June 26, 2018, the Company and LXL Tickets, filed counterclaims against the plaintiffs for breach of contract (including under the Asset Purchase Agreement), fraudulent inducement, and other causes of action, seeking injunctive relief, damages, attorneys’ fees and expenses and such other relief as the court may award. In October 2018, pursuant to the terms of the APA, the Company submitted a formal demand to Wantickets, Mr. Schnaier and Danco to indemnify the Company, among other things, for its costs and expenses incurred in connection with this matter. In November 2021, the court denied our summary judgment motion to dismiss plaintiffs’ fraudulent inducement claim, and dismissed plaintiff’s breach of the employment agreement claim with respect to the Company. As of December 31, 2021, all of plaintiffs’ claims other than fraudulent inducement were dismissed or addressed by the parties or the court. While a trial date has not yet been set, the Company expects the trial to commence sometime during the fiscal year ending March 31, 2023 (unless further extended as a result of the COVID-19 pandemic). The Company intends to continue to vigorously defend all remaining defendants against any liability to the plaintiffs with respect to the remaining claims, and the Company believes that the allegations are without merit and that it has strong defenses. As of December 31, 2021, while the Company has assessed that the likelihood of a loss, if any, is not probable, the outcome of this lawsuit is inherently uncertain and the potential range of loss could have a material adverse effect on the Company’s business, financial condition and results of operations.

In July 2021, Simply Greatness Productions, LLC (“SGP”) served the Company with a complaint filed on July 21, 2021 in the Superior Court of the State of California County of Los Angeles against us and Paul Cazers. The complaint sought damages for an alleged breach of contract by us and an alleged breach of contract by Mr. Cazers related to the “Social Gloves: Battle of the Platforms” boxing event (the “Event”), alleged that we fraudulently induced SGP to commit to an oversize production budget based upon the Company knowing or negligent misrepresentation as to the anticipated pay-per-view sales for the Event, and sought an accounting on the performance of the Event.

On July 22, 2022, the Company filed a complaint against SGP, Austin McBroom, Catherine Paiz McBroom and Allen McBroom in the Superior Court of the State of California County of Los Angeles. The complaint arose from defamatory statements the defendants made following the Event claiming that the Company was dishonest about the number of Event ticket sales. In addition, the Company’s complaint alleged a breach of contract based on SGP’s willful failure to collaborate with the Company on marketing the Event resulting in poor ticket sales which, in turn, meant reduced fees to us. The complaint further alleged fraud and intentional interference with prospective economic advantage. The Company was asking the court to award no less than $100 million in damages. During the quarter ended December 31, 2021, the parties settled their claims against each other and claims by certain other parties for total payments by the Company of approximately $3.0 million of the Event proceeds received by the Company and made to applicable payees, and the parties to this action dismissed each of their claims described herein with prejudice.

F-22

During each of the nine months ended December 31, 2021 and 2020, legal settlement expenses relating to potential claims arising in connection with litigation brought against the Company by certain third-parties were not material. During the nine months ended December 31, 2021 and 2020, the full amounts were expensed and included in general and administrative expenses in the accompanying condensed consolidated statement of operations.

From time to time, the Company is involved in legal proceedings and other matters arising in connection with the conduct of its business activities. Many of these proceedings may be at preliminary stages and/or seek an indeterminate amount of damages. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not currently expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.

Note 16 — Employee Benefit Plan

Effective March 2019, the Company sponsors a 401(k) plan (the “401(k) Plan”) covering all employees. Employees are eligible to participate in the 401(k) Plan the first day of the calendar month following their date of hire. The Company may make discretionary matching contributions to the 401(k) Plan on behalf of its employees up to a maximum of 100% of the participant’s elective deferral up to a maximum of 5% of the employees’ annual compensation. The Company’s matching contributions were not material to the financial statements for the three and nine month periods ended December 31, 2021 and 2020.

Note 17 — Stockholders’ Equity

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

During the nine months ended December 31, 2021, the Company incurred $0.3 million in accounts payable and accrued liabilities for stock earned by its consultants, but not yet issued. The remaining unrecognized compensation cost of less than $0.1 million is expected to be recorded over the next year as the shares vest.

During the nine months ended December 31, 2020, the Company incurred $1.0 million in accounts payable and accrued liabilities for stock earned by its consultants, but not yet issued.

2016 Equity Incentive Plan

The Company’s board of directors and stockholders approved the Company’s 2016 Equity Incentive Plan, as amended (the “2016 Plan”) which reserved a total of 12,600,000 shares of the Company’s common stock for issuance. On September 17, 2020, 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 increasing the total up to 17,600,000 shares, which plan we formally increased on June 29, 2021. Incentive awards authorized under the 2016 Plan include, but are not limited to, nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and stock appreciation rights. If an incentive award granted under the 2016 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to the Company in connection with the exercise of an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2016 Plan.

The Company recognized share-based compensation expense of $12.1 million and $8.0 million during the nine months ended December 31, 2021 and 2020, respectively, and $2.1 million and $2.7 million during the three months ended December 31, 2021 and 2020, respectively. The total tax benefit recognized related to share-based compensation expense was $0 for the three and nine months ended December 31, 2021 and 2020, respectively.

Share-based compensation expense during the three and nine months ended December 31, 2021 and 2020 includes the impact from differences in the timing of expense recognized in the statement of operations and the share issuances recorded in additional paid in capital, capitalization of internally developed software costs, and the benefit from the reversal of a previously accrued discretionary share-based award bonus of $1.1 million during the three months ended December 31, 2021.

F-23

Note 18 — 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 (“CODM”) reviews results and allocates resources. The CODM reviews operating segment performance exclusive of: share-based compensation expense, amortization of intangible assets, depreciation, and other expenses (including legal fees, expenses, and accruals) related to acquisitions, associated integration activities, and certain other non-cash charges.

The Company’s single operating segment is also consistent with our internal organizational structure, the way we assess operating performance and allocate sources.

Customers

The Company has one external customer that accounts for more than 10% of its revenue during the nine months ended December 31, 2021 and 2020. Such customer is an original equipment manufacturer (the “OEM”) who provides premium Slacker service in all of their new vehicles. Total revenues for this customer were 25% and 38% of the Company’s consolidated revenues for the nine months ended December 31, 2021 and 2020, respectively. For the three months ended December 31, 2021 and 2020, one external customer accounted for 26% and 30% of the Company’s consolidated revenues, respectively.

Geographic Information

The Company creator-first, music, entertainment and technology platform focused on delivering premium experiences and content worldwide through memberships, subscriptions and live and virtual events. 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.

Note 19 — 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, 2021 |
|  | Fair |  |  | Hierarchy Level |
|  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration liability from PodcastOne acquisition |  | $ | 2,937 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,937 |
Contingent consideration from Gramophone acquisition |  |  | 174 |  |  |  | - |  |  |  | - |  |  |  | 174 |
Bifurcated embedded derivative on secured convertible notes payable |  |  | 21 |  |  |  | - |  |  |  | - |  |  |  | 21 |
Bifurcated embedded derivative on unsecured convertible note payable |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |

|  | 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 secured convertible debentures |  |  | 118 |  |  |  | - |  |  |  | - |  |  |  | 118 |
Bifurcated embedded derivative on unsecured convertible note payable |  |  | 13 |  |  |  | - |  |  |  | - |  |  |  | 13 |

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

|  | Amount |
Balance as of March 31, 2021 |  | $ | 5,067 |
Change in fair value of bifurcated embedded derivatives, reported in earnings |  |  | (110 | )
Change in fair value of contingent consideration liabilities, reported in earnings |  |  | (173 | )
Settlement of contingent consideration liability from CPS acquisition |  |  | (1,826 | )
Initial measurement of contingent consideration from Gramophone acquisition |  |  | 174 |
Balance as of December 31, 2021 |  | $ | 3,132 |

F-24

The following table presents a reconciliation of the Company’s derivative instruments 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 |

Bifurcated embedded derivative on secured convertible notes payable and unsecured convertible notes payable

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

|  | December 31, |  |  | March 31, |
|  | 2021 |  |  | 2021 |
Bifurcated embedded derivative on secured convertible notes payable: |  |  |  |  |  |
Market yield |  |  | 4.7 | % |  |  | 17.0 | %
Bifurcated embedded derivative on unsecured convertible note payable: |  |  |  |  |  |  |  |
Market yield |  |  | N/A |  |  |  | 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 determined that as of the assessment date, the fair value of the bifurcated embedded derivatives is less than $0.1 million. The change in fair value of $0.1 million is recorded in other income (expense) on the Company’s condensed consolidated statements of operations for the nine month period ended December 31, 2021.

