LiveOne, Inc 10-Q for FY2024 Q3
LiveOne, Inc. (LVO)
About this 10-Q
LiveOne, Inc filed this 10-Q on February 13, 2024, covering the quarter ended December 31, 2023 (FY2024 Q3).
Headline figures
Quarter ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $31.25M
- up 14.4% from $27.31M a year earlier
- Net loss
- $1.57M
- compared with a net loss of $2.55M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
or
For the transition period from __________________ to __________________
Commission File Number:
LIVEONE, INC.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of | (I.R.S. Employer | |
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| (Address of principal executive offices) | (Zip Code) |
(
(Registrant’s telephone number, including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant is required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| | ☒ | Smaller reporting company | | |
| Emerging growth company | | |||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of February 9, 2024, there were
LIVEONE, INC.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART I — FINANCIAL INFORMATION
(formerly LiveXLive Media, Inc.)
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except share and per share amounts)
| December 31, | March 31, | |||||||
| 2023 | 2023 | |||||||
| (Audited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total Current Assets | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Intangible assets, net | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Mezzanine Equity and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Accrued royalties | ||||||||
| Notes payable, current portion | ||||||||
| Deferred revenue | ||||||||
| Senior secured line of credit | ||||||||
| Bridge loan | ||||||||
| Derivative liabilities | ||||||||
| Total Current Liabilities | ||||||||
| Senior secured line of credit | ||||||||
| Notes payable, net | ||||||||
| Lease liabilities, noncurrent | ||||||||
| Derivative liabilities, noncurrent | ||||||||
| Other long-term liabilities | ||||||||
| Deferred income taxes | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Mezzanine Equity | ||||||||
| Redeemable convertible preferred stock, $ par value; shares authorized; and shares issued and outstanding as of December 31, 2023 and March 31, 2023, respectively | ||||||||
| Stockholders’ Equity (Deficit) | ||||||||
| Preferred stock, $ par value; shares authorized; and shares issued and outstanding as of December 31, 2023 and March 31, 2023, respectively | ||||||||
| Common stock, $ par value; shares authorized; and shares issued and outstanding, respectively | ||||||||
| Additional paid in capital | ||||||||
| Treasury stock | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total LiveOne's Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Non-controlling interest | ||||||||
| Total equity (deficit) | ( | ) | ||||||
| Total Liabilities, Mezzanine Equity and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
(formerly LiveXLive Media, Inc.)
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except share and per share amounts)
| Three Months Ended |
Nine Months Ended |
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| December 31, |
December 31, |
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| 2023 |
2022 |
2023 |
2022 |
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| Revenue: |
$ | $ | $ | $ | ||||||||||||
| Operating expenses: |
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| Cost of sales |
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| Sales and marketing |
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| Product development |
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| General and administrative |
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| Impairment of intangible assets |
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| Amortization of intangible assets |
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| Total operating expenses |
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| Loss from operations |
( |
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| Other income (expense): |
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| Interest expense, net |
( |
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| Other income (expense) |
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| Total other expense, net |
( |
) | ( |
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) | ( |
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| Loss before provision (benefit) for income taxes |
( |
) | ( |
) | ( |
) | ( |
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| Provision (benefit) for income taxes |
( |
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| Net loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net loss attributable to non-controlling interest |
( |
) | ( |
) | ||||||||||||
| Net loss attributed to LiveOne |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per share – basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted average common shares – basic and diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
(formerly LiveXLive Media, Inc.)
Condensed Consolidated Statement of Stockholders’ Equity (Deficit) and Mezzanine Equity
(Unaudited, in thousands, except share and per share amounts)
| Mezzanine |
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| Equity - |
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| Redeemable |
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| Convertible |
Additional |
Common Stock in |
Total |
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| Preferred Stock |
Preferred Stock |
Common Stock |
Paid in |
Accumulated |
Non-controlling |
Treasury |
Stockholders’ |
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| Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Interest |
Shares |
Amount |
Equity (Deficit) |
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| Balance as of March 31, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||||||
| Stock-based compensation |
- | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued pursuant to restricted stock units |
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| Dividends on Series A preferred stock |
- | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services |
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| Treasury stock purchases |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss |
- | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||||||||||||||||||
| Stock-based compensation |
- | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued pursuant to restricted stock units |
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| Common stock issued for purchase of intangible assets |
- | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends on Series A preferred stock |
- | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of PC1 bridge loan |
- | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Dividends from spin-off of PodcastOne |
- | - | - | ( |
) | - | ||||||||||||||||||||||||||||||||||||||||||
| Issuance of PodcastOne common stock |
- | - | - | ( |
) | - | ||||||||||||||||||||||||||||||||||||||||||
| Reclassification of common stock warrants |
- | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services |
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| Exercise of stock options |
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| Issuance of preferred stock dividends |
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| Treasury stock purchases |
( |
) | ( |
) | ( |
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| Net loss |
- | - | - | ( |
) | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||||||||||||
| Stock-based compensation |
- | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Shares issued pursuant to restricted stock units |
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| Dividends on Series A preferred stock |
- | - | - | ( |
) | - | ( |
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| Accretion on preferred stock |
- | - | - | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||
| Issuance of PodcastOne common stock |
- | - | - | ( |
) | - | ||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services |
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| Issuance of preferred stock dividends |
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| Treasury stock purchases |
( |
) | ( |
) | ( |
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| Net loss |
- | - | - | ( |
) | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2023 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||||||||||||||
| Mezzanine |
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| Equity - |
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| Redeemable |
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| Convertible |
Additional |
Common Stock in |
Total |
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| Preferred Stock |
Preferred Stock |
Common Stock |
Paid in |
Accumulated |
Non-controlling |
Treasury |
Stockholders’ |
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| Shares |
Amount |
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Interest |
Shares |
Amount |
Deficit |
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| Balance as of March 31, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | $ | $ | ( |
) | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation |
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| Shares issued pursuant to restricted stock units |
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| Treasury stock purchases |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
| Net income |
- | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Stock-based compensation |
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| Issuance of shares pursuant to restricted stock units |
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| Issuance of shares for modification of debt instruments |
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| Issuance of shares for settlement of earnout |
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| Issuance of shares for settlement of accrued expenses |
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| Treasury stock purchases |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||||||||
| Net loss |
- | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
| Stock-based compensation |
||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss |
- | - | - | ( |
) | - | ( |
) | ||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2022 |
$ | $ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ( |
) | |||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
LiveXLive Media, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| Nine Months Ended | ||||||||
| December 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Interest paid in kind | ||||||||
| Stock-based compensation | ||||||||
| Amortization of debt discount | ||||||||
| Change in fair value of bifurcated embedded derivatives | ( | ) | ||||||
| Change in fair value of contingent consideration liability | ( | ) | ||||||
| Accretion on preferred stock | ||||||||
| Settlement of accrued expenses | ( | ) | ||||||
| Provision for credit loss | ||||||||
| Impairment of fixed assets | ||||||||
| Impairment of intangible assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Inventories | ||||||||
| Other assets | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Accounts payable and accrued liabilities | ( | ) | ( | ) | ||||
| Accrued royalties | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Purchases of intangible assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payment on PodcastOne bridge loan | ( | ) | ||||||
| Repayment on notes payable | ( | ) | ( | ) | ||||
| Proceeds from notes payable | ||||||||
| Proceeds from PodcastOne bridge loan | ||||||||
| Proceeds from notes payable - related party | ||||||||
| Payments of notes payable - related party | ( | ) | ||||||
| Proceeds from exercise of stock options | ||||||||
| Purchase of treasury stock | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net change in cash, cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Conversion of the bridge loan into PodcastOne common stock | $ | $ | ||||||
| Accrual of dividends | $ | $ | ||||||
| Fair value of warrant and derivative liability issued with debt instruments | $ | $ | ||||||
| Fair value of shares of common stock issuable in connection with settlement of earnout | $ | $ | ||||||
| Fair value of shares of common stock issuable in connection with the modification of debt instruments | $ | $ | ||||||
| Fair value of shares of common stock issuable in connection with the settlement of accrued expenses and prepayment for services | $ | $ | ||||||
| Common stock issued for prepaid services | $ | $ | ||||||
| PodcastOne warrants reclassified from liabilities to non-controlling interest | $ | $ | ||||||
| Accrued dividends converted to preferred stock | $ | $ | ||||||
| Purchase of intangible assets accrued for at period end | $ | $ | ||||||
| Purchase of intangible assets with common stock | $ | $ | ||||||
| Fair value of options issued to employees, capitalized as internally-developed software | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
(formerly LiveXLive Media, Inc.)
Notes to the Condensed Consolidated Financial Statements (Unaudited)
For the Three and Nine Months Ended December 31, 2023 and 2022
Note 1 — Organization and Basis of Presentation
Organization
LiveOne, Inc. (formerly LiveXLive Media, Inc.) together with its subsidiaries (“we,” “us,” “our”, the “Company” or “LiveOne”) is a Delaware corporation headquartered in Beverly Hills, California. The Company is a creator-first, music, entertainment and technology platform focused on delivering premium experiences and content worldwide through memberships, live and virtual events.
The Company was reincorporated in the State of Delaware on August 2, 2017, pursuant to a reincorporation merger of Loton, Corp (“Loton”) with and into LiveXLive Media, Inc., Loton’s wholly owned subsidiary at the time. As a result of the reincorporation merger, Loton ceased to exist as a separate entity, with LiveXLive Media, Inc. being the surviving entity. On December 29, 2017, the Company acquired Slacker, Inc. (“Slacker”), an Internet music and radio streaming service incorporated in the state of Delaware, and it became a wholly owned subsidiary of LiveOne. On February 5, 2020, the Company acquired (i) React Presents, LLC a Delaware limited liability company (“React Presents”), and it became a wholly owned subsidiary of LiveXLive Events, LLC, a wholly owned subsidiary of the Company and (ii) indirectly Spring Awakening, LLC, which is a wholly owned subsidiary of React Presents, a producer, promoter and manager of in person live music festivals and events. On July 1, 2020, the Company through its wholly owned subsidiary, LiveXLive PodcastOne, Inc., acquired PodcastOne, Inc. (formerly Courtside Group, Inc.) (“PodcastOne”). On December 22, 2020, the Company through its wholly owned subsidiary LiveXLive Merchandising, Inc., acquired Custom Personalization Solutions, Inc. (“CPS”). Effective as of October 5, 2021, the Company changed its corporate name to "LiveOne, Inc." On October 17, 2021, the Company through its wholly owned subsidiary LiveXLive PR, Inc., acquired Gramophone Media, Inc. ("Gramophone"). On September 8, 2023, PodcastOne completed a Qualified Event (its spin out from the Company to become a standalone publicly trading company (the “Spin-Out”)) as a result of its direct listing on The NASDAQ Capital Market on such date.
Basis of Presentation
The interim unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s audited consolidated financial statements for the fiscal year ended March 31, 2023, and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s interim unaudited condensed consolidated financial statements for the three and nine months ended December 31, 2023. The results for the three and nine months ended December 31, 2023 are not necessarily indicative of the results expected for the full fiscal year ending March 31, 2024 (“fiscal 2024”). The condensed consolidated balance sheet as of March 31, 2023 has been derived from the Company’s audited balance sheet included in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 29, 2023 (the “2023 Form 10-K”).
The interim unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete audited financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the 2023 Form 10-K.
Going Concern and Liquidity
The Company’s interim unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
The Company’s principal sources of liquidity have historically been its debt and equity issuances and its cash and cash equivalents (which cash, cash equivalents and restricted cash amounted to $
The Company’s ability to continue as a going concern is dependent on its ability to execute its growth strategy and on its ability to raise additional funds. The Company filed a new universal shelf Registration Statement on Form S-3 (the “New Shelf S-3”) with the SEC, which was declared effective by the SEC on February 17, 2022. Under the New Shelf S-3, the Company has the ability to raise up to $
Principles of Consolidation
The interim unaudited condensed consolidated financial statements include the accounts of the Company and its wholly and majority owned subsidiaries. Acquisitions are included in the Company’s interim unaudited condensed consolidated financial statements from the date of the acquisition. The Company uses purchase accounting for its acquisitions, which results in all assets and liabilities of acquired businesses being recorded at their estimated fair values on the acquisition dates. All intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Certain amounts in the Company’s previously issued financial statements have been reclassified to conform to the current year presentation.
Note 2 — Summary of Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies from those previously disclosed in the consolidated financial statements included in the 2023 Form 10-K, other than those included below.
COVID-19
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease (“COVID-19”) as a pandemic. The global impact of the COVID-19 pandemic has had a negative effect on the global economy, disrupting the financial markets creating increasing volatility and overall uncertainty. The Company began to experience modest adverse impacts of the COVID-19 pandemic in the fourth quarter of fiscal year ended March 31, 2020 and became more adverse throughout the fiscal year ended March 31, 2021 and up to the third quarter of fiscal year ended March 31, 2022. The impact has subsided during the fiscal year ended March 31, 2023. The Company’s event and programmatic advertising revenues were directly impacted throughout the 2022 and 2021 fiscal years with all on-premise in-person live music festivals and events postponed in 2021 fiscal year and mixed demand from historical advertising partners in 2022 fiscal year. Further, one of the Company’s larger customers also experienced a temporary halt to its production as a result of COVID-19, which negatively impacted the Company’s near-term membership growth in the 2021 fiscal year. During the fiscal year ended March 31, 2021, the Company enacted several initiatives to counteract these near-term challenges, including salary reductions, obtaining a Paycheck Protection Program (“PPP”) loan and pivoting its live music production to 100% digital. The Company began producing, curating, and broadcasting digital music festivals and events across its platform which has resulted in the growth in the number of live events streamed, related sponsorship revenue and overall viewership. The Company also launched a new pay-per-view (“PPV”) offering in May 2020, enabling new forms of artist revenue including digital tickets, tipping, digital meet and greet and merchandise sales.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the United States. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses and technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property. The Company evaluated the provisions of the CARES Act and determined it is eligible for Employee Retention Credits related to payroll taxes paid during the quarter ended December 31, 2021. In accordance with ASC 105-10-05-02, the Company analogized to International Financial Reporting Standards, specifically International Accounting Standards (“IAS”) 20, Accounting for Government Grants and Disclosures of Government Assistance, and determined that the payroll tax credit will be recognized as a reduction to the payroll tax expense when it is reasonably assured that the credit will be received. The Company recognized the credit of $
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with the United States of America (“US”) generally accepted accounting principles (“GAAP”) requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant items subject to such estimates and assumptions include revenue, allowance for doubtful accounts, the assigned value of acquired assets and assumed and contingent liabilities associated with business combinations and the related purchase price allocation, useful lives and impairment of property and equipment, intangible assets, goodwill and other assets, inventory calculations and reserves, the fair value of the Company’s equity-based compensation awards and convertible debt and debenture instruments, fair values of derivatives, and contingencies. Actual results could differ materially from those estimates. On an ongoing basis, the Company evaluates its estimates compared to historical experience and trends, which form the basis for making judgments about the carrying value of assets and liabilities. Given the overall uncertainty surrounding the COVID-19 pandemic, there is a reasonable possibility that actual results could differ from those estimates and such differences could be material to the financial position and results of operations, specifically in assessing when the collectability of revenue related consideration is probable, and the impairment assessment of goodwill, indefinite lived assets or long-lived assets that are depreciated or amortized.
Revenue Recognition Policy
The Company accounts for a contract with a customer when an approved contract exists, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and the collectability of substantially all of the consideration is probable. Revenue is recognized when the Company satisfies its obligation by transferring control of the goods or services to its customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company uses the expected value method to estimate the value of variable consideration on advertising and with original equipment manufacturer contracts to include in the transaction price and reflect changes to such estimates in periods in which they occur. Variable consideration for these services is allocated to and recognized over the related time period such advertising and membership services are rendered as the amounts reflect the consideration the Company is entitled to and relate specifically to the Company’s efforts to satisfy its performance obligation. The amount of variable consideration included in revenue is limited to the extent that it is probable that the amount will not be subject to significant reversal when the uncertainty associated with the variable consideration is subsequently resolved.
Practical Expedients
The Company elected the practical expedient and recognized the incremental costs of obtaining a contract, if any, as an expense when incurred if the amortization period of the asset that would have been recognized is one year or less.
Gross Versus Net Revenue Recognition
The Company reports revenue on a gross or net basis based on management’s assessment of whether the Company acts as a principal or agent in the transaction and is evaluated on a transaction by transaction basis. To the extent the Company acts as the principal, revenue is reported on a gross basis net of any sales tax from customers, when applicable. The determination of whether the Company acts as a principal or an agent in a transaction is based on an evaluation of whether the Company controls the good or service prior to transfer to the customer. Where applicable, the Company has determined that it acts as the principal in all of its membership service, sponsorship, and merchandising streams and may act as principal or agent for its ticketing/live events, advertising and licensing revenue streams.
