LiveOne, Inc 8-K/A, filed Sep 14, 2020
LiveOne, Inc. (LVO)
About this 8-K/A
LiveOne, Inc filed this 8-K/A on September 14, 2020, reporting on events of July 1, 2020.
Items reported
- Item 1.01: Entered into a material agreement
- Item 2.01: Completed an acquisition or sale of assets
- Item 3.02: Unregistered sale of equity
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 1, 2020
LIVEXLIVE MEDIA, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-38249 | 98-0657263 | ||
| (State
or other jurisdiction of incorporation) |
(Commission File Number) | (I.R.S.
Employer Identification No.) |
9200 Sunset Boulevard, Suite #1201
West Hollywood, CA 90069
(Address of principal executive offices) (Zip Code)
(310) 601-2500
(Registrant’s telephone number, including area code)
n/a
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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 | LIVX | The NASDAQ Capital Market |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Explanatory Note
On July 8, 2020, LiveXLive Media, Inc. (the “Company”) filed its Current Report on Form 8-K (the “Original Form 8-K”) with the U.S. Securities and Exchange Commission (the “SEC”) to report that LiveXLive PodcastOne, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (the “Buyer”), completed the previously announced acquisition of 100% of the issued and outstanding equity interests of Courtside Group, Inc. (d/b/a PodcastOne), a Delaware corporation (“PodcastOne”), with PodcastOne becoming a wholly owned subsidiary of the Buyer and an indirect wholly owned subsidiary of the Company, pursuant to the Stock Purchase Agreement (as defined below).
As required by Regulation S-X, this Amendment No. 1 to the Original Form 8-K (this “Current Report”) is being filed with the SEC to include (i) the (x) audited consolidated financial statements of Courtside Group, Inc. (d/b/a PodcastOne) as of, and for the fiscal year ended, December 31, 2019, and the accompanying notes, (y) unaudited consolidated financial statements of Courtside Group, Inc. (d/b/a PodcastOne) for the three months ended March 31, 2020 and 2019, and the accompanying notes, (ii) the unaudited pro forma financial information with respect to the acquisition of PodcastOne, and certain other related changes to Item 9.01 of the Original Form 8-K. Please refer to the Original Form 8-K for a summary of the acquisition and the material terms of the Stock Purchase Agreement.
Item 1.01 Entry into a Material Definitive Agreement.
On July 1, 2020 (the “Closing Date”), LiveXLive Media, Inc., a Delaware corporation (the “Company”), Courtside Group, Inc. (d/b/a PodcastOne), a Delaware corporation (“PodcastOne”), LiveXLive PodcastOne, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (the “Buyer”), stockholders of PodcastOne (the “Sellers”), and Norman Pattiz, as the representative of the Sellers (the “Sellers’ Representative”), completed the previously announced acquisition of 100% of the issued and outstanding equity interests of PodcastOne (the “Acquisition”), with PodcastOne becoming a wholly owned subsidiary of the Buyer and an indirect wholly owned subsidiary of the Company. The Acquisition was effected pursuant to the Stock Purchase Agreement, dated as of May 7, 2020, by and among the Company, PodcastOne, Buyer, the Sellers, and the Sellers’ Representative (the “Stock Purchase Agreement”). Please refer to the Original Form 8-K for a summary of the Acquisition and the material terms of the Stock Purchase Agreement.
Item 2.01 Completion of Acquisition or Disposition of Assets.
The information set forth in Item 1.01 of the Original Form 8-K is incorporated herein by reference.
Item 3.02 Unregistered Sales of Equity Securities.
The information set forth in Item 1.01 of the Original Form 8-K is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
In accordance with Item 9.01(a) of Form 8-K, (i) audited consolidated financial statements as of, and for the fiscal year ended, December 31, 2019, and the accompanying notes, and (ii) unaudited consolidated financial statements as of March 31, 2020 and for the three months ended March 31, 2020 and 2019, and the accompanying notes, are included in this Current Report as Exhibits 99.1 and 99.2, respectively.
(b) Pro Forma Financial Information.
In accordance with Item 9.01(b) of Form 8-K, the Company’s unaudited pro forma financial information with respect to the acquisition of PodcastOne is included in this Current Report as Exhibit 99.3.
(d) Exhibits.
| * | Filed herewith. |
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| LIVEXLIVE MEDIA, INC. | ||
| Dated: September 14, 2020 | By: | /s/ Robert S. Ellin |
| Name: | Robert S. Ellin | |
| Title: | Chief
Executive Officer and Chairman of the Board of Directors | |
2
Exhibit 23.1
Consent of Independent Auditor
We consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-228909) and Form S-8 (No. 333-234619) of LiveXLive Media, Inc. of our report dated March 25, 2020, relating to the consolidated financial statements of Courtside Group, Inc. (d/b/a PodcastOne), appearing in this Current Report on Form 8-K/A.
/s/ RSM US LLP
Los Angeles, California
September 14, 2020
Exhibit 99.1
Table of Contents
Courtside Group, Inc. (d/b/a PodcastOne)
Consolidated Financial Report
December 31, 2019
Board of Directors
Courtside Group, Inc.
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of Courtside Group, Inc. and its subsidiaries (d/b/a PodcastOne), which comprise the consolidated balance sheet as of December 31, 2019, the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Courtside Group, Inc. and its subsidiaries (d/b/a PodcastOne) as of December 31, 2019, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Los Angeles, California
March 25, 2020
1
Courtside Group, Inc. (d/b/a PodcastOne)
Consolidated Balance Sheet
December 31, 2019
| Assets | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | 1,443,792 | ||
| Accounts receivable, net | 5,410,173 | |||
| Other current assets | 382,047 | |||
| Total current assets | 7,236,012 | |||
| Property and equipment, net | 167,859 | |||
| Intangible assets, net | 26,760 | |||
| Total assets | $ | 7,430,631 | ||
| Liabilities and Stockholders’ Equity | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 257,701 | ||
| Accrued other expenses | 211,702 | |||
| Accrued revenue share | 2,909,503 | |||
| Accrued compensation | 136,672 | |||
| Deferred revenue | 16,512 | |||
| Total liabilities | 3,532,090 | |||
| Commitments and contingencies (Note 10) | ||||
| Stockholders’ equity: | ||||
| Common stock | 15 | |||
| Paid-in capital | 12,731,633 | |||
| Accumulated deficit | (8,833,107 | ) | ||
| Total stockholders’ equity | 3,898,541 | |||
| Total liabilities and stockholders’ equity | $ | 7,430,631 | ||
See notes to consolidated financial statements.
2
Courtside Group, Inc. (d/b/a PodcastOne)
Consolidated Statement of Operations
Year Ended December 31, 2019
| Gross revenue | $ | 27,493,552 | ||
| Agency commission | 2,087,394 | |||
| Net revenue | 25,406,158 | |||
| Operating expenses: | ||||
| General and administrative | 13,315,657 | |||
| Partner participation expense | 12,614,601 | |||
| Depreciation and amortization | 152,370 | |||
| Total operating expenses | 26,082,628 | |||
| Operating loss | (676,470 | ) | ||
| Other income: | ||||
| Other income | 72,898 | |||
| Interest income | 3,236 | |||
| Total other income | 76,134 | |||
| Loss before income taxes | (600,336 | ) | ||
| Income taxes | 13,754 | |||
| Net loss | $ | (614,090 | ) |
See notes to consolidated financial statements.
3
Courtside Group, Inc. (d/b/a PodcastOne)
Consolidated Statement of Stockholders’ Equity
Year Ended December 31, 2019
(Shares in Thousands)
| Common Stock | Paid-In | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| Balance, December 31, 2018 | 147,204 | 15 | 12,522,700 | (8,219,017 | ) | 4,303,698 | ||||||||||||||
| Net loss | - | - | - | (614,090 | ) | (614,090 | ) | |||||||||||||
| Issuance of restricted stock | - | - | 30,000 | - | 30,000 | |||||||||||||||
| Stock-based compensation | - | - | 214,933 | - | 214,933 | |||||||||||||||
| Common stock repurchased/forfeited | (120 | ) | - | (36,000 | ) | - | (36,000 | ) | ||||||||||||
| Balance, December 31, 2019 | 147,084 | $ | 15 | $ | 12,731,633 | $ | (8,833,107 | ) | $ | 3,898,541 | ||||||||||
See notes to consolidated financial statements.
4
Courtside Group, Inc. (d/b/a PodcastOne)
Consolidated Statement of Cash Flows
Year Ended December 31, 2019
| Cash flows from operating activities: | ||||
| Net loss | $ | (614,090 | ) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||
| Provision for bad debt | 128,932 | |||
| Depreciation and amortization | 152,370 | |||
| Stock-based compensation | 214,933 | |||
| Changes in: | ||||
| Accounts receivable | 465,705 | |||
| Other assets | 293,641 | |||
| Accounts payable | (105,253 | ) | ||
| Accrued other expenses | 51,683 | |||
| Accrued revenue share | (429,884 | ) | ||
| Accrued compensation | (96,431 | ) | ||
| Deferred revenue | (34,651 | ) | ||
| Net cash provided by operating activities | 26,955 | |||
| Cash flows from investing activities: | ||||
| Purchases of property and equipment | (78,471 | ) | ||
| Net cash used in investing activities | (78,471 | ) | ||
| Cash flows from financing activities: | ||||
| Repurchase of common stock | (36,000 | ) | ||
| Net cash used in financing activities | (36,000 | ) | ||
| Net change in cash and cash equivalents | (87,516 | ) | ||
| Cash and cash equivalents, beginning | 1,531,308 | |||
| Cash and cash equivalents, ending | $ | 1,443,792 | ||
| Supplemental disclosure of cash flow information: | ||||
| Cash paid during the year for: | ||||
| Income taxes | $ | 13,754 | ||
| Noncash investing activities: | ||||
| Restricted stock issued for services | $ | 30,000 | ||
See notes to consolidated financial statements.
