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, 2022

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 13, 2023, there were 87,100,153 shares of the registrant’s common stock, $0.001 par value per share, issued and outstanding.

LIVEONE, 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 |  | 23
Item 4. | Controls and Procedures |  | 24
PART II — OTHER INFORMATION |  | 25
Item 1. | Legal Proceedings |  | 25
Item 1A. | Risk Factors |  | 25
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |  | 33
Item 3. | Defaults Upon Senior Securities |  | 33
Item 4. | Mine Safety Disclosures |  | 33
Item 5. | Other Information |  | 33
Item 6. | Exhibits |  | 34
| Signatures |  | 36

i

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

|  | Page
Condensed Consolidated Balance Sheets as of December 31, 2022 and March 31, 2022 (unaudited) |  | F-1
Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2022 and 2021 (unaudited) |  | F-2
Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the nine months ended December 31, 2022 and 2021 (unaudited) |  | F-3
Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2022 and 2021 (unaudited) |  | F-4
Notes to the Condensed Consolidated Financial Statements (unaudited) |  | F-5 – F-39

1

LIVEONE, INC.

Condensed Consolidated Balance Sheets

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

|  | December 31, |  |  | March 31, |
|  | 2022 |  |  | 2022 |
|  |  |  |  | (Audited) |
Assets |  |  |  |  |  |
Current Assets |  |  |  |  |  |
Cash and cash equivalents |  | $ | 8,253 |  |  | $ | 12,894 |
Restricted cash |  |  | 240 |  |  |  | 260 |
Accounts receivable, net |  |  | 13,885 |  |  |  | 13,687 |
Inventories |  |  | 2,597 |  |  |  | 2,599 |
Prepaid expense and other current assets |  |  | 2,753 |  |  |  | 1,868 |
Total Current Assets |  |  | 27,728 |  |  |  | 31,308 |
Property and equipment, net |  |  | 3,677 |  |  |  | 4,688 |
Goodwill |  |  | 23,379 |  |  |  | 23,379 |
Intangible assets, net |  |  | 11,279 |  |  |  | 16,720 |
Other assets |  |  | 507 |  |  |  | 728 |
Total Assets |  | $ | 66,570 |  |  | $ | 76,823 |
Liabilities and Stockholders’ Equity (Deficit) |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Accounts payable and accrued liabilities |  | $ | 29,695 |  |  | $ | 45,418 |
Accrued royalties |  |  | 10,556 |  |  |  | 13,530 |
Notes payable, current portion |  |  | 15 |  |  |  | 12 |
Bridge Loan |  |  | 3,774 |  |  |  | - |
Deferred revenue |  |  | 989 |  |  |  | 1,157 |
Derivative liabilities |  |  | 2,393 |  |  |  | 18 |
Total Current Liabilities |  |  | 47,422 |  |  |  | 60,135 |
Senior secured convertible notes, net |  |  | 13,719 |  |  |  | 13,632 |
Unsecured convertible notes, net - related party |  |  | 5,580 |  |  |  | 5,879 |
Senior secured revolving line of credit, net |  |  | 7,000 |  |  |  | 6,965 |
Notes payable, net |  |  | 148 |  |  |  | 148 |
Lease liabilities, noncurrent |  |  | 242 |  |  |  | 468 |
Other long-term liabilities |  |  | 4,432 |  |  |  | 174 |
Deferred income taxes |  |  | 338 |  |  |  | 338 |
Total Liabilities |  |  | 78,881 |  |  |  | 87,739 |
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; 85,677,980 and 82,546,189 shares issued and outstanding, respectively |  |  | 88 |  |  |  | 83 |
Additional paid in capital |  |  | 208,001 |  |  |  | 202,854 |
Treasury stock |  |  | (1,938 | ) |  |  | - |
Accumulated deficit |  |  | (218,462 | ) |  |  | (213,853 | )
Total stockholders’ equity (deficit) |  |  | (12,311 | ) |  |  | (10,916 | )
Total Liabilities and Stockholders’ Equity (Deficit) |  | $ | 66,570 |  |  | $ | 76,823 |

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

F-1

LIVEONE, 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, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Revenue: |  | $ | 27,309 |  |  | $ | 32,895 |  |  | $ | 74,063 |  |  | $ | 93,586 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of sales |  |  | 19,362 |  |  |  | 27,666 |  |  |  | 48,487 |  |  |  | 74,654 |
Sales and marketing |  |  | 1,608 |  |  |  | 3,466 |  |  |  | 6,334 |  |  |  | 10,814 |
Product development |  |  | 1,035 |  |  |  | 1,657 |  |  |  | 3,892 |  |  |  | 5,990 |
General and administrative |  |  | 4,535 |  |  |  | 8,550 |  |  |  | 11,220 |  |  |  | 27,173 |
Impairment of intangibles |  |  | - |  |  |  | - |  |  |  | 1,356 |  |  |  | - |
Amortization of intangible assets |  |  | 1,343 |  |  |  | 1,524 |  |  |  | 4,098 |  |  |  | 4,547 |
Total operating expenses |  |  | 27,883 |  |  |  | 42,863 |  |  |  | 75,387 |  |  |  | 123,178 |
Loss from operations |  |  | (574 | ) |  |  | (9,668 | ) |  |  | (1,324 | ) |  |  | (29,592 | )
Other income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest expense, net |  |  | (2,220 | ) |  |  | (1,052 | ) |  |  | (5,793 | ) |  |  | (3,180 | )
Loss on extinguishment of debt |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (4,321 | )
Forgiveness of PPP loans |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,511 |
Other income (expense) |  |  | 257 |  |  |  | (811 | ) |  |  | 2,523 |  |  |  | (528 | )
Total other expense, net |  |  | (1,963 | ) |  |  | (1,863 | ) |  |  | (3,270 | ) |  |  | (5,518 | )
Loss before provision for (benefit from) income taxes |  |  | (2,537 | ) |  |  | (11,831 | ) |  |  | (4,594 | ) |  |  | (35,110 | )
Provision for (benefit from) income taxes |  |  | 11 |  |  |  | (40 | ) |  |  | 15 |  |  |  | (32 | )
Net loss |  | $ | (2,548 | ) |  | $ | (11,791 | ) |  | $ | (4,609 | ) |  | $ | (35,078 | )
Net loss per share – basic and diluted |  | $ | (0.03 | ) |  | $ | (0.15 | ) |  | $ | (0.05 | ) |  | $ | (0.45 | )
Weighted average common shares – basic and diluted |  |  | 85,585,117 |  |  |  | 78,188,050 |  |  |  | 84,009,003 |  |  |  | 77,670,598 |

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

F-2

LIVEONE, INC.

Condensed Consolidated Statement of Stockholders’ Equity (Deficit)

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

|  | Common Stock |  |  | Additional Paid in |  |  | Accumulated |  |  | Common Stock in Treasury |  |  | Total Stockholders’ |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Shares |  |  | Amount |  |  | Deficit |
Balance as of March 31, 2022 |  |  | 82,546,189 |  |  | $ | 83 |  |  | $ | 202,854 |  |  | $ | (213,853 | ) |  |  | - |  |  | $ | - |  |  | $ | (10,916 | )
Stock-based compensation |  |  | 638,083 |  |  |  | - |  |  |  | 2,570 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2,570 |
Issuance of shares pursuant to restricted stock units |  |  | 1,681,653 |  |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 2 |
Issuance of shares for modification of debt instruments |  |  | 1,000,000 |  |  |  | 2 |  |  |  | 1,140 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 1,142 |
Issuance of shares for settlement of earnout |  |  | 414,137 |  |  |  | - |  |  |  | 493 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 493 |
Issuance of shares for settlement of accrued expenses |  |  | 1,397,918 |  |  |  | 1 |  |  |  | 944 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 945 |
Treasury stock purchases |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (2,000,000 | ) |  |  | (1,938 | ) |  |  | (1,938 | )
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (4,609 | ) |  |  | - |  |  |  | - |  |  |  | (4,609 | )
Balance as of December 31, 2022 |  |  | 87,677,980 |  |  | $ | 88 |  |  | $ | 208,001 |  |  | $ | (218,462 | ) |  |  | (2,000,000 | ) |  | $ | (1,938 | ) |  | $ | (12,311 | )

|  | Common Stock |  |  | Additional Paid in |  |  | Accumulated |  |  | Total Stockholders’ |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Deficit |  |  | Equity |
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 | )

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

F-3

LIVEONE, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

|  | Nine Months Ended December 31, |
|  | 2022 |  |  | 2021 |
Cash Flows from Operating Activities: |  |  |  |  |  |
Net loss |  | $ | (4,609 | ) |  | $ | (35,078 | )
Adjustments to reconcile net loss to net cash used in operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 7,025 |  |  |  | 7,230 |
Interest paid in kind |  |  | 320 |  |  |  | 35 |
Stock-based compensation |  |  | 2,544 |  |  |  | 12,059 |
Amortization of debt discount |  |  | 2,652 |  |  |  | 986 |
Change in fair value of bifurcated embedded derivatives |  |  | (732 | ) |  |  | (110 | )
Change in fair value of contingent consideration liability |  |  | (2,220 | ) |  |  | (173 | )
Settlement of accrued expenses |  |  | (7,649 | ) |  |  | - |
Impairment of fixed assets |  |  | 146 |  |  |  | - |
Impairment of intangibles |  |  | 1,356 |  |  |  | - |
Forgiveness of PPP Loans |  |  | - |  |  |  | (2,511 | )
Loss on extinguishment of debt |  |  | - |  |  |  | 4,321 |
Debt conversion expense |  |  | - |  |  |  | 756 |
Deferred income taxes |  |  | - |  |  |  | (41 | )
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (198 | ) |  |  | (7,297 | )
Prepaid expenses and other current assets |  |  | (1,544 | ) |  |  | 921 |
Inventories |  |  | 2 |  |  |  | (328 | )
Other assets |  |  | 221 |  |  |  | 255 |
Deferred revenue |  |  | (168 | ) |  |  | 387 |
Accounts payable and accrued liabilities |  |  | (1,770 | ) |  |  | 8,536 |
Other liabilities |  |  | - |  |  |  | (174 | )
Net cash used in operating activities |  |  | (4,624 | ) |  |  | (10,226 | )
Cash Flows from Investing Activities: |  |  |  |  |  |  |  |
Acquisition of Gramophone |  |  | - |  |  |  | (150 | )
Purchases of property and equipment |  |  | (2,036 | ) |  |  | (2,888 | )
Purchases of intangible assets |  |  | (13 | ) |  |  | (84 | )
Net cash used in investing activities |  |  | (2,049 | ) |  |  | (3,122 | )
Cash Flows from Financing Activities: |  |  |  |  |  |  |  |
Repayment of note payable |  |  | (426 | ) |  |  | (351 | )
Proceeds from PodcastOne bridge loan |  |  | 4,376 |  |  |  | - |
Payment of notes payable – related party |  |  | (300 | ) |  |  | - |
Payments on capital lease liability |  |  | - |  |  |  | (252 | )
Purchase of treasury stock |  |  | (1,938 | ) |  |  | - |
Proceeds from exercise of employee stock options |  |  | - |  |  |  | 872 |
Proceeds from drawdown on senior secured revolving line of credit |  |  | - |  |  |  | 6,965 |
Proceeds from notes payable – related party |  |  | 300 |  |  |  | - |
Net cash provided by financing activities |  |  | 2,012 |  |  |  | 7,234 |
Net change in cash, cash equivalents and restricted cash |  |  | (4,661 | ) |  |  | (6,114 | )
Cash, cash equivalents and restricted cash, beginning of period |  |  | 13,154 |  |  |  | 18,770 |
Cash, cash equivalents and restricted cash, end of period |  | $ | 8,493 |  |  | $ | 12,656 |
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |
Cash paid for income taxes |  | $ | - |  |  | $ | 8 |
Cash paid for interest |  | $ | 1,264 |  |  | $ | 1,081 |
Supplemental disclosure of non-cash investing and financing activities: |  |  |  |  |  |  |  |
Fair value of options issued to employees, capitalized as internally developed software |  | $ | 26 |  |  | $ | 148 |
Fair value of 1,397,918 shares of common stock issuable in connection with the settlement of accrued expenses and prepayment for services |  | $ | 945 |  |  | $ | - |
Fair value of 1,000,000 shares of common stock issuable in connection with the modification of debt instruments |  | $ | 1,142 |  |  | $ | - |
Fair value of 414,137 shares of common stock issuable in connection with the settlement of earnout |  | $ | 493 |  |  | $ | - |
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 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 warrant and derivative liability issued with debt instruments |  | $ | 3,107 |  |  | $ | - |
Fair value of shares issued in connection with CPS acquisition |  | $ | - |  |  | $ | 2,127 |
Fair value of 79,365 shares of common stock issued in connection with the Gramophone acquisition |  | $ | - |  |  | $ | 89 |
Fair value of unsecured convertible note premium |  | $ | - |  |  | $ | 4,199 |

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

F-4

LIVEONE, INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

For the Three and Nine Months Ended December 31, 2022 and 2021

Note 1 — Organization and Basis of Presentation

Organization

LiveOne, Inc. together with its subsidiaries (“we,” “us,” “our”, the “Company” or “LiveOne”) 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, live and virtual events.

The Company was reincorporated in the State of Delaware on August 2, 2017, pursuant to a reincorporation merger of Loton, Corp (“Loton”) with and into LiveXLive Media, Inc., Loton’s wholly owned subsidiary at the time. As a result of the reincorporation merger, Loton ceased to exist as a separate entity, with LiveXLive Media, Inc. being the surviving entity. Effective as of October 5, 2021, the Company changed its name to LiveOne, Inc. On December 29, 2017, the Company 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 of the Company 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 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 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 Gramophone Media, Inc. (“Gramophone”) (see Note 4 – Business Combinations).

Basis of Presentation

The unaudited 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, 2022, and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s unaudited condensed consolidated financial statements for the nine months ended December 31, 2022. The results for the nine months ended December 31, 2022 are not necessarily indicative of the results expected for the full fiscal year ending March 31, 2023 (“fiscal 2023”). The condensed consolidated balance sheet as of March 31, 2022 has been derived from the Company’s audited balance sheet included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 29, 2022 (the “2022 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 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 2022 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 $8.5 million as of December 31, 2022). As reflected in its condensed consolidated financial statements included elsewhere herein, the Company has a history of losses, with the exception of net income of $1.3 million during the quarter ended June 30, 2022 and had a working capital deficiency of $19.7 million as of December 31, 2022. 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 new universal shelf Registration Statement on Form S-3 (the “New Shelf S-3”) with the SEC, which was declared effective by the SEC on February 17, 2022. Under the New Shelf S-3, the Company has 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. 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 it be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain terms that result in undue restrictions on its operations, in the case of debt financing or cause substantial dilution for its stockholders, in case of equity and/or convertible debt financing. 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.

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

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 2022 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 and up to the third quarter of fiscal year ended March 31, 2022. Although the impact has subsided, the Company expects to continue experiencing modest adverse impacts throughout the fiscal year ending March 31, 2023. The Company’s event and programmatic advertising revenues were directly impacted throughout the 2022 and 2021 fiscal years with all on-premise in-person live music festivals and events postponed in 2021 fiscal year and mixed demand from historical advertising partners in 2022 fiscal year. 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 membership 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 (“PPP”) 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 (the “CARES Act”) was enacted in the United States. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company evaluated the provisions of the CARES Act and determined it is eligible for Employee Retention Credits related to payroll taxes paid during the quarter ended December 31, 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 March 31, 2022, the Company received confirmation the credit would be approved and recognized the credit of $1.2 million as a reduction of payroll tax expense for the year ended March 31, 2022. 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 obtaining a second draw Paycheck Protection Program loans and applying for the potential eligibility for Employee Retention Credits and does not anticipate the 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 debt instruments, fair values of derivatives, and contingencies. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. Given the overall uncertainty surrounding the COVID-19 pandemic, there is a reasonable possibility that actual results could differ from those estimates and such differences could be material to the financial position and results of operations, specifically in assessing when the collectability of revenue related consideration is probable, and the impairment assessment of goodwill, indefinite lived assets or long-lived assets that are depreciated or amortized.

Revenue Recognition Policy

The Company accounts for a contract with a customer when an approved contract exists, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and the collectability of substantially all of the consideration is probable. Revenue is recognized when the Company satisfies its obligation by transferring control of the goods or services to its customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company uses the expected value method to estimate the value of variable consideration on advertising and with original equipment manufacturer contracts to include in the transaction price and reflect changes to such estimates in periods in which they occur. Variable consideration for these services is allocated to and recognized over the related time period such advertising and membership services are rendered as the amounts reflect the consideration the Company is entitled to and relate specifically to the Company’s efforts to satisfy its performance obligation. The amount of variable consideration included in revenue is limited to the extent that it is probable that the amount will not be subject to significant reversal when the uncertainty associated with the variable consideration is subsequently resolved.

Practical Expedients

The Company elected the practical expedient and recognized the incremental costs of obtaining a contract, if any, as an expense when incurred if the amortization period of the asset that would have been recognized is one year or less.

F-7

Gross Versus Net Revenue Recognition

The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction and is evaluated on a transaction-by-transaction basis. To the extent the Company acts as the principal, revenue is reported on a gross basis net of any sales tax from customers, when applicable. The determination of whether the Company acts as a principal or an agent in a transaction is based on an evaluation of whether the Company controls the good or service prior to transfer to the customer. Where applicable, the Company has determined that it acts as the principal in all of its membership service, sponsorship, and merchandising streams and may act as principal or agent for its ticketing/live events, advertising and licensing revenue streams.

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

Membership Services

Membership services revenue substantially consist of monthly to annual recurring membership fees, which are primarily paid in advance by credit card or through direct billings arrangements. The Company defers the portions of monthly to annual recurring membership fees collected in advance and recognizes them in the period earned. Membership revenue is recognized in the period of services rendered. The Company’s membership revenue consists of performance obligations that are satisfied over time. This has been determined based on the fact that the nature of services offered are membership based where the customer simultaneously receives and consumes the benefit of the services provided regardless of whether the customer uses the services or not. As a result, the Company has concluded that the best measure of progress toward the complete satisfaction of the performance obligation over time is a time-based measure. The Company recognizes membership revenue straight-line through the membership period.