The Company’s revenue is principally derived from the following services:
Membership Services
Membership services revenue substantially consist of monthly to annual recurring membership fees, which are primarily paid in advance by credit card or through direct billings arrangements. The Company defers the portions of monthly to annual recurring membership fees collected in advance and recognizes them in the period earned. Membership revenue is recognized in the period of services rendered. The Company’s membership revenue consists of performance obligations that are satisfied over time. This has been determined based on the fact that the nature of services offered are membership based where the customer simultaneously receives and consumes the benefit of the services provided regardless of whether the customer uses the services or not. As a result, the Company has concluded that the best measure of progress toward the complete satisfaction of the performance obligation over time is a time-based measure. The Company recognizes membership revenue straight-line through the membership period.
Membership Services consist of:
Direct member, mobile service provider and mobile app services
The Company generates revenue for membership services on both a direct basis and through memberships sold through certain third-party mobile service providers and mobile app services (collectively the “Mobile Providers”). For memberships sold through the Mobile Providers, the member executes an on-line agreement with Slacker outlining the terms and conditions between Slacker and the member upon purchase of the membership. The Mobile Providers promote the Slacker app through their e-store, process payments for memberships, and retain a percentage of revenue as a fee. The Company reports this revenue gross of the fee retained by the Mobile Providers, as the member is Slacker’s customer in the contract and Slacker controls the service prior to the transfer to the member. Membership revenues from monthly memberships sold directly through Mobile Providers are subject to such Mobile Providers’ refund or cancellation terms. Revenues from Mobile Providers are recognized net of any such adjustments for variable consideration, including refunds and other fees. The Company’s payment terms vary based on whether the membership is sold on a direct basis or through Mobile Providers. Memberships sold on a direct basis require payment before the services are delivered to the customer. The payment terms for memberships sold through Mobile Providers vary, but are generally payable within 30 days.
Third-Party Original Equipment Manufacturers
The Company generates revenue for membership services through memberships sold through a third-party Original Equipment Manufacturer (the “OEM”). For memberships sold through the OEM, the OEM executes an agreement with Slacker outlining the terms and conditions between Slacker and the OEM upon purchase of the membership. The OEM installs the Slacker app in their equipment and provides the Slacker service to the OEM’s customers. The monthly fee charged to the OEM is based upon a fixed rate per vehicle, multiplied by the variable number of total vehicles which have signed up for a paid membership. The number of customers, or the variable consideration, is reported by OEMs and resolved on a monthly basis. The Company’s payment terms with OEM are up to 30 days.
Advertising Revenue
Advertising revenue primarily consist of revenues generated from the sale of audio, video, and display advertising space to third-party advertising exchanges. Revenues are recognized based on delivery of impressions over the contract period to the third-party exchanges, either when an ad is placed for listening or viewing by a visitor or when the visitor “clicks through” on the advertisement. The advertising exchange companies report the variable advertising revenue performed on a monthly basis, which represents the Company’s efforts to satisfy the performance obligation. Additionally, following the acquisition of PodcastOne, the Company began deriving revenue from podcast advertising. PodcastOne earns advertising revenues primarily for fees earned from advertisement placement purchased by the customer during the time the podcast is delivered to the viewing audience, under the terms and conditions as set forth in the applicable podcasting agreement calculated using impressions.
From time to time the Company enters into barter transactions involving advertising provided in exchange for goods and services. Revenue from barter transactions is recognized based on delivery of impressions and in the same manner as described above. Services received are charged to expense when received or utilized. If services are received prior to the delivery of impressions, a liability is recorded. If delivery of impressions have occurred before the receipt of goods or services, a receivable is recorded. Barter revenue for the three months ended December 31, 2023 and 2022 was $
Licensing Revenue
Licensing revenue primarily consists of sales of licensing rights to digitally stream the Company’s live music services. Licensing revenue is recognized when the Company satisfies its performance obligation by transferring control of the goods or services to its customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services, which is typically when the live event has aired. Any license fees collected in advance of an event are deferred until the event airs.
Sponsorship Revenue
Sponsorship revenue primarily consists of sales of sponsorship programs that provide sponsors with opportunities to reach the Company’s customers. Sponsorship revenue is recognized as the event airs. Any sponsorship fees collected in advance of the contract term (typically an event) are deferred until the event airs. The Company reports sponsorship revenue on a gross basis as the Company acts as the principal in the underlying transactions.
Merchandising Revenue
Revenue is recognized upon the transfer of control to the customer. The Company recognizes revenue and measures the transaction price net of taxes collected from customers and remitted to governmental authorities. Sales also include shipping and handling charges billed to customers, with the related freight costs included in cost of goods sold. Sales commissions are expensed as incurred and are recorded in sales and marketing expenses in the accompanying condensed consolidated statements of operations. The Company’s customer contracts do not have a significant financing component due to their short durations, which are typically effective for one year or less and have payment terms that are generally 30 to 60 days. Wholesale revenue is generally recognized when products are shipped, depending on the applicable contract terms. The Company records a refund liability for expected returns based on prior returns history, recent trends, and projections for returns on sales in the current period. The refund liability at December 31, 2023 and 2022 was less than $
Ticket/Event Revenue
Ticket/Event revenue is primarily from the sale of tickets and promoter fees earned from venues or other co-promoters under one of several formulas, including a fixed guaranteed amount and/or a percentage of ticket sales or event profits.
Revenue from the promotion or production of an event is recognized at a point in time when the show occurs. Revenue collected in advance of the event is recorded as deferred revenue until the event occurs. Revenue collected from sponsorship agreements, which is not related to a single event, is classified as deferred revenue and recognized over the term of the agreement or operating season as the benefits are provided to the sponsor.
Revenue from the Company’s ticketing operations primarily consists of service fees charged at the time a ticket for an event is sold in either the primary or secondary markets, including both online PPV tickets as well as ticket physically purchased through a ticket sale vendor. For primary tickets sold to the Company’s PPV and festival events the revenue for the associated ticket service charges collected in advance of the event is recorded as deferred revenue until the event occurs. For PPV arrangements that include multiple performance obligations, i.e. delivery of the online stream, sponsorships, digital meet and greet, or physical merchandise, the Company allocates the total contract consideration to each performance obligation using the standalone selling price. If the standalone selling price is not readily determinable, it is estimated using observable inputs including an adjusted market-based approach, expected cost plus margin, or the residual approach.
Net Income (Loss) Per Share
Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period adjusted to addback dividends (declared or cumulative undeclared) applicable to the Series A Preferred Stock. Diluted earnings (loss) per share is computed using the weighted-average number of common shares and the dilutive effect of contingent shares outstanding during the period. Potentially dilutive contingent shares, which primarily consist of stock options issued to employees, directors and consultants, restricted stock units, warrants issued to third parties and accounted for as equity instruments and convertible notes would be excluded from the diluted earnings per share calculation because their effect is anti-dilutive.
Basic and diluted net income (loss) per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities such as our preferred stock. Under the two-class method, basic and diluted net income (loss) per share attributable to common stockholders is computed by dividing the basic and diluted net income (loss) attributable to common stockholders by the basic and diluted weighted-average number of shares of common stock outstanding during the period. Diluted net income per share attributable to common stockholders adjusts basic net income per share for the potentially dilutive impact of stock options and restricted stock units ("RSUs").
The treasury stock method is used to calculate the potentially dilutive effect of stock options and RSUs. The if-converted method is used to calculate the potentially dilutive effect of the Preferred Stock. In both methods, diluted net income (loss) attributable to common stockholders and diluted weighted-average shares outstanding are adjusted to account for the impact of the assumed issuance of potential common shares that are dilutive, subject to dilution sequencing rules.
At December 31, 2023 and 2022, the Company had
The following table shows the calculation of basic and diluted earnings per share for the periods Series A Preferred Stock was outstanding:
| Three Months Ended | Nine Months Ended | |||||||
| In thousands, except per share amounts | December 31, 2023 | December 31, 2023 | ||||||
| Net loss attributed to LiveOne | $ | ( | ) | $ | ( | ) | ||
| Dividends on preferred stock | ( | ) | ( | ) | ||||
| Net loss attributed to LiveOne | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted weighted average number of shares outstanding | ||||||||
| Shares used in computation of basic and diluted earnings per share | $ | ( | ) | $ | ( | ) | ||
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include all highly liquid investments with original maturities, when purchased, of three months or less.
The following table provides amounts included in cash, cash equivalents and restricted cash presented in the Company’s condensed consolidated statements of cash flows for the nine months ended December 31, 2023 and 2022 (in thousands):
| December 31, 2023 | March 31, 2023 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash and cash equivalents and restricted cash | $ | $ | ||||||
The Company consolidates entities in which the Company has a controlling financial interest. The Company consolidates subsidiaries in which the Company holds, directly or indirectly, more than 50% of the voting rights. Non-controlling interests represent third-party equity ownership interests in the Company’s consolidated entities. The amount of net income (loss) attributable to non-controlling interests is disclosed in the accompanying interim unaudited condensed consolidated statements of operations.
Restricted Cash and Cash Equivalents
The Company maintains certain letters of credit agreements with its banking provider, which are secured by the Company’s cash for periods of less than one year. As of December 31, 2023 and 2022, the Company had restricted cash of $
Allowance for Doubtful Accounts
The Company evaluates the collectability of its accounts receivable based on a combination of factors. Generally, it records specific reserves to reduce the amounts recorded to what it believes will be collected when a customer’s account ages beyond typical collection patterns, or the Company becomes aware of a customer’s inability to meet its financial obligations.
The Company believes that the credit risk with respect to trade receivables is limited due to the large and established nature of its largest customers and the nature of its membership receivables. At December 31, 2023, the Company had customer that made up
The Company’s accounts receivable at December 31, 2023 and March 31, 2023 is as follows (in thousands):
| December 31, | March 31, | |||||||
| 2023 | 2023 | |||||||
| Accounts receivable, gross | $ | $ | ||||||
| Less: Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Inventories
Inventories, principally raw materials awaiting final customization process, are stated at the lower of cost or net realizable value. Inventories are relieved on a first-in, first-out basis.
The carrying value of inventories is reduced for any excess and obsolete inventory. Excess and obsolete reductions are determined based on currently available information, including the likely method of disposition, such as through sales to individual customers and liquidations, and the age of inventory.
Concentration of Credit Risk
The Company maintains cash balances at commercial banks. Cash balances commonly exceed the $250,000 amount insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts, and management believes that the Company is not exposed to any significant credit risk with respect to such cash and cash equivalents.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in more timely recognition of credit losses. The guidance is effective for fiscal years beginning after December 15, 2022 for SEC filers that are eligible to be smaller reporting companies under the SEC’s definition, and interim periods within those fiscal years. The Company is currently evaluating the impact this guidance will have on the Company’s consolidated financial statements. The Company adopted ASU 2016-13 on April 1, 2021 on a prospective basis. The adoption of this standard did not have an impact on the Company’s interim condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires the recognition and measurement of contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. Considerations to determine the amount of contract assets and contract liabilities to record at the acquisition date include the terms of the acquired contract, such as timing of payment, identification of each performance obligation in the contract and allocation of the contract transaction price to each identified performance obligation on a relative standalone selling price basis as of contract inception. ASU 2021-08 is effective for the Company beginning in the first quarter of 2023. ASU 2021-08 should be applied prospectively for acquisitions occurring on or after the effective date of the amendments. Early adoption of the proposed amendments would be permitted, including adoption in an interim period. The Company is currently assessing the impact this standard will have on the Company’s consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.
Note 3 — Revenue
The following table represents a disaggregation of revenue from contracts with customers for the three and nine months ended December 31, 2023 and 2022 (in thousands):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | ||||||||||||||||
| Membership Services | $ | $ | $ | $ | ||||||||||||
| Advertising | ||||||||||||||||
| Merchandising | ||||||||||||||||
| Sponsorship and Licensing | ||||||||||||||||
| Ticket/Event | ||||||||||||||||
| Total Revenue | $ | $ | $ | $ | ||||||||||||
For some contracts, the Company may invoice up front for services recognized over time or for contracts in which the Company has unsatisfied performance obligations. Payment terms and conditions vary by contract type, although terms generally cover monthly payments. In the circumstances where the timing of invoicing differs from the timing of revenue recognition, the Company has determined its contracts do not include a significant financing component. The Company has elected to apply the practical expedient under ASC 606-10-50-14 and not provide disclosure of the amount and timing of performance obligations as the performance obligations are part of a contract that has an original expected duration of one year or less.
For the three months ended December 31, 2023 and 2022, customer accounted for
The following table summarizes the significant changes in the deferred revenue balances during the nine months ended December 31, 2023 (in thousands):
| Deferred | ||||
| Revenue | ||||
| Balance as of March 31, 2023 | $ | |||
| Revenue recognized that was included in the contract liability at beginning of period | ( | ) | ||
| Increase due to cash received, excluding amounts recognized as revenue during the period | ||||
| Balance as of December 31, 2023 | $ | |||
Note 4 — Property and Equipment
The Company’s property and equipment at December 31, 2023 and March 31, 2023 was as follows (in thousands):
| December 31, | March 31, | |||||||
| 2023 | 2023 | |||||||
| Property and equipment, net | ||||||||
| Computer, machinery, and software equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Capitalized internally developed software | ||||||||
| Total property and equipment | ||||||||
| Less accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation expense was $
Note 5 — Goodwill and Intangible Assets
Goodwill
The following table presents the changes in the carrying amount of goodwill for the nine months ended December 31, 2023 (in thousands):
| Goodwill | ||||
| Balance as of March 31, 2023 | $ | |||
| Acquisitions | ||||
| Impairment losses | ||||
| Balance as of December 31, 2023 | $ | |||
Indefinite-Lived Intangible Assets
The following table presents the changes in the carrying amount of indefinite-lived brand and trade names intangible assets in the Company’s Audio Group segment for the nine months ended December 31, 2023 (in thousands):
| Tradenames | ||||
| Balance as of March 31, 2023 | $ | |||
| Acquisitions | ||||
| Impairment losses | ||||
| Balance as of December 31, 2023 | $ | |||
Finite-Lived Intangible Assets
The Company’s finite-lived intangible assets were as follows as of December 31, 2023 (in thousands):
| Gross | Net | |||||||||||
| Carrying | Accumulated | Carrying | ||||||||||
| Value | Amortization | Value | ||||||||||
| Software | $ | $ | $ | |||||||||
| Intellectual property (patents) | ||||||||||||
| Customer relationships | ||||||||||||
| Content creator relationships | ||||||||||||
| Domain names | ||||||||||||
| Brand and trade names | ||||||||||||
| Customer list | ||||||||||||
| Total | $ | $ | $ | |||||||||
The Company’s finite-lived intangible assets were as follows as of March 31, 2023 (in thousands):
| Gross | Net | |||||||||||
| Carrying | Accumulated | Carrying | ||||||||||
| Value | Amortization | Value | ||||||||||
| Software | $ | $ | $ | |||||||||
| Intellectual property (patents) | ||||||||||||
| Customer relationships | ||||||||||||
| Content creator relationships | ||||||||||||
| Domain names | ||||||||||||
| Brand and trade names | ||||||||||||
| Customer list | ||||||||||||
| Total | $ | $ | $ | |||||||||
Intangible assets are amortized over their estimated useful lives based on the pattern in which the economic benefits associated with the asset are expected to be consumed, which to date has approximated the straight-line method of amortization. The estimated useful lives for patents, content creator relationships, domain names, tradename and customer list are generally to years, to years, to years, to years and to years, respectively.