5
Courtside Group, Inc. (d/b/a PodcastOne)
Notes to Consolidated Financial Statements
Note 1. Nature of Business
Courtside Group, Inc. (Courtside or the Company) and its wholly owned subsidiaries, Courtside, LLC and PodcastOne Sales, LLC, produce, distribute and market podcasts under the name of PodcastOne.
Note 2. Summary of Significant Accounting Policies
Basis of presentation and principles of consolidation: The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). These consolidated financial statements include the accounts of Courtside Group, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Change in accounting principle—revenue recognition: The Company adopted the amended accounting guidance for revenue recognition on January 1, 2019, using the modified retrospective transition method, which allows the Company to evaluate the impact of contract modifications as of the adoption date rather than evaluating the impact of the modifications at the time they occurred prior to the adoption date. As a result, the Company has changed its accounting policy for revenue recognition as described below. Except for the changes below, the Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements.
Under certain practical expedients elected, the Company did not disclose the amount of consideration allocated to the remaining performance obligations or an explanation of when the Company expects to recognize that amount as revenue for all reporting periods presented before January 1, 2019.
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a service to a customer, in an amount that reflects the consideration to which it expects to be entitled in exchange for those services.
Revenues presented in the consolidated financial statements are reflected on a net basis, after the deduction of advertising agency fees by the advertising agencies. The Company also evaluates when it is appropriate to recognize revenue based on the gross amount invoiced to the customer or the net amount retained by the Company if a third party is involved.
Results for the reporting period beginning after January 1, 2019, are presented under the amended accounting guidance, while prior-period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting guidance. Based upon the Company’s assessment, the impact of this guidance is not material to the Company’s financial position, results of operations, or cash flows through December 31, 2019.
Revenue: The Company recognizes revenue when or as it satisfies a performance obligation by transferring a promised service to a customer.
Podcast advertising: The Company’s primary source of revenue is podcast advertising revenue, which is recognized, net of agency commissions, when the podcast containing the advertisements is released and the performance obligation is satisfied. The Company recognizes revenue based on the Standard Broadcast Calendar that ends on the last Sunday in each reporting period. For the year ended December 31, 2019, the Company recognized revenue related to podcasts released from December 31, 2018, through December 29, 2019.
6
Courtside Group, Inc. (d/b/a PodcastOne)
Notes to Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies (Continued)
Performance-based advertising and subscription services: To a lesser extent, the Company generates revenue from performance-based advertising and subscription services. Performance-based advertising revenue is generated through the sale of banner and sponsorship advertisements. Revenue is recognized from performance-based advertising when the Company receives third-party verification reports supporting the number of actions performed in the period and the performance obligation is satisfied. For the year ended December 31, 2019, revenue from performance-based advertising was
$251,387.
Subscription services revenue is generated through the sale of a premium version of the Company’s PodcastOne service. Subscription revenue is recognized over the subscription term, which is generally less than 12 months, as the performance obligation is satisfied. For the year ended December 31, 2019, revenue from subscription services was $134,976.
Barter transactions: Periodically, the Company engages in barter transactions that exchange advertising for advertising. The Company recognizes revenue from barter transactions as its products are delivered or services are performed. The related barter expense is recognized as the products or services are utilized by the Company, the majority of which is in the same accounting period as the related barter revenue. The Company includes the value of such exchanges in both net revenue and operating expenses. The valuation of barter time is based upon the estimated fair value of the advertising time provided for the services received. For the year ended December 31, 2019, the amount included in revenues and operating expenses from barter transactions was $3,150,000.
Contract costs: Incremental costs of obtaining a contract primarily relate to sales commissions, which are included in selling, general and administrative expenses, and are generally commensurate with sales. These costs are generally expensed when incurred because the period of benefit is one year or less.
Use of estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company evaluates its estimates on an ongoing basis, including, but not limited to, those related to bad debts, barter time, asset impairments, income taxes, stock compensation expense and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.
Cash and cash equivalents: For the purpose of the consolidated statements of cash flows, the Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. There were no cash equivalents at December 31, 2019.
7
Courtside Group, Inc. (d/b/a PodcastOne)
Notes to Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies (Continued)
Accounts receivable and allowance for doubtful accounts: The Company’s accounts receivable are customer obligations due under normal trade terms, carried at face value less an allowance for doubtful accounts. The allowance is established through a provision for bad debts charged to expense. The allowance is an amount that management believes will be adequate to absorb estimated losses on existing receivables, based on an evaluation of the aging of its accounts receivable and by individual account analysis for its high-risk customers. The Company’s allowance contemplates its historical loss rate on receivables, specific customer circumstances and the current economic conditions that may affect the customer’s ability to pay. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. Recoveries of receivables previously written off are recorded to income when received.
Concentrations of credit risk: Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash balances maintained in excess of federal depository insurance limits and accounts receivable, which have no collateral or security. The majority of the Company’s customers consist of domestic advertising agency businesses. Credit is extended to customers based on an evaluation of their financial condition and other factors. The Company generally does not require collateral or other security to support domestic accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains an allowance for doubtful accounts.
The accounts maintained by the Company at financial institutions are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, the Company maintains cash at financial institutions in excess of insured limits. The Company has not experienced any losses in such accounts, and management believes it is not exposed to any significant credit risk on cash.
Significant customers: The Company’s three largest customers, in the aggregate, accounted for approximately 11% of the Company’s revenues for the year ended December 31, 2019. Amounts due from these customers represented approximately 4% of accounts receivable as of December 31, 2019.
Property and equipment: Property and equipment consist primarily of office furniture and equipment, studio equipment, computer equipment and software applications, and are stated at cost and depreciated or amortized using the straight-line method over useful lives that principally range from three to five years. Leasehold improvements are amortized over the shorter of the useful life or the term of the lease.
Intangible assets: Domain names and trademarks are initially measured based on their estimated fair values and are being amortized on a straight-line basis over a period of 15 years. Domain names and trademarks are stated at cost, net of accumulated amortization, at December 31, 2019.
Impairment of long-lived assets: The Company’s long-lived assets consist principally of property and equipment, and intangible assets. The Company reviews the carrying value of long-lived assets for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, as well as the effects of obsolescence, demand, competition and other economic factors. As of December 31, 2019, management determined that there was no impairment of its long-lived assets.
8
Courtside Group, Inc. (d/b/a PodcastOne)
Notes to Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies (Continued)
Partner participation: Certain distribution arrangements require the Company to pay its podcast partners based on a share of the advertising revenue received by the Company with respect to the partner’s podcast. Revenue share obligations are accrued when advertisements have been aired and partners are paid upon receipt of payment from the customer.
Fair value of financial instruments: The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments.
Income taxes: The Company accounts for income taxes under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
The Company records a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. The Company classifies interest and penalties recognized on uncertain tax positions as a component of tax expense.
The Company files income tax returns in the U.S. federal jurisdiction and various states. Based on the Company’s assessment of many factors, including past experience and complex judgments about future events, the Company does not currently anticipate significant changes in its uncertain tax positions over the next 12 months.
Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The income tax expense represents the taxes payable for the period and the change during the period in deferred tax assets and liabilities.
Recently issued accounting standards: In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), which requires all lessees to recognize the assets and liabilities that arise from leases, except for those leases with a term less than 12 months, in which case the lessee may elect to not recognize an asset or liability associated with the lease and may recognize the lease expense on a straight-line basis over the term of the lease. Accounting for lessors remains generally the same as under superseded Topic 840. For private companies, this ASU is effective for fiscal years beginning after December 31, 2020, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements.
9
Courtside Group, Inc. (d/b/a PodcastOne)
Notes to Consolidated Financial Statements
Note 2. Summary of Significant Accounting Policies (Continued)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities are required to apply this update on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company is currently evaluating the impact on its financial position and results of operations.
Note 3. Accounts Receivable, Net
Accounts receivable, net, consist of the following components as of December 31, 2019:
| Trade accounts receivable | $ | 5,484,468 | ||
| Miscellaneous receivables | 61,896 | |||
| Less allowance for doubtful accounts | (136,191 | ) | ||
| Total receivables, net | $ | 5,410,173 |
Details of the allowance for doubtful accounts as of December 31, 2019, are as follows:
| Balance, beginning | $ | 118,458 | ||
| Additions | 128,932 | |||
| Amounts written off | (111,199 | ) | ||
| Balance, ending | $ | 136,191 |
Note 4. Note Receivable
In 2017, as part of an executive officer’s employment agreement, the Company loaned the officer $162,000 to pay for the officer’s minimum income tax withholding required as a result of the vesting of restricted shares. The note bears interest at the rate of 1.4% per annum. The note is repayable in full with accrued interest on the sooner of the date of the officer’s employment if terminated for any reason or upon the sale of any Company stock that gave rise to the withholding obligation. The note and accrued interest were settled in full with common stock in 2018.
Note 5. Property and Equipment, Net
Property and equipment, net, consist of the following components as of December 31, 2019:
| Office furniture and equipment | $ | 109,112 | ||
| Studio equipment | 52,061 | |||
| Computer equipment and software applications | 315,959 | |||
| Leasehold improvements and other | 80,419 | |||
| 557,551 | ||||
| Less accumulated depreciation | (389,692 | ) | ||
| Property and equipment, net | $ | 167,859 |
10
Courtside Group, Inc. (d/b/a PodcastOne)
Notes to Consolidated Financial Statements
Note 5. Property and Equipment, Net (Continued)
Depreciation expense charged to operations was $149,296 for the year ended December 31, 2019.