Membership Services consist of:

Direct member, mobile service provider and mobile app services

The Company generates revenue for membership services on both a direct basis and through memberships sold through certain third-party mobile service providers and mobile app services (collectively the “Mobile Providers”). For memberships sold through the Mobile Providers, the member executes an on-line agreement with Slacker outlining the terms and conditions between Slacker and the member upon purchase of the membership. The Mobile Providers promote the Slacker app through their e-store, process payments for memberships, and retain a percentage of revenue as a fee. The Company reports this revenue gross of the fee retained by the Mobile Providers, as the member is Slacker’s customer in the contract and Slacker controls the service prior to the transfer to the member. Membership revenues from monthly memberships sold directly through Mobile Providers are subject to such Mobile Providers’ refund or cancellation terms. Revenues from Mobile Providers are recognized net of any such adjustments for variable consideration, including refunds and other fees. The Company’s payment terms vary based on whether the membership is sold on a direct basis or through Mobile Providers. Memberships sold on a direct basis require payment before the services are delivered to the customer. The payment terms for memberships sold through Mobile Providers vary but are generally payable within 30 days.

Third-Party Original Equipment Manufacturers

The Company generates revenue for membership services through memberships sold through a third-party Original Equipment Manufacturer (the “OEM”). For memberships sold through the OEM, the OEM executes an agreement with Slacker outlining the terms and conditions between Slacker and the OEM upon purchase of the membership. The OEM installs the Slacker app in their equipment and provides the Slacker service to the OEM’s customers. The monthly fee charged to the OEM is based upon a fixed rate per vehicle, multiplied by the variable number of total vehicles which have signed up for a paid membership. The number of customers, or the variable consideration, is reported by OEMs and resolved on a monthly basis. The Company’s payment terms with OEM are up to 30 days.

F-8

Advertising Revenue

Advertising revenue primarily consist of revenues generated from the sale of audio, video, and display advertising space to third-party advertising exchanges. Revenues are recognized based on delivery of impressions over the contract period to the third-party exchanges, either when an ad is placed for listening or viewing by a visitor or when the visitor “clicks through” on the advertisement. The advertising exchange companies report the variable advertising revenue performed on a monthly basis which represents the Company’s efforts to satisfy the performance obligation. Additionally, following the acquisition of PodcastOne, the Company began deriving revenue from podcast advertising. PodcastOne earns advertising revenues primarily for fees earned from advertisement placement purchased by the customer during the time the podcast is delivered to the viewing audience, under the terms and conditions as set forth in the applicable podcasting agreement calculated using impressions.

From time to time the Company enters into barter transactions involving advertising provided in exchange for goods and services. Revenue from barter transactions is recognized based on delivery of impressions and in the same manner as described above. Services received are charged to expense when received or utilized. If services are received prior to the delivery of impressions, a liability is recorded. If delivery of impressions has occurred before the receipt of goods or services, a receivable is recorded. Barter revenue for the three months ended December 31, 2022 and 2021 was $2.0 million and none, respectively. Barter revenue for the nine months ended December 31, 2022 and 2021 was $5.1 million and $3.1 million, respectively.

Licensing Revenue

Licensing revenue primarily consists of sales of licensing rights to digitally stream the Company’s live music services. Licensing revenue is recognized when the Company satisfies its performance obligation by transferring control of the goods or services to its customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services, which is typically when the live event has aired. Any license fees collected in advance of an event are deferred until the event airs.

Sponsorship Revenue

Sponsorship revenue primarily consists of sales of sponsorship programs that provide sponsors with opportunities to reach the Company’s customers. Sponsorship revenue is recognized as the event airs. Any sponsorship fees collected in advance of the contract term (typically an event) are deferred until the event airs. The Company reports sponsorship revenue on a gross basis as the Company acts as the principal in the underlying transactions.

Merchandising Revenue

Revenue is recognized upon the transfer of control to the customer. The Company recognizes revenue and measures the transaction price net of taxes collected from customers and remitted to governmental authorities. Sales also include shipping and handling charges billed to customers, with the related freight costs included in cost of goods sold. Sales commissions are expensed as incurred and are recorded in sales and marketing expenses in the consolidated statements of operations. The Company’s customer contracts do not have a significant financing component due to their short durations, which are typically effective for one year or less and have payment terms that are generally 30 to 60 days. Wholesale revenue is generally recognized when products are shipped, depending on the applicable contract terms. The Company records a refund liability for expected returns based on prior returns history, recent trends, and projections for returns on sales in the current period. The refund liability at December 31, 2022 and March 31, 2022 was less than $0.1 million, respectively.

F-9

Ticket/Event Revenue

Ticket/Event revenue is primarily from the sale of tickets and promoter fees earned from venues or other co-promoters under one of several formulas, including a fixed guaranteed amount and/or a percentage of ticket sales or event profits.

Revenue from the promotion or production of an event is recognized at a point in time when the show occurs. Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Revenue collected from sponsorship agreements, which is not related to a single event, is classified as deferred revenue and recognized over the term of the agreement or operating season as the benefits are provided to the sponsor.

Revenue from the Company’s ticketing operations primarily consists of service fees charged at the time a ticket for an event is sold in either the primary or secondary markets, including both online pay-per-view (“PPV”) tickets as well as tickets physically purchased through a ticket sale vendor. For primary tickets sold to the Company’s PPV and festival events the revenue for the associated ticket service charges collected in advance of the event is recorded as deferred revenue until the event occurs. For PPV arrangements that include multiple performance obligations, i.e., delivery of the online stream, sponsorships, digital meet and greet, or physical merchandise, the Company allocates the total contract consideration to each performance obligation using the standalone selling price. If the standalone selling price is not readily determinable, it is estimated using observable inputs including an adjusted market-based approach, expected cost plus margin, or the residual approach.

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, 2022 and 2021, the Company had 2,431,681 and 3,438,624 options outstanding, respectively, 1,905,364 and 3,943,095 restricted stock units outstanding, respectively, and 5,960,593 and 5,403,693 shares of common stock issuable, respectively, underlying the Company’s convertible debt.

Basic earnings per share is calculated using our weighted-average outstanding common shares. Diluted earnings per share is calculated using our weighted-average outstanding common shares including the dilutive effect of stock awards as determined under the treasury stock method. In periods when we have a net loss, stock awards are excluded from our calculation of earnings per share as their inclusion would have an antidilutive effect.

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-10

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, 2022 and 2021 (in thousands):

|  | 2022 |  |  | 2021 |
Cash and cash equivalents |  | $ | 8,253 |  |  | $ | 12,396 |
Restricted cash |  |  | 240 |  |  |  | 260 |
Total cash and cash equivalents and restricted cash |  | $ | 8,493 |  |  | $ | 12,656 |

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, 2022 and March 31, 2022, the Company had restricted cash of $0.2 million and $0.3 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 membership receivables. On December 31, 2022, the Company had one customer that made up 28% of the total accounts receivable balance. On March 31, 2022, the Company had one customer that made up 24% of the total accounts receivable balance.

The Company’s accounts receivable at December 31, 2022 and March 31, 2022 is as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2022 |  |  | 2022 |
Accounts receivable, gross |  | $ | 14,444 |  |  | $ | 14,404 |
Less: Allowance for doubtful accounts |  |  | (559 | ) |  |  | (717 | )
Accounts receivable, net |  | $ | 13,885 |  |  | $ | 13,687 |

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.

F-11

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 year ended March 31, 2022, the Company received confirmation from the SBA that $3.1 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, the Company recognized income in the amount forgiven in accordance with ASC 470-20. The Company recognized a gain on forgiveness of the PPP loans of none and $2.5 million during the nine months ended December 31, 2022 and 2021, respectively, and is included in total other expense, net in the accompanying condensed consolidated statements of operations.

Concentration of Credit Risk

The Company maintains cash balances at commercial banks. Cash balances commonly exceed the $250,000 amount insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts, and management believes that the Company is not exposed to any significant credit risk with respect to such cash and cash equivalents.

Debt with Warrants

In accordance with ASC Topic 470-20-25, when the Company issues debt with warrants, the Company treats the warrants as a debt discount, recorded as a contra-liability against the debt, and amortizes the balance over the life of the underlying debt as interest expense in the consolidated statements of operations. The offset to the contra-liability is recorded as either a liability or within equity in the Company’s consolidated balance sheets depending on the accounting treatment of the warrants. The Company determines the value of the warrants using an appropriate valuation method, including a Black-Scholes or Monte-Carlo Simulation. If the debt is retired early, the associated debt discount is then recognized immediately as amortization of debt discount expense in the consolidated statements of operations. The debt is treated as conventional debt.

Convertible Debt – Derivative Treatment

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

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

F-12

Debt Modifications and Extinguishments

When the Company modifies or extinguishes debt, it first evaluates whether the modification qualifies as a troubled debt restructuring (TDR) under ASC Topic 470-60, which requires debt modifications to be evaluated if (1) the borrower is experiencing financial difficulty, and (2) the lender grants the borrower a concession. If a TDR is determined not to have occurred, the Company evaluates the modification in accordance with ASC Topic 470-50-40, which requires modification to debt instruments to be evaluated to assess whether the modifications are considered “substantial modifications”. A substantial modification of terms is accounted for like an extinguishment.

If there is a conversion feature within the debt instrument, the Company evaluates whether the conversion feature should be bifurcated under ASC 815 as a derivative. If the Company believes the embedded conversion feature has no fair value on the date of issuance (measurement date) and the embedded conversion feature has no beneficial conversion feature, the embedded conversion feature does not meet the criteria in ASC 470-50-40-10 or 470-20-25 and the issuance of the convertible debt is considered a modification, and not an extinguishment that would require the recognition of a gain or loss. If the Company determines the change in fair value of the derivative meets the criteria for substantial modification under ASC 470 it will treat the modification as extinguishment and recognize a loss from debt extinguishment.

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.

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, 2023, 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.

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.

F-13

Note 3 — Revenue

The following table represents a disaggregation of revenue from contracts with customers for the three and nine months ended December 31, 2022 and 2021 (in thousands):

|  | Three Months Ended December 31, |  |  | Nine Months Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Revenue |  |  |  |  |  |  |  |  |  |  |  |
Membership Services |  | $ | 13,354 |  |  | $ | 10,698 |  |  | $ | 38,226 |  |  | $ | 29,660 |
Advertising |  |  | 8,498 |  |  |  | 8,541 |  |  |  | 26,138 |  |  |  | 25,286 |
Merchandising |  |  | 4,825 |  |  |  | 6,442 |  |  |  | 8,507 |  |  |  | 13,058 |
Sponsorship and Licensing |  |  | 76 |  |  |  | 1,194 |  |  |  | 389 |  |  |  | 6,498 |
Ticket/Event |  |  | 556 |  |  |  | 6,020 |  |  |  | 803 |  |  |  | 19,084 |
Total Revenue |  | $ | 27,309 |  |  | $ | 32,895 |  |  | $ | 74,063 |  |  | $ | 93,586 |

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.

For the three months ended December 31, 2022 and 2021, one customer accounted for 42% and 31% of the Company’s consolidated revenues, respectively. For the nine months ended December 31, 2022 and 2021, one customer accounted for 43% and 25% of the Company’s consolidated revenues, respectively.

The following table summarizes the significant changes in deferred revenue balances during the nine months ended December 31, 2022 (in thousands):

|  | Contract Liabilities |
Balance as of March 31, 2022 |  | $ | 1,157 |
Revenue recognized that was included in the contract liability at beginning of period |  |  | (506 | )
Increase due to cash received, excluding amounts recognized as revenue during the period |  |  | 338 |
Balance as of December 31, 2022 |  | $ | 989 |

F-14

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 79,365 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 $0.2 million. The contingent consideration liability of $0.2 million is classified within Other Long-Term Liabilities in the accompanying condensed consolidated balance sheets at March 31, 2022 (see Note 15 – 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 sheet at March 31, 2022. There was no change in the contingent liability balance attributed to Gramophone during the three and nine months ended December 31, 2022.

Goodwill resulted from acquisition as it is intended to augment and diversify the Company’s reportable segments. 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 following table summarizes the fair value of the assets acquired and liabilities 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 |  |  |  |  |  |  | 459 |
Deferred revenue |  |  |  |  |  |  | (51 | )
Deferred tax liability |  |  |  |  |  |  | (41 | )
Accrued liabilities |  |  |  |  |  |  | (129 | )
Net assets acquired |  |  |  |  |  | $ | 413 |

The Company incurred less than $0.1 million in transaction costs associated with the Gramophone acquisition, which were expensed and included in General and Administrative in the consolidated statement of operations for fiscal year ended March 31, 2022. No transaction costs were incurred during the three and nine months ended December 31, 2022.

F-15

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 remains 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. During the nine months ended December 31, 2022, the Company settled the contingent liability with the sellers for $0.4 million of cash and issued 414,137 shares with an accounting value of $0.4 million, therefore a gain of $2.2 million was recognized in other income during the nine months ended December 31, 2022 attributed to the settlement of the contingent consideration liability.

Goodwill resulted from acquisition as it is intended to augment and diversify the Company’s reportable segments. The Company accounted for the acquisition as a business combination. As a result of the acquisition of the stock of PodcastOne, the goodwill is not deductible for tax purposes.

The following table summarizes the fair value of the assets acquired and liabilities assumed in the PodcastOne acquisition (in thousands):

Asset Type |  | Weighted Average Amortization Period (Years) |  |  | Fair Value |
Cash and cash equivalents |  |  |  |  |  | $ | 1,286 |
Accounts receivable |  |  |  |  |  |  | 3,951 |
Prepaid expense and other assets |  |  |  |  |  |  | 316 |
Property and equipment |  |  |  |  |  |  | 119 |
Content creator relationships |  |  | 1.6 |  |  |  | 772 |
Trade name |  |  | 10 |  |  |  | 1,010 |
Goodwill |  |  |  |  |  |  | 12,042 |
Accounts payable and accrued liabilities |  |  |  |  |  |  | (2,934 | )
Deferred tax asset |  |  |  |  |  |  | 972 |
Allowance for deferred tax asset |  |  |  |  |  |  | (972 | )
Note payable |  |  |  |  |  |  | (471 | )
Net assets acquired |  |  |  |  |  | $ | 16,091 |

The fair value of the assets acquired includes accounts receivable of $4.0 million. The gross amount due under contracts is $4.2 million, of which $0.2 million is expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisition of PodcastOne.

F-16

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 were 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, if 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 this 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 consolidated statement of operations for the year ended March 31, 2022.

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. This number of shares is 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.

Fair Value of Consideration Transferred: |  |  |
Common stock |  | $ | 6,391 |
Additional paid-in capital – common stock to be issued |  |  | 615 |
Contingent consideration |  |  | 1,654 |
Total |  | $ | 8,660 |

Goodwill resulted from acquisition as it is intended to augment and diversify the Company’s reportable segments. The Company accounted for the acquisition as a business combination. As a result of the acquisition of the stock of CPS, the goodwill is not deductible for tax purposes.

The following table summarizes the fair value of the assets acquired and liabilities assumed in the CPS acquisition (in thousands):

Asset Type |  | Weighted Average Amortization Period (Years) |  |  | Fair Value |
Cash and cash equivalents |  |  |  |  |  | $ | 1,132 |
Accounts receivable |  |  |  |  |  |  | 6,153 |
Inventories |  |  |  |  |  |  | 2,600 |
Prepaid expense |  |  |  |  |  |  | 29 |
Property and equipment |  |  |  |  |  |  | 585 |
Wholesale relationship |  |  | 6 |  |  |  | 2,500 |
Domain name |  |  | 10 |  |  |  | 400 |
Customer list |  |  | 5 |  |  |  | 172 |
Goodwill |  |  |  |  |  |  | 1,207 |
Other assets |  |  |  |  |  |  | 53 |
Right of use asset |  |  |  |  |  |  | 1,086 |
Lease liability |  |  |  |  |  |  | (1,086 | )
Accounts payable |  |  |  |  |  |  | (5,067 | )
Deferred tax liability |  |  |  |  |  |  | (388 | )
Other liabilities |  |  |  |  |  |  | (716 | )
Net assets acquired |  |  |  |  |  | $ | 8,660 |

F-17

The fair value of the assets acquired includes accounts receivable of $6.2 million. The gross amount due under contracts is $6.5 million, of which $0.3 million is expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisition of CPS.

Supplemental Pro Forma Information (Unaudited)

The pro forma financial information as presented below is for informational purposes only and is not indicative of the Company’s operations that would have been achieved from the acquisitions had they taken place at the beginning of the fiscal years 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 31, 2021 as if the acquisition of Gramophone had been completed on April 1, 2021 (in thousands, except per share data).

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

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

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 acquired as a result of the acquisition. The pro forma results are not necessarily indicative of the results that would have been realized had the acquisitions been consummated as of the beginning of the periods presented. The pro forma amounts include the historical operating results of the Company, with adjustments directly attributable to the acquisition which included amortization of acquired intangible assets of $0.1 and $0.3 million during the three and nine months ended December 31, 2021 and 2022, respectively.

F-18

Note 5 — Property and Equipment

The Company’s property and equipment at December 31, 2022 and March 31, 2022 was as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2022 |  |  | 2022 |
Property and equipment, net |  |  |  |  |  |
Computer, machinery, and software equipment |  | $ | 6,490 |  |  | $ | 6,609 |
Furniture and fixtures |  |  | 565 |  |  |  | 556 |
Leasehold improvements |  |  | 531 |  |  |  | 531 |
Capitalized internally developed software |  |  | 14,162 |  |  |  | 12,344 |
Total property and equipment |  |  | 21,748 |  |  |  | 20,040 |
Less accumulated depreciation and amortization |  |  | (18,071 | ) |  |  | (15,352 | )
Total property and equipment, net |  | $ | 3,677 |  |  | $ | 4,688 |

Depreciation expense was $1.1 million and $2.9 million for the three and nine months ended December 31, 2022, respectively, and $0.9 million and $2.7 million for the three and nine months ended December 2021, respectively. During the three and nine months ended December 31, 2022, the Company recognized an impairment of $0.1 million related to capitalized internally developed software that is included in product development expense in the condensed consolidated statement of operations.