The Company’s amortization expense on its finite-lived intangible assets was $
Finder's Agreement
In September 2023, PodcastOne entered into a finder's fee arrangement pursuant to which it agreed to issue shares of PodcastOne common stock at a price of $
The Company expects to record amortization of intangible assets for fiscal years ending March 31, 2024 and future fiscal years as follows (in thousands):
| For Years Ending March 31, | ||||
| 2024 (remaining three months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ |
Note 6 — Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at December 31, 2023 and March 31, 2023 were as follows (in thousands):
| December 31, | March 31, | |||||||
| 2023 | 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Lease liabilities, current | ||||||||
| $ | $ | |||||||
Note 7 — Notes Payable
Notes payable at December 31, 2023 and March 31, 2023 were as follows (in thousands):
| December 31, | March 31, | |||||||
| 2023 | 2023 | |||||||
| SBA loan | $ | $ | ||||||
| Capchase loan | ||||||||
| Less: Current portion of Notes payable | ( | ) | ( | ) | ||||
| Notes payable | $ | $ | ||||||
SBA Loan
On June 17, 2020, the Company received the proceeds from a loan in the amount of less than $
Loan and Security Agreement
In August 2023, the Company entered into a Loan and Security Agreement with Capchase Inc. (“Capchase”) pursuant to which the Company borrowed the amount of $
Maturities of notes payables as of December 31, 2023 were as follows (in thousands):
| For Years Ending March 31, | ||||
| 2024 (remaining three months) | $ | |||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ |
Note 8 — PodcastOne Bridge Loan
PodcastOne’s Private Placement
On July 15, 2022 (the “Closing Date”), PodcastOne completed a private placement offering (the “PC1 Bridge Loan”) of PodcastOne’s unsecured convertible notes with an original issue discount of
The Company also agreed (i) not to effect a Qualified Financing or a Qualified Event, as applicable, unless immediately following such event the Company owns no less than
The Company further agreed to register the shares of its common stock issuable upon conversion of the PC1 Notes and exercise of the PC1 Warrants in connection with a Qualified Financing or a Qualified Event. If the Company did not file such registration statement on or prior to April 15, 2023, the Company would have been required to prepay $
As part of the PC1 Bridge Loan, the Company redeemed $
On September 8, 2023, PodcastOne completed a Qualified Event (its spin out from the Company to become a standard publicly trading company (the “Spin-Out”)) as a result of its direct listing on The NASDAQ Capital Market on such date. In connection with such completed Qualified Event, all of the remaining PC1 Notes (including interest thereunder) in the aggregate amount of approximately $
Warrants
The PC1 Warrants were classified as liabilities as they represent an obligation to deliver a variable number of shares of common stock in the future and are therefore required to be initially and subsequently measured at fair value each reporting period. The Company recorded a warrant liability in the amount of $
The fair value of the PC1 Warrants is measured in accordance with ASC 820 “Fair Value Measurement”, using “Black Scholes” modeling, incorporating the following inputs at issuance:
| July 15, | ||||
| 2022 | ||||
| Expected dividend yield | % | |||
| Expected stock-price volatility | % | |||
| Risk-free interest rate | % | |||
| Simulated share price | $ | |||
| Exercise price | $ | |||
The fair value of the PC1 Warrants is measured in accordance with ASC 820 “Fair Value Measurement”, using “Black-Scholes” modeling, incorporating the following inputs for the periods noted below:
| September 8, | ||||
| 2023 | ||||
| Expected dividend yield | % | |||
| Expected stock-price volatility | % | |||
| Risk-free interest rate | % | |||
| Simulated share price | $ | |||
| Exercise price | $ | |||
| March 31, | ||||
| 2023 | ||||
| Expected dividend yield | % | |||
| Expected stock-price volatility | % | |||
| Risk-free interest rate | % | |||
| Simulated share price | $ | |||
| Exercise price | $ | |||
Total loss of $
Redemption Features
The Company determined that the redemption features associated with the PC1 Bridge Loan meet the accounting definition of an embedded derivative that must be separated from the PC1 Bridge Loan and initially and subsequently be reported as a liability (“the Redemption Liability”) and measured at fair value. The fair value of the Redemption Liability was determined using a Monte Carlo simulation model using three scenarios (1) redemption prior to the initial maturity date (
The fair value of the redemption features is measured in accordance with ASC 820 “Fair Value Measurement”, using “Monte Carlo simulation” modeling, incorporating the following inputs for the following periods:
| March 31, | ||||
| 2023 | ||||
| Simulations | ||||
| Expected stock-price volatility | % | |||
| Risk-free interest rate | % | |||
| Conversion price | $ | |||
| Stock price | $ | |||
The fair value of the Redemption Liability was
The resulting discount from the OID, underwriting fees, PC1 Warrants, and embedded Redemption Liability derivative of $
Interest expense with respect to the PC1 Bridge Loan for the three and nine months ended December 31, 2023 was $
During the nine months ended December 31, 2023, the Company redeemed $
Note 9 — Senior Secured Line of Credit
On June 2, 2021, the Company entered into a Business Loan Agreement (the "Former Business Loan Agreement") with East West Bank (the “Senior Lender”), which provides for a revolving credit facility collateralized by all of the assets of the Company and its subsidiaries. In connection with the Former Business Loan Agreement, the Company entered into a Promissory Note with the Senior Lender and established the revolving line of credit in the amount of $
In July 2022, the Company extended the maturity date of its revolving credit facility to June 2024 and its variable interest rate was increased to
The principal balance under the Revolving Credit Facility as of December 31, 2023 was $
On September 8, 2023 and effective as of August 22, 2023 (the “Closing Date”), the Company entered into a new Business Loan Agreement (the “New Business Loan Agreement”) with the Senior Lender, to convert the Company’s revolving credit facility with the Senior Lender into an assets backed loan credit facility with the Senior Lender, which shall continue to be collateralized by a first lien on all of the assets of the Company and its subsidiaries (the “ABL Credit Facility”). The New Business Loan Agreement provides the Company with borrowing capacity of up to the Borrowing Base (as defined in the Business Loan Agreement). Pursuant to the New Business Loan Agreement, the requirement that the Company and its related entities shall at all times maintain a certain minimum deposit with the Senior Lender was reduced from $
Borrowings under the ABL Credit Facility are subject to certain covenants as set forth in the New Business Loan Agreement and bear interest at a rate equal to the prime rate plus
In connection with the New Business Loan Agreement, the Company’s current Promissory Note, dated as of June 2, 2021, issued to the Senior Lender in the principal amount of $
Note 10 — Related Party Transactions
As of March 31, 2022, the Company had unsecured convertible Trinad Notes outstanding which were issued to Trinad Capital. In February 2023, the Trinad Notes along with accrued interest were converted into
On September 8, 2023, PodcastOne completed its Direct Listing on the Nasdaq Capital Market which resulted in the Company owning
Note 11 — Leases
The Company leases a space at a location under a non-cancellable operating lease with a remaining lease term of
The Company leases several office locations with lease terms that are less than 12 months or are on month to month terms. Rent expense for these leases totaled less than $
Operating lease costs for the nine months ended December 31, 2023 and 2022 consisted of the following (in thousands):
| Nine Months Ended | Nine Months Ended | |||||||
| December 31, | December 31, | |||||||
| 2023 | 2022 | |||||||
| Fixed rent cost | $ | $ | ||||||
| Short term lease cost | ||||||||
| Total operating lease cost | $ | $ | ||||||
Supplemental balance sheet information related to leases was as follows (in thousands):
| December 31, | March 31, | |||||||
| Operating leases | 2023 | 2023 | ||||||
| Operating lease right-of-use assets | $ | $ | ||||||
| Operating lease liability, current | $ | $ | ||||||
| Operating lease liability, noncurrent | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
The operating lease right-of-use assets are included in other assets and current operating lease liabilities are included in accounts payable and accrued liabilities in the accompanying condensed consolidated balance sheets.
Maturities of operating lease liabilities as of December 31, 2023 were as follows (in thousands):
| For Years Ending March 31, | ||||
| 2024 (remaining three months) | $ | |||
| 2025 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ |
Significant judgments
Discount rate – the Company’s lease is discounted using the Company’s incremental borrowing rate of
Options – the lease term is the minimum noncancelable period of the lease. The Company does not include option periods unless the Company determined it is reasonably certain of exercising the option at inception or when a triggering event occurs.
Lease and non-lease components – non-lease components were considered and determined not to be material.
Note 12 — Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
| December 31, | March 31, | |||||||
| 2023 | 2023 | |||||||
| Contingent consideration from Gramophone acquisition | $ | $ | ||||||
| Accrued royalties | ||||||||
| Accrued legal | ||||||||
| Other long-term liabilities | ||||||||
| Total other long-term liabilities | $ | $ | ||||||
The Company classified $
Note 13 — Commitments and Contingencies
Contractual Obligations
As of December 31, 2023, the Company is obligated under agreements with Content Providers and other contractual obligations to make guaranteed payments as follows: $
On a quarterly basis, the Company records the greater of the cumulative actual content acquisition costs incurred or the cumulative minimum guarantee based on forecasted usage for the minimum guarantee period. The minimum guarantee period of time is the period that the minimum guarantee relates to, as specified in each agreement, which may be annual or a longer period. The cumulative minimum guarantee, based on forecasted usage, considers factors such as listening hours, revenue, members, and other terms of each agreement that impact the Company’s expected attainment or recoupment of the minimum guarantees based on the relative attribution method.
Several of the Company’s content acquisition agreements also include provisions related to the royalty payments and structures of those agreements relative to other content licensing arrangements, which, if triggered, could cause the Company’s payments under those agreements to escalate, which included payments to be made in common stock. In addition, record labels, publishers and performing rights organizations with whom the Company has entered into direct license agreements have the right to audit the Company’s content acquisition payments, and any such audit could result in disputes over whether the Company has paid the proper content acquisition costs. However, as of December 31, 2023, the Company does not believe it is probable that these provisions of its agreements discussed above will, individually or in the aggregate, have a material adverse effect on its business, financial position, results of operations or cash flows.
On August 4, 2022, the Company entered into a settlement agreement with a certain music partner attributed to past royalties owed. The Company issued
Employment Agreements
As of December 31, 2023, the Company has employment agreements with two named executive officers (“Section 16 Officers”) that provide salary payments of $
The Company’s CEO agreed to forgive his salary of $
Legal Proceedings
On April 10, 2018, Joseph Schnaier, Danco Enterprises, LLC (an entity solely owned by Mr. Schnaier, “Danco”), Wantmcs Holdings, LLC (Mr. Schnaier is the managing member) and Wantickets (Mr. Schnaier is the
During the nine months ended December 31, 2023 and 2022, the Company recorded legal settlement expenses relating to potential claims arising in connection with litigation brought against the Company by certain third parties that were not material and were included in general and administrative expenses in the accompanying consolidated statement of operations.
From time to time, the Company is involved in legal proceedings and other matters arising in connection with the conduct of its business activities. Many of these proceedings may be at the preliminary stages and/or seek an indeterminate amount of damages. In the opinion of management, after consultation with legal counsel, such routine claims and lawsuits are not significant and we do not currently expect them to have a material adverse effect on our business, financial condition, results of operations, or liquidity.
The CARES Act
The CARES Act, passed in March 2020 and subsequently amended in 2021, allowed eligible employers to take credit up to 70% of qualified wages if the Company experienced either a full or partial suspension of the operation due to COVID related government orders. During the year ended March 31, 2022, the Company, with the guidance from a third-party specialist, determined it was entitled to $
Note 14 — Employee Benefit Plan
The Company sponsors a 401(k) plan (the “401(k) Plan”) covering all employees. Prior to March 31, 2019, only Slacker employees were eligible to participate in the 401(k) Plan. Employees are eligible to participate in the 401(k) Plan the first day of the calendar month following their date of hire. The Company may make discretionary matching contributions to the 401(k) Plan on behalf of its employees up to a maximum of
Note 15 — Stockholders’ Deficit
Authorized Common Stock and Authority to Create Preferred Stock
The Company has the authority to issue up to
The Company may issue shares of preferred stock from time to time in one or more series, each of which will have such distinctive designation or title as shall be determined by the Company’s board of directors and will have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issue of such class or series of preferred stock as may be adopted from time to time by the Company’s board of directors. The Company’s board of directors will have the power to increase or decrease the number of shares of preferred stock of any series after the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased, the shares constituting such decrease will resume the status of authorized but unissued shares of preferred stock.
It is not possible to state the actual effect of the issuance of any shares of preferred stock on the rights of holders of the common stock until and unless the Company’s board of directors determines the specific rights of the holders of the preferred stock; however, these effects may include: restricting dividends on the common stock, diluting the voting power of the common stock, impairing the liquidation rights of the common stock, or delaying or preventing a change in control of the Company without further action by the stockholders.
Stock Repurchase Program
In December 2020, the Company announced that its board of directors has authorized the repurchase of up to million shares of its outstanding common stock from time to time. In November 2022, the Company announced that its board of directors has authorized it to expand its stock repurchase program by up to an additional $
Series A Preferred Stock
The Series A Preferred Stock is convertible at any time at a Holder’s option into shares of the Company’s common stock, at a price of $
The Company may, at its option (the “Optional Redemption Right”), on or before the Mandatory Redemption Date (as defined herein), purchase up to $
Pursuant to the Exchange Agreements, the Company agreed that at any time that any of the shares of Series A Preferred Stock issued to the Harvest Funds are outstanding, (i) to directly or through its 100% owned subsidiaries (as applicable), to own on a fully diluted basis at least 66% of the total equity and voting rights of any and all classes of securities of each of PodcastOne, Slacker, PPV One, Inc., and LiveXLive Events, LLC subsidiaries of the Company, (ii) not to issue shares of its common stock or convertible equity securities at a price less than $
In accordance with ASC 480, the Company classified $
In accordance with ASC 480, the Company classified $
Each share of Series A Preferred Stock is entitled to receive cumulative dividends payable at a rate per annum of
2016 Equity Incentive Plan
The Company’s board of directors and stockholders approved the Company’s 2016 Equity Incentive Plan, as amended (the “2016 Plan”) which reserved a total of
The Company recognized share-based compensation expense of $
PodcastOne 2022 Equity Plan
On December 15, 2022, the PodcastOne’s board of directors and the Company as the sole stockholder, through its wholly owned subsidiary, LiveXLive PodcastOne, Inc., approved PodcastOne’s 2022 Equity Incentive Plan (the “2022 Plan”) which reserved a total of
As of December 31, 2023, PodcastOne has granted incentive awards underlying
On September 8, 2023, the Company completed its spin out of PodcastOne from the Company with PodcastOne becoming a standalone publicly trading company (the "Spin-Out"), as a result
Note 16 — Business Segments and Geographic Reporting
The Company determined its operating segments in accordance with ASC 280, “Segment Reporting” (“ASC 280”).
Beginning in the second quarter of fiscal 2024, management has determined that the Company has three operating segments (PodcastOne, Slacker and Media Group). The Audio Group consist of the Company's PodcastOne and Slacker subsidiaries and the Media Group consist of the Company's remaining subsidiaries. As a result of the Spin-Out of PodcastOne, the Company’s chief operating decision maker (“CODM”) began to make decisions and allocate resources based on three operating segments of the business (PodcastOne, Slacker and Media group). The Company’s reporting segments reflects the manner in which its CODM reviews results and allocates resources. The CODM reviews operating segment performance exclusive of share-based compensation expense, amortization of intangible assets, depreciation, and other expenses (including legal fees, expenses, and accruals) related to acquisitions, associated integration activities, and certain other non-cash charges. As a result, the segment information for the prior periods has been recast to conform with the current period presentation.
The Company’s three operating segments are also consistent with its internal organizational structure, which is the way the Company assesses operating performance and allocates resources.
Customers
The Company has one external customer that accounts for more than 10% of its revenue and accounts receivable. Such original equipment manufacturer (the “OEM”) provides premium Slacker service in its new vehicles. Total revenues from the OEM were $
Segment and Geographic Information
The Company’s operations are based in the United States. All material revenues of the Company are derived from the United States. All long-lived assets of the Company are located in the United States, of which $
We manage our working capital on a consolidated basis. Accordingly, segment assets are not reported to, or used by, our management to allocate resources to or assess performance of our segments, and therefore, total segment assets and related depreciation and amortization have not been presented.
The following table presents the results of operations for our reportable segments for the three and nine months ended December 31, 2023 and 2022:
| Three months ended | ||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Corporate | ||||||||||||||||||||
| PodcastOne | Slacker | Media | expenses | Total | ||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Three months ended | ||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Corporate | ||||||||||||||||||||
| PodcastOne | Slacker | Media | expenses | Total | ||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
| Nine months ended | ||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Corporate | ||||||||||||||||||||
| PodcastOne | Slacker | Media | expenses | Total | ||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||
| Nine months ended | ||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Corporate | ||||||||||||||||||||
| PodcastOne | Slacker | Media | expenses | Total | ||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||||
Geographic Information
All material revenues of the Company are derived from the United States. All long-lived assets of the Company are located in the United States.