Note 6. Intangible Assets, Net
Amounts related to finite-lived intangible assets at December 31, 2019, are as follows:
| Domain names and trademarks | $ | 44,444 | ||
| Less accumulated amortization | (17,684 | ) | ||
| Intangible assets, net | $ | 26,760 |
As of December 31, 2019, the weighted-average remaining useful life of the finite-lived intangibles is 10 years. Amortization expense for the year ended December 31, 2019, was $3,074.
Annual amortization expense related to finite-lived intangible assets for each of the succeeding fiscal years as of December 31, 2019, is as follows:
Years ending December 31:
| 2020 | $ | 3,075 | ||
| 2021 | 3,075 | |||
| 2022 | 3,075 | |||
| 2023 | 3,075 | |||
| 2024 and thereafter | 14,460 | |||
| $ | 26,760 |
Note 7. Authorized Common Stock
As of December 31, 2019, the authorized common stock of the Company consists of 200 million shares of common stock, with a par value of $0.00000001 per share, of which approximately 147 million shares are issued and outstanding, and 14 million shares of common stock are reserved for issuance relating to employment agreements between the Company and certain employees and consultants. All of the outstanding shares of common stock of the Company were duly authorized and validly issued, and are fully paid and nonassessable.
Note 8. Stock Incentive Plan
In October 2015, the Company adopted the 2015 Stock Incentive Plan (the Plan). The Plan was subsequently amended pursuant to approval of the Board of Directors of the Company in July 2016 to increase the number of options available for issuance under the Plan. The Plan was organized to offer selected service providers the opportunity to acquire equity in the Company through awards of stock options, which may constitute incentive stock options or nonstatutory stock options, and the award or sale of restricted stock.
11
Courtside Group, Inc. (d/b/a PodcastOne)
Notes to Consolidated Financial Statements
Note 8. Stock Incentive Plan (Continued)
As of December 31, 2019, the Company was authorized to issue up to 14.1 million shares as equity awards to selected service providers under the Plan. As of December 31, 2019, there were 407,500 shares available for grant under the Plan. The amount and term of grants are determined by the Company’s Board of Directors. Option awards are generally granted with an exercise price determined by the Board of Directors to be equal to the market price of the Company’s stock at the date of grant. The term of the options may be up to 10 years. Options may be exercised in whole or in part. Vesting terms of the options include immediately vesting, ratable vesting over a specific period, cliff vesting or performance conditions.
Stock options: During the year ended December 31, 2019, options to acquire 11.2 million shares of common stock were issued with an exercise price of $0.30 per share, of which options to acquire 7.0 million shares of common stock vest ratably over a specific period and options to acquire 4.2 million shares of common stock vest based on performance conditions that were not met in 2019. Options vest from 2020 through January 2024.
The following summarizes the stock option activity of the Plan for the year ended December 31, 2019:
| Option to Purchase Common Stock | Weighted- Average Exercise Price | Weighted-
Average Remaining Contractual Term (Years) | ||||||||||
| Outstanding at December 31, 2018 | 2,585,000 | $ | 0.25 | |||||||||
| Granted | 11,200,000 | 0.30 | ||||||||||
| Forfeited/canceled | (130,000 | ) | 0.30 | |||||||||
| Exercised | - | - | ||||||||||
| Outstanding at December 31, 2019 | 13,655,000 | $ | 0.29 | 8.5 | ||||||||
| Exercisable at December 31, 2019 | 263,000 | $ | 0.30 | 6.4 | ||||||||
The grant-date fair value of each option award is estimated on the date of grant using the Black-Scholes- Merton option-pricing model. The Company uses Company-specific historical data to estimate the expected term of the option. Since the Company’s shares are not publicly traded and its shares are rarely traded privately, expected volatility is estimated based on the average historical volatility of similar entities with publicly traded shares. The risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve at the date of grant.
The range of assumptions used and the resulting weighted-average fair value of options granted during 2019 at the dates of grant were as follows: risk-free interest rate at 1.7%, expected term of five years, estimated volatility at 60%, expected dividends at 0% and forfeiture rate of 30%. The weighted-average fair value of options granted was $0.13 for the year ended December 31, 2019.
Stock compensation expense was $191,933 for the year ended December 31, 2019, and is recorded in operating expenses on the consolidated statement of operations.
At December 31, 2019, there was approximately $572,000 of total unrecognized compensation cost related to unvested stock options granted under the Plan, which is expected to be recognized over a weighted-average period of 3.5 years.
12
Courtside Group, Inc. (d/b/a PodcastOne)
Notes to Consolidated Financial Statements
Note 8. Stock Incentive Plan (Continued)
Restricted stock: As of December 31, 2019, the Company authorized the issuance of 5.9 million shares of common stock as restricted stock under the Plan. The shares issued are subject to restrictions on transfer, rights of repurchase by the Company and certain other conditions. During the restriction period, Plan participants are entitled to vote and receive dividends on such shares. Upon authorization of the shares, deferred compensation expense equivalent to the market value of the shares on the date of grant is charged to stockholders’ equity and then amortized to compensation expense over the vesting periods, which may range from immediately to over a period of up to five years. Upon vesting, recipients are permitted to surrender shares to the Company to cover minimum income tax withholding obligations.
Of the 5.9 million restricted shares issued, 0.5 million shares vested in 2019. There were no unvested shares at December 31, 2019. During the year ended December 31, 2019, the Company repurchased 0.1 million shares to cover minimum income tax withholding obligations.
The compensation cost that has been charged against income was $23,000 for the year ended December 31, 2019.
Note 9. Income Taxes
Income tax expense for the year ended December 31, 2019, consists of the following:
| Current: | ||||
| Federal | $ | - | ||
| State | 13,754 | |||
| 13,754 | ||||
| Deferred: | ||||
| Federal | - | |||
| State | - | |||
| - | ||||
| Income tax expense | $ | 13,754 | ||
The Company’s deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
Deferred tax assets (liabilities):
| Allowance for doubtful accounts | $ | 30,000 | ||
| Stock compensation | 54,000 | |||
| Net operating loss | 1,460,000 | |||
| Intangible assets | 1,000 | |||
| Property and equipment | 6,000 | |||
| Other | 14,000 | |||
| 1,565,000 | ||||
| Valuation allowance | (1,565,000 | ) | ||
| Net deferred tax | $ | - |
13
Courtside Group, Inc. (d/b/a PodcastOne)
Notes to Consolidated Financial Statements
Note 9. Income Taxes (Continued)
The Company will record any penalties or interest related to any unrecognized tax benefits as a component of the income tax provision. As of December 31, 2019, the Company does not have any liability for unrecognized tax benefits.
The Company reviews its deferred tax assets for realization based upon historical taxable income, prudent and feasible tax-planning strategies, the expected timing of the reversals of existing temporary differences, and expected future taxable income. As of December 31, 2019, management determined that, based on the weight of evidence available at such date, it was more likely than not that the deferred tax assets related to certain net operating losses, credit carryovers and other items would not be realized and, as such, has maintained a valuation allowance against them. The valuation allowance increased to $1,565,000 as of December 31, 2019, from $1,405,000 as of December 31, 2018.
At December 31, 2019, the Company had federal and state net operating loss carryforwards of $6.7 million and $1.1 million, respectively. Of the $6.7 million in federal net operating loss carryforwards, $3.5 million was generated before January 1, 2018, and is subject to the 20-year carryforward period (pre-Tax Cuts and Jobs Act (the Tax Act) losses). The remaining $3.2 million (post-Tax Act losses) can be carried forward indefinitely but is subject to the 80% taxable income limitation. The pre-Tax Act U.S. federal and state net operating loss carryforwards will begin to expire in 2034, unless previously utilized.
The Company is subject to audit by federal and state tax authorities in the ordinary course of business. The Company’s federal income tax returns remain subject to examination for the 2015 through 2018 tax years.
The Tax Act enacted in December 2017 lowered the federal statutory corporate tax rate from 35% to 21%, beginning in 2018.
Note 10. Commitments and Contingencies
Operating leases: The Company leases office facilities and equipment over various terms expiring in subsequent years. Certain of these operating leases contain rent escalation clauses. The Company accounts for the entire lease expense on a straight-line basis over the lease term and records deferred rent for the difference between such expense and the contractual lease payments.
The following is a schedule of the future minimum lease payments by year under the operating leases as of December 31, 2019:
Years ending December 31:
| 2020 | $ | 441,441 | ||
| 2021 | 4,604 | |||
| 2022 | 4,455 | |||
| 2023 | 4,455 | |||
| 2024 and thereafter | 1,485 | |||
| $ | 456,440 |
Rent expense for the year ended December 31, 2019, was $387,785.
14
Courtside Group, Inc. (d/b/a PodcastOne)
Notes to Consolidated Financial Statements
Note 10. Commitments and Contingencies (Continued)
Talent and programming: In addition, the Company has commitments for talent and programming costs. The following is a schedule of the future minimum payments by year under these commitments as of December 31, 2019:
Years ending December 31:
| 2020 | $ | 6,156,303 | ||
| 2021 | 5,197,571 | |||
| 2022 | 5,345,670 | |||
| 2023 | 5,498,210 | |||
| 2024 and thereafter | - | |||
| $ | 22,197,754 |
Legal: From time to time, the Company is involved in legal matters. In management’s opinion, the resolution of these matters is not expected to have a material effect on the consolidated results of operations, financial position or cash flows of the Company.
Note 11. Subsequent Events
The Company has evaluated subsequent events through March 25, 2020, the date on which the consolidated financial statements were available to be issued.