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, 2021 |
|  | Carrying |  |  | Hierarchy Level |
|  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Secured convertible notes payable, net |  | $ | 13,395 |  |  | $ | - |  |  | $ | - |  |  | $ | 16,132 |
Unsecured convertible notes payable related party, net |  |  | 5,786 |  |  |  | - |  |  |  | - |  |  |  | 6,418 |
Unsecured convertible note payable |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |

|  | March 31, 2021 |
|  | Carrying |  |  | Hierarchy Level |
|  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
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 |

F-25

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of December 31, 2021 and March 31, 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, were determined using the following significant unobservable inputs:

|  | December 31, |  |  | March 31, |
|  | 2021 |  |  | 2021 |
Secured convertible notes payable, net (binomial lattice model): |  |  |  |  |  |
Market yield |  |  | 4.7 | % |  |  | 17.0 | %
Unsecured convertible notes payable related party, net (yield model with a Black-Scholes-Merton option pricing model): |  |  |  |  |  |  |  |
Market yield |  |  | 4.9 | % |  |  | 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, accrued expenses and other long-term liabilities approximated their fair values as of December 31, 2021 and March 31, 2021.

The Company’s note payable is not publicly traded and fair value is estimated to equal carrying value. The Company’s debentures and unsecured convertible notes payable with fixed rates are not publicly traded and the Company has estimated fair values using a variety of valuation models and market rate assumptions detailed above. The convertible notes payable and unsecured convertible notes are valued using a binomial lattice model and a yield model with a Black-Scholes-Merton option pricing model, respectively. The Company has estimated the fair value of contingent consideration related to the acquisitions of PodcastOne, 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 on the balance sheet date.

Note 20 — Subsequent Events

On January 28, 2022, the Company received confirmation from the SBA that the remaining balance on the $0.6 million PPP loan, described in Note 8 – Notes Payable, was forgiven in full. The forgiveness of the PPP loan did not impact the accompanying condensed consolidated balance sheet as of December 31, 2021.

F-26

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

As used herein, “LiveOne,” the “Company,” “we,” “our” or “us” and similar terms include LiveOne, 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, 2021, 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 any proposed financing, acquisition, spin-out, distribution or transaction, the timing of the closing of such proposed event, including the risks that a condition to closing would not be satisfied within the expected timeframe or at all or that the closing of any proposed financing, acquisition, spin-out, distribution or transaction, the timing of the closing of such proposed event will not occur; our ability to continue as a going concern; our reliance on one key customer for a substantial percentage of our revenue; 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 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 the 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 maturity; 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; risks and uncertainties applicable to the businesses of our subsidiaries; 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 2021 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on July 14, 2021 (the “2021 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.

2

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 previously generated 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. In May 2020, we launched a new pay-per-view (“PPV”) offering enabling new forms of artist revenue including digital tickets, tipping, digital meet and greets, merchandise sales and sponsorship. In July 2020, we entered the podcasting business with the acquisition of PodcastOne and in December 2020, we entered the merchandising business with the acquisition of CPS. In October 2021, we entered artist and brand development and music-related press relations business through our acquisition of Gramophone.

The Company has one external customer that accounted for more than 10% of its revenue during the nine months ended December 31, 2021 and 2020. Such customer is an original equipment manufacturer (the “OEM”) who provides premium Slacker service in all of their new vehicles. Total revenues for this customer were 25% and 38% of the Company’s consolidated revenues for the nine months ended December 31, 2021 and 2020, respectively. For the three months ended December 31, 2021 and 2020, one external customer accounted for 26% of the Company’s consolidated revenues.

Key Corporate Developments for the Quarter Ended December 31, 2021

During the quarter ended December 31, 2021, we successfully livestreamed 42 live events with 231 artists livestreamed and over 400 hours of live programming.

We ended the December 31, 2021 quarter with approximately 1,369,000 paid subscribers on our music platform, up from approximately 1,006,000 at December 31, 2020, representing 37% annual growth. Included in the total number as of December 31, 2021 and 2020 are certain subscribers which are the subject of a contractual dispute. We are currently not recognizing revenue related to these subscribers.

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

For the three months ended December 31, 2020, we derived 44% of our revenue from paid customers’ subscriptions and the remainder from advertising, ticketing, sponsorship and licensing. During our fiscal year ended March 31, 2021, we (i) acquired PodcastOne (effective July 1, 2020) and CPS (effective December 22, 2020), (ii) accelerated the number of live events digitally live streamed across our platform, (iii) increased our sponsorship revenue from live events when compared to prior fiscal years and (iv) successfully launched our PPV platform, allowing us to charge customers directly to access and watch certain live events digitally on our music platform. As a result of these actions, our revenue for the three months ended December 31, 2021 was comprised of 33% from paid customers’ subscriptions, 26% from advertising (which includes PodcastOne), 20% from merchandise (which includes CPS), 18% from ticketing and events, and 3% from sponsorship and licensing. 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. As the impact of COVID-19 eases around the world and related government actions are relaxed in the markets in which we operate, we expect to gradually increase our production of 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 believe the monetary value of broadcasting live music will follow a similar evolution to live 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 a 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, 2021, we livestreamed 42 major festivals and live music events compared to 52 during the three months ended December 31, 2020. With the acceleration in livestreamed events, we also experienced increases in monetization of these events from paid sponsorships and PPV 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 outside of North America. The long-term economics of any future agreement involving 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.

3

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. We have entered into distribution relationships with a variety of platforms, including Roku, AppleTV, Amazon Fire, linear OTT platforms such as STIRR, Sling and XUMO. As we continue to have 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 2022, the future revenue and operating growth across our music platform will rely heavily on our ability to grow our subscriber base in a cost effective manner, continue to develop and deploy quality and innovative new music services, 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 growth from advertising and e-commerce across our platform.

As our music platform continues to evolve, we believe 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, OTT and social channels, deploying new services for our subscribers, artist merchandise and live music event ticket sales, and licensing user data across our platform. Our acquisitions of PodcastOne and CPS are reflective of our flywheel operating model. 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 ended March 31, 2022, 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.

As our platform matures, we also expect our contribution margins* and Adjusted EBITDA* to improve in the near and long term, which are non-GAAP measures as defined in section following below titled, “Non-GAAP Measures”. Historically, our live events business has not generated enough direct revenue to cover the costs to produce such events, and as a result generated negative contribution margins* and operating losses. Beginning in late March 2020, the COVID-19 pandemic had an adverse impact on on-premise live music events and festivals. Historically, we produced and digitally distributed the live music performances of many of these large global music events to fans all around the world. 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 distribution). In April 2020, we also launched our first all-digital music festival, Music Lives, which aired continuously for over 48 straight hours, with nearly 100 artists and generated over 50 million livestreams and over 6.5 billion video views of the of hashtag #musiclives across TikTok. Music Lives was simulcast across our platform and on TikTok’s platform, who also sponsored the event. In March 2021, we held our second annual Music Lives festival, which featured 130 artists performing over 72 continuous hours generating nearly 28 million livestreams. In June 2021, we produced and livestreamed Social Gloves: Battle of the Platforms, a multifaced event featuring top social influencers from TikTok and You Tube in boxing matches and musical performances from DJ Khaled, Lil Baby, Migos, and Trippie Redd, among others.

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 consumers who use our services. Growth in our margins is heavily dependent on our ability to grow the subscriber base in a cost-efficient manner, coupled with the managing the costs associated with implementing and operating our services, including the costs of licensing music with the music labels, producing, streaming and distributing video and audio content and sourcing and distributing personalized products and gifts. 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.

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 three months ended December 31, 2021 and 2020, all material amounts of our revenue were derived from customers located in the United States. The Company has one external customer that accounts for more than 10% of its revenue during the nine months ended December 31, 2021 and 2020. Such customer is an original equipment manufacturer (the “OEM”) who provides premium Slacker service in all of their new vehicles. Total revenues for this customer were 25% and 38% of the Company’s consolidated revenues for the nine months ended December 31, 2021 and 2020, respectively. For the three months ended December 31, 2021 and 2020, one external customer accounted for 26% of the Company’s consolidated revenues.

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, 2021 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 future. 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.

4

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 three months ended September 30, 2020, it did adversely impact parts of our business, 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, the COVID-19 pandemic had an adverse impact on on-premise live music festivals, concerts and events. Major global music festivals have been postponed until 2021 or indefinitely. With our acquisition of React Presents in February 2020, we were unable to produce and promote more than 200 forecasted live events in fiscal year ended March 31, 2021 and the three months ended September 30, 2021, including our flagship live event Spring Awakening festival, which is typically annually produced in June. 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 that was scheduled from April 28 to May 2, 2021. However, further outbreaks of COVID-19 have caused the postponement of this event to January 2022. 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 during fiscal year ended March 31, 2021 (146 live events) as compared to fiscal year March 31, 2020 (42 live events), (ii) improvement in the monetization of these digital livestreams, which exceeded prior fiscal year by over 1,188% and (iii) new growth opportunities across our music platform, including podcasts, vodcasts, merchandising and 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 during the quarter ended June 30, 2020.