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, 2022 (in thousands):

|  | Goodwill |
Balance as of March 31, 2022 |  | $ | 23,379 |
Acquisitions |  |  | - |
Balance as of December 31, 2022 |  | $ | 23,379 |

Indefinite-Lived Intangible Assets

The following table presents the changes in the carrying amount of indefinite-lived intangible assets for the nine months ended December 31, 2022 (in thousands):

|  | Tradenames |
Balance as of March 31, 2022 |  | $ | 4,637 |
Acquisitions |  |  | - |
Impairment losses |  |  | - |
Balance as of December 31, 2022 |  | $ | 4,637 |

Finite-Lived Intangible Assets

The Company’s finite-lived intangible assets were as follows as of December 31, 2022 (in thousands):

|  | Gross Carrying Value |  |  | Accumulated Amortization |  |  | Net Carrying Value |
Software |  | $ | 19,281 |  |  | $ | 19,281 |  |  | $ | - |
Intellectual property (patents) |  |  | 5,366 |  |  |  | 1,789 |  |  |  | 3,577 |
Customer relationships |  |  | 6,570 |  |  |  | 6,570 |  |  |  | - |
Content creator relationships |  |  | 772 |  |  |  | 772 |  |  |  | - |
Domain names |  |  | 523 |  |  |  | 125 |  |  |  | 398 |
Brand and trade names |  |  | 1,143 |  |  |  | 322 |  |  |  | 821 |
Customer lists |  |  | 2,767 |  |  |  | 921 |  |  |  | 1,846 |
Total |  | $ | 36,422 |  |  | $ | 29,780 |  |  | $ | 6,642 |

F-19

The Company’s finite-lived intangible assets were as follows as of March 31, 2022 (in thousands):

|  | Gross Carrying Value |  |  | Accumulated Amortization |  |  | Net Carrying Value |
Software |  | $ | 19,281 |  |  | $ | 16,389 |  |  | $ | 2,892 |
Intellectual property (patents) |  |  | 5,366 |  |  |  | 1,520 |  |  |  | 3,846 |
Customer relationships |  |  | 6,570 |  |  |  | 6,177 |  |  |  | 393 |
Content creator relationships |  |  | 772 |  |  |  | 772 |  |  |  | - |
Domain names |  |  | 514 |  |  |  | 83 |  |  |  | 431 |
Brand and trade names |  |  | 2,643 |  |  |  | 454 |  |  |  | 2,189 |
Non-compete agreement |  |  | 250 |  |  |  | 181 |  |  |  | 69 |
Customer lists |  |  | 2,998 |  |  |  | 735 |  |  |  | 2,263 |
Total |  | $ | 38,394 |  |  | $ | 26,311 |  |  | $ | 12,083 |

The Company’s amortization expense on its finite-lived intangible assets was $1.3 million and $4.1 million for the three and nine months ended December 31, 2022, respectively, and $1.5 million and $4.6 million for the three and nine months ended December 31, 2021, respectively. The Company recorded an impairment charge of $1.4 million for the three and nine months ended December 31, 2022 which is classified under impairment of intangible assets within the statement of operations. The impairment was the result of a reduction in the events held within React Presents, therefore the Company has stopped marketing the brand name.

The Company expects to record amortization of intangible assets for fiscal years ending March 31, 2023 and future fiscal years as follows (in thousands):

For Years Ending March 31, |  |  |
2023 (remaining three months) |  | $ | 246 |
2024 |  |  | 985 |
2025 |  |  | 985 |
2026 |  |  | 977 |
2027 |  |  | 842 |
Thereafter |  |  | 2,607 |
|  | $ | 6,642 |

Note 7 — Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities at December 31, 2022 and March 31, 2022 were as follows (in thousands):

|  | December 31, |  |  | March 31, |
|  | 2022 |  |  | 2022 |
Accounts payable |  | $ | 18,278 |  |  | $ | 29,640 |
Accrued revenue share |  |  | 3,466 |  |  |  | 3,391 |
Accrued sales tax payable |  |  | 2,248 |  |  |  | 1,712 |
Accrued liabilities |  |  | 5,430 |  |  |  | 10,402 |
Lease liabilities, current |  |  | 273 |  |  |  | 273 |
|  | $ | 29,695 |  |  | $ | 45,418 |

F-20

Note 8 — Notes Payable

|  | December 31, |  |  | March 31, |
|  | 2022 |  |  | 2022 |
Promissory Note – related party |  | $ | - |  |  | $ | - |
SBA loan |  |  | 163 |  |  |  | 160 |
|  |  | 163 |  |  |  | 160 |
Less: Current portion of Notes payable |  |  | (15 | ) |  |  | (12 | )
Notes payable |  | $ | 148 |  |  | $ | 148 |

Promissory Note – Related Party

Effective as of September 2022, the Company’s subsidiary issued a promissory note in the amount of $300,000 in consideration of a loan in the same amount made to such subsidiary, which loan matured on October 17, 2022. The loan was made by an affiliate of Robert Ellin, the Company’s Chief Executive Officer, Chairman, director and principal stockholder. The note was paid off in October 2022 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 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. The Company was in compliance with all debt covenants associated with the SBA loan as of December 31, 2022.

PPP Loans

In April 2020, the Company received proceeds of $2.0 million from a PPP loan. 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 loans was forgiven as a result of the Company’s application and acceptance under the terms of the CARES Act.

On March 20, 2021, the Company received proceeds of $0.6 million from a second loan (the “Second PPP Loan”) under the PPP of the CARES Act, which the Company intends to use to retain employees and for other qualifying expenses. The Second PPP Loan matures on March 20, 2026 and bears annual interest at a rate of 1.0%. In March 2022, the Company received confirmation from the SBA that the entire balance of the Second 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 total other expense, net in the accompanying condensed consolidated statement of operations as a result of the balance of the first PPP loan being forgiven during the nine months ended December 31, 2021.

F-21

Note 9 — PodcastOne Bridge Loan

PodcastOne’s Private Placement

On July 15, 2022 (the “Closing Date”), PodcastOne completed a private placement offering (the “PC1 Bridge Loan”) of PodcastOne’s unsecured convertible notes with an original issue discount of 10% (the “OID”) in the aggregate principal amount of $8.8 million (the “PC1 Notes”) to certain accredited investors and institutional investors (collectively, the “Purchasers”), for gross proceeds of $8.0 million pursuant to the Subscription Agreements entered into with the Purchasers (the “Subscription Agreements”). In connection with the sale of the PC1 Notes, the Purchasers received warrants (the “PC1 Warrants”) to purchase a number of shares (the “PC1 Warrant Shares”) of PodcastOne’s common stock, par value $0.00001 per share. The PC1 Notes mature one year from the Closing Date, subject to a one-time three-month extension at PodcastOne’s election (the “Maturity Date”). The PC1 Notes bear interest at a rate of 10% per annum payable on maturity. The PC1 Notes shall automatically convert into the securities of PodcastOne sold in a Qualified Financing (an initial public offering of PodcastOne’s securities from which PodcastOne’s trading market at the closing of such offering is a national securities exchange) or Qualified Event (a direct listing of PodcastOne’s securities on a national securities exchange), as applicable, upon the closing of a Qualified Financing or Qualified Event, as applicable, at a price per share equal to the lesser of (i) the price equal to $60.0 million divided by the aggregate number of shares of PodcastOne’s common stock outstanding immediately prior to the closing of a Qualified Financing or Qualified Event, as applicable (assuming full conversion or exercise of all convertible and exercisable securities of PodcastOne then outstanding, subject to certain exceptions), and (ii) 70% of the offering price of the shares (or whole units, as applicable) in the Qualified Financing or 70% of the initial listing price of the shares on a national securities exchange in the Qualified Event, as applicable. Each holder of the PC1 Notes (other than the Company) may at such holder’s option require the Company to redeem up to 45% of the principal amount of such holder’s PC1 Notes (together with accrued interest thereon, but excluding the OID), in aggregate up to $3,000,000 for all of the PC1 Notes (other than those held by the Company), immediately prior to the completion of a Qualified Financing or a Qualified Event, as applicable, with such redemption to be made pro rata to the redeeming holders of the PC1 Notes (the “Optional Redemption”).

The Company also agreed (i) not to effect a Qualified Financing or a Qualified Event, as applicable, unless immediately following such event the Company owns no less than 66% of PodcastOne’s equity, unless in either case otherwise permitted by the written consent of the holders of the majority of the PC1 Notes (excluding the Company) (the “Majority Noteholders”) and the senior lender, as applicable, (ii) that until a Qualified Financing or a Qualified Event, as applicable, is consummated, the Company guaranteed the repayment of the PC1 Notes when due (other than the Bridge Notes issued to LiveOne) and any interest or other fees due thereunder, and (iii) that if the Company has not consummated a Qualified Financing or a Qualified Event, as applicable, by February 15, 2023, March 15, 2023 or April 15, 2023, unless in either case permitted by the written consent of the Majority Noteholders, the Company shall be required to redeem $1,000,000 of the then outstanding PC1 Notes (other than the PC1 Notes issued to the Company) by the tenth calendar day of each month immediately following such respective date, up to an aggregate redemption of $3,000,000 over the course of such three months, each of which shall be distributed to the holders of the Bridge Notes (other than LiveOne) on a prorated basis (the “Early Redemption”).

The Company further agreed to register the shares of its common stock issuable upon conversion of the PC1 Notes and exercise of the PC1 Warrants in connection with a Qualified Financing or a Qualified Event. If the Company does not file such registration statement on or prior to April 15, 2023, the Company shall be required to prepay $1,000,000 of the PC1 Notes pro rata to the PC1 Notes holders (other than the Company), and if the Company does not file such registration statement on or prior to July 15, 2023, the Company shall be required to prepay $2,000,000 of the PC1 Notes pro rata to the PC1 Notes holders (other than the Company) (the “Reg St Redemption”). The Company shall not be required to redeem or repay more than a total of $3,000,000 of the principal amount of the PC1 Notes as a result of the Optional Redemption, the Early Redemption and/or the Reg St Redemption.

As part of the PC1 Bridge Loan, the Company purchased $3.0 million (excluding the OID) worth of PC1 Notes which have been eliminated in the consolidation presentation, but otherwise remain issued and outstanding.

Warrants

The PC1 Warrants are classified as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the future and are therefore required to be initially and subsequently measured at fair value each reporting period. The Company recorded a warrant liability in the amount of $1.7 million (and reduced the proceeds allocated to the PC1 Notes accordingly). The fair value of the PC1 Warrant liability is remeasured each reporting period using a Monte Carlo simulation model, and the change in fair value is recorded as an adjustment to the PC1 Warrant liability with the unrealized gains or losses reflected in other income (expense).

The fair value of the PC1 Warrants is measured in accordance with ASC 820 “Fair Value Measurement”, using “Monte Carlo simulation” modeling, incorporating the following inputs:

|  | December 31, 2022 |
Expected dividend yield |  |  | - | %
Expected stock-price volatility |  |  | 75.10 | %
Risk-free interest rate |  |  | 3.95 | %
Simulated share price |  | $ | 2.74 |
Exercise price |  | $ | 2.74 |

Total unrealized gains of $0.5 million for warrant liabilities accounted for as derivatives have been recorded in other expense for the year ended December 31, 2022 in the accompanying statements of operations.

F-22

Redemption Features

The Company determined that the redemption features associated with the PC1 Bridge Loan meet the accounting definition of an embedded derivative that must be separated from the PC1 Bridge Loan and initially and subsequently be reported as a liability (“the Redemption Liability”) and measured at fair value. The fair value of the Redemption Liability was determined using a Monte Carlo simulation model using three scenarios (1) redemption prior to the initial maturity date (65% weighted), (2) redemption at the initial maturity date (25% weighted) and (3) redemption after the initial maturity date (10% weighted).

The fair value of the redemption features are measured in accordance with ASC 820 “Fair Value Measurement”, using “Monte Carlo simulation” modeling, incorporating the following inputs:

|  | December 31, 2022 |
Simulations |  |  | 100,000 |
Expected stock-price volatility |  |  | 61 | %
Risk-free interest rate |  |  | 4.69 | %
Conversion price |  | $ | 1.92 |
Stock price |  | $ | 2.79 |

The fair value of the Redemption Liability of $1.1 million at July 15, 2022 was recorded as a derivative liability and included in other liabilities in the consolidated balance sheet. The fair value of the Redemption Liability at December 31, 2022 is $0.9 million. The $0.2 million change in the fair value of the Redemption Liability derivative is recorded as an unrealized gain and included in other non-operating expenses in the accompanying consolidated statements of operations at December 31, 2022.

The resulting discount from the OID, underwriting fees, PC1 Warrants, and embedded Redemption Liability derivative of $2.8 million is being amortized to interest expense through July 15, 2023, the expected term of the Bridge Loan, using the effective interest method. Interest expense resulting from the amortization of the discount for the three and nine months ended December 31, 2022 was $1.1 million and $1.7 million, respectively.

In connection with the Financing, the Company announced that it intends to spin-out PodcastOne as a separate public company before the end of its current fiscal year and plans to dividend a portion of PodcastOne’s common equity to the Company’s stockholders as of a future to be determined record date, in each case subject to obtaining applicable approvals and consents, complying with applicable rules and regulations and satisfying applicable public market trading and listing requirements. Among other things, the Company agreed not to effect any Qualified Financing or Qualified Event (each as defined below), as applicable, unless PodcastOne’s post-money valuation at the time of the Qualified Event is at least $150 million.

Interest expense with respect to the PC1 Bridge Loan for the three and nine months ended December 31, 2022 was $0.2 million and 0.4 million, respectively. There are no restrictive operational covenants associated with the PC1 Bridge Loan.

Note 10 — Unsecured Convertible Notes

Unsecured Convertible Notes – Related Party

The Company’s unsecured convertible notes payable at December 31, 2022 and March 31, 2022 were as follows (in thousands):

|  | December 31, 2022 |  |  | March 31, 2022 |
Unsecured Convertible Notes - Related Party |  |  |  |  |  |
8.5% Unsecured Convertible Note - Due July 1, 2024 |  | $ | 4,931 |  |  | $ | 4,702 |
8.5% Unsecured Convertible Notes - Due July 1, 2024 |  |  | 1,234 |  |  |  | 1,177 |
Less: Discount |  |  | (585 | ) |  |  | - |
Net |  |  | 5,580 |  |  |  | 5,879 |
Less: Unsecured Convertible Notes, Current |  |  | - |  |  |  | - |
Unsecured Convertible Notes, Net, Long-term |  | $ | 5,580 |  |  | $ | 5,879 |

F-23

The Company incurred interest expense of $0.2 million and $0.2 million attributed to its unsecured convertible notes for the three months ended December 31, 2022 and 2021, respectively. The Company incurred interest expense of $0.7 million and $0.6 million attributed to its unsecured convertible notes for the nine months ended December 31, 2022 and 2021, respectively. Total principal maturities of the Company’s unsecured convertible notes are $6.1 million for the year ending March 31, 2024.

As of December 31, 2022 and March 31, 2022, 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 discussed 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, and in July 2022 the Trinad Notes were extended until July 1, 2024. At December 31, 2022, the balance due of $6.0 million, which included $1.5 million of accrued interest, was outstanding under the first Trinad Note. At March 31, 2022, the balance due of $5.9 million, which included $1.4 million of accrued interest, was outstanding under the first Trinad Note.

Between October 27, 2017 and December 18, 2017, the Company issued nine unsecured convertible notes payable to Trinad Capital for aggregate total principal amount of $1.1 million and were charged an 8.5% interest rate. The notes were due on various dates through December 31, 2018 and were extended to May 31, 2023. As of December 31, 2022 and March 31, 2022, $0.3 million and $0.3 million of accrued interest was included in the principal balance, respectively.

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 restricted 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. The resulting loss on extinguishment recorded of $4.3 million is included in loss on extinguishment of debt in the Company’s condensed consolidated statement of operations for the year ended March 31, 2022. In addition, the Company recorded a $4.2 million benefit to additional paid in capital as a result of the excess of the deemed fair value of the Trinad Notes over the principal and accrued interest outstanding at the time of extinguishment.

In July 2022, the Company entered into an amendment with Trinad Capital pursuant to which the maturity date of all of the Trinad Notes was extended to July 1, 2024, and in consideration of such extension, the Company issued to Trinad Capital 500,000 shares of the Company’s restricted common stock. The Company evaluated the Amendment Agreement and the amendment was not required to be accounted for as a TDR under ASC 470-60 as no concession was granted to the Company. The Company then evaluated the Amendment Agreement and the amendment was not required to be accounted for as an extinguishment under ASC 470-50, Debt – Modifications and Extinguishment. The Company recorded the debt as a modification and recorded the derivative associated with the conversion feature as a debt discount. The Company determined the value of the derivative to be $0.2 million using the Black-Scholes option pricing model based on the following assumptions: common share price of $0.71 per share; expected exercise price of $3.00 per share; volatility of 84.8%; expected dividend yield of zero; and annual risk-free interest rate of 4.09%. The derivative has been recorded within other long-term liabilities on the consolidated balance sheet.

F-24

The Company may not redeem any of the Trinad Notes prior to maturity without Trinad Capital’s consent.

In February 2023, the Trinad Notes along with accrued interest thereunder were exchanged for the Company’s Series A Preferred Stock (as defined below) in addition to 200,000 shares of the Company’s common stock issued by the Company to Trinad Capital (See Note 21 – Subsequent Events).

Unsecured Convertible Promissory Note

On February 5, 2020, React Presents issued a two-year $2 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 was 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 year ended March 31, 2022, 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 condensed consolidated statement of operations for the year ended March 31, 2022.

Note 11 — Senior Secured Convertible Notes

The Company’s senior secured convertible notes at December 31, 2022 and March 31, 2022 were as follows (in thousands):

|  | December 31, 2022 |  |  | March 31, 2022 |
Senior Secured Convertible Notes |  | $ | 15,000 |  |  | $ | 15,000 |
Less: Discount |  |  | (1,281 | ) |  |  | (1,368 | )
Net |  |  | 13,719 |  |  |  | 13,632 |
Less: Current Portion, accrued interest |  |  | - |  |  |  | - |
Senior Secured Convertible Notes, long-term |  | $ | 13,719 |  |  | $ | 13,632 |

F-25

On September 15, 2020 (the “Closing Date”), the Company issued two-year senior 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, as amended, mature on June 3, 2024, accrue interest at 8.5% per year with interest 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 $7.0 million until the Harvest Notes are paid in full. In May 2021 and in connection with the Company entering into a $7 million 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 valued at $0.3 million to the Purchaser.