On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, quarantines in certain areas, and forced closures for certain types of public places and businesses. Certain actions may adversely impact the timing and quality of shows produced if there is a shift from being able to use studios to remote recording environments. In addition, there is a risk that advertisers could pull out or negotiate lower-cost terms. The coronavirus and actions taken to mitigate it have had, and are expected to continue to have, an adverse impact on the economies and financial markets of many countries. While it is unknown how long these conditions will last and what the complete financial effect, if any, will be to the Company, the Company has not experienced any significant disruption to its operations due to this pandemic through the date of the subsequent events considerations. At this time, the Company cannot reasonably estimate the length or severity of this pandemic nor is the Company able to assess whether it will have an adverse impact on its operations in 2020.
15
Exhibit 99.2
Table of Contents
Courtside Group, Inc. (d/b/a PodcastOne)
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
| March 31, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 1,030 | $ | 1,444 | ||||
| Accounts and notes receivable, net | 4,243 | 5,410 | ||||||
| Other current assets | 454 | 382 | ||||||
| Total Current Assets | 5,727 | 7,326 | ||||||
| Property and equipment, net | 144 | 168 | ||||||
| Other assets | 26 | 27 | ||||||
| Total Assets | $ | 5,897 | $ | 7,431 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 233 | $ | 258 | ||||
| Accrued revenue share | 1,950 | 2,909 | ||||||
| Accrued other expense | 540 | 212 | ||||||
| Accrued compensation | 47 | 137 | ||||||
| Deferred revenue | - | 16 | ||||||
| Total Liabilities | 2,770 | 3,532 | ||||||
| Stockholders’ Equity | ||||||||
| Common stock | - | - | ||||||
| Additional paid in capital | 12,752 | 12,732 | ||||||
| Retained deficit | (9,625 | ) | (8,833 | ) | ||||
| Total Stockholders’ Equity | 3,127 | 3,899 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 5,897 | $ | 7,431 | ||||
See notes to unaudited consolidated financial statements
2
Courtside Group, Inc. (d/b/a PodcastOne)
Unaudited Condensed Consolidated Statements of Operations
(in thousands)
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Gross revenue | $ | 5,414 | $ | 5,660 | ||||
| Agency commission | (691 | ) | (784 | ) | ||||
| Net revenue | 4,723 | 4,876 | ||||||
| Expenses: | ||||||||
| General and administrative | 2,541 | 2,621 | ||||||
| Partner participation expense | 2,947 | 2,818 | ||||||
| Depreciation and amortization | 28 | 34 | ||||||
| Total operating expenses | 5,516 | 5,473 | ||||||
| Loss from operations | (793 | ) | (597 | ) | ||||
| Interest income | 1 | 1 | ||||||
| Loss before income taxes | (792 | ) | (596 | ) | ||||
| Income taxes | - | 14 | ||||||
| Net loss | $ | (792 | ) | $ | (610 | ) | ||
See notes to unaudited consolidated financial statements
3
Courtside Group, Inc. (d/b/a PodcastOne)
Unaudited Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
| Additional | Total | |||||||||||||||||||
| Common Stock | Paid in | Retained | Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of December 31, 2019 | 147,084 | $ | - | $ | 12,732 | $ | (8,833 | ) | $ | 3,899 | ||||||||||
| Repurchase of common stock | (100 | ) | - | (30 | ) | - | (30 | ) | ||||||||||||
| Stock-based compensation | - | - | 50 | - | 50 | |||||||||||||||
| Net loss | - | - | - | (792 | ) | (792 | ) | |||||||||||||
| Balance as of March 31, 2020 | 146,984 | $ | - | $ | 12,752 | $ | (9,625 | ) | $ | 3,127 | ||||||||||
| Common Stock | Additional Paid in | Retained | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance as of December 31, 2018 | 147,204 | $ | - | $ | 12,523 | $ | (8,219 | ) | $ | 4,304 | ||||||||||
| Restricted stock compensation | - | - | 23 | - | 23 | |||||||||||||||
| Stock-based compensation | - | - | 57 | - | 57 | |||||||||||||||
| Net loss | - | - | - | (610 | ) | (610 | ) | |||||||||||||
| Balance as of March 31, 2019 | 147,204 | $ | - | $ | 12,603 | $ | (8,829 | ) | $ | 3,774 | ||||||||||
See notes to unaudited consolidated financial statements
4
Courtside Group, Inc. (d/b/a PodcastOne)
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | (792 | ) | $ | (610 | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Depreciation and amortization | 28 | 34 | ||||||
| Stock-based compensation | 50 | 80 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable, net | 1,001 | 1,607 | ||||||
| Other assets | 77 | 39 | ||||||
| Accounts payable, accrued expenses and other | (744 | ) | (720 | ) | ||||
| Net cash (used in) provided by operating activities | (380 | ) | 430 | |||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of property and equipment | (4 | ) | (79 | ) | ||||
| Net cash used in investing activities | (4 | ) | (79 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Repurchase of common stock | (30 | ) | - | |||||
| Net cash used in financing activities | (30 | ) | - | |||||
| Net change in cash and cash equivalents | (414 | ) | 351 | |||||
| Cash and cash equivalents, beginning of period | 1,444 | 1,531 | ||||||
| Cash and cash equivalents, end of period | $ | 1,030 | $ | 1,882 | ||||
See notes to unaudited consolidated financial statements
5
Courtside Group, Inc. (d/b/a PodcastOne)
Notes to the Unaudited Consolidated Financial Statements
For the Three Months Ended March 31, 2020 and 2019
Note 1. Summary of Significant Accounting Policies
Basis of presentation: The unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of interim financial reporting. Therefore, certain information and disclosures normally included in financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) have been condensed or omitted. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the December 31, 2019 consolidated financial statements of Courtside Group, Inc. and its subsidiaries (“the Company”). In management’s opinion, the accompanying unaudited consolidated financial statements reflect all adjustments (consisting of only normal recurring unaudited adjustments) considered necessary for a fair presentation of the Company’s unaudited consolidated balance sheets as of March 31, 2020, and the unaudited consolidated statements of operations for the three months ended March 31, 2020 and 2019.
Use of Estimates: The preparation of the Company’s consolidated financial statements in conformity with U.S. 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 consolidated 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, useful lives and impairment of property and equipment, intangible assets and other assets and the fair value of the Company’s equity-based compensation award 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 long-lived assets that are depreciated or amortized.
Change in accounting principle—revenue recognition: The Company adopted the amended accounting guidance for revenue recognition on January 1, 2019, using the modified retrospective transition method, which allows the Company to evaluate the impact of contract modifications as of the adoption date rather than evaluating the impact of the modifications at the time they occurred prior to the adoption date. As a result, the Company has changed its accounting policy for revenue recognition as described below. Except for the changes below, the Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements.
Under certain practical expedients elected, the Company did not disclose the amount of consideration allocated to the remaining performance obligations or an explanation of when the Company expects to recognize that amount as revenue for all reporting periods presented before January 1, 2019.
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a service to a customer, in an amount that reflects the consideration to which it expects to be entitled in exchange for those services.
Revenues presented in the consolidated financial statements are reflected on a net basis, after the deduction of advertising agency fees by the advertising agencies. The Company also evaluates when it is appropriate to recognize revenue based on the gross amount invoiced to the customer or the net amount retained by the Company if a third party is involved.
6
Results for the reporting period beginning after January 1, 2019, are presented under the amended accounting guidance, while prior-period amounts are not adjusted and continue to be reported in accordance with the Company’s historical accounting guidance. Based upon the Company’s assessment, the impact of this guidance is not material to the Company’s financial position, results of operations, or cash flows through December 31, 2019.
Revenue: The Company recognizes revenue when or as it satisfies a performance obligation by transferring a promised service to a customer.
Podcast advertising: The Company’s primary source of revenue is podcast advertising revenue, which is recognized, net of agency commissions, when the podcast containing the advertisements is released and the performance obligation is satisfied. The Company recognizes revenue based on the Standard Broadcast Calendar that ends on the last Sunday in each reporting period. For the three-month periods ended March 31, 2020 and 2019, the Company recognized revenue related to podcasts released from December 30, 2019 through March 29, 2020, and December 31, 2018, through March 31, 2019, respectively.
Performance-based advertising and subscription services: For the three-month periods ended March 31, 2020 and 2019, revenue from performance-based advertising was $0.1 million and $0.1 million, respectively.
Subscription services revenue for the three-month periods ended March 31, 2020 and 2019 was less than $0.1 million for each of the three-month periods ended March 31, 2020 and 2019, respectively.
Barter transactions: Periodically, the Company engages in barter transactions that exchange advertising for advertising. The Company recognizes revenue from barter transactions as its products are delivered or services are performed. The related barter expense is recognized as the products or services are utilized by the Company, the majority of which is in the same accounting period as the related barter revenue. The Company includes the value of such exchanges in both net revenue and operating expenses. The valuation of barter time is based upon the estimated fair value of the advertising time provided for the services received. For the three-month periods ended March 31, 2020 and 2019, the amounts included in revenues and operating expenses from barter transactions were $0.2 million and $0, respectively.
Significant customers: The Company’s three largest customers, in the aggregate, accounted for approximately 11% and 13% of the Company’s revenues for the three-month periods ended March 31, 2020 and 2019, respectively. Amounts due from these customers represented approximately 6% of accounts receivable as of March 31, 2020.
7
Note 2. Accounts and Notes Receivable, Net
Accounts and notes receivable are stated net of allowances of $0.5 million at March 31, 2020.
Note 3. Property and Equipment, Net
Depreciation and amortization expense of property and equipment was less than $0.1 million for each of the three-month periods ended March 31, 2020 and 2019, respectively.
Note 4. Intangible Assets, Net
Amortization expense was less than $0.1 million for each of the three-month periods ended March 31, 2020 and 2019, respectively.
Note 5. Equity-Based Compensation
Compensation expense for equity-based compensation was $0.1 million and $0.1 million for the three-month periods ended March 31, 2020 and 2019, respectively.