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.

Non-GAAP Measures

Contribution Margin

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

Reconciliation of Adjusted EBITDA

Adjusted earnings before interest, taxes, depreciation, and amortization (“Adjusted EBITDA) 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) depreciation and amortization (including goodwill impairment, if any), and (f) certain stock-based compensation expense. We use Adjusted EBITDA to evaluate the performance of our operating segment. We believe that information about Adjusted EBITDA 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. Adjusted EBITDA is not calculated or presented in accordance with GAAP. A limitation of the use of Adjusted EBITDA 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, Adjusted EBITDA 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, Adjusted EBITDA as presented herein may not be comparable to similarly titled measures of other companies.

Adjusted EBITDA Margin

Adjusted EBITDA Margin is a non-GAAP financial measure defined as the ratio of Adjusted EBITDA to Revenue.

5

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

|  | Net Loss |  |  | Depreciation and Amortization |  | Stock-Based Compensation |  |  | Other Non-Operating and Non-Recurring Costs (1) |  |  | Other (income) expense (2) |  |  | Provision for (benefit from) income taxes |  |  | Adjusted EBITDA* |
Three Months Ended December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations |  | $ | (4,386 | ) |  | $ | 2,435 |  | $ | 268 |  |  | $ | 75 |  |  | $ | 269 |  |  | $ | (41 | ) |  | $ | (1,380 | )
Corporate |  |  | (7,405 | ) |  |  | 10 |  |  | 1,860 |  |  |  | 486 |  |  |  | 1,594 |  |  |  | 1 |  |  |  | (3,454 | )
Total |  | $ | (11,791 | ) |  | $ | 2,445 |  | $ | 2,128 |  |  | $ | 561 |  |  | $ | 1,863 |  |  | $ | (40 | ) |  | $ | (4,834 | )
Three Months Ended December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations |  | $ | (5,057 | ) |  | $ | 2,173 |  | $ | 1,630 |  |  | $ | 256 |  |  | $ | 421 |  |  | $ | - |  |  | $ | (577 | )
Corporate |  |  | (3,674 | ) |  |  | - |  |  | 1,062 |  |  |  | 528 |  |  |  | 715 |  |  |  | - |  |  |  | (1,369 | )
Total |  | $ | (8,731 | ) |  | $ | 2,173 |  | $ | 2,692 |  |  | $ | 784 |  |  | $ | 1,136 |  |  | $ | - |  |  | $ | (1,946 | )

|  |  | Net Loss |  |  | Depreciation and Amortization |  |  | Stock-Based Compensation |  |  | Other Non-Operating and Non-Recurring Costs (1) |  |  | Other (income) expense (2) |  | Provision for (benefit from) income taxes |  |  | Adjusted EBITDA* |
Nine months Ended December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations |  |  | $ | (10,542 | ) |  | $ | 7,204 |  |  | $ | 3,596 |  |  | $ | 429 |  |  | $ | 335 |  | $ | (41 | ) |  | $ | 981 |
Corporate |  |  |  | (24,536 | ) |  |  | 26 |  |  |  | 8,463 |  |  |  | 1,219 |  |  |  | 5,183 |  |  | 9 |  |  |  | (9,636 | )
Total |  |  | $ | (35,078 | ) |  | $ | 7,230 |  |  | $ | 12,059 |  |  | $ | 1,648 |  |  | $ | 5,518 |  | $ | (32 | ) |  | $ | (8,655 | )
Nine months Ended December 31, 2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations |  |  | $ | (13,355 | ) |  | $ | 6,368 |  |  | $ | 4,148 |  |  | $ | 963 |  |  | $ | 2,291 |  | $ | (4 | ) |  | $ | 411 |
Corporate |  |  |  | (13,097 | ) |  |  | - |  |  |  | 3,885 |  |  |  | 1,788 |  |  |  | 3,614 |  |  | 8 |  |  |  | (3,802 | )
Total |  |  | $ | (26,452 | ) |  | $ | 6,368 |  |  | $ | 8,033 |  |  | $ | 2,751 |  |  | $ | 5,905 |  | $ | 4 |  |  | $ | (3,391 | )

The following table sets forth the reconciliation of Contribution Margin* to Revenue, the most comparable GAAP financial measure (in thousands):

|  | Three Months Ended December 31, |  |  | Nine Months Ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Revenue: |  | $ | 32,895 |  |  | $ | 19,123 |  |  | $ | 93,586 |  |  | $ | 44,189 |
Less Cost of Sales: |  |  | (27,666 | ) |  |  | (14,564 | ) |  |  | (74,654 | ) |  |  | (32,524 | )
Contribution Margin* |  | $ | 5,229 |  |  | $ | 4,559 |  |  | $ | 18,932 |  |  | $ | 11,665 |

6

Consolidated Results of Operations

Three Months Ended December 31, 2021, as compared to Three Months Ended December 31, 2020

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, |
|  | 2021 |  |  | 2020 |
Revenue: |  | $ | 32,895 |  |  | $ | 19,123 |
Operating expenses: |  |  |  |  |  |  |  |
Cost of sales |  |  | 27,666 |  |  |  | 14,564 |
Sales and marketing |  |  | 3,466 |  |  |  | 3,059 |
Product development |  |  | 1,657 |  |  |  | 2,534 |
General and administrative |  |  | 8,550 |  |  |  | 5,162 |
Amortization of intangible assets |  |  | 1,524 |  |  |  | 1,399 |
Total operating expenses |  |  | 42,863 |  |  |  | 26,718 |
Loss from operations |  |  | (9,968 | ) |  |  | (7,595 | )
Other income (expense): |  |  |  |  |  |  |  |
Interest expense, net |  |  | (1,052 | ) |  |  | (998 | )
Loss on extinguishment of debt |  |  | - |  |  |  | - |
Other expense |  |  | (811 | ) |  |  | (138 | )
Total other expense |  |  | (1,863 | ) |  |  | (1,136 | )
Loss before provision for income taxes |  |  | (11,831 | ) |  |  | (8,731 | )
Provision for (benefit from) income taxes |  |  | (40 | ) |  |  | - |
Net loss |  | $ | (11,791 | ) |  | $ | (8,731 | )
Net loss per share – basic and diluted |  | $ | (0.15 | ) |  | $ | (0.12 | )
Weighted average common shares – basic and diluted |  |  | 78,188,050 |  |  |  | 72,356,093 |

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

|  | Three Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Depreciation expense |  |  |  |  |  |  |  |  |
Cost of sales |  | $ | 18 |  |  | $ | - |  |  |  | - |
Sales and marketing |  |  | 45 |  |  |  | 51 |  |  |  | -12 | %
Product development |  |  | 744 |  |  |  | 575 |  |  |  | 29 | %
General and administrative |  |  | 114 |  |  |  | 174 |  |  |  | -34 | %
Total depreciation expense |  | $ | 921 |  |  | $ | 800 |  |  |  | 15 | %

7

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

|  | Three Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Stock-based compensation expense |  |  |  |  |  |  |  |  |
Cost of sales |  | $ | 116 |  |  | $ | 492 |  |  |  | -76 | %
Sales and marketing |  |  | 118 |  |  |  | 439 |  |  |  | -73 | %
Product development |  |  | (375 | ) |  |  | 517 |  |  |  | -173 | %
General and administrative |  |  | 2,269 |  |  |  | 1,244 |  |  |  | 82 | %
Total stock-based compensation expense |  | $ | 2,128 |  |  | $ | 2,692 |  |  |  | -21 | %

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

|  | Three Months Ended December 31, |
|  | 2021 |  |  | 2020 |
Revenue |  |  | 100 | % |  |  | 100 | %
Operating expenses |  |  |  |  |  |  |  |
Cost of sales |  |  | 84 | % |  |  | 76 | %
Sales and marketing |  |  | 11 | % |  |  | 16 | %
Product development |  |  | 5 | % |  |  | 13 | %
General and administrative |  |  | 26 | % |  |  | 27 | %
Amortization of intangible assets |  |  | 5 | % |  |  | 7 | %
Total operating expenses |  |  | 131 | % |  |  | 139 | %
Loss from operations |  |  | -30 | % |  |  | -39 | %
Other income (expense) |  |  | -6 | % |  |  | -6 | %
Loss before income taxes |  |  | -36 | % |  |  | -46 | %
Income tax provision |  |  | - | % |  |  | - | %
Net loss |  |  | -36 | % |  |  | -46 | %

Revenue

Revenue was as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Subscription services |  | $ | 10,698 |  |  | $ | 8,346 |  |  |  | 28 | %
Advertising |  |  | 8,541 |  |  |  | 7,710 |  |  |  | 11 | %
Merchandising |  |  | 6,442 |  |  |  | 796 |  |  |  | 709 | %
Sponsorship and licensing |  |  | 1,194 |  |  |  | 2,087 |  |  |  | -43 | %
Ticket/Event |  |  | 6,020 |  |  |  | 184 |  |  |  | 3,172 | %
Total Revenue |  | $ | 32,895 |  |  | $ | 19,123 |  |  |  | 72 | %

Subscription Revenue

Subscription revenue increased $2.4 million, or 28%, to $10.7 million for the three months ended December 31, 2021, as compared to $8.3 million for the three months ended December 31, 2020. The increase was primarily as a result of subscriber growth with our largest OEM customer.