The Company evaluated the May 2021 agreement and determined that 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.

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 of 1933, as amended (the “Securities Act”).

F-26

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 was 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.

In July 2022, the Company entered into an amendment of notes agreement (collectively, the “Amendments”) with each of the holders of the Harvest Notes (the “Noteholders”) pursuant to which the parties agreed to (i) extend the maturity date of the Harvest Notes to June 3, 2024, (ii) defer the June 30, 2022 quarterly cash interest payment to July 18, 2022, and defer the quarterly cash interest payment for the fiscal quarter ending September 30, 2022 to be due and payable at the same time as the quarterly cash interest payment due and payable to the Noteholders for the fiscal quarter ending December 31, 2022, (iii) reduce the amount of Free Cash (as defined in the Harvest Notes) as follows (x) $7,000,000 from the Effective Date through December 31, 2022 (inclusive), (y) $8,000,000 from January 1, 2023 and until June 30, 2023 (inclusive), and (z) $10,000,000 from July 1, 2023 and until the Harvest Notes are repaid in full at their new maturity date of June 3, 2024; provided, that in the event that the Harvest Notes are repaid or prepaid by the Company, the amount of required Free Cash shall be then permanently reduced to the amount equal to the product of the aggregate principal amount of the Harvest Notes then outstanding multiplied by 2/3, and (iv) permit the Company to prepay the Harvest Notes at any time without any repayment/prepayment penalties and without the written consent of the Noteholders, subject to approval from the Company’s senior secured lender, which approval was subsequently obtained; provided, that the Company shall give the Noteholders at least five days prior written notice of any such prepayment or repayment (collectively, “Loan Modification”).

The Company and the Noteholders also agreed that if (i) at least $5,000,000 of the original principal amount of the Harvest Notes is not repaid by the Company on or prior to January 1, 2023, the conversion price of the Harvest Notes shall be amended to $3.00 per share, and the Company shall issue to the Noteholders in aggregate an additional 250,000 shares of the Company’s restricted common stock; (ii) at least $7,500,000 of the original principal amount of the Harvest Notes is not repaid by the Company on or prior to June 30, 2023, the conversion price of the Harvest Notes shall be further amended to $2.50 per share, and the Company shall then issue to the Noteholders in aggregate an additional 500,000 shares of the Company’s common stock; and (iii) the entire principal amount of the Harvest Notes then outstanding is not repaid by the Company on or prior to January 1, 2024, the conversion price of the Harvest Notes shall be further amended to $2.25 per share, and the Company shall then issue to the Noteholders in aggregate an additional 750,000 shares of the Company’s restricted common stock. In addition, in consideration of the Loan Modification, the Company issued to the Noteholders in aggregate 500,000 shares of the Company’s restricted common stock.

The Company and the Noteholders further agreed to certain Harvest Note repayment conditions as provided in the Amendments in the event that the Company or any of its subsidiaries completes an equity or debt financing in the future or if Mr. Ellin ceases to be the Company’s Chief Executive Officer and unless an equally or better qualified CEO, as determined by the majority of the Company’s then-independent directors is appointed within the time provided by the Amendments, in each case prior to the full repayment of the Harvest Notes.

The Company evaluated the July 2022 Amendments and determined that it was not required to be accounted for as troubled debt restructuring under ASC 470-60, Troubled Debt Restructurings by Debtors. The Company also determined that the Amendments were not required to be accounted for as an extinguishment under ASC 470-50, Debt – Modifications and Extinguishment. The Company recorded the debt as a modification and recorded the derivative associated with the conversion feature as a derivative. The Company determined the value of the derivative to be $0.1 million.

F-27

The Company recorded $0.9 million and $0.3 million in interest expense associated with the Harvest Notes for the three months ended December 31, 2022 and 2021, respectively, of which $0.7 million and $0.1 million was attributed to the accretion of the debt discount associated with the senior secured convertible notes. The Company recorded $1.4 million and $0.6 million in interest expense associated with the Harvest Notes for the nine months ended December 31, 2022 and 2021, respectively, of which $1.2 million and $0.3 million, respectively, was attributed to the accretion of the debt discount associated with the senior secured convertible notes.

The Company was in compliance with all debt covenants associated with their senior secured convertible debt as of December 31, 2022.

In February 2023, the Harvest Notes were exchange for the Company’s Series A Preferred Stock, in addition to 600,000 shares of the Company’s common stock issued by the Company to the Harvest Funds (See Note 21 – Subsequent Events).

Note 12 — Senior Secured Revolving Line of Credit

On June 2, 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 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.

In July 2022, the Company extended the maturity date of its revolving credit facility to June 2024 and its variable interest rate was increased to 2.5%. The Revolving Credit Facility bears interest at a variable rate equal to the Wall Street Journal Prime Rate, plus 2.5%. The interest rate for the period ended December 31, 2022 was 10.00%

The principal balance under the Revolving Credit Facility as of December 31, 2022 was $7.0 million. The Company was in compliance with all debt covenants associated with the senior secured revolving line of credit as of December 31, 2022.

Note 13 — Related Party Transactions

As of December 31, 2022 and March 31, 2022, the Company had unsecured convertible Trinad Notes outstanding which were issued to Trinad Capital as described in Note 10 – Unsecured Convertible Notes. In February 2023, the Trinad Notes along with accrued interest were converted into Series A Preferred Stock in addition to 200,000 shares of common stock (See Note 21 – Subsequent Events).

During the nine months ended December 2022, a subsidiary of the Company issued a promissory note in the amount of $300,000 in consideration of a loan in the same amount made to such subsidiary by an affiliate of Robert Ellin, the Company’s Chief Executive Officer, Chairman, director and principal stockholder, which loan matured on October 17, 2022. The loan was repaid in October 2022.

Note 14 — Leases

The Company leases a space at a location under a non-cancellable operating lease with a remaining lease term of 1 year, which originally expired in fiscal year 2022 and was renewed for an additional year. 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, 2022, respectively. Operating leases with lease terms of greater than 12 months are capitalized as operating lease right-of-use assets and operating lease liabilities in the accompanying condensed consolidated balance sheets. Rent expense for these operating leases totaled $0.2 million during each of the three months ended December 31, 2022 and 2021, respectively. Rent expense for these operating leases totaled $0.4 million and $0.9 million during the nine months ended December 31, 2022, respectively.

F-28

Operating lease costs for nine months ended December 31, 2022 and 2021 consisted of the following (in thousands):

|  | Nine Months Ended December 31, |
|  | 2022 |  |  | 2021 |
Fixed rent cost |  | $ | 373 |  |  | $ | 679 |
Short term lease cost |  |  | 46 |  |  |  | 217 |
Total operating lease cost |  | $ | 419 |  |  | $ | 896 |

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

Operating leases |  | December 31, 2022 |  |  | March 31, 2022 |
Operating lease right-of-use assets |  | $ | 502 |  |  | $ | 728 |
Operating lease liability, current |  | $ | 273 |  |  | $ | 273 |
Operating lease liability, noncurrent |  |  | 242 |  |  |  | 468 |
Total operating lease liabilities |  | $ | 515 |  |  | $ | 741 |

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, 2022 were as follows (in thousands):

For Years Ending March 31, |  |  |
2023 (remaining three months) |  | $ | 111 |
2024 |  |  | 320 |
2025 |  |  | 93 |
Total lease payments |  |  | 524 |
Less: imputed interest |  |  | (9 | )
Present value of operating lease liabilities |  | $ | 515 |

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-29

Note 15 — Other Long-Term Liabilities

Other long-term liabilities consisted of the following (in thousands):

|  | December 31, 2022 |  |  | March 31, 2022 |
Contingent consideration from Gramophone acquisition |  | $ | 174 |  |  | $ | 174 |
Accrued royalties |  |  | 4,258 |  |  |  | - |
Total other long-term liabilities |  | $ | 4,432 |  |  | $ | 174 |

Note 16 — 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, 2022, the Company has licenses, production and/or distribution agreements to make guaranteed payments as follows: $0.1 million for the fiscal year ending March 31, 2023. 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, 2022, 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, 2023, $1.3 million for the fiscal year ending March 31, 2024, $0.6 million for the fiscal year ending March 31, 2025 and $0.3 million for the fiscal year ending March 31, 2026.

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 of time is the period 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, members, 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, which included payments to be made in common stock. 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, 2022, 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.

On August 4, 2022, the Company entered into a settlement agreement with a certain music partner attributed to past royalties owed. The Company issued 800,000 shares of its common stock to the music partner and settled $0.4 million of accounts payable with the remaining value of the shares attributed to prepayment for future royalties. The fair value of the shares was determined to be $1.0 million based on the Company’s share price at the date the shares were issued. As of December 31, 2022, $0.1 million was recorded as a prepaid asset related to this transaction in order to fund future amounts owed for royalties. If the agreement is not terminated by the music partner after one year, the Company will issue an additional 200,000 shares as prepayment of future royalties.

F-30

Employment Agreements

As of December 31, 2022, the Company has employment agreements with three named executive officers (“Section 16 Officers”) that provide salary payments of $0.5 million and target bonus compensation of up to $0.5 million on an annual basis. Furthermore, such employment agreements contain severance clauses that could require severance payments in the aggregate amount of $10.5 million (excluding the value of potential payouts of discretionary bonuses, pro-rata bonuses, and potential accelerated vesting of equity awards granted to such executive officers).

The Company’s CEO has agreed to forgive his salary of $0.5 million per annum in exchange for shares of the Company’s common stock and/or restricted stock units to be issued in the future. As of December 31, 2022, on the Company’s board of directors has not yet determined the number of shares of the Company’s common stock and/or restricted stock units to be issued to the CEO as such compensation.

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 the Company, LiveXLive Tickets, Inc. (“LXL Tickets”), Robert S. Ellin and certain other defendants. Plaintiffs subsequently voluntarily dismissed all claims against the other defendants. 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 continues 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 the Company’s summary judgment motion to dismiss plaintiffs’ fraudulent inducement claim and dismissed plaintiff’s breach of the employment agreement claim with respect to the Company. On October 6, 2022, New York Appellate Division reversed the trial court’s decision and ordered that defendants’ motion for summary judgment dismissing the first and second causes of action should be granted. As of December 31, 2022, all of plaintiffs’ claims were dismissed or addressed by the parties or the court other than plaintiffs’ claims for fraudulent inducement related to payment of Wantickets’ audit costs, breach of contract based on Mr. Schnaier’s employment agreement with LXL Tickets, and fraudulent inducement due to plaintiffs alleged inability to sell their shares of Company’s common stock acquired pursuant to the APA. The trial has been scheduled for April 2023. 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, 2022, 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.

On June 28, 2022, SoundExchange, Inc. (“SX”) filed a complaint in the U.S. District Court, Central District of California, against the Company and Slacker. The complaint alleged that the defendants have failed to make the necessary music royalty payments and corresponding late fees required under the Digital Millennium Copyright Act late allegedly due to SX. On October 13, 2022, the court entered a judgment against the defendants for the amount of $9,765,396.70. In February 2023, the Company and SX settled the dispute as described in Note 21 – Subsequent Events.

During each of the quarters ended December 31, 2022 and 2021, the Company recorded legal settlement expenses relating to potential claims arising in connection with litigation brought against the Company by certain third parties were not material and were included in general and administrative expenses in the accompanying condensed consolidated statement of operations.

F-31

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 17 — Employee Benefit Plan

Effective March 2019, the Company sponsors a 401(k) plan (the “401(k) Plan”) covering all employees. Prior to March 31, 2019, only Slacker employees were eligible to participate in the 401(k) Plan. Employees are eligible to participate in the 401(k) Plan the first day of the calendar month following their date of hire. The Company may make discretionary matching contributions to the 401(k) Plan on behalf of its employees up to a maximum of 100% of the participant’s elective deferral up to a maximum of 5% of the employees’ annual compensation. The Company’s matching contributions were not material to the financial statements for the three- and nine-month periods ended December 31, 2022 and 2021.

Note 18 — Stockholders’ Equity

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

During the nine months ended December 31, 2022, the Company has $0.4 million outstanding within accounts payable and accrued liabilities for stock earned by its consultants, but not yet issued. The remaining unrecognized compensation cost of $0.5 million is expected to be recorded over the next year as the shares vest.

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, the Company’s 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 increase was formally adopted by the Company 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 $2.5 million and $12.1 million during the nine months ended December 31, 2022 and 2021, respectively, and $0.4 million and $2.1 million during the three months ended December 31, 2022 and 2021, respectively. The total tax benefit recognized related to share-based compensation expense was $0 for the three and nine months ended December 31, 2022 and 2021, respectively.

F-32

Authorized Common Stock and Authority to Create Preferred Stock

The Company has the authority to issue up to 510,000,000 shares, consisting of 500,000,000 shares of the Company’s common stock, $0.001 par value per share, and 10,000,000 shares of the Company’s preferred stock, $0.001 par value per share (the “preferred stock”).

The Company may issue shares of preferred stock from time to time in one or more series, each of which will have such distinctive designation or title as shall be determined by the Company’s board of directors and will have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issue of such class or series of preferred stock as may be adopted from time to time by the Company’s board of directors. The Company’s board of directors will have the power to increase or decrease the number of shares of preferred stock of any series after the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased, the shares constituting such decrease will resume the status of authorized but unissued shares of preferred stock.

While the Company does not currently have any plans for the issuance of preferred stock, the issuance of such preferred stock could adversely affect the rights of the holders of common stock and, therefore, reduce the value of the common stock. It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of the common stock until and unless the Company’s board of directors determines the specific rights of the holders of the preferred stock; however, these effects may include: restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock, or delaying or preventing a change in control of the Company without further action by the stockholders.

In February 2023 the Company issued its Series A Preferred Stock in exchange for the outstanding Harvest Notes and Trinad Notes (See Note 21 – Subsequent Events).The Series A Preferred Stock is convertible at any time at a holder’s option into shares of the Company’s common stock, at a price of $2.10 per share of common stock, bears a dividend of 12% per annum, is perpetual and has no maturity date. At the option of the Company, the dividend may be paid in-kind for the first 12 months after the date of issuance, and thereafter, the holders shall have the option to select whether subsequent dividend payments shall be paid in kind or in cash; provided, that as long as any Series A Preferred Stock is held by any of the “Harvest Funds”, Trinad Capital shall receive the dividend solely in kind. The Series A Preferred Stock shall have no voting rights, except as set forth in the Certificate of Designation (as defined below) or as otherwise required by law.

Stock Repurchase Program

In December 2020, the Company announced that its board of directors has authorized the repurchase up to two million shares of its outstanding common stock from time to time. In November 2022, the Company announced that its board of directors has authorized it to expand its stock repurchase program by up to an additional $2,000,000 worth of shares of its common stock to be repurchased from time to time. The timing, price, and quantity of purchases under the program will be at the discretion of our management and will depend upon a variety of factors including share price, general and business market conditions, compliance with applicable laws and regulations, corporate and regulatory requirements, and alternative uses of capital. The program may be expanded, suspended, or discontinued by our board of directors at any time. Although our board of directors has authorized this stock repurchase program, there is no guarantee as to the exact number of shares, if any, that will be repurchased by us, and we may discontinue purchases at any time that management determines additional purchases are not warranted. We cannot guarantee that the program will be consummated, fully or all, or that it will enhance long-term stockholder value. The program could affect the trading price of our common stock and increase volatility, and any announcement of a termination of this program may result in a decrease in the trading price of our common stock. In addition, this program could diminish our cash reserves. The Company purchased 2,000,000 and no shares of its common stock under the stock repurchase program for the nine months ended December 31, 2022 and 2021, for a total of $1.9 million and none, respectively.

F-33

Note 19 — Business Segment and Geographic Reporting

The Company determined its operating segments in accordance with ASC 280, “Segment Reporting” (“ASC 280”).

Beginning in the second quarter of fiscal 2023, management has determined that the Company has two operating segments (Audio Group and Media Group). As a result of the PC1 Bridge Loan and the potential for a spin-off of PodcastOne the Company’s chief operating decision maker (“CODM”) began to make decisions based on two operating segments of the business (Audio and Media). The Company’s reporting segments reflects the manner in which its 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. As a result, the segment information for the prior periods has been recast to confirm with the current period presentation.

The Company’s two operating segments are also consistent with its internal organizational structure, the way the Company assesses operating performance and allocates resources.

Customers

The Company has one external customer within their audio segment that accounts for more than 10% of its revenue during the nine months ended December 31, 2022 and 2021. 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 43% and 25% of the Company’s consolidated revenues for the nine months ended December 31, 2022 and 2021, respectively. For the three months ended December 31, 2022 and 2021, this customer accounted for 42% and 31%, respectively of the Company’s consolidated revenues.

Geographic Information

The Company’s operations are based in the United States. All material revenues of the Company are derived from the United States. All long-lived assets of the Company are located in the United States.

We manage our working capital on a consolidated basis. Accordingly, segment assets are not reported to, or used by, our management to allocate resources to or assess performance of our segments, and therefore, total segment assets and related depreciation and amortization have not been presented.