Note 6. Subsequent Events
The Company has evaluated subsequent events through September 14, 2020, the date on which the consolidated financial statements were available to be issued.
In April 2020, the Company received the proceeds from a loan in the amount of $0.5 million, pursuant to the Paycheck Protection Program of the CARES Act.
In May 2020, the Company’s Board of Directors terminated the 2015 Stock Incentive Plan.
In May 2020, the Company agreed to sell 100% of its equity to LiveXLive Media, Inc., and on July 1, 2020 the acquisition was consummated.
Effects of COVID-19 – An outbreak of a novel strain of coronavirus, COVID-19 in December 2019 subsequently became a pandemic after spreading globally, including the United States. While the COVID-19 pandemic did not materially adversely affect the Company’s financial results and business operations during the fiscal quarter ended March 31, 2020, it is expected to adversely impact parts of the Company’s business during the second quarter of fiscal year December 31, 2020. The extent to which COVID-19 impacts the Company’s results will depend on future developments, including new information which may emerge concerning the severity of the coronavirus and the actions taken by management and the Company’s partners to contain the coronavirus or treat its impact, among others. The impact of the continuing effects of COVID-19 on the Company’s business operations (such as general economic conditions and impacts on the advertising, sponsorship and its partners), may result in a decrease in revenues, and if the global COVID-19 epidemic continues for an extended period, the Company’s business, financial condition and results of operations could be materially adversely affected.
8
Exhibit 99.3
Table of Contents
LiveXLive Media, Inc.’s Unaudited Pro Forma Condensed Combined Financial Information
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined balance sheet of LiveXLive Media, Inc. (“the Company”) for the fiscal year ended March 31, 2020 is presented as if the acquisition of Courtside Group, Inc. (d/b/a PodcastOne) (collectively, “Courtside Group, Inc.” or “PodcastOne”) referred to herein as the “Acquisition” had occurred on March 31, 2020. The unaudited pro forma condensed combined statements of operations for the year ended March 31, 2020 is presented as if the Acquisition had occurred on April 1, 2019.
The accompanying unaudited pro forma condensed combined financial statements are based on the historical financial statements of the Company after giving pro forma effect to the Company’s acquisition of PodcastOne and its related assets, liabilities and personnel and gives effect to: (i) the equity consideration and (ii) the acquisition of Courtside Group, Inc. (d/b/a PodcastOne), from the stockholders of PodcastOne. PodcastOne operations and related financial information contained throughout the unaudited pro forma condensed combined financial statements herein constitute predominantly all of the historical audited annual and unaudited interim financial statements of LiveXLive Media. The equity consideration and the acquisition of PodcastOne are hereby referred to as the “Transaction”.
The unaudited pro forma condensed combined financial statements have been derived from and should be read in conjunction with the Company’s historical audited consolidated financial statements and historical unaudited interim condensed consolidated financial statements, including the notes thereto, and PodcastOne’s historical audited and interim unaudited consolidated financial statements, including the notes thereto. The financial statements of the Company for the year ended March 31, 2020, are included in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on June 26, 2020. The statement of operations of PodcastOne for the twelve months ended March 31, 2020 was derived from PodcastOne’s historical audited consolidated statement of operations for the year ended December 31, 2019, as well as the unaudited interim consolidated statements of operations for the three months ended March 31, 2019 and March 31, 2020, which are included in exhibit 99.1 and exhibit 99.2 herein. Note 2 describes the method of calculating the statement of operations of PodcastOne for the twelve months ended March 31 2020, which is within 93 days of the Company’s fiscal year ended March 31, 2020 as required by Rule 11-02(c)(3) of Regulation S-X under the Securities Act of 1933.
The unaudited pro forma condensed combined financial statements include unaudited pro forma adjustments that are factually supportable and directly attributed to the Acquisition. The unaudited pro forma adjustments are expected to have a continuing impact on the consolidated results. Assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial statements.
The unaudited pro forma adjustments are based upon available information and certain assumptions that the Company’s management believe are reasonable. The unaudited pro forma condensed combined financial statements are presented for informational purposes only and are not necessarily indicative of the Company’s financial position or results of operations that would have occurred had the events been consummated as of the dates indicated. In addition, the unaudited pro forma condensed combined financial statements are not necessarily indicative of the Company’s future operating results.
The Company’s management expects that the strategic and financial benefits of the acquisition of PodcastOne will result in certain cost saving opportunities, which have not been reflected in the accompanying unaudited pro forma condensed combined financial statements.
2
The acquisition of PodcastOne from the stockholders will be accounted for as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification Topic 805, Business Combinations, which will establish a new basis of accounting for all identifiable assets acquired and liabilities assumed at fair value as of the date control is obtained. Accordingly, the consideration transferred will be allocated to the underlying net assets in proportion to their respective fair values. The fair value of PodcastOne’s identifiable tangible and intangible assets acquired and liabilities assumed are based on a preliminary estimate of fair value. Any excess of the purchase price over the estimated fair values of the net assets acquired will be recorded as goodwill. The allocation of the purchase price to acquired assets and assumed liabilities based on their underlying fair values requires the extensive use of significant estimates and the Company’s judgment. The Company’s management believes the fair values recognized for the acquired assets and assumed liabilities are based on reasonable estimates and assumptions based on information currently available. As more fully described in the notes to the unaudited pro forma condensed combined financial statements, a preliminary allocation of the purchase price has been made (i) to recognize the value of identifiable intangible assets at fair value in the aggregate amount of approximately $9.2 million and (ii) establish a contingent consideration liability at fair value in the aggregate amount of $0.9 million. In addition to content library, the identifiable intangible assets also included the brand name. All other assets acquired and liabilities assumed have been recognized at their respective book values, which the Company’s management believes materially approximate their respective fair values. The excess of the estimated purchase price over the estimated fair value of the net assets acquired of $7.7 million has been preliminarily allocated to goodwill. The allocation of purchase price is preliminary at this time and will remain as such until the Company completes valuations and other studies to finalize the valuation of the net assets acquired. The final allocation of the purchase price is dependent on a number of factors, including the final valuation of the fair value of all tangible and intangible assets acquired and liabilities assumed as of the closing date of the acquisition of PodcastOne when additional information will be available. Such final adjustments, including changes to depreciable tangible and amortizable intangible assets, may be material.
The unaudited pro forma condensed combined financial statements should be read in conjunction with the following information:
| ● | The notes to the unaudited pro forma condensed combined financial statements; |
| ● | The Company’s audited consolidated financial statements as of and for the fiscal year ended March 31, 2020, which are included in the Company’s Annual Report on Form 10-K as of and for the fiscal year ended March 31, 2020; |
| ● | The audited financial statements of Courtside Group, Inc. (d/b/a PodcastOne) as of and for the year ended December 31, 2019, which is included in Exhibit 99.1 herein; and |
| ● | The unaudited financial statements of Courtside Group, Inc. (d/b/a PodcastOne) for the three months ended March 30, 2020 and 2019, which are included in Exhibit 99.2 herein. |
3
LiveXLive Media, Inc.
