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Business Combinations

9 Months Ended

Dec. 31, 2021

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

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.

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 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.