The following table presents the results of operations for our reportable segments for the three and nine months ended December 31, 2022 and 2021:

|  | Three Months Ended December 31, 2022 |
|  | Audio |  |  | Media |  |  | Total |
Revenue |  | $ | 21,952 |  |  | $ | 5,357 |  |  | $ | 27,309 |
Net income (loss) |  | $ | (903 | ) |  | $ | (1,645 | ) |  | $ | (2,548 | )

|  | Three Months Ended December 31, 2021 |
|  | Audio |  |  | Media |  |  | Total |
Revenue |  | $ | 19,084 |  |  | $ | 13,811 |  |  | $ | 32,895 |
Net income (loss) |  | $ | 620 |  |  | $ | (12,411 | ) |  | $ | (11,791 | )

F-34

|  | Nine Months Ended December 31, 2022 |
|  | Audio |  |  | Media |  |  | Total |
Revenue |  | $ | 63,939 |  |  | $ | 10,124 |  |  | $ | 74,063 |
Net income (loss) |  | $ | 4,049 |  |  | $ | (8,658 | ) |  | $ | (4,609 | )

|  | Nine Months Ended December 31, 2021 |
|  | Audio |  |  | Media |  |  | Total |
Revenue |  | $ | 54,778 |  |  | $ | 38,808 |  |  | $ | 93,586 |
Net income (loss) |  | $ | (2,511 | ) |  | $ | (32,567 | ) |  | $ | (35,078 | )

Note 20 — Fair Value Measurements

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

|  | December 31, 2022 |
|  | Fair |  |  | Hierarchy Level |
|  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Prepaid expenses - common stock issued subject to market adjustment at settlement |  | $ | 15 |  |  | $ | 15 |  |  | $ | - |  |  | $ | - |
Total |  | $ | 15 |  |  | $ | 15 |  |  | $ | - |  |  | $ | - |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration liability from Gramophone acquisition |  | $ | 174 |  |  | $ | - |  |  | $ | - |  |  | $ | 174 |
Warrant liability on PodcastOne bridge loan |  |  | 1,224 |  |  |  | - |  |  |  | - |  |  |  | 1,224 |
Bifurcated embedded derivative on PodcastOne bridge loan |  |  | 932 |  |  |  | - |  |  |  | - |  |  |  | 932 |
Bifurcated embedded derivative on senior unsecured convertible note payable |  |  | 149 |  |  |  | - |  |  |  | - |  |  |  | 149 |
Bifurcated embedded derivative on senior secured convertible note payable |  |  | 88 |  |  |  | - |  |  |  | - |  |  |  | 88 |
|  | $ | 2,567 |  |  | $ | - |  |  | $ | - |  |  | $ | 2,567 |

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

F-35

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, 2022 |  | $ | 3,157 |
Embedded derivative and warrant issued in connection with PodcastOne bridge loan |  |  | 3,966 |
Change in fair value of bifurcated embedded derivatives, reported in earnings |  |  | (1,750 | )
Settlement of PodcastOne contingent consideration |  |  | (3,000 | )
Change in fair value of contingent consideration liabilities, reported in earnings |  |  | 194 |
Balance as of December 31, 2022 |  | $ | 2,567 |

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, |
|  | 2022 |  |  | 2022 |
Bifurcated embedded derivative on secured convertible notes payable: |  |  |  |  |  |
Market yield |  |  | 4.7 | % |  |  | 4.7 | %

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 $0.2 million. The change in fair value of $0.2 million is recorded in other income (expense) on the Company’s condensed consolidated statements of operations for the nine month period ended December 31, 2022.

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, 2022 |
|  | Carrying |  |  | Hierarchy Level |
|  | Value |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Secured convertible notes payable, net |  | $ | 13,719 |  |  | $ | - |  |  | $ | - |  |  | $ | 15,519 |
Unsecured convertible notes payable related party, net |  |  | 5,580 |  |  |  | - |  |  |  | - |  |  |  | 5,941 |
PodcastOne bridge loan |  |  | 3,774 |  |  |  | - |  |  |  | - |  |  |  | 5,541 |

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

F-36

The fair values of financial instruments not included in these tables are estimated to be equal to their carrying values as of December 31, 2022 and March 31, 2022. 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, |
|  | 2022 |  |  | 2022 |
Secured convertible notes payable, net (binomial lattice model): |  |  |  |  |  |
Market yield |  |  | 11.4 | % |  |  | 6.3 | %
Unsecured convertible notes payable related party, net (yield model with a Black-Scholes-Merton option pricing model): |  |  |  |  |  |  |  |
Market yield |  |  | 11.86 | % |  |  | 6.6 | %

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, 2022 and March 31, 2022.

The Company’s note payable is not publicly traded and fair value is estimated to equal carrying value. The Company’s senior secured line of credit, senior secured convertible notes 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 and CPS 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 21 — Subsequent Events

Harvest Notes and Trinad Notes Exchange for Series A Preferred Stock

On February 3, 2023 (the “Effective Date”), the “Company entered into an exchange agreement (collectively, the “Exchange Agreements”) with (i) Harvest Small Cap Partners Master, Ltd. (“HSCPM”) in regard to that certain 8.5% Senior Secured Convertible Note in the aggregate amount of $10,503,965 issued by the Company on September 15, 2020, as amended on June 3, 2021 and July 6, 2022, to HSCPM (the “HSCPM Note”), (ii) Harvest Small Cap Partners, L.P. (“HSCP”) in regard to that certain 8.5% Senior Secured Convertible Note in the aggregate amount of $4,496,035 issued by the Company on September 15, 2020, as amended on June 3, 2021 and July 6, 2022, to HSCP (the “HSCP Note”); and (iii) Trinad Capital (and collectively with HSCPM and HSCP, the “Holders”) in regard to all promissory notes in the aggregate principal and interest amount of $6,177,218 issued by the Company to Trinad Capital (the “Trinad Notes” and collectively with the HSCPM Note and the HSCP Note, the “Notes”). Pursuant to the Exchange Agreements, the Holders exchanged the Notes, and with respect to Trinad Capital, together with interest, due and payable thereon, and relinquished any and all rights thereunder, for 21,177 shares of the Company’s newly designated and issued Series A Perpetual Convertible Preferred Stock, par value $0.001 per share (the “Series A Preferred Stock”), with a stated value of $1,000 per share (the “Stated Value”), having the terms as set forth in the Company’s Certificate of Designation of Preferences, Rights and Limitations of Series A Perpetual Convertible Preferred Stock (the “Certificate of Designation”) filed by the Company on February 2, 2023 with the Secretary of State of the State of Delaware.

F-37

The Series A Preferred Stock is convertible at any time at a Holder’s option into shares of the Company’s common stock, at a price of $2.10 per share of common stock, bears a dividend of 12% per annum, is perpetual and has no maturity date. At the option of the Company, the dividend may be paid in-kind for the first 12 months after the Effective Date, and thereafter, the Holders shall have the option to select whether subsequent dividend payments shall be paid in kind or in cash; provided, that as long as any Series A Preferred Stock is held by the “Harvest Funds”, Trinad Capital shall receive the dividend solely in kind. The Series A Preferred Stock shall have no voting rights, except as set forth in the Certificate of Designation or as otherwise required by law.

The Company may, at its option (the “Optional Redemption Right”), on or before the Mandatory Redemption Date (as defined herein), purchase up to $5,000,000 in aggregate of the then outstanding shares of Series A Preferred Stock held by the Harvest Funds at a cash redemption price per share of Series A Preferred Stock equal to the Stated Value (the “Redemption Price”). The Company shall be required on or before the 18-month anniversary of the Effective Date (the “Mandatory Redemption Date”), and in any event if prior to the Mandatory Redemption Date the Company consummates any financing transaction in which the Company, directly or indirectly, raises, in aggregate, gross proceeds of more than $20,000,000 of new capital, to purchase $5,000,000 in aggregate of the then outstanding shares of Series A Preferred Stock held by the Harvest Funds (the “Mandatory Redemption Amount”) at the Redemption Price (the “Mandatory Redemption”). If the Optional Redemption Right is exercised up to the full $5,000,000 amount, the Mandatory Redemption requirement shall be terminated; provided, that if the Optional Redemption Right is exercised in any amount less than $5,000,000, the Mandatory Redemption Amount shall be reduced by the amount that the Optional Redemption Right has been elected and exercised. Without the prior express consent of the majority of the votes entitled to be cast by the holders of Series A Preferred Stock outstanding at the time of such vote (the “Majority Holders”), the Company shall not authorize or issue any additional or other shares of its capital stock that are (i) of senior rank to the Series A Preferred Stock or (ii) of pari passu rank to the Series A Preferred Stock, in each case in respect of the preferences as to dividends, distributions and payments upon the liquidation, dissolution and winding up of the Corporation.

Pursuant to the Exchange Agreements, the Company agreed that at any time that any of the shares of Series A Preferred Stock issued to the Harvest Funds are outstanding, (i) to directly or through its 100% owned subsidiaries (as applicable), to own on a fully diluted basis at least 66% of the total equity and voting rights of any and all classes of securities of each of PodcastOne, Slacker, PPV One, Inc., and LiveXLive Events, LLC subsidiaries of the Company, (ii) not to issue shares of its common stock or convertible equity securities at a price less than $2.10 per share (subject to certain exceptions), provided, that such consent shall not be required in connection with any merger, acquisition or other business combinations of the Company and/or any of its subsidiaries with any unaffiliated third party, (iii) not to raise more than an aggregate of $20,000,000 of capital in one or more offerings, including without limitation, one or more equity or debt offerings or a combination thereof, on an accumulated basis commencing after the Effective Date (the “Qualified Offering”); provided, that such consent shall not be required for any equity financing of the Company at a price of $2.25 per share or above, and (iv) if after the Effective Date the Company distributes any of its assets or any shares of its common stock or Common Stock Equivalents (as defined in the Exchange agreements) of any of its subsidiaries pro rata to the record holders of any class of shares of its common stock, the Company shall distribute to the Holders its pro rata portion of any such distribution (calculated on an as-converted basis with respect to the then outstanding Series A Preferred Stock) concurrently with the distribution to the then record holders of any class of its common stock (including an applicable distribution of shares of PodcastOne’s common stock to the Harvest Funds in connection with the Company’s recently announced spin-out and special dividend of PodcastOne’s common stock to the Company’s stockholders of record), in each case without the Majority Holders’ prior written consent. Any breach of the aforementioned covenants shall constitute a material breach, which if uncured, shall result in the issuance of an aggregate of 56,473 shares of the Company’s restricted common stock (the “Default Shares”) to the Holders for each five trading days (or pro rata thereof) after the date of the breach; provided, that if such breach is cured within the applicable cure period, no Default Shares shall be issued.

F-38

In consideration for entry into the Exchange Agreements and the Holders’ willingness to forego certain rights to common stock of the Company previously agreed by the parties, the Company issued to the Harvest Funds an aggregate of 600,000 shares of its common stock (the “Harvest Shares”) and to Trinad Capital 200,000 shares of its common stock. In connection with the entry of the Exchange Agreements, unless otherwise agreed to by the Harvest Funds, Mr. Ellin agreed to (i) to serve as the Company’s Chief Executive Officer and (ii) extend the period during which he cannot dispose of any equity or convertible securities of the Company owned by him or any entity of which he is the beneficial owner and not to cease to be the beneficial owner of any other equity or convertible securities of the Company of which Mr. Ellin is the beneficial owner (subject to certain exceptions), in each case until the time that the Harvest Funds no longer own any shares of the Series A Preferred Stock.

The Company further agreed, on or prior to the date that is 45 days after the consummation of any Qualified Offering and in any event no later than July 15, 2023, to prepare and file with the SEC a Registration Statement on Form S-3 (or such other form as applicable) covering the resale under the Securities Act of all the shares of the Company’s common stock underlying the Series A Preferred Stock (including any dividends paid in kind) issued to the Harvest Funds and the Harvest Shares. The Company shall use its commercially reasonable best efforts to cause such registration statement to be declared effective promptly thereafter on or before 60 days after the filing of such registration statement (or if the SEC issues any comments with respect to such registration statement, on or before 120 days after the filing of such registration statement).

Legal Settlement

On February 3, 2023, the Company and SX entered into an agreement to settle the dispute between the parties with respect to SX’s complaint filed in the U.S. District Court, Central District of California, against the Company and Slacker, and related court judgement entered against the defendants on October 13, 2022, pursuant to which the Company agreed to make certain monthly payments to SX for a period of 24 months and certain other payments in the event the Company obtains additional financing(s), unless the Company repays the judgment amount earlier pursuant to the terms of the agreement, and SX agreed not to take any action to enforce such judgment, so long as the defendants are not in default under the agreement.

F-39

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, 2022, 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, special dividend, distribution or transaction, including the proposed special dividend and spin-out of PodcastOne or its pay-per-view business, the timing of the consummation of such proposed event, including the risks that a condition to consummation of such proposed event would not be satisfied within the expected timeframe or at all or that the consummation of any proposed financing, acquisition, spin-out, special dividend, distribution or transaction, the timing of the consummation of such proposed event will not occur; PodcastOne’s and/or Slacker’s ability to list on a national exchange; 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 members; 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; uncertain and unfavorable 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 LiveOne 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 our Series A Preferred Stock; our compliance with the covenants in our debt agreements; our intent to repurchase shares of our common stock from time to time under our announced stock repurchase program and the timing, price, and quantity of repurchases, if any, under the program 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 2022 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 29, 2022 (the “2022 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 senior management regularly reviews our operating results, principally to make decisions about how we allocate our resources and to measure our segment and consolidated operating performance. In prior fiscal years we generated a majority of our revenue primarily through membership 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.

For the three months ended December 31, 2022 and 2021, we reported revenue of $27.3 million and $32.9 million, respectively. For the nine months ended December 31, 2022 and 2021, we reported revenue of $74.1 million and $93.6 million, respectively. We have one external customer that accounted for more than 10% of its revenue during the three and nine months ended December 31, 2022 and 2021, respectively. Such customer is an original equipment manufacturer (the “OEM”) who provides premium Slacker service in all of their new vehicles. In the three months ended December 31, 2022 and 2021, total revenue from the OEM was $11.4 million and $8.4 million, respectively. In the nine months ended December 31, 2022 and 2021, total revenue from the OEM was $32.1 million and $23.0 million, respectively.

Key Corporate Developments for the Quarter Ended December 31, 2022

We ended the December 31, 2022 quarter with approximately 1,900,000 paid members on our music platform, up from approximately 1,594,000 at December 31, 2021, representing 10% annual growth. Included in the total number as of December 31, 2022 and 2021 are certain members which are the subject of a contractual dispute. We are currently not recognizing revenue related to these members.

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

During our fiscal year ended March 31, 2022, we (i) acquired Gramophone (effective October 2021) (ii) accelerated the number of live events digitally live streamed across our platform, and (iii) increased our sponsorship revenue from live events when compared to prior fiscal years. As a result of these actions, our revenue for the nine months ended December 31, 2022 was comprised of 52% from paid customers’ membership, 35% from advertising (which includes PodcastOne), 11% from merchandise (which includes CPS), 1% from ticketing and events, and 1% from sponsorship and licensing. 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.

3

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. 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.

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 members. Recently, we have entered into distribution relationships with a variety of platforms, including Roku, AppleTV, Amazon Fire, linear OTT platforms such as STIRR 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 membership 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 2023, the future revenue and operating growth across our music platform will rely heavily on our ability to grow our member 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 members, artist merchandise and live music event ticket sales, and licensing user data across our platform. Our acquisitions of PodcastOne, CPS and Gramophone 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 ending March 31, 2023, 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*, adjusted earnings before income tax, depreciation and amortization (“Adjusted EBITDA”)* and Adjusted EBITDA Margins* 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*, Adjusted EBITDA*, Adjusted EBITDA 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).

4

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 membership 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, 2022 and 2021, all material amounts of our revenue were derived from customers located in the United States and moreover, one of our customers accounted for 43% and 25% of our consolidated revenue. This significant concentration of revenue from one customer poses risks to our operating results, and any change in the means this customer utilizes our services beyond December 31, 2022 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 increased and is expected to continue in the future. In the long term, we plan to expand our business internationally in places such as Europe, Asia Pacific and Latin America, and as a result will continue to incur significant incremental upfront expenses associated with these growth opportunities.

Effects of COVID-19

An outbreak of a novel strain of coronavirus, COVID-19 in December 2019 subsequently became a pandemic after spreading globally, including the United States. 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. We 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 and up to the third quarter of fiscal year ended March 31, 2022. Although the impact has subsided, we expect to continue experiencing modest adverse impacts throughout the fiscal year ending March 31, 2023. Our event and programmatic advertising revenues were directly impacted throughout the 2021 fiscal year and mid-way through the 2022 fiscal year with all on-premise in-person live music festivals and events postponed and mixed demand from historical advertising partners. Further, one of our larger customers also experienced a temporary halt to its production as a result of COVID-19, which negatively impacted our near-term membership growth in the 2021 fiscal year. During the fiscal year ended March 31, 2021, we enacted several initiatives to counteract these near-term challenges, including salary reductions, obtaining a Paycheck Protection Program loan 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. We also launched a new 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 our results of operations, financial position and liquidity. In addition, partially due to the effects of COVID-19 on our on-premise in-person festival and events business, during quarter ended December 31, 2022, we have strategically opted to delay any new live tentpole or pay-per-view events until our fiscal year ending March 31, 2024.

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.