Note 17 — Fair Value Measurements
The following table presents the fair value of the Company’s financial liabilities that are measured at fair value on a recurring basis (in thousands):
| December 31, 2023 | ||||||||||||||||
| Fair | Hierarchy Level | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Prepaid expenses - common stock issued subject to market adjustment at settlement | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Bifurcated embedded derivative on Series A Preferred Stock | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| March 31, 2023 | ||||||||||||||||
| Fair | Hierarchy Level | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Prepaid expenses - common stock issued subject to market adjustment at settlement | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| Liabilities: | ||||||||||||||||
| Contingent consideration liability from Gramophone acquisition | $ | $ | $ | $ | ||||||||||||
| Warrant liability on PodcastOne bridge loan | ||||||||||||||||
| Bifurcated embedded derivative on PodcastOne bridge loan | ||||||||||||||||
| Bifurcated embedded derivative on Series A Preferred Stock | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
The following table presents a reconciliation of the Company’s financial liabilities that are measured at Level 3 within the fair value hierarchy (in thousands):
| Amount | ||||
| Balance as of March 31, 2023 | $ | |||
| Change in fair value of bifurcated embedded derivatives, reported in earnings | ||||
| Conversion of embedded derivatives to equity | ( | ) | ||
| Conversion of warrant liability to non-controlling interest | ( | ) | ||
| Change in fair value of contingent consideration liabilities, reported in earnings | ( | ) | ||
| Balance as of December 31, 2023 | $ | |||
The Company did not elect the fair value measurement option for the following financial assets or liabilities. The fair values of certain financial instruments measured at amortized cost and the hierarchy level the Company used to estimate the fair values are shown below (in thousands):
| December 31, 2023 | ||||||||||||||||
| Carrying | Hierarchy Level | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Liabilities: | ||||||||||||||||
| PodcastOne bridge loan | $ | $ | $ | $ | ||||||||||||
| March 31, 2023 | ||||||||||||||||
| Carrying | Hierarchy Level | |||||||||||||||
| Value | Level 1 | Level 2 | Level 3 | |||||||||||||
| Liabilities: | ||||||||||||||||
| PodcastOne bridge loan | $ | $ | $ | $ | ||||||||||||
Note 18 — Subsequent Events
Effective as of January 24, 2024, the Company's board of directors appointed Aaron Sullivan as the full-time Chief Financial Officer, Treasurer and Secretary of the Company and the Company’s major subsidiaries, PodcastOne, Inc. and Slacker, Inc., and any other subsidiary of the Company as reasonably requested by the Company. The Company filed an 8-K summarizing the employment terms of Mr. Sullivan on January 30, 2024.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
As used herein, “LiveOne,” the “Company,” “we,” “our” or “us” and similar terms include LiveOne, Inc. and its subsidiaries, unless the context indicates otherwise. The following discussion and analysis of our business and results of operations for the three and nine months ended December 31, 2023, and our financial conditions at that date, should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q (this “Quarterly Report”).
Forward-Looking Statements
Certain statements contained in this Quarterly Report that are not statements of historical fact constitute “forward-looking statements” within the meaning of the Securities Litigation Reform Act of 1995, notwithstanding that such statements are not specifically identified. These forward-looking statements relate to expectations or forecasts for future events, including without limitation our earnings, revenues, expenses or other future financial or business performance or strategies, or the impact of legal or regulatory matters on our business, results of operations or financial condition. These statements may be preceded by, followed by or include the words “may,” “might,” “will,” “would,” “could,” “should,” “will likely result,” “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “continue,” “target” or the negative or other variations thereof or comparable terminology. These forward-looking statements are not guarantees of future performance and are based on information available to us as of the date of this Quarterly Report and on our current expectations, forecasts and assumptions, and involve substantial risks and uncertainties. Actual results may vary materially from those expressed or implied by the forward-looking statements herein due to a variety of factors, including: our reliance on one key customer for a substantial percentage of our revenue; our ability to consummate any proposed financing, acquisition, spin-out, special dividend, distribution or transaction, including the proposed special dividend and spin-out of our pay-per-view business, the timing of the consummation of such proposed event, including the risks that a condition to consummation of such proposed event would not be satisfied within the expected timeframe or at all or that the consummation of any proposed financing, acquisition, spin-out, special dividend, distribution or transaction, the timing of the consummation of such proposed event will not occur; our ability to continue as a going concern; our reliance on one key customer for a substantial percentage of our revenue; if and when required, our ability to obtain additional capital, including to fund our current debt obligations and to fund potential acquisitions and capital expenditures; our ability to attract, maintain and increase the number of our users and paid members; our ability to identify, acquire, secure and develop content; our ability to successfully implement our growth strategy, our ability to acquire and integrate our acquired businesses, the ability of the combined business to grow, including through acquisitions which we are able to successfully integrate, and the ability of our executive officers to manage growth profitably; uncertain and unfavorable outcome(s) of any legal proceedings pending or that may be instituted against us, our subsidiaries, or third parties to whom we owe indemnification obligations; changes in laws or regulations that apply to us or our industry; our ability to recognize and timely implement future technologies in the music and live streaming space; our ability to capitalize on investments in developing our service offerings, including the LiveOne App to deliver and develop upon current and future technologies; significant product development expenses associated with our technology initiatives; our ability to deliver end-to-end network performance sufficient to meet increasing customer demands; our ability to timely and economically obtain necessary approval(s), releases and or licenses on a timely basis for the use of our music content on our service platform; our ability to obtain and maintain international authorizations to operate our service over the proper foreign jurisdictions our customers utilize; our ability to expand our service offerings and deliver on our service roadmap; our ability to timely and cost-effectively produce, identify and or deliver compelling content that brands will advertise on and or customers will purchase and or subscribe to across our platform; general economic and technological circumstances in the music and live streaming digital markets; our ability to obtain and maintain licenses for content used on legacy music platforms; the loss of, or failure to realize benefits from, agreements with our music labels, publishers and partners; unfavorable economic conditions in the airline industry and economy as a whole; our ability to expand our domestic or international operations, including our ability to grow our business with current and potential future music labels, festivals, publishers, or partners; the effects of service interruptions or delays, technology failures, material defects or errors in our software, damage to our equipment or geopolitical restrictions; costs associated with defending pending or future intellectual property infringement actions and other litigation or claims; increases in our projected capital expenditures due to, among other things, unexpected costs incurred in connection with the roll out of our technology roadmap or our plans of expansion in North America and internationally; fluctuation in our operating results; the demand for live and music streaming services and market acceptance for our products and services; our ability to generate sufficient cash flow to make payments on our indebtedness; our incurrence of additional indebtedness in the future; our ability to repay the convertible notes at maturity; the effect of the conditional conversion feature of our Series A Preferred Stock; our compliance with the covenants in our debt agreements; our intent to repurchase shares of our and/or PodcastOne's common stock from time to time under our announced stock repurchase program and the timing, price, and quantity of repurchases, if any, under the program; risks and uncertainties applicable to the businesses of our subsidiaries; and other risks and uncertainties set forth herein. Other factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to, those set forth below in Part II – Item 1A. Risk Factors of this Quarterly Report and in Part I – Item 1A. Risk Factors of our 2023 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 29, 2023 (the “2023 Form 10-K”), as well as other factors and matters described herein or in the annual, quarterly and other reports we file with the SEC. Except as required by law, we do not undertake any obligation to update forward-looking statements as a result of as a result of new information, future events or developments or otherwise.
Overview of the Company
We are a pioneer in the acquisition, distribution and monetization of live music, Internet radio, podcasting and music-related streaming and video content. Our principal operations and decision-making functions are located in North America. We manage and report our businesses as a single operating segment. Our senior management regularly reviews our operating results, principally to make decisions about how we allocate our resources and to measure our segment and consolidated operating performance. In prior fiscal years we generated a majority of our revenue primarily through membership services from our streaming radio and music services, and to a lesser extent through advertising and licensing across our music platform. In the fourth quarter of our fiscal year ended March 31, 2020, we began generating ticketing, sponsorship, and promotion-related revenue from live music events through our February 2020 acquisition of React Presents. In May 2020, we launched a new pay-per-view (“PPV”) offering enabling new forms of artist revenue including digital tickets, tipping, digital meet and greets, merchandise sales and sponsorship. In July 2020, we entered the podcasting business with the acquisition of PodcastOne and in December 2020, we entered the merchandising business with the acquisition of CPS. In October 2021, we entered artist and brand development and music-related press relations business through our acquisition of Gramophone.
For the three months ended December 31, 2023 and 2022, we reported revenue of $28.5 million and $23.5 million, respectively. We have one customer that accounted for more than 10% of its revenue during the three and nine months ended December 31, 2023 and 2022. The customer is an original equipment manufacturer (the “OEM”) who provides premium Slacker service in all of their new vehicles. In the three months ended December 31, 2023 and 2022, total revenue from the OEM was $15.5 million and $11.4 million, respectively. In the nine months ended December 31, 2023 and 2022, total revenue from the OEM was $43.6 million and $32.1 million, respectively.
Key Corporate Developments for the Quarter Ended December 31, 2023
We ended the December 31, 2023 quarter with approximately 2,300,000 paid members on our music platform, up from approximately 1,594,000 at December 31, 2022, representing 44% annual growth. Included in the total number of paid members for the reported periods are certain members which are the subject of a contractual dispute. We are currently not recognizing revenue related to these members.
Basis of Presentation
The following discussion and analysis of our business and results of operations and our financial conditions is presented on a consolidated basis. In addition, a brief description is provided of significant transactions and events that have an impact on the comparability of the results being analyzed.
Opportunities, Challenges and Risks
During our fiscal year ended March 31, 2022, we derived 52% of our revenue from paid memberships and the remainder from advertising, ticketing, sponsorship, merchandising and licensing. Our revenue for the fiscal year ended March 31, 2023 was comprised of 55% from paid members, 37% from advertising, 7% from merchandise and 1% from ticketing.
We believe there is substantial near and long-term value in our live music content. We believe the monetary value of broadcasting live music will follow a similar evolution to live sporting events such as the National Football League, Major League Baseball and the National Basketball Association, whereby sports broadcasting rights became more valuable as the demand for live sporting events increased over the past 20 years. As a thought leader in live music, we plan to acquire the broadcasting rights to as many of the top live music events and festivals that are available to us. In the near term, we will continue aggregating our digital traffic across these festivals and monetizing the live broadcasting of these events through advertising, brand sponsorships and licensing of certain broadcasting rights outside of North America.
With the acceleration of our live events, we have also begun to package, produce and broadcast our live music content on a 24/7/365 basis across our music platform and grow our paid members. Recently, we have entered into distribution relationships with a variety of platforms, including Roku, AppleTV, Amazon Fire, linear OTT platforms such as STIRR and XUMO. As we continue to have more distribution channels, rights and viewership and expand our original programming capabilities, we believe there is a substantial opportunity to increase our brand, advertising, viewership and membership capabilities and corresponding revenue, domestically and globally.
We believe our operating results and performance are, and will continue to be, driven by various factors that affect the music industry. Our ability to attract, grow and retain users to our platform is highly sensitive to rapidly changing public music preferences and technology and is dependent on our ability to maintain the attractiveness of our platform, content and reputation to our customers. Beyond fiscal year 2023, the future revenue and operating growth across our music platform will rely heavily on our ability to grow our member base in a cost effective manner, continue to develop and deploy quality and innovative new music services, provide unique and attractive content to our customers, continue to grow the number of listeners on our platform and live music festivals we stream, grow and retain customers and secure sponsorships to facilitate future revenue growth from advertising and e-commerce across our platform.
As our music platform continues to evolve, we believe there are opportunities to expand our services by adding more content in a greater variety of formats such as podcasts and video podcasts (“vodcasts”), extending our distribution to include pay television, OTT and social channels, deploying new services for our members, artist merchandise and live music event ticket sales, and licensing user data across our platform. Our acquisitions of PodcastOne, CPS and Gramophone are reflective of our flywheel operating model. Conversely, the evolution of technology presents an inherent risk to our business. Today, we see large opportunities to expand our music services within North America and other parts of the world where we will need to make substantial investments to improve our current service offerings. As a result, and during the fiscal year ending March 31, 2024, we will continue to invest in product and engineering to further develop our future music apps and services, and we expect to continue making significant product development investments to our existing technology solutions over the next 12 to 24 months to address these opportunities.
As our platform matures, we also expect our Contribution Margins*, adjusted earnings before income tax, depreciation and amortization (“Adjusted EBITDA”)* and Adjusted EBITDA Margins* to improve in the near and long term, which are non-GAAP measures as defined in section following below titled, “Non-GAAP Measures”. Historically, our live events business has not generated enough direct revenue to cover the costs to produce such events, and as a result generated negative Contribution Margins*, Adjusted EBITDA*, Adjusted EBITDA Margins* and operating losses. Historically, we produced and digitally distributed the live music performances of many of these large global music events to fans all around the world. Beginning in late March 2020, the COVID-19 pandemic had an adverse impact on on-premise live music events and festivals. With the elimination of any fan-attended music events, festivals and concerts, we shifted our operating model beginning in April 2020 towards self-producing live music events that were 100% digital (e.g., artists not performing in front of live fans and solely for digital distribution).
Growth in our music services is also dependent upon the number of customers that use and pay for our services, the attractiveness of our music platform to sponsors and advertisers and our ability to negotiate favorable economic terms with music labels, publishers, artists and/or festival owners, and the number of consumers who use our services. Growth in our margins is heavily dependent on our ability to grow the membership base in a cost-efficient manner, coupled with the managing the costs associated with implementing and operating our services, including the costs of licensing music with the music labels, producing, streaming and distributing video and audio content and sourcing and distributing personalized products and gifts. Our ability to attract and retain new and existing customers will be highly dependent on our abilities to implement and continually improve upon our technology and services on a timely basis and continually improve our network and operations as technology changes and as we experience increased network capacity constraints as we continue to grow.
For the majority of our agreements with festival owners, we acquire the global broadcast rights. Moreover, the digital rights we acquire principally include any format and screen, and where applicable, future rights to VR and AR. For the quarter ended December 31, 2023 and 2022, all material amounts of our revenue were derived from customers located in the United States and moreover, one of our customers accounted for 49% and 42% of our consolidated revenue, respectively. This significant concentration of revenue from one customer poses risks to our operating results, and any change in the means this customer utilizes our services beyond March 31, 2023 could cause our revenue to fluctuate significantly.
Moreover, and with the addition of PodcastOne and CPS in July and December 2020, respectively, the percentage of this customer revenue concentration increased and is expected to continue in the future. In the long term, we plan to expand our business internationally in places such as Europe, Asia Pacific and Latin America, and as a result will continue to incur significant incremental upfront expenses associated with these growth opportunities.
Consolidated Results of Operations
Three Months Ended December 31, 2023, as compared to Three Months Ended December 31, 2022
The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results (in thousands):
| Three Months Ended |
||||||||
| December 31, |
||||||||
| 2023 |
2022 |
|||||||
| Revenue: |
$ | 31,245 | $ | 27,309 | ||||
| Operating expenses: |
||||||||
| Cost of sales |
23,267 | 19,362 | ||||||
| Sales and marketing |
1,514 | 1,608 | ||||||
| Product development |
694 | 1,035 | ||||||
| General and administrative |
5,880 | 4,535 | ||||||
| Impairment of intangible assets |
115 | - | ||||||
| Amortization of intangible assets |
528 | 1,343 | ||||||
| Total operating expenses |
31,998 | 27,883 | ||||||
| Income (loss) from operations |
(753 | ) | (574 | ) | ||||
| Other income (expense): |
||||||||
| Interest expense, net |
(1,279 | ) | (2,220 | ) | ||||
| Other expense |
(207 | ) | 257 | |||||
| Total other income (expense), net |
(1,486 | ) | (1,963 | ) | ||||
| (Loss) income before income taxes |
(2,239 | ) | (2,537 | ) | ||||
| Provision for (benefit from) income taxes |
(15 | ) | 11 | |||||
| Net loss |
(2,224 | ) | (2,548 | ) | ||||
| Net loss attributable to non-controlling interest |
(650 | ) | - | |||||
| Net loss attributed to LiveOne |
$ | (1,574 | ) | $ | (2,548 | ) | ||
| Net loss per share - basic and diluted |
$ | (0.03 | ) | $ | (0.03 | ) | ||
| Weighted average common shares – basic and diluted |
87,882,364 | 85,585,117 | ||||||
The following table sets forth the depreciation expense included in the above line items (in thousands):
| Three Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Depreciation expense |
||||||||||||
| Cost of sales |
$ | 37 | $ | 31 | 19 | % | ||||||
| Sales and marketing |
58 | 49 | 18 | % | ||||||||
| Product development |
460 | 565 | -19 | % | ||||||||
| General and administrative |
284 | 285 | 0 | % | ||||||||
| Total depreciation expense |
$ | 839 | $ | 930 | -10 | % | ||||||
The following table sets forth the stock-based compensation expense included in the above line items (in thousands):
| Three Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Stock-based compensation expense |
||||||||||||
| Cost of sales |
$ | 289 | $ | 203 | 42 | % | ||||||
| Sales and marketing |
583 | (64 | ) | -1011 | % | |||||||
| Product development |
(238 | ) | 136 | -275 | % | |||||||
| General and administrative |
1,621 | 447 | 263 | % | ||||||||
| Total stock-based compensation expense |
$ | 2,255 | $ | 722 | 212 | % | ||||||
The following table sets forth our results of operations, as a percentage of revenue, for the periods presented:
| Three Months Ended |
||||||||
| December 31, |
||||||||
| 2023 |
2022 |
|||||||
| Revenue |
100 | % | 100 | % | ||||
| Operating expenses |
||||||||
| Cost of sales |
74 | % | 71 | % | ||||
| Sales and marketing |
5 | % | 6 | % | ||||
| Product development |
2 | % | 4 | % | ||||
| General and administrative |
19 | % | 17 | % | ||||
| Impairment of intangible assets |
0 | % | 0 | % | ||||
| Amortization of intangible assets |
2 | % | 5 | % | ||||
| Total operating expenses |
102 | % | 102 | % | ||||
| (Loss) income from operations |
-2 | % | -2 | % | ||||
| Other income (expense), net |
-5 | % | -7 | % | ||||
| Income (loss) before income taxes |
-7 | % | -9 | % | ||||
| Income tax provision (benefit) |
0 | % | 0 | % | ||||
| Net loss |
-7 | % | -9 | % | ||||
| Net loss attributable to non-controlling interest |
-2 | % | 0 | % | ||||
| Net loss attributed to LiveOne |
-5 | % | -9 | % | ||||
Revenue
Revenue was as follows (in thousands):
| Three Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Membership services |
$ | 16,858 | $ | 13,354 | 26 | % | ||||||
| Advertising |
10,592 | 8,498 | 25 | % | ||||||||
| Merchandising |
3,795 | 4,825 | -21 | % | ||||||||
| Sponsorship and licensing |
- | 76 | -100 | % | ||||||||
| Ticket/Event |
- | 556 | -100 | % | ||||||||
| Total Revenue |
$ | 31,245 | $ | 27,309 | 14 | % | ||||||
Membership Revenue
Membership revenue increased $3.5 million, or 26%, to $16.9 million for the three months ended December 31, 2023, as compared to $13.4 million for the months ended December 31, 2022. The increase was primarily as a result of member growth with our largest OEM customer.