8

Advertising Revenue

Advertising revenue increased 0.8 million, or 11%, to $8.5 million for the three months ended December 31, 2021, as compared to $7.7 million for the three months ended December 31, 2020, which is primarily attributable to growth in advertising at PodcastOne.

Merchandising Revenue

Merchandising revenue increased to $6.4 million, or 709%, from $0.8 million for the three months ended December 31, 2021, as compared to the three months ended December 31, 2020 due to the acquisition of CPS near the end of the prior year quarter.

Sponsorship and Licensing

Sponsorship and licensing revenue decreased $0.9 million, or 43%, to $1.2 million for the three months ended December 31, 2021, as compared to $2.1 million for the three months ended December 31, 2020. The decrease was primarily due to the lower number of live events held during the three months ended December 31, 2021 relative to the prior year comparable period.

Ticket/Event

Ticket/Event revenue increased $5.8 million, or 3,172%, to $6.0 million for the three months ended December 31, 2021, as compared to $0.2 million for the three months ended December 31, 2020, primarily driven by the Spring Awakening music festival in the current quarter, with no comparable events in the prior year quarter.

Cost of Sales

Cost of sales was as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Subscription |  | $ | 6,545 |  |  | $ | 4,381 |  |  |  | 49 | %
Advertising |  |  | 6,590 |  |  |  | 5,695 |  |  |  | 16 | %
Production and Ticketing |  |  | 10,170 |  |  |  | 4,109 |  |  |  | 148 | %
Merchandising |  |  | 4,361 |  |  |  | 379 |  |  |  | 1,051 | %
Total Cost of Sales |  | $ | 27,666 |  |  | $ | 14,564 |  |  |  | 90 | %

Subscription

Subscription cost of sales increased $2.2 million, or 49%, to $6.5 million for the three months ended December 31, 2021, as compared to $4.4 million for the three months ended December 31, 2020. The increase was in line with the higher subscription revenues noted above.

9

Advertising

Advertising cost of sales increased $0.9 million, or 16%, to $6.6 million for the three months ended December 31, 2021, as compared to $5.7 million for the three months ended December 31, 2020. The increase was in line with the higher advertising revenues noted above.

Production and Ticketing

Production cost of sales increased $6.1 million, or 148%, to $10.2 million for the three months ended December 31, 2021, as compared to $4.1 million for the three months ended December 31, 2020. The increase was primarily driven by the Spring Awakening music festival in the current quarter, with no comparable events in the prior year quarter.

Merchandising

Merchandising cost of sales increased to $4.4 million, or 1,051%, from $0.4 million for the three months ended December 31, 2021, as compared to the three months ended December 31, 2020 due to the acquisition of CPS near the end of the prior year quarter.

Other Operating Expenses

Other operating expenses were as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Sales and marketing expenses |  | $ | 3,466 |  |  | $ | 3,059 |  |  |  | 13 | %
Product development |  |  | 1,657 |  |  |  | 2,534 |  |  |  | -35 | %
General and administrative |  |  | 8,550 |  |  |  | 5,162 |  |  |  | 66 | %
Amortization of intangible assets |  |  | 1,524 |  |  |  | 1,399 |  |  |  | 9 | %
Total Other Operating Expenses |  | $ | 15,197 |  |  | $ | 12,154 |  |  |  | 25 | %

Sales and Marketing Expenses

Sales and Marketing expenses increased $0.4 million, or 13%, to $3.5 million for the three months ended December 31, 2021, as compared to $3.1 million for the three months ended December 31, 2020, primarily driven by increased React marketing of $0.2 million related to the Spring Awakening music festival held during the current quarter, with no comparable event in the prior year quarter.

Product Development

Product development expenses decreased $0.9 million, or 35%, to $1.7 million for the three months ended December 31, 2021, as compared to $2.5 million for the three months ended December 31, 2020, primarily driven by a benefit recorded in the current quarter related to the release of a discretionary share-based award bonus previously accrued.

General and Administrative

General and administrative expenses increased $3.4 million, or 66%, to $8.6 million for the three months ended December 31, 2021, as compared to $5.2 million for the three months ended December 31, 2020, largely due to an increase in share-based compensation of $1.1 million and salaries of $1.1 million, partially driven by the addition of corporate personnel to support future growth.

10

Amortization of Intangible Assets

Amortization of intangible assets increased $0.1 million, or 9%, to $1.5 million for the three months ended December 31, 2021, as compared to $1.4 million for the three months ended December 31, 2020, due to intangible assets acquired in the acquisition CPS, which was acquired near the end of the prior year quarter.

Total Other Expense

Total other expense was as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Total other expense |  | $ | (1,863 | ) |  | $ | (1,136 | ) |  |  | 64 | %

Total other expense increased $0.7 million, or 64%, to $1.9 million expense for the three months ended December 31, 2021, as compared to $1.1 million expense for the three months ended December 31, 2020. The increase is primarily driven by $0.8 million in debt exchange expense recorded during the current quarter as a result of the inducement offer related to the exchange of the Unsecured Convertible Note as of December 31, 2021, with no comparable transaction in the prior year quarter.

Nine Months Ended December 31, 2021, as compared to Nine Months Ended December 31, 2020

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, |
|  | 2021 |  |  | 2020 |
Revenue: |  | $ | 93,586 |  |  | $ | 44,189 |
Operating expenses: |  |  |  |  |  |  |  |
Cost of sales |  |  | 74,654 |  |  |  | 32,524 |
Sales and marketing |  |  | 10,814 |  |  |  | 6,481 |
Product development |  |  | 5,990 |  |  |  | 6,908 |
General and administrative |  |  | 27,173 |  |  |  | 14,762 |
Amortization of intangible assets |  |  | 4,547 |  |  |  | 4,057 |
Total operating expenses |  |  | 123,178 |  |  |  | 64,732 |
Loss from operations |  |  | (29,592 | ) |  |  | (20,543 | )
Other income (expense): |  |  |  |  |  |  |  |
Interest expense, net |  |  | (3,180 | ) |  |  | (4,097 | )
Forgiveness of PPP loans |  |  | 2,511 |  |  |  | - |
Loss on extinguishment of debt |  |  | (4,321 | ) |  |  | (1,488 | )
Other income (expense) |  |  | (528 | ) |  |  | (320 | )
Total other expense, net |  |  | (5,518 | ) |  |  | (5,905 | )
Loss before provision for income taxes |  |  | (35,110 | ) |  |  | (26,448 | )
Provision for (benefit from) income taxes |  |  | (32 | ) |  |  | 4 |
Net loss |  | $ | (35,078 | ) |  | $ | (26,452 | )
Net loss per share – basic and diluted |  | $ | (0.45 | ) |  | $ | (0.40 | )
Weighted average common shares – basic and diluted |  |  | 77,670,598 |  |  |  | 66,880,417 |

11

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

|  | Nine Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Depreciation expense |  |  |  |  |  |  |  |  |
Cost of sales |  | $ | 42 |  |  | $ | 0 |  |  |  | - |
Sales and marketing |  |  | 119 |  |  |  | 157 |  |  |  | -24 | %
Product development |  |  | 2,032 |  |  |  | 1,634 |  |  |  | 24 | %
General and administrative |  |  | 499 |  |  |  | 520 |  |  |  | -4 | %
Total depreciation expense |  | $ | 2,692 |  |  | $ | 2,311 |  |  |  | 16 | %

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

|  | Nine Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Stock-based compensation expense |  |  |  |  |  |  |  |  |
Cost of sales |  | $ | 610 |  |  | $ | 614 |  |  |  | -1 | %
Sales and marketing |  |  | 1,794 |  |  |  | 1,641 |  |  |  | 9 | %
Product development |  |  | 258 |  |  |  | 1,271 |  |  |  | -80 | %
General and administrative |  |  | 9,397 |  |  |  | 4,507 |  |  |  | 109 | %
Total stock-based compensation expense |  | $ | 12,059 |  |  | $ | 8,033 |  |  |  | 50 | %

