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PodcastOne Bridge Loan | 3 Months Ended
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Jun. 30, 2023
PodcastOne Bridge Loan [Abstract] |
PodcastOne Bridge Loan | Note 8 — 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 for the periods noted below:
|  | June 30, 2023 |
Expected dividend yield |  |  | - | %
Expected stock-price volatility |  |  | 74.20 | %
Risk-free interest rate |  |  | 4.17 | %
Simulated share price |  | $ | 2.38 |
Exercise price |  | $ | 2.24 |
|  | March 31, 2023 |
Expected dividend yield |  |  | - | %
Expected stock-price volatility |  |  | 71.50 | %
Risk-free interest rate |  |  | 4.86 | %
Simulated share price |  | $ | 2.64 |
Exercise price |  | $ | 2.64 |
Total unrealized gains of $0.6 million for warrant liabilities accounted for as derivatives have been recorded in other expense for the three months ended June 30, 2023 in the accompanying statements of operations. The fair value of the warrant liability as of June 30, 2023 was $1.2 million. The fair value of the warrant liability as of March 31, 2023 was $1.8 million. 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 for the following periods:
|  | June 30, 2023 |
Simulations |  |  | 100,000 |
Expected stock-price volatility |  |  | 41.00 | %
Risk-free interest rate |  |  | 5.27 | %
Conversion price |  | $ | 1.66 |
Stock price |  | $ | 2.39 |
|  | March 31, 2023 |
Simulations |  |  | 100,000 |
Expected stock-price volatility |  |  | 71.50 | %
Risk-free interest rate |  |  | 3.59 | %
Conversion price |  | $ | 1.78 |
Stock price |  | $ | 2.64 |
The fair value of the Redemption Liability of $0.6 million at June 30, 2023 was recorded as a derivative liability and included in other liabilities in the condensed consolidated balance sheet. The fair value of the Redemption Liability at March 31, 2023 was $1.3 million. The $0.6 million change in the fair value of the Redemption Liability derivative is recorded as an unrealized gain and included in other income in the accompanying condensed consolidated statements of operations for the three months ended June 30, 2023. 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 months ended June 30, 2023 was $1.0 million. 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 months ended June 30, 2023 was $0.1 million. There are no restrictive operational covenants associated with the PC1 Bridge Loan. During the three months ended June 30, 2023, the Company repaid $3.0 million of the PC1 Bridge Loan to third-party holders of PC1 Notes. At June 30, 2023, the outstanding principal balance was $2.8 million and unamortized discount was $0.1 million, with net balance of $2.7 million. On June 7, 2023, PodcastOne received a written notice from District 2 Capital Fund LP, in its capacity as a noteholder and noteholder agent for the Purchasers(the “Noteholders Agent”), that the Noteholder Agent alleges that an event of default has occurred with respect to the Subscription Agreements and the related PC1 Notes (the “Notice”). The Notice indicates that an event of default has occurred as a result of PodcastOne not timely making the third redemption payment by June 3, 2023 under the terms of the Notes and the Subscription Agreements (the "Payment"), which payment the Notice states the Purchasers received on June 5, 2023, and provides that as a result the Noteholders Agent has declared all outstanding indebtedness represented by the PC1 Notes (other than the Company) to be immediately due and payable at the Mandatory Default Amount (as defined in the PC1 Notes), together with all reasonable out-of-pocket expenses of collection thereof, and that beginning from June 4, 2023, the outstanding principal amount of the PC1 Notes began accruing interest at a rate per annum equal to 16%, and demands for such payments to be immediately made in full to each Purchaser (other than the Company). The Company and PodcastOne strongly disagree with the claims in the Notice that an event of default has occurred and in good faith believe that an event of default has not occurred and assert that the Payment was timely made on June 3, 2023, that no event of default has occurred or is continuing, and consequently the demand for payment in the Notice is invalid. Accordingly the Company and PodcastOne believe that no further payments are required to the Purchasers until the maturity of the PC1 Notes, subject to their earlier automatic conversion upon the closing of a Qualified Financing or Qualified Event. The Company and PodcastOne have invited the Purchasers Agent to immediately reconsider and to rescind its Notice and request for payment.

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- Definition The entire disclosure for claims held for amounts due a entity, excluding financing receivables. Examples include, but are not limited to, trade accounts receivables, notes receivables, loans receivables. Includes disclosure for allowance for credit losses. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Topic 310 -SubTopic 10 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//310-10/tableOfContent + Details
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