5

Consolidated Results of Operations

Three Months Ended December 31, 2022, as compared to Three Months Ended December 31, 2021

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, |
|  | 2022 |  |  | 2021 |
Revenue: |  | $ | 27,309 |  |  | $ | 32,895 |
Operating expenses: |  |  |  |  |  |  |  |
Cost of sales |  |  | 19,362 |  |  |  | 27,666 |
Sales and marketing |  |  | 1,608 |  |  |  | 3,466 |
Product development |  |  | 1,035 |  |  |  | 1,657 |
General and administrative |  |  | 4,535 |  |  |  | 8,550 |
Amortization of intangible assets |  |  | 1,343 |  |  |  | 1,524 |
Total operating expenses |  |  | 27,883 |  |  |  | 42,863 |
Loss from operations |  |  | (574 | ) |  |  | (9,968 | )
Other income (expense): |  |  |  |  |  |  |  |
Interest expense, net |  |  | (2,220 | ) |  |  | (1,052 | )
Other expense |  |  | 257 |  |  |  | (811 | )
Total other expense |  |  | (1,963 | ) |  |  | (1,863 | )
Loss before provision for (benefit from) income taxes |  |  | (2,537 | ) |  |  | (11,831 | )
Provision for (benefit from) income taxes |  |  | 11 |  |  |  | (40 | )
Net loss |  | $ | (2,548 | ) |  | $ | (11,791 | )
Net loss per share – basic and diluted |  | $ | (0.03 | ) |  | $ | (0.15 | )
Weighted average common shares – basic and diluted |  |  | 85,585,117 |  |  |  | 78,188,050 |

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

|  | Three Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Depreciation expense |  |  |  |  |  |  |  |  |
Cost of sales |  | $ | 31 |  |  | $ | 18 |  |  |  | 72 | %
Sales and marketing |  |  | 49 |  |  |  | 45 |  |  |  | 9 | %
Product development |  |  | 565 |  |  |  | 744 |  |  |  | -24 | %
General and administrative |  |  | 285 |  |  |  | 114 |  |  |  | 150 | %
Total depreciation expense |  | $ | 930 |  |  | $ | 921 |  |  |  | 1 | %

6

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

|  | Three Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Stock-based compensation expense |  |  |  |  |  |  |  |  |
Cost of sales |  | $ | 203 |  |  | $ | 116 |  |  |  | 75 | %
Sales and marketing |  |  | (64 | ) |  |  | 118 |  |  |  | -154 | %
Product development |  |  | 136 |  |  |  | (375 | ) |  |  | 136 | %
General and administrative |  |  | 447 |  |  |  | 2,269 |  |  |  | -80 | %
Total stock-based compensation expense |  | $ | 722 |  |  | $ | 2,128 |  |  |  | -66 | %

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

|  | Three Months Ended December 31, |
|  | 2022 |  |  | 2021 |
Revenue |  |  | 100 | % |  |  | 100 | %
Operating expenses |  |  |  |  |  |  |  |
Cost of sales |  |  | 71 | % |  |  | 84 | %
Sales and marketing |  |  | 6 | % |  |  | 11 | %
Product development |  |  | 4 | % |  |  | 5 | %
General and administrative |  |  | 17 | % |  |  | 26 | %
Amortization of intangible assets |  |  | 5 | % |  |  | 5 | %
Total operating expenses |  |  | 102 | % |  |  | 131 | %
Loss from operations |  |  | -2 | % |  |  | -30 | %
Other income (expense) |  |  | -7 | % |  |  | -6 | %
Loss before income taxes |  |  | -9 | % |  |  | -36 | %
Income tax provision |  |  | - | % |  |  | - | %
Net loss |  |  | -9 | % |  |  | -36 | %

Revenue

Revenue was as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Membership services |  | $ | 13,354 |  |  | $ | 10,698 |  |  |  | 25 | %
Advertising |  |  | 8,498 |  |  |  | 8,541 |  |  |  | -1 | %
Merchandising |  |  | 4,825 |  |  |  | 6,442 |  |  |  | -25 | %
Sponsorship and licensing |  |  | 76 |  |  |  | 1,194 |  |  |  | -94 | %
Ticket/Event |  |  | 556 |  |  |  | 6,020 |  |  |  | -91 | %
Total Revenue |  | $ | 27,309 |  |  | $ | 32,895 |  |  |  | -17 | %

Membership Revenue

Membership revenue increased $2.7 million, or 25%, to $13.4 million for the three months ended December 31, 2022, as compared to $10.7 million for the three months ended December 31, 2021. The increase was primarily as a result of paid membership growth with our largest OEM customer.

7

Advertising Revenue

Advertising revenue remained constant at $8.5 million for the three months ended December 31, 2022, as compared to $8.5 million for the three months ended December 31, 2021. There was no material change between the comparative periods as no significant changes to the business were noted.

Merchandising Revenue

Merchandising revenue decreased $1.6 million, or 25%, to $4.8 million for the three months ended December 31, 2022, as compared to $6.4 million the three months ended December 31, 2021 due to a reduction in demand from both retail partners and our direct to consumer business.

Sponsorship and Licensing

Sponsorship and licensing revenue decreased by $1.1 million, or 94%, to $0.1 million for the three months ended December 31, 2022, as compared to $1.2 million for the three months ended December 31, 2021. The decrease was the result of fewer events compared to the prior year period.

Ticket/Event

Ticket/Event revenue decreased $5.5 million, or 91%, to $0.6 million for the three months ended December 31, 2022, as compared to $6.0 million for the three months ended December 31, 2021, driven by a reduction in the number of events held compared to the prior year. Most significantly the Spring Awakening Music Festival was held in the prior year period with no comparable event in the current year period.

Cost of Sales

Cost of sales was as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Membership Services |  | $ | 8,176 |  |  | $ | 6,545 |  |  |  | 25 | %
Advertising |  |  | 7,756 |  |  |  | 6,590 |  |  |  | 18 | %
Production and Ticketing |  |  | (26 | ) |  |  | 10,170 |  |  |  | -100 | %
Merchandising |  |  | 3,456 |  |  |  | 4,361 |  |  |  | -21 | %
Total Cost of Sales |  | $ | 19,362 |  |  | $ | 27,666 |  |  |  | -30 | %

Membership

Membership cost of sales increased by $1.6 million, or 25%, to $8.2 million for the three months ended December 31, 2022, as compared to $6.6 million for the three months ended December 31, 2021. The increase was due to an increase in members added compared to the two periods.

8

Advertising

Advertising cost of sales increased $1.2 million, or 18%, to $7.8 million for the three months ended December 31, 2022, as compared to $6.6 million for the three months ended December 31, 2021. The increase was due to an increase in the cost of content.

Production and Ticketing

Production cost of sales decreased $10.2 million, or 100%, to a credit of $0.03 million for the three months ended December 31, 2022, as compared to $10.2 million for the three months ended December 31, 2021. The decrease was primarily due to a reduction in events and settlements with vendors for previous amounts owed.

Merchandising

Merchandising cost of sales decreased $0.9 million, or 21%, from $4.4 million for the three months ended December 31, 2022, as compared to $3.5 million for the three months ended December 31, 2021 due to the corresponding decrease in revenue.

Other Operating Expenses

Other operating expenses were as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Sales and marketing expenses |  | $ | 1,608 |  |  | $ | 3,466 |  |  |  | -54 | %
Product development |  |  | 1,035 |  |  |  | 1,657 |  |  |  | -38 | %
General and administrative |  |  | 4,535 |  |  |  | 8,550 |  |  |  | -47 | %
Amortization of intangible assets |  |  | 1,343 |  |  |  | 1,524 |  |  |  | -12 | %
Total Other Operating Expenses |  | $ | 8,521 |  |  | $ | 15,197 |  |  |  | -44 | %

Sales and Marketing Expenses

Sales and Marketing expenses decreased $1.9 million, or 54%, to $1.6 million for the three months ended December 31, 2022, as compared to $3.5 million for the three months ended December 31, 2021, primarily driven by a decrease in events held in the current quarter compared to the prior quarter.

Product Development

Product development expenses decreased $0.6 million, or 38%, to $1.0 million for the three months ended December 31, 2022, as compared to $1.7 million for the three months ended December 31, 2021, partially driven by increased capitalized software costs as more time was spent on internal software development in the current quarter as compared to the same period in the prior year. In addition, there was a $0.4 million reduction in stock compensation expense compared to the prior year.

General and Administrative

General and administrative expense decreased $4.0 million, or 47%, to $4.5 million for the three months ended December 31, 2022, as compared to $8.6 million for the three months ended December 31, 2021, largely due to a decrease in share-based compensation of $3.2 million and salaries of $1.2 million, partially driven by the reduction of corporate personnel. In addition, the Company recorded credits as a result of settling accrued expenses with certain vendors.

9

Amortization of Intangible Assets

Amortization of intangible assets decreased $0.2 million, or 12%, to $1.3 million for the three months ended December 31, 2022, as compared to $1.5 million for the three months ended December 31, 2021, as there were no significant changes to the intangible asset balances year over year.

Total Other Expense

Total other expense was as follows (in thousands):

|  | Three Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Total other expense |  | $ | (1,963 | ) |  | $ | (1,863 | ) |  |  | 5 | %

Total other expense increased $0.1 million, or 5%, to $2.0 million expense for the three months ended December 31, 2022, as compared to $1.9 million expense for the three months ended December 31, 2021. The increase is primarily attributed to interest expense attributed to accretion of interest on our debt discounts and change in fair value of warrants and derivatives primarily related to the PC1 Bridge Loan.

Nine Months Ended December 31, 2022, as compared to Nine Months Ended December 31, 2021

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, |
|  | 2022 |  |  | 2021 |
Revenue: |  | $ | 74,063 |  |  | $ | 93,586 |
Operating expenses: |  |  |  |  |  |  |  |
Cost of sales |  |  | 48,487 |  |  |  | 74,654 |
Sales and marketing |  |  | 6,334 |  |  |  | 10,814 |
Product development |  |  | 3,892 |  |  |  | 5,990 |
General and administrative |  |  | 11,220 |  |  |  | 27,173 |
Impairment of intangible assets |  |  | 1,356 |  |  |  | - |
Amortization of intangible assets |  |  | 4,098 |  |  |  | 4,547 |
Total operating expenses |  |  | 75,387 |  |  |  | 123,178 |
Loss from operations |  |  | (1,324 | ) |  |  | (29,592 | )
Other income (expense): |  |  |  |  |  |  |  |
Interest expense, net |  |  | (5,793 | ) |  |  | (3,180 | )
Forgiveness of PPP loans |  |  | - |  |  |  | 2,511 |
Loss on extinguishment of debt |  |  | - |  |  |  | (4,321 | )
Other income (expense) |  |  | 2,523 |  |  |  | (528 | )
Total other expense, net |  |  | (3,270 | ) |  |  | (5,518 | )
Loss before provision for (benefit from) income taxes |  |  | (4,594 | ) |  |  | (35,110 | )
Provision for (benefit from) income taxes |  |  | 15 |  |  |  | (32 | )
Net loss |  | $ | (4,609 | ) |  | $ | (35,078 | )
Net loss per share – basic and diluted |  | $ | (0.05 | ) |  | $ | (0.45 | )
Weighted average common shares – basic and diluted |  |  | 84,009,003 |  |  |  | 77,670,598 |

10

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

|  | Nine Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Depreciation expense |  |  |  |  |  |  |  |  |
Cost of sales |  | $ | 85 |  |  | $ | 42 |  |  |  | 102 | %
Sales and marketing |  |  | 144 |  |  |  | 119 |  |  |  | 21 | %
Product development |  |  | 1,903 |  |  |  | 2,032 |  |  |  | -6 | %
General and administrative |  |  | 642 |  |  |  | 499 |  |  |  | 29 | %
Total depreciation expense |  | $ | 2,774 |  |  | $ | 2,692 |  |  |  | 3 | %

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

|  | Nine Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Stock-based compensation expense |  |  |  |  |  |  |  |  |
Cost of sales |  | $ | 836 |  |  | $ | 610 |  |  |  | 37 | %
Sales and marketing |  |  | 72 |  |  |  | 1,794 |  |  |  | -96 | %
Product development |  |  | 267 |  |  |  | 258 |  |  |  | 3 | %
General and administrative |  |  | 1,731 |  |  |  | 9,397 |  |  |  | -82 | %
Total stock-based compensation expense |  | $ | 2,906 |  |  | $ | 12,059 |  |  |  | -76 | %

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

|  | Nine Months Ended December 31, |
|  | 2022 |  |  | 2021 |
Revenue |  |  | 100 | % |  |  | 100 | %
Operating expenses |  |  |  |  |  |  |  |
Cost of sales |  |  | 65 | % |  |  | 80 | %
Sales and marketing |  |  | 9 | % |  |  | 12 | %
Product development |  |  | 5 | % |  |  | 6 | %
General and administrative |  |  | 15 | % |  |  | 29 | %
Impairment of intangibles assets |  |  | 2 | % |  |  | - | %
Amortization of intangible assets |  |  | 6 | % |  |  | 5 | %
Total operating expenses |  |  | 102 | % |  |  | 132 | %
Loss from operations |  |  | -2 | % |  |  | -32 | %
Other income (expense) |  |  | -4 | % |  |  | -6 | %
Loss before income taxes |  |  | -6 | % |  |  | -38 | %
Income tax provision |  |  | - | % |  |  | - | %
Net loss |  |  | -6 | % |  |  | -38 | %

11

Revenue

Revenue was as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Membership services |  | $ | 38,226 |  |  | $ | 29,660 |  |  |  | 29 | %
Advertising |  |  | 26,138 |  |  |  | 25,286 |  |  |  | 3 | %
Merchandising |  |  | 8,507 |  |  |  | 13,058 |  |  |  | -35 | %
Sponsorship and licensing |  |  | 389 |  |  |  | 6,498 |  |  |  | -94 | %
Ticket/Event |  |  | 803 |  |  |  | 19,084 |  |  |  | -96 | %
Total Revenue |  | $ | 74,063 |  |  | $ | 93,586 |  |  |  | -21 | %

Membership Services Revenue

Membership services revenue increased $8.6 million, or 29%, to $38.2 million during the nine months ended December 31, 2022, as compared to $29.7 million during the nine months ended December 31, 2021, which was primarily as a result of membership growth with our largest OEM customer.

Advertising Revenue

Advertising revenue increased by $0.9 million, or 3%, to $26.1 million during the nine months ended December 31, 2022, as compared to $25.3 million during the nine months ended December 31, 2021, which is primarily attributed to our growth in PodcastOne over the period.

Merchandising Revenue

Merchandising revenue decreased by $4.6 million, or 35%, to $8.5 million from $13.1 for the nine months ended December 31, 2022, as compared to the nine months ended December 31, 2021, primarily due to a reduction in demand from both retail partners and our direct to consumer business.

Sponsorship and licensing

Sponsorship and licensing revenue decreased by 94% to $0.4 million during the nine months ended December 31, 2022, as compared to $6.5 million for the nine months ended December 31, 2021, a decrease of $6.1 million, 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 current year.

Ticket/Event Revenue

Ticket/Event revenue decreased $18.3 million, or 96%, to $0.8 million for the nine months ended December 31, 2022, as compared to $19.1 million for the nine months ended December 31, 2021.The decrease was due to PPV and Spring Awakening Music Festival ticket fees along with production revenues earned related to the Social Gloves event held during the nine months ended December 31, 2022 with no comparable event held during the current year comparable period.

12

Cost of Sales

Cost of sales was as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Membership |  | $ | 21,264 |  |  | $ | 19,194 |  |  |  | 11 | %
Advertising |  |  | 21,803 |  |  |  | 23,203 |  |  |  | -6 | %
Production and Ticketing |  |  | (524 | ) |  |  | 23,706 |  |  |  | -102 | %
Merchandising |  |  | 5,944 |  |  |  | 8,551 |  |  |  | -30 | %
Total Cost of Sales |  | $ | 48,487 |  |  | $ | 74,654 |  |  |  | -35 | %

Membership

Membership cost of sales increased $2.1 million, or 11%, to $21.3 million for the nine months ended December 31, 2022, as compared to $19.2 million for the nine months ended December 31, 2021. The increase was in line with the higher membership revenues noted above.

Advertising

Advertising cost of sales decreased $1.4 million, or 6%, to $21.8 million for the nine months ended December 31, as compared to $23.2 million for the nine months ended December 31, 2021. The decrease was primarily attributed to a reduction in revenue share paid to partners.

Production and Ticketing

Production cost of sales decreased $24.2 million, or 102%, to a credit of $0.5 million for the nine months ended December 31, 2022, as compared to $23.7 million for the nine months ended December 31, 2021. The decrease was primarily due to production costs of approximately $6.2 million related to the Social Gloves event held during the nine months ended December 31, 2021 along with a reduction in the number of events in the current period compared to the prior year. In addition, the Company settled past amounts owed for vendors, therefore credits were recorded during the current period.

Merchandising

Merchandising cost of sales decreased $2.6 million, or 30%, from $5.9 for the nine months ended December 31, 2022, as compared to $8.6 million for the nine months ended December 31, 2021 which is line with the revenue reduction noted above.

Other Operating Expenses

Other operating expenses were as follows (in thousands):

|  | Nine Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Sales and marketing expenses |  | $ | 6,334 |  |  | $ | 10,814 |  |  |  | -41 | %
Product development |  |  | 3,892 |  |  |  | 5,990 |  |  |  | -35 | %
General and administrative |  |  | 11,220 |  |  |  | 27,173 |  |  |  | -59 | %
Impairment of intangibles |  |  | 1,356 |  |  |  | - |  |  |  | 100 | %
Amortization of intangible assets |  |  | 4,098 |  |  |  | 4,547 |  |  |  | -10 | %
Total Other Operating Expenses |  | $ | 26,900 |  |  | $ | 48,524 |  |  |  | -45 | %

Sales and Marketing Expenses

Sales and marketing expenses decreased $4.5 million, or 41%, to $6.3 million for the nine months ended December 31, 2022, as compared to $10.8 million for the nine months ended December 31, 2021. The decrease was largely due to lower salaries and wages of $2.0 million and stock-based compensation of $2.5 million along with reduced marketing spend driven by less events in the current year period.

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Product Development

Product development expenses decreased $2.1 million, or 35%, to $3.9 million for the nine months ended December 31, 2022, as compared to $6.0 million for the nine months ended December 31, 2021. The decrease was primarily due to headcount reductions.

General and Administrative

General and administrative expenses decreased $15.9 million, or 59%, to $10.8 million for the nine months ended December 31, 2022, as compared to $27.2 million for the nine months ended December 31, 2021. The decrease was largely due to a decrease in share-based compensation of $7.7 million and salaries and benefits of $8.3 million, primarily driven by the reduction of corporate personnel.

Impairment of Intangible Assets

Impairment of intangible assets increased $1.4 million, or 100%, to $1.4 million for the three months ended December 31, 2022, as compared to none for the nine months ended December 31, 2021, which is attributed to the impairment of intangible assets of React Presents acquisition, see Note 6 – Goodwill and Intangible Assets.

Amortization of Intangible Assets

Amortization of intangible assets decreased by $0.4 million, or 10%, to $4.1 million for the nine months ended December 31, 2022, as compared to $4.5 million for the nine months ended December 31, 2021. The increase can be attributed to changes to the intangible assets year over year for the Gramophone acquisition.

Total Other Expense, net

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

|  | Nine Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Total other expense, net |  | $ | (3,270 | ) |  | $ | (5,518 | ) |  |  | -41 | %

Total other expense, net decreased $2.2 million, or 41%, to $3.3 million for the nine months ended December 31, 2022, as compared to $5.5 million expense for the nine months ended December 31, 2021. The decrease was due to an increase in other income of $3.8 million from the prior year period as a result of the settlement of an acquisition earnout in the current period partially offset by increased interest expense primarily attributable to accretion of interest on our debt discounts related to the PC1 Bridge loan in the current period.

Non-GAAP Measures

Contribution Margin

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

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure that we define as net 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 and intangible asset 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 that we define as the ratio of Adjusted EBITDA to Revenue.