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

|  | Nine Months Ended December 31, |
|  | 2021 |  |  | 2020 |
Revenue |  |  | 100 | % |  |  | 100 | %
Operating expenses |  |  |  |  |  |  |  |
Cost of sales |  |  | 80 | % |  |  | 74 | %
Sales and marketing |  |  | 12 | % |  |  | 15 | %
Product development |  |  | 6 | % |  |  | 16 | %
General and administrative |  |  | 29 | % |  |  | 33 | %
Amortization of intangible assets |  |  | 5 | % |  |  | 9 | %
Total operating expenses |  |  | 132 | % |  |  | 147 | %
Loss from operations |  |  | -32 | % |  |  | -46 | %
Other income (expense) |  |  | -6 | % |  |  | -13 | %
Loss before income taxes |  |  | -38 | % |  |  | -60 | %
Income tax provision |  |  | - | % |  |  | - | %
Net loss |  |  | -38 | % |  |  | -60 | %

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Revenue

Revenue was as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Subscription services |  | $ | 29,660 |  |  | $ | 24,948 |  |  |  | 19 | %
Advertising |  |  | 25,286 |  |  |  | 13,453 |  |  |  | 88 | %
Merchandising |  |  | 13,058 |  |  |  | 796 |  |  |  | 1,540 | %
Sponsorship and licensing |  |  | 6,498 |  |  |  | 3,466 |  |  |  | 87 | %
Ticket/Event |  |  | 19,084 |  |  |  | 1,526 |  |  |  | 1,151 | %
Total Revenue |  | $ | 93,586 |  |  | $ | 44,189 |  |  |  | 112 | %

Subscription Services Revenue

Subscription services revenue increased to $30.0 million during the nine months ended December 31, 2021, as compared to $25.0 million during the nine months ended December 31, 2020, an increase of $4.7 million or 19% primarily as a result of subscriber growth with our largest OEM customer.

Advertising Revenue

Advertising revenue increased to $25.3 million during the nine months ended December 31, 2021, as compared to $13.5 million during the nine months ended December 31, 2020, an increase of $11.8 million or 88% due to growth in advertising at PodcastOne year over year.

Sponsorship and licensing

Sponsorship and licensing revenue increased to $6.5 million during the nine months ended December 31, 2021, as compared to $3.5 million for the nine months ended December 31, 2020, an increase of $3.0 million or 87%, primarily driven by the sponsorship and licensing revenues earned related to the Social Gloves event held during the nine months ended December 31, 2021 with no comparable event held during the prior year.

Merchandising Revenue

Merchandising revenue increased $12.3 million, or 1,540%, to $13.1 million, from $0.8 million for the nine months ended December 31, 2021, as compared to the nine months ended December 31, 2020 due to the acquisition of CPS near the end of the prior year quarter.

Ticket/Event Revenue

Ticket/Event revenue increased $17.6 million to $19.1 million for the nine months ended December 31, 2021, as compared to $1.5 million for the nine months ended December 31, 2020. The increase was due to PPV ticket fees and production revenues earned related to the Social Gloves event held during the nine months ended December 31, 2021, in addition to ticket sales from the Spring Awakening music festival in October 2021, with no comparable events held during the prior year comparable period.

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Cost of Sales

Cost of sales was as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Subscription |  | $ | 19,194 |  |  | $ | 15,620 |  |  |  | 23 | %
Advertising |  |  | 23,203 |  |  |  | 9,943 |  |  |  | 133 | %
Production and Ticketing |  |  | 23,706 |  |  |  | 6,582 |  |  |  | 260 | %
Merchandising |  |  | 8,551 |  |  |  | 379 |  |  |  | 2,156 | %
Total Cost of Sales |  | $ | 74,654 |  |  | $ | 32,524 |  |  |  | 130 | %

Subscription

Subscription cost of sales increased $3.6 million, or 23%, to $19.2 million for the nine months ended December 31, 2021, as compared to $15.6 million for the nine months ended December 31, 2020. The increase was in line with the higher subscription revenues noted above.

Advertising

Advertising cost of sales increased $13.3 million, or 133%, to $23.2 million for the nine months ended December 31, 2021, as compared to $9.9 million for the nine months ended December 31, 2020. The increase was in line with the higher advertising revenues noted above.

Production and Ticketing

Production cost of sales increased $17.1 million, or 260%, to $23.7 million for the nine months ended December 31, 2021, as compared to $6.6 million for the nine months ended December 31, 2020. The increase was primarily due to production costs related to the Social Gloves event held in June 2021 in addition to production and ticketing costs related to the Spring Awakening music festival held in October 2021, with no comparable events in the prior year.

Merchandising

Merchandising cost of sales increased to $8.6 million, or 2,156%, from $0.4 million for the nine months ended December 31, 2021, as compared to the nine months ended December 31, 2020 due to the acquisition of CPS near the end of the prior year quarter.

Other Operating Expenses

Other operating expenses were as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Sales and marketing expenses |  | $ | 10,814 |  |  | $ | 6,481 |  |  |  | 67 | %
Product development |  |  | 5,990 |  |  |  | 6,908 |  |  |  | -13 | %
General and administrative |  |  | 27,173 |  |  |  | 14,762 |  |  |  | 84 | %
Amortization of intangible assets |  |  | 4,547 |  |  |  | 4,057 |  |  |  | 12 | %
Total Other Operating Expenses |  | $ | 48,524 |  |  | $ | 32,208 |  |  |  | 51 | %

Sales and Marketing Expenses

Sales and marketing expenses increased $4.3 million, or 67%, to $10.8 million for the nine months ended December 31, 2021, as compared to $6.5 million for the nine months ended December 31, 2020. The $4.3 million increase was largely due to higher salaries and wages of $2.0 million and increased sales and marketing costs related to the two tentpole events during the current year, including Social Gloves and the Spring Awakening music festival, with no comparable events during the prior year.

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Product Development

Product development expenses decreased $0.9 million, or 13%, to $6.0 million for the nine months ended December 31, 2021, as compared to $6.9 million for the nine months ended December 31, 2020, primarily driven by a benefit recorded in the current quarter related to the release of a discretionary share-based award bonus previously accrued.

General and Administrative

General and administrative expenses increased $12.4 million, or 84%, to $27.2 million for the nine months ended December 31, 2021, as compared to $14.8 million for the nine months ended December 31, 2020. The increase was largely due to an increase in share-based compensation of $4.9 million and salaries and benefits of $4.0 million, partially driven by the addition of corporate personnel to support future growth and the timing of vesting of share-based awards.

Amortization of Intangible Assets

Amortization of intangible assets increased by $0.5 million, or 12%, to $4.6 million for the nine months ended December 31, 2021, as compared to $4.1 million for the nine months ended December 31, 2020, due to intangible assets acquired in the acquisition CPS, which was acquired near the end of the prior year quarter.

Total Other Expense, net

Total other expense. net was as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Total other expense, net |  | $ | (5,518 | ) |  | $ | (5,905 | ) |  |  | -7 | %

Total other expense, net decreased $0.4 million to $5.5 million for the nine months ended December 31, 2021, as compared to $6.0 million expense for the nine months ended December 31, 2020. The decrease was primarily a result of the gain on forgiveness of PPP loans of $2.5 million during the nine months ended December 31, 2021, with no comparable gain in the prior year. Additionally, interest expense, net decreased by $0.9 million driven by the interest rate on the Harvest Notes of 8.5% during the nine months ended December 31, 2021, when compared to the interest rate on the senior secured debentures of 12.5% which were outstanding during the nine months ended December 31, 2020. These decreases were partially offset by the loss on extinguishment on debt of $4.3 million recorded during the nine months ended December 31, 2021, when compared to the loss on extinguishment recorded during the nine months ended December 31, 2020 of $1.5 million.

Business Segment Results

Three Months Ended December 31, 2021, as compared to Three Months Ended December 31, 2020

Operations

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

|  | Three Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Revenue |  | $ | 32,895 |  |  | $ | 19,123 |  |  |  | 72 | %
Cost of Sales |  |  | 27,666 |  |  |  | 14,564 |  |  |  | 90 | %
Sales & Marketing, Product Development and G&A |  |  | 7,863 |  |  |  | 7,796 |  |  |  | -1 | %
Intangible Asset Amortization |  |  | 1,524 |  |  |  | 1,399 |  |  |  | 9 | %
Operating Loss |  |  | (4,158 | ) |  |  | (4,636 | ) |  |  | -10 | %
Operating Margin |  |  | -13 | % |  |  | -24 | % |  |  | - | %
Adjusted EBITDA* |  | $ | (1,380 | ) |  | $ | (577 | ) |  |  | 139 | %
Adjusted EBITDA Margin* |  |  | -4 | % |  |  | -3 | % |  |  | - | %

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

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Revenue

Revenue increased $13.8 million, or 72%, during the three months ended December 31, 2021, as compared to $19.1 million for the three months ended December 31, 2020, primarily due to increased subscription revenue of $2.4 million as a result of subscriber growth with our largest OEM customer, increased advertising revenue of $0.8 million as a result of growth in advertising at PodcastOne, increased merchandising revenue of $6.4 due to the acquisition of CPS near the end of the prior year quarter, and an increase in Ticket/Event revenues driven by the Spring Awakening music festival in the current quarter, with no comparable events in the prior year quarter.