Pro Forma Condensed Combined Balance Sheets
March 31, 2020
(Unaudited, in thousands, except share and per share amounts)
| Historical | Pro Forma Adjustments | |||||||||||||||||
| LiveXLive Media | PodcastOne | Acquisition | Notes | Pro Forma Combined | ||||||||||||||
| Assets | ||||||||||||||||||
| Current assets: | ||||||||||||||||||
| Cash and cash equivalents | $ | 5,702 | $ | 1,030 | $ | - | $ | 6,732 | ||||||||||
| Restricted cash | 6,735 | - | - | 6,735 | ||||||||||||||
| Accounts and notes receivable, net | 3,889 | 4,243 | - | 8,132 | ||||||||||||||
| Prepaid expense and other assets | 1,396 | 454 | - | 1,850 | ||||||||||||||
| Total current assets | 17,722 | 5,727 | - | 23,449 | ||||||||||||||
| Property and equipment, net | 3,397 | 144 | - | 3,541 | ||||||||||||||
| Goodwill | 9,672 | - | 7,705 | 5(a) | 17,377 | |||||||||||||
| Intangible assets, net | 23,198 | - | 9,168 | 5(a) | 32,366 | |||||||||||||
| Other assets | 127 | 26 | - | 153 | ||||||||||||||
| Total assets | $ | 54,116 | $ | 5,897 | $ | 16,873 | $ | 76,886 | ||||||||||
| Liabilities and Stockholders’ Equity | ||||||||||||||||||
| Current liabilities: | ||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 30,723 | $ | 2,770 | 151 | 5(d) | 33,644 | |||||||||||
| Accrued royalties | 13,071 | - | - | 13,071 | ||||||||||||||
| Current portion of notes payable | 331 | - | - | 331 | ||||||||||||||
| Deferred revenue | 949 | - | - | 949 | ||||||||||||||
| Current portion of senior secured convertible debentures, net | 2,720 | - | - | 2,720 | ||||||||||||||
| Total current liabilities | 47,794 | 2,770 | 151 | 50,715 | ||||||||||||||
| Lease liabilities, noncurrent | 45 | - | - | 45 | ||||||||||||||
| Senior secured convertible debentures, net | 6,505 | - | - | 6,505 | ||||||||||||||
| Unsecured convertible notes, net | 6,794 | - | - | 6,794 | ||||||||||||||
| Deferred income taxes | 108 | - | - | 108 | ||||||||||||||
| Other liabilities | - | - | 900 | 5(a) | 900 | |||||||||||||
| Total liabilities | 61,246 | 2,770 | 1,051 | 65,067 | ||||||||||||||
| Commitments and contingencies | ||||||||||||||||||
| Stockholders’ (deficit) equity: | ||||||||||||||||||
| Preferred stock | - | - | - | - | ||||||||||||||
| Common stock | 59 | - | 5 | 5(a) | 64 | |||||||||||||
| Additional paid in capital | 120,932 | 12,752 | 6,343 | 5(a), 5(b) | 140,027 | |||||||||||||
| Accumulated deficit | (128,121 | ) | (9,625 | ) | 9,474 | 5(b), 5(d) | (128,272 | ) | ||||||||||
| Total stockholders’ (deficit) equity | (7,130 | ) | 3,127 | 15,822 | 11,819 | |||||||||||||
| Total liabilities and stockholders’ (deficit) equity | $ | 54,116 | $ | 5,897 | $ | 16,873 | $ | 76,886 | ||||||||||
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Pro Forma Condensed Combined Statement of Operations
Year Ended March 31, 2020
(Unaudited, in thousands, except share and per share amounts)
| Historical | Pro Forma Adjustments | |||||||||||||||||||||
| LiveXLive Media | PodcastOne | Reclassifications | Acquisition | Notes | Pro Forma Combined | |||||||||||||||||
| Revenue: | $ | 38,659 | $ | 25,253 | $ | - | $ | - | $ | 63,912 | ||||||||||||
| Operating expenses: | ||||||||||||||||||||||
| Cost of sales | 32,786 | 13,448 | (909 | ) | - | 45,325 | ||||||||||||||||
| Sales and marketing | 6,255 | - | 5,279 | - | 11,534 | |||||||||||||||||
| Product development | 10,767 | - | 2,245 | - | 13,012 | |||||||||||||||||
| General and administrative | 19,120 | 12,531 | (6,615 | ) | 535 | 5(c) | 25,572 | |||||||||||||||
| Depreciation and amortization of intangible assets | 5,726 | 146 | - | 1,449 | 5(e) | 7,321 | ||||||||||||||||
| Total operating expenses | 74,654 | 26,125 | - | 1,984 | 102,763 | |||||||||||||||||
| Loss from operations | (35,995 | ) | (872 | ) | - | (1,984 | ) | (38,851 | ) | |||||||||||||
| Other income (expense): | ||||||||||||||||||||||
| Interest expense, net | (3,738 | ) | 3 | - | - | (3,735 | ) | |||||||||||||||
| Other income | 614 | 73 | - | - | 687 | |||||||||||||||||
| Total other income (expense) | (3,124 | ) | 76 | - | - | (3,048 | ) | |||||||||||||||
| Loss before provision for income taxes | (39,119 | ) | (796 | ) | - | (1,984 | ) | (41,899 | ) | |||||||||||||
| Income tax benefit | (192 | ) | - | - | - | 5(f) | (192 | ) | ||||||||||||||
| Net loss | $ | (38,927 | ) | $ | (796 | ) | - | $ | (1,984 | ) | $ | (41,707 | ) | |||||||||
| Net loss per share – basic and diluted | $ | (0.69 | ) | $ | (0.68 | ) | ||||||||||||||||
| Weighted average common shares – basic and diluted | 56,206,107 | 5,363,636 | 5(g) | 61,569,743 | ||||||||||||||||||
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Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
(Unaudited, in thousands, except share and per share amounts)
Note 1 – Description of the Transaction
On July 1, 2020, the Company completed the previously announced acquisition of Courtside Group, Inc. and its subsidiaries (d/b/a PodcastOne) (collectively, “PodcastOne”), from the stockholders of PodcastOne (the “Sellers”) for total consideration (net of cash acquired, and excluding acquisition-related costs, of $0.2 million) of $19.1 million of the Company’s common stock.
In addition, 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 in accordance with their respective pro rata percentage, within five business days of the second anniversary of the Closing Date. The Company accounts for contingent consideration according to ASC 805, Business Combinations (ASC 805). ASC 805 requires that contingent consideration be recognized at the acquisition-date fair value as part of the consideration transferred in the transaction. In the acquisition of PodcastOne, the Company valued the contingent consideration based on an analysis using a Black –Scholes cash flow model to determine the expected contingent consideration payment, which model determined that the aggregate present value of the expected contingent consideration liability was $0.9 million. This amount is preliminary and subject to change.
Pursuant to the terms of the Stock Purchase Agreement, the Company did not assume any outstanding options to acquire any shares of capital stock of PodcastOne and such options were terminated and cancelled in connection with the Acquisition.
Equity Consideration
The Company issued 5,363,636 shares of its common stock at a price of $3.57 per share, or $19.1 million in total consideration on July 1, 2020.
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Note 2 – Basis of Pro Forma Presentation
PodcastOne had a fiscal year of December 31 as compared to the Company’s March 31 fiscal year. In order for the unaudited pro forma condensed consolidated statement of operations to be comparable to the Company’s, PodcastOne’s twelve-month period ended December 31, 2019 was used and was calculated as follows (in thousands):
PodcastOne
Historical Unaudited Condensed Consolidated Statement of Operations
For the Twelve Months Ended March 31, 2020
| Less: | Add: | |||||||||||||||
| Fiscal Year Ended | Three- Months | Three- Months | Twelve Months | |||||||||||||
| January 1, 2019 to | January 1, 2020 to | |||||||||||||||
| December 31, 2019 | March 31, 2019 | March 31, 2020 | March 31, 2020 | |||||||||||||
| Revenue, net: | $ | 25,406 | $ | 4,876 | $ | 4,723 | $ | 25,253 | ||||||||
| Operating expenses: | ||||||||||||||||
| Cost of sales | 12,615 | 4,635 | 4,767 | 13,448 | ||||||||||||
| Sales and marketing | - | - | - | - | ||||||||||||
| Product development | - | - | - | - | ||||||||||||
| General and administrative | 13,316 | 804 | 721 | 12,531 | ||||||||||||
| Depreciation and amortization | 152 | 34 | 28 | 146 | ||||||||||||
| Total operating expenses | 26,082 | 5,473 | 5,516 | 26,125 | ||||||||||||
| Loss from operations | (676 | ) | (597 | ) | (793 | ) | (872 | ) | ||||||||
| Other income: | ||||||||||||||||
| Other income | 73 | 1 | 1 | 73 | ||||||||||||
| Interest income | 3 | - | - | 3 | ||||||||||||
| Total other income | 76 | 1 | 1 | 76 | ||||||||||||
| Loss before income taxes | (600 | ) | (596 | ) | (792 | ) | (796 | ) | ||||||||
| Income taxes | 14 | 14 | - | - | ||||||||||||
| Net loss | $ | (614 | ) | $ | (610 | ) | $ | (792 | ) | $ | (796 | ) | ||||
Note 3 – Reclassifications
As part of the Company’s integration efforts, the Company will continue its process of evaluating whether there are any significant differences in accounting policies that would require adjustment or reclassification of PodcastOne’s results of operations in order to conform to the Company’s accounting policies and classifications. As a result of that ongoing evaluation, the Company may identify differences between the accounting policies of the two companies that, when conformed, could have a material impact on the unaudited pro forma condensed combined financial statements.
Effective for the quarter ended June 30, 2019, the Company adopted Accounting Standard Update ASU No. 2016-02, Leases. This ASU establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. This ASU and all the related amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company adopted this guidance in the first quarter of fiscal 2020, the quarter ended June 30, 2019 using the optional transitional method afforded under ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. As a practical expedient, the Company has not separated lease components from nonlease components for its real property operating leases. Results for reporting periods beginning after the adoption date are presented under Topic 842, while prior period amounts are not adjusted and continue to be reported in accordance with the Company’s historic accounting under ASC 840.
The Company elected and applied the available transition practical expedients. By electing these practical expedients, the Company did:
| a. | not reassess whether expired or existing contracts contain leases under the new definition of a lease; |
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| b. | not reassess lease classification for expired or existing leases; and |
| c. | not reassess whether previously capitalized initial direct costs would qualify for capitalization under Topic 842. |
As a private company and prior to the acquisition, PodcastOne was not required to adopt ASU No. 2016-02. However, as a result of the acquisition and for purposes of preparing the unaudited pro forma condensed combined statement of operations for the twelve months ended March 31, 2020, PodcastOne was required to adopt ASU No. 2016-02 effective for the quarter ended June 30, 2019 to conform to our adoption date. The adoption of this standard did not have a material effect on the results of PodcastOne during the preparation of the unaudited pro forma condensed combined financial statements.
During the preparation of the unaudited pro forma condensed combined financial statements, the Company was not aware of any material differences between accounting policies of the two companies, except for certain reclassifications necessary to conform to the Company’s financial presentation, and accordingly, the unaudited pro forma condensed combined statement of operations does not assume any material differences in accounting policies between the two companies.
Note 4 – Fair Value of Assets Acquired, Liabilities Assumed and Calculation of Goodwill
The total purchase price has been allocated in the accompanying unaudited pro forma condensed combined financial statements based on (i) the amounts reported in the historical statements of PodcastOne, or (ii) management’s preliminary estimates of fair value. Following initial discussions with third-party valuation consultants, the identifiable assets, which are preliminary, were determined to be the content library and brand name. The Company’s management reviewed various other asset allocations of similar market transactions and applied corresponding relative values of the intangibles compared to the purchase price. The estimated amortization periods are consistent with those used for similar market transactions and amortization is accounted for on a straight-line basis. The percentages assigned are an initial estimate and are subject to change once the detailed third-party purchase price accounting analysis is completed.
The pro forma purchase price allocation presented below is still preliminary but has been developed based on an estimate of fair values of PodcastOne’s identifiable tangible and intangible assets acquired and liabilities assumed as of July 1, 2020. The final allocation of the purchase price will be determined within one year from the closing date of the PodcastOne acquisition. As such, the purchase price allocation may change, and such changes could result in a material change to the unaudited pro forma condensed combined financial statements.