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The following table sets forth the reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure for the three and nine months ended December 31, 2022 and 2021 (in thousands):

|  | Net Income (Loss) |  |  | Depreciation and Amortization |  |  | Stock-Based Compensation |  |  | Non- Recurring Acquisition and Realignment Costs |  |  | Other (Income) Expense |  |  | (Benefit) Provision for Taxes |  |  | Adjusted EBITDA |
Three Months Ended December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations - Audio |  | $ | 205 |  |  | $ | 2,170 |  |  | $ | 348 |  |  | $ | 606 |  |  | $ | 1,774 |  |  | $ | - |  |  | $ | 5,103 |
Operations - Other |  |  | (600 | ) |  |  | 239 |  |  |  | 78 |  |  |  | (175 | ) |  |  | (265 | ) |  |  | 11 |  |  |  | (712 | )
Corporate |  |  | (2,153 | ) |  |  | 6 |  |  |  | 296 |  |  |  | 73 |  |  |  | 454 |  |  |  | - |  |  |  | (1,324 | )
Total |  | $ | (2,548 | ) |  | $ | 2,415 |  |  | $ | 722 |  |  | $ | 504 |  |  | $ | 1,963 |  |  | $ | 11 |  |  | $ | 3,067 |
Three Months Ended December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations - Audio |  | $ | 1,218 |  |  | $ | 2,181 |  |  | $ | 2 |  |  | $ | 43 |  |  | $ | 264 |  |  | $ | - |  |  | $ | 3,708 |
Operations - Other |  |  | (5,604 | ) |  |  | 254 |  |  |  | 266 |  |  |  | 32 |  |  |  | 5 |  |  |  | (41 | ) |  |  | (5,088 | )
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 | )

|  | Net Income (Loss) |  |  | Depreciation and Amortization |  |  | Stock-Based Compensation |  |  | Non- Recurring Acquisition and Realignment Costs |  |  | Other (Income) Expense |  |  | (Benefit) Provision for Taxes |  |  | Adjusted EBITDA |
Nine Months Ended December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations - Audio |  | $ | 5,473 |  |  | $ | 6,267 |  |  | $ | 1,422 |  |  | $ | 862 |  |  | $ | 991 |  |  | $ | - |  |  | $ | 15,015 |
Operations - Other |  |  | (4,056 | ) |  |  | 2,097 |  |  |  | 247 |  |  |  | (146 | ) |  |  | 130 |  |  |  | 27 |  |  |  | (1,701 | )
Corporate |  |  | (6,026 | ) |  |  | 17 |  |  |  | 1,237 |  |  |  | (1,244 | ) |  |  | 2,149 |  |  |  | (12 | ) |  |  | (3,879 | )
Total |  | $ | (4,609 | ) |  | $ | 8,381 |  |  | $ | 2,906 |  |  | $ | (528 | ) |  | $ | 3,270 |  |  | $ | 15 |  |  | $ | 9,435 |
Nine Months Ended December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operations - Audio |  | $ | (5,314 | ) |  | $ | 6,490 |  |  | $ | 2,543 |  |  | $ | 150 |  |  | $ | 668 |  |  | $ | - |  |  | $ | 4,537 |
Operations - Other |  |  | (5,228 | ) |  |  | 714 |  |  |  | 1,053 |  |  |  | 279 |  |  |  | (333 | ) |  |  | (41 | ) |  |  | (3,556 | )
Corporate |  |  | (24,536 | ) |  |  | 26 |  |  |  | 8,463 |  |  |  | 1,219 |  |  |  | 5,183 |  |  |  | 9 |  |  |  | (9,636 | )
Total |  | $ | (35,078 | ) |  | $ | 7,240 |  |  | $ | 12,059 |  |  | $ | 1,648 |  |  | $ | 5,518 |  |  | $ | (32 | ) |  | $ | (8,655 | )

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The following table sets forth the reconciliation of Contribution Margin to Revenue, the most comparable GAAP financial measure for the three and nine months ended December 31, 2022 and 2021 (in thousands):

|  | Three Months Ended December 31, |
|  | 2022 |  |  | 2021 |
Revenue: |  | $ | 27,309 |  |  | $ | 32,895 |
Less: |  |  |  |  |  |  |  |
Cost of sales |  |  | (19,362 | ) |  |  | (27,666 | )
Amortization of developed technology |  |  | (964 | ) |  |  | (964 | )
Gross Profit |  |  | 6,983 |  |  |  | 4,265 |
Add back amortization of developed technology: |  |  | 964 |  |  |  | 964 |
Contribution Margin |  | $ | 7,947 |  |  | $ | 5,229 |

|  | Nine Months Ended December 31, |
|  | 2022 |  |  | 2021 |
Revenue: |  | $ | 74,063 |  |  | $ | 93,586 |
Less: |  |  |  |  |  |  |  |
Cost of sales |  |  | (48,487 | ) |  |  | (74,654 | )
Amortization of developed technology |  |  | (2,892 | ) |  |  | (2,892 | )
Gross Profit |  |  | 22,684 |  |  |  | 16,040 |
Add back amortization of developed technology: |  |  | 2,892 |  |  |  | 2,892 |
Contribution Margin |  | $ | 25,576 |  |  | $ | 18,932 |

Business Segment Results

Three Months Ended December 31, 2022, as compared to Three Months Ended December 31, 2021

Audio Group Operations

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

|  | Three Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Revenue |  | $ | 21,952 |  |  | $ | 19,084 |  |  |  | 15 | %
Cost of Sales |  |  | 15,932 |  |  |  | 13,109 |  |  |  | 22 | %
Sales & Marketing, Product Development and G&A |  |  | 3,945 |  |  |  | 3,761 |  |  |  | 5 | %
Intangible Asset Amortization |  |  | 1,211 |  |  |  | 1,330 |  |  |  | -9 | %
Operating Income (Loss) |  |  | 864 |  |  |  | 884 |  |  |  | -2 | %
Operating Margin |  |  | 4 | % |  |  | 5 | % |  |  | -15 | %
Adjusted EBITDA* |  | $ | 5,103 |  |  | $ | 3,708 |  |  |  | 38 | %
Adjusted EBITDA Margin* |  |  | 23 | % |  |  | 19 | % |  |  | 20 | %

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

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Revenue

Revenue increased $2.9 million, or 15%, during the three months ended December 31, 2022, primarily due to increased membership revenue as a result of increased membership growth with our largest OEM customer.

Operating Income

Operating income remained constant at $0.9 million for the three months ended December 31, 2022 and 2021 as the increase in revenue was offset by the increase in cost of sales.

Adjusted EBITDA

Adjusted EBITDA increased by $1.4 million, or 38%, to $5.1 million for the three months ended December 31, 2022, as compared to $3.7 million for the three months ended December 31, 2021. This was largely due to the increased contribution margin and lower operating expenses, described above.

Media Group Operations

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

|  | Three Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Revenue |  | $ | 5,357 |  |  | $ | 13,811 |  |  |  | -61 | %
Cost of Sales |  |  | 3,430 |  |  |  | 14,765 |  |  |  | -77 | %
Sales & Marketing, Product Development and G&A |  |  | 1,538 |  |  |  | 3,758 |  |  |  | -59 | %
Intangible Asset Amortization |  |  | 132 |  |  |  | 194 |  |  |  | -32 | %
Operating Income (Loss) |  | $ | 257 |  |  | $ | (4,905 | ) |  |  | -105 | %
Operating Margin |  |  | 5 | % |  |  | -36 | % |  |  | -113 | %
Adjusted EBITDA* |  | $ | (712 | ) |  | $ | (5,088 | ) |  |  | -86 | %
Adjusted EBITDA Margin* |  |  | -13 | % |  |  | -37 | % |  |  | -64 | %

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

Revenue

Revenue decreased $8.5 million, or 61%, to $5.4 million during the three months ended December 31, 2022, as compared to $13.8 million for the three months ended December 31, 2021, primarily due to decrease in events which took place in the prior year including the Spring Awakening Music Festival.

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Operating Loss

Operating loss decreased by $5.2 million to income of $0.3 million for the three months ended December 31, 2022 from a loss of $4.9 million for the three months ended December 31, 2021, as a result of the decrease in revenue being offset by the decrease in expenses due to a reduction in staff and credits due to settlements of payables made during the quarter.

Adjusted EBITDA

Adjusted EBITDA loss decreased by $4.4 million, or 86%, to $0.7 million loss for the three months ended December 31, 2022, as compared to $5.1 million loss for the three months ended December 31, 2021. This was largely due to the increased contribution margin and lower operating expenses, described above.

Corporate expense

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

|  | Three Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Sales & Marketing, Product Development and G&A |  | $ | 1,694 |  |  | $ | 5,946 |  |  |  | -72 | %
Operating Loss |  | $ | (1,694 | ) |  | $ | (5,946 | ) |  |  | -72 | %
Operating Margin |  |  | N/A |  |  |  | N/A |  |  |  | N/A | %
Adjusted EBITDA* |  | $ | (1,324 | ) |  | $ | (3,454 | ) |  |  | -62 | %

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

Operating Loss

Operating loss decreased $4.3 million, or 72%, to $1.7 million for the three months ended December 31, 2022, as compared to $5.9 million for the three months ended December 31, 2021 largely as a result of decreased salaries and wages of $1.4 million due to the reduction of corporate personnel and increased stock-based compensation of $3.3 million.

Adjusted EBITDA

Adjusted EBITDA increased $2.1 million, or 62%, to a loss of $1.3 million for the three months ended December 31, 2022, as compared to a loss of $3.5 million for three months ended December 31, 2021. The increase was largely due to the decrease in cash based operating costs related to salaries and wages.

Nine Months Ended December 31, 2022 as compared to Nine Months Ended December 31, 2021

Audio Group Operations

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

|  | Nine Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Revenue |  | $ | 63,939 |  |  | $ | 54,778 |  |  |  | 17 | %
Cost of Sales |  |  | 43,067 |  |  |  | 40,403 |  |  |  | 7 | %
Sales & Marketing, Product Development and G&A |  |  | 11,976 |  |  |  | 12,212 |  |  |  | -2 | %
Intangible Asset Amortization |  |  | 3,639 |  |  |  | 3,989 |  |  |  | -9 | %
Operating Income (Loss) |  |  | 5,257 |  |  |  | (1,826 | ) |  |  | 388 | %
Operating Margin |  |  | 8 | % |  |  | -3 | % |  |  | 347 | %
Adjusted EBITDA* |  | $ | 15,015 |  |  | $ | 4,537 |  |  |  | 231 | %
Adjusted EBITDA Margin* |  |  | 23 | % |  |  | 8 | % |  |  | 184 | %

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

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Revenue

Revenue increased $9.2 million, or 17%, during the nine months ended December 31, 2022, primarily due to increased membership revenue of $8.0 million as a result of membership growth with our largest OEM customer, an increase in advertising revenue of $1.2 million as a result of slowing growth.

Operating Income

Operating income increased $7.1 million, or 388%, to $5.3 million for the nine months ended December 31, 2022, as compared to a loss of $1.8 million for the nine months ended December 31, 2021, as a result of the $6.3 million increase in revenue as noted above offset by a decrease in expense as a result of credits earned through settlements of amounts owed to vendors and reductions in salaries.

Adjusted EBITDA

Adjusted EBITDA increased by $10.5 million, or 231%, to $15.0 million for the nine months ended December 31, 2022, as compared to $4.5 million for the nine months ended December 31, 2021. This was largely due to the increased contribution margin and lower operating expenses, described above.

Media Group Operations

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

|  | Nine Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Revenue |  | $ | 10,124 |  |  | $ | 38,808 |  |  |  | -74 | %
Cost of Sales |  |  | 5,420 |  |  |  | 34,461 |  |  |  | -84 | %
Sales & Marketing, Product Development and G&A |  |  | 5,606 |  |  |  | 12,510 |  |  |  | -55 | %
Intangible Asset Amortization |  |  | 1,815 |  |  |  | 558 |  |  |  | 225 | %
Operating Income (Loss) |  |  | (2,717 | ) |  |  | (8,720 | ) |  |  | -69 | %
Operating Margin |  |  | -27 | % |  |  | -22 | % |  |  | -19 | %
Adjusted EBITDA* |  | $ | (1,701 | ) |  | $ | (3,556 | ) |  |  | 52 | %
Adjusted EBITDA Margin* |  |  | -17 | % |  |  | -9 | % |  |  | 83 | %

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

Revenue

Revenue decreased $28.7 million, or 74%, during the nine months ended December 31, 2022, as compared to $38.8 million for the nine months ended December 31, 2021, primarily due to a reduction in the number of events held compared to the prior year period, including Social Gloves and Spring Awakening Music Festival. There was also a reduction demand from both retail partners and our direct to consumer business which impacted our merchandise compared to the prior year.

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Operating Loss

Operating loss decreased by $6.0 million, or 69%, to $2.7 million during the nine months ended December 31, 2022, as compared to a $8.7 million loss for the nine months ended December 31, 2021, as a result of the decreased contribution margin compared to the prior year period partially offset by decreases in expenses due to a reduction in staff and credits due to settlements of payables made during the nine months compared to the prior year.

Adjusted EBITDA

Adjusted EBITDA increased by $1.9 million, or 52%, to a loss of $1.7 million loss for the three months ended December 31, 2022, as compared to $3.6 million for the nine months ended December 31, 2021. This was largely due to the decrease in contribution margin offset by lower operating expenses, described above.

Corporate expense

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

|  | Nine Months Ended December 31, |  |  |  |
|  | 2022 |  |  | 2021 |  |  | % Change |
Sales & Marketing, Product Development and G&A |  | $ | 3,864 |  |  | $ | 19,046 |  |  |  | -80 | %
Operating Loss |  | $ | (3,864 | ) |  | $ | (19,046 | ) |  |  | -80 | %
Operating Margin |  |  | N/A |  |  |  | NA |  |  |  | N/A | %
Adjusted EBITDA* |  | $ | (3,879 | ) |  | $ | (9,636 | ) |  |  | 60 | %

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

Operating Loss

Operating loss decreased $15.2 million, or 80%, to $3.9 million for the nine months ended December 31, 2022, as compared to $19.0 million for the nine months ended December 31, 2021 largely as a result of decreased salaries and wages of $3.4 million due to the reduction of corporate personnel, a reduction of $3.2 million in legal and accounting fees and a decrease in stock-based compensation of $6.6 million.

Adjusted EBITDA

Adjusted EBITDA increased $5.8 million, or 60%, to a loss of $3.9 million for the nine months ended December 31, 2022, as compared to a loss of $9.6 million for nine months ended December 31, 2021. The increase was largely due to the decrease in cash based operating costs related to salaries and wages.

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Liquidity and Capital Resources

Current Financial Condition

As of December 31, 2022, our principal sources of liquidity were our cash and cash equivalents, including restricted cash balances in the amount of $8.5 million, which primarily are invested in cash in banking institutions in the U.S. The vast majority of our cash proceeds were received as a result of the issuance of our convertible notes since 2014, 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 12 – Senior Secured Revolving Line of Credit to our condensed consolidated financial statements) and drew down aggregate advance amounts of $7.0 million. In July 2022, PodcastOne completed the PC1 Bridge Loan (as defined below) raising gross proceeds of $8,035,000, of which we purchased $3,000,000 of (excluding the OID (as defined below)). As of December 31, 2022, we had notes payable balance of $0.5 million, $5.9 million in aggregate principal amount of unsecured convertible notes, secured convertible notes with aggregate principal balances of $15.0 million, $5.8 million PC1 Bridge Loan and a senior secured revolving credit facility with a principal balance of $7.0 million.

As reflected in our condensed consolidated financial statements included elsewhere in this Quarterly Report, we have an accumulated deficit of $218.5 million and cash used of $4.6 million from operating activities for the nine months ended December 31, 2022 and had a working capital deficiency of $19.7 million as of December 31, 2022. 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.

Sources of Liquidity

In July 2022, PodcastOne completed a private placement offering (the “PC1 Bridge Loan”) of its unsecured convertible notes with an original issue discount of 10% (the “OID”) in the aggregate principal amount of $8,838,500 (the “PC1 Notes”) to certain accredited investors and institutional investors (collectively, the “Purchasers”), for gross proceeds of $8,035,000 pursuant to the Subscription Agreements entered into with the Purchasers. In connection with the sale of the PC1 Notes, the Purchasers received warrants (the “PC1 Warrants”) to purchase a number of shares of PodcastOne’s common stock, par value $0.00001 per share (See Note 9 – PodcastOne Bridge Loan). As part of the PC1 Bridge Loan, we purchased $3,000,000 (excluding the OID) worth of PC1 Notes.

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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, and 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 members 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, notes, 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 new universal shelf Registration Statement on Form S-3 (the “New Shelf S-3”) with the SEC, which was declared effective by the SEC on February 17, 2022. Under the New Shelf S-3, we have the ability to raise up to $150.0 million in cash from the sale of our 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, 2022 and 2021 (in thousands):

|  | Nine Months Ended December 31, |
|  | 2022 |  |  | 2021 |
Net cash used in operating activities |  | $ | (4,624 | ) |  | $ | (10,226 | )
Net cash used in investing activities |  |  | (2,049 | ) |  |  | (3,122 | )
Net cash provided by financing activities |  |  | 2,012 |  |  |  | 7,234 |
Net change in cash, cash equivalents and restricted cash |  | $ | (4,661 | ) |  | $ | (6,114 | )

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Cash Flows Used In Operating Activities

For the nine months ended December 31, 2022

Net cash used in our operating activities of $4.6 million primarily resulted from our net loss during the period of ($4.6) million, which included non-cash charges of $3.4 million largely comprised of depreciation and amortization, stock-based compensation, write-off of accrued expenses, impairment charges and changes in fair values of derivatives. The remainder of our sources of cash used in operating activities of $(3.5) 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, 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 notes. 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.

Cash Flows Used In Investing Activities

For the nine months ended December 31, 2022

Net cash used in investing activities of $2.0 million was primarily due to the $2.0 million cash used for the purchase of fixed assets and $0.01 million capitalized internally developed software costs during the nine months ended December 31, 2022.

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.

Cash Flows Provided by Financing Activities

For the nine months ended December 31, 2022

Net cash provided by financing activities of $2.0 million was due to proceeds from our PC1 Bridge Loan of $4.4 million offset by a $1.9 million payment for treasury stock and a $0.4 million payment of a contingent consideration.

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.

Debt Covenants

As of December 31, 2022, we were in full compliance with all covenants.