Advertising Revenue
Advertising revenue increased $2.1 million, or 25%, to $10.6 million for the three months ended December 31, 2023, as compared to $8.5 million for the three months ended December 31, 2022, which is primarily attributable to growth in advertising at PodcastOne year-over-year.
Merchandising
Merchandising revenue decreased $1.0 million, or 21%, to $3.8 million for the three months ended December 31, 2023, as compared to $4.8 million the three months ended December 31, 2022, which is due to a reduction in demand from both retail partners and our direct to consumer merchandising business.
Sponsorship and Licensing
Sponsorship and licensing revenue decreased by $0.1 million, or 100%, to none for the three months ended December 31, 2023, as compared to $0.1 million for the three months ended December 31, 2022. The decrease was primarily due to no significant events occurring for the three months ended December 31, 2023.
Ticket/Event
Ticket/Event revenue decreased by $0.6 million, or 100%, to $0.6 million for the three months ended December 31, 2023, as compared to $0.6 million for the three months ended December 31, 2022, driven by the lack of any in-person events during the current year period.
Cost of Sales
Cost of sales was as follows (in thousands):
| Three Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Membership |
$ | 11,300 | 8,176 | 38 | % | |||||||
| Advertising |
9,558 | 7,756 | 23 | % | ||||||||
| Production and Ticketing |
171 | (26 | ) | -758 | % | |||||||
| Merchandising |
2,584 | 3,456 | -25 | % | ||||||||
| Total Cost of Sales |
$ | 23,613 | $ | 19,362 | 22 | % | ||||||
Membership
Membership cost of sales increased by $3.1 million, or 38%, to $11.3 million for the three months ended December 31, 2023, as compared to $8.2 million for the three months ended December 31, 2022. The increase was in line with the higher membership revenues noted above.
Advertising
Advertising cost of sales increased by $1.8 million, or 23%, to $9.6 million for the three months ended December 31, 2023, as compared to $7.8 million for the three months ended December 31, 2022. The increase was primarily due to an increase in revenue share expense compared to the prior year period and is line with the increase in revenue for the period.
Production and Ticketing
Production cost of sales increased by $0.2 million, or 758%, to $0.2 million for the three months ended December 31, 2023, as compared to a credit of $26,000 for the three months ended December 31, 2022. The Company was able to negotiate credits with some vendors on amounts previously owed during the three months ended December 31, 2023 and 2022.
Merchandising
Merchandising cost of sales decreased by $0.9 million, or 25%, to $2.6 million for the three months ended December 31, 2023, as compared to $3.5 million for the three months ended December 31, 2022 due to lower merchandising revenues noted above.
Other Operating Expenses
Other operating expenses were as follows (in thousands):
| Three Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Sales and marketing expenses |
$ | 1,514 | $ | 1,608 | -6 | % | ||||||
| Product development |
694 | 1,035 | -33 | % | ||||||||
| General and administrative |
5,880 | 4,535 | 30 | % | ||||||||
| Impairment of intangible assets |
115 | - | 100 | % | ||||||||
| Amortization of intangible assets |
528 | 1,343 | -61 | % | ||||||||
| Total Other Operating Expenses |
$ | 8,731 | $ | 8,521 | 2 | % | ||||||
Sales and Marketing Expenses
Sales and Marketing expenses decreased by $0.1 million, or 6%, to $1.5 million for the three months ended December 31, 2023, as compared to $1.6 million for the three months ended December 31, 2022, primarily driven by reduced payroll costs.
Product Development
Product development expenses decreased by $0.3 million, or 33%, to $0.7 million for the three months ended December 31, 2023, as compared to $1.0 million for the three months ended December 31, 2022, which was driven by a decrease in employees as compared to the prior year.
General and Administrative
General and administrative expenses increased by $1.3 million, or 30%, to $5.9 million for the three months ended December 31, 2023, as compared to $4.5 million for the three months ended December 31, 2022, largely due to an increase in share-based compensation of $1.2 million and a $1.3 million in bad debt expense offset by a $1.2 million decrease in cost attributed to accounting, license and payroll.
Impairment of Intangible Assets
Impairment of intangible assets increased $0.1 million, or 100%, to $0.1 million for the three months ended December 31, 2023, as compared to none for the three months ended December 31, 2022, which is attributed to the impairment of intangible assets of Gramophone, see Note 5 – Goodwill and Intangible Assets to our condensed consolidated financial statements included elsewhere in this Quarterly Report.
Amortization of Intangible Assets
Amortization of intangible assets decreased by $0.8 million, or 61%, to $0.5 million for the three months ended December 31, 2023, as compared to $1.3 million for the three months ended December 31, 2022. The decrease can be attributed to intangible assets being fully amortized.
Total Other Income (Expense)
Total other income (expense) was as follows (in thousands):
| Three Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Total other income (expense), net |
$ | (1,486 | ) | $ | (1,963 | ) | -24 | % | ||||
Total other income (expense) decreased by $0.5 million, or 24%, to $1.5 million of expense for the three months ended December 31, 2023, as compared to $2.0 million of expense for the three months ended December 31, 2022. The increase is primarily driven by a decrease in expense of $0.6 million increase in interest expense attributed to our PC1 Bridge Loan (as defined below).
Net Income (Loss) Attributable to Non-Controlling Interests
Net income attributable to non-controlling interests for the three months ended December 31, 2023 was $0.7 million, which resulted from the Spin-Out of PodcastOne.
Nine Months Ended December 31, 2023, as compared to Nine Months Ended December 31, 2022
The following tables set forth our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results (in thousands):
| Nine Months |
Nine Months |
|||||||
| Ended |
Ended |
|||||||
| December 31, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| Revenue: |
$ | 87,541 | $ | 74,063 | ||||
| Operating expenses: |
||||||||
| Cost of sales |
63,015 | 48,487 | ||||||
| Sales and marketing |
5,671 | 6,334 | ||||||
| Product development |
3,379 | 3,892 | ||||||
| General and administrative |
17,641 | 11,220 | ||||||
| Impairment of intangible assets |
- | 1,356 | ||||||
| Amortization of intangible assets |
1,227 | 4,098 | ||||||
| Total operating expenses |
90,933 | 75,387 | ||||||
| Loss from operations |
(3,392 | ) | (1,324 | ) | ||||
| Other income (expense): |
||||||||
| Interest expense, net |
(3,477 | ) | (5,793 | ) | ||||
| Other income (expense) |
(3,639 | ) | 2,523 | |||||
| Total other expense, net |
(7,116 | ) | (3,270 | ) | ||||
| Loss before provision for income taxes |
(10,508 | ) | (4,594 | ) | ||||
| Provision for income taxes |
43 | 15 | ||||||
| Net loss |
(10,666 | ) | (4,609 | ) | ||||
| Net loss attributable to non-controlling interest |
(997 | ) | - | |||||
| Net loss attributed to LiveOne |
$ | (9,669 | ) | $ | (4,609 | ) | ||
| Net loss per share – basic and diluted |
$ | (0.13 | ) | $ | (0.05 | ) | ||
| Weighted average common shares – basic and diluted |
87,477,623 | 84,009,003 | ||||||
The following table provides the depreciation expense included in the above line items (in thousands):
| Nine Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Depreciation expense |
||||||||||||
| Cost of sales |
$ | 108 | $ | 85 | 27 | % | ||||||
| Sales and marketing |
145 | 144 | 1 | % | ||||||||
| Product development |
1,327 | 1,903 | -30 | % | ||||||||
| General and administrative |
859 | 642 | 34 | % | ||||||||
| Total depreciation expense |
$ | 2,439 | $ | 2,774 | -12 | % | ||||||
The following table provides the stock-based compensation expense included in the above line items (in thousands):
| Nine Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Stock-based compensation expense |
||||||||||||
| Cost of sales |
$ | 1,229 | $ | 836 | 47 | % | ||||||
| Sales and marketing |
803 | 72 | 1015 | % | ||||||||
| Product development |
409 | 267 | 53 | % | ||||||||
| General and administrative |
3,408 | 1,731 | 97 | % | ||||||||
| Total stock-based compensation expense |
$ | 5,849 | $ | 2,906 | 101 | % | ||||||
The following table provides our results of operations, as a percentage of revenue, for the periods presented:
| Nine Months Ended |
||||||||
| December 31, |
||||||||
| 2023 |
2022 |
|||||||
| Revenue |
100 | % | 100 | % | ||||
| Operating expenses |
||||||||
| Cost of sales |
72 | % | 65 | % | ||||
| Sales and marketing |
6 | % | 9 | % | ||||
| Product development |
4 | % | 5 | % | ||||
| General and administrative |
20 | % | 15 | % | ||||
| Impairment of intangible assets |
0 | % | 2 | % | ||||
| Amortization of intangible assets |
1 | % | 6 | % | ||||
| Total operating expenses |
104 | % | 102 | % | ||||
| Loss from operations |
-4 | % | -2 | % | ||||
| Other income (expense) |
-4 | % | 3 | % | ||||
| Loss before income taxes |
-12 | % | -6 | % | ||||
| Income tax provision |
0 | % | 0 | % | ||||
| Net loss |
-12 | % | -6 | % | ||||
| Net loss attributable to non-controlling interest |
-1 | % | 0 | % | ||||
| Net loss attributed to LiveOne |
-11 | % | -6 | % | ||||
Revenue
Revenue was as follows (in thousands):
| Nine Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Membership services |
$ | 48,498 | $ | 38,226 | 27 | % | ||||||
| Advertising |
32,108 | 26,138 | 23 | % | ||||||||
| Merchandising |
6,794 | 8,507 | -20 | % | ||||||||
| Sponsorship and licensing |
126 | 389 | -68 | % | ||||||||
| Ticket/Event |
15 | 803 | -98 | % | ||||||||
| Total Revenue |
$ | 87,541 | $ | 74,063 | 18 | % | ||||||
Membership Services Revenue
Membership services revenue increased by $10.3 million, or 27%, to $48.5 million during the nine months ended December 31, 2023, as compared to $38.3 million during the nine months ended December 31, 2022, which was primarily as a result of membership growth with our largest OEM customer.
Advertising Revenue
Advertising revenue increased by 6.0 million, or 23%, to $32.1 million during the nine months ended December 31, 2023, as compared to $26.1 million during the nine months ended December 31, 2022, which is primarily attributed to our growth in PodcastOne over the period.
Merchandising Revenue
Merchandising revenue decreased by $1.7 million, or 20%, to $6.8 million for the nine months ended December 31, 2023, as compared to $8.5 million the nine months ended December 31, 2022, primarily due to a reduction in demand from both retail partners and our direct to consumer business.
Sponsorship and licensing
Sponsorship and licensing revenue decreased by $0.3 million or 68%, to $0.1 million for the nine months ended December 31, 2023, as compared to $0.4 million for the nine months ended December 31, 2022, the decrease is primarily driven by the fewer events occurring in the current year.
Ticket/Event Revenue
Ticket/Event revenue decreased $0.8 million, or 98%, to $15,000 for the nine months ended December 31, 2023, as compared to $0.8 million for the nine months ended December 31, 2022.The decrease was due to PPV ticket fees and production revenues decreasing due to a lower number of events held during the current year comparable period.
Cost of Sales
Cost of sales was as follows (in thousands):
| Nine Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Membership |
$ | 31,382 | $ | 21,264 | 48 | % | ||||||
| Advertising |
27,035 | 21,803 | 24 | % | ||||||||
| Production and Ticketing |
(311 | ) | (524 | ) | -41 | % | ||||||
| Merchandising |
4,909 | 5,944 | -17 | % | ||||||||
| Total Cost of Sales |
$ | 63,015 | $ | 48,487 | 30 | % | ||||||
Membership
Membership cost of sales increased $10.0 million, or 48%, to $31.3 million for the nine months ended December 31, 2023, as compared to $21.3 million for the nine months ended December 31, 2022. The increase was in line with the higher membership revenues noted above.
Advertising
Advertising cost of sales increased $5.2 million, or 24%, to $27.0 million for the nine months ended December 31, 2023, as compared to $21.8 million for the nine months ended December 31, 2022. The increase was primarily attributed to an increase in revenue share paid to partners.
Production and Ticketing
Production cost of sales decreased $0.2 million, or 41%, to a credit of $0.3 million for the nine months ended December 31, 2023, as compared to a credit of $0.5 million for the nine months ended December 31, 2022. The increase was primarily due to the Company settled past amounts owed for vendors, therefore credits were recorded during the prior period.
Merchandising
Merchandising cost of sales decreased $1.0 million, or 17%, from $4.9 million for the nine months ended December 31, 2023, as compared to $5.9 million for the nine months ended December 31, 2022 which was the result of reduced revenues as noted above.
Other Operating Expenses
Other operating expenses were as follows (in thousands):
| Nine Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Sales and marketing expenses |
$ | 5,671 | $ | 6,334 | -10 | % | ||||||
| Product development |
3,379 | 3,892 | -13 | % | ||||||||
| General and administrative |
17,641 | 11,220 | 57 | % | ||||||||
| Impairment of intangible assets |
115 | 1,356 | -92 | % | ||||||||
| Amortization of intangible assets |
1,227 | 4,098 | -70 | % | ||||||||
| Total Other Operating Expenses |
$ | 28,033 | $ | 26,900 | 4 | % | ||||||
Sales and Marketing Expenses
Sales and marketing expenses decreased $0.7 million, or 10%, to $5.7 million for the nine months ended December 31, 2023, as compared to $6.3 million for the nine months ended December 31, 2022. The decrease was largely due to lower salaries and wages.
Product Development
Product development expenses decreased $0.5 million, or 13%, to $3.4 million for the nine months ended December 31, 2023, as compared to $3.9 million for the nine months ended December 31, 2022. The decrease was primarily due to headcount reductions.
General and Administrative
General and administrative expenses increased $6.4 million, or 57%, to $17.6 million for the nine months ended December 31, 2023, as compared to $11.2 million for the nine months ended December 31, 2022. The increase was largely due to an increase in share-based compensation of $1.7 million, an increase of $1.0 million in bad debt expense and a $3.7 million increase primarily driven by the increase of professional services as a result of completing the spin-off of PodcastOne in September 2023.
Impairment of Intangible Assets
Impairment of intangible assets decreased $1.2 million, or 92%, to $0.1 million for the nine months ended December 31, 2023, as compared to $1.4 million for the nine months ended December 31, 2022, which is attributed to the impairment of the Gramophone intangible assets in the current year and impairment of intangible assets of React Presents acquisition in the prior year, see Note 5 – Goodwill and Intangible Assets.
Amortization of Intangible Assets
Amortization of intangible assets decreased by $2.9 million, or 70%, to $1.2 million for the nine months ended December 31, 2023, as compared to $4.1 million for the nine months ended December 31, 2022. The decrease was primarily due to intangible assets becoming fully amortized in the prior year.
Total Other Expense, net
Total other expense, net was as follows (in thousands):
| Nine Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Total other expense, net |
$ | (7,116 | ) | $ | (3,270 | ) | 118 | % | ||||
Total other expense, net increased $3.8 million, or 118%, to $7.1 million for the nine months ended December 31, 2023, as compared to $3.3 million expense for the nine months ended December 31, 2022. The increase was due to an increase in other income of $1.6 million from the prior year period as a result of the settlement of an acquisition earnout in the prior period partially offset by increased interest expense primarily attributable to accretion of interest on our debt discounts related to the PC1 Bridge loan in the prior period. The increase can also be attributed to $2.6 million change in the fair value of derivatives.
Net Income (Loss) Attributable to Non-Controlling Interests
Net income attributable to non-controlling interests for the nine months ended December 31, 2023 was $1.0 million as a result of the Spin-Out of PodcastOne.