Operating Loss

Operating loss decreased $0.2 million, or 5%, to $4.2 million for the three months ended December 31, 2021, as compared to $4.6 million for the three months ended December 31, 2020, primarily driven by increased contribution margin* of $0.8 million in the subscription business.

Adjusted EBITDA

Operations Adjusted EBITDA decreased by $0.8 million, or 139%, to $1.4 million for the three months ended December 31, 2021, as compared to $0.6 million loss for the three months ended December 31, 2020. This was largely driven by increased recurring cash based operating costs, partially offset by the increased contribution described above.

Corporate expense

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

|  | Three Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Sales & Marketing, Product Development and G&A |  | $ | 5,810 |  |  | $ | 2,959 |  |  |  | 96 | %
Operating Loss |  | $ | (5,810 | ) |  | $ | (2,959 | ) |  |  | 96 | %
Operating Margin |  |  | N/A |  |  |  | N/A |  |  |  | - | %
Adjusted EBITDA* |  | $ | (3,454 | ) |  | $ | (1,369 | ) |  |  | 152 | %

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

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Operating Loss

Operating loss increased $2.9 million, or 96%, to $5.8 million for the three months ended December 31, 2021, as compared to $3.0 million for the three months ended December 31, 2020 largely as a result of increased salaries and wages of $1.0 million due to the addition of corporate personnel and increased stock-based compensation of $1.6 million.

Adjusted EBITDA

Corporate Adjusted EBITDA increased $2.1 million, or 152%, to $3.5 million for the three months ended December 31, 2021, as compared to $1.4 million for three months ended December 31, 2020. The increase was largely due to the increase in cash based operating costs described above related to salaries and wages.

Nine Months Ended December 31, 2021 as compared to Nine Months Ended December 31, 2020

Operations

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

|  | Nine Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Revenue |  | $ | 93,586 |  |  | $ | 44,189 |  |  |  | 112 | %
Cost of Sales |  |  | 74,655 |  |  |  | 32,524 |  |  |  | 130 | %
Sales & Marketing, Product Development and G&A |  |  | 24,632 |  |  |  | 18,677 |  |  |  | 32 | %
Intangible Asset Amortization |  |  | 4,547 |  |  |  | 4,057 |  |  |  | 12 | %
Operating Loss |  | $ | (10,248 | ) |  | $ | (11,069 | ) |  |  | -7 | %
Operating Margin |  |  | -11 | % |  |  | -25 | % |  |  | - | %
Adjusted EBITDA* |  | $ | 981 |  |  | $ | 410 |  |  |  | 139 | %
Adjusted EBITDA Margin* |  |  | 1 | % |  |  | 1 | % |  |  | - | %

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

Revenue

Revenue increased $49.4 million, or 112%, during the nine months ended December 31, 2021, as compared to $44.2 million for the nine months ended December 31, 2020, primarily due to increased subscription revenue of $4.7 million as a result of subscriber growth with our largest OEM customer, increased advertising revenue of $11.8 million due to advertising growth at PodcastOne, increased sponsorship and licensing revenue of $3.0 million driven by the Social Gloves event held in June 2021, increased merchandising revenue of $12.3 million due to the acquisition of CPS near the end of the prior year quarter, and increased ticket and event revenues driven by the Social Gloves and Spring Awakening music festival held during the nine months ended December 31, 2021 with no comparable events held during the prior year quarter.

Operating Loss

Operating loss decreased $0.8 million, or 7%, to $10.2 million for the nine months ended December 31, 2020, as compared to $11.1 million for the nine months ended December 31, 2020, primarily as a result of a $7.3 million improvement in contribution margins* from operations primarily due to the Social Gloves event held in June 2021, with no comparable event in the prior year comparable period, partially offset by a $6.0 million increase in sales & marketing, product development and G&A during the nine months ended December 31, 2021, as compared to the same period in the prior year. This was primarily driven by the addition of corporate personnel, the timing of vesting of share-based awards, and operating costs associated with the Social Gloves and Spring Awakening events.

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Adjusted EBITDA

Adjusted EBITDA* increased $0.5 million, or 139%, from a $0.4 million Adjusted EBITDA* for the nine months ended December 31, 2020, to a $1.0 million Adjusted EBITDA* for the nine months ended December 31, 2021, primarily as a result of the decrease in operating loss of $0.8 million described above, offset by higher cash based operating costs.

Corporate

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

|  | Nine Months Ended December 31, |  |  |  |
|  | 2021 |  |  | 2020 |  |  | % Change |
Sales & Marketing, Product Development and G&A |  | $ | 19,344 |  |  | $ | 9,474 |  |  |  | 104 | %
Operating Loss |  | $ | (19,344 | ) |  | $ | (9,474 | ) |  |  | 104 | %
Operating Margin |  |  | -100 | % |  |  | -100 | % |  |  | - | %
Adjusted EBITDA* |  | $ | (9,636 | ) |  | $ | (3,801 | ) |  |  | 154 | %

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

Corporate Operating Loss

Corporate operating loss increased $9.9 million, or 104%, from a $9.5 million loss for the nine months ended December 31, 2020, to a $19.3 million loss for the nine months ended December 31, 2021. The increase was primarily largely as a result of increased salaries and wages of $2.7 million due to the addition of corporate personnel and increased stock-based compensation of $4.5 million.

Adjusted EBITDA

Corporate Adjusted EBITDA* decreased $5.8 million, or 154%, from a ($3.8) million Adjusted EBITDA* for the nine months ended December 31, 2020, to a ($9.6) million Adjusted EBITDA* for the nine months ended December 31, 2020. The increase was largely due to increased recurring cash based operating costs related to sales & marketing, product development and G&A.

Liquidity and Capital Resources

Current Financial Condition

As of December 31, 2021, our principal sources of liquidity were our cash and cash equivalents, including restricted cash balances in the amount of $12.7 million, which primarily are invested in cash in banking institutions in the U.S. In April 2020, we received approximately $2.0 million under the U.S. Government’s Paycheck Protection Plan (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which was subsequently forgiven in April 2021. The vast majority of our cash proceeds were received as a result of the issuance of our convertible notes since 2014, public offerings, bank debt financing in fiscal year 2018 and the secured convertible debentures financing in June 2018 and February 2019. In June 2021 we entered into a Revolving Credit Facility (See Note 11 – Senior Secured Revolving Line of Credit to our condensed consolidated financial statements) and drew down aggregate advance amounts of $6.0 million. As of December 31, 2021, we had notes payable balance of $0.8 million, $5.8 million in aggregate principal amount of unsecured convertible notes, secured convertible notes with aggregate principal balances of $15.0 million, and a senior secured revolving credit facility with a principal balance of $7.0 million.

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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 $35.1 million and used cash of $10.2 million in operating activities for the nine months December 31, 2021 and had a working capital deficiency of $22.3 million as of December 31, 2021. 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.

In February 2020, we acquired React Presents in exchange for $2.0 million in convertible debt. The convertible debt had a term of 2 years, bears interest at 8% per year and had a conversion price of $4.50 per share. In December 2021, we entered into an exchange agreement with the noteholder of the convertible debt whereby the debt was exchange in whole into shares of our common stock at an exchange price of $2.10 per share. Refer to Note 9 – Unsecured Convertible Notes in the accompanying notes to the condensed consolidated financial statements.

In April 2020, we received proceeds of $2.0 million from a loan under the PPP of the CARES Act. On April 22, we received confirmation from the SBA that the entire balance of such PPP loan was forgiven as a result of our application and acceptance under the terms of the CARES Act. On July 1, 2020, we acquired PodcastOne that had previously obtained a PPP loan, which had a balance of $0.5 million as of March 31, 2021. On May 11, 2021, we received confirmation from the lender that the entire balance of such PPP loan was forgiven as a result of our application and acceptance under the terms of the CARES Act.

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.

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 net proceeds of $7.3 million and issued 2,415,459 shares of our common stock to satisfy a $10.0 million vendor payment obligation to such music partner, each at a price of $3.28 per share (the “July 2020 Offering”). The July 2020 Offering was made pursuant to our shelf Registration Statement on Form S-3 (File No. 333-228909).

In September 2020, we entered into a Securities Purchase Agreement with a certain existing institutional investor pursuant to which we sold two of our 8.5% Subordinated Secured Convertible Note in the aggregate principal amount of $15.0 million. In connection with such financing, we agreed to issue to such investor’s designees 800,000 shares of our common stock. The note matures on June 3, 2023 (as a result of the June 2021 note extension, in which we also agreed to issue 60,000 shares of our common stock to the noteholders), accrues interest at 8.5% per year, payable quarterly in cash in arrears, and is convertible into shares of our common stock at a conversion price of $4.50 per share at the investor’s option, subject to certain customary adjustments such as stock splits, stock dividends and stock combinations.