The preliminary allocation of PodcastOne’s tangible and intangible assets and liabilities under this methodology as if the acquisition on March 31, 2020, is as follows (in thousands):
| Consideration Transferred: | ||||
| Equity consideration | $ | 19,100 | ||
| Contingent consideration | 900 | |||
| Total consideration transferred | $ | 20,000 | ||
| Purchase Price Allocation: | ||||
| Brand name | $ | 2,865 | ||
| Content library | 6,303 | |||
| Net working capital | 2,957 | |||
| Property and equipment | 144 | |||
| Other assets | 26 | |||
| Goodwill | 7,705 | |||
| Total consideration transferred | $ | 20,000 | ||
The excess purchase price over the fair value of identifiable tangible and intangible assets acquired represents goodwill of $7.7 million as of July 1, 2020. Our preliminary estimate indicates that goodwill will not be deductible for income tax purposes.
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Note 5 – Pro Forma Adjustments
The pro forma adjustments included in the accompanying information do not reflect the final Acquisition purchase consideration. The allocation of consideration to the various tangible and intangible assets acquired and liabilities assumed is preliminary and subject to change. This note should be read in conjunction with “Note 1 – Description of The Transactions,” “Note 2 – Basis of Pro Forma Presentation,” and “Note 3 – Reclassifications.” Adjustments included in the column “Acquisition” to the accompanying unaudited pro forma condensed combined balance sheet as of March 31, 2020 and statement of operations for the year ended March 31, 2020 are represented by the following:
Unaudited Pro Forma Condensed Combined Balance Sheet
| (a) | Purchase Price Allocation |
To reflect the stock consideration payment of $19.1 million and estimated contingent consideration of $0.9 million upon the consummation of the Transaction. Adjustment also reflects the establishment of goodwill of $7.7 million estimated as a result of the preliminary purchase price allocation detailed above, and reflects the preliminary purchase price allocation recognition of certain intangible assets including content library and brand name in the amount of $9.2 million (see Note 4 above).
| (b) | Elimination of Equity Balances |
To reflect the elimination of PodcastOne’s equity balances in combination. Adjustment also reflects the change in working capital from March 31, 2020 to July 31, 2020.
Unaudited Pro Forma Condensed Combined Statement of Operations
| (c) | Stock-based compensation expense |
The twelve-month adjustment represents $0.5 million stock-based compensation expense for 300,000 restricted stock units of the Company issued to a PodcastOne employee on July 1, 2020. The expense was calculated as though the award had been issued on April 1, 2019. The calculation is consistent with the accounting treatment for grants issued to the Company’s employees.
| (d) | Acquisition-Related Costs |
The adjustment represents the expense of $0.2 million of acquisition-related costs on the balance sheet with a corresponding increase to accounts payable. Such costs are one-time in nature and do not have any continuing impact on the combined entity for pro forma purposes.
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| (e) | Amortization of Intangible Assets |
These adjustments represent the increased amortization for the fair value of identified intangible assets with definite lives for the year ended March 31, 2020. The following tables show the pre-tax impact on the amortization expense (in thousands):
| Amortization | Year Ended | |||||||||||
| Period (in years) | Fair Value | March 31, 2020 | ||||||||||
| Intangible assets, net: | ||||||||||||
| Brand name | 15 | $ | 2,865 | $ | 191 | |||||||
| Content library | 5 | 6,303 | 1,261 | |||||||||
| Amortization expense | $ | 9,168 | 1,452 | |||||||||
| Less: historical PodcastOne amortization expense | (3 | ) | ||||||||||
| Pro forma adjustment to amortization expense* | $ | 1,449 | ||||||||||
* Assumes straight-line amortization
| (f) | Income tax benefit |
The tax effect of the pro forma adjustments is zero due to tax benefits being fully offset by a valuation allowance.
| (g) | Earnings per Common Share |
Pro forma basic and diluted earnings per share (“EPS”) is calculated in conformity with the Company’s accounting policies included in its Annual Report on Form 10-K for the fiscal year ended March 31, 2020. The Company assumed that all the common shares issued as part of the equity consideration used for the PodcastOne acquisition were included in the denominator when computing pro forma basic and diluted EPS.
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Exhibit 99.4
Management’s Discussion and
Analysis of Financial Condition and
Results of Operations for the Three Months Ended March 31, 2020 and 2019
The following management’s discussion and analysis for the three months ended March 31, 2020 and 2019, and our financial condition, should be read in conjunction with the historical financial statements and the related notes thereto contained in this Report. The management’s discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors” in this Form 8-K, that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.
The principal business of Courtside Group, Inc. (d/b/a PodcastOne) or “PodcastOne” is the production, distribution and marketing of podcasts.
Overview
The following discussion highlights PodcastOne’s results of operations and the principal factors that have affected our consolidated financial condition as well as our liquidity and capital resources for the periods described, and provides information that management believes is relevant for an assessment and understanding of our consolidated financial condition and results of operations presented herein. The following discussion and analysis is based on PodcastOne’s audited financial statements contained in this Report, which have been prepared in accordance with generally accepted accounting principles in the United States. You should read the discussion and analysis together with such financial statements and the related notes thereto.
Strategy
PodcastOne’s long-term goal is to generate revenue from the audiences that view and listen to the podcasts we produce, distribute and market. Historically PodcastOne primarily produced only audio podcasts, but is expanding its offerings to video podcasts as well. The large audiences that view and listen to our podcasts are sold to national, regional and local advertisers.
Critical Accounting Policies, Estimates, and Judgments
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments, our commitments to strategic alliance partners and the timing of the achievement of collaboration milestones. We base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known. Besides the estimates identified above that are considered critical, we make many other accounting estimates in preparing our financial statements and related disclosures. All estimates, whether or not deemed critical, affect reported amounts of assets, liabilities, revenues and expenses, as well as disclosures of contingent assets and liabilities. These estimates and judgments are also based on historical experience and other factors that are believed to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known, even for estimates and judgments that are not deemed critical.
Use of estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Our management evaluates the estimates on an ongoing basis, including, but not limited to, those related to bad debts, barter time, asset impairments, income taxes, stock compensation expense and litigation. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.
Opportunities, Challenges and Risks
Effects of COVID-19
An outbreak of a novel strain of coronavirus, COVID-19 in December 2019 subsequently became a pandemic after spreading globally, including the United States. While the COVID-19 pandemic did not materially adversely affect our financial results and business operations during the fiscal quarter ended March 31, 2020, it is expected to adversely impact parts of our business during the second quarter of fiscal year December 31, 2020. The extent to which COVID-19 impacts our results will depend on future developments, including new information which may emerge concerning the severity of the coronavirus and the actions taken by us and our partners to contain the coronavirus or treat its impact, among others. The impact of the suspension or cancellation of in-person live festivals, concerts or other live events, and any other continuing effects of COVID-19 on our business operations (such as general economic conditions and impacts on the advertising, sponsorship and ticketing marketplace and our partners), may result in a decrease in our revenues, and if the global COVID-19 epidemic continues for an extended period, our business, financial condition and results of operations could be materially adversely affected.
Basis of presentation and principles of consolidation
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). These consolidated financial statements include the accounts of Courtside Group, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Change in accounting principle—revenue recognition: We adopted the amended accounting guidance for revenue recognition on January 1, 2019, using the modified retrospective transition method, which allows the us to evaluate the impact of contract modifications as of the adoption date rather than evaluating the impact of the modifications at the time they occurred prior to the adoption date. As a result, we have changed our accounting policy for revenue recognition as described below. Except for the changes below, we have consistently applied the accounting policies to all periods presented in these consolidated financial statements.
Under certain practical expedients elected, we did not disclose the amount of consideration allocated to the remaining performance obligations or an explanation of when we expect to recognize that amount as revenue for all reporting periods presented before January 1, 2019.
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We recognize revenue when it satisfies a performance obligation by transferring control over a service to a customer, in an amount that reflects the consideration to which it expects to be entitled in exchange for those services.
Revenues presented in the consolidated financial statements are reflected on a net basis, after the deduction of advertising agency fees by the advertising agencies. We also evaluate when it is appropriate to recognize revenue based on the gross amount invoiced to the customer or the net amount retained by the Company if a third party is involved.
Results for the reporting period beginning after January 1, 2019, are presented under the amended accounting guidance, while prior-period amounts are not adjusted and continue to be reported in accordance with our historical accounting guidance. Based upon management’s assessment, the impact of this guidance is not material to the Company’s financial position, results of operations, or cash flows through December 31, 2019.
Revenue: We recognize revenue when or as it satisfies a performance obligation by transferring a promised service to a customer. Our primary source of revenue is podcast advertising revenue, which is recognized, net of agency commissions, when the podcast containing the advertisements is released and the performance obligation is satisfied. We recognize revenue based on the Standard Broadcast Calendar that ends on the last Sunday in each reporting period. For the year ended December 31, 2019, we recognized revenue related to podcasts released from December 31, 2018, through December 29, 2019. To a lesser extent, we generate revenue from performance-based advertising and subscription services. Subscription services revenue is generated through the sale of a premium version of our PodcastOne service. Subscription revenue is recognized over the subscription term, which is generally less than 12 months, as the performance obligation is satisfied
Barter transactions: Periodically, we engage in barter transactions that exchange advertising for advertising. We recognize revenue from barter transactions as its products are delivered or services are performed. The related barter expense is recognized as the products or services are utilized by the Company, the majority of which is in the same accounting period as the related barter revenue. We include the value of such exchanges in both net revenue and operating expenses. The valuation of barter time is based upon the estimated fair value of the advertising time provided for the services received.
Operating expenses: Operating expenses consist of general and administrative, partner participation expenses and depreciation and amortization. Included in our operating expenses are stock-based compensation and depreciation expenses associated with our capital expenditures.