Business Segment Results
Three Months Ended December 31, 2023, as compared to Three Months Ended December 31, 2022
Audio Group - PodcastOne Operations
Our Audio Group Operations, which include our PodcastOne operating results were, and discussions of significant variances are, as follows (in thousands):
| Three Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Revenue |
$ | 10,442 | $ | 8,589 | 22 | % | ||||||
| Cost of Sales |
9,387 | 7,045 | 33 | % | ||||||||
| Sales & Marketing, Product Development and G&A |
3,385 | 2,252 | 50 | % | ||||||||
| Intangible Asset Amortization |
307 | 26 | 1081 | % | ||||||||
| Operating Income (Loss) |
$ | (2,637 | ) | $ | (734 | ) | 259 | % | ||||
| Operating Margin |
-25 | % | -9 | % | 196 | % | ||||||
| Adjusted EBITDA* |
$ | (356 | ) | $ | (481 | ) | -26 | % | ||||
| Adjusted EBITDA Margin* |
-3 | % | -6 | % | -39 | % | ||||||
| * |
See “—Non-GAAP Measures” below for the definition and reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin. |
Revenue
Revenue increased $1.9 million, or 22%, during the three months ended December 31, 2023, primarily due to increased advertising.
Operating Income (Loss)
Operating loss increased by $1.9 million or 259%, for the three months ended December 31, 2023, as the increase in revenue was lower than the increase in operating expenses due to growing the business and Spin-Out costs.
Adjusted EBITDA
Adjusted EBITDA decreased by $0.1 million, or 26%, to $(0.4) million for the three months ended December 31, 2023, as compared to $(0.5) million for the three months ended December 31, 2022. This was largely due to a decrease in general and administrative cost associated with the Spin-Out.
Audio Group - Slacker Operations
Our Audio Group Operations, which include our Slacker operating results were, and discussions of significant variances are, as follows (in thousands):
| Three Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Revenue |
$ | 16,838 | $ | 13,363 | 26 | % | ||||||
| Cost of Sales |
11,124 | 8,886 | 25 | % | ||||||||
| Sales & Marketing, Product Development and G&A |
1,498 | 1,854 | -19 | % | ||||||||
| Intangible Asset Amortization |
89 | 1,186 | -92 | % | ||||||||
| Operating Income (Loss) |
$ | 4,127 | $ | 1,437 | 187 | % | ||||||
| Operating Margin |
25 | % | 11 | % | 128 | % | ||||||
| Adjusted EBITDA* |
$ | 6,786 | $ | 9,489 | -28 | % | ||||||
| Adjusted EBITDA Margin* |
40 | % | 71 | % | -43 | % | ||||||
| * |
See “—Non-GAAP Measures” below for the definition and reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin. |
Revenue
Revenue increased $3.5 million, or 26%, during the three months ended December 31, 2023, primarily due to increased membership revenue as a result of increased membership growth with our largest OEM customer.
Operating Income
Operating income increased by $2.7 million or 187%, for the three months ended December 31, 2023, as the increase in revenue was higher than the increase in operating expenses as no significant increases in cost were noted.
Adjusted EBITDA
Adjusted EBITDA decreased by $2.7 million, or 28%, to $6.8 million for the three months ended December 31, 2023, as compared to $9.5 million for the three months ended December 31, 2022. This was largely due to one-time settlements of accrued expenses in the prior year.
Media Group Operations
Our Media Group Operations which consist of all of our other operating subsidiaries outside of PodcastOne and Slacker operating results were, and discussions of significant variances are, as follows (in thousands):
| Three Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Revenue |
$ | 3,965 | $ | 5,357 | -26 | % | ||||||
| Cost of Sales |
2,756 | 3,431 | -20 | % | ||||||||
| Sales & Marketing, Product Development and G&A |
2,075 | 1,378 | 51 | % | ||||||||
| Intangible Asset Amortization |
247 | 131 | 89 | % | ||||||||
| Operating Income (Loss) |
$ | (1,113 | ) | $ | 417 | -367 | % | |||||
| Operating Margin |
-28 | % | 8 | % | -461 | % | ||||||
| Adjusted EBITDA* |
$ | (2,366 | ) | $ | (4,951 | ) | -52 | % | ||||
| Adjusted EBITDA Margin* |
-60 | % | -92 | % | -35 | % | ||||||
| * |
See “—Non-GAAP Measures” below for the definition and reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin. |
Revenue
Revenue decreased $1.4 million, or 26%, to $4.0 million during the three months ended December 31, 2023, as compared to $5.4 million for the three months December 31, 2022, primarily due to decrease in merchandising revenue due to a reduction in demand from both retail partners and our direct to consumer business.
Operating Income (Loss)
Operating income (loss) decreased by $1.5 million, or 367%, to a loss of $1.1 million for the three months ended December 31, 2023 from income of $0.4 million for the three months ended December 31, 2022, as a result of a decrease in contribution margin coupled with the increase in expenses due to an increase in general and administrative expenses.
Adjusted EBITDA
Adjusted EBITDA loss decreased by $2.6 million, or 52%, to a $(2.4) million loss for the three months ended December 31, 2023, as compared to a $(5.0) million loss for the three months December 31, 2022. This was largely due to the decrease in revenue compared to the prior year.
Corporate expense
Our Corporate operating results and discussions of significant variances are, as follows (in thousands):
| % |
||||||||||||
| Three months ended |
Change |
|||||||||||
| December 31, |
2023 vs. |
|||||||||||
| 2023 |
2022 |
2022 |
||||||||||
| Sales & Marketing, Product Development, and G&A |
$ | 1,130 | $ | 1,694 | -33 | % | ||||||
| Operating Loss |
$ | (1,130 | ) | $ | (1,694 | ) | -33 | % | ||||
| Operating Margin |
N/A | N/A | - | % | ||||||||
| Adjusted EBITDA* |
$ | (751 | ) | $ | (990 | ) | -24 | % | ||||
| * |
See “—Non-GAAP Measures” below for the definition and reconciliation of Adjusted EBITDA. |
Operating Loss
Operating loss decreased by $0.6 million, or 33%, to $1.1 million for the three months ended December 31, 2023, as compared to $1.7 million for the three months ended December 31, 2022, largely due to a decrease in legal and accounting costs.
Adjusted EBITDA
Corporate Adjusted EBITDA loss decreased $0.2 million, or 24%, to $(0.8) million for the three months ended December 31, 2023 as compared to $(1.0) million for the year ended December 31, 2022. The increase was largely due to the decrease in costs noted above.
Nine Months Ended December 31, 2023, as compared to Nine Months Ended December 31, 2022
Audio Group - PodcastOne Operations
Our Audio Group Operations, which include our PodcastOne operating results were, and discussions of significant variances are, as follows (in thousands):
| Nine Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Revenue |
$ | 31,595 | $ | 25,802 | 22 | % | ||||||
| Cost of Sales |
26,666 | 19,954 | 34 | % | ||||||||
| Sales & Marketing, Product Development and G&A |
8,239 | 6,788 | 21 | % | ||||||||
| Intangible Asset Amortization |
523 | 76 | 588 | % | ||||||||
| Operating Loss |
$ | (3,833 | ) | $ | (1,016 | ) | 277 | % | ||||
| Operating Margin |
-12 | % | -4 | % | 208 | % | ||||||
| Adjusted EBITDA* |
$ | 405 | $ | (24 | ) | -1788 | % | |||||
| Adjusted EBITDA Margin* |
1 | % | 0 | % | -1478 | % | ||||||
| * |
See “—Non-GAAP Measures” below for the definition and reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin. |
Revenue
Revenue increased $5.8 million, or 22%, during the nine months ended December 31, 2023, primarily due to an increase in advertising year over year.
Operating Loss
Operating loss decreased by $2.8 million or 277%, for the nine months ended December 31, 2023, as the increase in revenue was lower than the increase in operating expenses due to higher headcount and prior year credit from vendor credits.
Adjusted EBITDA
Adjusted EBITDA increased by $0.4 million, or 1,788%, to $0.4 million for the nine months ended December 31, 2023, as compared to $(0.1) million for the nine months ended December 31, 2022. This was largely due to an increase in revenues.
Audio Group - Slacker Operations
Our Audio Group Operations, which include our Slacker operating results were, and discussions of significant variances are, as follows (in thousands):
| Nine Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Revenue |
$ | 48,331 | $ | 38,137 | 27 | % | ||||||
| Cost of Sales |
31,751 | 23,113 | 37 | % | ||||||||
| Sales & Marketing, Product Development and G&A |
6,679 | 5,917 | 13 | % | ||||||||
| Intangible Asset Amortization |
268 | 3,563 | -92 | % | ||||||||
| Operating Income |
$ | 9,633 | $ | 5,544 | 74 | % | ||||||
| Operating Margin |
20 | % | 15 | % | 37 | % | ||||||
| Adjusted EBITDA* |
$ | 12,551 | $ | 18,416 | -32 | % | ||||||
| Adjusted EBITDA Margin* |
26 | % | 48 | % | -46 | % | ||||||
| * |
See “—Non-GAAP Measures” below for the definition and reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin. |
Revenue
Revenue increased $10.2 million, or 27%, during the nine months ended December 31, 2023, primarily due to increased membership revenue as a result of increased membership growth with our largest OEM customer.
Operating Income
Operating income increased by $4.1 million or 74%, for the nine months ended December 31, 2023, as the increase in revenue was higher than the increase in operating expenses due to lower headcount and cost efficiencies.
Adjusted EBITDA
Adjusted EBITDA decreased by $5.9 million, or 32%, to $12.6 million for the nine months ended December 31, 2023, as compared to $18.4 million for the nine months ended December 31, 2022. This was largely due to an increase in revenue offset by a larger increase in expenses and other income.
Media Group Operations
Our Media Group Operations which consist of all of our other operating subsidiaries outside of PodcastOne and Slacker operating results were, and discussions of significant variances are, as follows (in thousands):
| Nine Months Ended |
||||||||||||
| December 31, |
||||||||||||
| 2023 |
2022 |
% Change |
||||||||||
| Revenue |
$ | 7,615 | $ | 10,124 | -25 | % | ||||||
| Cost of Sales |
4,598 | 5,420 | -15 | % | ||||||||
| Sales & Marketing, Product Development and G&A |
5,572 | 6,571 | -15 | % | ||||||||
| Intangible Asset Amortization |
551 | 1,815 | -70 | % | ||||||||
| Operating Loss |
$ | (3,106 | ) | $ | (3,682 | ) | -16 | % | ||||
| Operating Margin |
-41 | % | -36 | % | 12 | % | ||||||
| Adjusted EBITDA* |
$ | (836 | ) | $ | (4,917 | ) | -83 | % | ||||
| Adjusted EBITDA Margin* |
-11 | % | -49 | % | -77 | % | ||||||
| * |
See “—Non-GAAP Measures” below for the definition and reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin. |
Revenue
Revenue decreased $2.5 million, or 25%, to $7.6 million during the nine months ended December 31, 2023, as compared to $10.1 million for the nine months December 31, 2022, primarily due to decrease in merchandise sales year over year.
Operating Loss
Operating loss increased by $0.6 million, or 16%, to a loss of $3.1 million for the nine months ended December 31, 2023 from a loss of $3.7 million for the nine months ended December 31, 2022, as a result of a decrease in contribution margin coupled with the increase in expenses due to higher salaries.
Adjusted EBITDA
Adjusted EBITDA loss decreased by $4.1 million, or 83%, to $(0.9) million loss for the nine months ended December 31, 2023, as compared to a $(4.9) million loss for the nine months December 31, 2022. This was largely due to the decrease in operating cost and other income compared to the prior year.
Corporate expense
Our Corporate operating results and discussions of significant variances are, as follows (in thousands):
| % |
||||||||||||
| Nine months ended |
Change |
|||||||||||
| December 31, |
2023 vs. |
|||||||||||
| 2023 |
2022 |
2022 |
||||||||||
| Sales & Marketing, Product Development, and G&A |
$ | 6,201 | $ | 2,170 | 186 | % | ||||||
| Operating Loss |
$ | (6,201 | ) | $ | (2,170 | ) | 186 | % | ||||
| Operating Margin |
N/A | N/A | - | % | ||||||||
| Adjusted EBITDA* |
$ | (3,928 | ) | $ | (4,040 | ) | -3 | % | ||||
| * |
See “—Non-GAAP Measures” below for the definition and reconciliation of Adjusted EBITDA. |
Operating Loss
Operating loss increased by $4.0 million, or 186%, to $6.2 million for nine months ended December 31, 2023, as compared to $2.2 million for the nine months ended December 31, 2022, largely due to settlements of litigation and accrued expenses in the prior period which reduced the expense.
Adjusted EBITDA
Corporate Adjusted EBITDA increased $0.1 million, or 3%, to $(3.9) million loss for the nine months ended December 31, 2023 as compared to $(4.0) million loss for the year ended December 31, 2022. The increase was largely due to the increase in legal and accounting cost.
Non-GAAP Measures
Contribution Margin
Contribution Margin is a non-GAAP financial measure defined as Revenue less Cost of Sales.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that we define as net income (loss) before (a) non-cash GAAP purchase accounting adjustments for certain deferred revenue and costs, (b) legal, accounting and other professional fees directly attributable to acquisition activity, (c) employee severance payments and third party professional fees directly attributable to acquisition or corporate realignment activities, (d) certain non-recurring expenses associated with legal settlements or reserves for legal settlements in the period that pertain to historical matters that existed at acquired companies prior to their purchase date, (e) depreciation and amortization (including goodwill impairment, if any), and (f) certain stock-based compensation expense. We use Adjusted EBITDA to evaluate the performance of our operating segment. We believe that information about Adjusted EBITDA assists investors by allowing them to evaluate changes in the operating results of our business separate from non-operational factors that affect net income (loss), thus providing insights into both operations and the other factors that affect reported results. Adjusted EBITDA is not calculated or presented in accordance with GAAP. A limitation of the use of Adjusted EBITDA as a performance measure is that it does not reflect the periodic costs of certain amortizing assets used in generating revenue in our business. Accordingly, Adjusted EBITDA should be considered in addition to, and not as a substitute for, operating income (loss), net income (loss), and other measures of financial performance reported in accordance with GAAP. Furthermore, this measure may vary among other companies; thus, Adjusted EBITDA as presented herein may not be comparable to similarly titled measures of other companies.
Adjusted EBITDA Margin
Adjusted EBITDA Margin is a non-GAAP financial measure that we define as the ratio of Adjusted EBITDA to Revenue.