On January 11, 2021, we entered into an Amendment of Notes Agreement with Trinad Capital, a related party, pursuant to which the maturity date of all of the Trinad Notes issued to Trinad Capital was extended to May 31, 2022, and in consideration of such extension, the interest rate payable under such notes increased to 8.5%, and we issued to Trinad Capital 280,000 shares of our common stock.

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On August 11, 2021, we entered into an Amendment of the Notes Agreement with Trinad Capital pursuant to which the maturity date of all of the Trinad Notes issued to Trinad Capital was extended to May 31, 2023, and in consideration of such extension, we issued to Trinad Capital 33,654 shares of its common stock.

As of December 31, 2021 and March 31, 2021, we had an outstanding unsecured convertible notes (the “Trinad Notes”) of $5.8 million and $5.5 million, respectively, in principal and accrued interest, issued to Trinad Capital.

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 the future, we may utilize additional commercial financings, bonds, debentures, lines of credit and term loans with a syndicate of commercial banks or other bank syndicates and/or issue equity securities (publicly or privately) for general corporate purposes, including acquisitions and investing in our intangible assets, music equipment, platform and technologies. We may also use our current cash and cash equivalents to repurchase some or all of our unsecured convertible notes, and pay down our debt, in part or in full, subject to repayment limitation set forth in the credit agreement. Management plans to fund its operations over the next twelve months through the combination of improved operating results, spending rationalization, and the ability to access sources of capital such as through the issuance of equity and/or debt securities. 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 us. We filed a universal shelf Registration Statement on Form S-3, which became effective on February 7, 2019, allowing us to issue various types of securities, including common stock, preferred stock, warrants, debt securities, units, or any combination of such securities, up to an aggregate amount of $150.0 million, of which as of the date of this Quarterly Report $121.5 million is remaining available to be issued during the period equal to the shorter of (i) 6 months from February 7, 2022 and (ii) the date when the New Shelf S-3 is declared effective by the SEC. The Company also filed a replacement universal shelf Registration Statement on Form S-3 (the “New Shelf S-3”) with the SEC on February 4, 2022, pursuant to which, if declared effective by the SEC, the Company will have the ability to raise up to $150.0 million in cash from the sale of its equity, debt and/or other financial instruments.

Sources and Uses of Cash

The following table provides information regarding our cash flows for the nine months ended December 31, 2021 and 2020 (in thousands):

|  | Nine Months Ended December 31, |
|  | 2021 |  |  | 2020 |
Net cash used in operating activities |  | $ | (10,226 | ) |  | $ | (9,100 | )
Net cash provided by (used in) investing activities |  |  | (3,122 | ) |  |  | 189 |
Net cash provided by financing activities |  |  | 7,234 |  |  |  | 14,062 |
Net change in cash, cash equivalents and restricted cash |  | $ | (6,114 | ) |  | $ | 5,151 |

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Cash Flows Used In Operating Activities

For the nine months ended December 31, 2021

Net cash used in our operating activities of $10.2 million primarily resulted from our net loss during the period of ($35.1) million, which included non-cash charges of $25.1 million largely comprised of depreciation and amortization, stock-based compensation, loss on extinguishment of debt, and debt conversion expense related to the exchange of the unsecured convertible note. In addition, our net loss during the period included non-cash income of $2.5 million as a result of a gain on forgiveness of PPP loans. The remainder of our sources of cash used in operating activities of $2.3 million was from changes in our working capital, primarily from timing of accounts receivable, accounts payable, and deferred revenue.

For the nine months ended December 31, 2020

Net cash used in our operating activities of $9.1 million primarily resulted from our net loss during the period of ($26.5) million, which included non-cash charges of $16.5 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 $0.9 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.

Cash Flows Used In Investing Activities

For the nine months ended December 31, 2021

Net cash used in investing activities of ($3.1) million was primarily due to the ($2.9) million cash used for the purchase of capitalized internally developed software costs during the nine months ended December 31, 2021.

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.

Cash Flows Provided by Financing Activities

For the nine months ended December 31, 2021

Net cash provided by financing activities of $7.2 million was due to proceeds from the drawdown on the revolving line of credit of $7.0 million and proceeds from employee stock options of $0.9 million.

For the nine months ended December 31, 2020

Net cash provided by financing activities of $14.1 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, $9.4 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.

Debt Covenants

As of December 31, 2021, we were in full compliance with all covenants.

Contractual Obligations and Commitments

During the nine months ended December 31, 2021, 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 ending March 31, 2022, or for the fiscal year ending March 31, 2023.

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 2021 Form 10-K, our 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.

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

Management is actively engaged and committed to taking the steps necessary to remediate the control deficiencies that constituted material weaknesses, as described in our 2021 Form 10-K. During our fiscal year ending March 31,2022, we have made the following enhancements to our internal control over financial reporting:

| ● | We added finance and accounting roles to the organization to strengthen our finance and accounting teams. The additional roles are expected to provide oversight, structure, reporting lines, and additional review over our disclosures; and

| ● | We implemented new policies and procedures relevant to the preparation of our financial statements to improve communication of key areas across the different departments to provide adequate structure, accountability, and segregation of duties;

Our remediation activities are continuing during our fiscal year ending March 31,2022. In addition to the above actions, we expect to engage in additional activities, including, but not limited to:

| ● | Designing and implementing formal processes, accounting policies, procedures, and controls supporting our financial close process, including standardization of financial reporting data

| ● | Continuing to implement additional controls within existing IT systems relevant to the preparation of our financial statements and controls over financial reporting to improve communication of key areas across departments and to provide adequate structure, accountability, and segregation of duties.

We continue to enhance corporate oversight over process-level controls and structures to ensure that there is appropriate assignment of authority, responsibility, and accountability to enable remediation of our material weaknesses.

While we have made progress, our material weaknesses will not be considered remediated until we complete the design and implementation of the enhanced controls, the controls operate for a sufficient period of time, and we have concluded, through testing, that these controls are effective. We believe that our remediation plan will be sufficient to remediate the identified material weaknesses and strengthen our internal control over financial reporting.

As management continues to evaluate and work to improve our internal control over financial reporting, we may determine that additional measures or modifications to the remediation plan are necessary.

Other than as described above, there have been no changes in our internal control over financial reporting, during the quarter ended December 31, 2021 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 are involved in legal proceedings and other matters arising in connection with the conduct of our business activities. Many of these proceedings may be at preliminary stages and/or seek an indeterminate amount of damages. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not currently expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity. Other than as set forth below, we are not aware of any other pending material legal proceedings.

On April 10, 2018, Joseph Schnaier, Danco Enterprises, LLC (an entity solely owned by Mr. Schnaier, “Danco”), Wantmcs Holdings, LLC (Mr. Schnaier is the managing member) and Wantickets (Mr. Schnaier is the 90% beneficial owner) filed a complaint in the Supreme Court of the State of New York, County of New York against each of our 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, Blake Indursky and Computershare. The complaint alleged multiple causes of action arising out of Schnaier’s investment (through Danco) into our Company in 2016, our purchase of certain operating assets of Wantickets pursuant to the Asset Purchase Agreement, dated as of May 5, 2017, and Mr. Schnaier’s employment with LXL Tickets, including claims for fraudulent inducement, breach of contract, conversion, and defamation. Based on the remaining claims, plaintiffs are seeking damages of approximately $10.0 million as shall be determined at trial, if any, plus interest, attorneys’ fees and costs and other such relief as the court may award. We have denied and continue to deny plaintiffs’ claims. We believe that the complaint is an intentional act by the plaintiffs to publicly tarnish our and our 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. We are vigorously defending this lawsuit, and we believe that the allegations are without merit and that we have strong defenses. On June 26, 2018, we and LXL Tickets, filed counterclaims against the plaintiffs for breach of contract (including under the Asset Purchase Agreement), fraudulent inducement, and other causes of action, seeking injunctive relief, damages, attorneys’ fees and expenses and such other relief as the court may award. In October 2018, pursuant to the terms of the APA, we submitted a formal demand to Wantickets, Mr. Schnaier and Danco to indemnify us, among other things, for its costs and expenses incurred in connection with this matter. In November 2021, the court denied our summary judgment motion to dismiss plaintiffs’ fraudulent inducement claim, and dismissed plaintiff’s breach of the employment agreement claim with respect to our Company. As of December 31, 2021, all of plaintiffs’ claims other than fraudulent inducement were dismissed or addressed by the parties or the court. While a trial date has not yet been set, we expect the trial to commence sometime during the fiscal year ending March 31, 2023 (unless further extended as a result of the COVID-19 pandemic). We intend to continue to vigorously defend all remaining defendants against any liability to the plaintiffs with respect to the remaining claims, and we believe that the allegations are without merit and that we have strong defenses. As of December 31, 2021, while we have 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 our business, financial condition and results of operations.