General and administrative: General and administrative expenses consist primarily of personnel costs from our executive, legal, finance, human resources and information technology organizations and facilities related expenditures, as well as third party professional fees, insurance and bad debt expenses. Professional fees are largely comprised of outside legal, accounting, audit, information technology consulting and legal settlements.
Contract costs: Incremental costs of obtaining a contract primarily relate to sales commissions, which are included in selling, general and administrative expenses, and are generally commensurate with sales. These costs are generally expensed when incurred because the period of benefit is one year or less.
Partner participation expenses: Certain distribution arrangements require us to pay our podcast partners based on a share of the advertising revenue received by us with respect to the partner’s podcast. Revenue share obligations are accrued when advertisements have been aired and partners are paid upon receipt of payment from the customer.
Depreciation and amortization: We determine the appropriate useful life of intangible assets by performing an analysis of expected cash flows based on our historical experience of intangible assets of similar quality and value. Amortization as a percentage of revenue will depend upon a variety of factors, such as the amounts and mix of our identifiable intangible assets acquired in business combinations.
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Stock-based compensation: Included in our operating expenses are expenses associated with stock-based compensation, which are allocated and included in general and administrative expenses. Stock-based compensation expense is largely comprised of costs associated with stock options and restricted stock units granted to employees and certain non-employees including directors and consultants. We record the fair value of these equity-based awards and expense at their cost ratably over related vesting periods. In addition, stock-based compensation expense includes the cost of warrants to purchase common stock issued to certain non-employees
Other income: Other income principally consists of certain unrealized transaction gains and losses on foreign currency denominated assets and liabilities. We typically invest our available cash balances in money market funds and short-term United States Treasury obligations.
Significant customers: Our three largest customers, in the aggregate, accounted for approximately 11% of our revenues for the year ended December 31, 2019. Amounts due from these customers represented approximately 4% of accounts receivable as of December 31, 2019.
Fair value of financial instruments: The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value due to the short-term maturities of these instruments.
Income taxes: We account for income taxes under the asset and liability method, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement basis and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We record a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits. We classify interest and penalties recognized on uncertain tax positions as a component of tax expense. The Company files income tax returns in the U.S. federal jurisdiction and various states. Based on management’s assessment of many factors, including past experience and complex judgments about future events, we do not currently anticipate significant changes in its uncertain tax positions over the next 12 months. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The income tax expense represents the taxes payable for the period and the change during the period in deferred tax assets and liabilities. Our historical NOL’s may be limited as a result of the acquisition.
Recently issued accounting standards: In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), which requires all lessees to recognize the assets and liabilities that arise from leases, except for those leases with a term less than 12 months, in which case the lessee may elect to not recognize an asset or liability associated with the lease and may recognize the lease expense on a straight-line basis over the term of the lease. Accounting for lessors remains generally the same as under superseded Topic 840. For private companies, this ASU is effective for fiscal years beginning after December 31, 2020, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which provides new guidance on the measurement of credit losses for financial assets measured at amortized cost, which includes accounts receivable. The new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. This update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Entities are required to apply this update on a modified retrospective basis with a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. We are currently evaluating the impact on our financial position and results of operations.
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Consolidated Results of Operations
The following table presents our results of operations for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019, and is not necessarily indicative of results for future periods (in thousands):
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Gross revenue | $ | 5,414 | $ | 5,660 | ||||
| Agency commission | (691 | ) | (784 | ) | ||||
| Net revenue | 4,723 | 4,876 | ||||||
| Expenses: | ||||||||
| General and administrative | 2,541 | 2,621 | ||||||
| Partner participation expense | 2,947 | 2,818 | ||||||
| Depreciation and amortization | 28 | 34 | ||||||
| Total expenses | 5,516 | 5,473 | ||||||
| Loss from operations | (793 | ) | (597 | ) | ||||
| Interest income | 1 | 1 | ||||||
| Loss before provision for income taxes | (792 | ) | (596 | ) | ||||
| Provision for income taxes | - | 14 | ||||||
| Net loss | $ | (792 | ) | $ | (610 | ) | ||
The following table sets forth our results of operations, as a percentage of revenue, for the periods presented:
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Gross revenue | 100 | % | 100 | % | ||||
| Agency commission | 13 | % | 14 | % | ||||
| Net revenue | 87 | % | 86 | % | ||||
| Expenses: | ||||||||
| General and administrative | 47 | % | 46 | % | ||||
| Partner participation expense | 54 | % | 50 | % | ||||
| Depreciation and amortization | 1 | % | 1 | % | ||||
| Total expenses | 102 | % | 97 | % | ||||
| Loss from operations | -15 | % | -11 | % | ||||
| Interest income | - | % | - | % | ||||
| Loss before provision for income taxes | -15 | % | -11 | % | ||||
| Provision for income taxes | - | % | - | % | ||||
| Net loss | -15 | % | -11 | % | ||||
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Revenues — Our primary source of revenue is podcast advertising revenue, which is recognized, net of agency commissions, when the podcast containing the advertisements is released and the performance obligation is satisfied. We recognize revenue based on the Standard Broadcast Calendar that ends on the last Sunday in each reporting period. For the three months ended March 31, 2020, podcast advertising revenue was $4.9 million a decrease of 0.3 million or 6% from the comparable 2019 period. To a lesser extent, we generate revenue from performance-based advertising and subscription services. Performance-based advertising revenue is generated through the sale of banner and sponsorship advertisements. Revenue is recognized from performance-based advertising when we receive third-party verification reports supporting the number of actions performed in the period and the performance obligation is satisfied. For the three months ended March 31, 2020, revenue from performance-based advertising was $0.1 million a decrease of 0.1 million or 36% from the comparable 2019 period. Subscription services revenue is generated through the sale of a premium version of the Company’s PodcastOne service. Subscription revenue is recognized over the subscription term, which is generally less than 12 months, as the performance obligation is satisfied. For the three months ended March 31, 2020, subscription revenue was $0.1 million which is comparable to the 2019 period. Additionally, in the three months ended March 31, 2020 we recognized $0.2 million of other operating revenue which we did not have in the comparable prior period.
Expenses — Expenses are comprised of general and administrative, partner participation expense and depreciation and amortization as described below.
General and Administrative Expenses — General and administrative expenses include personnel costs, rent, outside legal and accounting, consulting and advisory fees and non-cash stock compensation. In addition, general and administrative expenses include employee benefit expenses, advertising, and miscellaneous other general operating expenses to support the podcast production business. For the three months ended March 31, 2020, general and administrative expenses were $2.5 million, which was consistent with the prior year period, a decrease of 0.1 million or 3%.
Partner Participation Expense — Certain distribution arrangements require the Company to pay its podcast partners based on a share of the advertising revenue received by the Company with respect to the partner’s podcast. Revenue share obligations are accrued when advertisements have been aired and partners are paid upon receipt of payment from the customer. For the three months ended March 31, 2020, total partner participation expense was $2.9 million, an increase of $0.1 million or 5% from the comparable 2019 period.
Depreciation and Amortization — For the three months ended March 31, 2020, depreciation and amortization was less than $0.1 million, consistent with $0.1 million for the three months ended March 31, 2019.
Interest Income — For the three months ended March 31, 2020 and 2019, interest income was less than $0.1 million.
Net Loss — As a result of the foregoing, for the three months ended March 31, 2020 and 2019, PodcastOne recorded a net loss of $0.8 million and $0.6 million, respectively.
Financial Condition, Liquidity and Capital Resources
Cash and Working Capital
For the three months ended March 31, 2020 and 2019, we incurred net losses of $0.8 million and $0.6 million, respectively. As of March 31, 2020, we had working capital of $3.0 million, an accumulated deficit of $9.6 million and stockholders’ equity of $3.1 million. We incurred a net loss of $0.6 million for the year ended December 31, 2019.
Liquidity and Capital Resources
As of March 31, 2020, our principal sources of liquidity were our cash and accounts and notes receivable in the amounts of $1.0 million and $4.2 million, respectively. 16
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Sources and Uses of Cash
The following table summarizes the sources and uses of cash for the three months ended March 31, 2020 and 2019 (in thousands):
| Three Months Ended March 31, | ||||||||
| 2020 | 2019 | |||||||
| Net cash (used in) provided by operating activities | $ | (380 | ) | $ | 430 | |||
| Net cash used in investing activities | (4 | ) | (79 | ) | ||||
| Net cash used in financing activities | (30 | ) | - | |||||
| Net change in cash | $ | (414 | ) | $ | 351 | |||
Net Cash (Used in) Provided by Operating Activities
For the three months ended March 31, 2020
Net cash used in our operating activities of ($0.4) million primarily resulted from our net loss during the period of ($0.8) million, which included non-cash charges of $0.1 million largely comprised of, depreciation and amortization and stock-based compensation. This was partially offset by $0.3 million from changes in our working capital, primarily from timing of accounts receivable and accounts payable.
For the three months ended March 31, 2019
Net cash provided by our operating activities of $0.4 million primarily resulted from our net loss during the period of ($0.6) million, which included non-cash charges of $0.1 million largely comprised of, depreciation and amortization and stock-based compensation, and $0.9 million from changes in our working capital, primarily from timing of accounts receivable and accounts payable.
Net Cash Used in Investing Activities
For the three months ended March 31, 2020 and 2019
Net cash used in investing activities was less than $0.1 million and $0.1 million during the three months ended March 31, 2020 and March 31, 2019 and primarily related to capital expenditures.
Net Cash Used in Financing Activities
For the three months ended March 31, 2020 and 2019
Net cash used in financing activities was less than $0.1 million during the three months ended March 31, 2020 and March 31, 2019, and primarily related to repurchases of the Company’s common stock.
Off-Balance Sheet Arrangements
As of March 31, 2020, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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