The following table sets forth the reconciliation of Adjusted EBITDA to net loss, the most comparable GAAP financial measure for the three and nine months ended December 31, 2023 and 2022 (in thousands):
| Non- |
||||||||||||||||||||||||||||
| Recurring |
||||||||||||||||||||||||||||
| Net |
Depreciation |
Acquisition and |
Other |
(Benefit) |
||||||||||||||||||||||||
| Income |
and |
Stock-Based |
Realignment |
(Income) |
Provision |
Adjusted |
||||||||||||||||||||||
| (Loss) |
Amortization |
Compensation |
Costs |
Expense |
for Taxes |
EBITDA |
||||||||||||||||||||||
| Three Months Ended December 31, 2023 |
||||||||||||||||||||||||||||
| Operations – PodcastOne |
$ | (2,600 | ) | $ | 372 | $ | 1,786 | $ | 86 | $ | - | $ | - | $ | (356 | ) | ||||||||||||
| Operations – Slacker |
5,127 | 749 | (178 | ) | 116 | 972 | - | 6,786 | ||||||||||||||||||||
| Operations – Other |
(3,148 | ) | 361 | 266 | 129 | 26 | - | (2,366 | ) | |||||||||||||||||||
| Corporate |
(1,603 | ) | 3 | 381 | (5 | ) | 488 | (15 | ) | (751 | ) | |||||||||||||||||
| Total |
$ | (2,224 | ) | $ | 1,485 | $ | 2,255 | $ | 326 | $ | 1,486 | $ | (15 | ) | $ | 3,313 | ||||||||||||
| Three Months Ended December 31, 2022 |
||||||||||||||||||||||||||||
| Operations – PodcastOne |
$ | (2,078 | ) | $ | 86 | $ | 166 | $ | - | $ | 1,345 | $ | - | $ | (481 | ) | ||||||||||||
| Operations – Slacker |
6,837 | 2,084 | 182 | 102 | 284 | - | 9,489 | |||||||||||||||||||||
| Operations – Other |
(5,154 | ) | 239 | 78 | 329 | (470 | ) | 27 | (4,951 | ) | ||||||||||||||||||
| Corporate |
(2,153 | ) | 6 | 296 | 73 | 804 | (16 | ) | (990 | ) | ||||||||||||||||||
| Total |
$ | (2,548 | ) | $ | 2,415 | $ | 722 | $ | 504 | $ | 1,963 | $ | 11 | $ | 3,067 | |||||||||||||
| Non- |
||||||||||||||||||||||||||||
| Recurring |
||||||||||||||||||||||||||||
| Acquisition and |
Other |
(Benefit) |
||||||||||||||||||||||||||
| Net Income |
Depreciation and |
Stock-Based |
Realignment |
(Income) |
Provision |
Adjusted |
||||||||||||||||||||||
| (Loss) |
Amortization |
Compensation |
Costs |
Expense |
for Taxes |
EBITDA |
||||||||||||||||||||||
| Nine Months Ended December 31, 2023 |
||||||||||||||||||||||||||||
| Operations – PodcastOne |
$ | (13,683 | ) | $ | 710 | $ | 2,724 | $ | 804 | $ | 9,850 | $ | - | $ | 405 | |||||||||||||
| Operations – Slacker |
7,377 | 2,156 | 1,036 | 989 | 993 | - | 12,551 | |||||||||||||||||||||
| Operations - Other |
136 | 789 | 478 | 394 | (2,633 | ) | - | (836 | ) | |||||||||||||||||||
| Corporate |
(4,496 | ) | 13 | 1,611 | (5 | ) | (1,094 | ) | 43 | (3,928 | ) | |||||||||||||||||
| Total |
$ | (10,666 | ) | $ | 3,668 | $ | 5,849 | $ | 2,182 | $ | 7,116 | $ | 43 | $ | 8,192 | |||||||||||||
| Nine Months Ended December 31, 2022 |
||||||||||||||||||||||||||||
| Operations – PodcastOne |
$ | (3,016 | ) | $ | 241 | $ | 751 | $ | - | $ | 2,000 | $ | - | $ | (24 | ) | ||||||||||||
| Operations – Slacker |
10,349 | 6,025 | 622 | 193 | 1,227 | - | 18,416 | |||||||||||||||||||||
| Operations - Other |
(5,297 | ) | 2,097 | 296 | 524 | (2,564 | ) | 27 | (4,917 | ) | ||||||||||||||||||
| Corporate |
(6,645 | ) | 18 | 1,237 | (1,245 | ) | 2,607 | (12 | ) | (4,040 | ) | |||||||||||||||||
| Total |
$ | (4,609 | ) | $ | 8,381 | $ | 2,906 | $ | (528 | ) | $ | 3,270 | $ | 15 | $ | 9,435 | ||||||||||||
The following table sets forth the reconciliation of Contribution Margin to Revenue, the most comparable GAAP financial measure (in thousands):
| Three Months Ended |
||||||||
| December 31, |
||||||||
| 2023 |
2022 |
|||||||
| Revenue: |
$ | 31,245 | $ | 27,309 | ||||
| Less: |
||||||||
| Cost of sales |
(23,267 | ) | (19,362 | ) | ||||
| Amortization of developed technology |
(775 | ) | (964 | ) | ||||
| Gross Profit |
7,203 | 6,983 | ||||||
| Add back amortization of developed technology: |
775 | 964 | ||||||
| Contribution Margin |
$ | 7,978 | $ | 7,947 | ||||
| Nine Months Ended |
||||||||
| December 31, |
||||||||
| 2023 |
2022 |
|||||||
| Revenue: |
$ | 87,541 | $ | 74,063 | ||||
| Less: |
||||||||
| Cost of sales |
(63,015 | ) | (48,487 | ) | ||||
| Amortization of developed technology |
(2,248 | ) | (2,892 | ) | ||||
| Gross Profit |
22,278 | 22,684 | ||||||
| Add back amortization of developed technology: |
2,248 | 2,892 | ||||||
| Contribution Margin |
$ | 24,526 | $ | 25,576 | ||||
Liquidity and Capital Resources
Current Financial Condition
As of December 31, 2023, our principal sources of liquidity were our cash and cash equivalents, including restricted cash balances in the amount of $6.5 million, which primarily are invested in cash in banking institutions in the U.S. The vast majority of our cash proceeds were received as a result of our operations, incurrence of debt, the issuance of convertible notes and public offerings of our common shares. As of December 31, 2023, we have a senior secured line of credit of $7.0 million, the Capchase Loan (as defined below) of $1.6 million and an SBA loan balance of $0.1 million.
As reflected in our condensed consolidated financial statements included elsewhere in this Quarterly Report, we have a history of losses and incurred a net loss of $10.7 million for the nine months ended December 31, 2023, and cash provided by operating activities of $3.8 million for the nine months ended December 31, 2023 and had a working capital deficiency of $21.5 million as of December 31, 2023. These factors, among others, raise substantial doubt about our ability to continue as a going concern within one year from the date that the financial statements are issued. Our condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to execute our strategy and on our ability to raise additional funds through the sale of equity and/or debt securities via public and/or private offerings.
Our long-term ability to continue as a going concern is dependent upon our ability to increase revenue, reduce costs, achieve a satisfactory level of profitable operations, and obtain additional sources of suitable and adequate financing. Our ability to continue as a going concern is also dependent its ability to further develop and execute on our business plan. We may also have to reduce certain overhead costs through the reduction of salaries and other means and settle liabilities through negotiation. There can be no assurance that management’s attempts at any or all of these endeavors will be successful.
Sources of Liquidity
In July 2022, PodcastOne completed a private placement offering (the “PC1 Bridge Loan”) of its unsecured convertible notes with an original issue discount of 10% (the “OID”) in the aggregate principal amount of $8.8 million (the “PC1 Notes”) to certain accredited investors and institutional investors (collectively, the “Purchasers”), for gross proceeds of $8,035,000 pursuant to the Subscription Agreements entered into with the Purchasers. In connection with the sale of the PC1 Notes, the Purchasers received warrants (the “PC1 Warrants”) to purchase a number of shares of PodcastOne’s common stock, par value $0.00001 per share (See Note 8 – PodcastOne Bridge Loan). As part of the PC1 Bridge Loan, we purchased $3,000,000 (excluding the OID) worth of PC1 Notes. As of December 31, 2023 all of the PC1 Bridge Loan has been converted into common stock of PodcastOne.
In August 2023, we entered into a Loan and Security Agreement with Capchase Inc. (“Capchase”) pursuant to which we borrowed $1.7 million to further develop and acquire certain podcasts acquired by PodcastOne and for general working capital (the "Capchase Loan"). The Capchase Loan is subordinated to the ABL Credit Facility and bears an interest rate of 9%, which is included in the monthly amortization payments of approximately $73,100, with the final amortization payment due on February 4, 2026. (See Note 7 – Notes Payable).
Our cash flows from operating activities are significantly affected by our cash-based investments in our operations, including acquiring live music events and festivals rights, our working capital, and corporate infrastructure to support our ability to generate revenue and conduct operations through cost of services, product development, sales and marketing and general and administrative activities. Cash used in investing activities has historically been, and is expected to be, impacted significantly by our investments in business combinations, our platform, and our infrastructure and equipment for our business offerings, and sale of our investments. We expect to make additional strategic acquisitions to further grow our business, which may require significant investments, capital raising and/or acquisition of additional debt in the near and long term. Over the next twelve to eighteen months, our net use of our working capital could be substantially higher or lower depending on the number and timing of new live festivals and paid members that we add to our businesses.
Subject to applicable limitations in the instruments governing our outstanding indebtedness, we may from time to time repurchase our debt, including the unsecured convertible notes, in the open market, through tender offers, through exchanges for debt or equity securities, in privately negotiated transactions or otherwise.
In the future, we may utilize additional commercial financings, bonds, notes, debentures, lines of credit and term loans with a syndicate of commercial banks or other bank syndicates and/or issue equity securities (publicly or privately) for general corporate purposes, including acquisitions and investing in our intangible assets, music equipment, platform and technologies. We may also use our current cash and cash equivalents to repurchase some or all of our unsecured convertible notes, and pay down our debt, in part or in full, subject to repayment limitation set forth in the credit agreement. Management plans to fund its operations over the next twelve months through the combination of improved operating results, spending rationalization, and the ability to access sources of capital such as through the issuance of equity and/or debt securities. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. We filed a new universal shelf Registration Statement on Form S-3 (the “New Shelf S-3”) with the SEC, which was declared effective by the SEC on February 17, 2022. Under the New Shelf S-3, we have the ability to raise up to $150.0 million in cash from the sale of our equity, debt and/or other financial instruments.
Sources and Uses of Cash
The following table provides information regarding our cash flows for the nine months ended December 31, 2023 and 2022 (in thousands):
| Nine Months Ended |
||||||||
| December 31, |
||||||||
| 2023 |
2022 |
|||||||
| Net cash provided by (used in) operating activities |
$ | 3,804 | $ | (4,627 | ) | |||
| Net cash used in investing activities |
(2,780 | ) | (2,049 | ) | ||||
| Net cash (used in) provided by financing activities |
(3,220 | ) | 2,012 | |||||
| Net change in cash, cash equivalents and restricted cash |
$ | (2,196 | ) | $ | (4,664 | ) | ||
Cash Flows Provided by Operating Activities
For the nine months ended December 31, 2023
Net cash provided by operating activities of $3.8 million primarily resulted from our net loss during the period of $10.7 million, which included non-cash charges of $15.5 million largely comprised of depreciation and amortization, stock-based compensation, change in fair value of derivatives and amortization of debt discount. The remainder of our sources of cash used in operating activities of $1.0 million was from changes in our working capital, primarily from timing of accounts receivable, accounts payable and accrued liabilities, accrued royalties, and deferred revenue.
For the nine months ended December 31, 2022
Net cash used in our operating activities of $4.6 million primarily resulted from our net loss during the period of $4.6 million, which included non-cash charges of $3.4 million largely comprised of depreciation and amortization, stock-based compensation, write-off of accrued expenses, impairment charges and changes in fair values of derivatives. The remainder of our sources of cash used in operating activities of $(3.5) million was from changes in our working capital, primarily from timing of accounts receivable, accounts payable, and deferred revenue.
Cash Flows Used In Investing Activities
For the nine months ended December 31, 2023
Net cash used in investing activities of $2.8 million was primarily due to the $2.1 million cash used for the purchase of capitalized internally developed software costs and $0.7 million used for the purchase of intangibles during the nine months ended December 31, 2023.
For the nine months ended December 31, 2022
Net cash used in investing activities of $2.0 million was primarily due to the $2.0 million cash used for the purchase of capitalized internally developed software costs during the nine months ended December 31, 2022.
Cash Flows Provided by Financing Activities
For the nine months ended December 31, 2023
Net cash used in financing activities of $3.2 million was due to the repayment of our PC1 Bridge Loan of $3.0 million and repurchase of common stock under the Company’s share repurchase program of $1.7 million offset by proceeds from notes payable of $1.7 million, offset by repayments of $0.2 million for the nine months ended December 31, 2023.
For the nine months ended December 31, 2022
Net cash provided by financing activities of $2.0 million was due to proceeds from our PC1 Bridge Loan of $4.4 million and $0.3 million on proceeds from a notes payable financing, offset by a $1.9 million payment for treasury stock, a $0.4 million payment of a contingent consideration and a $0.3 million payment on a note payable during the nine months ended December 31, 2022.
Debt Covenants
As of December 31, 2023 the Company was in compliance under the Capchase Loan and the ABL Credit Facility.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
As of the end of the period covered by this Quarterly Report, we carried out an evaluation (the “Evaluation”), under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, as a result of the material weaknesses identified in our 2023 Form 10-K, our Chief Executive Officer and Chief Financial Officer concluded that as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures were not effective.
Limitations of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to reasonably ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. A control system, no matter how well designed and operated, can provide only reasonable assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in our periodic reports. Inherent limitations to any system of disclosure controls and procedures include, but are not limited to, the possibility of human error and the circumvention or overriding of such controls by one or more persons. In addition, we have designed our system of controls based on certain assumptions, which we believe are reasonable, about the likelihood of future events, and our system of controls may therefore not achieve its desired objectives under all possible future events.
Changes in Internal Control over Financial Reporting
We continue to be in the process of implementing changes, as more fully described in our 2023 Form 10-K, to our internal control over financial reporting to remediate the material weaknesses as described in our 2023 Form 10-K.
There have been no changes in our internal control over financial reporting, during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
CEO and CFO Certifications
Exhibits 31.1 and 31.2 to this Quarterly Report are the Certifications of our Chief Executive Officer and Chief Financial Officer, respectively. These Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act (the “Section 302 Certifications”). This Item 4 of this Quarterly Report, which you are currently reading, is the information concerning the Evaluation referred to above and in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.
We are from time to time, party to various legal proceedings arising out of our business. Certain legal proceedings in which we are involved are discussed in Note 13 - Commitments and Contingencies, to the condensed consolidated financial statements included elsewhere in this Quarterly Report, and are incorporated herein by reference. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.
We have set forth in Item 1A. Risk Factors in our 2023 Form 10-K, risk factors relating to our business and industry, our acquisition strategy, our company, our subsidiaries, our technology and intellectual property, and our common stock. Readers of this Quarterly Report are referred to such Item 1A. Risk Factors in our 2023 Form 10-K for a more complete understanding of risks concerning us. Except as set forth below, there have been no material changes in our risk factors since those published in our 2023 Form 10-K.
Risks Related to Our Business and Industry
We rely on one key customer for a substantial percentage of our revenue. The loss of our largest customer or the significant reduction of business or growth of business from our largest customer could significantly adversely affect our business, financial condition and results of operations.
Our business is dependent, and we believe that it will continue to depend, on our customer relationship with Tesla, which accounted for 48% of our consolidated revenue for the nine months ended December 31, 2023, and 50% of our consolidated revenue for the three months ended December 31, 2022. Our existing agreement with Tesla governs our music services to its car user base in North America, including our audio music streaming services. If we fail to maintain certain minimum service level requirements related to our service with Tesla or other obligations related to our technology or services, Tesla may terminate our agreement to provide them with such service. Tesla may also terminate our agreement for convenience at any time. If Tesla terminates our agreement, requires us to renegotiate the terms of our existing agreement or we are unable to renew such agreement on mutually agreeable terms, no longer makes our music services available to Tesla’s car user base, becomes a native music service provider, replaces our music services with one or more of our competitors and/or we experience a significant reduction of business from Tesla, our business, financial condition and results of operations would be materially adversely affected.
In addition, a significant amount of the membership revenue we generate from Tesla is indirectly subsidized by Tesla to its customers, which Tesla is not committed to carry indefinitely, including the ability to terminate and/or change our music services for convenience at any time. Should our membership revenue services no longer be subsidized by and/or made available by Tesla to its customers or if Tesla reclassifies or renegotiates with us the definition of a paid member or demands credit for past members that no longer meet such requirement, there can be no assurance that we will continue to maintain the same number of paid members or receive the same levels of membership service revenue and membership revenue may substantially fluctuate accordingly. There is no assurance that we would be able to replace Tesla or lost business with Tesla with one or more customers that generate comparable revenue. Furthermore, there could be no assurance that our revenue from Tesla continues to grow at the same rate or at all. Any revenue growth will depend on our success in growing such customer’s revenues on our platform and expanding our customer base to include additional customers.
Tesla has also integrated Spotify Premium to the car’s in-dash touchscreen for its Model S, Model X and Model 3 vehicles. Tesla owners now have access to our music streaming services, Spotify and TuneIn natively. There is no assurance that our music streaming services will be available in every current and/or future Tesla model. Furthermore, our current and future competitors like Spotify, Apple Music, Tesla (if it becomes a native music service provider) and others may have more well-established brand recognition, more established relationships with, and superior access to content providers and other industry stakeholders, greater financial, technical and other resources, more sophisticated technologies or more experience in the markets in which we compete. If we are unable to compete successfully for users against our competitors by maintaining and increasing our presence and visibility, the number of users of our network may fail to increase as expected or decline and our advertising sales, membership fees and other revenue streams will suffer.
In addition, we have derived, and we believe that we will continue to derive, a substantial portion of our revenues from a limited number of other customers. Any revenue growth will depend on our success in growing our customers’ revenues on our platform and expanding our customer base to include additional customers. If we were to lose one or more of our key customers, there is no assurance that we would be able to replace such customers or lost business with new customers that generate comparable revenue, which would significantly adversely affect our business, financial condition and results of operations.
We have incurred significant operating and net losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.
As reflected in our consolidated financial statements included elsewhere herein, we have a history of losses, incurred significant operating and net losses in each year since our inception, including net loss of $10.7 million for the nine months ended December 31, 2023, and used cash in financing activities of $3.2 million for the nine months ended December 31, 2023. As of December 31, 2023, we had an accumulated deficit of $236.3 million and a working capital deficit of $21.5 million.
We expect to continue to incur substantial and increased expenses as we continue to execute our business approach, including expanding and developing our content and platform and potentially making other accretive acquisitions, until such time that we can generate significant increases to our revenues, and/or reduce our operating costs and losses. To date, we have financed our operations exclusively through the sale of equity and/or debt securities (including convertible securities). The size of our future net losses will depend, in part, on the rate of future expenditures and our ability to significantly grow our business and increase our revenues. We also expect a continued increase in our expenses associated with our operations as a publicly traded company. We may incur significant losses in the future for a number of other reasons, including unsuccessful acquisitions, costs of integrating new businesses, expenses, difficulties, complications, delays and other unknown events. As a result of the foregoing, we expect to continue to incur significant losses for the foreseeable future and we may not be able to achieve or sustain profitability.