In July 2021, Simply Greatness Productions, LLC (“SGP”) served our Company with a complaint filed on July 21, 2021 in the Superior Court of the State of California County of Los Angeles against us and Paul Cazers. The complaint sought damages for an alleged breach of contract by us and an alleged breach of contract by Mr. Cazers related to the “Social Gloves: Battle of the Platforms” boxing event (the “Event”), alleged that we fraudulently induced SGP to commit to an oversize production budget based upon us knowing or negligent misrepresentation as to the anticipated pay-per-view sales for the Event, and sought an accounting on the performance of the Event.

On July 22, 2022, we filed a complaint against SGP, Austin McBroom, Catherine Paiz McBroom and Allen McBroom in the Superior Court of the State of California County of Los Angeles. The complaint arose from defamatory statements the defendants made following the Event claiming that we were dishonest about the number of ticket sales. In addition, our complaint alleged a breach of contract based on SGP’s willful failure to collaborate with us on marketing the Event resulting in poor ticket sales which, in turn, meant reduced fees to us. The complaint further alleged fraud and intentional interference with prospective economic advantage. We were asking the court to award no less than $100 million in damages. During the quarter ended December 31, 2021, the parties settled their claims against each other and claims by certain other parties for total payments by us of approximately $3.0 million of the Event proceeds received us and made to applicable payees, and the parties to this action dismissed each of their claims described herein with prejudice.

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Item 1A. Risk Factors.

We have set forth in Item 1A. Risk Factors in our 2021 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 2021 Form 10-K for a more complete understanding of risks concerning us. Except as set forth below, there have been no material changes in our risk factors since those published in our 2021 Form 10-K.

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 25% of our consolidated revenue for the nine months ended December 31, 2021, and 38% of our consolidated revenue for the nine months ended December 31, 2020. 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.

As reflected in our accompanying 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 $35.1 million and $26.5 million for the nine months ended December 31, 2021 and 2020, respectively, and cash used in operating activities of $10.2 million and $9.1 million for the nine months ended December 31, 2021 and 2020, respectively. As of December 31, 2021, we had an accumulated deficit of $205.0 million and a working capital deficiency of $22.3 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 ability to meet our total liabilities, as reported in the accompanying condensed consolidated balance sheets, 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 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.

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.

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.

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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 continue throughout at least the fiscal year ending March 31, 2022, 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. Some in person festivals, concerts and events have resumed in the quarter ended June 30, 2021. With our acquisition of React Presents in February 2020, we were unable to produce and promote more than 200 forecasted live events in fiscal year ended March 31, 2021, including our flagship live event Spring Awakening festival which is typically annually produced in June. With our Spring Awakening - Autumn Equinox festival held on October 2 and 3, 2021 in Chicago, Illinois, we have resumed producing certain live events; however, there can be no assurance that we will continue to be able to produce our flagship live event Spring Awakening festival or other live events due to the uncertainties surrounding the COVID-19 pandemic, or that the number of paid festival and live event attendees will reach the same levels as pre pandemic. 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 continued or periodic 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 in 2020.

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.

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.

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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.

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, PodcastOne in July 2020, CPS in December 2020, and Gramophone in October 2021, and our entry into holding, promoting and managing our live festivals and events, podcasting and 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, advertising and CPS 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 or talent;
| ● | the popularity of EDM and EDM festivals, events, concerts and clubs;
| ● | the popularity of podcasts and specifically our podcast content;
| ● | continued impact of the COVID-19 pandemic on our quarterly and annual results;
| ● | 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.

Government proposed COVID-19 vaccine mandates could have a material adverse impact on our business and results of operations.

On November 5, 2021, the U.S. Department of Labor’s Occupational Safety and Health Administration (“OSHA”) issued an Emergency Temporary Standard (“ETS”) requiring that most employers with at least 100 employees ensure that their employees are fully vaccinated for COVID-19 or require employees to obtain a negative COVID-19 test at least once a week. On January 25, 2022, OSHA withdrew the ETS, although the agency did not withdraw the ETS as a proposed rule. OSHA clarified that it is prioritizing its resources to focus on finalizing a permanent COVID-19 Healthcare Standard. If the ETS is reissued or a new COVID-19 Healthcare Standard or similar standard is issued by OSHA, as a company with more than 100 employees, such standard(s) would require us to mandate COVID-19 vaccination of our workforce or have our unvaccinated employees undergo required weekly COVID-19 testing, which could be difficult and costly. Further, additional vaccine and testing mandates may be announced in jurisdictions in which we operate our business, and there could be potential conflict with actions by certain states that are in conflict with the federal mandate, the impacts of which remain uncertain. Requirements to mandate COVID-19 vaccination of our workforce or require our unvaccinated employees to be tested weekly could result in labor disruptions, employee attrition and difficulty securing future labor needs, and could have a material adverse effect on our revenues, costs, financial condition and results of operations.

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Risks Related to Our Indebtedness

We may not have the ability to repay the amounts then due under the senior credit facility, Harvest Notes and/or convertible notes at maturity.

Our failure to repay any outstanding amount of the Harvest Notes or convertible notes would constitute a default under such indentures. A default would increase the interest rate to the default rate under the Harvest Notes or the maximum rate permitted by applicable law until such amount is paid in full. A default under the Harvest 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 Harvest 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 Harvest 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 Harvest Notes prior to their maturity.

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, 2021 was $26.9 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 senior facility lender and the holders of the Harvest 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 Harvest 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.

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.

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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 credit facility and the Harvest Notes, our lenders may terminate their obligations to us and require us to repay all outstanding amounts owed thereunder.

The senior credit facility and the Harvest Notes contain provisions that limit our operating activities, including covenant relating to the requirement to maintain a certain amount cash (as provided in the senior credit facility loan agreement) and of Free Cash (as defined in the Harvest 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, 2021, we were in full compliance with these covenants.

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.

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.

29

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.

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

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. 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.

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.

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. 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 ended June 30, 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.

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”).

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During the three months ended December 31, 2021, we issued 1,234,508 shares of our common stock valued at $3.1 million to the lenders and to the seller in connection with our acquisition of Gramophone. We valued these shares at prices between $1.18 and $2.89 per share, the market price of our common stock on the date of issuance.

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.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit Number |  | Description
1.1 |  | Sales Agreement, dated as of August 23, 2021, between the Company and Needham & Company, LLC (Incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 24, 2021).
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).
3.5 |  | Certificate of Merger, dated as of September 30, 2021, between the Company and LiveOne, Inc. ((Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on October 12, 2021).

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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 |  | 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).
4.3 |  | 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).
4.4 |  | 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).
4.5 |  | Promissory Note, dated as of June 2, 2021, issued by the Company to East West Bank (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2021).
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 LiveOne, 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†£ |  | 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).
10.9† |  | 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).
10.10 |  | 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).
10.11£ |  | 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).
10.12 |  | 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).
10.13 |  | 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).
10.14£ |  | 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).

33

10.15£ |  | Amendment No. 1 to Securities Purchase Agreement, dated as of July 30, 2020, between the Company and the Purchaser (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on August 5, 2020).
10.16 |  | 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).
10.17 |  | 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).
10.18 |  | 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).
10.19 |  | 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).
10.20 |  | Amendment of Notes Agreement, dated as of June 3, 2021, between the Company and Harvest Small Cap Partners, L.P. (Incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K, filed with the SEC on July 14, 2021).
10.21 |  | Amendment of Notes Agreement, dated as of June 3, 2021, between the Company and Harvest Small Cap Partners, Ltd. (Incorporated by reference to Exhibit 10.21 to the Company’s Annual Report on Form 10-K, filed with the SEC on July 14, 2021).
10.22† |  | 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).
10.23 |  | 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).
10.24 |  | Business Loan Agreement, dated as of June 2, 2021, between the Company and East West Bank (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2021).
10.25 |  | Commercial Security Agreement, dated as of June 2, 2021, between the Company and East West Bank (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on June 11, 2021).
10.26† |  | Amendment No. 2 to the LiveOne, Inc. 2016 Equity Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 6, 2021).
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* |  | Inline XBRL Instance Document
101.SCH* |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL* |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* |  | Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE* |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

† | 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.

34

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.

| LIVEONE, INC.
Date: February 14, 2022 | By: | /s/ Robert S. Ellin
|  | Robert S. Ellin
|  | Chief Executive Officer and Chairman
|  | (Principal Executive Officer)
Date: February 14, 2022 | By: | /s/ Aaron Sullivan
|  | Aaron Sullivan
|  | Interim Chief Financial Officer and Vice President (Interim Principal Financial Officer and Interim Principal Accounting Officer)

35

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