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 our Chief Executive Officer and Interim 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 Interim 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 2022 Form 10-K, our Chief Executive Officer and Interim 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

We continue to be in the process of implementing changes, as more fully described in our 2022 Form 10-K, to our internal control over financial reporting to remediate the material weaknesses as described in our 2022 Form 10-K.

There have been no changes in our internal control over financial reporting, during the quarter ended December 31, 2022 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 Interim 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.

We are from time to time, party to various legal proceedings arising out of our business. Certain legal proceedings in which we are involved are discussed in Note 16 - Commitments and Contingencies, to the condensed consolidated financial statements included elsewhere in this Quarterly Report and are incorporated herein by reference. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

Item 1A. Risk Factors.

We have set forth in Item 1A. Risk Factors in our 2022 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 2022 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 2022 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 43% of our consolidated revenue for the nine months ended December 31, 2022, and 25% of our consolidated revenue for the nine months ended December 31, 2021. 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 membership 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 membership 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 member or demands credit for past members that no longer meet such requirement, there can be no assurance that we will continue to maintain the same number of paid members or receive the same levels of membership service revenue and membership 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.

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, membership fees and other revenue streams will suffer.

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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. As of December 31, 2022, we had an accumulated deficit of $218.5 million and a working capital deficiency of $19.7 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.

Risks Related to Our Indebtedness

We may not have the ability to repay the amounts then due under our senior credit facility at maturity.

At maturity, the entire outstanding principal amount of our senior secured facility, will become due and payable by us. As of February 3, 2023, none is due in fiscal 2024 and $7.0 million of our total indebtedness is due in fiscal 2025.

Our failure to repay any outstanding amount of our senior credit facility would constitute a default under such facility. A default would increase the interest rate to the default rate under the senior credit facility or the maximum rate permitted by applicable law until such amount is paid in full. A default under the senior credit facility 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 our senior credit facility or make cash payments thereon. Furthermore, upon the occurrence and during the continuation of any event of default, the senior lender 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.

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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, 2022 was $30.2 million, net of fees and discounts, of which approximately $21.0 million was exchanged for shares of our Series A Preferred Stock in February 2023. 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 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 our senior secured lender 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.

We intend to satisfy our current and future debt service obligations with our existing cash and cash equivalents 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.

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If we do not comply with the provisions of the senior credit facility, our lender may terminate its obligations to us, accelerate its debt and require us to repay all outstanding amounts owed thereunder.

The senior credit facility contains 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). If an event of default occurs and is continuing, the lender may among other things, terminate its obligations thereunder, accelerate its debt and require us to repay all amounts thereunder. For example, on October 13, 2022, a judgement was ordered in favor of SoundExchange, Inc. (“SX”) against us and Slacker in the United States District Court Central District of California in the amount of approximately $9.8 million. On October 13, 2022, the court entered a judgment against the defendants for the amount of $9,765,396.70. In February 2023, we settled the dispute as described in Note 21 – Subsequent Events. Our debt agreements with the provider of the senior credit facility contains a covenant that if a material adverse change occurs in our financial condition, or such lender reasonably believes the prospect of payment or performance of their loan is materially impaired, the lender at its option may immediately accelerate its debt and require us to repay all outstanding amounts owed thereunder. If for any reason we fail to comply with the terms of our settlement agreement with SX, our senior credit facility provider may declare an event of default and at its option may immediately accelerate its debt and require us to repay all outstanding amounts owed under the senior credit facility, which would materially adversely impact our business, operating results and financial condition. As of December 31, 2022, we were in full compliance with these debt covenants.

Risks Related to Our Company

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

To secure the rights to stream sound recordings and the musical compositions embodied therein, we enter into license agreements to obtain licenses from rights holders such as record labels, aggregators, artists, music publishers, performing rights organizations, collecting societies and other copyright owners or their agents, and pay substantial royalties or other consideration to such parties or their agents around the world. Though we work diligently in our 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 us now will continue to be available in the future at rates and on terms that are favorable or commercially reasonable or at all. The terms of these licenses, including the royalty rates that we are required to pay pursuant to them, may change as a result of changes in our bargaining power, changes in the industry, changes in the laws and regulations, or for other reasons. Increases in royalty rates or changes to other terms of these licenses may materially impact our business, operating results, and financial condition.

We enter 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, such as Universal Music Group, Sony Music Entertainment, Warner Music Group and SoundExchange, as well as others. If we fail to obtain these licenses, the size and quality of its catalog may be materially impacted and its business, operating results and financial condition could be materially harmed.

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

In the United States, public performance rights are generally obtained through intermediaries known as performing rights organizations (“PROs”), which negotiate blanket licenses with copyright users for the public performance of compositions in their repertory, collect royalties under such licenses, and distribute those royalties to copyright owners. The royalty rates available to Slacker today may not be available to it in the future. Licenses provided by two of these PROs, the American Society of Composers, Authors and Publishers (“ASCAP”) and Broadcast Music, Inc. (“BMI”), cover the majority of the music we stream and are governed by consent decrees relating to decades old litigations. In 2019, the U.S. Department of Justice indicated that it was formally reviewing the relevance and need of these consent decrees. Changes to the terms of or interpretation of these consent decrees up to and including the dissolution of the consent decrees, could affect our ability to obtain licenses from these PROs on reasonable terms, which could harm its business, operating results, and financial condition. In addition, an increase in the number of compositions that must be licensed from PROs that are not subject to the consent decrees, or from copyright owners that have withdrawn public performance rights from the PROs, could likewise impede Slacker’s ability to license public performance rights on favorable terms. As of December 31, 2022, we owed $13.4 million in aggregate royalty payments to such PROs.

In other parts of the world, including Europe, Asia, and Latin America, we obtain mechanical and performance licenses for musical compositions either through local collecting societies representing publishers or from publishers directly, or a combination thereof. We 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 our 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 our 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 us to significant liability for copyright infringement.

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

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

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

We may not have the ability to pay the cash dividends or other amounts then due to the holders of our Series A Preferred Stock.

Our Series A Preferred Stock bears a dividend of 12% per annum, is perpetual and has no maturity date and is convertible at any time at the option of a holder of Series A Preferred Stock (the “Holders”) into shares of our common stock at a price of $2.10 per share of common stock. At our option, the dividend may be paid in-kind for the first 12 months after the issuance date of the Series A Preferred Stock, and thereafter, a Holder shall have the option to select whether subsequent dividend payments shall be paid in kind or in cash; provided, that as long as any Series A Preferred Stock is held by the Harvest Funds, Trinad Capital shall receive the dividend solely in kind. We are required on or before the 18-month anniversary of the issuance date of the Series A Preferred Stock (the “Mandatory Redemption Date”), and in any event if prior to the Mandatory Redemption Date we consummate any financing transaction in which we, directly or indirectly, raise, in aggregate, gross proceeds of more than $20 million of new capital, to purchase $5 million in aggregate of the then outstanding shares of Series A Preferred Stock held by the Harvest Funds (the “Mandatory Redemption Amount”) at the Redemption Price.

Our failure to pay any amount due to the Holders of the Series A Preferred Stock would require us to issue an aggregate of 56,473 shares of our common stock to the Holders for each five trading days (or pro rata thereof) that such breach or default is ongoing commencing on the date that such breach or default occurred (subject to any cure period); provided, that such number of shares shall be pro rata decreased for any conversion of such Holder’s shares of Series A Preferred Stock into our common stock. We may not have sufficient funds to pay amounts due to the Holders of the Series A Preferred Stock. Our failure to pay such amount(s) may materially adversely impact our business, operating results and financial condition. Furthermore, our debt agreements with the provider of the senior credit facility contains a covenant that if a material adverse change occurs in our financial condition, or such lender reasonably believes the prospect of payment or performance of their loan is materially impaired, the lender at its option may immediately accelerate its debt and require us to repay all outstanding amounts owed thereunder. If for any reason we fail to comply with the payment terms of our Series A Preferred Stock, our senior credit facility provider may declare an event of default and at its option may immediately accelerate its debt and require us to repay all outstanding amounts owed under the senior credit facility, which would materially adversely impact our business, operating results and financial condition.

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The success of our business and operations depends, in part, on the integrity of our systems and infrastructures, as well as affiliate and third-party computer systems, Wi-Fi and other communication systems. System interruption and the lack of integration and redundancy in these systems and infrastructures may have an adverse impact on our business, financial condition and results of operations.

System interruption and the lack of integration and redundancy in the information systems and infrastructures, both of our own systems and other computer systems and of affiliate and third-party software, Wi-Fi and other communications systems service providers on which we rely, may adversely affect our ability to operate websites, process and fulfill transactions, respond to listener inquiries and generally maintain cost-efficient operations. Such interruptions could occur by virtue of natural disaster, malicious actions such as hacking or acts of terrorism or war, or human error. In addition, the loss of some or all of certain key personnel could require us to expend additional resources to continue to maintain our software and systems and could subject us to systems interruptions.

Although we maintain up to date information technology systems and network infrastructures for the operation of our businesses, techniques used to gain unauthorized access to private networks are constantly evolving, and we may be unable to anticipate or prevent unauthorized access to our systems and data.

Risks Related to Our Intended Spin-Out of PodcastOne and Slacker as Separate Public Companies and Special Dividend of PodcastOne’s Common Stock.

We may be unable to complete each of the spin-outs of PodcastOne and/or Slacker as a separate public company and related special dividend(s), and we may be unable to achieve some or all of the benefits that we expect to achieve from such spin-outs.

We believe that as a result of the intended spin-out of PodcastOne as an independent publicly-traded company (the “Spin-Out”), PodcastOne will be able to, among other things, better focus its financial and operational resources on its specific business, implement and maintain a capital structure designed to meet its specific needs, design and implement corporate strategies and policies that are targeted to its business, more effectively respond to industry dynamics and create effective incentives for its management and employees that are more closely tied to its business performance. We also believe that the Spin-Out will result in significant benefits to our Company and our stockholders as a result of unlocking the value we believe that PodcastOne has as a standalone publicly traded company. In connection with the Spin-Out, we plan to complete a special dividend of between 5% and 10% of PodcastOne’s common stock to our stockholders of record as of January 16, 2023 that are eligible to receive the special dividend (the “Special Dividend”). Other criteria to determine our stockholders eligible for the Special Dividend shall be determined and announced by us at a later date. However, we cannot assure you that we will be able to complete the Spin-Out due to many factors outside of our control.

We also announced our intent to spin-out Slacker in our fiscal year ending March 31, 2024 for similar reasons as set forth above. However, we cannot assure you that we will be able to complete such spin-out due to many factors outside of our control.

In addition, by separating from LiveOne, PodcastOne and/or Slacker may be more susceptible to market fluctuations and have less leverage with their respective talent, customers, vendors and other service providers, and PodcastOne and/or Slacker may experience other adverse events. In addition, we may be unable to achieve some or all of the benefits that we expect PodcastOne and/or Slacker to achieve as an independent company in the time we expect, if at all. The completion of the spin-out PodcastOne and Slacker and the Special Dividend will also require significant amounts of our management’s time and effort, which may divert management’s attention from operating and growing our business.

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PodcastOne’s and/or Slacker’s common stock may not be eligible for listing on any national securities exchange.

PodcastOne’s and Slacker’s common stock is not currently quoted or listed on any national securities exchange, marketplace or any other over-the-counter market, and may never be quoted or listed in the future. We intend to apply to have PodcastOne’s and Slacker’s common stock on a national securities exchange as soon as we are eligible to do so following the preparation, filing and consummation of applicable steps and documents. However, we cannot assure you that PodcastOne and/or Slacker will meet the initial listing standards of any other national securities exchange at any time in the future. In addition, even if PodcastOne and/or Slacker does obtain such a listing, there can be no assurance that it will be able to maintain such listing in the future. As a result, PodcastOne’s and/or Slacker’s investors may find it difficult to buy or sell or obtain accurate quotations for its common stock, and its shares may be less attractive for margin loans and for investment by larger financial institutions. These factors may have an adverse impact on the trading and price of our common stock.

Our Company’s, PodcastOne’s and Slacker’s debt agreements contain certain provisions requiring the consent of our senior lender and certain conditions to be satisfied in order for us to complete each of the spin-outs of PodcastOne and Slacker and the Special Dividend. If these consents are not obtained or such conditions are not satisfied, we may be in breach of such agreements, and we may not be able to consummate such spin-outs and the Special Dividend.

Our Company’s, PodcastOne’s and Slacker’s debt agreements contain certain provisions that require the consent of our senior lenders and for certain conditions to be satisfied in order for us to complete each of the spin-outs of PodcastOne and Slacker and the Special Dividend, and to determine the amount of the Special Dividend and our stockholders Special Dividend eligibility. In addition, we will be required to comply with applicable rules and regulations to consummate such spin-outs and the Special Dividend. For example, our senior lenders will need to specifically consent to the Special Dividend and the amount thereof. Furthermore, we agreed not to effect any Qualified Financing or Qualified Event (each as defined in PodcastOne’s offering documents with respect to its completed private placement of its unsecured convertible notes), as applicable, unless (i) PodcastOne’s post-money valuation at the time of the Qualified Event is at least $150 million, and (ii) immediately following such event we own no less than 66% of PodcastOne’s and Slacker’s equity, as applicable, unless in either case otherwise permitted by the written consent of the holders of the majority in principal of such notes (excluding our Company), our senior lenders and the holders of our Series A Preferred Stock, as applicable. Failure to obtain such consents on commercially reasonable and satisfactory terms, or at all, may cause us to be in breach of such agreements and we may not be able to consummate such spin-outs and the Special Dividend.

The risks described above do not necessarily comprise of all those associated with our intended spin-outs.

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 or financing 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. 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.

Conversion of our Series A Preferred Stock will dilute the ownership interest of our existing stockholders, including holders who had previously converted their convertible notes, or may otherwise depress the price of our common stock.

As of February 3, 2023, the shares of our Series A Preferred Stock are convertible into approximately 10.1 million shares of our common stock. The conversion of some or all of the shares of our Series A Preferred Stock into shares of our common stock will dilute the ownership interests of our existing stockholders. In addition, any sales in the public market of the shares of our common stock issuable upon such conversion and/or any anticipated conversion of the Series A Preferred Stock into shares of our common stock could adversely affect prevailing market prices of our common stock.

32

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

Issuance of Unregistered Securities

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

During the nine months ended December 31, 2022, we issued 2,429,859 shares of our common stock valued at $2.6 million to various consultants and vendors. We valued these shares at prices between $0.57 and $1.30 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.

During the three months ended December 31, 2022, we issued 1,579,153 restricted stock units to various employees and consultants. We valued these restricted stock units between $0.98 and $1.21 per share, the market price of our common stock on the date of issuance. The shares of our common stock underlying these awards were registered on our Registration Statements on Form S-8, filed with the SEC on August 24, 2021 and November 12, 2019.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Period |  | (a) Total number of shares (or units) purchased |  |  | (b) Average price paid per share (or unit) |  |  | (c) Total number of shares (or units) purchased as part of publicly announced plans or programs |  |  | (d) Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs |
October 1, 2022 – October 31, 2022 |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | - |
November 1, 2022 – November 31, 2022 |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | - |
December 1, 2022 – December 31, 2022 |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | - |
Total (October 1, 2022 - December 31, 2022) |  |  | - |  |  | $ | - |  |  |  | - |  |  |  | - |

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

33

Item 6. Exhibits.

Exhibit Number |  | Description
3.1 |  | Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on August 8, 2017).
3.2 |  | Certificate of Amendment to the Certificate of Incorporation of the Company, dated as of December 31, 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 December 31, 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).
4.1 |  | 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).
4.2 |  | Form of 10% Original Issue Discount Convertible Promissory Note, dated July 15, 2022, issued by PodcastOne to the purchasers thereof (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 20, 2022).
4.3 |  | Form of Warrants, dated July 15, 2022, issued by PodcastOne to the purchasers of PodcastOne’s 10% Original Issue Discount Convertible Promissory Notes, dated July 15, 2022 (Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 20, 2022).
4.4 |  | Certificate of Designation of Preferences, Rights and Limitations of Series A Perpetual Convertible Preferred Stock of the Company, dated as of February 2, 2023 (Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC February 7, 2023).
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 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 February 13, 2019).
10.4† |  | Amendment No. 2 to the Company’s 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).
10.5† |  | 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).
10.6† |  | 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).
10.7† |  | 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).
10.8† |  | Amendment No. 1 to Employment Agreement, dated as of December 14, 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).
10.9†* |  | Amendment No. 2 to Employment Agreement, dated as of December 14, 2017, between the Company and Robert Ellin.
10.10†£ |  | Employment Offer Letter, dated as of March 6, 2019, between the Company and Aaron Sullivan (Incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 29, 2022).

34

10.11† |  | Amendment No. 1 to Employment Offer Agreement, dated as of dated as of October 26, 2020 and effective as of October 1, 2020, between the Company and Aaron Sullivan. (Incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K, filed with the SEC on June 29, 2022).
10.12 |  | Stock Purchase Agreement, dated as of May 7, 2020, 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).
10.13£ |  | Securities Purchase Agreement, dated as of July 2, 2020, between the Company and the Purchaser (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 6, 2020).
10.14£ |  | 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/A, filed with the SEC on August 5, 2020).
10.15 |  | 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).
10.16 |  | 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).
10.17 |  | 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).
10.18 |  | Form of Subscription Agreement, dated as of July 15, 2022, between PodcastOne and the purchasers of PodcastOne’s 10% Original Issue Discount Convertible Promissory Notes, dated July 15, 2022 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 20, 2022).
10.19 |  | Placement Agency Agreement, dated July 15, 2022, between PodcastOne and Joseph Gunnar & Co., LLC (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 20, 2022).
10.20 |  | Exchange Agreement, dated as of February 3, 2023, between the Company and Harvest Small Cap Partners, L.P. (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC February 7, 2023).
10.21 |  | Exchange Agreement, dated as of February 3, 2023, between the Company and Harvest Small Cap Partners, Ltd. (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC February 7, 2023).
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 (embedded within the Inline XBRL document)

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

35

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, 2023 | By: | /s/ Robert S. Ellin
|  | Robert S. Ellin
|  | Chief Executive Officer and Chairman
|  | (Principal Executive Officer)
Date: February 14, 2023 | By: | /s/ Aaron Sullivan
|  | Aaron Sullivan
|  | Interim Chief Financial Officer and Executive Vice President (Interim Principal Financial Officer and Interim Principal Accounting Officer)

36

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