The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a growing company, the difficulties that may be encountered with integrating acquired companies and the highly competitive environment in which we operate. For example, while several companies have been successful in the digital music streaming industry and the online video streaming industry, companies have had no or limited success in operating a premium Internet network devoted to live music and music-related video content. We cannot assure you that our business will be profitable or that we will ever generate sufficient revenue to fully meet our expenses and support our anticipated activities.
Our ability to meet our total liabilities, as reported in the accompanying condensed consolidated balance sheets, and to continue as a going concern, is dependent on our ability to increase revenue, reduce costs, achieve a satisfactory level of profitable operations, obtain additional sources of suitable and adequate financing and further develop and execute on our business plan. We may never achieve profitability, and even if we do, we may not be able to sustain being profitable. As a result of the going concern uncertainty, there is an increased risk that you could lose the entire amount of your investment in our company, which assumes the realization of our assets and the satisfaction of our liabilities and commitments in the normal course of business.
Risks Related to Our Company
We may not have the ability to repay the amounts then due under our senior ABL Credit Facility at maturity.
At maturity, the entire outstanding principal amount of our ABL Credit Facility and the Capchase Loan, will become due and payable by us. As of December 31, 2023, $7.0 million is due in fiscal 2024, $0.9 million due in fiscal 2025, $0.3 million of our total indebtedness is due in fiscal 2026 and $0.4 million thereafter.
Our failure to repay any outstanding amount under our ABL Credit Facility would constitute a default under such facility. A default would increase the interest rate to the default rate under the ABL Credit Facility or the maximum rate permitted by applicable law until such amount is paid in full. A default under the ABL Credit Facility could also lead to a default under agreements governing our future indebtedness, including the Capchase Loan. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay our ABL Credit Facility or make cash payments thereon. Furthermore, upon the occurrence and during the continuation of any event of default, the senior lender shall have the right to, among other things, take possession of our and our subsidiaries’ assets and property constituting the collateral thereunder and the right to assign, sell, lease or otherwise dispose of all or any part of the collateral.
If we do not comply with the provisions of the ABL Credit Facility and/or the Capchase Loan, our lenders may terminate their obligations to us, accelerate their debt and require us to repay all outstanding amounts owed thereunder.
The ABL Credit Facility and the Capchase Loan contain provisions that limit our operating activities, including covenant relating to the requirement to maintain a certain amount cash (as provided in the senior credit facility loan agreement). If an event of default occurs and is continuing, the applicable lender may among other things, terminate its obligations thereunder, accelerate its debt and require us to repay all amounts thereunder. For example, on October 13, 2022, a judgement was ordered in favor of SoundExchange, Inc. (“SX”) against us and Slacker in the United States District Court Central District of California in the amount of approximately $9.8 million. On October 13, 2022, the court entered a judgment against the defendants for the amount of $9,765,396.70. In February 2023, we settled the dispute to repay the outstanding amount in the monthly payments subject to increase in the event we complete certain future financings. As of December 31, 2023, we owed $4.0 million to SX under the settlement agreement. Our debt agreements with the providers of the ABL Credit Facility and Capchase Loan contain a covenant that if a material adverse change occurs in our financial condition, or if the senior secured lender reasonably believes the prospect of payment or performance of their loan is materially impaired, the lender at its option may immediately accelerate its debt and require us to repay all outstanding amounts owed thereunder. If for any reason we and Slacker fail to comply with the terms of our settlement agreement with SX, our senior credit facility provider, and which would then also allow Capchase to declare a default under their loan agreement with us, may declare an event of default and at its option may immediately accelerate its debt and require us to repay all outstanding amounts owed under the senior credit facility provider, which would materially adversely impact our business, operating results and financial condition. As of December 31, 2023 we were incompliance with covenants under the ABL Credit Facility and the Capchase Loan.
Our debt agreements contain restrictive and financial covenants that may limit our operating flexibility, and our substantial indebtedness may limit cash flow available to invest in the ongoing needs of our business.
We have a significant amount of indebtedness. Our total outstanding consolidated indebtedness as of December 31, 2023 was $8.6 million, net of fees and discounts. While we have certain restrictions and covenants with our current indebtedness, we could in the future incur additional indebtedness beyond such amount. Our existing debt agreements with ABL Credit Facility lender and the Capchase Loan lenders contain certain restrictive covenants that limit our ability to merge with other companies or consummate certain changes of control, make certain investments, pay dividends or repurchase shares of our common stock, transfer or dispose of assets, or enter into various specified transactions. We therefore may not be able to engage in any of the foregoing transactions unless we obtain the consent of our senior secured lenders, terminate our existing debt agreements and/or repay the amount owed to such lenders. Our debt agreements also contain certain covenants, including maintaining a minimum cash amount at all times and are secured by substantially all of our assets. There is no guarantee that we will be able to generate sufficient cash flow or sales to pay the principal and interest owed under our debt agreements or to satisfy all of the covenants. We and/or our subsidiaries may also incur significant additional indebtedness in the future.
Our substantial debt combined with our other financial obligations and contractual commitments could have other significant adverse consequences, including:
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requiring us to dedicate a substantial portion of cash flow from operations to the payment of interest on, and principal of, our debt, which will reduce the amounts available to fund working capital, capital expenditures, product development efforts and other general corporate purposes; |
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increasing our vulnerability to adverse changes in general economic, industry and market conditions; |
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obligating us to restrictive covenants that may reduce our ability to take certain corporate actions or obtain further debt or equity financing; |
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limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we compete; and |
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placing us at a competitive disadvantage compared to our competitors that have less debt or better debt servicing options. |
We intend to satisfy our current and future debt service obligations with our existing cash and cash equivalents and funds from external sources, including equity and/or debt financing. However, we may not have sufficient funds or may be unable to arrange for additional financing to pay the amounts due under our existing debt. Funds from external sources may not be available on acceptable terms, if at all. In the event of an acceleration of amounts due under our debt instruments as a result of an event of default, including upon the occurrence of an event that would reasonably be expected to have a material adverse effect on our business, operations, properties, assets or condition or a failure to pay any amount due, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness or to make any accelerated payments.
We depend upon third-party licenses for sound recordings and musical compositions and other content and an adverse change to, loss of, or claim that we do not hold any necessary licenses may materially adversely affect our business, operating results and financial condition.
To secure the rights to stream sound recordings and the musical compositions embodied therein, we enter into license agreements to obtain licenses from rights holders such as record labels, aggregators, artists, music publishers, performing rights organizations, collecting societies and other copyright owners or their agents, and pay substantial royalties or other consideration to such parties or their agents around the world. Though we work diligently in our efforts to obtain all necessary licenses to stream sound recordings and the musical compositions embodied therein, there is no guarantee that the licenses available to us now will continue to be available in the future at rates and on terms that are favorable or commercially reasonable or at all. The terms of these licenses, including the royalty rates that we are required to pay pursuant to them, may change as a result of changes in our bargaining power, changes in the industry, changes in the laws and regulations, or for other reasons. Increases in royalty rates or changes to other terms of these licenses may materially impact our business, operating results, and financial condition.
We enter into license agreements to obtain rights to stream sound recordings, including from the major record labels that hold the rights to stream a significant number of sound recordings, such as Universal Music Group, Sony Music Entertainment, Warner Music Group and SX, as well as others. If we fail to obtain these licenses, the size and quality of its catalog may be materially impacted and its business, operating results and financial condition could be materially harmed.
We generally obtain licenses for two types of rights with respect to musical compositions: mechanical rights and public performance rights. With respect to mechanical rights, for example, in the United States, the rates we pay are, to a significant degree, a function of a ratemaking proceeding conducted by an administrative agency called the Copyright Royalty Board. The rates that the Copyright Royalty Board set apply both to compositions that we license under the compulsory license in Section 115 of the Copyright Act of 1976 (the “Copyright Act”), and to a number of direct licenses that we have with music publishers for U.S. rights, in which the applicable rate is generally pegged to the statutory rate set by the Copyright Royalty Board. The most recent proceeding before the Copyright Royalty Board (the “Phonorecords III Proceedings”) set the rates for the Section 115 compulsory license for calendar years 2018 to 2022. The Copyright Royalty Board issued its initial written determination on January 26, 2018. The rates set by the Copyright Royalty Board may still be modified if a party appeals the determination and are also subject to further change as part of future Copyright Royalty Board proceedings. If any such rate change increases, our sound recordings and musical compositions license costs may substantially increase and impact our ability to obtain content on pricing terms favorable to us, and it could negatively harm our business, operating results and financial condition and hinder our ability to provide interactive features in our services or cause one or more of our services not to be economically viable. Based on management’s estimates and forecasts for the next two fiscal years, we currently believe that the proposed rates will not materially impact our business, operating results, and financial condition. However, the proposed rates are based on a variety of factors and inputs which are difficult to predict in the long-term. If Slacker’s business does not perform as expected or if the rates are modified to be higher than the proposed rates, its content acquisition costs could increase and impact its ability to obtain content on pricing terms favorable to us, which could negatively harm Slacker’s business, operating results and financial condition and hinder its ability to provide interactive features in its services, or cause one or more of Slacker’s services not to be economically viable.
In the United States, public performance rights are generally obtained through intermediaries known as performing rights organizations (“PROs”), which negotiate blanket licenses with copyright users for the public performance of compositions in their repertory, collect royalties under such licenses, and distribute those royalties to copyright owners. The royalty rates available to Slacker today may not be available to it in the future. Licenses provided by two of these PROs, the American Society of Composers, Authors and Publishers (“ASCAP”) and Broadcast Music, Inc. (“BMI”), cover the majority of the music we stream and are governed by consent decrees relating to decades old litigations. In 2019, the U.S. Department of Justice indicated that it was formally reviewing the relevance and need of these consent decrees. Changes to the terms of or interpretation of these consent decrees up to and including the dissolution of the consent decrees, could affect our ability to obtain licenses from these PROs on reasonable terms, which could harm its business, operating results, and financial condition. In addition, an increase in the number of compositions that must be licensed from PROs that are not subject to the consent decrees, or from copyright owners that have withdrawn public performance rights from the PROs, could likewise impede Slacker’s ability to license public performance rights on favorable terms. As of December 31, 2023, we owed $20.3 million in aggregate royalty payments to such PROs.
In other parts of the world, including Europe, Asia, and Latin America, we obtain mechanical and performance licenses for musical compositions either through local collecting societies representing publishers or from publishers directly, or a combination thereof. We cannot guarantee that its licenses with collecting societies and its direct licenses with publishers provide full coverage for all of the musical compositions we make available to our users in such countries. In Asia and Latin America, we are seeing a trend of movement away from blanket licenses from copyright collectives, which is leading to a fragmented copyright licensing landscape. Publishers, songwriters, and other rights holders choosing not to be represented by collecting societies could adversely impact our ability to secure favorable licensing arrangements in connection with musical compositions that such rights holders own or control, including increasing the costs of licensing such musical compositions, or subjecting us to significant liability for copyright infringement.
With respect to podcasts and other non-music content, we produce or commission the content itself or obtain distribution rights directly from rights holders. In the former scenario, we employ various business models to create original content. In the latter scenario, we and/or PodcastOne negotiates license directly with individuals that enable creators to post content directly to our service after agreeing to comply with the applicable terms and conditions. We are dependent on those who provide content on our service complying with the terms and conditions of our license agreements as well as the PodcastOne Terms and Conditions of Use. However, we cannot guarantee that rights holders or content providers will comply with their obligations, and such failure to do so may materially impact our business, operating results, and financial condition.
There also is no guarantee that we have all of the licenses we need to stream content, as the process of obtaining such licenses involves many rights holders, some of whom are unknown, and myriad complex legal issues across many jurisdictions, including open questions of law as to when and whether particular licenses are needed. Additionally, there is a risk that rights holders, creators, performers, writers and their agents, or societies, unions, guilds, or legislative or regulatory bodies will create or attempt to create new rights that could require us to enter into license agreements with, and pay royalties to, newly defined groups of rights holders, some of which may be difficult or impossible to identify.
Even when we can enter into license agreements with rights holders, we cannot guarantee that such agreements will continue to be renewed indefinitely. For example, from time to time, our license agreements with certain rights holders and/or their agents may expire while we negotiate their renewals and, per industry custom and practice, we may enter into brief (for example, month-, week-, or even days-long) extensions of those agreements or provisional licenses and/or continue to operate on an at will basis as if the license agreement had been extended, including by our continuing to make music available. During these periods, we may not have assurance of long-term access to such rights holders’ content, which could have a material adverse effect on its business and could lead to potential copyright infringement claims.
It also is possible that such agreements will never be renewed at all. The lack of renewal, or termination, of one or more of our license agreements, or the renewal of a license agreement on less favorable terms, also could have a material adverse effect on its business, financial condition, and results of operations.
Risks Related to the Ownership of Our Common Stock
Conversion of our Series A Preferred Stock will dilute the ownership interest of our existing stockholders, including holders who had previously converted their convertible notes, or may otherwise depress the price of our common stock.
As of December 31, 2023, the shares of our Series A Preferred Stock are convertible into approximately 11.2 million shares of our common stock. The conversion of some or all of the shares of our Series A Preferred Stock into shares of our common stock will dilute the ownership interests of our existing stockholders. In addition, any sales in the public market of the shares of our common stock issuable upon such conversion and/or any anticipated conversion of the Series A Preferred Stock into shares of our common stock could adversely affect prevailing market prices of our common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuance of Unregistered Securities
Other than as set forth below and as reported in our Current Reports on Form 8-K, there have been no other sales or issuances of unregistered securities during the period covered by this Quarterly Report that were not registered under the Securities Act.
During the three months ended December 31, 2023, we issued 688,464 shares of our common stock valued at $0.9 million to employees. We valued these shares at prices between $1.25 and $1.98 per share, the market price of our common stock on the date of issuance.
During the three months ended December 31, 2022, we issued 2,429,859 shares of our common stock valued at $2.6 million to various consultants. We valued these shares at prices between $0.57 and $1.30 per share, the market price of our common stock on the date of issuance.
We believe the offers, sales and issuances of the securities described above were made in reliance on the exemption from registration contained in Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder and involved a transaction by an issuer not involving any public offering. Each of the recipients of securities in any transaction exempt from registration either received or had adequate access, through employment, business or other relationships, to information about us.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
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(d) |
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| Total |
Maximum |
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| number of |
number |
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| shares |
(or approximate |
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| (or units) |
dollar value) of |
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purchased |
shares |
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| Total |
(b) |
as part of |
(or units) |
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| number of |
Average |
publicly |
that may yet |
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| shares |
price paid |
announced |
be purchased |
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| (or units) |
per share |
plans or |
under the plans |
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| Period |
purchased |
(or unit) |
programs |
or programs* |
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| October 1, 2023 – October 31, 2023 |
- | $ | - | 2,195,965 | 1,684,817 shares |
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| November 1, 2023 – November 30, 2023 |
- | $ | - | 2,195,965 | 1,684,817 shares |
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| December 1, 2023 – December 31, 2023 |
91,754 | $ | 1.23 | 2,287,719 | 1,593,063 shares |
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| Total (October 1, 2023 – December 31, 2023) |
91,754 | $ | 1.23 | 2,287,719 | $ 4,000,000 |
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| * |
Does not include a $2.5 million increase to the repurchase program announced by us in September 2023, which is subject to approval of our board of directors. |
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
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Management contract or compensatory plan or arrangement. |
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Filed herewith. |
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Furnished herewith. |
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 thereunto duly authorized.
| LIVEONE INC. |
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| Date: February 12, 2024 |
By: |
/s/ Robert S. Ellin |
| Name: |
Robert S. Ellin |
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| Title: |
Chief Executive Officer and Chairman |
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| (Principal Executive Officer) |
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| Date: February 12, 2024 |
By: |
/s/ Aaron Sullivan |
| Name: |
Aaron Sullivan |
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| Title: |
Chief Financial Officer and Executive Vice President (Principal Financial Officer and Principal Accounting Officer) |
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Exhibit 31.1
CERTIFICATION OF CEO PURSUANT TO RULE 13a-14(a) OR 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Robert S. Ellin, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of LiveOne, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 12, 2024
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/s/ Robert S. Ellin |
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Robert S. Ellin |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CFO PURSUANT TO RULE 13a-14(a) OR 15d-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Aaron Sullivan, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of LiveOne, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 12, 2024
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/s/ Aaron Sullivan |
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Aaron Sullivan |
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Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of LiveOne, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert S. Ellin, as the Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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/s/ Robert S. Ellin |
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Robert S. Ellin |
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Chief Executive Officer |
This Certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Exhibit 32.2
CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of LiveOne, Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Aaron Sullivan, as the Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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/s/ Aaron Sullivan |
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Aaron Sullivan |
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Chief Financial Officer |
This Certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.